10-K405
1
BANK SOUTH CORP. FORM 10-K405
1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from......................to....................
Commission file number 0-4554
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Bank South Corporation
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(Exact name of registrant as specified in its charter)
Georgia 58-1048216
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
55 Marietta Street, Atlanta, Georgia 30303
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (404) 529-4111
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $5.00 Par Value Per Share
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
The aggregate market value of voting stock of the registrant held by
non-affiliates of the registrant as of March 1, 1995, was approximately $1.1
billion based on the closing price on such date of the Common Stock as reported
on the NASDAQ National Market System.
The number of shares of the registrant's $5.00 par value per share common stock
outstanding on March 1, 1995 was 58,477,896.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders of the registrant for the fiscal
year ended December 31, 1994 are incorporated by reference in Parts I, II and
IV of this report. Portions of the Proxy Statement of the registrant, dated
March 20, 1995, are incorporated by reference in Part III of this report.
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BANK SOUTH CORPORATION
INDEX
PAGE NO.
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PART I
Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters 10
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 10
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 10
PART III
Item 10. Directors and Executive Officers of the Registrant 11
Item 11. Executive Compensation 11
Item 12. Security Ownership of Certain Beneficial Owners and Management 11
Item 13. Certain Relationships and Related Transactions 11
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 11
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PART I
ITEM 1. BUSINESS
Bank South Corporation (the "Registrant") is a bank holding company
headquartered in Atlanta, Georgia, whose subsidiaries are engaged in bank and
bank-related activities. Except for the sale of commercial paper by the
Registrant, the proceeds of which are used primarily by the Registrant's
subsidiaries in their respective businesses, all of the business of the
Registrant is presently conducted by its subsidiaries, primarily Bank South,
N.A. ("BSNA" or the "Bank"). On December 2, 1993, the Registrant acquired
Barnett Bank of Atlanta and Barnett Bank of Fayette County from Barnett Banks,
Inc. and sold to Barnett Banks, Inc. its Pensacola, Florida subsidiary, the
Citizens and Peoples National Bank of Pensacola ("C&P"). On March 11, 1994 and
March 15, 1994, the Registrant acquired Merchant Bank Corporation and
Chattahoochee Bancorp, Inc., respectively. On July 22, 1994, the Registrant
acquired Citizens Express Company. (See Note 2 to the financial statements of
the Registrant on page 58 of the Registrant's 1994 Annual Report to
Shareholders, which is incorporated herein by reference.) On February 17,
1995, the Registrant acquired Gwinnett Bancshares, Inc. (See Note 20 to the
financial statements of the Registrant on page 78 of the Registrant's 1994
Annual Report to Shareholders, which is incorporated herein by reference.)
Corporate Banking Group
The Bank provides a full range of financial products and services to
primarily middle market corporate customers, located in Georgia, the Southeast
and selected large companies with sales exceeding $250 million. Commercial
lending operations include accounts receivable and inventory financing,
acceptance financing, and other specialized types of credit and lease
financing. The Bank also provides treasury management and wire transfer
services as well as a range of trust services and products.
Retail Banking Group
The Bank provides such customary banking services as checking, NOW,
money market, savings and time deposit accounts, installment and line of credit
financing, bank credit card services, mortgage loans, personal trust services,
mutual funds, and safe deposit facilities. The retail delivery system includes
50 InStore offices, including 41 in metro Atlanta that are open seven days a
week , primarily inside Kroger supermarket stores. The Registrant has 290
automated teller or cash dispensing machines (ATMs). This diverse network is
also complemented by 96 traditional banking offices.
Correspondent Relationships
At December 31, 1994, the Bank had correspondent relationships with 134
other banks in Georgia and 31 commercial banks in other states and two
countries. These correspondent relationships facilitate the transaction of
business by means of loans, letters of credit, acceptances, foreign exchange,
collections and various services.
Capital Markets Group
The Registrant's Capital Markets Group is a dealer and underwriter in
government and agency securities, municipal bonds and mortgage-backed
securities. Various of these activities are performed for the Registrant's own
account and for its customers by the Registrant's subsidiary, Bank South
Securities Corporation ("BSSC"). BSSC provides investment banking services to
Georgia municipalities in the area of public finance, and otherwise conducts
certain investment advisory and other investment banking services pursuant to
the Bank Holding Company Act of 1956, as amended (the "BHC Act"), and Section
20 of the Glass-Steagall Act.
Other Non-Banking Subsidiaries
Bank South Mortgage, Inc. ("BSMI") is engaged in the origination and
servicing of mortgage loans and acts as an agent in selling such loans to
permanent mortgage lenders. During 1994, BSMI originated $298.8 million and
sold $281.8 million in mortgage loans. At December 31, 1994, BSMI serviced
$1.2 billion in mortgage loans. Bank South Home Equity, Inc. makes loans
secured by second mortgages on real estate. Bank South Leasing, Inc. operates
a general leasing business which purchases machinery, equipment, and other
personal property and leases them to others. Bank South Life Insurance
Corporation reinsures credit life insurance on loans that are originated by
BSNA. Bank South Investment Services, Inc., a registered broker-dealer, offers
full service brokerage and investment advisory services.
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ITEM 1. BUSINESS (CONTINUED)
Employees
On March 1, 1995, the Registrant and its subsidiaries had approximately
3,380 full-time employees and 253 part-time employees. The Registrant is not a
party to any collective bargaining agreement and employee relations are deemed
satisfactory.
Competition
The banking business is highly competitive. The Bank competes with
other financial service organizations, including savings and loan associations,
finance companies, insurance companies, credit unions, and certain governmental
agencies. To the extent that banks must maintain non-interest earning reserves
against deposits, they may be at a competitive disadvantage when compared with
other financial service organizations that are not required to maintain
reserves against substantially equivalent sources of funds. Further,
deregulation of banks, savings and loan associations and other financial
institutions, and the increased competition from investment bankers and brokers
and other financial service organizations, may have a significant impact on the
competitive environment in which the Registrant operates.
Supervision and Regulation
Bank holding companies and banks are extensively regulated under both
federal and state law. The following is a brief summary of certain statutes,
rules, and regulations affecting the Registrant and its subsidiaries. This
summary is qualified in its entirety by reference to the particular statutory
and regulatory provision referred to below and is not intended to be an
exhaustive description of the statutes or regulations applicable to the
Registrant's business. Supervision, regulation and examination of the
Registrant and the Bank by the bank regulatory agencies are intended primarily
for the protection of depositors rather than holders of stock of the
Registrant.
Holding Company Regulation Generally - The Registrant is a registered
bank holding company subject to regulation by the Board of Governors of the
Federal Reserve System (the "Federal Reserve") under the Bank Holding Company
Act of 1956, as amended (the "BHC Act"). The Registrant is required to file
financial information with the Federal Reserve periodically and is subject to
periodic examinations by the Federal Reserve. The BHC Act requires Federal
Reserve approval of bank acquisitions, restricts the acquisition of shares of
out-of-state banks, and prohibits a bank holding company from engaging in any
business other than banking or bank- related activities. On April 29, 1993 the
formal agreement the Registrant entered into with the Federal Reserve (the
"Federal Reserve Agreement") was terminated. Under this agreement, originally
entered into on April 3, 1992, the Registrant agreed, among other things, to
develop a capital plan, maintain minimum capital ratios prescribed by the
Federal Reserve and obtain prior approval for declaration and payment of
dividends.
The Registrant must also register as a bank holding company with the
Georgia Department of Banking and Finance (the "DBF") and file periodic
information with the DBF as necessary to keep the DBF informed as to whether
the provisions of Georgia law and the regulations and orders issued thereunder
by the DBF have been complied with. The DBF may make examinations of the
Registrant and its banking subsidiaries. In addition, the DBF expects bank
holding companies to maintain minimum levels of consolidated total and adjusted
capital (generally 5% of total assets, as adjusted).
Bank Regulation Generally - The Bank is a national banking association
subject to supervision, regulation and examination by the Office of the
Comptroller of the Currency (the "OCC"), which monitors all areas of the
operations of the Bank, including reserves, loans, mortgages, issuances of
securities, payment of dividends, establishment of branches, and capital.
The Bank is a member of the Bank Insurance Fund of the Federal Deposit
Insurance Corporation ("FDIC") and, as such, deposits in the Bank are insured
by the FDIC to the extent provided by law. In addition, the Bank is a member
of the Federal Reserve System and, as such, is subject to the regulation of the
Federal Reserve.
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ITEM 1. BUSINESS (CONTINUED)
The Bank is also subject to the provisions of the Community Reinvestment
Act of 1977 ("CRA"), which requires the appropriate federal bank regulatory
agency, in connection with its regular examination of a bank, to assess the
bank's record in meeting the credit needs of the community serviced by the
bank, including low and moderate income neighborhoods.
Payment of Dividends - The Registrant is a legal entity separate and
distinct from its banking and other subsidiaries. The prior approval of the
OCC is required if the total of all dividends declared by a national bank in
any calendar year will exceed the sum of such bank's net profits for the year
and its retained net profits for the preceding two calendar years, less any
required transfers to surplus. Federal law also prohibits any national bank
from paying dividends that would be greater than such bank's undivided profits
after deducting statutory bad debt in excess of such bank's allowance for loan
losses. During 1994, the Bank paid dividends of $28.4 million to the
Registrant.
In addition, both the Registrant and the Bank are subject to various
general regulatory policies and requirements relating to the payment of
dividends, including requirements to maintain adequate capital above regulatory
minimums. The appropriate federal regulatory authority is authorized to
determine under certain circumstances relating to the financial condition of a
national bank or bank holding company that the payment of dividends would be an
unsafe or unsound practice and to prohibit payment thereof. The OCC has
indicated that paying dividends that deplete a national bank's capital base to
an inadequate level would be an unsound and unsafe banking practice. The OCC
and the Federal Reserve have each indicated that banking organizations should
generally pay dividends only out of current operating earnings.
Borrowings - There are various legal restrictions on the extent to which
the Registrant and its non-bank subsidiaries can borrow or otherwise obtain
credit from the Bank. In general, these restrictions require that any such
extensions of credit must be secured by designated amounts of specified
collateral and are limited, as to the Registrant and all such non-bank
subsidiaries, to 10 percent (and 20 percent for all such extensions of credit
in the aggregate) of such lending Bank's capital stock and surplus.
Capital - The Federal Reserve's and OCC's risk-based capital guidelines
for bank holding companies require a minimum ratio of capital to risk-weighted
assets (including certain off-balance-sheet activities, such as standby letters
of credit) of eight percent. At least half of the total capital must consist
of common equity, retained earnings and a limited amount of qualifying
preferred stock, less goodwill ("tier 1 capital"). The remainder may consist
of subordinated debt, non-qualifying preferred stock and a limited amount of
any loan loss allowance ("tier 2 capital" and, together with tier 1 capital,
"total capital").
In addition, the Federal Reserve's and OCC's minimum leverage ratio
guidelines for bank holding companies and national banks, respectively, require
a minimum leverage ratio of tier 1 capital to adjusted average quarterly
assets ("leverage ratio") equal to three percent, plus an additional cushion of
100 to 200 basis points (i.e., one to two percent) if the institution has less
than the highest regulatory rating. The guidelines also provide that
institutions experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the Federal Reserve's guidelines indicate that the Federal Reserve
will continue to consider a "tangible tier 1 leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activity. The
Federal Reserve and OCC have not advised the Registrant or the Bank of any
specific minimum leverage ratio or tangible tier 1 leverage ratio applicable to
them.
As of December 31, 1994, the capital ratios of the Registrant and the Bank were
as follows:
Regulatory
Minimum Registrant BSNA
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Tier 1 capital ratio 4.0% 10.72% 9.87%
Total capital ratio 8.0 12.44 11.13
Leverage ratio 3.0 - 5.0 8.07 7.57
Bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations, including a proposal to add
an interest-rate-risk component to risk-based capital requirements.
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ITEM 1. BUSINESS (CONTINUED)
Certain Liabilities - The Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA"), among other things, imposes liability on an
institution, the deposits of which are insured by the FDIC, for certain
potential obligations to the FDIC incurred in connection with other
FDIC-insured institutions under common control with such institution.
Under the National Bank Act, if the capital stock of a national bank is
impaired by losses or otherwise, the OCC is authorized to require payment of
the deficiency by assessment upon the bank's stockholders, pro rata and, to the
extent necessary, if any such assessment is not paid by any stockholder after
three months notice, to sell the stock of such stockholder to make good the
deficiency. Under Federal Reserve policy, the Registrant is expected to act as
a source of financial strength to each of its subsidiary banks and to commit
resources to support each of such subsidiaries. This support may be required
at times when, absent such Federal Reserve policy, the Registrant may not find
itself able to provide it.
Any capital loans by the Registrant to the Bank is subordinate in right
of payment to deposits and to certain other indebtedness of the Bank. In the
event of the Registrant's bankruptcy, any commitment by it to a federal bank
regulatory agency to maintain the capital of a banking subsidiary will be
assumed by the bankruptcy trustee and entitled to a priority of payment.
FDICIA - In December 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") was enacted, which substantially revises the
bank regulatory and funding provisions of the Federal Deposit Insurance Act and
makes revisions to several other federal banking statutes.
Among other things, FDICIA requires the Federal banking agencies to take
"prompt corrective action" in respect of depository institutions that do not
meet minimum capital requirements. FDICIA establishes five capital tiers:
"well capitalized;" "adequately capitalized;" "undercapitalized;"
"significantly undercapitalized;" and "critically undercapitalized." A
depository institution's capital tier will depend upon how its capital levels
compare to various relevant capital measures and certain other factors, as
established by regulation.
The OCC has adopted regulations establishing relevant capital measures
and relevant capital levels. The relevant capital measures are the total
capital ratio, tier 1 capital ratio and the leverage ratio. Under the
regulations, a national bank will be (i) well capitalized if it has a total
capital ratio of ten percent or greater, a tier 1 capital ratio of six percent
or greater, and a leverage ratio of five percent or greater and is not subject
to any order or written directive by the OCC to meet and maintain a specific
capital level for any capital measure, (ii) adequately capitalized if it has a
total capital ratio of eight percent or greater, a tier 1 capital ratio of four
percent or greater, and a leverage ratio of four percent or greater (three
percent in certain circumstances) and is not well capitalized, (iii)
undercapitalized if it has a total capital ratio of less than eight percent, a
tier 1 capital ratio of less than four percent, or a leverage ratio of less
than four percent (three percent in certain circumstances), or (v) critically
undercapitalized if its tangible equity is equal to or less than two percent of
average quarterly tangible assets. As of December 31, 1994, the Bank had
capital levels that qualify it as being well capitalized under such
regulations.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
growth limitations and are required to submit a capital restoration plan for
approval. For a capital restoration plan to be acceptable the depository
institution's parent holding company must guarantee that the institution will
comply with such capital restoration plan. The aggregate liability of the
parent holding company is limited to the lesser of five percent of the
depository institution's total assets at the time it became undercapitalized
and the amount necessary to bring the institution into compliance with
applicable capital standards. If the controlling bank holding company fails to
fulfill its obligations under FDICIA and files (or has filed against it) a
petition under the federal Bankruptcy Code, the claim would be entitled to a
priority in such bankruptcy proceeding over third party creditors of the bank
holding company. Because the Registrant and the Bank exceed applicable
capital requirements, management of the Registrant does not believe that these
provisions of FDICIA will have any material impact on the Registrant or the
Bank or their respective operations. If a depository institution fails to
submit an acceptable plan, it is treated as if it is significantly
undercapitalized.
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ITEM 1. BUSINESS (CONTINUED)
Significantly undercapitalized depository institutions may be subject to
a number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets, and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized institutions are subject to the appointment of a
receiver or conservator.
FDICIA directs that each federal banking agency prescribe standards for
depository institutions and depository institution holding companies relating
to internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, a maximum ratio of classified assets to capital, minimum earnings
sufficient to absorb losses, a minimum ratio of market value to book value for
publicly traded shares and such other standards as the agency deems
appropriate. These standards have not and are not expected to have any
material affect on the Registrant.
FDICIA also contains a variety of other provisions that may affect the
operations of the Registrant, including new reporting requirements, regulatory
standards for real estate lending, "truth in savings" provisions, the
requirement that a depository institution give 90 days' prior notice to
customers and regulatory authorities before closing any branch, and a
prohibition on the acceptance or renewal of brokered deposits by depository
institutions that are not well capitalized or are adequately capitalized and
have not received a waiver from the FDIC. Under regulations relating to the
brokered deposit prohibition, the Bank is well capitalized and not subject to
the prohibition.
FDIC Insurance Assessments - The Bank is subject to FDIC deposit
insurance assessments. In September 1992, the FDIC adopted a new risk-based
premium schedule which increased the assessment rates for depository
institutions. Under the new schedule, which took effect for the assessment
period that began January 1, 1993, the premiums initially range from $.23 to
$.31 for every $100 of deposits. Each financial institution is assigned to one
of three capital groups--well capitalized, adequately capitalized or
undercapitalized--and further assigned to one of three subgroups within a
capital group, on the basis of supervisory evaluations by the institution's
primary federal and, if applicable, state regulators and other information
relevant to the institution's financial condition and the risk posed to the
applicable insurance fund. The actual assessment rate applicable to a
particular institution will, therefore, depend in part upon the risk assessment
classification so assigned to the institution by the FDIC. In 1993, the Bank
paid $9.5 million in FDIC deposit insurance premiums. For the year of 1994,
the Bank and paid FDIC deposit insurance premiums of $9.4 million. The total
premium assessment for 1995 is not presently determinable, as it will be based
on the level of deposits at June 30, 1995 and the FDIC's risk classification of
the Bank for the assessment period July 1 to December 31, 1995. The rate at
which the Bank will be assessed has declined from .23 cents in 1994 to .04
cents for the twelve months of 1995.
Monetary Policy
The results of operations of the Bank, and therefore of the Registrant,
are affected by credit policies of monetary authorities, particularly the
Federal Reserve. The instruments of monetary policy employed by the Federal
Reserve include open market operations in U.S. Government securities, changes
in the discount rate on bank borrowings, and changes in reserve requirements
against bank deposits. In view of changing conditions in the national economy
and in the money markets, as well as the effect of action by monetary and
fiscal authorities, including the Federal Reserve, no prediction can be made as
to possible future changes in interest rates, deposit levels, loan demand, or
the business and earnings of the Registrant or the Bank.
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ITEM 1. BUSINESS (CONTINUED)
Executive Officers of the Registrant
The names, ages and positions of the executive officers, including the
Chief Accounting Officer, of the Registrant as of March 1, 1995 are shown
below. Officers are elected annually by the Board of Directors and hold office
for one year or until their successors are chosen and qualified. There are no
family relationships between any of them, nor (other than the employment
agreements between the Registrant and Messrs. Flinn, McKinley, Hutchins and
Sessions, copies of such employment agreements are attached as exhibits to this
Report) is there any arrangement or understanding between any officer and any
other person pursuant to which the officer was selected. Offices are with the
Registrant unless otherwise indicated.
Barry Anderson, 43 John E. McKinley, 51 *
General Manager, Human Resources Principal Operating Officer,
Corporate Banking and Credit Policy
Bernard Baum, 45 Lee M. Sessions, Jr., 48*
Chief Information Officer Principal Operating Officer, Retail and Trust
Banking
George M. Boltwood, 45 David E. Tatum, 45
Head of Corporate Banking Community Banking Executive
Patrick L. Flinn, 53 * John E. Thacker, 50
Chairman and Capital Markets Group Executive
Chief Executive Officer
Ralph E. Hutchins, Jr., 51 * Ray K. Williams, 48
Chief Financial Officer Corporation Credit Officer
J. Brent Lee, 41 J. Blake Young, Jr., 51
Comptroller and Corporate Treasurer The Wealth Management Group
(Chief Accounting Officer)
* Also a member of the Policy Committee, a senior management group
selected by the Chief Executive Officer, which makes general policy
decisions for the Registrant.
Mr. Anderson joined the Registrant as General Manager, Human Resources in July
1993. Mr. Anderson's career includes over 20 years of experience in
international Human Resources. Mr. Anderson worked for several large
corporations with the majority of his time at Lanier Worldwide, Inc.
Mr. Baum joined the Registrant as Chief Information Officer in January 1995.
Mr. Baum's experience includes various responsibilities over his 17 year career
at Citicorp where he most recently headed Global Technology Resources for
Global Finance as Vice President and Executive Director.
Mr. Boltwood joined the Registrant as Head of Corporate Banking in November
1991. Mr. Boltwood's former experience includes various responsibilities at
Citizens and Southern Corporation and Citizens and Southern National Bank of
Georgia ("C&S") for 18 years, primarily in the Corporate Banking area.
Mr. Flinn is a director and Chief Executive Officer of the Registrant and the
Bank since joining the Company on August 1, 1991. Mr. Flinn was named
Chairman of the Board in January 1992. Prior to joining the Registrant, Mr.
Flinn was Group Executive Vice President of Real Estate and Mortgage Banking at
C&S/Sovran Corporation, which became part of NationsBank Corporation in
December 1991. He had been at C&S/Sovran and predecessors since joining its
management training program in 1966.
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ITEM 1. BUSINESS (CONTINUED)
Mr. Hutchins joined the Registrant as Chief Financial Officer in 1980,
following 13 years with the Office of the Comptroller of the Currency. Mr.
Hutchins held several executive positions with the Office of the Comptroller of
the Currency including Regional Director for Corporate Activities, Regional
Director for Operation Planning and Regional Director for Special Surveillance.
Mr. Lee joined the Registrant in 1981 as Assistant Comptroller in charge of
Budgeting, Cost Accounting, Financial Analysis and Accounting Systems, and
subsequently held positions as Director of Corporate Planning, Investor
Relations and Regulatory Affairs and as Corporate Treasurer. Previous
experience includes four years as a Field Examiner with the Office of the
Comptroller of the Currency.
Mr. McKinley, a director since 1993, has been in charge of Credit Policy and
Corporate Banking since joining the Registrant and the Bank on August 1, 1991.
Prior to joining the Registrant, Mr. McKinley was Group Executive Vice
President and Chief Credit Officer, Corporate Banking, at C&S/Sovran
Corporation, which became part of NationsBank Corporation in December 1991.
He had been at C&S/Sovran and predecessors since 1969.
Mr. Sessions joined the Registrant as Principal Operating Officer-Retail and
Trust Bank in September 1991 following a 23 year banking career which has
included responsibilities for private banking, sales finance, consumer credit,
commercial lending, government relations, corporate planning and community
reinvestment. Prior to joining the Registrant Mr. Sessions worked for
C&S/Sovran Corporation, which became part of NationsBank Corporation in
December 1991, where he had been head of C&S's Atlanta bank since 1988. Mr.
Sessions had been at C&S since joining its management training program in 1968.
Mr. Tatum joined the Registrant in March 1994 as Community Banking Executive.
Mr. Tatum's experience includes various responsibilities over fifteen years at
NationsBank Corporation and nine years at the Federal Reserve Bank of Atlanta.
Mr. Thacker is the Capital Markets Group Executive for the Registrant, having
been employed by the Registrant since 1962. He has held various positions over
the past 33 years primarily in the Portfolio, Funds Management, Trust,
Investments, and bank operations areas.
Mr. Williams joined the Registrant in September 1991 as Corporation Credit
Officer. His former experience includes 21 years at C&S/Sovran Corporation and
its predecessors, primarily in Credit and Commercial Lending. Mr. Williams has
had 25 years of banking experience.
Mr. Young is currently head of The Wealth Management Group for the Registrant.
He joined the Registrant in 1980 and has held various positions primarily in
the Corporate Banking area. His former experience was with National Bank of
Georgia where he had 15 years of experience primarily in Commercial Lending and
Branch Management. Mr. Young has had 29 years of banking experience.
ITEM 2. PROPERTIES
As of December 31, 1994, the principal properties of the Registrant are
those of the Bank and its subsidiaries. BSNA leases its main office
facilities, located in a 21-story building at 55 Marietta Street, Atlanta,
Georgia under two leases which expire in March 2003 and May 2003 (including
options). BSNA has two options to extend the lease for 25 and 27 years,
respectively. The building contains 457,000 square feet of useable floor space
of which approximately 67 percent is leased and occupied by BSNA. The offices
of the Registrant are also located in this building in space subleased from
BSNA. BSNA owns the land on which the building is located. BSNA leases its
operations facilities, located in a 4-story building at 1075 Inner Loop Road,
College Park, Georgia under a lease which expires in August 2006. BSNA has
four options to extend the lease for 5-year terms. The building contains
126,000 square feet of useable floor space of which 100 percent is leased and
occupied by BSNA. Of the 154 other banking facilities presently operated by the
Registrant, the majority of the land and buildings of the branches are leased.
These facilities are adequate for present operations. The Bank also owns other
real estate which is being held for possible development of additional
branches. Certain of the properties used by the Registrant's subsidiaries in
the conduct of normal business are subject to encumbrances. See Note 7 to the
financial statements of the Registrant on page 62 of the Registrant's 1994
Annual Report to Shareholders, which is incorporated herein by reference.
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ITEM 3. LEGAL PROCEEDINGS
Neither the Registrant nor any of its subsidiaries is a party to, nor is
any of their property the subject of, any material pending legal proceedings,
other than ordinary routine proceedings incidental to the business of the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the Registrant's
fiscal year ended December 31, 1994 to shareholders, through the solicitation
of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Registrant's common stock is traded on the over-the-counter market
and quotations are supplied by the National Association of Securities Dealers
Automated Quotations System ("NASDAQ") - National Market List under the symbol
"BKSO." As of March 1, 1995, there were 9,813 holders of record of common
stock.
Information on the range of market prices for, and the dividends
declared on, the Registrant's common stock for each of the last two fiscal
years is contained under the caption "Selected Quarterly Data" on page 50 of
the Registrant's 1994 Annual Report to Shareholders, and is incorporated herein
by reference. A discussion of the limitations on the Registrant and its
subsidiaries' ability to pay dividends is contained in Note 13 of the
Registrant's 1994 Annual Report to Shareholders and "Notes to Consolidated
Financial Statements" on page 66 which is incorporated herein by reference.
See, also, the discussion in Part I, Item 1 of this Report under the caption
"Business-Supervision and Regulation - Payment of Dividends."
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for each of the six years in the period ended
December 31, 1994, is included under the caption "Selected Financial Data" on
pages 26 and 27 of the Registrant's 1994 Annual Report to Shareholders, and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations appears under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on pages 24 through 50 of the
Registrant's 1994 Annual Report to Shareholders, and is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors on page 51, the financial statements
on pages 52 through 78 and Selected Quarterly Data on page 50 of the
Registrant's 1994 Annual Report to Shareholders are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
10
11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age and background information for each of the Registrant's
directors whose term will continue after the 1995 Annual Meeting is contained
under the caption "Information About Nominees For Director" in the Registrant's
Proxy Statement for its 1995 Annual Meeting of Shareholders (pages 3-5) and is
incorporated herein by reference. Pursuant to instruction 3 to paragraph (b)
of Item 401 of Regulation S-K, information relating to the executive officers
of the Registrant is included in Part I, Item 1 of this Report. Information
about compliance with Section 16 of the Securities Exchange Act of 1934 by the
directors and executive officers of the Registrant is contained under the
caption "Section 16(a) Reporting" in the Registrant's Proxy Statement for its
1995 Annual Meeting of Shareholders (page 22) and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information on compensation of the Registrant's executive officers and
directors is contained in the Registrant's Proxy Statement for its 1995 Annual
Meeting of Shareholders (pages 5 - 17) under the captions "Compensation of
Executive Officers and Directors" and "Compensation Committee Interlocks and
Insider Participation" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information on the number of shares of the Registrant's common stock
beneficially owned by certain persons is contained under the captions "Voting
Securities and Principal Holders" and "Information About Nominees for Director"
in the Registrant's Proxy Statement for its 1995 Annual Meeting of Shareholders
(pages 2 - 3 and 3 - 5, respectively) and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information on certain relationships and related transactions involving
the Registrant and its management is contained under the captions "Compensation
Committee Interlocks and Insider Participation" and "Certain Transactions" in
the Registrant's Proxy Statement for its 1995 Annual Meeting of Shareholders
(pages 17 - 18) and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements and notes thereto required on Form 10-K
are included in the financial statements and notes thereto
contained in the Registrant's 1994 Annual Report to Shareholders,
which are incorporated by reference in Part II, Item 8 of this
Report and include:
Report of Independent Auditors
Consolidated Balance Sheets - December 31, 1994 and 1993
Consolidated Statements of Income - Years Ended December 31,
1994, 1993 and 1992
Consolidated Statements of Cash Flows - Years Ended December 31,
1994, 1993 and 1992
Consolidated Statements of Changes in Shareholders' Equity -
Years Ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements - December 31, 1994
11
12
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(continued)
2. Financial Statement Schedules
Not Applicable. Schedules to the consolidated financial statements
under Article 9 of Regulation S-X are not required and therefore
have been omitted.
3. Exhibits
The exhibits filed as part of this Registration Statement are as
follows:
Exhibit
Number Description
------ ------------------------------------------------------------
3(a) Amended and Restated Articles of Incorporation (included as
Exhibit 4(a) to the Registrant's Form S-8 No. 33-57791,
previously filed with the Commission and incorporated herein
by reference).
3(b) Amended and Restated By-laws (included as Exhibit 4(b) to
the Registrant's Form S-8 No. 33- 57791, previously filed
with the Commission and incorporated herein by reference.)
4 Bank South Corporation Rights Agreement (included as Exhibit
1 to the Form 8 Amendment to the Form 8-A filed with the
Commission on April 8, 1988 (File No. 0-4554) and
incorporated herein by reference).
10(a) Supplemental Executive Retirement Agreement for Ralph E.
Hutchins, Jr., and Supplemental Executive Retirement
Agreements for Patrick L. Flinn, John E. McKinley, Lee M.
Sessions, Jr. and James A. Dewberry (included as Exhibit
10(a) to the Registrant's Form 10-K for the fiscal year
ended December 31, 1991, previously filed with the
Commission and incorporated herein by reference).
10(b) Employment Agreements with Patrick L. Flinn, John E.
McKinley and Lee M. Sessions, Jr. (included as Exhibit
10(b) to the Registrant's Form 10-K for the fiscal year
ended December 31, 1991, previously filed with the
Commission and incorporated herein by reference).
10(c) Employment Agreement with Ralph E. Hutchins, Jr.
10(d) Directors' Deferred Compensation Plan (included as Exhibit
10(c) to the Registrant's Form 10-K for the fiscal year
ended December 31, 1988, previously filed with the
Commission and incorporated herein by reference).
10(e) Key Employee Stock Option Plan, as amended (included as
Exhibit 10(d) to the Registrant's Form 10-K for the fiscal
year ended December 31, 1991, previously filed with the
Commission and incorporated herein by reference).
12
13
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(continued)
Exhibit
Number Description
------ ------------------------------------------
10(f) 1993 Equity Incentive Plan (included as Exhibit 10(e) to the
Registrant's Form 10-K for the fiscal year ended December
31, 1992, previously filed with the Commission and
incorporated herein by reference).
10(g) 1994 Stock Option Plan for Outside Directors.
10(h) Change in Control Agreements with Patrick L. Flinn, John E.
McKinley, Lee M. Sessions, Jr. and James A. Dewberry
(included as Exhibit 10(f) to the Registrant's Form 10-K for
the fiscal year ended December 31, 1991, previously filed
with the Commission and incorporated herein by reference).
Form of Change in Control Agreements with Barry R. Anderson,
Bernard Baum, George M. Boltwood, J. Brent Lee, David E.
Tatum, John E. Thacker, Ray K. Williams and J. Blake Young
Jr. Change in Control Agreement with Ralph E. Hutchins, Jr.
10(i) Agreement between the Registrant and the Federal Reserve
Bank of Atlanta, dated April 3, 1992 (included as Exhibit 28
to the Registrant's Form 10-Q for the quarter ended March
31, 1992, previously filed with the Commission and
incorporated herein by reference).
10(j) Management Employees Salary Deferral Plan (included as
Exhibit 10(h) to the Registrant's Form 10-K for the fiscal
year ended December 31, 1991, previously filed with the
Commission and incorporated herein by reference).
11 Statement Re Computation of Per Share Earnings.
13 Bank South Corporation Annual Report to Shareholders for the
fiscal year ended December 31, 1994. With the exception of
information expressly incorporated herein, the 1994 Annual
Report to Shareholders is not deemed to be filed as part of
this Annual Report on Form 10-K.
21 Subsidiaries of the Company.
23 Consent of Independent Auditors - Ernst & Young LLP.
27 Financial Data Schedules. (for SEC use only)
99 Bank South Corporation Proxy Statement for the 1995 Annual
Meeting of Shareholders.
(b) Reports on Form 8-K filed the quarter ended December 31, 1994 - None
(c) Exhibits - The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial Statement Schedules - None
13
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 30, 1995
--------------------------
Bank South Corporation
-------------------------------
Registrant
By: /s/ Ralph E. Hutchins, Jr.
-------------------------------
Ralph E. Hutchins, Jr.
Chief Financial Officer
14
15
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears below
constitutes and appoints Patrick L. Flinn and Ralph E. Hutchins, Jr., or either
of them, his attorney-in-fact, each with power of substitution, for him in any
and all capacities, to sign any amendments to this Report on Form 10-K, and to
file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby satisfying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Patrick L. Flinn 3/28/95 /s/ S.E. Jennette, Jr. 3/9/95
------------------------------------------ --------------------------------------------------
Patrick L. Flinn Date S.E. Jennette, Jr. Date
Chairman and Chief Executive Director
Officer
/s/ Lynn H. Johnston 3/13/95
/s/ Ralph E. Hutchins, Jr. 3/28/95 --------------------------------------------------
------------------------------------------ Lynn H. Johnston Date
Ralph E. Hutchins, Jr. Date Director
Chief Financial Officer
/s/ William M. McClatchey, M.D. 3/10/95
--------------------------------------------------
William M. McClatchey, M.D. Date
/s/ J. Brent Lee 3/28/95 Director
------------------------------------------
J. Brent Lee Date
Comptroller and Corporate Treasurer /s/ Julia W. Morgan 3/6/95
--------------------------------------------------
Julia W. Morgan Date
/s/ John E. McKinley 3/28/95 Director
------------------------------------------
John E. McKinley Date
Principal Operating Officer, Corporate /s/ Barry Phillips 3/6/95
Banking and Credit Policy --------------------------------------------------
Barry Phillips Date
Director
/s/ Bernard W. Abrams 3/7/95
------------------------------------------ /s/ Ben G. Porter 3/9/95
Bernard W. Abrams Date --------------------------------------------------
Director Ben G. Porter Date
Director
/s/ Ray C. Anderson 3/8/95
------------------------------------------ /s/ John W. Robinson, Jr. 3/6/95
Ray C. Anderson Date --------------------------------------------------
Director John W. Robinson, Jr. Date
Director
/s/ Kenneth W. Cannestra 3/9/95
------------------------------------------ /s/ Felker W. Ward, Jr. 3/7/95
Director Date --------------------------------------------------
Felker W. Ward, Jr. Date
Director
/s/ John S. Carr 3/6/95
------------------------------------------ /s/ Virgil R. Williams 3/13/95
John S. Carr Date --------------------------------------------------
Director Virgil R. Williams Date
Director
15
EX-10.(C)
2
EMPLOYMENT AGREEMENT
1
EXHIBIT 10(c)
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into this 2nd day of February, 1995,
by and between BANK SOUTH CORPORATION, a Georgia corporation (the "Corporation")
and RALPH E. HUTCHINS, JR. ("Executive").
W I T N E S S E T H:
WHEREAS, the parties hereto desire to enter into an agreement for
employment of Executive by the Corporation on the terms and conditions
hereinafter stated.
NOW, THEREFORE, for and in consideration of the promises and the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. EMPLOYMENT AND TERM.
(a) Subject to the terms and conditions of this Agreement, the
Corporation hereby employs Executive, and Executive hereby
accepts employment, in the metropolitan Atlanta area as
Chief Financial Officer of the Corporation.
(b) Unless earlier terminated as provided herein, Executive's
employment under this Agreement shall be for a rolling,
three (3) year term (the "Term") commencing on the date
hereof (hereinafter referred to as the "Effective Date) and
shall be deemed to automatically, without further action
by either the Corporation or Executive, extend each day for
an additional day, such that the remaining term of the
Agreement shall continue to be three (3) years; provided,
however, that either party may, by notice to the other,
cause this Agreement to cease to extend automatically and,
upon such notice, the "Term" of this Agreement shall be the
three (3) years following the date of such notice and this
Agreement shall terminate upon the expiration of such Term.
If no such notice has been given and this Agreement is
terminated pursuant to Section 5.1 or Section 5.2 hereof,
for the purposes of calculating any damages payable to
Executive as a result of such termination, the remaining
Term of this Agreement shall be deemed to be three years
from the date of such termination.
2. DUTIES. Executive hereby agrees that during the term of this
Agreement, he will devote his full time, attention,
2
and energies to the diligent performance of his duties as Chief
Financial Officer of the Corporation. Executive shall not,
without the prior written consent of the Corporation, directly
or indirectly, at any time during the term of his employment
hereunder: (a) accept employment with, or render services of a
business, professional or commercial nature to, any Person other
than the Corporation; (b) engage in any venture or activity
which the Corporation may in good faith consider to be
competitive with or adverse to the business of the Corporation
or of any affiliate of the Corporation, whether alone, as a
partner, or as an officer, director, employee or shareholder or
otherwise, except that the ownership of not more than two
percent (2%) of the stock or other equity interest of any
publicly traded corporation or other entity shall not be deemed
a violation of this Section; or (c) engage in any venture or
activity which the Board of Directors of the Corporation may in
good faith consider to interfere with Executive's performance of
his duties hereunder.
3. COMPENSATION. In consideration of Executive's services
hereunder, the Corporation shall pay to Executive the
compensation and benefits described below (which compensation
shall be paid in accordance with the normal compensation
practices of the Corporation and shall be subject to such
deductions and withholdings as are required by law or policies
of the Corporation in effect from time to time, provided that
his salary pursuant to Section 3.1 shall be payable not less
frequently than monthly):
3.1 ANNUAL SALARY. During the term of his employment
hereunder, the Corporation shall pay to Executive a salary at
the rate of Two Hundred Thirty Five Thousand Dollars ($235,000)
per annum. Executive's salary will be reviewed by the Board of
Directors of the Corporation at the beginning of each of its
fiscal years and, in the sole discretion of the Board of
Directors, may be increased for such year.
3.2 INCENTIVE PLANS. The Executive shall be eligible to
participate in all long-term and short-term incentive bonus
plans sponsored by the Corporation for key employees of the
Corporation. Executive's participation in said plans shall be
pursuant to the terms of said plans as then in effect from time
to time.
3.3 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Executive
shall be entitled to participate in a Supplemental Executive
Retirement Plan, a copy of which is attached hereto as Exhibit A.
- 2 -
3
3.4 OTHER BENEFITS.
(a) Executive shall be entitled to participate in
any other employee benefit plans provided by
the Corporation to its employees, including, but
not limited to, the employee stock purchase plan
and the Section 401(k) plan, for so long as the
Corporation provides such benefit plans.
(b) Executive shall be entitled to share in any other
employee benefits generally provided by the
Corporation to its most highly ranking executives
for so long as the Corporation provides such
benefits.
(c) The Corporation shall provide Executive with
a Corporation-paid automobile, reasonable club
dues for one (1) country club and one (1) business
club, personal tax advisory services, and one
complete Executive physical examination annually
during the term of Executive's employment hereunder.
4. OTHER AGREEMENTS.
4.1 RELATIONSHIP OF THE CORPORATION, EXECUTIVE, AND
CUSTOMERS.
(a) Executive acknowledges that, prior to and during
the term of this Agreement, the Corporation has
furnished and will furnish to Executive
Confidential Information which could be used by
Executive on behalf of a competitor of the
Corporation to the Corporation's substantial
detriment. Moreover, the parties recognize that
Executive during the course of his employment with
the Corporation may develop important
relationships with customers and others
having valuable business relationships with the
Corporation. In view of the foregoing, Executive
acknowledges and agrees that the restrictive
covenants contained in this Section are reasonably
necessary to protect the Corporation's legitimate
business interests and good will.
(b) Executive agrees that he shall protect the
Corporation's Confidential Information and shall
not disclose to any Person, or otherwise use,
except in connection with his duties performed in
accordance with this Agreement,
- 3 -
4
any Confidential Information; provided, however,
that Executive may make disclosures required by a
valid order or subpoena issued by a court or
administrative agency of competent jurisdiction,
in which event Executive will promptly notify the
Corporation of such order or subpoena to provide
the Corporation an opportunity to protect its
interests. Executive's obligations under this
Section shall survive any expiration or
termination of this Agreement.
(c) Upon the termination or expiration of his
employment hereunder, Executive agrees to deliver
promptly to the Corporation all files, customer
lists, management reports, memoranda, research,
forms, financial data and reports and other
documents supplied to or created by him in
connection with his employment hereunder (including
all copies of the foregoing) in his possession or
control and all of the Corporation's equipment and
other materials in his possession or control.
Executive's obligations under this Section shall
survive any expiration or termination of this
Agreement.
5. TERMINATION.
5.1 BY CORPORATION. The Corporation shall have the right
to terminate Executive's employment under this Agreement at
any time during the Term (i) for Cause, as defined herein,
(ii) if Executive becomes Disabled, or (iii) upon Executive's
death. If the Corporation terminates Executive's employment
under this Agreement pursuant to clauses (i) through (iii) of
this Section 5.1, the Corporation's obligations under this
Agreement shall cease as of the date of termination, and the
Executive, or his estate, shall be entitled to receive payment
of compensation and benefits pursuant to Section 3 (other than
Section 3.4(c)) through the date of termination. If the
Corporation terminates Executive during the Term of this
Agreement other than pursuant to clauses (i) through (iii) of
this Section 5.1, Executive shall be entitled to receive, as
damages payable as a result of a breach of this Agreement, the
compensation and benefits provided in Section 3 (other than
Section 3.4(c)) for the remaining Term of the Agreement (and
the Executive shall be deemed to be credited with service with
the Corporation for such remaining Term for the purposes of
the Corporation's option and benefit plans).
- 4 -
5
5.2 BY EXECUTIVE. Executive shall have the right to
terminate his employment hereunder if (i) the Corporation
fails to make any payments due to Executive hereunder and such
failure is not remedied within ten (10) days after written
notice of such failure is provided by Executive to the
Corporation; (ii) the Corporation materially breaches this
Agreement and such breach is not cured within thirty (30) days
after written notice of such breach is given by Executive to
the Corporation; or (iii) there is an Involuntary Termination.
If Executive terminates his employment hereunder pursuant to
any of clauses (i) through (iii) of this Section 5.2,
Executive shall be entitled to receive, as damages payable as
a result of a breach of this Agreement, the compensation and
benefits provided in Section 3 (other than Section 3.4(c)) for
the remaining Term of the Agreement (and the Executive shall
be deemed to be credited with service with the Corporation for
such remaining Term for the purposes of the Corporation's
option and benefit plans). If Executive terminates his
employment other than pursuant to clauses (i) through (iii) of
this Section 5.2, the Corporation's obligations under this
Agreement shall cease as of the date of such termination, and
the Executive shall be entitled to receive the compensation
and benefits provided in Section 3 (other than Section 3.4(c))
through the date of such termination.
6. DEFINITIONS. For purposes of this Agreement the following
terms shall have the meanings specified below:
6.1 "BOARD" or "BOARD OF DIRECTORS" - The term "Board" or
"Board of Directors" shall mean the Board of Directors of the
Corporation.
6.2 "CAUSE" - The term "Cause" shall mean either
(i) Any act that constitutes, on the part of the Executive,
(A) fraud, dishonesty, a felony or gross malfeasance of duty and
(B) that directly results in material injury to the Corporation;
(ii) Executive's conduct as the Chief Financial Officer of the
Corporation is grossly inappropriate and demonstrably likely to
lead to material injury to the Corporation, as determined by the
Board reasonably and in good faith; or
(iii) Executive otherwise materially breaches this Agreement;
provided, however, that in the case of (ii) or (iii) above,
such conduct shall not constitute Cause unless the
- 5 -
6
Board shall have delivered to Executive notice setting forth
with specificity (A) the conduct deemed to qualify as Cause,
(B) reasonable action that would remedy such objection, and
(C) a reasonable time (not less than thirty (30) days) within
which Executive may take such remedial action, and Executive
shall not have taken such specified remedial action within
such specified reasonable time.
6.3 "CHANGE IN CONTROL" - The term "Change in Control"
shall mean either
(i) the acquisition, directly or indirectly, by any "person"
(as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) within any twelve
(12) month period of securities of the Corporation representing
an aggregate of twenty-five percent (25%) or more of the
combined voting power of the Corporation's then outstanding
securities; or
(ii) during any period of two (2) consecutive years,
individuals who at the beginning of such period constitute the
Board, cease for any reason to constitute at least a majority
thereof, unless the election of each new director was approved
in advance by a vote of at least a majority of the directors
then still in office who were directors at the beginning of
the period; or
(iii) consummation of (a) a merger, consolidation or other
business combination of the Corporation with any other "person"
(as such term is used in Sections 13 (d) and 14(d) of the
Securities Exchange Act of 1934, as amended) or affiliate
thereof, other than a merger, consolidation or business
combination which would result in the outstanding common stock
of the Corporation immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into common stock of the surviving entity or a
parent or affiliate thereof) at least sixty percent (60%) of
the outstanding common stock of the Corporation or such
surviving entity or parent or an affiliate thereof outstanding
immediately after such merger, consolidation or business
combination, or (b) a plan of complete liquidation of the
Corporation or an agreement for the sale or disposition by the
Corporation of all or substantially all of the Corporation's
assets; or
(iv) the occurrence of any other event or circumstance which
is not covered by (i) through (iii) above which the Board
determines affects control of the Corporation and, in order to
implement the purposes of this Agreement as set forth above,
adopts a resolution that such event or
- 6 -
7
circumstance constitutes a Change in Control for the purposes of
this Agreement.
6.4 "CONFIDENTIAL INFORMATION" - The term "Confidential
Information" shall mean all technical, business, and other
information relating to the business of the Corporation or its
subsidiaries or affiliates, including, without limitation,
technical or nontechnical data, formulae, compilations,
programs, devices, methods, techniques, processes, financial
data, financial plans, product plans, and lists of actual or
potential customers or suppliers, which (i) derives economic
value, actual or potential, from not being generally known to,
and not being readily ascertainable by proper means by, other
Persons, and (ii) is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy or
confidentiality. Such information and compilations of
information shall be contractually subject to protection under
this Agreement whether or not such information constitutes a
trade secret and is separately protectable at law or in equity
as a trade secret. Confidential Information does not include
confidential business information which does not constitute a
trade secret under applicable law two (2) years after any
expiration or termination of this Agreement.
6.5 "DISABILITY" or "DISABLED" - The term "Disability" or
"Disabled" shall mean the Executive's inability, as a result
of physical or mental incapacity, to substantially perform his
duties for the Corporation on a full-time basis for a period
of six (6) months. The determination of whether Executive
suffers a Disability or is Disabled shall be made by a
physician acceptable to both the Executive and the
Corporation.
6.6 "INVOLUNTARY TERMINATION" - The term "Involuntary
Termination" shall mean termination of Executive's employment
by the Executive following a Change in Control which, in the
judgment of the Executive, is due to (i) a change of the
Executive's responsibilities, position (including status,
office, title, reporting relationships or working conditions),
authority or duties (including changes resulting from the
assignment to the Executive of any duties inconsistent with
his positions, duties or responsibilities as in effect
immediately prior to the Change in Control); (ii) a reduction
in the Executive's compensation or benefits; or (iii) a forced
relocation of the Executive outside the Atlanta metropolitan
area or significant increase in the Executive's travel
requirements.
- 7 -
8
6.7 "PERSON" - The term "Person" shall mean any individual,
corporation, bank, partnership, joint venture, association,
joint-stock company, trust, unincorporated organization or other
entity.
7. CONTRACT NON-ASSIGNABLE. The parties acknowledge that this
Agreement has been entered into due to, among other things,
the special skills of Executive, and agree that this Agreement
may not be assigned or transferred by Executive, in whole or
in part, without the prior written consent of the Corporation.
8. OTHER AGENTS. Nothing in this Agreement is to be interpreted
as limiting the Corporation from employing other personnel on
such terms and conditions as may be satisfactory to the
Corporation.
9. NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be in
writing and shall be deemed to have been duly given if
delivered or seven days after mailing if mailed, first class,
certified mail, postage prepaid:
To the Corporation: Bank South Corporation
P.O. Box 5092
Atlanta, Georgia 30302
Attention: Compensation Committee
To Executive: Bank South Corporation
P.O. Box 5092
Atlanta, Georgia 30302
Any party may change the address to which notices, requests,
demands and other communications shall be delivered or mailed
by giving notice thereof to the other party in the same manner
provided herein.
10. PROVISIONS SEVERABLE. If any provision or covenant, or any
part thereof, of this Agreement should be held by any court to
be invalid, illegal or unenforceable, either in whole or in
part, such invalidity, illegality or unenforceability shall
not affect the validity, legality or enforceability of the
remaining provisions or covenants, or any part thereof, of
this Agreement, all of which shall remain in full force and
effect.
11. REMEDIES. Executive acknowledges that if he breaches or
threatens to breach his covenants and agreements in this
Agreement, his actions may cause irreparable harm and damage
to the Corporation which could not be compensated in damages.
Accordingly, if Executive breaches or threatens to breach this
Agreement, the Corporation shall
- 8 -
9
be entitled to injunctive relief, in addition to any other
rights or remedies of the Corporation.
12. WAIVER. Failure of either party to insist, in one or more
instances, on performance by the other in strict accordance
with the terms and conditions of this Agreement shall not be
deemed a waiver or relinquishment of any right granted in this
Agreement or of the future performance of any such term or
condition or of any other term or condition of this Agreement,
unless such waiver is contained in a writing signed by the
party making the waiver.
13. AMENDMENTS AND MODIFICATIONS. This Agreement may be amended
or modified only by a writing signed by both parties hereto.
14. GOVERNING LAW. The validity and effect of this Agreement shall
be governed by and construed and enforced in accordance with
the law of the State of Georgia.
15. ARBITRATION OF DISPUTES; EXPENSES - The parties agree that all
disputes that may arise between them relating to the
interpretation or performance of this Agreement, including
matters relating to any funding arrangements for the benefits
provided under this Agreement, shall be determined by binding
arbitration through an arbitrator approved by the American
Arbitration Association or other arbitrator mutually acceptable
to the parties. The award of the arbitrator shall be final and
binding upon the parties and judgment upon the award rendered
may be entered in any court having jurisdiction. In the event
Executive incurs legal fees and other expenses in seeking to
obtain or to enforce any rights or benefits provided by this
Agreement and is successful, in whole or in part, in obtaining
or enforcing any such rights or benefits through settlement,
arbitration or otherwise, the Corporation shall promptly pay
Executive's reasonable legal fees and expenses incurred in
enforcing this Agreement. Except to the extent provided in the
preceding sentence, each party shall pay its own legal fees and
other expenses associated with the arbitration, provided that
the fee for the arbitrator shall be shared equally.
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10
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
BANK SOUTH CORPORATION
Attest: By: /s/ Patrick L. Flinn
-------------- ---------------------
(SEAL) Patrick L. Flinn
EXECUTIVE
/s/ Ralph E. Hutchins, Jr.
--------------------------
RALPH E. HUTCHINS, JR.
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EX-10.(G)
3
1994 STOCK OPTION PLAN
1
Exhibit 10(g)
BANK SOUTH CORPORATION
1994 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
1. Purpose. The purpose of the Bank South 1994 Stock Option Plan for
Outside Directors (the "Plan") is to advance the interests of Bank South
Corporation (the "Company") by encouraging ownership of the Company's $5.00 par
value common stock (the "Common Stock") by non-employee directors of the
Company, thereby giving such directors an increased incentive to devote their
efforts to the success of the Company.
2. Administration. Grants of options under this Plan are automatic.
This Plan is intended to be a "formula plan" as recognized by Rule
16b-3(c)(2)(ii) promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and shall be interpreted accordingly.
3. Eligibility. Except as provided otherwise in this Paragraph 3,
options under the Plan shall be granted in accordance with Paragraph 5 to each
member of the Company's Board of Directors who is not an employee of the
Company (an "Outside Director"); provided that shares of the Company's Common
Stock remain available for grant hereunder in accordance with Paragraph 4. An
Outside Director to whom an option is granted under the Plan shall be referred
to hereinafter as a "Grantee."
4. Shares Subject to Plan. The shares subject to the Plan shall be
authorized but unissued or reacquired shares of the Company's Common Stock.
Subject to adjustment in accordance with the provisions of Paragraph 6 of the
Plan, the maximum number of shares of Common Stock for which options may be
granted under the Plan shall be 300,000 and the initial adoption of the Plan by
the Board of Directors of the Company shall constitute a reservation of 300,000
authorized but unissued, or reacquired, shares of Common Stock for issuance
only upon the exercise of options granted under the Plan. In the event that
any outstanding option granted under the Plan for any reason expires or is
terminated prior to the end of the period during which options may be granted
under the Plan, the shares of Common Stock allocable to the unexercised portion
of such option may again be subject in whole or in part to any option granted
under the Plan.
5. Terms and Conditions of Options. Options granted pursuant to the
Plan shall be evidenced by Stock Option Agreements in such form as shall comply
with and be subject to the following terms and conditions:
(a) Grant. Each Outside Director who is serving in such capacity
as of the day following the 1994 annual meeting of the Company's shareholders
("Annual Meeting") shall be granted an option to purchase 2,000 shares of the
Company's Common Stock, subject to adjustment as provided in Section 6. As of
the day following each subsequent
2
Annual Meeting, each Outside Director who is serving in such capacity as of
such date shall be granted an option to purchase 2,000 shares of Common Stock,
subject to adjustment pursuant to Section 6. Each such day that options are to
be granted under the Plan is referred to hereinafter as a "Grant Date."
If on any Grant Date, shares of Common Stock are not available under
this Plan to grant to Outside Directors the full amount of a grant contemplated
by the immediately preceding paragraph, then each Outside Director shall
receive an option (a "Reduced Grant") to purchase shares of Common Stock in an
amount equal to the number of shares of Common Stock then available under the
Plan divided by the number of Outside Directors as of the applicable Grant
Date. Fractional shares shall be ignored and not granted.
If a Reduced Grant has been made and, thereafter, during the term of
this Plan, additional shares of Common Stock become available for grant (e.g.,
because of the forfeiture or lapse of an option), then each person who was an
Outside Director both on the Grant Date on which the Reduced Grant was made and
on the date additional shares of Common Stock become available (a "Continuing
Outside Director") shall receive an additional option to purchase shares of
Common Stock. The number of newly available shares shall be divided equally
among the options granted to the Continuing Outside Directors; provided,
however, that the aggregate number of shares of Common Stock subject to a
Continuing Outside Director's additional option plus any prior Reduced Grant to
the Continuing Outside Director on the applicable Grant Date shall not exceed
2,000 shares of Common Stock (subject to adjustment pursuant to paragraph 6).
If more than one Reduced Grant has been made, available options shall be
granted beginning with the earliest such Grant Date.
(b) Option Price. The option price for each option granted under
the Plan shall be the Fair Market Value (as defined below) of the shares of
Common Stock subject to the option on the date of grant of the option. For
purposes of the Plan, the "Fair Market Value" of the shares of Common Stock
shall mean the closing "asked" price of the shares in the over-the-counter
market on the day on which such value is to be determined or, if such "asked"
price is not available, the last sales price on such day or, if no shares were
traded on such day, on the next preceding day on which the shares were traded,
as reported by the National Association of Securities Dealers Automatic
Quotation System (NASDAQ) or other national quotation service. If the shares
are listed on a national securities exchange, "Fair Market Value" means the
closing price of the shares on such national securities exchange on the day on
which such value is to be determined or, if no shares were traded on such day,
on the next preceding day on which shares were traded, as reported by National
Quotation Bureau, Inc. or other national quotation service.
(c) Medium and Time of Payment. The option price shall be payable
in full upon the exercise of an option in cash or by check. To the extent
permitted under Regulation T of the Federal Reserve Board, and subject to
applicable securities laws,
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3
options may be exercised through a broker in a so-called "cashless exercise"
whereby the broker sells the option shares and delivers cash sales proceeds to
the Company in payment of the exercise price. However, to avoid short-swing
profit liability under Section 16(b) of the Exchange Act, the Grantee should
not engage in a cashless exercise within six months of the date of grant. In
no event may shares of Common Stock be used as payment of the exercise price of
the option.
(d) Term. Each option granted under the Plan shall, to the extent not
previously exercised, terminate and expire on the date five (5) years after the
date of grant of the option, unless earlier terminated as provided hereinafter
in Section 5(g).
(e) Exercisability. Each option granted under this Plan shall be
immediately exercisable, in whole or in part. However, to avoid short-swing
profit liability under Section 16(b) of the Exchange Act, the Grantee should
wait at least six (6) months from the date of grant of the option before
selling the underlying shares.
(f) Method of Exercise. All options granted under the Plan shall be
exercised by an irrevocable written notice directed to the Secretary of the
Company at the Company's principal place of business. Except in the case of a
"cashless exercise" through a broker, such written notice shall be accompanied
by payment in full of the option price for the shares for which such option is
being exercised. In the case of a "cashless exercise," payment in full of the
option price for the shares for which such option is being exercised shall be
paid in cash by the broker from the sale proceeds. The Company shall make
delivery of certificates representing the shares for which an option has been
exercised within a reasonable period of time; provided, however, that if any
law, regulation or agreement requires the Company to take any action with
respect to the shares for which an option has been exercised before the
issuance thereof, then the date of delivery of such shares shall be extended
for the period necessary to take such action. Certificates representing shares
for which options are exercised under the Plan may bear such restrictive
legends as may be necessary or desirable in order to comply with applicable
federal and state securities laws. Nothing contained in the Plan shall be
construed to require the Company to register any shares of Common Stock
underlying options granted under this Plan.
(g) Effect of Termination of Directorship or Death.
(i) Termination of Directorship. Upon termination of any
Grantee's membership on the Board of Directors of the Company for any
reason other than for cause or death, the options held by the Grantee
under the Plan shall terminate ninety (90) days following the date of
termination of the Grantee's membership on the Board or, if earlier,
on the date of expiration of the options as provided by Paragraph 5(d)
of the Plan. If the Grantee exercises the options after termination
of the Grantee's service on the Board of Directors, the Grantee may
exercise the options only with respect to the shares that were
otherwise exercisable on the date
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4
of termination of the Grantees' service on the Board. Such exercise
otherwise shall be subject to the terms and conditions of the Plan.
If the Grantee's membership on the Board of Directors is terminated
for cause, all options granted to such Grantee shall expire upon such
termination.
(ii) Death. In the event of the death of a Grantee, the
Grantee's personal representatives, heirs or legatees (the "Grantee's
Successors") may exercise the options held by the Grantee on the date
of death, upon proof satisfactory to the Company of their authority.
The Grantee's Successors must exercise any such options within one (1)
year after the Grantee's death and in any event prior to the date on
which the options expire as provided by Paragraph 5(d) of the Plan.
Such exercise otherwise shall be subject to the terms and conditions
of the Plan.
(h) Nonassignability of Option Rights. No option shall be assignable
or transferable by the Grantee except by will, by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined in
Title I of the Employee Retirement Income Security Act of 1974 and the Internal
Revenue Code of 1986. During the lifetime of the Grantee, the option shall be
exercisable only by the Grantee.
(i) Rights as Shareholder. Neither the Grantee nor the Grantee's
Successors shall have rights as a shareholder of the Company with respect to
shares of Common Stock covered by the Grantee's option until the Grantee or the
Grantee's Successors become the holder of record of such shares.
(j) No Options after Ten Years. No options shall be granted except
within a period of ten (10) years after the effective date of the Plan.
6. Adjustments.
(a) If any change is made in the stock subject to the Plan, or subject
to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or otherwise), the Plan and
outstanding options will be automatically and appropriately adjusted, including
the maximum number of shares subject to the Plan and the number of shares and
price per share of stock subject to outstanding options.
(b) In the event of: (i) a merger or consolidation in which the
Company is not the surviving corporation; (ii) a reverse merger in which the
Company is the surviving corporation but the shares of the Company's common
stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash other
otherwise; or (iii) any other capital reorganization in which more than fifty
percent (50%) of the shares of the Company entitled to vote are exchanged, then
any surviving corporation shall assume any options outstanding under the
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5
Plan or shall substitute similar options for those outstanding under the Plan.
If there is no surviving corporation, all outstanding options shall expire.
7. Effective Date and Termination of Plan.
(a) Effective Date. If approved by the Board of Directors of the
Company, the Plan shall become effective upon approval of the same by the
shareholders of the Company no later than the first annual meeting of
shareholders held after approval of the Plan by the Board of Directors (the
"1994 Annual Meeting").
(b) Termination. The Plan shall terminate ten (10) years after its
effective date, but the Board of Directors may terminate the Plan at any time
prior to such date. Termination of the Plan shall not alter or impair any of
the rights or obligations under any option theretofore granted under the Plan
unless the Grantee shall so consent.
8. No Obligation to Exercise Option. The granting of an option shall
impose no obligation upon the Grantee to exercise such option.
9. Amendment. The Board of Directors of the Company by majority vote
may amend the Plan; provided, however, that without the approval of the
shareholders of the Company, no such amendment shall change:
(a) The maximum number of shares of Common Stock as to which options
may be granted under the Plan (except by operation of the adjustment provisions
of the Plan); or
(b) The date on which the Plan will terminate as provided by Paragraph
7(b) of the Plan; or
(c) The number of shares of Common Stock subject to each option; or
(d) The option price as provided under Paragraph 5(b) of the Plan; or
(e) The provisions of Paragraph 3 of the Plan relating to the
determination of persons to whom options may be granted; or
(f) The provisions of the Plan in such a manner so as to increase
materially (within the meaning of Rule 16b-3 under the Securities Exchange Act
of 1934, as amended) the benefits accruing under the Plan.
The provisions of the Plan determining (i) the persons eligible to
receive grants of options, (ii) the timing of option grants, (iii) the number
of shares subject to options, (iv) the exercise price of options, (v) the
periods during which options are exercisable, and (vi) the dates on which
options terminate, may not be amended more than once every six
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6
months other than to comport with changes in the Internal Revenue Code, the
Employee Retirement Income Security Act of 1974, or the rules thereunder.
It is expressly contemplated that the Board may amend the Plan in any
respect that the Board deems necessary to cause the Plan to meet the
requirements of Rule 16b-3 (or any successor rule) under the Exchange Act and
otherwise to comport with the provisions of such Act and the applicable
regulations thereunder.
Any amendment to the Plan shall not, without the written consent of the
Grantee, affect such Grantee's rights under any option theretofore granted to
such Grantee.
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EX-10.(H)
4
SCHEDULE OF CHANGE IN CONTROL AGREEMENTS
1
Exhibit 10(h)
SCHEDULE OF CHANGE IN CONTROL AGREEMENTS WITH CERTAIN EXECUTIVE OFFICERS
The following executive officers of Bank South Corporation have entered
into Change in Control Agreements in substantially the form attached hereto,
the only differences being the period for which benefits are available
following termination of employment and the current expiration terms, as
indicated below for each person:
EXECUTIVE OFFICER CURRENT EXPIRATION DATE PERIOD FOR WHICH BENEFITS
OF AGREEEMENT ARE AVAILABLE FOLLOWING
TERMINATION OF EMPLOYMENT
Barry R. Anderson January 10, 1998 36 months
Bernard Baum January 31, 1998 24 months
George M. Boltwood January 10, 1998 36 months
J. Brent Lee January 10, 1998 36 months
David E. Tatum January 10, 1998 36 months
John E. Thacker January 10, 1998 36 months
Ray K. Williams January 10, 1998 36 months
J. Blake Young January 10, 1998 36 months
2
FORM OF
CHANGE IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT (this "Agreement"), dated this ___ day
of ______, 19__, by and between BANK SOUTH CORPORATION, a Georgia corporation
(the "Corporation"), and ______________ (the "Executive").
W I T N E S S E T H:
WHEREAS, the Corporation wishes to assure both itself and its key
employees of continuity of management and objective judgment in the event of any
actual or contemplated Change in Control of the Corporation, and the Executive
is a key employee of the Corporation and an integral part of its management; and
WHEREAS, this Agreement is not intended to materially alter the
compensation and benefits that the Executive could reasonably expect to receive
in the absence of a Change in Control of the Corporation, and this Agreement
accordingly will be operative only upon circumstances relating to an actual or
anticipated change in control of the Corporation.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants herein contained, the parties hereby agree as follows:
I. OPERATION OF AGREEMENT
This Agreement shall be effective immediately upon its execution by the
parties hereto, but anything in this Agreement to the contrary notwithstanding,
neither the Agreement nor any provision hereof shall be operative unless, during
the term of this Agreement, there has been a Change in Control of the
Corporation, as defined in Article III below. Upon such a Change in Control of
the Corporation during the term of this Agreement, all of the provisions hereof
shall become operative immediately.
II. TERM OF AGREEMENT
The term of this Agreement shall be for an initial three (3) year period
commencing on the date hereof, and shall be renewable at the end of the first
year of such initial three (3) year period and annually thereafter, for an
additional one (1) year period following the initial three (3) year period and
prior extensions thereof in the sole discretion of the Compensation Committee
and upon such terms and conditions as the Compensation Committee may authorize
at such time.
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3
III. DEFINITIONS
1. "BOARD" or BOARD OF DIRECTORS" - the Board of Directors of Bank
South Corporation.
2. "CAUSE" - either
(i) any act that constitutes, on the part of the Executive, (A) fraud,
dishonesty, a felony or gross malfeasance of duty, and (B) that directly results
in material injury to the Corporation; or
(ii) conduct by the Executive in his office with the Corporation that is
grossly inappropriate and demonstrably likely to lead to material injury to the
Corporation, as determined by the Board acting reasonably and in good faith;
provided, however, that in the case of (ii) above, such conduct shall not
constitute Cause unless the Board shall have delivered to the Executive notice
setting forth with specificity (A) the conduct deemed to qualify as Cause, (B)
reasonable action that would remedy such objection, and (C) a reasonable time
(not less than thirty (30) days) within which the Executive may take such
remedial action, and the Executive shall not have taken such specified remedial
action within such specified reasonable time.
3. "CHANGE IN CONTROL" - Either
(i) the acquisition, directly or indirectly, by any "person" (as
such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) within any twelve
(12) month period of securities of the Corporation
representing an aggregate of twenty-five percent (25%) or more
of the combined voting power of the Corporation's then
outstanding securities; or
(ii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board, cease
for any reason to constitute at least a majority thereof,
unless the election of each new director was approved in
advance by a vote of at least a majority of the directors then
still in office who were directors at the beginning of the
period; or
(iii) consummation of (a) a merger, consolidation or other business
combination of the Corporation with any other "person" (as
such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) or affiliate
thereof, other than a merger, consolidation or business
combination which would result in the outstanding common
stock of the Corporation immediately prior thereto continuing
to represent (either by remaining outstanding or
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4
by being converted into common stock of the surviving entity
or a parent or affiliate thereof) at least sixty (60)%
of the outstanding common stock of the Corporation or such
surviving entity or parent or affiliate thereof outstanding
immediately after such merger, consolidation or business
combination, or (b) a plan of complete liquidation of the
Corporation or an agreement for the sale or disposition by the
Corporation of all or substantially all of the Corporation's
assets; or
(iv) the occurrence of any other event or circumstance which is not
covered by (i) through (iii) above which the Board determines
affects control of the Corporation and, in order to implement
the purposes of this Agreement as set forth above, adopts a
resolution that such event or circumstance constitutes a
Change in Control for the purposes of this Agreement.
4. "CODE" - the Internal Revenue Code of 1986, as amended.
5. "COMPENSATION COMMITTEE" - the Compensation Committee of the
Board of Directors of the Corporation.
6. "DISABILITY" - the Executive's inability as a result of
physical or mental incapacity to substantially perform his duties for the
Corporation on a full-time basis for a period of six (6) months. The
determination of whether the Executive suffers a Disability shall be made by a
physician acceptable to both the Executive and the Corporation.
7. "EXCESS SEVERANCE PAYMENT" - the term "Excess Severance
Payment" shall have the same meaning as the term "excess parachute payment"
defined in Section 280G(b)(1) of the Code.
8. "INVOLUNTARY TERMINATION" - termination of the Executive's
employment by the Executive following a Change in Control which, in the
reasonable judgment of the Executive, is due to (i) a change of the Executive's
responsibilities, position (including status, office, title, reporting
relationships or working conditions), authority or duties (including changes
resulting from the assignment to the Executive of any duties inconsistent with
his positions, duties or responsibilities as in effect immediately prior to the
Change in Control); or (ii) a reduction in the Executive's compensation or
benefits, or (iii) a forced relocation of the Executive outside the Atlanta
metropolitan area or significant increase in the Executive's travel
requirements. Involuntary Termination does not include retirement (including
early retirement) within the meaning of the Corporation's retirement plan, or
death or Disability of the Executive.
9. "PRESENT VALUE" - The term "Present Value" shall have the same
meaning as provided in Section 280G(d)(4) of the Code.
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5
10. "SEVERANCE PAYMENT" - The term "Severance Payment" shall have
the same meaning as the term "parachute payment" defined in Section 280G(b)(2)
of the Code.
11. "REASONABLE COMPENSATION" - The term "Reasonable Compensation"
shall have the same meaning as provided in Section 280G(b)(4) of the Code.
IV. BENEFITS UPON TERMINATION FOLLOWING A CHANGE IN CONTROL
1. TERMINATION - The Executive shall be entitled to, and the
Corporation shall pay or provide to the Executive, the benefits described in
Section 2 below if (a) a Change in Control occurs during the term of this
Agreement, and (b) the Executive's employment is terminated within three (3)
years following the Change in Control either (i) by the Corporation (other than
for Cause or by reason of the Executive's death or Disability) or (ii) by the
Executive pursuant to Involuntary Termination; provided, however, that if:
(a) during the term of this Agreement there is a public
announcement of a proposal for a transaction that, if
consummated, would constitute a Change in Control or the Board
receives and decides to explore an expression of interest with
respect to a transaction which, if consummated, would lead to a
Change in Control (either transaction being referred to herein
as the "Proposed Transaction"); and
(b) the Executive's employment is thereafter terminated by the
Corporation other than for Cause or by reason of the
Executive's death or Disability; and
(c) the Proposed Transaction is consummated within one year after
the date of termination of the Executive's employment,
then, for the purposes of this Agreement, a Change in Control shall be deemed
to have occurred during the term of this Agreement and the termination of the
Executive's employment shall be deemed to have occurred within three (3) years
following a Change in Control.
2. BENEFITS TO BE PROVIDED - If the Executive becomes eligible for
benefits under Section 1 above, the Corporation shall pay or provide to the
Executive the benefits set forth in this Section 2.
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6
(a) SALARY - The Executive will continue to receive his current
salary (subject to withholding of all applicable taxes
and any amounts referred to in Section 2(c) below) for a period
of [thirty-six (36)] [twenty-four (24)] months from his date of
termination in the same manner as it was being paid as of the
date of termination; provided, however, that the salary
payments provided for hereunder shall be paid in a single lump
sum payment, to be paid not later than thirty (30) days after
his termination of employment; provided further, that the
amount of such lump sum payment shall be determined by taking
the salary payments to be made and discounting them to their
Present Value. For purposes hereof, the Executive's "current
salary" shall be the highest rate in effect during the
six-month period prior to the Executive's termination.
(b) BONUSES - The Executive shall receive bonus payments from the
Corporation for the [thirty-six (36)] [twenty-four (24)]
months following the month in which his employment is
terminated in an amount for each such month equal to
one-twelfth of the average of the bonuses earned by him for the
two calendar years immediately preceding the year in which such
termination occurs. Any bonus amounts that the Executive had
previously earned from the Corporation but which may not yet
have been paid as of the date of termination shall not be
affected by this provision. The bonus amounts determined
herein shall be paid in a single lump sum payment, to be paid
not later than 30 days after termination of employment;
provided, further, that the amount of such lump sum payment
shall be determined by taking the bonus payments (as of the
payment date) to be made and discounting them to their Present
Value.
(c) HEALTH AND LIFE INSURANCE COVERAGE - The health and life
insurance benefits coverage provided to the Executive at
his date of termination shall be continued at the same level
and in the same manner as if his employment had not terminated
(subject to the customary changes in such coverages if the
Executive retires, reaches age 65 or similar events), beginning
on the date of such termination and ending on the date
[thirty-six (36)] [twenty-four (24)] months from the date of
such termination. Any additional coverages the Executive had
at termination, including dependent coverage, will also be
continued for such period at the same level and on the same
terms as provided to the Executive immediately prior to his
termination, to the extent permitted by the applicable policies
or contracts. Any costs the Executive was paying for such
coverages at the time of termination shall be paid by the
Executive by separate check payable to the Corporation each
month in
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7
advance. If the terms of any benefit plan referred to
in this Section do not permit continued participation by the
Executive, then the Corporation will arrange for other coverage
at its expense providing substantially similar benefits.
(d) EMPLOYEE RETIREMENT PLANS - To the extent permitted by the
applicable plan, the Executive will be fully vested in
and will be entitled to continue to participate, consistent
with past practices, in all employee retirement plans
maintained by the Corporation in effect as of his date of
termination, including, to the extent such plans are still
maintained by the Corporation, the Bank South Corporation
401(k) Investment Plan, the Bank South Corporation Tax Credit
Employee Stock Ownership Plan, the Bank South Corporation
Retirement Plan, the Bank South Corporation Supplemental
Retirement Plan and any successor plan or plans. The
Executive's participation in such retirement plans shall
continue for a period of [thirty-six (36)] [twenty-four (24)]
months from the date of termination of his employment (at which
point he will be considered to have terminated employment
within the meaning of the plans) and the compensation payable
to the Executive under (a) and (b) above shall be treated
(unless otherwise excluded) as compensation under the plan. If
full vesting and continued participation in any plan is not
permitted, the Corporation shall pay to the Executive and, if
applicable, his beneficiary, a supplemental benefit equal to
the Present Value on the date of termination of employment of
the excess of (i) the benefit the Executive would have been
paid under such plan if he had been fully vested and had
continued to be covered for the [36] [24]-month period as if
the Executive had earned compensation described under (a) and
(b) above and had made contributions sufficient to earn the
maximum matching contribution, if any, under such plan (less
any amounts he would have been required to contribute), over
(ii) the benefit actually payable to or on behalf of the
Executive under such plan. For purposes of determining the
benefit under (i) in the preceding sentence, contributions
deemed to be made under a defined contribution plan will be
deemed to be invested in the same manner as the Executive's
account under such plan at the time of termination of
employment. The Corporation shall pay such supplemental
benefits (if any) in a lump sum.
(e) EFFECT OF LUMP SUM PAYMENT The lump sum payment under (a) or
(b) above shall not alter the amounts the Executive is
entitled to receive under the benefit plans described in (c)
and (d) above. Benefits under such plans shall be determined as
if the Executive
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8
had remained employed and received such payments over a
period of [thirty-six (36)] [twenty-four (24)] months.
(f) EFFECT OF DEATH OR RETIREMENT - The benefits payable or to be
provided under this Agreement shall cease in the event
of the Executive's death or election to commence retirement
benefits under the Corporation's retirement plan.
(g) LIMITATION ON AMOUNT - Notwithstanding anything in this
Agreement to the contrary, any benefits payable or to be
provided to the Executive by the Corporation or its affiliates,
whether pursuant to this Agreement or otherwise, which are
treated as Severance Payments shall be modified or reduced in
the manner provided in (h) below to the extent necessary so
that the benefits payable or to be provided to the Executive
under this Agreement that are treated as Severance Payments, as
well as any payments or benefits provided outside of this
Agreement that are so treated, shall not cause the Corporation
to have paid an Excess Severance Payment. In computing such
amount, the parties shall take into account all provisions of
Internal Revenue Code Section 280G, including making
appropriate adjustments to such calculation for amounts
established to be Reasonable Compensation.
(h) MODIFICATION OF AMOUNT - In the event that the amount of any
Severance Payments that would be payable to or for the
benefit of the Executive under this Agreement must be modified
or reduced to comply with this Section 2, the Executive shall
direct which Severance Payments are to be modified or reduced;
provided, however, that no increase in the amount of any
payment or change in the timing of the payment shall be made
without the consent of the Corporation.
(i) AVOIDANCE OF PENALTY TAXES - This Section 2 shall be
interpreted so as to avoid the imposition of excise
taxes on the Executive under Section 4999 of the Code or the
disallowance of a deduction to the Corporation pursuant to
Section 280G(a) of the Code with respect to amounts payable
under this Agreement or otherwise.
(j) ADDITIONAL LIMITATION - In addition to the limits otherwise
provided in this Section 2, to the extent permitted by
law, the Executive may in his sole discretion elect to reduce
any payments he may be eligible to receive under this Agreement
to prevent the imposition of excise taxes on the Executive
under Section 4999 of the Code.
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9
(k) NO OBLIGATION TO FUND - The agreement of the Corporation (or
its successor) to make payments to the Executive hereunder
shall represent solely the unsecured obligation of the
Corporation (and its successor), except to the extent the
Corporation (or its successors) in its sole discretion elects
in whole or in part to fund its obligations under this
Agreement pursuant to a trust arrangement or otherwise.
VI. MISCELLANEOUS
1. CONTRACT NON-ASSIGNABLE. The parties acknowledge that this
Agreement has been entered into due to, among other things, the special skills
of the Executive, and agree that this Agreement may not be assigned or
transferred by the Executive, in whole or in part, without the prior written
consent of the Corporation. Any business entity succeeding to all or
substantially all of the business of the Corporation by purchase, merger,
consolidation, sale of assets or otherwise, shall be bound by this Agreement.
2. OTHER AGENTS. Nothing in this Agreement is to be interpreted
as limiting the Corporation from employing other personnel on such terms and
conditions as may be satisfactory to the Corporation.
3. NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered or seven days after mailing if
mailed, first class, certified mail, postage prepaid:
To the Corporation: Bank South Corporation
P.O. Box 5092
Atlanta, Georgia 30302
Attention: Compensation Committee
To the Executive: Bank South Corporation
P.O. Box 5092
Atlanta, Georgia 30302
Any party may change the address to which notices, requests, demands and other
communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein.
4. PROVISIONS SEVERABLE. If any provision or covenant, or any
part thereof, of this Agreement should be held by any court to be invalid,
illegal or unenforceable, either in whole or in part, such invalidity,
illegality or unenforceability shall not affect the validity, legality or
enforceability of the remaining provisions or covenants, or any part thereof, of
this Agreement, all of which shall remain in full force and effect.
- 9 -
10
5. WAIVER. Failure of either party to insist, in one or more
instances, on performance by the other in strict accordance with the terms and
conditions of this Agreement shall not be deemed a waiver or relinquishment of
any right granted in this Agreement or of the future performance of any such
term or condition or of any other term or condition of this Agreement, unless
such waiver is contained in a writing signed by the party making the waiver.
6. AMENDMENTS AND MODIFICATIONS. This Agreement may be amended or
modified only by a writing signed by both parties hereto, which makes specific
reference to this Agreement.
7. GOVERNING LAW. The validity and effect of this Agreement shall
be governed by and construed and enforced in accordance with the laws of the
State of Georgia.
8. ARBITRATION OF DISPUTES; EXPENSES. The parties agree that all
disputes that may arise between them relating to the interpretation or
performance of this Agreement, including matters relating to any funding
arrangements for the benefits provided under this Agreement, shall be determined
by binding arbitration through an arbitrator approved by the American
Arbitration Association or other arbitrator mutually acceptable to the parties.
The award of the arbitrator shall be final and binding upon the parties and
judgment upon the award rendered may be entered in any court having
jurisdiction. In the event the Executive incurs legal fees and other expenses
in seeking to obtain or to enforce any rights or benefits provided by this
Agreement and its successful, in whole or in part, in obtaining or enforcing any
such rights or benefits through settlement, arbitration or otherwise, the
Corporation shall promptly pay the Executive's reasonable legal fees and
expenses incurred in enforcing this Agreement. Except to the extent provided in
the preceding sentence, each party shall pay its own legal fees and other
expenses associated with the arbitration, provided that the fee for the
arbitrator shall be shared equally.
9. TERMINATION OF PRIOR AGREEMENTS. The Executive hereby agrees
to a mutual termination, effective as of the effective date of this Agreement,
of any prior existing change in control agreement or agreements (by whatever
name), providing benefits to the Executive upon a termination of employment
following a change in control of the Corporation, to which he and the
Corporation are parties, and as to such prior agreements, if any, the Executive
releases all claims, rights and entitlements.
(Signatures on following page)
- 10 -
11
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf by its duly authorized officers and the Executive has
hereunto set his hand, as of the date and year first above written.
BANK SOUTH CORPORATION
By: _________________________
Title :______________________
Attest: ___________________________
Title: ____________________________
(CORPORATE SEAL)
EXECUTIVE
_____________________________
_______________________ (SEAL)
- 11 -
12
CHANGE IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT, dated this 2nd day of February, 1995,
by and between BANK SOUTH CORPORATION, a Georgia corporation (the
"Corporation"), and RALPH E. HUTCHINS, JR. (the "Executive").
W I T N E S S E T H:
WHEREAS, the Corporation wishes to assure both itself and its key
employees of continuity of management and objective judgment in the event of any
actual or contemplated Change in Control of the Corporation, and upon joining
the Corporation the Executive will be a key employee of the Corporation and an
integral part of its management; and
WHEREAS, this Agreement is not intended to materially alter the
compensation and benefits that the Executive could reasonably expect to receive
in the absence of a Change in Control of the Corporation, and this Agreement
accordingly will be operative only upon circumstances relating to an actual or
intended Change in Control of the Corporation.
NOW, THEREFORE, for and in consideration of the promises and the mutual
covenants herein contained, the parties hereby agree as follows:
I. OPERATION OF AGREEMENT
This Agreement shall be effective immediately upon its execution by the
parties hereto, but anything in this Agreement to the contrary notwithstanding,
neither the Agreement nor any provision hereof shall be operative unless, during
the term of this Agreement, there has been a Change in Control of the
Corporation, as defined in Article III below. Upon such a Change in Control of
the Corporation during the term of this Agreement, all of the provisions hereof
shall become operative immediately.
II. TERM OF AGREEMENT
The term of this Agreement shall run concurrently with the term of that
certain Employment Agreement between the Corporation and the Executive, dated as
of the date hereof (the "Employment Agreement"); provided, that if Executive's
employment under the Employment Agreement is terminated but compensation and
benefits will be provided for the remaining term thereof, this Agreement shall
terminate concurrently with termination of Executive's employment under the
Employment Agreement; and provided, further, that if:
(a) There is a public announcement of a proposal for a transaction
that, if consummated, would constitute a Change in
13
Control or the Board receives and decides to explore an expression of
interest with respect to a transaction which, if consummated, would
lead to a Change in Control (either transaction being referred to
herein as the "Proposed Transaction"); and
(b) Executive's employment under the Employment Agreement is
thereafter terminated by the Corporation other than pursuant to clauses
(i) through (iii) of Section 5.1 of the Employment Agreement; and
(c) The Proposed Transaction is consummated within one (1) year
after the date of termination of Executive's employment under the
Employment Agreement,
then, for the purposes of this Agreement, a Change in Control shall be deemed
to have occurred during the term of this Agreement and the termination of
Executive's employment under the Employment Agreement shall be deemed to have
occurred following a Change in Control.
III. DEFINITIONS
1. "BOARD" or "BOARD OF DIRECTORS" - The term "Board" or "Board of
Directors" shall mean the Board of Directors of Bank South
Corporation.
2. "CHANGE IN CONTROL" - The term "Change in Control" shall mean
either
(i) the acquisition, directly or indirectly, by any
"person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as
amended) within any twelve (12) month period of
securities of the Corporation representing an aggregate
of twenty-five percent (25%) or more of the combined
voting power of the Corporation's then outstanding
securities; or
(ii) during any period of two (2) consecutive years,
individuals who at the beginning of such period
constitute the Board, cease for any reason to
constitute at least a majority thereof, unless the
election of each new director was approved in advance
by a vote of at least a majority of the directors then
still in office who were directors at the beginning of
the period; or
(iii) consummation of (a) a merger, consolidation or other
business combination of the Corporation with any
other "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange
- 2 -
14
Act of 1934, as amended) or affiliate thereof, other
than a merger, consolidation or business combination
which would result in the outstanding common stock of
the Corporation immediately prior thereto continuing
to represent (either by remaining outstanding or by
being converted into common stock of the surviving
entity or a parent or affiliate thereof) at least
sixty percent (60%) of the outstanding common stock
of the Corporation or such surviving entity or parent
or affiliate thereof outstanding immediately after
such merger, consolidation or business combination,
or (b) a plan of complete liquidation of the
Corporation or an agreement for the sale or
disposition by the Corporation of all or
substantially all of the Corporation's assets; or
(iv) the occurrence of any other event or circumstance
which is not covered by (i) through (iii) above which
the Board determines affects control of the
Corporation and, in order to implement the purposes
of this Agreement as set forth above, adopts a
resolution that such event or circumstance
constitutes a Change in Control for the purposes of
this Agreement.
3. "CODE" - The term "Code" shall mean the Internal Revenue Code
of 1986, as amended.
4. "EXCESS SEVERANCE PAYMENT" - The term "Excess Severance
Payment" shall have the same meaning as the term "excess
parachute payment" defined in Section 280G(b)(1) of the Code.
5. "PRESENT VALUE" - The term "Present Value" shall have the same
meaning as provided in Section 280G(a)(4) of the Code.
6. "SEVERANCE PAYMENT" - The term "Severance Payment" shall have
the same meaning as the term "parachute payment" defined in
Section 280G(b)(2) of the Code.
7. "REASONABLE COMPENSATION" - The term "Reasonable Compensation"
shall have the same meaning as provided in Section 280G(b)(4)
of the Code. The parties acknowledge and agree that, in the
absence of a change in existing legal authorities or the
issuance of contrary authorities, amounts received by the
Executive as damages under or as a result of a breach of the
Employment Agreement by the Corporation shall be considered
Reasonable Compensation.
- 3 -
15
IV. BENEFITS UPON TERMINATION FOLLOWING A CHANGE IN CONTROL
1. TERMINATION - Executive shall be entitled to, and the
Corporation shall pay or provide to Executive, the benefits
described in Section 2 below if (a) a Change in Control occurs
during the term of this Agreement and (b) Executive's
employment under the Employment Agreement is terminated
following the Change in Control either (i) by the Corporation
(other than pursuant to clauses (i) through (iii) of Section
5.1 of the Employment Agreement) or (ii) by the Executive
pursuant to clauses (i) through (iii) of Section 5.2 of the
Employment Agreement.
2. BENEFITS TO BE PROVIDED - If Executive becomes eligible for
benefits under Section 1 above, the Corporation shall pay or
provide to Executive the benefits set forth in this Section 2;
provided, however, that the benefits to be paid or provided
pursuant to paragraphs (a), (b), (c) and (d) of this Section 2
shall be reduced to the extent that the Executive receives or
is entitled to receive the benefits described in paragraphs
(a), (b), (c) and (d) of this Section 2 as damages pursuant to
the terms or the Employment Agreement or as a result of a
breach by the Corporation of the Employment Agreement; and
provided, further, that notwithstanding contrary provisions in
the Employment Agreement, to the extent benefits are provided
under this Agreement, the benefits shall be provided in lump
sum payments where specified in Section 2 below.
(a) SALARY. The Executive will continue to receive his
current salary (subject to withholding of all applicable taxes
and any amounts referred to in Section 2(c) below) for a
period of thirty-six (36) months from his date of termination
in the same manner as it was being paid as of the date of
termination; provided, however, that the salary payments
provided for hereunder shall be paid in a single lump sum
payment, to be paid not later than thirty (30) days after his
termination of employment; provided further, that the amount
of such lump sum payment shall be determined by taking the
salary payments to be made and discounting them to their
Present Value. For purposes hereof, the Executive's "current
salary" shall be the highest rate in effect during the
six-month period prior to the Executive's termination.
(b) BONUSES AND INCENTIVES - The Executive shall receive
bonus payments from the Corporation for the thirty-six (36)
months following the month in which his employment under the
Employment Agreement is terminated in an amount for each such
month equal to one-twelfth (1/12th) of the average of the
bonuses earned by him for the two (2) calendar years
immediately preceding the year in which
- 4 -
16
such termination occurs. Any bonus amounts that the Executive
had previously earned from the Corporation but which have not
been paid as of the date of termination shall not be affected
by this provision. The bonus amounts determined herein shall
be paid in a single lump sum payment, to be paid not later
than thirty (30) days after termination of employment;
provided, further, that the amount of such lump sum payment
shall be determined by taking the bonus payments (as of the
payment date) to be made and discounting them to their Present
Value.
(c) HEALTH AND LIFE INSURANCE COVERAGE - The health and
life insurance benefits coverage provided to the Executive at
his date of termination shall be continued at the same level
and in the same manner as if his employment under the
Employment Agreement had not terminated (subject to the
customary changes in such coverages if the Executive retires,
reaches age 65 or similar events), beginning on the date of
such termination and ending on the date thirty-six (36) months
from the date of such termination. Any additional coverages
the Executive had at termination, including dependent
coverage, will also be continued for such period on the same
terms as provided to Executive immediately prior to his
termination, to the extent permitted by the applicable
policies or contracts. Any costs the Executive was paying for
such coverages at the time of termination shall be paid by the
Executive by separate check payable to the Corporation each
month in advance. If the terms of any benefit plan referred to
in this Section do not permit continued participation by the
Executive, then the Corporation will arrange for other
coverage at its expense providing substantially similar
benefits.
(d) EMPLOYEE RETIREMENT PLANS - To the extent permitted
by the applicable plan, the Executive will be fully vested in
and will be entitled to continue to participate, consistent
with past practices, in all employee retirement plans
maintained by the Corporation in effect as of his date of
termination, including, without limitation, to the extent such
plans are still maintained by the Corporation, the Bank South
Corporation 401(k) and Investment Plan, the Bank South
Corporation Shadow Plan, the Bank South Corporation Retirement
Plan, the Bank South Corporation Supplemental Retirement Plan,
and any successor plan or plans. The Executive's
participation in such retirement plans shall continue for a
period of thirty-six (36) months from the date of termination
of his employment under the Employment Agreement (at which
point he will be considered to have terminated employment
within the meaning of the plans)
- 5 -
17
and the compensation payable to the Executive under (a) and
(b) above shall be treated (unless otherwise excluded) as
compensation under the plans. If full vesting and continued
participation in any plan is not permitted, the Corporation
shall pay to the Executive and, if applicable, his
beneficiary, a supplemental benefit equal to the Present Value
on the date of termination of employment under the Employment
Agreement of the excess of (i) the benefit the Executive would
have been paid under such plan if he had been fully vested and
had continued to be covered for the 36-month period as if the
Executive had earned Compensation described under (a) and (b)
above and had made contributions sufficient to earn the
maximum matching contribution, if any, under such plan (less
any amounts he would have been required to contribute), over
(ii) the benefit actually payable under such plan. For
purposes of determining the benefit under (i) in the preceding
sentence, contributions deemed to be made under a defined
contribution plan will be deemed to be invested in the same
manner as the Executive's account under such plan at the time
of termination of employment. The Corporation shall pay such
additional benefits (if any) in a lump sum.
(e) EFFECT OF LUMP SUM PAYMENT. The lump sum payment
under (a) or (b) above shall not alter the amounts the
Executive is entitled to receive under the benefit plans
described in (c) and (d) above. Benefits under such plans
shall be determined as if the Executive had remained employed
and received such payments over a period of thirty-six (36)
months.
(f) EFFECT OF DEATH OR RETIREMENT. The benefits payable
or to be provided under this Agreement shall cease in the
event of the Executive's death or election to commence
retirement benefits under the Corporation's retirement plan.
(g) LIMITATION ON AMOUNT - Notwithstanding anything in
this Agreement to the contrary, any benefits payable or to be
provided to the Executive by the corporation or its
affiliates, whether pursuant to this Agreement or otherwise,
which are treated as Severance Payments shall be modified or
reduced in the manner provided in (h) below to the extent
necessary so that the benefits payable or to be provided to
the Executive under this Agreement that are treated as
Severance Payments, as well as any payments or benefits
provided outside of this Agreement that are so treated, shall
not cause the Corporation to have paid an Excess Severance
Payment. In computing such amount, the parties shall take
into account all provisions of Section 280G of the Code,
- 6 -
18
including making appropriate adjustments to such calculation
for amounts established to be Reasonable Compensation.
(h) MODIFICATION OF AMOUNT - In the event that the amount
of any Severance Payments which would be payable to or for the
benefit of the Executive under this Agreement must be modified
or reduced to comply with this Section 2, the Executive shall
direct which Severance Payments are to be modified or reduced;
provided, however, that no increase in the amount of any
payment or change in the timing of the payment (except as
otherwise permitted by (a) and (b) above) shall be made
without the consent of the Corporation.
(i) AVOIDANCE OF PENALTY TAXES - This Section 2 shall be
interpreted so as to avoid the imposition of excise taxes on
the Executive under Section 4999 of the Code or the
disallowance of a deduction to the Corporation pursuant to
Section 280G(a) of the Code with respect to amounts payable
under this Agreement or otherwise. Notwithstanding the
foregoing, in no event will any of the provisions of this
Section 2 create, without the consent of both of the parties
hereto, an obligation on the part of the Executive to refund
any amount to the Corporation following payment of such
amount.
(j) ADDITIONAL LIMITATION - In addition to the limits
otherwise provided in this Section 2, to the extent permitted
by law, the Executive may in his sole discretion elect to
reduce any payments he may be eligible to receive under this
Agreement to prevent the imposition of excise taxes on the
Executive under Section 4999 of the Code.
(k) NO OBLIGATION TO FUND - The agreement of the
Corporation (or its successors) to make payments to the
Executive hereunder shall represent solely the unsecured
obligation of the Corporation (and its successors), except to
the extent the Corporation (or its successors) in its sole
discretion elects in whole or in part to fund its obligations
under this Agreement pursuant to a trust arrangement or
otherwise.
V. MISCELLANEOUS
1. CONTRACT NON-ASSIGNABLE. The parties acknowledge that this
Agreement has been entered into due to, among other things,
the special skills of the Executive, and agree that this
Agreement may not be assigned or transferred by the Executive,
in whole or in part, without the prior written consent of the
Corporation. Any business entity
- 7 -
19
succeeding to all or substantially all of the business of the
Corporation by purchase, merger, consolidation, sale of assets
or otherwise, shall be bound by this Agreement.
2. OTHER AGENTS. Nothing in this Agreement is to be interpreted
as limiting the Corporation from employing other personnel on
such terms and conditions as may be satisfactory to the
Corporation.
3. NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be in
writing and shall be deemed to have been duly given if
delivered or seven days after mailing if mailed, first class,
certified mail, postage prepaid:
To the Corporation: Bank South Corporation
P.O. Box 5092
Atlanta, Georgia 30302
Attention: Compensation Committee
To Executive: Bank South Corporation
P.O. Box 5092
Atlanta, Georgia 30302
Any party may change the address to which notices, requests,
demands and other communications shall be delivered or mailed
by giving notice thereof to the other party in the same manner
provided herein.
4. PROVISIONS SEVERABLE. If any provision or covenant, or any
part thereof, of this Agreement should be held by any court to
be invalid, illegal or unenforceable, either in whole or in
part, such invalidity, illegality or unenforceability shall
not affect the validity, legality or enforceability of the
remaining provisions or covenants, or any part thereof, of
this Agreement, all of which shall remain in full force and
effect.
5. WAIVER. Failure of either party to insist, in one or more
instances, on performance by the other in strict accordance
with the terms and conditions of this Agreement shall not be
deemed a waiver or relinquishment of any right granted in this
Agreement or of the future performance of any such term or
condition or of any other term or condition of this Agreement,
unless such waiver is contained in a writing signed by the
party making the waiver.
6. AMENDMENTS AND MODIFICATIONS. This Agreement may be
amended or modified only by a writing signed by both parties
hereto which makes specific reference to this Agreement.
- 8 -
20
7. GOVERNING LAW. The validity and effect of this Agreement shall
be governed by and construed and enforced in accordance with
the laws of the State of Georgia.
8. ARBITRATION OF DISPUTES; EXPENSES - The parties agree that all
disputes that may arise between them relating to the
interpretation or performance of this Agreement, including
matters relating to any funding arrangements for the benefits
provided under this Agreement, shall be determined by binding
arbitration through an arbitrator approved by the American
Arbitration Association or other arbitrator mutually
acceptable to the parties. The award of the arbitrator shall
be final and binding upon the parties and judgment upon the
award rendered may be entered in any court having
jurisdiction. In the event the Executive incurs legal fees
and other expenses in seeking to obtain or to enforce any
rights or benefits provided by this Agreement and is
successful, in whole or in part, in obtaining or enforcing any
such rights or benefits through settlement, arbitration or
otherwise, the Corporation shall promptly pay the Executive's
reasonable legal fees and expenses incurred in enforcing this
Agreement. Except to the extent provided in the preceding
sentence, each party shall pay its own legal fees and other
expenses associated with the arbitration, provided that the
fee for the arbitrator shall be shared equally.
9. TERMINATION OF PRIOR AGREEMENTS. The Executive hereby agrees
to a mutual termination, effective as of the effective date of
this Agreement, of any prior existing change in control
agreement or agreements (by whatever name), providing benefits
to the Executive upon a termination of employment following a
change in control of the Corporation, to which he and the
Corporation are parties, and as to such prior agreements, if
any, the Executive releases all claims, rights and
entitlement.
- 9 -
21
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf by its duly authorized officers and the Executive has
hereunto set his hand, as of the date and year first above written.
BANK SOUTH CORPORATION
Attest: By: /s/ Patrick L. Flinn
-------------- ---------------------
(SEAL) Patrick L. Flinn
EXECUTIVE
/s/ Ralph E. Hutchins, Jr.
--------------------------
RALPH E. HUTCHINS, JR.
- 10 -
EX-11
5
COMPUTATION OF PER SHARE EARNINGS
1
BANK SOUTH CORPORATION
EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE
EARNINGS
(in thousands, except per share amounts)
Primary: 1994 1993 1992
------- ------- -------
Weighted Average Common Shares Outstanding 53,682 46,934 40,743
Dilutive Stock Options -
based on the treasury stock method using
the average market price for the period 662 473 0
Total weighted average common shares
outstanding and common share equivalents 54,344 47,407 40,743
------- ------- -------
Net Income $80,151 $73,349 $29,697
======= ======= =======
Primary earnings per common share $ 1.47 $ 1.55 $ 0.73
======= ======= =======
Fully diluted:
Weighted Average Common Shares Outstanding 53,682 46,934 40,743
Dilutive Stock Options -
based on the treasury stock method using
the period-end market price, if greater
than average market price for the period 693 566 449
------- ------- -------
Total weighted average common shares
outstanding and common share equivalents 54,375 47,500 41,192
======= ======= =======
Net Income $80,151 $73,349 $29,697
======= ======= =======
Fully diluted earnings per common share * $ 1.47 $ 1.54 $ 0.72
======= ======= =======
* Fully diluted earnings per share is less than 3% dilutive and,
therefore, was not disclosed on the Statements of Income in
accordance with the provisions of Accounting Principles Board Opinion
Number 15.
EX-13
6
BANK SOUTH CORP. 1994 ANNUAL REPORT
1
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Bank South Corporation and its subsidiaries (the "Company") reported net
income of $80.2 million, or $1.47 per share, in 1994, an increase of 9.3
percent over 1993 net income of $73.3 million, or $1.55 per share. Net
income for 1993 included an after-tax gain of $19.8 million or $0.42 per
share in the fourth quarter from the sale of the Company's Pensacola,
Florida, bank. Excluding the effects of this gain, net income and earnings
per share for 1994 increased 49.7 percent and 30.1 percent, respectively.
The increase in net income from 1993 to 1994 was primarily due to
acquisitions, increased service charges on deposits and a lower loan loss
provision.
The Company's return on average assets was 1.28 percent in 1994 compared to
1.48 percent for 1993. The return on average equity was 14.26 percent in
1994 compared to 18.24 percent in 1993, reflecting the full-year impact of
new equity issued in 1993.
FINANCIAL HIGHLIGHTS
Percent Percent
change change
1994 1993 1992 1993 to 1994 1992 to 1993
--------------------------------------------------------------------------------
Thousands of dollars, except per share data
FOR THE YEAR
Net interest income (taxable equivalent) $ 255,975 $ 210,021 $ 180,943 22% 16%
Net interest income 241,691 204,705 178,059 18 15
Provision for loan losses 6,397 19,213 31,543 (67) (39)
Non-interest income 119,357 145,553 123,401 (18) 18
Non-interest expense 262,055 237,702 233,393 10 2
Net income 80,151 73,349 29,697 9 147
PER COMMON SHARE
Net income $ 1.47 $ 1.55 $ 0.73 (5)% 112%
Cash dividends declared 0.48 0.24 -- 100 --
Common book value 11.00 9.76 7.77 13 26
AT YEAR END
Loans, net of unearned income $3,771,316 $3,318,598 $2,788,569 14% 19%
Earning assets 6,265,216 5,190,802 4,146,936 21 25
Assets 6,929,265 5,764,768 4,714,024 20 22
Deposits 4,749,681 4,250,198 3,862,273 12 10
Shareholders' equity 601,076 496,449 342,781 21 45
AVERAGE BALANCE
Loans, net of unearned income $3,495,145 $2,856,127 $2,845,993 22% --%
Earning assets 5,617,891 4,438,107 4,244,060 27 5
Assets 6,262,786 4,951,546 4,764,603 26 4
Deposits 4,527,123 3,841,604 3,796,605 18 1
Shareholders' equity 562,134 402,119 296,029 40 36
KEY PERFORMANCE RATIOS
Return on average assets 1.28% 1.48% 0.62% (14)% 139%
Return on average shareholders' equity 14.26 18.24 10.03 (22) 82
Net interest margin (taxable equivalent) 4.56 4.73 4.26 (4) 11
Non-interest expense/net revenue
(taxable equivalent) 69.82 66.85 76.69 4 (13)
Note: The December 31, 1994, 1993 and 1992 amounts include the effect of
business combinations (see Note 2 to the Consolidated Financial Statements).
24
2
Average shareholders' equity increased 39.8 percent in 1994 compared to 1993,
primarily due to retention of earnings and additional stock issuances under the
Dividend Reinvestment Plan, employee and director benefit plans and
acquisitions. Shareholders' equity at December 31, 1994 was $601.1 million, a
historical high. During 1994, the Company declared a total of $0.48 per share
in dividends, an increase of 100 percent over the $0.24 per share declared in
1993. Dividends were reinstated in the first quarter of 1993 and increased in
the first and third quarters of 1994.
Non-performing assets were $25.9 million at December 31, 1994, 42.1 percent
lower than the 1993 balance of $44.7 million. Non-performing assets at year end
1994 were at the lowest level since 1986. Non-performing assets as a percentage
of total loans, other real estate owned and other non-performing assets
declined to 0.69 percent at December 31, 1994 from 1.34 percent in 1993.
In 1994, the Company achieved or exceeded each of the five-year financial
objectives established in 1991. The objectives and the actual results are shown
below.
FINANCIAL OBJECTIVES
1996
1992 1993 1994 Targeted
Actual Actual Actual Range
----------------------------------------------------------
Return on assets 0.62% 1.48% 1.28% 1.10 - 1.35%
Return on equity 10.03 18.24 14.26 14.00 - 17.00
Average tangible equity/average assets
(leverage ratio) 6.66 8.42 8.07 6.50 - 7.50
Non-performing assets/total loans,
OREO and other non-performing assets 3.92 1.34 0.69 1.00 - 2.50
Net charge-offs/average loans 1.41 0.54 0.44 0.50 - 1.00
The Company significantly strengthened its presence in metro Atlanta by
completing several acquisitions in late 1993 and during 1994.
On December 2, 1993, the Company acquired the Barnett Banks of Atlanta and
Fayette County ("Barnett") and sold its Pensacola, Florida, subsidiary,
Citizens and Peoples National Bank, to Barnett Banks, Inc. At December 31,
1992, Barnett had assets of $789.0 million, which included $646.2 million of
loans and $699.0 million of deposits. This transaction was accounted for as a
purchase.
On March 11, 1994, the Company acquired the Merchant Bank Corporation in
Atlanta ("Merchant"). At December 31, 1993, Merchant had assets of $138.6
million, which included $73.9 million of loans and $124.6 million of deposits.
This transaction was accounted for as a pooling of interests.
On March 15, 1994, the Company acquired Chattahoochee Bancorp, Inc. in
Marietta, Georgia ("Chattahoochee"). At December 31, 1993, Chattahoochee had
assets of $258.5 million, which included $185.9 million of loans and $225.8
million of deposits. This transaction was accounted for as a purchase.
25
3
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
SELECTED FINANCIAL DATA
TABLE 1
1994 1993
---------------------------------------
Thousands of dollars, except share data
FOR THE YEAR
Net interest income (taxable equivalent) $ 255,975 $ 210,021
Net interest income 241,691 204,705
Provision for loan losses 6,397 19,213
Non-interest income 119,357 145,553
Non-interest expense 262,055 237,702
Income tax expense (benefit) 12,445 19,994
Net income (loss) 80,151 73,349
PER COMMON SHARE
Net income (loss) $ 1.47 $ 1.55
Cash dividends declared 0.48 0.24
Common book value 11.00 9.76
Common stock price:
High 21.00 16.13
Low 14.75 11.25
Year end 17.75 15.25
Price/earnings multiple 12.07X 9.84X
Price/book value multiple 1.61X 1.56X
AT YEAR END
Loans, net of unearned income $ 3,771,316 $ 3,318,598
Earning assets 6,265,216 5,190,802
Assets 6,929,265 5,764,768
Deposits 4,749,681 4,250,198
Long-term debt 89,554 98,738
Shareholders' equity 601,076 496,449
Common shares outstanding 54,644,880 50,858,597
AVERAGE BALANCES
Loans, net of unearned income $ 3,495,145 $ 2,856,127
Earning assets 5,617,891 4,438,107
Assets 6,262,786 4,951,546
Deposits 4,527,123 3,841,604
Long-term debt 94,155 71,257
Shareholders' equity 562,134 402,119
Weighted average common shares
and common share equivalents outstanding 54,343,754 47,407,392
KEY PERFORMANCE RATIOS
Return on average assets 1.28% 1.48%
Return on average shareholders' equity 14.26 18.24
Net interest margin (taxable equivalent) 4.56 4.73
Non-interest expense/net revenue (taxable
equivalent) 69.82 66.85
Shareholders' equity to total assets
at year end 8.67 8.61
Average shareholders' equity to average assets 8.98 8.12
Dividend payout 32.65 15.48
Note: The common stock price data represents actual sales prices without
retail markups, markdowns or commissions. The common stock is traded on
NASDAQ.
The financial information above includes the effect of business combinations
(see Note 2 to the Consolidated Financial Statements).
* Not meaningful
26
4
SELECTED FINANCIAL DATA
TABLE 1
Five Year
Compound
1992 1991 1990 1989 Growth Rate
------------------------------------------------------------------------------------
Thousands of dollars, except share data
FOR THE YEAR
Net interest income (taxable equivalent) $ 180, 043 $ 184,490 $ 211,313 $ 205,559 4.48%
Net interest income 178,059 173,571 194,050 188,286 5.12
Provision for loan losses 31,543 77,111 100,101 20,875 (21.06)
Non-interest income 123,401 95,378 86,619 81,636 7.89
Non-interest expense 233,393 262,534 198,893 189,105 6.74
Income tax expense (benefit) 6,827 (11,791) (8,930) 9,985 4.50
Net income (loss) 26,697 (58,905) (9,395) 49,957 9.92
PER COMMON SHARE
Net income (loss) 0.73 $ (1.59) $ (0.26) $ 1.38 1.30%
Cash dividends declared -- 0.26 0.51 0.47 0.42
Common book value 7.77 6.82 8.65 9.42 3.16
Common stock price:
High 12.88 8.25 12.50 14.25 8.06%
Low 5.63 5.00 5.50 10.13 7.80
Year end 11.75 5.63 6.25 11.88 8.36
Price/earnings multiple 16.10X * * 8.61X 7.00
Price/book value multiple 1.51X 0.83X 0.72X 1.26X 5.05
AT YEAR END
Loans, net of unearned income $2,788,569 $ 2,903,198 $ 3,416,599 $ 3,436,634 1.88%
Earning assets 4,146,936 4,123,086 4,741,552 4,758,219 5.66
Assets 4,714,024 4,708,264 5,470,814 5,327,217 5.40
Deposits 3,862,273 3,878,737 4,297,391 3,890,803 4.07
Long-term debt 60,367 63,317 64,703 82,299 1.60
Shareholders' equity 343,305 254,088 316,832 343,077 11.87
Common shares outstanding 44,140,901 37,185,682 36,628,297 36,431,187
AVERAGE BALANCES
Loans, net of unearned income 2,845,993 $ 3,161,703 $ 3,555,737 $ 3,452,583 0.25%
Earning assets 4,244,060 4,618,693 4,987,230 4,550,554 4.30
Assets 4,764,603 5,167,333 5,537,434 5,090,753 4.23
Deposits 3,796,605 4,122,864 4,033,590 3,844,513 3.32
Long-term debt 61,263 63,494 74,814 82,968 2.56
Shareholders' equity 296,029 291,694 334,091 322,316 11.77
Weighted average common shares
and common share equivalents outstanding 40,742,832 36,988,650 36,497,259 36,259,827
KEY PERFORMANCE RATIOS
Return on average assets 0.62% (1.14)% (0.17)% 0.98%
Return on average shareholders' equity 10.03 (20.19) (2.84) 15.50
Net interest margin (taxable equivalent) 4.26 3.99 4.24 4.52
Non-interest expense/net revenue (taxable
equivalent) 76.69 93.81 66.76 65.85
Shareholders' equity to total assets
at year end 7.27 5.38 5.79 6.44
Average shareholders' equity to average assets 6.21 5.64 6.03 6.33
Dividend payout * * * 34.06
27
5
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
On April 22, 1994, the Company entered Douglas County through the purchase of
the Lithia Springs branch of the Southern Federal Savings Association of
Georgia ("Lithia Springs") in a cash transaction from the RTC. Lithia Springs
had approximately $10.7 million of deposits.
On July 22, 1994, the Company acquired Citizens Express Company in Gainesville,
Georgia ("Citizens"). At December 31, 1993, Citizens had assets of $98.9
million, which included $58.6 million of loans and $89.8 million of deposits.
This transaction was accounted for as a pooling of interests (see Note 2 to
Consolidated Financial Statements).
In addition, the Company has a pending acquisition with Gwinnett Bancshares,
Inc., in Lawrenceville, Georgia ("Gwinnett"). The acquisition is expected to
close in the first quarter of 1995. At December 31, 1994, Gwinnett had assets
of $319.1 million, which included $164.2 million of loans and $283.4 million of
deposits. This transaction is expected to be accounted for as a pooling of
interests (see Note 20 to the Consolidated Financial Statements).
The Company has 145 banking offices, of which 50 are InStore banking locations,
primarily in Kroger stores throughout metro Atlanta. Average loan balances in
the InStore branches was $1.1 million per office during 1994, an increase of
30.5 percent compared to 1993. Average deposits in the InStore branches were
$9.1 million per office during 1994, an increase of 28.2 percent compared to
1993. The expansion of InStore banking locations with extended hours has
allowed the Company to provide convenient branch banking at a lower cost to the
Company.
NET INTEREST INCOME Net interest income, the primary source of earnings for the
Company, is the difference between interest income on earning assets, primarily
loans and investment securities, and interest expense on interest-bearing
liabilities, primarily deposits, which fund the assets. The level of the
Company's net interest income is a result of the level of earning assets,
combined with the various interest rate spreads between the assets and the
liabilities. Net interest income, on a taxable equivalent basis ("t.e."),
represented approximately 68.5 percent of net revenue (the total of net
interest income, t.e., and non-interest income excluding securities gains and
the pre-tax gain on sale of bank subsidiary in 1993) in 1994, as compared to
66.1 percent in 1993 and 66.5 percent in 1992. Net interest income, t.e., was
$256.0 million in 1994, compared to $210.0 million in 1993 and $180.9 million
in 1992. The 21.9 percent increase in 1994 was the result of higher levels of
average total loans ($639.0 million higher) and average investment securities
held to maturity ($364.3 million higher).
The net interest margin (net interest income, t.e., divided by average total
earning assets) is a key performance measure for net interest income. The net
interest margin was 4.56 percent in 1994, a decrease from 4.73 percent in 1993
and an increase from 4.26 percent in 1992. The decrease in 1994 compared to
1993 was primarily due to competitive pricing on loans, narrower spreads on
investments and a rising rate environment. The increase in 1993 compared to
1992 was due to significant transaction account deposit growth, an increase in
net income from hedging activities, a decline in higher cost time deposits and
a decline in non-performing assets.
Average earning assets increased to $5.6 billion in 1994 from $4.4 billion in
1993, primarily the result of an increase in investment securities and consumer
loans.
28
6
TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS
TABLE 2
1994 1993
Compared with 1993 Compared with 1992
increase (decrease) increase (decrease)
due to change in: due to change in:
-------------------------------------- -------------------------------------
Average Average Net increase Average Average Net increase
volume rate (decrease) volume rate (decrease)
------------------------------------------------------------------------------
Thousands of dollars
INTEREST INCOME
Loans, net of unearned income:
Taxable $ 52,689 $ (16,017) $ 36,672 $ 2,176 $ (9,591) $ (7,415)
Tax-exempt (318) 441 123 (1,141) (995) (2,136)
----------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income 52,371 (15,576) 36,795 1,035 (10,586) (9,551)
----------------------------------------------------------------------------------------------------------------------
Investment securities held to maturity:
Taxable 2,674 15,618 18,292 (14,639) (23,291) (37,930)
Tax-exempt 25,814 (135) 25,679 8,314 (14) 8,300
----------------------------------------------------------------------------------------------------------------------
Total investment securities
held to maturity 28,488 15,483 43,971 (6,325) (23,305) (29,630)
----------------------------------------------------------------------------------------------------------------------
Investment securities available
for sale (taxable) 29,782 (37,801) (8,019) 36,509 -- 36,509
Trading account securities 3,152 (158) 2,994 2,549 (199) 2,350
Federal funds sold (45) 131 86 3 234 237
Securities purchased under
agreements to resell (353) 774 421 2,066 (180) 1,886
Interest-bearing deposits 71 234 305 78 (34) 44
Other short-term investments (135) 1,539 1,404 (6,167) (1,841) (8,008)
----------------------------------------------------------------------------------------------------------------------
Total interest income 113,331 (35,374) 77,957 29,748 (35,911) (6,163)
----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest-bearing deposits:
NOW accounts 4,091 (508) 3,583 2,152 (2,531) (379)
Money market accounts 2,515 835 3,350 (919) (3,796) (4,715)
Savings accounts 2,417 (753) 1,664 (452) 346 (106)
Certificates of deposit
$100,000 or more 1,278 (900) 378 1,714 (871) 843
Other time deposits 3,981 (9,866) (5,885) (13,244) (16,105) (29,349)
----------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 14,282 (11,192) 3,090 (10,749) (22,957) (33,706)
----------------------------------------------------------------------------------------------------------------------
Federal funds purchased 7,152 2,112 9,264 1,142 (1,204) (62)
Securities sold under
agreements to repurchase 618 6,211 6,829 (1,508) (2,310) (3,818)
Commercial paper 1,536 60 1,596 103 -- 103
Other short-term borrowings 8,784 1,130 9,914 1,917 (31) 1,886
Long-term debt 1,399 (89) 1,310 594 (238) 356
----------------------------------------------------------------------------------------------------------------------
Total interest expense 33,771 (1,768) 32,003 (8,501) (26,740) (35,241)
----------------------------------------------------------------------------------------------------------------------
Change in net interest income $ 79,560 $ (33,606) $ 45,954 $ 38,249 $ (9,171) $ 29,078
======================================================================================================================
Note: In computing changes in average volumes and rates, the average
balances of non-accrual loans are included in average loan balances. The
changes in fully taxable equivalent interest income on tax-exempt loans and
investments have been computed assuming a 35 percent tax rate for 1994 and
1993 and a 34 percent tax rate for 1992.
29
7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
COMPARATIVE AVERAGE BALANCES YIELDS AND RATES
TABLE 3
1994
Income Yields
Average or & rates
balances expense percent
-------------------------------------------
Thousands of dollars
ASSETS
Loans, net of unearned income:
Taxable $3,432,081 $ 290,266 8.46%
Tax-exempt (taxable equivalent) 63,064 5,843 9.27
--------------------------------------------------------------------------------------------------------------
Total loans (taxable equivalent) 3,495,145 296,109 8.47
--------------------------------------------------------------------------------------------------------------
Investment securities held to maturity:
Taxable 880,996 53,641 6.09
Tax-exempt (taxable equivalent) 406,729 34,347 8.44
--------------------------------------------------------------------------------------------------------------
Total investment securities held to maturity (taxable equivalent) 1,287,725 87,988 6.83
--------------------------------------------------------------------------------------------------------------
Investment securities available for sale 534,657 28,490 5.33
Trading account securities 135,190 6,550 4.85
Federal funds sold 12,263 585 4.77
Securities purchased under agreements to resell 60,336 3,192 5.29
Interest-bearing deposits 20,882 884 4.23
Other short-term investments (taxable equivalent) 71,693 3,768 5.26
--------------------------------------------------------------------------------------------------------------
Total interest-earning assets 5,617,891 $ 427,566 7.61%
------------------------------------------------------------------------------- =========================
Cash and due from banks 372,363
Less: Allowance for loan losses 88,706
Premises and equipment, net 100,098
Other assets 261,140
-------------------------------------------------------------------------------
Total assets $6,262,786
===============================================================================
LIABILITIES
Interest-bearing deposits:
NOW accounts $ 770,921 $ 19,236 2.50%
Money market accounts 584,380 16,318 2.79
Savings accounts 473,035 11,558 2.44
Certificates of deposits $100,000 or more 301,118 13,167 4.37
Other time deposits 1,306,854 60,959 4.66
--------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 3,436,308 121,238 3.53
--------------------------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased 298,375 12,924 4.33
Securities sold under agreements to repurchase 385,529 17,986 4.67
Commercial paper 40,033 1,699 4.24
Other short-term borrowings 246,420 11,985 4.86
--------------------------------------------------------------------------------------------------------------
Total short-term borrowings 970,357 44,594 4.60
--------------------------------------------------------------------------------------------------------------
Long-term debt 94,155 5,759 6.12
--------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 4,500,820 $ 171,591 3.81%
------------------------------------------------------------------------------- =========================
Demand deposits 1,090,815
Other liabilities 109,017
-------------------------------------------------------------------------------
Total liabilities 5,700,652
SHAREHOLDERS' EQUITY 562,134
-------------------------------------------------------------------------------
Total liabilities and shareholders' equity $6,262,786
===============================================================================
Interest rate spread 3.80%
Net interest margin $ 255,975 4.56
==============================================================================================================
Note: In computing yields on earning assets, the average balances of
non-accrual loans are included in the average loan balances, and loan fees
are included in interest income. Fully taxable equivalent interest income on
tax-exempt loans and investments have been computed assuming a 35 percent
tax rate for 1994 and 1993, and a 34 percent tax rate for 1992. Loan fees
amounted to $9,747,050 in 1994, $8,140,000 in 1993 and $10,156,000 in
1992.
30
8
COMPARATIVE AVERAGE BALANCES YIELDS AND RATES
TABLE 3
1993 1992
Income Yields Income Yields
Average or & rates Average or & rates
balances expense percent balances expense percent
--------------------------------------------------------------------------
ASSETS Thousands of dollars
Loans, net of unearned income:
Taxable 2,787,826 $ 253,594 9.10% $ 2,764,999 $ 261,009 9.44%
Tax-exempt (taxable equivalent) 68,301 5,720 8.37 80,994 7,856 9.70
------------------------------------------------------------------------------------------------------------------------------
Total loans (taxable equivalent) 2,856,127 259,314 9.08 2,845,993 268,865 9.45
------------------------------------------------------------------------------------------------------------------------------
Investment securities held to maturity:
Taxable 822,367 35,349 4.30 1,072,144 73,279 6.83
Tax-exempt (taxable equivalent) 101,018 8,668 8.58 4,123 368 8.93
------------------------------------------------------------------------------------------------------------------------------
Total investment securities held to maturity
(taxable equivalent) 923,385 44,017 4.77 1,076,267 73,647 6.84
------------------------------------------------------------------------------------------------------------------------------
Investment securities available for sale 404,053 36,509 9.04 -- -- --
Trading account securities 69,972 3,556 5.08 18,620 1,206 6.48
Federal funds sold 13,750 499 3.63 13,574 262 1.93
Securities purchased under agreements to resell 75,706 2,771 3.66 16,834 885 5.26
Interest-bearing deposits 18,759 579 3.09 8,893 535 6.02
Other short-term investments (taxable equivalent) 76,355 2,364 3.10 263,879 10,372 3.93
------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 4,438,107 $ 349,609 7.88% 4,244,060 $ 355,772 8.38%
-------------------------------------------------------------- ===================== ----------- ==================
Cash and due from banks 354,030 303,966
Less: Allowance for loan losses 83,058 85,761
Premises and equipment, net 82,758 82,817
Other assets 159,709 219,521
-------------------------------------------------------------- -----------
Total assets 4,951,546 $ 4,764,603
============================================================== ===========
LIABILITIES
Interest-bearing deposits:
NOW accounts 606,148 $ 15,653 2.58% $ 558,553 $ 16,032 2.87%
Money market accounts 492,999 12,968 2.63 521,258 17,683 3.39
Savings accounts 369,643 9,894 2.68 274,679 10,000 3.64
Certificates of deposits $100,000 or more 258,666 12,789 4.94 220,556 11,946 5.42
Other time deposits 1,239,230 66,844 5.39 1,458,384 96,193 6.60
------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 2,966,686 118,148 3.98 3,033,430 151,854 5.01
------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased 121,051 3,660 3.02 109,793 3,722 3.39
Securities sold under agreements to repurchase 366,184 11,157 3.05 410,438 14,975 3.65
Commercial paper 3,437 103 3.00 -- -- --
Other short-term borrowings 59,716 2,071 3.47 4,212 185 4.39
------------------------------------------------------------------------------------------------------------------------------
Total short-term borrowings 550,388 16,991 3.09 524,443 18,882 3.60
------------------------------------------------------------------------------------------------------------------------------
Long-term debt 71,257 4,449 6.24 61,263 4,093 6.68
------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 3,588,331 $ 139,588 3.89% 3,619,136 $ 174,829 4.83%
-------------------------------------------------------------- ===================== ----------- ==================
Demand deposits 874,918 763,175
Other liabilities 86,178 86,263
-------------------------------------------------------------- -----------
Total liabilities 4,549,427 4,468,574
SHAREHOLDERS' EQUITY 402,119 296,029
-------------------------------------------------------------- -----------
Total liabilities and shareholders' equity 4,951,546 $ 4,764,603
============================================================== ===========
Interest rate spread 3.99% 3.55%
Net interest margin $ 210,021 4.73 $ 180,943 4.26
==============================================================================================================================
9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
COMPOSITION OF LOAN PORTFOLIO
TABLE 4
December 31,
1994 1993
Amount Percent Amount Percent
----------------------------------------------------------
Thousands of dollars
Commercial, financial and agricultural $ 1,014,963 27% $ 863,639 26%
Real estate construction 200,936 5 121,677 4
Commercial mortgages 550,656 15 537,485 16
1 - 4 Family residential mortgages 625,502 17 524,186 16
Consumer 1,365,750 36 1,290,622 38
Lease financing 31,855 -- 15,517 --
----------------------------------------------------------------------------------------------------------
Gross loans $ 3,789,662 100% $ 3,353,126 100%
==========================================================================================================
Note: During 1992 loans were reclassified between real estate construction and
commerical mortgages.
COMPOSITION OF LOANS BY COLLATERAL TYPE
TABLE 5
December 31,
1994 1993
Amount Percent Amount Percent
----------------------------------------------------------
Thousands of dollars
Real estate $ 1,570,992 42% $ 1,386,194 43%
Vehicles 1,236,146 33 1,057,460 32
Unsecured 370,315 10 346,887 10
Accounts receivable and inventory 214,079 5 175,462 5
Negotiable collateral 113,185 3 106,132 3
Equipment 109,688 3 96,158 3
Miscellaneous 99,384 2 109,959 3
Other chattel paper 27,687 1 28,618 1
Government or banking guaranty 29,840 1 11,728 -
----------------------------------------------------------------------------------------------------------
Total loans, net of unearned income $ 3,771,316 100% $3,318,598 100%
==========================================================================================================
Note: Loans may be secured by real estate, however repayment may depend on
other cash sources. Commercial and residential mortgages are primarily
owner-occupied. Loan classification is based on the collateral securing the
loan, not the purpose of the loan.
Average total loans were $3.5 billion in 1994 and $2.9 billion in 1993, an
increase of 20.7 percent. Average total loans represents 62.2 percent, 64.4
percent and 67.1 percent of average earning assets in 1994, 1993 and 1992,
respectively. Average consumer loans, including 1-4 family residential mortgage
loans and lines of credit, increased 41.4 percent during 1994 compared to 1993,
reflecting the Company's successful marketing program to expand retail consumer
services and indirect automobile lending. Average commercial loans, including
commercial mortgages, real estate construction and lease financing, increased
7.3 percent during 1994, compared to 1993. The renewed growth in commercial
loans reflects the rebound in the Atlanta economy and the completion of problem
loan resolution.
32
10
COMPOSITION OF LOAN PORTFOLIO
TABLE 4
December 31,
1992 1991 1990
Amount Percent Amount Percent Amount Percent
-----------------------------------------------------------------------------------
Thousands of dollars
Commercial, financial and agricultural $ 875,345 31% $1,008,758 35% $1,346,620 39%
Real estate construction 79,105 3 309,228 11 395,743 12
Commercial mortgages 626,149 22 479,789 16 481,476 14
1 - 4 Family residential mortgages 457,087 16 462,254 16 545,472 16
Consumer 741,218 27 629,170 22 632,471 18
Lease financing 13,956 1 21,721 -- 27,748 1
-----------------------------------------------------------------------------------------------------------------------------------
Gross loans $2,792,860 100% $2,910,920 100% $3,429,530 100%
===================================================================================================================================
LOANS BY PURPOSE THAT ARE COLLATERALIZED BY REAL ESTATE
TABLE 6
December 31,
1994 1993
Amount Percent Amount Percent
------------------------------------------------------
Thousands of dollars
Residential permanent $ 564,658 36% $ 489,906 36%
Commercial permanent 322,398 20 282,368 20
Capital expenditures and other business purposes 267,676 17 269,618 19
Miscellaneous 111,109 7 92,434 7
Residential construction 94,239 6 56,266 4
Residential acquisition and development 59,982 4 38,871 3
Commercial construction 43,182 3 57,336 4
Commercial land acquisition 34,583 2 32,324 2
Commercial interim 27,335 2 28,181 2
Commercial acquisition and development 21,320 1 13,076 1
Residential land acquisition 14,704 1 14,645 1
Residential interim 9,806 1 11,169 1
---------------------------------------------------------------------------------------------------------
Total loans secured by real estate $1,570,992 100% $1,386,194 100%
=========================================================================================================
33
11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Average investment securities held to maturity increased 39.5 percent in
1994. Average investment securities held to maturity represented 22.9
percent and 20.8 percent of earning assets at December 31, 1994 and 1993,
respectively. This growth was primarily due to increased holdings in
municipal bonds and collaterized mortgage obligations. The primary reasons
for the increase in investment securities held to maturity were to leverage
the Company's capital base and take advantage of tax benefits derived from
municipal securities. The $1.9 billion investment securities held to
maturity had an unrecognized loss of approximately $94.0 million, or 4.9
percent of portfolio cost, at December 31, 1994.
MATURITY DISTRIBUTION AND
YIELDS OF INVESTMENT SECURITIES HELD TO MATURITY
TABLE 7
DECEMBER 31, 1994 Cost
Fair Year-end December 31,
Cost value yield (1) 1993 1992
-----------------------------------------------------------
Thousands of dollars
U.S. TREASURY
One year or less $ 103,527 $ 103,157 5.51% $ 17,890 $ 19,544
Over one through five years 10,918 10,623 5.79 23,358 35,290
Over five through 10 years 99 99 7.64 484 819
---------------------------------------------------------------------------------------------
Total U.S. Treasury 114,544 113,879 5.53 41,732 55,653
---------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
One year or less 99 99 5.04 -- 2,162
Over one through five years 4,644 4,415 5.74 -- 24,969
Over five through 10 years (2) 5,242 5,110 7.45 23,807 13,054
Over 10 years (2) 990,514 951,834 6.48 405,582 230,159
---------------------------------------------------------------------------------------------
Total U.S. Government agency 1,000,499 961,458 6.48 429,389 270,344
---------------------------------------------------------------------------------------------
MUNICIPAL SECURITIES
One year or less 829 827 9.10 1,584 --
Over one through five years 4,009 3,941 8.84 2,173 266
Over five through 10 years 31,193 29,573 8.13 9,909 3,648
Over 10 years (2) 507,518 467,135 8.71 277,587 11,709
---------------------------------------------------------------------------------------------
Total municipal securities 543,549 501,476 8.68 291,253 15,623
---------------------------------------------------------------------------------------------
OTHER SECURITIES
One year or less 4,168 4,168 -- 4,268 431
Over one through five years -- -- -- 2,192 477
Over five through 10 years -- -- -- 298 399
Over 10 years (2) 283,096 270,911 7.74 452 25,675
---------------------------------------------------------------------------------------------
Total other securities 287,264 275,079 7.74 7,210 26,982
---------------------------------------------------------------------------------------------
Total investment securities
held to maturity $1,945,856 $1,851,892 7.24% $ 769,584 $ 368,602
=============================================================================================
(1) Weighted average yield computed on a fully taxable equivalent basis
assuming a tax rate of 35 percent.
(2) Includes mortgage-backed securities.
Note: The maturities used in this presentation are based on remaining
contractual maturities.
34
12
Average investment securities available for sale increased 32.3 percent during
1994, representing 9.5 percent and 9.1 percent of earning assets in 1994 and
1993, respectively. At December 31, 1994, investment securities available for
sale were $402.5 million compared to $1.1 billion at December 31, 1993. The
investments available for sale were reduced in anticipation of a rising rate
environment and higher yielding reinvestment opportunities. Investment
securities available for sale had a $5.1 million or 1.3 percent of portfolio
cost after tax decline in market value, reflected as an unrealized loss, which
was recorded in equity at December 31, 1994.
The Company adopted Statement of Financial Accounting Standards Number 115
("FAS 115"), "Accounting For Certain Investments in Debt and Equity
Securities," as of December 31, 1993 (see Notes 1, 4 and 5 to the Consolidated
Financial Statements). Management designates securities at the time of purchase
as either investment securities held to maturity, investment securities
available for sale, or trading account securities. Management intends to hold
until maturity the securities in the investment securities held to maturity
portfolio. Securities classified as investment securities available for sale
are used primarily for liquidity management, whereas the trading portfolio
includes the Company's broker/dealer inventory and any short-term trading
positions.
MATURITY DISTRIBUTION AND
YIELDS OF INVESTMENT SECURITIES AVAILABLE FOR SALE
TABLE 8
DECEMBER 31, 1994 December 31, 1993
Fair Year-end
Cost value yield (1) Cost
-----------------------------------------------------
Thousands of dollars
U.S. TREASURY
One year or less $ 17,487 $ 16,009 4.23% $ 4,457
Over one through five years 15,818 15,195 5.29 15,007
----------------------------------------------------------------------------------------
Total U.S. Treasury 33,305 31,204 4.74 19,464
----------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
One year or less 13 13 7.94 21
Over one through five years (2) 1,484 1,460 7.49 253,693
Over five through 10 years (2) 134,324 132,055 4.71 140,900
Over 10 years (2) 153,344 150,393 6.12 532,753
----------------------------------------------------------------------------------------
Total U.S. Government agency 289,165 283,921 5.47 927,367
----------------------------------------------------------------------------------------
OTHER SECURITIES
One year or less 392 391 6.00 --
Over one through five years 1,229 1,214 5.53 61,650
Over 10 years (2) 86,326 85,739 8.52 47,747
----------------------------------------------------------------------------------------
Total other securities 87,947 87,344 8.46 109,397
----------------------------------------------------------------------------------------
Total investment securities
available for sale $ 410,417 $ 402,469 6.01% $1,056,228
----------------------------------------------------------------------------------------
(1) Weighted average yield computed on a fully taxable equivalent basis
assuming a tax rate of 35 percent.
(2) Includes mortgage-backed securities.
Note: The maturities used in this presentation are based on remaining
contractual maturities.
35
13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Transaction account deposits, which include demand deposits, NOW, savings, and
money market accounts, increased substantially during the past two years.
Average transaction accounts were $2.9 billion in 1994 compared to $2.3 billion
in 1993 and $2.1 billion in 1992, an increase of 24.6 percent compared to 1993,
and 10.7 percent compared to 1992. The largest components of the increases in
both years were due to the demand deposit and savings account balances which
were largely attributable to the success of the Company's "Trade In Your Bank
III" marketing campaign and acquisitions.
Consumer and other time deposits grew 5.5 percent during 1994 compared to 1993
as the Company aggressively pursued longer term deposits in anticipation of
rising rates in 1994. Average core deposits, which includes transaction
accounts and consumer and other time, increased 18.0 percent during 1994
compared to 1993.
MATURITY SCHEDULE OF
TIME DEPOSITS $100,000 OR MORE
TABLE 9
Certificates of deposit and other time deposits
$100,000 or more: DECEMBER 31, 1994
--------------------
Thousands of dollars
Three months or less $ 122,696
Over three through six months 44,496
Over six through 12 months 71,435
Over 12 months 178,203
-----------------------------------------------------------------------
Total $ 416,830
=======================================================================
PROVISION FOR LOAN LOSSES The Company's provision for loan losses was $6.4
million in 1994, $19.2 million in 1993 and $31.5 million in 1992. Due to the
continued improvement in asset quality, lower than expected losses, and a
higher level of recoveries, no provision was recognized for the third and
fourth quarters of 1994. See "Asset Quality" for further discussion of the
allowance for loan losses.
36
14
ALLOWANCE FOR LOAN LOSSES
TABLE 10
December 31,
1994 1993 1992 1991 1990
------------------------------------------------------------------------------------
Thousands of dollars
Balance at beginning of year $ 86,511 $ 77,338 $ 85,865 $ 92,264 $ 40,120
Loans charged-off:
Commercial, financial and agricultural (9,280) (4,971) (20,790) (56,841) (19,304)
Real estate construction (369) (453) (5,512) (6,089) (13,407)
Commercial mortgage (3,152) (6,609) (10,887) (11,096) (6,851)
1-4 Family residential mortgage (5,445) (6,779) (5,213) (6,967) (429)
Consumer (17,598) (6,392) (7,864) (8,821) (12,274)
Lease financing (54) (656) (511) (422) (2)
Other -- -- (267) -- --
-------------------------------------------------------------------------------------------------------------------------------
Total loans charged-off (35,898) (25,860) (51,044) (90,236) (52,267)
-------------------------------------------------------------------------------------------------------------------------------
Recoveries on loans previously
charged-off:
Commercial, financial and agricultural 5,178 2,715 4,495 1,366 663
Real estate construction 2,215 135 134 397 167
Commercial mortgage 1,967 1,237 519 507 277
1-4 Family residential mortgage 3,210 1,878 1,040 561 38
Consumer 7,807 3,986 4,282 3,848 3,165
Lease financing 269 438 504 47 --
-------------------------------------------------------------------------------------------------------------------------------
Total loan recoveries 20,646 10,389 10,974 6,726 4,310
-------------------------------------------------------------------------------------------------------------------------------
Net loans charged-off (15,252) (15,471) (40,070) (83,510) (47,957)
Net increase as a result of business
combinations 2,496 5,431 -- -- --
Provision for loan losses
charged to expense 6,397 19,213 31,543 77,111 100,101
-------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 80,152 $ 86,511 $ 77,338 $ 85,865 $ 92,264
===============================================================================================================================
Total loans (net of unearned income)
at end of year $ 3,771,316 $ 3,318,598 $ 2,788,569 $ 2,903,198 $ 3,416,599
Average loans outstanding
during the year 3,495,145 2,856,127 2,845,993 3,161,703 3,555,737
Allowance for loan losses to loans
outstanding at end of year 2.13% 2.61% 2.77% 2.96% 2.70%
Net loans charged-off to average loans
outstanding during the year 0.44 0.54 1.41 2.64 1.35
37
15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NON-INTEREST INCOME Non-interest income of $119.4 million in 1994 included $1.7
million of pre-tax securities gains. Non-interest income of $145.6 million in
1993 included a pre-tax gain of $32.3 million on the sale of the bank
subsidiary and $5.5 million in pre-tax securities gains. Excluding these items,
non-interest income increased 9.2 percent in 1994 compared to 1993.
The growth in non-interest income, excluding securities gains and the gain on
the sale of the bank subsidiary, was a result of the Company's continuing
efforts to build stable sources of fee income, which include service charges on
deposits and revenues from electronic banking. This growth is being
accomplished through the building of customer market share, the aggressive
marketing of existing products, the innovative development of new products and
the expansion of the Company's locations and hours, Tele-Services, ATM network
and other interactive delivery channels.
The primary contributor to non-interest income growth in both 1994 and 1993 was
the continued growth in service charges on deposits. Service charges on deposit
accounts were $64.1 million in 1994, an increase of 19.3 percent compared to
1993. The increases in deposit service charge income were primarily due to the
Company's increase in retail transaction account volume. In 1994, service
charges on deposits represented 54.5 percent of non-interest income, excluding
securities gains and the gain on sale of the bank subsidiary, increasing from
49.9 percent in 1993 and 46.2 percent in 1992. Service charges on deposits
represented 17.2 percent of net revenue (net interest income, t.e. plus
non-interest income, excluding securities gains and the gain on sale of the
bank subsidiary in 1993), compared to 16.9 percent in 1993 and 15.5 percent in
1992.
Electronic banking income increased 29.9 percent and 35.7 percent in 1994 and
1993, respectively. These increases were primarily due to increases in ATM and
debit card income.
Trust income was $10.0 million in 1994, compared to $10.3 million in 1993 and
$10.5 million in 1992. Trust fees declined in 1994 primarily due to strategic
business decisions to exit or redefine certain lines of business, primarily
corporate trust, which will allow the Company to focus on more profitable
services. Partially offsetting these increases in non-interest income were
declines in mortgage revenue and public finance income, both of which were
negatively impacted by rapidly rising interest rates in 1994.
SUMMARY OF NON-INTEREST INCOME
TABLE 11
Year ended December 31,
1994 1993 1992 1991 1990
-----------------------------------------------------------------
Thousands of dollars
Service charges and fees on
deposit accounts $ 64,074 $ 53,711 $ 42,066 $ 40,321 $ 36,688
Electronic banking 17,257 13,284 9,789 10,044 8,600
Mortgage banking activities 3,590 4,338 4,984 4,280 3,502
Other service charges and fees 10,491 10,233 5,506 5,556 5,413
Trust income 9,990 10,323 10,485 9,505 8,486
Securities gains 1,735 5,541 32,382 8,414 3,584
Capital markets activity 5,661 6,193 5,398 4,967 5,065
Gain on sale of subsidiary -- 32,288 -- -- --
Other income 6,559 9,642 12,791 12,291 15,281
------------------------------------------------------------------------------------------------------
Total non-interest income $119,357 $145,553 $123,401 $ 95,378 $ 86,619
======================================================================================================
38
16
NON-INTEREST EXPENSE Non-interest expense in 1994 was $262.1 million, an
increase of 10.2 percent, compared to a 1.8 percent increase in 1993. Salaries
and benefits, which represents the largest component of non-interest expense
(48.2 percent), increased $10.1 million, or 8.7 percent. This increase was
primarily due to an increase in salaries, overtime and contract labor relating
to increased deposit account volume, acquisition conversion activity and
expanded hours. Total employees increased from 2,915 at December 31, 1993, to
3,340 at December 31, 1994, primarily due to the acquisitions, increases in the
number of branches and expanded branch hours.
SUMMARY OF NON-INTEREST EXPENSE
TABLE 12
Year ended December 31,
1994 1993 1992 1991 1990
-----------------------------------------------------------------
Thousands of dollars
Salaries and wages $ 97,622 $ 83,105 $ 84,712 $ 86,005 $ 78,784
Employee benefits 28,716 33,133 13,917 18,477 13,569
---------------------------------------------------------------------------------------------------------
Total salaries and employee benefits 126,338 116,238 98,629 104,482 92,353
Equipment 16,224 13,175 12,124 12,491 12,262
Occupancy 17,856 16,409 16,775 17,109 16,604
Other real estate owned 453 2,518 15,384 46,717 4,235
Electronic banking 7,070 4,963 3,762 4,204 4,134
Postage and freight 6,596 5,457 5,149 5,115 4,716
Stationery and supplies 5,339 4,739 4,142 3,797 3,719
Marketing and business development 12,150 11,447 8,128 7,720 7,485
Professional fees 9,869 12,369 12,842 13,619 7,780
Insurance and taxes 13,363 13,991 12,467 12,578 7,999
Intangible amortization 12,363 5,758 11,394 3,885 3,147
Other expense 34,434 30,638 32,597 30,817 34,459
---------------------------------------------------------------------------------------------------------
Total non-interest expense $ 262,055 $237,702 $ 233,393 $ 262,534 $198,893
=========================================================================================================
Equipment expense in 1994 increased $3.0 million or 23.1 percent compared to
1993. This was primarily due to the increase in equipment related to
acquisitions.
Other real estate owned expense decreased $2.1 million, or 82.0 percent in
1994, and 83.6 percent in 1993 compared to 1992. The decline directly relates
to the 20.7 percent and 87.1 percent decline in other real estate owned in 1994
and 1993, respectively. The reduction of other real estate owned and the
improved asset quality is also the primary reason for the decrease in
professional fees of $2.5 million in 1994.
Marketing expense increased 6.1 percent in 1994 and 40.8 percent in 1993,
related largely to the "Trade In Your Bank" campaigns in 1994 and 1993.
39
17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Amortization of intangible assets increased $6.6 million, or 114.7 percent in
1994, due to the goodwill and deposit base amortization related to the Barnett,
Chattahoochee and Lithia Springs branch acquisitions.
In 1993, non-interest expense included $14.0 million related primarily to
branch closings and consolidations in conjunction with recent acquisition
activity, costs associated with the sale of the Company's bank subsidiary, the
establishment of legal reserves, and above-target incentive and profit-sharing
accruals.
Management continues to emphasize the importance of expense management and
productivity throughout the Company. The goal of management has been to manage
the expense structure of the Company through strong budgetary controls and
expense policies. However, significant increases in customers and transaction
volumes during 1994 and 1993 required expanded levels of resources, both in
terms of personnel and technology.
The Company began a major business process re-engineering program in the second
quarter of 1994, which is expected to result in revenue and productivity
improvements in late 1995, 1996 and 1997. Specific recommendations should be
announced by mid-1995 and may result in charges to earnings.
INCOME TAXES Income tax expense was $12.4 million in 1994, or 13.4 percent of
pre-tax income, compared to $20.0 million, or 21.4 percent, in 1993 and $6.8
million, or 18.7 percent in 1992. The decrease in the effective tax rate from
1993 to 1994 is primarily attributable to the Company's investment in
tax-exempt securities. Statement of Financial Accounting Standards Number 109
("FAS 109"), "Accounting for Income Taxes," which was adopted in January 1993,
changed the Company's method of accounting for income taxes from the deferred
method to an asset and liability approach requiring recognition of deferred tax
assets and liabilities based upon the differences between the financial
statement and tax bases of assets and liabilities and available tax
carryforwards. At December 31, 1994, the net deferred tax asset was $16.3
million, net of a valuation allowance of $10.3 million compared to $19.4
million, net of a valuation allowance of $26.9 million at December 31, 1993.
The Company reduced its valuation allowance by $12.3 million in 1994 and $10.0
million in 1993. These reductions resulted in a corresponding reduction in the
Company's income tax expense. The reductions in the valuation allowance related
primarily to tax attributes that were utilized during 1993 and 1994. A
substantial portion of the Georgia state deferred tax valuation allowance of
$10.3 million at December 31, 1994, will reverse and thereby reduce state
income tax expense in future years as Georgia state taxable income is
generated. As it is utilized, approximately $1.7 million of the valuation
allowance will reduce goodwill rather than income tax expense. Management
evaluates the need for a valuation reserve on a quarterly basis. Note 18 to the
Consolidated Financial Statements provides a complete reconciliation of the
statutory rate to the effective rate and further discussion of FAS 109.
40
18
BALANCE SHEET MANAGEMENT
ASSET QUALITY Non-performing assets were $25.9 million at December 31, 1994,
compared to $44.7 million at December 31, 1993. Non-performing assets as a
percent of total loans, other real estate owned and other non-performing assets
was 0.69 percent and 1.34 percent at December 31, 1994, and 1993, respectively.
The decline in non-performing assets resulted from management's continued focus
on the resolution of problem loans and the disposal of foreclosed real estate.
Non-performing assets at December 31, 1994 included $22.2 million of
non-accrual and renegotiated loans, of which $13.2 million, or 59.6 percent,
were current as to both principal and interest. Non-accrual and renegotiated
loans were $37.6 million at December 31, 1993. Also included in non-performing
assets was other real estate owned, including in-substance foreclosures,
totalling $3.8 million at December 31, 1994 and $4.7 million at December 31,
1993.
Loans identified by management as potential problem assets (classified and
criticized loans) declined to 3.3 percent of total loans at December 31, 1994,
from 4.3 percent of total loans at December 31, 1993.
Loans charged-off during 1994 were $35.9 million compared to $25.9 million
during 1993. Further detail of loan charge-offs and recoveries is presented in
Table 10, "Allowance for Loan Losses."
The adequacy of the allowance for loan losses is regularly evaluated based on a
review of all significant loans, with emphasis on non-accrual, past-due, or
other loans that management has identified as potential problem loans. In
addition, consideration is given to economic conditions and concentrations,
including industry and geographic, when evaluating the allowance for loan
losses. Management does not believe that significant concentration of credit
risk exists in the portfolio.
NON-PERFORMING ASSETS
TABLE 13
December 31,
1994 1993 1992 1991 1990
-----------------------------------------------------------------
Thousands of dollars
Non-accrual loans $ 22,191 $ 36,553 $ 63,919 $129,110 $143,521
Renegotiated or restructured loans -- 1,020 7,630 7,721 2,572
Other real estate owned 3,753 4,735 36,584 79,932 84,394
Other non-performing assets -- 2,417 2,646 3,646 --
---------------------------------------------------------------------------------------------------------------------------
Total non-performing assets $ 25,944 $ 44,725 $110,779 $220,409 $230,487
===========================================================================================================================
Loans 90 days or more past due on accrual status $ 1,428 $ 1,586 $ 4,504 $ 12,619 $ 26,306
Potential problem loans 124,656 141,230 241,505 430,239 573,664
Potential problem loans to total loans 3.31% 4.26% 8.66% 14.82% 16.79%
Non-performing assets to total loans, other real estate
owned and other non-performing assets 0.69 1.34 3.92 7.38 6.58
Loans 90 days or more past due on accrual status
to total loans, other real estate owned
and other non-performing assets 0.04 0.05 0.16 0.42 0.75
Non-performing assets and loans 90 days or more
past due on accrual status to total loans, other
real estate owned and other non-performing assets 0.73 1.39 4.08 7.80 7.33
41
19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
ANALYSIS OF NON-ACCRUAL LOANS
TABLE 14
December 31,
1994 1993
Amount Percent Amount Percent
------------------------------------------------
Thousands of dollars
Private households:
Consumer installment loans $ 2,626 12% $ 3,168 9%
Single-family residential mortgage 649 3 832 2
--------------------------------------------------------------------------------------------------------
Total non-accrual loans to private households 3,275 15 4,000 11
--------------------------------------------------------------------------------------------------------
Corporate borrowers:
Real estate management and development 7,298 33 7,201 19
Business services 2,857 13 3,292 9
Manufacturing 2,238 10 2,787 8
Finance and insurance 1,925 9 3,862 11
Real estate construction and contractors 1,619 7 2,447 7
Transportation, utilities and communication 1,500 7 1,787 5
Retail 986 4 2,629 7
Wholesale 282 1 1,708 5
Agriculture, forestry and mining 211 1 5,409 14
Other -- -- 1,431 4
--------------------------------------------------------------------------------------------------------
Total non-accrual loans to corporate borrowers 18,916 85 32,553 89
--------------------------------------------------------------------------------------------------------
Total non-accrual loans $ 22,191 100% $36,553 100%
========================================================================================================
Note: Loans are categorized primarily by Standard Industry Classification to
establish exposure to economic segments.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
TABLE 15
December 31,
1994 1993
Amount Percent Amount Percent
-------------------------------------------
Thousands of dollars
Allowance for loan loss balance applicable to:
Commercial, financial and agricultural $ 9,057 12% $10,392 12%
Real estate construction 1,608 2 1,524 2
Commercial mortgages 6,470 8 9,218 11
1 - 4 Family residential mortgages 4,047 5 4,063 5
Consumer 12,112 15 16,975 20
Lease financing 111 -- 60 --
Unallocated 46,747 58 44,279 50
--------------------------------------------------------------------------------------------
Total $80,152 100% $86,511 100%
============================================================================================
42
20
The provision for loan losses, which is a charge to earnings in the current
period, replenishes the allowance for loan losses and maintains it at a level
management has determined to be adequate to provide for losses inherent in the
loan portfolio (see Note 1 to the Consolidated Financial Statements for a
discussion on methodology used to determine the adequacy of the allowance).
The allowance for loan losses was $80.2 million at December 31, 1994, compared
to $86.5 million at December 31, 1993. The allowance for loan losses as a
percent of total loans was 2.1 percent at December 31, 1994 and 2.6 percent at
December 31, 1993. The allowance for loan losses as a percent of non-performing
loans was 361.2 percent at December 31, 1994 and 230.2 percent at December 31,
1993. Table 15, "Allocation
FOREGONE INTEREST ON NON-ACCRUAL AND RESTRUCTURED LOANS
TABLE 16
December 31,
1994 1993 1992 1991 1990
-------------------------------------------------------------
Thousands of dollars
Interest income that would have been
accrued at original terms $ 2,907 $3,887 $ 8,028 $16,919 $ 18,219
Interest recognized on books 390 456 1,703 8,372 9,254
-----------------------------------------------------------------------------------------------------------
Foregone interest $ 2,517 $3,431 $ 6,325 $ 8,547 $ 8,965
===========================================================================================================
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
TABLE 15
December 31,
1992 1991 1990
Amount Percent Amount Percent Amount Percent
------------------------------------------------------------------
Thousands of dollars
Allowance for loan loss balance applicable to:
Commercial, financial and agricultural $13,180 17% $25,975 30% $31,378 34%
Real estate construction 3,121 4 9,177 11 9,021 10
Commercial mortgages 23,348 30 11,049 13 21,727 23
1 - 4 Family residential mortgages 5,786 8 4,808 6 5,232 6
Consumer 14,628 19 4,746 5 1,994 2
Lease financing 1,026 1 1,565 2 497 1
Unallocated 16,249 21 28,545 33 22,415 24
------------------------------------------------------------------------------------------------------------------
Total $77,338 100% $85,865 100% $92,264 100%
==================================================================================================================
43
21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
LOANS AND COMMITMENTS BY INDUSTRY SEGMENT
TABLE 17
December 31,
1994 1993
Percent of Percent of
total loans & total loans &
Balance commitments Balance commitments
--------------------------------------------------------
Thousands of dollars
Private households:
Consumer installment $1,637,474 30% $1,421,653 31%
Single-family residential mortgage 362,075 7 299,823 6
Consumer lines of credit 243,440 5 265,030 6
Home equity 183,805 3 249,002 5
---------------------------------------------------------------------------------------------------------
Total loans and commitments
to private households 2,426,794 45 2,235,508 48
---------------------------------------------------------------------------------------------------------
Corporate borrowers:
Manufacturing 524,970 10 451,722 10
Real estate management and development 487,345 9 384,725 9
Business services 366,603 7 278,474 6
Retail 356,943 7 295,936 6
Real estate construction and contractors 285,525 5 208,065 5
Finance and insurance 261,917 5 185,604 4
Transportation, utilities and communications 256,029 5 194,417 4
Other 213,401 4 247,143 5
Wholesale 188,633 3 140,874 3
---------------------------------------------------------------------------------------------------------
Total loans and commitments
to corporate borrowers 2,941,366 55 2,386,960 52
---------------------------------------------------------------------------------------------------------
Total loans and commitments $5,368,160 100% $4,622,468 100%
=========================================================================================================
Note: Loans and commitments are categorized primarily by Standard Industry
Classification to establish exposure to economic segments.
of the Allowance for Loan Losses," presents specific reserves by loan type and
the general portion of the Company's total allowance for loan losses. In
management's opinion, the allowance for loan losses was adequate at December
31, 1994.
Statement of Financial Accounting Standards Number 114 ("FAS 114"), "Accounting
by Creditors for Impairment of a Loan," was issued in May 1993 and amended in
October 1994 by Statement of Financial Accounting Standards Number 118 ("FAS
118"), "Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures." These statements are effective for fiscal years beginning
after December 15, 1994 and require that creditors account for impairment of a
loan by specifying how allowances for credit losses related to certain loans
should be determined. The impact of the adoption of FAS 114 and FAS 118 is
expected to be immaterial to the Company's results of operations and financial
position. The Company will adopt these standards as of January 1, 1995.
44
22
SUPPLEMENTAL MATURITY SCHEDULE OF SELECTED LOANS
TABLE 18
Supplemental maturity schedule of selected loans as of DECEMBER 31, 1994:
Over one
One year through Over
or less five years five years Total
----------------------------------------------------------
Thousands of dollars
Commercial, financial and agricultural $ 606,884 $ 260,522 $ 147,557 $1,014,963
Real estate construction 135,512 45,857 19,567 200,936
-----------------------------------------------------------------------------------------------------------
Total $ 742,396 $ 306,379 $ 167,124 $1,215,899
===========================================================================================================
Over one
through Over
five years five years
---------------------------
Thousands of dollars
Fixed interest rate $ 150,893 $ 82,868
Variable interest rate 155,486 84,256
--------------------------------------------------------------------------------------------
Total $ 306,379 $ 167,124
============================================================================================
Note: Demand loans and overdrafts are reported as due in one year or less. Loan
maturity is based upon scheduled principal payments.
CAPITAL AND DIVIDENDS In 1994, the Company continued to strengthen its capital
position. At December 31, 1994, shareholders' equity of $601.1 million was at
the highest level in the Company's history, representing a $104.6 million, or
21.1 percent, increase over shareholders' equity at December 31, 1993.
Shareholders' equity as a percent of total assets was 8.7 percent at December
31, 1994, compared to 8.6 percent at December 31, 1993. The Dividend
Reinvestment and Stock Purchase Plan provided $1.6 million of additional
capital during 1994 and $59.4 million during 1993. The decrease was primarily
the result of discontinuing the five percent discount provision of the plan,
effective November 1, 1993. This discount was eliminated since the Company had
achieved all capital goals.
45
23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
During 1994, 2.8 million shares of common stock were issued in connection with
the acquisition of Chattahoochee Bancorp, Inc. This transaction increased
equity by $46.4 million. During the fourth quarter of 1993, 1.7 million shares
of common stock were issued in connection with the acquisition of the Atlanta
banking franchise of Barnett Banks, Inc. This transaction increased
shareholders' equity by $23.3 million. During the first quarter of 1992, the
Company announced the issuance of five million shares of common stock in
Europe. The transaction was closed on April 9, 1992. This transaction provided
an additional $39.4 million of equity.
SUPPLEMENTAL SELECTED SHAREHOLDERS' EQUITY DATA
TABLE 19
Year ended December 31,
1994 1993 1992 1991 1990
--------------------------------------------------------
Thousands of dollars, except per share data
Shareholders' equity at year-end $601,076 $ 496,449 $ 343,305 $ 254,088 $ 316,832
Shareholders' equity and long-term
debt at year-end 690,630 595,187 403,672 317,405 381,535
Book value per common share at year-end 11.00 9.76 7.77 6.82 8.65
Dividend payout percentage 32.65% 15.48% * * *
Year-end shareholders' equity as a
percent of year-end:
Loans, net of unearned income 15.94 14.96 12.31% 8.75% 9.27%
Assets 8.67 8.61 7.28 5.40 5.79
Deposits 12.66 11.68 8.89 6.55 7.37
Shareholders' equity and long-term debt 87.03 83.41 85.05 80.05 83.04
Internal capital generation rate:
Return on average total equity (multiplied by) 14.26 18.24 10.03 (20.19) (2.84)
Percentage of earnings retained 55.78 81.90 100 * *
-------------------------------------------------------------------------------------------------------
Internal capital generation rate 7.95% 14.94% 10.03% * *
=======================================================================================================
* Not meaningful
At December 31, 1994, the Company's Tier 1 capital ratio was 10.72 percent, the
Total risk-based capital ratio was 12.44 percent and the Leverage ratio was
8.07 percent. These ratios are in excess of regulatory requirements, as
presented in Table 20, "Capital Adequacy." Bank South, N.A., the Company's bank
subsidiary is considered "well capitalized" by banking regulators.
Capital planning is an integral part of the Company's overall planning process.
Capital adequacy is regularly monitored and reviewed to ensure that appropriate
levels of capital are maintained to meet both current operating needs and
anticipated future requirements. Further discussion of capital, including
restrictions on the payment of dividends, can be found in Note 13 to the
Consolidated Financial Statements.
46
24
In 1994, the Company's Board of Directors declared dividends of $0.48 per share
for an increased dividend payout of 32.7 percent compared to 15.5 percent in
1993. The current level of dividend payout is expected to be maintained, within
a target range of 25 percent to 35 percent, in a manner commensurate with
earnings growth and capital requirements. It is the Company's belief that its
shareholders seek a consistent long-term return on their investment, including
a stable pattern of earnings growth coupled with a steadily increasing cash
dividend.
CAPITAL ADEQUACY
TABLE 20
Year ended December 31,
1994 1993 1992
Amount Percent Amount Percent Amount Percent
-------------------------------------------------------------------
Thousands of dollars
RISK-BASED CAPITAL
Tier 1 capital:
Actual $496,487 10.72% $409,347 9.80% $316,927 9.60%
Minimum required 185,236 4.00 167,118 4.00 132,042 4.00
-----------------------------------------------------------------------------------------------------
Excess $311,251 6.72% $242,229 5.80% $184,885 5.60%
=====================================================================================================
Total risk-based capital:
Actual $575,920 12.44% $504,634 12.08% $405,142 12.27%
Minimum required 370,472 8.00 334,235 8.00 264,084 8.00
-----------------------------------------------------------------------------------------------------
Excess $205,448 4.44% $170,399 4.08% $141,058 4.27%
=====================================================================================================
Tier 1 capital leverage ratio:
Actual $496,487 8.07% $409,347 8.42% $316,927 6.66%
Maximum requirement* 231,545 5.00 208,897 5.00 151,875 5.00
-----------------------------------------------------------------------------------------------------
Excess $264,942 3.07% $200,450 3.42% $165,052 1.66%
=====================================================================================================
* The regulatory requirement for leverage ratio is 3 percent to 5 percent. This
is determined by the Federal Reserve using various criteria.
LIQUIDITY Liquidity represents the ability to provide funding for lending and
investment activities, as well as to cover deposit withdrawals and pay debt and
operating obligations. These funds can be obtained by converting assets to
cash, attracting new deposits, or borrowing funds. Many factors impact the
Company's ability to meet liquidity needs, including variations in the markets
served by the branch office network, asset/liability mix, reputation and credit
standings in the market, and general economic conditions. Maintaining an
adequate level of liquidity is a critical balance sheet management objective.
At December 31, 1994, the Company's balance sheet was highly liquid. The
Company's core deposits as a percent of loans were 116.3 percent in 1994
compared to 121.2 percent in 1993 and 130.4 percent in 1992. Short-term liquid
assets as a percent of volatile short-term liabilities were 279.86 percent in
1994, 544.06 percent in 1993 and 293.10 percent in 1992. Balance sheet
liquidity in 1994 and 1993 was enhanced by significant core deposit
47
25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
growth and new equity raised through the Dividend Reinvestment and Stock
Purchase Plan. In addition, the Company's access to debt markets was
improved in 1994 by upgrades in debt ratings, continued improvement in asset
quality, an increased level of capital, and increased profitability.
INTEREST RATE SENSITIVITY AND ASSET LIABILITY MANAGEMENT Interest rate
sensitivity refers to the responsiveness of interest-earning assets and
interest-bearing liabilities to changes in market interest rates. To lessen
the impact of rate movements, the balance sheet is structured such that
differences in repricing opportunities between assets and liabilities are
minimized.
Interest rate risk management, an important component of the overall
risk management program of the Company, includes monitoring of the balance
sheet composition and its associated sensitivity to interest rate changes.
Interest rate sensitivity is monitored on a monthly basis by simulating net
interest income under varying interest rate scenarios. The simulation model
utilizes maturity and repricing data on loans, investments, derivative
financial instruments, deposits and other interest-bearing liabilities to
predict future levels of net interest income. The model measures net
interest income, t.e., at risk as the difference between net interest income
under rising and falling rate environments and net interest income, t.e., in
an unchanged rate environment. The Company's policy is to actively manage
the balance sheet so that net interest income simulated over a 12-month
period under 100, 200 and 300 basis point changes in rates does not vary
adversely from net interest income produced in an unchanged rate environment
by more than 2 percent, 5 percent and 8 percent, respectively. At December
31, 1994, the decrease in net interest income under 100, 200 and 300 basis
point increases in rates would have been 1.6 percent, 3.7 percent and 6.3
percent, respectively. A measure of longer-term interest rate risk is the
market value of portfolio equity, which is the present value of asset cash
flows less the present value of liability cash flows, adjusted for
off-balance activity. At December 31, 1994, the Company was liability
sensitive. The sensitivity of the market value of portfolio equity to
changes in interest rates is measured in comparison to established policy
guidelines. At December 31, 1994, the Company was in compliance with its
market value of portfolio equity policies.
It is the Company's policy to utilize derivative financial instruments,
primarily interest rate swap and interest rate cap agreements, to reduce its
exposure to interest rate fluctuations. Income streams from underlying
assets and liabilities are offset with income received or paid on interest
rate swaps and caps. Consequently, the overall impact of rate movements on
net interest income for the interest rate swap and cap portfolio must be
evaluated in conjunction with the impact of rate movements on the underlying
assets which the swaps are hedging.
Interest rate swap and cap agreements are used to modify the repricing
characteristics of interest-earning assets and interest-bearing liabilities.
These agreements generally involve the receipt of fixed-rate interest
payments in exchange for floating-rate interest payments over the life of
the agreement without an exchange of the underlying notional amount. The
differential to be paid or received is accrued as interest rates change and
recognized as an adjustment to interest expense or interest income related
to the underlying hedged item. The related amount payable to, or receivable
from, counterparties is included in other liabilities or assets. The fair
value changes in the interest rate swap and cap agreements are recognized in
accordance with the accounting for the underlying hedged item (see Note 1 to
the Consolidated Financial Statements).
48
26
Interest rate swap and cap agreements are stated in terms of a notional
amount, which represents a value used to compute the amount of interest to
be received or paid under the agreement. The Company's risk of loss relates
to the ability of the counterparties to make the interest payments required
under the terms of the agreements. Counterparties must meet rigorous credit
standards and be approved by the Company's Capital Markets Credit Committee
before entering into interest rate swap and cap agreements. Counterparties
to the contract must provide collateral sufficient to protect the other
party from significant exposure to loss. At December 31, 1994, the Company
had sufficient collateral to cover any loss exposure.
The notional balance for interest rate swaps and caps at December 31,
1994 was $2.1 billion and $1.5 billion, respectively. At December 31, 1993,
the Company had $1.5 billion in interest rate swaps and no interest rate
caps. The net unrealized market value loss on total derivative financial
instruments at December 31, 1994 was approximately $90.4 million, or 2.4
percent of total notional balance for total derivative financial instruments
compared to a net unrealized market value gain at December 31, 1993 of
approximately $25.9 million, or 1.6 percent. The Company terminated $430.0
million in interest rate swaps in 1994 resulting in $1.0 million in gains.
The termination of these interest rate swaps was due to the sale of the
underlying assets and in the course of the Company's asset and liability
management process. The Company has $1.9 billion of interest rate swaps
whose maturities extend when interest rates rise as a means of constructing
more effective hedges (see Note 14 to the Consolidated Financial
Statements).
DERIVATIVE FINANCIAL INSTRUMENTS
Table 21
Pay fixed Receive fixed
notional amount notional amount Total
----------------------------------------------
Thousands of dollars
INTEREST RATE SWAP
Beginning balance, January 1, 1994 $ 115,000 $ 1,372,273 $ 1,487,273
Additions 350,000 1,275,000 1,625,000
Amortization -- (606,762) (606,762)
Terminations (315,000) (115,000) (430,000)
------------------------------------------------------------------------------------
Ending balance, December 31, 1994 $ 150,000 $ 1,925,511 $ 2,075,511
====================================================================================
Receive fixed
notional amount
--------------------
Thousands of dollars
INTEREST RATE CAP
Beginning balance, January 1, 1994 $ --
Additions 1,547,000
------------------------------------------------------
Ending balance, December 31, 1994 $ 1,547,000
======================================================
49
27
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
SELECTED QUARTERLY DATA
TABLE 22
1994 1993
Fourth Third Second First Fourth Third Second First
-----------------------------------------------------------------------------------------------------
Thousands of dollars, except per share data
FOR THE QUARTER
Interest income
(taxable equivalent) $ 118,843 $ 109,727 $ 100,380 $ 98,616 $ 92,053 $ 87,555 $ 86,196 $ 83,805
Interest income 114,251 105,789 97,293 95,949 89,985 86,123 85,254 82,931
Interest expense 54,539 45,379 36,603 35,070 37,125 34,778 33,436 34,249
--------------------------------------------------------------------------------------------------------------------------------
Net interest income 59,712 60,410 60,690 60,879 52,860 51,345 51,818 48,682
Provision for loan losses -- -- 2,000 4,397 2,871 4,705 5,528 6,109
--------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 59,712 60,410 58,690 56,482 49,989 46,640 46,290 42,573
Securities gains (losses) 47 (162) 2,180 (330) (319) 961 1,054 3,845
Gain on sale of subsidiary -- -- -- -- 32,288 -- -- --
Other non-interest income 31,158 29,915 29,045 27,504 27,352 27,806 27,988 24,578
Other real estate owned (56) (5) 350 164 1,102 369 953 94
Other non-interest expense 68,986 67,666 64,157 60,793 69,788 56,186 54,751 54,459
--------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 21,987 22,502 25,408 22,699 38,420 18,852 19,628 16,443
Income tax expense 2,538 1,813 3,753 4,341 9,586 3,324 4,751 2,333
--------------------------------------------------------------------------------------------------------------------------------
Net income $ 19,449 $ 20,689 $ 21,655 $ 18,358 $ 28,834 $ 15,528 $ 14,877 $ 14,110
=================================================================================================================================
Per common share
Net income $ 0.35 $ 0.38 $ 0.39 $ 0.35 $ 0.58 $ 0.32 $ 0.32 $ 0.31
Cash dividends declared 0.13 0.13 0.11 0.11 0.08 0.08 0.04 0.04
Common book value 11.00 10.81 10.55 10.26 9.76 8.96 8.55 8.16
Common stock price:
High 18.50 21.00 20.38 19.13 15.88 16.13 14.00 14.75
Low 16.38 18.38 17.25 14.75 13.13 11.25 11.25 11.63
Quarter-end 17.75 18.50 18.00 18.25 15.25 15.50 12.88 13.63
Notes: The common stock price data represents actual sales prices without
retail markups or commissions.
The balances shown above have been restated for business combinations accounted
for under the pooling of interests method (see Note 2 to the Consolidated
Financial Statements).
A provision for loan losses was not recorded in the 3rd or 4th quarters of 1994
compared to $2.9 million and $4.7 million in the respective period of 1993.
This reduced provision was the result of larger-than-expected recoveries and
the significant improvement in asset quality.
Income tax expense declined 73.5 percent for the 4th quarter of 1994 compared
to the same period of 1993 due to the effects of the sale of the bank
subsidiary in 4th quarter 1993 with a tax effect of $12.5 million.
50
28
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of Bank South Corporation
We have audited the accompanying consolidated balance sheets of Bank South
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bank South
Corporation and subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
Atlanta, Georgia
January 19, 1995
Ernst & Young LLP
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
The management of Bank South Corporation and its subsidiaries has prepared the
accompanying financial statements and is responsible for their integrity and
objectivity. The statements, which include amounts that are based on
management's best estimates and judgment, have been prepared in conformity with
generally accepted accounting principles and are free of material misstatement.
Management also prepared the other information in the annual report to
shareholders and is responsible for its accuracy and consistency with the
financial statements.
The Company maintains a system of internal control over financial reporting,
which is designed to provide reasonable assurance to the Company's management
and board of directors regarding the preparation of reliable published annual
and interim financial statements. The system contains self-monitoring
mechanisms, and actions are taken to correct deficiencies as they are
identified. Even an effective internal control system, no matter how well
designed, has inherent limitations -- including the possibility of the
circumvention or overriding of controls -- and therefore can provide only
reasonable assurance with respect to financial statement preparation. Further,
because of changes in conditions, internal control system effectiveness may
vary over time.
The Company assessed its internal control system as of December 31, 1994 in
relation to criteria for effective internal control over the preparation of its
published annual and interim financial statements described in "Internal
Control -- Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, the Company
believes that, as of December 31, 1994, its system of internal control over the
preparation of its published annual and interim financial statements met those
criteria.
Patrick L. Flinn
------------------------------------
Patrick L. Flinn
Chairman and Chief Executive Officer
Ralph E. Hutchins, Jr.
------------------------
Ralph E. Hutchins, Jr.
Chief Financial Officer
51
29
CONSOLIDATED BALANCE SHEETS
December 31,
1994 1993
---------------------------------------
Thousands of dollars, except share data
ASSETS
Cash and due from banks:
Interest bearing deposits $ 19,495 $ 19,304
Non-interest bearing deposits and cash 349,619 355,000
---------------------------------------------------------------------------------------------------------
Total cash and due from banks - Note 3 369,114 374,304
---------------------------------------------------------------------------------------------------------
Federal funds sold and securities purchased under agreements to resell 50,649 9,170
Trading account securities 75,431 13,154
Investment securities available for sale - Note 4 402,469 1,060,992
Investment securities held to maturity (fair value $1,851,892 at
December 31, 1994 and $765,423 at December 31, 1993) - Note 5 1,945,856 769,584
Loans 3,789,662 3,353,126
Less: Unearned income 18,346 34,528
Allowance for loan losses 80,152 86,511
---------------------------------------------------------------------------------------------------------
Net loans - Note 6 3,691,164 3,232,087
---------------------------------------------------------------------------------------------------------
Premises and equipment, net - Note 7 107,170 95,063
Customers' acceptance liability 770 1,733
Other real estate owned, net - Note 8 3,753 4,735
Other assets 282,889 203,946
---------------------------------------------------------------------------------------------------------
Total assets $6,929,265 $5,764,768
=========================================================================================================
LIABILITIES
Non-interest bearing demand deposit accounts $1,163,119 $1,084,236
Interest-bearing deposits:
NOW accounts 752,684 750,506
Money market accounts 572,681 539,577
Savings accounts 443,550 424,275
Certificates of deposit $100,000 or more 364,584 228,365
Other time deposits 1,453,063 1,223,239
------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 3,586,562 3,165,962
------------------------------------------------------------------------------------------------------------
Total deposits - Note 9 4,749,681 4,250,198
------------------------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased and securities sold under
agreements to repurchase 944,153 511,296
Commercial paper 49,773 21,616
Other short-term borrowings 375,998 255,283
------------------------------------------------------------------------------------------------------------
Total short-term borrowings - Note 10 1,369,924 788,195
------------------------------------------------------------------------------------------------------------
Bank acceptances outstanding 770 1,733
Long-term debt - Note 11 89,554 98,738
Other liabilities 118,260 129,455
------------------------------------------------------------------------------------------------------------
Total liabilities 6,328,189 5,268,319
------------------------------------------------------------------------------------------------------------
Commitments and contingencies - Note 12
SHAREHOLDERS' EQUITY 1994 1993
------------------------------
Preferred stock:
Par value $25 $25
Shares authorized 5,000,000 5,000,000
Shares issued and outstanding -- -- -- --
Common stock:
Par value $ 5 $ 5
Shares authorized 100,000,000 100,000,000
Shares issued and outstanding 54,644,880 50,858,597 273,224 254,293
Capital surplus 189,267 149,497
Retained earnings 143,683 89,562
Unrealized (loss) gain on investment securities
available for sale, net of tax (5,098) 3,097
------------------------------------------------------------------------------------------------------------
Total shareholders' equity - Note 13 601,076 496,449
------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 6,929,265 $ 5,764,768
============================================================================================================
See Notes to Consolidated Financial Statements.
52
30
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31,
1994 1993 1992
----------------------------------------
Thousands of dollars, except share data
INTEREST INCOME
Interest and fees on loans:
Taxable $ 290,266 $ 253,594 $ 261,009
Tax-exempt 3,714 3,734 5,222
-----------------------------------------------------------------------------------------------------------------------
Total interest and fees on loans - Note 6 293,980 257,328 266,231
-----------------------------------------------------------------------------------------------------------------------
Interest on investment securities held to maturity:
Taxable 53,444 35,349 73,279
Tax-exempt 22,288 5,632 250
-----------------------------------------------------------------------------------------------------------------------
Total interest on investment securities held to maturity 75,732 40,981 73,529
-----------------------------------------------------------------------------------------------------------------------
Interest and dividends on investment securities
available for sale (taxable) 28,687 36,509 --
Trading account securities 6,454 3,262 1,074
Federal funds sold and securities purchased under agreements to resell 3,777 3,270 1,147
Interest-bearing deposits 884 579 535
Other short-term investments 3,768 2,364 10,372
-----------------------------------------------------------------------------------------------------------------------
Total interest income 413,282 344,293 352,888
-----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits:
NOW accounts 19,236 15,653 16,032
Money market accounts 16,318 12,968 17,683
Savings accounts 11,558 9,894 10,000
Certificates of deposit $100,000 or more 13,167 12,789 11,946
Other time deposits 60,959 66,844 96,193
-----------------------------------------------------------------------------------------------------------------------
Total interest on deposits - Note 9 121,238 118,148 151,854
-----------------------------------------------------------------------------------------------------------------------
Interest on short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase 30,910 14,817 18,697
Other short-term borrowings 13,684 2,174 185
-----------------------------------------------------------------------------------------------------------------------
Total interest on short-term borrowings - Note 10 44,594 16,991 18,882
-----------------------------------------------------------------------------------------------------------------------
Interest on long-term debt - Note 11 5,759 4,449 4,093
-----------------------------------------------------------------------------------------------------------------------
Total interest expense 171,591 139,588 174,829
-----------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 241,691 204,705 178,059
Less: Provision for loan losses - Note 6 6,397 19,213 31,543
-----------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 235,294 185,492 146,516
-----------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Trust income 9,990 10,323 10,485
Service charges and fees on deposit accounts 64,074 53,711 42,066
Electronic banking 17,257 13,284 9,789
Mortgage banking activities 3,590 4,338 4,984
Other service charges and fees 10,491 10,233 5,506
Capital markets activities 5,661 6,193 5,398
Gain on sale of subsidiary - Note 2 -- 32,288 --
Securities gains - Note 4 1,735 5,541 32,382
Other income 6,559 9,642 12,791
-----------------------------------------------------------------------------------------------------------------------
Total non-interest income 119,357 145,553 123,401
-----------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 126,338 116,238 98,629
Occupancy 17,856 16,409 16,775
Equipment 16,224 13,175 12,124
Other real estate owned 453 2,518 15,384
Other expense 101,184 89,362 90,481
-----------------------------------------------------------------------------------------------------------------------
Total non-interest expense 262,055 237,702 233,393
-----------------------------------------------------------------------------------------------------------------------
Income before income taxes 92,596 93,343 36,524
Income tax expense [including tax expense of $233; $1,186; and
$6,055 on securities gains for 1994, 1993 and 1992, respectively] 12,445 19,994 6,827
-----------------------------------------------------------------------------------------------------------------------
NET INCOME $ 80,151 $ 73,349 $ 29,697
=======================================================================================================================
Earnings per common share $ 1.47 $ 1.55 $ 0.73
=======================================================================================================================
Weighted average common shares and
common share equivalents outstanding 54,343,754 47,407,392 40,742,832
=======================================================================================================================
See Notes to Consolidated Financial Statements.
53
31
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
1994 1993 1992
-----------------------------------------------
Thousands of dollars
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 80,151 $ 73,349 $ 29,697
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Provision for loan losses 6,397 19,213 31,543
Provision for losses on other real estate owned 1,046 3,760 13,913
Depreciation and amortization expense - premises and equipment 12,143 9,001 8,611
Amortization expense - intangible and other assets 12,363 5,758 11,394
Deferred income tax expense (benefit) 7,497 (1,715) 2,591
Net amortization of investment security premiums and discounts 4,624 2,831 861
Securities gains (1,735) (5,541) (32,382)
Net unrealized valuation gain on trading account securities (258) (373) (36)
Net realized gain on sales of other assets (1,113) (3,870) (603)
Net (increase) decrease in trading account securities (62,019) 47,457 (50,548)
Net (increase) decrease in mortgage loans held for sale (27,816) (23,038) 5,658
Net (increase) decrease in interest receivable (14,565) 1,590 2,924
Net (increase) decrease in other assets (51,541) (6,501) 15,927
Net increase (decrease) in interest payable 8,046 (10,189) (612)
Net (decrease) increase in other liabilities (25,029) 44,629 27,826
Gain on sale of subsidiary -- (32,288) --
---------------------------------------------------------------------------------------------------------------------------
Total adjustments (131,960) 50,724 37,067
---------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (51,809) 124,073 66,764
---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold and securities
purchased under agreements to resell (28,069) 35,050 21,793
Net decrease in other short-term investments - 90 days or less -- -- 143,763
Proceeds collected from matured other short-term investments -
90 days or more -- 1,240 169,660
Purchases of investment securities held to maturity (1,278,966) (1,596,437) --
Purchases of investment securities available for sale (3,731,581) (1,534,934) --
Proceeds from sales of investment securities available for sale 4,198,817 2,154,718 --
Proceeds from calls, maturities and redemptions of investment
securities held to maturity 145,309 185,036 --
Proceeds from calls, maturities and redemptions of investment
securities available for sale 183,449 151,566 --
Purchase of investment securities held to maturity and
investment securities available for sale -- -- (1,435,206)
Proceeds from sales of investment securities held to maturity and
investment securities available for sale -- -- 816,138
Proceeds from calls, maturities and redemptions of investment securities
held to maturity and investment securities available for sale -- -- 237,311
Net (increase) decrease in loans (292,157) (164,439) 21,668
Purchases of premises and equipment (26,440) (15,078) (5,033)
Proceeds from sales of premises and equipment 8,085 3,661 1,883
Proceeds from sales of other real estate owned 8,257 31,823 68,033
Proceeds from recoveries on loans previously charged-off 20,646 10,058 10,294
Business combinations, net of cash acquired 7,872 (9,798) --
---------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (784,778) (747,534) 50,304
---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 279,603 43,599 (12,960)
Net increase (decrease) in short-term borrowings 574,729 460,909 (93,488)
Repayments of long-term debt (9,184) (1,104) (2,900)
Proceeds from long-term debt -- 40,000 --
Cash dividends paid (26,030) (11,267) --
Proceeds from employee and director stock purchases 10,716 5,303 1,007
Proceeds from foreign stock issuance -- -- 39,430
Proceeds from dividend reinvestment plan 1,563 59,389 19,083
---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 831,397 596,829 (49,828)
---------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and due from banks (5,190) (26,632) 67,240
Cash and due from banks at beginning of year 374,304 400,936 333,696
---------------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 369,114 $ 374,304 $ 400,936
===========================================================================================================================
See Notes to Consolidated Financial Statements.
54
32
SUPPLEMENTARY INFORMATION
Year ended December 31,
1994 1993 1992
--------------------------------------------
Thousands of dollars
Income taxes paid $ 26,967 $ 14,462 $ 2,468
Income tax refunds received 1,246 1,258 16,664
Interest paid 163,551 149,808 175,639
Non-cash transactions:
Loans transferred to other real estate owned 6,755 3,970 37,494
Loans to facilitate the sale of other real estate owned 145 2,734 --
Investment securities held to maturity
transferred to investment securities available for sale -- 1,180,924 1,350,458
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
Unrealized
(loss) gain on
investment
Retained securities
earnings available for
Common Common Capital (accumulated sale, net
shares stock surplus deficit) of tax Total
------------------------------------------------------------------------
Thousands of dollars and shares, except per share data
Balance at January 1, 1992 37,186 $ 185,925 $ 70,367 $ (2,204) $ -- $ 254,088
Net income -- -- -- 29,697 -- 29,697
Dividend reinvestment plan 1,825 9,127 9,956 -- -- 19,083
Foreign stock issuance 5,000 25,000 14,430 -- -- 39,430
Employee and director stock transactions 130 650 370 (13) -- 1,007
---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 44,141 220,702 95,123 27,480 -- 343,305
---------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 73,349 -- 73,349
Cash dividends declared ($0.24 per share) -- -- -- (11,267) -- (11,267)
Issuance of stock in business combination 1,679 8,394 14,879 -- -- 23,273
Dividend reinvestment plan 4,542 22,710 36,679 -- -- 59,389
Employee and director stock transactions 497 2,487 2,816 -- -- 5,303
Unrealized gain on investment securities
available for sale, net of tax -- -- -- -- 3,097 3,097
---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 50,859 254,293 149,497 89,562 3,097 496,449
---------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 80,151 -- 80,151
Cash dividends declared ($0.48 per share) -- -- -- (26,030) -- (26,030)
Issuance of stock in business combination 2,821 14,105 32,317 -- -- 46,422
Dividend reinvestment plan 88 441 1,122 -- -- 1,563
Employee and director stock transactions 877 4,385 6,331 -- -- 10,716
Unrealized loss on investment securities
available for sale, net of tax -- -- -- -- (8,195) (8,195)
---------------------------------------------------------------------------------------------------------------------
Balance at DECEMBER 31, 1994 54,645 $ 273,224 $ 189,267 $ 143,683 $ (5,098) $ 601,076
=====================================================================================================================
See Notes to Consolidated Financial Statements.
55
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Bank South Corporation is a bank holding company whose business is
presently conducted by its subsidiaries, primarily Bank South, N.A. (the
"Bank"). The accounting principles followed by Bank South Corporation and
its subsidiaries (the "Company") and the methods of applying those
principles conform with generally accepted accounting principles and with
general practices within the banking industry, where applicable.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The Company's
consolidated financial statements include the accounts of the parent
company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Results
of operations of companies purchased are included from the dates of
acquisition. Prior year financial statements are restated to include
amounts of companies acquired and accounted for as poolings of interests.
Certain amounts in prior years have been reclassified to conform to the
1994 presentation.
TRADING ACCOUNT SECURITIES, INVESTMENT SECURITIES AVAILABLE FOR SALE AND
INVESTMENT SECURITIES HELD TO MATURITY The Company's policies for
investments in debt and equity securities are as follows: Trading account
assets are held for resale in anticipation of short-term market movements.
Trading account assets, consisting of debt and marketable equity
securities and money market instruments, are stated at fair value. Gains
and losses, both realized and unrealized, are included in capital markets
activities. Management determines the appropriate classification of debt
securities at the time of purchase and re-evaluates such designation as of
each balance sheet date. Debt securities are classified as investment
securities held to maturity when the Company has the positive intent and
ability to hold the securities to maturity. Debt securities classified as
investment securities held to maturity are stated at amortized cost. Debt
securities not classified as investment securities held to maturity or
trading and marketable equity securities not classified as trading are
classified as investment securities available for sale. Investment
securities available for sale are stated at fair value, with the
unrealized gains and losses, net of tax, reported as a separate component
of shareholders' equity. The amortized cost of investment securities held
to maturity and investment securities available for sale is adjusted for
amortization of premiums and accretion of discounts to maturity or, in the
case of mortgage-backed securities, over the estimated life of the
security. Such amortization is included in interest income. Realized gains
and losses, and declines in value judged to be other than temporary are
included in securities gains. The cost of securities sold is based on the
specific identification method.
INTEREST CONTRACTS The Company uses various interest rate related
contracts such as swaps, caps, futures and options to reduce its exposure
to interest rate fluctuations (asset/liability management) and to hedge
trading activities. For contracts used in asset/liability management which
are designated and effective as hedges of existing risk positions or
anticipated transactions which will create risk positions, gains and
losses are deferred and recognized as an adjustment to the yield of the
hedged item. The fair value of contracts designated and effective as
hedges of existing risk positions for assets classified as available for
sale is recognized as an adjustment to equity, consistent with accounting
for the underlying hedged instrument. Contracts entered into hedging
trading positions are marked to market, and gains and losses are
recognized currently as non-interest income. Premiums paid on interest
rate caps are amortized over the life of the contract as an adjustment to
the yield of the hedged position. If a derivative financial instrument
that is used to manage interest rate risk is terminated early or results
in a single payment based on the change in value of an underlying item,
any resulting gain or loss is deferred and amortized as an adjustment to
the yield of the designated assets or liabilities over the remaining
periods originally covered by the derivative financial instrument.
LOANS Interest income on loans is recognized in a manner that results in a
level yield on the principal amounts outstanding. The Company defers
certain loan fees, net of loan origination costs, and amortizes them to
income over the life of the related loan. Mortgage loans held for sale are
recorded at lower of cost or market on an
56
34
agreggate basis as of the date of the balance sheet. Changes in the
valuation allowances are included in the determination of net income for
the period in which the change occurs.
Loans are generally classified as non-accrual when they are past due in
principal or interest payments for more than 90 days or it is otherwise
not reasonable to expect collection of principal and interest under the
original terms. Exceptions are allowed when loans are well-secured and in
process of collection. Generally, payments received on non-accrual loans
are applied directly against principal.
ALLOWANCE FOR LOAN LOSSES The Company's allowance for loan losses is based
upon management's regular review and evaluation of the loan portfolio. The
allowance is maintained at a level which management believes is adequate
to provide for losses inherent in the loan portfolio. Management's review
addresses several factors, including current and expected economic
conditions, lending policies, and historical loss experience by loan
category and loan classification. The evaluation of overall portfolio
quality when setting the allowance includes analysis of individual loans
with additional emphasis on non-accruing and past due credits. The amount
of the allowance is maintained through the provision for loan losses.
Loans that are declared uncollectible are charged against the allowance
and any subsequent recoveries are credited to the allowance. For
individually significant loans, management's review consists of
evaluations of the financial strength of the borrowers, appraisals and
other estimates of the value of the related collateral. The review of
groups of loans, which are individually insignificant, is based upon the
delinquency status of the group, lending policies and previous loss
experience by each category. Changing economic conditions affecting the
Company's market or loan customers may result in changes to management's
estimates, appraisals, and evaluations of loans.
OTHER REAL ESTATE OWNED Other real estate owned is recorded at
foreclosure, or when the loan is determined to be an in-substance
foreclosure, at the lower of the investment in the loan or fair value of
the amount, less estimated selling costs. A valuation allowance is
established to recognize temporary declines in fair value. The carrying
value of these properties is adjusted downward when required by an annual
re-appraisal, or more frequently if market conditions indicate a decline
in fair value below carrying value. Changes in this allowance are
reflected in other real estate owned expense. Loans are accounted for as
in-substance foreclosures when the borrower has little or no equity in the
project, repayment is expected only from the operation or sale of a
property, and the borrower has either abandoned control of the property or
it is doubtful the borrower will be able to rebuild equity over a
relatively short period of time.
PREMISES AND EQUIPMENT Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed
principally on the straight-line method over the estimated useful lives of
the assets.
EARNINGS PER COMMON SHARE Earnings per common share (including common
share equivalents) are based on the weighted average number of common
shares outstanding during the period.
INTANGIBLE ASSETS AND DEPOSIT-BASED INTANGIBLES Intangible assets,
primarily arising from the excess of purchase price over net assets
acquired of purchased banks, are principally amortized on a straight-line
basis over periods from 15 to 25 years. Deposit-based intangibles,
primarily arising from the excess fair value related to deposits purchased
from banks, are principally amortized on a straight-line basis over
periods from seven to 10 years.
INCOME TAXES The provision for income taxes is based on income as reported
in the consolidated financial statements.
STATEMENTS OF CASH FLOWS For purposes of the Statements of Cash Flows, the
Company considers cash and cash equivalents to include cash and amounts
due from banks.
57
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2 ACQUISITIONS AND DIVESTITURES
On December 2, 1993, the Company acquired Barnett Bank of Atlanta ("BBA")
and Barnett Bank of Fayette County ("BBFC") from Barnett Banks, Inc.
("Barnett"), and sold to Barnett its Pensacola, Florida, subsidiary, the
Citizens and Peoples National Bank of Pensacola ("C&P"), pursuant to two
Stock Purchase Agreements, each dated as of May 4, 1993, with Barnett. In
connection with the acquisitions of BBA and BBFC, the Company paid to
Barnett $31,727,000 in cash, issued to Barnett 1,678,838 shares of the
Company's Common Stock, and transferred to Barnett all of the outstanding
shares of C&P. The sale of C&P resulted in an after-tax gain of
$19,813,000. In connection with this issuance of Bank South Common Stock,
the Company and Barnett entered into a Standstill and Registration Rights
Agreement, also dated as of May 4, 1993. The acquisitions of BBA and BBFC
were accounted for as purchases. In conjunction with this transaction,
goodwill of $41,985,000 and deposit-based intangibles of $13,000,000 were
recorded. These amounts are being amortized over 15 and seven years
respectively. The fair value of combined assets of BBA and BBFC was
approximately $774,717,000 and liabilities assumed were $705,606,000 at
the acquisition date. The book value of C&P's assets and liabilities sold
at the acquisition date were approximately $416,416,000 and $378,705,000,
respectively. On December 2, 1993, subsequent to the acquisitions of BBA
and BBFC, those banks were merged with and into Bank South, N.A. The
unaudited pro forma results listed below reflect purchase price accounting
adjustments assuming the acquisition occurred at the beginning of each
period presented. These results have been prepared for informational
purposes only and are not necessarily indicative of what would have
occurred had the acquisition been made at the beginning of each period,
nor are they necessarily indicative of future operating results.
Year ended December 31,
1993 1992
----------------------------------------------
Thousands of dollars, except per share data
Net interest income $230,463 $202,417
Income before taxes 88,622 29,672
Net income 69,650 23,086
Earnings per common share 1.42 0.54
On March 11, 1994, the Company acquired Merchant Bank Corporation
("Merchant"). At December 31, 1993, Merchant had total assets of
approximately $138,612,000 and for the year then ended had net income of
$1,006,000. The Company issued an aggregate 1,272,937 shares of the
Company's common stock to holders of Merchant common stock. This
acquisition was accounted for using the pooling of interests accounting
method.
On March 15, 1994, the Company acquired Chattahoochee Bancorp, Inc.
("Chattahoochee"). At December 31, 1993, Chattahoochee had total assets of
approximately $258,454,000 and for the year then ended had net income of
$450,000. The Company issued an aggregate 2,821,170 shares of the
Company's common stock to holders of Chattahoochee common stock. This
acquisition was accounted for using the purchase accounting method. In
conjunction with this transaction, goodwill of $13,742,000 and
deposit-based intangibles of $7,868,000 were recorded.
On April 22, 1994, the Company acquired the Lithia Springs branch of
Southern Federal Savings Association ("Southern Federal") of Georgia which
had approximately $10,721,000 in deposits in a cash transaction from the
RTC. This transaction was accounted for as a purchase.
On July 22, 1994, the Company acquired Citizens Express Company
("Citizens"). At December 31, 1993, Citizens had total assets of
approximately $98,944,000 and for the year then ended had net income of
$1,461,000. The Company issued an aggregate 1,062,500 shares of the
Company's common stock to holders of Citizens common stock. This
acquisition was accounted for using the poolings of interests accounting
method.
At December 31, 1994, the Company's total intangible assets were
$101,558,000, net of accumulated amortization, which were primarily
comprised of goodwill and deposit-based intangibles resulting from
acquisitions.
58
36
RESTRICTION ON CASH AND DUE FROM BANKS 3
The Company is required to meet certain reserve requirements with the Federal
Reserve Bank of Atlanta. The average balances were $64,606,000 and $83,794,000
in 1994 and 1993, respectively.
INVESTMENT SECURITIES AVAILABLE FOR SALE 4
The cost, gross unrealized gains, gross unrealized losses and fair value of
investment securities available for sale are summarized as follows:
DECEMBER 31, 1994
Gross Gross
unrealized unrealized Fair
Cost gains losses value
-----------------------------------------------------
Thousands of dollars
U.S. Treasury securities $ 33,305 $ 6 $2,107 $ 31,204
Mortgage-backed securities 326,592 8 6,004 320,596
Other U.S. Government agencies 377 -- 20 357
Corporate securities 1,229 -- 15 1,214
Other debt securities 6,027 261 263 6,025
---------------------------------------------------------------------------------------------------------
Total debt securities available for sale 367,530 275 8,409 359,396
Equity securities 42,887 186 -- 43,073
---------------------------------------------------------------------------------------------------------
Total investment securities available for sale $ 410,417 $ 461 $8,409 $ 402,469
=========================================================================================================
December 31, 1993
Gross Gross
unrealized unrealized Fair
Cost gains losses value
------------------------------------------------------
Thousands of dollars
U.S. Treasury securities $ 19,464 $ 3 $ 1 $ 19,466
Mortgage-backed securities 925,369 5,301 663 930,007
Corporate securities 61,650 204 36 61,818
Other debt securities 2,023 2 46 1,979
---------------------------------------------------------------------------------------------------------
Total debt securities available for sale 1,008,506 5,510 746 1,013,270
Equity securities 47,722 -- -- 47,722
---------------------------------------------------------------------------------------------------------
Total investment securities available for sale $ 1,056,228 $5,510 $ 746 $1,060,992
=========================================================================================================
The net unrealized loss of $7,948,000 as of December 31, 1994, is recorded as a
component of equity, net of the estimated related tax effect of $2,850,000. The
net unrealized gain of $4,764,000 as of December 31, 1993, is recorded as a
component of equity, net of the estimated related tax effect of $1,667,000.
The cost and fair value of debt securities available for sale by contractual
maturity are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or pre-payment penalties.
DECEMBER 31, 1994
Fair
Cost value
----------------------------
Thousands of dollars
One year or less $ 17,892 $ 16,413
Over one year through five years 17,187 16,545
Over five years through 10 years 60 56
Over 10 years 5,799 5,786
-------------------------------------------------------------------------
40,938 38,800
Mortgage-backed securities 326,592 320,596
-------------------------------------------------------------------------
Total debt securities available for sale $ 367,530 $359,396
=========================================================================
59
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4 INVESTMENT SECURITIES AVAILABLE FOR SALE (continued)
The carrying value of investment securities available for sale pledged to
secure deposits and other balances was approximately $331,176,000 and
$324,999,000 at December 31, 1994 and 1993, respectively. At December 31,
1994, the Company had no commitments to purchase when-issued securities.
During the years ended December 31, 1994 and 1993, proceeds from the sale
of debt securities available for sale were $4,149,446,000 and
$2,144,383,000, respectively. Gross realized gains on such sales were
$5,602,000 and $8,074,000, respectively, and the gross realized losses
were $4,751,000 and $2,661,000, respectively.
During the year ended December 31, 1992, proceeds from the sale of debt
securities available for sale and held to maturity were $814,327,000.
Gross realized gains on such sales were $34,208,000 and gross realized
losses were $105,000.
5 INVESTMENT SECURITIES HELD TO MATURITY
The cost, gross unrealized gains, gross unrealized losses and fair value
of investment securities held to maturity are summarized as follows:
DECEMBER 31, 1994
Gross Gross
unrealized unrealized Fair
Cost gains losses value
---------------------------------------------------------------
Thousands of dollars
U.S. Treasury securities $ 114,544 $ 10 $ 675 $ 113,879
Municipal securities 543,549 545 42,618 501,476
Mortgage-backed securities 1,276,326 21 50,983 1,225,364
Other U.S. Government agencies 5,749 4 268 5,485
Other securities 5,688 -- -- 5,688
-------------------------------------------------------------------------------------------------------------
Total investment securities held to maturity $ 1,945,856 $ 580 $ 94,544 $1,851,892
=============================================================================================================
December 31, 1993
Gross Gross
unrealized unrealized Fair
Cost gains losses value
----------------------------------------------------------
Thousands of dollars
U.S. Treasury securities $ 41,732 $ 897 $ 14 $ 42,615
Municipal securities 291,253 10,453 10,944 290,762
Mortgage-backed securities 429,389 453 258 429,584
Corporate securities 997 41 5 1,033
Other debt securities 6,213 866 5,650 1,429
---------------------------------------------------------------------------------------------------------
Total investment securities held to maturity $769,584 $12,710 $16,871 $765,423
=========================================================================================================
The carrying value of investment securities held to maturity pledged to
secure deposits and other balances was approximately $1,045,448,000 and
$746,409,000 at December 31, 1994 and 1993, respectively.
During the years ended December 31, 1994 and 1993, there were no sales of
investment securities held to maturity.
60
38
INVESTMENT SECURITIES HELD TO MATURITY (continued) 5
The cost and fair value of debt securities held to maturity by contractual
maturity are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or pre-pay obligations
with or without call or pre-payment penalties.
DECEMBER 31, 1994
Fair
Cost value
------------------------------------
Thousands of dollars
One year or less $ 108,623 $ 108,251
Over one year through five years 19,571 18,979
Over five years through 10 years 32,298 30,644
Over 10 years 509,038 468,654
----------------------------------------------------------------------------------
669,530 626,528
Mortgage-backed securities 1,276,326 1,225,364
----------------------------------------------------------------------------------
Total investment securities held to maturity $ 1,945,856 $1,851,892
==================================================================================
LOANS 6
The following is a detail of loans by category:
December 31,
1994 1993
-----------------------------
Thousands of dollars
Commercial, financial and agricultural $1,014,963 $ 863,639
Real estate construction 200,936 121,677
Commercial mortgages 550,656 537,485
1-4 Family residential mortgages 625,502 524,186
Consumer 1,365,750 1,290,622
Lease financing 31,855 15,517
-----------------------------------------------------------------------------------------------------------
Total gross loans $3,789,662 $3,353,126
===========================================================================================================
The allowance for loan losses is analyzed as follows:
Year ended December 31,
1994 1993 1992
--------------------------------------------
Thousands of dollars
Balance at beginning of year $ 86,511 $ 77,338 $ 85,865
Loans charged-off (35,898) (25,860) (51,044)
Recoveries on loans previously charged-off 20,646 10,389 10,974
----------------------------------------------------------------------------------------------------------
Net loans charged-off (15,252) (15,471) (40,070)
----------------------------------------------------------------------------------------------------------
Net increase as a result of business combinations 2,496 5,431 --
Provision for loan losses charged to operating expense 6,397 19,213 31,543
----------------------------------------------------------------------------------------------------------
Balance at end of year $ 80,152 $ 86,511 $ 77,338
==========================================================================================================
Loans classified as non-accrual amounted to $22,191,000 at December 31, 1994
and $36,553,000 at December 31, 1993. At December 31, 1994, there were no
renegotiated or restructured loans that were not classified as non-accrual. At
December 31, 1993, there were $1,020,000 of such loans. At December 31, 1994,
1993 and 1992, interest foregone on non-accrual and renegotiated loans
outstanding was $2,517,000, $3,431,000 and $6,325,000, respectively.
Certain directors and executive officers of the Company, including immediate
families and companies in which they are immediate owners, were customers of
the Company during 1994 and 1993. Loans to such parties are made in the
ordinary course of business at the Company's normal credit terms, including
interest rates and collateralization, and do not represent more than a normal
risk of collection. Total loans to these parties at December 31, 1994 and 1993
amounted to $21,981,000 and $23,426,000, respectively. During 1994, $3,088,000
of additional loans were made to, and repayments of $4,533,000 were received
from, those persons who were related parties at December 31, 1994.
61
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6 LOANS (continued)
Statement of Financial Accounting Standards Number 114 ("FAS 114"),
"Accounting by Creditors for Impairment of a Loan," was issued in May 1993
and amended in October 1994 by Statement of Financial Accounting Standards
Number 118 (FAS 118), "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures." These statements are effective for
fiscal years beginning after December 15, 1994. The statements apply to
all loans except large groups of smaller-balance homogeneous loans that
are collectively evaluated for impairment, loans measured at fair value or
at lower of cost or fair value, leases, and debt securities as defined in
FAS 115. The statements require that impaired loans be valued at the
present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical matter, at the fair market
value of the loan's collateral if the loan is collateral dependent. The
Company will adopt these new standards effective January 1, 1995. The
effect of adopting the new rules is not expected to be material to the
Company's financial position or results of operations.
The Company's concentration of credit in Georgia is a moderately limiting
factor in its ability to diversify the portfolio geographically. However,
management does not believe this concentration is of significant risk to
the Company's financial position.
7 PREMISES AND EQUIPMENT
A summary of the Company's premises and equipment is presented below:
December 31,
1994 1993
Thousands of dollars
------------------------
Land owned $ 18,711 $ 19,631
Land leased 4,700 4,700
Buildings owned 50,033 47,505
Buildings leased 4,105 4,105
Leasehold improvements 20,288 19,570
Furniture and equipment 92,055 81,341
Construction in progress 9,605 4,834
---------------------------------------------------------------------------------
199,497 181,686
Less: Accumulated depreciation and amortization 92,327 86,623
---------------------------------------------------------------------------------
Premises and equipment, net $107,170 $ 95,063
=================================================================================
Depreciation and amortization expense, including amortization of capital
leases, was $12,143,000 in 1994, $9,001,000 in 1993 and $8,611,000 in
1992.
Future minimum payments for capital leases, non-cancelable operating
leases and data processing and facilities management service agreements
with initial or remaining terms of one year or more are summarized as
follows:
Operating
leases and
Capital service Total
leases agreements commitments
--------------------------------------------
Year ending December 31, Thousands of dollars
1995 $ 1,045 $ 24,076 $ 25,121
1996 1,059 25,749 26,808
1997 1,060 27,695 28,755
1998 1,060 29,304 30,364
1999 1,495 16,908 18,403
Thereafter 7,105 15,557 22,662
---------------------------------------------------------------------------------------------------------
Total minimum lease payments 12,824 $139,289 $152,113
Less: Amounts representing interest 5,012 ===========================
-----------------------------------------------------------------------
Present value of net minimum lease payments $ 7,812
=======================================================================
Rental expense for all operating leases and service agreements was
$25,444,000 in 1994, $22,432,000 in 1993 and $21,866,000 in 1992.
Substantially all non-cancelable leases have renewal options with the
renewal option periods ranging from 3 to 24 years.
62
40
OTHER REAL ESTATE OWNED 8
Other real estate owned is analyzed as follows:
December 31,
1994 1993
----------------------------
Thousands of dollars
Balance at beginning of year $ 5,269 $ 50,481
Transfers to other real estate owned 8,203 6,597
Sales of other real estate owned (7,532) (31,598)
Write-downs, principal reductions and other (1,641) (20,211)
-----------------------------------------------------------------------------------------
Balance at end of year $ 4,299 $ 5,269
=========================================================================================
The allowance for losses on other real estate owned is analyzed as follows:
Year ended December 31,
1994 1993 1992
-------------------------------------------------
Thousands of dollars
Balance at beginning of year $ 534 $ 13,954 $ 18,493
Provision for losses on other real estate owned 1,046 3,760 13,913
Write-downs on other real estate owned (1,034) (17,180) (18,452)
-----------------------------------------------------------------------------------------------------------
Balance at end of year $ 546 $ 534 $ 13,954
===========================================================================================================
The net carrying value of other real estate owned was $3,753,000 and $4,735,000
at December 31, 1994 and 1993, respectively. The net realized gain on the sale
of other real estate owned was $1,496,000, $3,096,000 and $2,854,000 for the
years ended December 31, 1994, 1993 and 1992, respectively.
DEPOSITS 9
Deposits of $100,000 or more are as follows:
December 31,
1994 1993
--------------------------
Thousands of dollars
Certificates of deposits $ 364,584 $ 228,365
Other time deposits 52,246 82,912
-----------------------------------------------------------------------------------------
Total deposits of $100,000 or more $ 416,830 $ 311,277
=========================================================================================
Related interest expense was $15,475,000 in 1994, $17,014,000 in 1993 and
$20,950,000 in 1992.
63
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10 SHORT-TERM BORROWINGS
Information on short-term borrowings is presented below:
1993
1994 Amount Rate 1992
Amount Rate Thousands of dollars Amount Rate
--------------------------------------------------------------------
AT YEAR END
Federal funds purchased $ 394,304 6.12% $ 132,655 2.92% $ 137,868 3.02%
Securities sold under agreements
to repurchase 549,849 5.18 378,641 3.18 207,604 3.34
Commercial paper 49,773 5.57 21,616 2.99 -- --
Other short-term borrowings 375,998 6.19 255,283 3.29 -- --
------------------------------------------------------------------------------------------------------
Total $1,369,924 5.74% $ 788,195 3.17% $ 345,472 3.21%
======================================================================================================
AVERAGE FOR THE YEAR
Federal funds purchased $ 298,375 4.33% $ 121,051 3.02% $ 109,793 3.39%
Securities sold under agreements
to repurchase 385,529 4.67 366,184 3.05 410,438 3.65
Commercial paper 40,033 4.24 3,437 3.00 -- --
Other short-term borrowings 246,420 4.86 59,716 3.47 4,212 4.39
------------------------------------------------------------------------------------------------------
Total $ 970,357 4.60% $ 550,388 3.09% $ 524,443 3.60%
======================================================================================================
MAXIMUM MONTH END BALANCE
Federal funds purchased $ 601,973 $ 270,123 $ 139,648
Securities sold under agreements
to repurchase 597,206 625,294 639,148
Commercial paper 49,773 21,616 --
Other short-term borrowings 481,016 360,171 65,000
Federal funds purchased generally had a remaining average maturity of one
day. Securities sold under agreements to repurchase generally had
remaining average maturities of one day to eight months. Commercial paper
had remaining average maturities of one to 100 days. Other short-term
borrowings had remaining average maturities of five days to 11 months. At
December 31, 1994, the Company had a secured line of credit with the
Federal Home Loan Bank. The line of credit in the amount of $315,000,000
expires on October 26, 1995. The $315,000,000 outstanding balance is
secured by mortgage-backed securities.
The Company has $40,000,000 in lines of credit as back-up for commercial
paper maturities. At December 31, 1994, there were no outstanding balances
under these lines of credit. These lines of credit expire on June 29,
1995.
11 LONG-TERM DEBT
A summary of long-term debt payable is as follows:
December 31,
1994 1993
-----------------------------
Thousands of dollars
ANNUAL REPAYMENT NOTES
7.50% Capital notes (a) $ -- $ 6,140
SINGLE REPAYMENT NOTES
Floating rate subordinated notes (b) 13,000 13,000
10.20% Subordinated notes (c) 30,000 30,000
OTHER LONG-TERM DEBT
Long-term debt obligations under capital leases - Note 7 7,812 7,875
Lines of credit (d) 38,500 40,000
Other 242 1,723
-----------------------------------------------------------------------------------
Total long-term debt $89,554 $98,738
===================================================================================
64
42
LONG-TERM DEBT (continued) 11
(a) The Capital notes issued in April 1992 were paid off in June 1994 prior to
maturity, and were subordinate to claims of depositors and other creditors of
the Company. The notes were considered Tier 2 capital by bank regulators in
evaluating capital adequacy. Payments of principal and interest on the 7.50
percent Capital notes were guaranteed by the Company and had an original
maturity of January 1, 1997.
(b) The floating-rate subordinated notes issued in November 1985 are due
November 1997 and are considered Tier 2 capital by bank regulators in
evaluating capital adequacy. Interest is payable quarterly at 0.38 percent
above the London Interbank Offered Rate ("LIBOR") for three-month United States
dollar deposits. At December 31, 1994, the interest rate was 6.88 percent. At
maturity the notes may be exchanged at the option of the Company for common
stock, perpetual preferred stock or other capital securities of the Company.
This debt is recorded at the parent company level.
(c) The subordinated notes issued June 1987 and due in June 1999 are considered
Tier 2 capital by the bank regulators in evaluating capital adequacy. The
subordinated notes were issued in conjunction with an interest rate swap,
resulting in an interest rate at 0.76 percent above the LIBOR for six-month
United States dollar deposits. Interest is payable semiannually. At December
31, 1994, the interest rate was 7.76 percent. At maturity the notes may be
exchanged at the option of the Company for common stock, perpetual preferred
stock or other capital securities of the Company. This debt is recorded at the
parent company level.
(d) The lines of credit with Federal Home Loan Bank consist of: a $13,500,000
line of credit with an interest rate of 5.86 percent with payments of $750,000
made semiannually, maturing on November 8, 2003 and a $25,000,000 line of
credit with an interest rate of 5.70 percent maturing on August 5, 1998. The
$13,500,000 and $25,000,000 outstanding balances were secured by
mortgage-backed securities.
The principal maturities of long-term debt are as follows:
Parent only Consolidated
---------------------------------------
Thousands of dollars
Year ending December 31,
1995 $ 166 $ 1,730
1996 75 1,652
1997 13,000 14,578
1998 - 26,576
1999 30,000 32,039
Thereafter - 12,979
------------------------------------------------------------------------------------
Total long-term debt $43,241 $ 89,554
====================================================================================
COMMITMENTS & CONTINGENCIES 12
In the normal course of business, various claims and lawsuits are pending
against the Company. Management, after reviewing with counsel all actions and
proceedings, considers that the aggregate liability or loss, if any, resulting
therefrom will not be material to the Company's financial position or results
of operations.
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit in the form of
loans or through letters of credit. The instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amounts
recognized in the Consolidated Balance Sheets. The contract or notional amounts
of the instruments reflect the extent of involvement the Company has in
particular classes of financial instruments.
The Company's exposure to credit loss in the event of non-performance by the
other party to commitments to extend credit, standby letters of credit and
commercial letters of credit is represented by the contractual or notional
amounts of these instruments. The Company accepts a variety of collateral types
for these instruments, including accounts receivable, inventory, fixed assets,
financial guarantees of responsible third parties, real and personal property,
marketable securities and cash or cash equivalents.
65
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12 COMMITMENTS & CONTINGENCIES (continued)
Since many of the commitments to extend credit, standby letters of credit
and commercial letters of credit are expected to expire without being
drawn upon, the contractual or notional amounts do not represent future
cash requirements.
Commitments to extend credit are contractual obligations to lend to a
customer as long as all established contractual conditions are satisfied.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee by the customer.
Standby letters of credit and financial guarantees are conditional
commitments issued by the Company to guarantee the performance of a
customer to a third party. Standby letters of credit and financial
guarantees are generally terminated through the lapse of time.
Commercial letters of credit are conditional commitments issued by the
Company to guarantee payment by a customer to a third party upon proof of
shipment or delivery of goods as agreed. Commercial letters of credit are
used primarily for importing or exporting goods and are terminated when
proper payment is made by the customer.
Commitments to purchase and sell securities-when-issued were primarily for
fixed rate municipal securities at December 31, 1993.
The contractual or notional amounts of financial instruments having credit
risk in excess of that reported in the Consolidated Balance Sheets are as
follows:
December 31,
1994 1993
-----------------------------
Thousands of dollars
Commitments to extend credit $(1,312,267) $(1,183,629)
Standby letters of credit and financial guarantees (87,271) (85,205)
Commercial letters of credit (1,371) (615)
Commitments to purchase securities-when-issued -- (22,735)
Commitments to sell securities-when-issued -- 20,800
13 SHAREHOLDERS' EQUITY
Dividends are paid by the Company from its unrestricted net assets, which
are mainly provided by dividends from the Company's subsidiaries. The Bank
can initiate dividend payments to the Company equal to net profit, as
defined by statute. Regulations also restrict the Bank in lending funds to
affiliates, including the Company, subject to regulatory collateral
requirements. At December 31, 1994, the Bank had $106,978,000 of undivided
profits available for payment of dividends to the Company. At December 31,
1994, no loans to the parent company from the Bank were outstanding.
In 1994, the Board of Directors adopted the 1994 Stock Option Plan for
outside directors, authorizing the issuance of options for up to 300,000
shares of the Company's common stock. During 1994, 26,000 shares were
granted. At December 31, 1994, 274,000 shares were available for grant
under this plan.
In 1993, the Board of Directors adopted the 1993 Equity Incentive Plan.
Under this plan, options can be granted for up to two million shares of
the Company's common stock. During 1994, options for 370,752 shares were
granted under the 1993 Equity Incentive Plan. At December 31, 1994,
1,643,748 shares were available for grant under this plan.
In 1992, the Board of Directors adopted the 1992 Stock Option Plan which
extended the term of the previous 1982 Stock Option Plan. The total number
of shares of common stock authorized for issuance under the 1992 and 1982
Stock Options Plans was 2,986,950. During 1994, 15,000 shares were
granted. At December 31, 1994, stock options for 78,079 shares could be
granted under the 1992 Stock Option Plan. There are no available shares
under the 1982 plan.
66
44
SHAREHOLDERS' EQUITY (continued) 13
The Company had authorized and granted options for 475,921 shares pursuant to
mergers consummated in 1987 and 1986. During 1994, the Company authorized and
granted options for 247,942 shares pursuant to the Merchant and Chattahoochee
acquisitions.
The following table presents information on these plans:
Year ended December 31,
1994 1993 1992
--------------------------------------------------------------------------------------
Number Option price Number Option price Number Option price
of shares per share of shares per share of shares per share
--------------------------------------------------------------------------------------
Options outstanding,
beginning of year 1,913,732 $ 4.35 - 16.64 2,255,110 $ 4.35 - 16.64 2,248,841 $ 3.24 - 16.64
Granted 659,694 13.86 - 21.53 105,641 8.33 - 13.86 199,497 8.33 - 13.86
Exercised (470,050) 4.35 - 15.82 (289,916) 7.27 - 15.82 (13,972) 3.24 - 10.91
Canceled (17,556) 8.84 - 19.43 (157,103) 10.05 - 16.64 (179,256) 7.71 - 15.82
-------------------------------------------------------------------------------------------------------------
Options outstanding,
end of year 2,085,820 $ 6.00 - 20.38 1,913,732 $ 4.35 - 16.64 2,255,110 $ 4.35 - 16.64
=============================================================================================================
Options granted
(cumulative) 4,426,758 3,767,064 3,661,423
=============================================================================================================
Effective July 17, 1993, the Company adopted a new Employee Stock Purchase Plan
under which one million shares of common stock have been made available for
purchase through employee payroll withholdings or direct payment. Shares are
issued to participants at the lesser of 85 percent of the market price at the
beginning or end of the period. During 1994, purchases under the plan were
126,051 shares. At December 31, 1994, there were 836,570 shares available for
issuance under that plan.
Effective February 13, 1992, the Company adopted a Dividend Reinvestment and
Stock Purchase Plan under which stock could be purchased by shareholders at 95
percent of the average market price at the date of purchase without incurring
brokerage commissions, service charges or other fees. During the fourth quarter
of 1993, the plan was amended to discontinue this 5 percent discount. During
1994, purchases under the plan were 88,203 shares. At December 31, 1994, there
were 3,544,197 shares available for issuance under that plan.
DERIVATIVE FINANCIAL INSTRUMENTS 14
The Company's principal objective in holding derivatives is for asset-liability
management. The operations of the Company are subject to the risk of interest
rate fluctuations to the extent that there is a difference between the amount
of the Company's interest-earning assets and the amount of interest-bearing
liabilities that mature or reprice in specified periods. The principal
objective of the Company's asset-liability management activities is to provide
maximum levels of net interest income while maintaining acceptable levels of
interest rate and liquidity risk and facilitating the funding needs of the
Company. To achieve that objective, the Company utilizes a combination of
derivative financial instruments, primarily interest rate swaps and interest
rate caps. In addition, the Company utilizes interest rate futures and options
on a limited basis.
An interest rate swap is an agreement in which two parties agree to exchange,
at specified intervals, interest payment streams calculated on an agreed-upon
notional principal amount with at least one stream based on a specified
floating-rate index. Interest rate caps are option-like contracts that require
the seller to pay the purchaser at specified future dates the amount, if any,
by which a specified market interest rate exceeds the fixed cap rate, applied
to a notional principal amount.
Interest rate options are contracts that grant the purchaser, for a premium
payment, the right to either purchase or sell a financial instrument at a
specified price within a specified period of time or on a specified date from
or to the writer of the option. Interest rate futures contracts are commitments
to either purchase or sell a financial instrument at a specific future date for
a specified price and may be settled in cash or through delivery of the
financial instrument.
67
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
14 DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
Income or expense on derivative financial instruments used to manage
interest rate exposure is recorded on an accrual basis as an adjustment to
the yield of the related interest-earning assets or interest-bearing
liabilities over the periods covered by the contracts. As of December 31,
1994, there were no deferred gains. During 1994 and 1993, the Company
recognized $5,189,000 and $179,000, respectively, of deferred gains on
terminations of interest rate swaps. The Company uses futures and options
to manage trading account risk.
The notional amount and fair value of the Company's derivative financial
instruments by category at DECEMBER 31, 1994 are summarized as follows:
Notional amount Fair value Credit exposure
---------------------------------------------------------
Thousands of dollars
Interest rate swaps $2,075,511 $ (106,882) $ 4,138
Interest rate caps 1,547,000 16,459 16,484
Futures 35,000 (1) --
Written put options 8,000 (6) --
Purchased call options 101,362 (2) --
-----------------------------------------------------------------------------------
Total financial derivatives $3,766,873 $ (90,432) $ 20,622
===================================================================================
The notional amount, fair value, average pay and receive rates (average
strike rate), average final maturities and average life of the Company's
derivative financial instruments by hedging activity at December 31, 1994
are summarized as follows:
Notional Fair Pay Receive Average final Average
amount value rate rate maturity* life*
--------------------------------------------------------------------
Thousands of dollars
Interest rate swaps:
Loans $1,198,910 $ (64,110) 6.0% 6.5% 3.6 2.0
Capital markets:
Trading accounts 50,000 1,677 4.2 7.0 1.0 1.0
Investment securities available for sale 245,900 (3,254) 5.6 6.8 1.7 0.2
Investment securities held to maturity 425,701 (42,165) 7.7 7.8 4.6 4.5
Deposits 25,000 (390) 5.3 6.3 1.3 1.3
Debt 130,000 1,360 5.9 6.9 1.4 1.4
--------------------------------------------------------------------------------------------------------------------
Total interest rate swaps $2,075,511 $ (106,882) 6.3% 6.8% 3.4 2.2
====================================================================================================================
Notional Fair Average strike Average final Average
amount value rate maturity* life*
--------------------------------------------------------------------------
Thousands of dollars
Interest rate caps:
Deposits $1,000,000 $ 9,497 6.0% 0.8 0.8
Capital markets:
Investment securities available for sale 125,000 2,002 9.4 3.4 3.4
Investment securities held to maturity 422,000 4,960 6.3 1.0 1.0
-----------------------------------------------------------------------------------------------------------------------
Total interest rate caps $1,547,000 $ 16,459 6.4% 1.1 1.1
=======================================================================================================================
*Calculated in years. Average final maturity is calculated using the
remaining maturity for all interest rate swaps and caps within the given
category. Average life is average final maturity adjusted to reflect the
estimated effects of amortization of the related notional amounts for the
interest rate swaps and caps.
68
46
FAIR VALUE OF FINANCIAL INSTRUMENTS 15
Statement of Financial Accounting Standards Number 107 ("FAS 107"),
"Disclosures about Fair Value of Financial Instruments," requires disclosure of
fair value information about financial instruments, whether or not recognized
in the balance sheet, for which it is practicable to estimate that value. In
cases where quoted market prices are not available, fair values are based on
settlements using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
FAS 107 excludes certain financial instruments and all non-financial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Company.
The following methods and assumptions were used in estimating the fair value
disclosures for financial instruments:
CASH, DUE FROM BANKS, FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER
AGREEMENTS TO RESELL The carrying amounts reported in the balance sheet for
cash, due from banks, Federal funds sold and securities purchased under
agreements to resell approximates those assets' fair values.
TRADING ACCOUNT SECURITIES, INVESTMENT SECURITIES AVAILABLE FOR SALE AND
INVESTMENT SECURITIES HELD TO MATURITY For securities and derivative
instruments held for trading purposes (which include mortgage-backed
securities, agency securities, bonds, interest rate futures, options and
securities sold not owned), fair values are based on quoted market prices or
dealer quotes. For other investment securities, fair value equals quoted market
price, if available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities or dealer quotes.
LOANS For variable rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair
values for certain mortgage loans (e.g., 1-4 family residential) are based on
quoted market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. The fair values
for other loans are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. The carrying amount of accrued interest
approximates its fair value.
DEPOSITS The fair values disclosed for demand deposits (e.g., interest and
non-interest bearing demand deposits, NOW accounts, savings accounts and
certain types of money market accounts) are, by definition, equal to the amount
payable on demand at the reporting date (i.e., their carrying amounts). The
carrying amounts for variable-rate, fixed-term money market accounts, time
deposits and certificates of deposit with maturities of less than one year
approximate their fair values at the reporting date. Fair values for all other
fixed-rate time deposits and certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on these deposits to a schedule of aggregated expected monthly
maturities.
SHORT-TERM BORROWINGS The carrying amounts reported in the balance sheet for
short-term debt approximate those liabilities' fair values.
LONG-TERM DEBT For variable rate long-term debt that reprices frequently, fair
values are based on carrying values. The fair values of the Company's other
long-term debt is estimated using discounted cash flow analyses, based on
current incremental borrowing rates for similar types of borrowing
arrangements.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS Fair values for off-balance-sheet
financial instruments are based on fair values obtained by soliciting close-out
bids or offers from counterparties (interest rate swaps and interest rate
caps); quoted market prices (futures); current settlement values (written and
purchased options); fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the
counterparties' credit standing (guarantees and loan commitments); or, if there
are no relevant comparables, on pricing models or formulas, using current
assumptions.
69
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
15 FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
December 31,
1994 1993
Carrying Fair Carrying Fair
amount value amount value
-----------------------------------------------------
Thousands of dollars
FINANCIAL INSTRUMENTS (ASSETS)
Cash and due from banks $ 369,114 $ 369,114 $ 374,304 $ 374,304
Federal funds sold and securities
purchased under agreements to resell 50,649 50,649 9,170 9,170
Trading account securities 75,431 75,431 13,154 13,154
Investment securities available for sale 402,469 402,469 1,060,992 1,060,992
Investment securities held to maturity 1,945,856 1,851,892 769,584 765,423
Loans, net of unearned income 3,771,316 3,699,082 3,318,598 3,353,044
Customers' acceptance liability 770 770 1,733 1,733
--------------------------------------------------------------------------------------------------
Total financial instruments (assets) 6,615,605 $6,449,407 5,547,535 $5,577,820
========= ==========
Non-financial Instruments (assets) 313,660 217,233
--------------------------------------------------------- ----------
Total assets $6,929,265 $5,764,768
========================================================= ==========
FINANCIAL INSTRUMENTS (LIABILITIES)
Non-interest-bearing demand deposits $1,163,119 $1,163,119 $1,084,236 $1,084,236
Interest-bearing deposits 3,586,562 3,564,395 3,165,962 3,175,024
--------------------------------------------------------------------------------------------------
Total deposits 4,749,681 4,727,514 4,250,198 4,259,260
Short-term borrowings 1,369,924 1,369,924 788,195 788,195
Long-term debt 89,554 90,112 98,738 98,206
Bank acceptances outstanding 770 770 1,733 1,733
--------------------------------------------------------------------------------------------------
Total financial instruments (liabilities) 6,209,929 $6,188,320 5,138,864 $5,147,394
Non-financial instruments ========== ==========
(liabilities and shareholders' equity) 719,336 625,904
--------------------------------------------------------- ----------
Total liabilities and shareholders' equity $6,929,265 $5,764,768
========================================================= ==========
The fair values for the Company's off-balance-sheet financial instruments
are summarized as follows:
December 31,
1994 1993
Contractual or Fair Contractual or Fair
notional amount value notional amount value
-------------------------------------------------------------
Thousands of dollars
Interest rate swaps $ 2,075,511 $ (106,882) $ 1,487,273 $ 25,861
Interest rate caps 1,547,000 16,459 -- --
Commitments to extend credit (1,312,267) (2,493) (1,183,629) (1,924)
Standby letters of credit and
financial guarantees written (87,271) (808) (85,205) (742)
Commercial letters of credit (1,371) (65) (615) (104)
Commitments to purchase
securities-when-issued -- -- (22,735) (22,627)
Commitments to sell securities-when-issued -- -- 20,800 20,702
Option contracts 109,362 (8) 200,124 89
Futures contracts 35,000 (1) 103,000 3
70
48
EMPLOYEE BENEFITS 16
The Company sponsors a noncontributory trusteed pension plan that covers
substantially all employees of the Company who have completed one year of
service and have attained the age of 21. The plan provides defined benefits
based on an employee's compensation, age at retirement and years of service. It
is the policy of the Company to fund not less than the minimum funding amounts
required by ERISA.
Net periodic pension cost of this plan included the following components:
Year ended December 31,
1994 1993 1992
--------------------------------------
Thousands of dollars
Service cost $ 1,952 $ 1,765 $ 1,804
Interest costs on projected benefit obligations 2,520 2,250 2,787
Actual return on plan assets 696 (2,522) (3,076)
Net amortization and deferral (4,992) (1,341) 444
------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 176 $ 152 $ 1,959
============================================================================================================
Assumptions used to determine the projected benefit obligations were:
December 31,
1994 1993
------------------------
Discount rates 8.5% 7.5%
Rates of increase in compensation levels 5.5 5.5
The expected long-term rate of return on plan assets used to determine the net
periodic pension cost was 9.0 percent in 1994, 1993 and 1992.
The following table sets forth this plan's funded status and amounts recognized
in the Company's balance sheets:
December 31,
1994 1993
---------------------------------
Thousands of dollars
Accumulated benefit obligations:
Vested $ 32,575 $ 31,989
Non-vested 985 787
--------------------------------------------------------------------------------------------------------------
Total accumulated benefit obligations $ 33,560 $ 32,776
==============================================================================================================
Market value of plan assets $ 38,707 $ 37,727
Projected benefit obligation 33,923 32,776
--------------------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 4,784 4,951
Unrecognized net transition asset (2,322) (2,668)
Unrecognized prior service benefit (5,370) (5,791)
Unrecognized net loss 5,855 3,168
--------------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension expense recognized in the balance sheet $ 2,947 $ (340)
==============================================================================================================
71
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
16 EMPLOYEE BENEFITS (continued)
At December 31, 1994, the Plan assets included common stocks, U.S.
Treasury notes and units of commingled trust funds. Included in common
stocks were 68,019 shares of the Company's common stock with a market
value of approximately $1,207,337.
In 1993, the Company offered an early retirement window to all employees
who were at least 55 years of age and had 15 years of credited service.
Eligible employees were required to accept or decline this offer by March
31, 1993, and retire by June 30, 1993, if the offer was accepted. The
window provided a benefit calculated using both the greater accrued
benefit reflecting 5 years extra service or treating the participants as
if they were 5 years older and the cash balance earnings credit for 1993.
Thirty-two employees accepted the window option. The early retirement
window option cost for 1993 was $1,381,000.
Effective April 1, 1993, the Company amended and restated a prior
contributory profit sharing and investment plan to establish a 401(k)
Profit Sharing Plan. Under the provisions of the current plan, eligible
employees (those with 6 months of full-time service) may contribute 1
percent to 10 percent of their salaries. The Company will provide a
guaranteed match of 100 percent of the first 1 percent to 6 percent of
employee contributions. If the Company exceeds certain goals, the Board
may authorize additional matching contributions of up to 75 percent of the
first 1 percent to 6 percent of employee contributions. In addition, the
Board may authorize a profit sharing contribution of zero to $400 per
eligible employee. The aggregate expense associated with these plans was
$3,134,000 in 1994, $3,712,000 in 1993, and $131,000 in 1992. Included in
the assets of this plan were 1,589,762 shares of the Company's common
stock with a market value of approximately $28,218,276.
The Company also sponsors an unfunded non-qualified Supplemental Executive
Retirement Plan that provides certain key executive officers of the
Company defined pension benefits, in excess of those benefits provided by
qualified plans.
Net periodic pension cost of this plan included the following components:
Year ended December 31,
1994 1993 1992
-------------------------------------
Thousands of dollars
Service cost $ 288 $ 226 $224
Interest costs on projected benefit obligations 164 142 97
Net amortization and deferral 56 50 28
----------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 508 $ 418 $349
==========================================================================================================
Assumptions used to determine the projected benefit obligation were:
December 31,
1994 1993
---------------------
Discount rates 8.5% 7.5%
Rates of increase in compensation levels 6.0 6.0
72
50
EMPLOYEE BENEFITS (continued) 16
The following sets forth the Supplemental Executive Retirement Plan's funded
status and amounts recognized in the Company's balance sheets:
December 31,
1994 1993
----------------------------
Thousands of dollars
Accumulated benefit obligations:
Non-vested $ 1,339 $ 1,288
----------------------------------------------------------------------------------------------
Total accumulated benefit obligations $ 1,339 $ 1,288
==============================================================================================
Projected benefit obligation $ 2,020 $ 2,158
----------------------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets (2,020) (2,158)
Unrecognized net transition obligations 189 216
Unrecognized prior service costs 285 260
Unrecognized net (gain) loss (440) 187
----------------------------------------------------------------------------------------------
Accrued pension expense recognized in the balance sheet $ (1,986) $ (1,495)
==============================================================================================
In addition to the Company's defined-benefit pension plans, the Company
sponsors a defined-benefit health care plan that provides postretirement
medical benefits to full-time employees who have worked 15 years and attained
age 55 while in service with the Company. The plan is contributory, with
retiree contributions adjusted annually, and contains other cost-sharing
features such as deductibles and coinsurance. The accounting for the plan
anticipates future cost-sharing changes to the written plan that are consistent
with the Company's expressed intent to increase the retiree contribution rate
annually for the expected general inflation rate for that year.
In 1993, the Company adopted Statement of Financial Accounting Standards Number
106 ("FAS 106"), "Employers' Accounting for Postretirement Benefits Other than
Pensions." Postretirement benefit cost for 1992 of $249,000, which was recorded
on a cash basis, was not restated. The transition obligation is being amortized
over 20 years.
Net periodic postretirement benefit cost included the following components:
Year ended December 31,
1994 1993
----------------------------
Thousands of dollars
Service cost $ 122 $ 101
Interest costs on projected benefit obligations 402 578
Amortization of transition obligation 262 344
------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 786 $ 1,023
============================================================================================================
73
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
16 EMPLOYEE BENEFITS (continued)
The following table presents the plan's funded status, reconciled with
amounts recognized in the Company's balance sheets:
Year ended December 31,
1994 1993
------------------------------
Thousands of dollars
Accumulated postretirement benefit obligation:
Retirees $ 4,210 $ 5,876
Fully eligible active plan participants 151 692
Other active plan participants 814 73
----------------------------------------------------------------------------------------------------------
Total accumulated postretirement benefit obligations $ 5,175 $ 6,641
==========================================================================================================
Accumulated postretirement benefit obligation
in excess of plan assets $(5,175) $(6,641)
Unrecognized transition obligation 6,197 6,541
Unrecognized net gain (2,152) (554)
----------------------------------------------------------------------------------------------------------
Accrued postretirement benefit expense recognized in the balance sheet $(1,130) $ (654)
==========================================================================================================
The weighted-average annual assumed rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) for
participants under age 65 is 10.5 percent for 1995 and is assumed to
decrease gradually to 5.5 percent for 2003 and remain at that level
thereafter. The weighted-average annual assumed rate of increase in the
per capita cost of covered benefits for participants over age 65 is 10
percent for 1995 and is assumed to decrease gradually to 5 percent for
2003 and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. For example,
increasing the assumed health care cost trend by one percentage point in
each year would increase the accumulated postretirement benefit obligation
at December 31, 1994, by $657,000 and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for
1994 by $65,000.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 8.5 percent at December 31, 1994 and
7.5 percent at December 31, 1993. The plan has not been funded, therefore
the long-term rate-of-return assumptions have not been established.
17 OTHER EXPENSE
The major components of other expense are:
Year ended December 31,
1994 1993 1992
----------------------------------
Thousands of dollars
Electronic banking $ 7,070 $ 4,963 $ 3,762
Postage and freight 6,596 5,457 5,149
Stationery and supplies 5,339 4,739 4,142
Marketing and business development 12,150 11,447 8,128
Professional fees 9,869 12,369 12,842
Insurance and taxes 13,363 13,991 12,467
Other data-processing expense 16,906 13,795 13,906
General and administrative 3,686 5,402 7,314
Amortization of intangibles 12,363 5,758 11,394
Other 13,842 11,441 11,377
----------------------------------------------------------------------
Total other expense $101,184 $ 89,362 $ 90,481
======================================================================
74
52
INCOME TAXES 18
Income tax expense is summarized as follows:
Year ended December 31,
Liability Deferred
method method
1994 1993 1992
------------------------------------------------
Thousands of dollars
Current federal tax expense $ 4,934 $19,817 $4,143
Current state tax expense 14 1,892 93
-----------------------------------------------------------------------------------------------------------
Total current tax expense 4,948 21,709 4,236
-----------------------------------------------------------------------------------------------------------
Deferred federal tax expense (benefit) 6,989 (1,486) 2,547
Deferred state tax expense (benefit) 508 (229) 44
-----------------------------------------------------------------------------------------------------------
Total deferred tax expense (benefit) 7,497 (1,715) 2,591
-----------------------------------------------------------------------------------------------------------
Total income tax expense $12,445 $19,994 $6,827
===========================================================================================================
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards Number 109 ("FAS 109"), "Accounting
for Income Taxes." As permitted under FAS 109, prior years' financial
statements have not been restated. The effect of adopting FAS 109 was not
material to financial position or results of operations of the Company.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities are as follows:
Year ended December 31,
1994 1993
Deferred tax Deferred tax Deferred tax Deferred tax
assets liabilities assets liabilities
---------------------------------------------------------------
Thousands of dollars
Allowance for loan losses $ 34,427 $ -- $ 36,160 $ --
Other real estate owned 495 -- 2,613 --
Reserves for expenses 3,974 -- 4,451 --
Deferred compensation 4,541 -- 3,817 --
Mortgage servicing premiums 1,284 -- 1,857 --
Federal net operating loss carryforward 455 -- 652 --
Federal alternative minimum
tax credit carryforward 3,926 -- 271 --
State net operating loss carryforward 1,377 -- 2,649 --
State credit carryforward 6,923 -- 6,700 --
Market valuation adjustment on available for
sale portfolio 2,850 -- -- 1,667
Depreciation -- 4,594 -- 4,937
Deferred option income -- 8,664 -- 6,987
Purchase accounting adjustments -- 4,573 -- 3,063
Deferred gain on interest rate swap -- 16,400 2,128 --
Other 8,795 8,179 8,520 6,834
----------------------------------------------------------------------------------------------------------
69,047 42,410 69,818 23,488
Valuation allowance (10,332) (26,940)
----------------------------------------------------------------------------------------------------------
Total deferred taxes 58,715 $ 42,410 42,878 $ 23,488
----------------------------------------------------------------------------------------------------------
Net deferred taxes $ 16,305 $ 19,390
==========================================================================================================
75
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
18 INCOME TAXES(continued)
The components of the provision for deferred income taxes were as follows:
Year ended December 31, 1992
-----------------------------------
Thousands of dollars
Securities transactions $ (607)
Other real estate owned 3,775
Allowance for loan losses 2,561
Non-accrual loans 672
Deferred option income 2,738
Mortgage servicing premiums (2,073)
Net alternative minimum tax 7,365
Net operating loss carryforward (10,715)
Net general business credit carryforward (453)
Other (672)
-------------------------------------------------------------------
Deferred tax expense $ 2,591
===================================================================
Income taxes at the statutory rate are reconciled to the Company's income
tax expense as follows:
Liability method Deferred method
1994 1993 1992
Amount Percent Amount Percent Amount Percent
----------------------------------------------------------------------
Thousands of dollars
Taxes at statutory rate $ 32,408 35.0% $ 32,670 35.0% $ 12,418 34.0%
Increase (decrease) resulting from:
Tax exempt income (9,212) (10.0) (3,468) (3.7) (1,984) (5.4)
Amortization of goodwill 1,814 2.0 561 0.6 851 2.3
State taxes, net of federal tax benefit 340 0.4 1,080 1.1 90 0.3
Alternative minimum tax -- -- -- -- 7,365 20.2
Reduction of deferred tax
valuation allowance (12,376) (13.4) (10,000) (10.7) -- --
Net operating loss carryforward -- -- -- -- (10,958) (30.0)
General business credit carryforward -- -- -- -- (1,151) (3.2)
Other (529) (0.6) (849) (0.9) 196 0.5
---------------------------------------------------------------------------------------------------------------
Income tax expense $ 12,445 13.4% $ 19,994 21.4% $ 6,827 18.7%
===============================================================================================================
The Company increased its net Federal deferred tax asset in 1993 due to
the increase in the corporate tax rate from 34 percent to 35 percent. The
result was a reduction to deferred tax expense of $935,000.
A valuation allowance of $10,332,000 at December 31, 1994 and $14,563,000
at December 31, 1993 offsets the full amount of the Georgia deferred tax
asset.
During 1993, the Company acquired Georgia NOL and occupation tax credit
("Credit") carryforwards in the BBA and BBFC acquisitions (see Note 2) of
approximately $74,544,000 and $925,000, respectively. The NOL
carryforwards expire in years through 2008 and the Credit carryforwards
expire in years through 1997. The Company established a valuation
allowance relating to carryforwards of $2,649,000 and $925,000,
respectively, which is included in the valuation allowance noted above. If
the Georgia NOL and Credit carryforwards are utilized the valuation
allowance will be reduced, which, in turn will reduce goodwill for the
transaction. For the year ended December 31, 1994, the Company recognized
state tax expense of $508,000 relating to the reduction in the valuation
allowance from Georgia NOL and Credit carryforwards that reduced goodwill.
At December 31, 1994, the Company had Georgia Credit carryforwards
available of $6,923,000 compared to $6,700,000 at December 31, 1993. At
December 31, 1994, The Company had net operating loss carryforwards
available of $22,950,000 expiring in years through 2009.
76
54
CONDENSED FINANCIAL INFORMATION OF BANK SOUTH CORPORATION (PARENT ONLY) 19
CONDENSED BALANCE SHEETS
December 31,
1994 1993
---------------------------
Thousands of dollars
ASSETS
Cash and due from banks $108,498 $ 81,767
Investment securities available for sale 9,681 --
Investment securities held to maturity 3,553 3,334
Investment in affiliates*:
Bank subsidiaries 546,481 453,373
Non-bank subsidiaries 8,383 9,793
----------------------------------------------------------------------------------------------------------
Total investment in affiliates 554,864 463,166
----------------------------------------------------------------------------------------------------------
Advances to and amounts receivable from non-bank subsidiaries* 6,957 5,655
Goodwill and other intangible assets 16,626 19,228
Other assets 4,778 5,009
----------------------------------------------------------------------------------------------------------
Total assets $704,957 $578,159
==========================================================================================================
LIABILITIES
Advances from and amounts payable to non-bank subsidiaries* $ -- $ 1,042
Commercial paper 49,773 21,616
Long-term debt 43,241 43,408
Other liabilities 10,867 15,644
----------------------------------------------------------------------------------------------------------
Total liabilities 103,881 81,710
----------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY 601,076 496,449
----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $704,957 $578,159
==========================================================================================================
* Eliminated in consolidation
CONDENSED STATEMENTS OF INCOME
Year ended December 31,
1994 1993 1992
------------------------------------
Thousands of dollars
REVENUE
Income from affiliates*:
Dividends from bank subsidiaries $ 27,936 $ -- $ --
Interest from subsidiaries 4,252 1,544 640
Management and service fees from subsidiaries 23,146 16,461 14,904
----------------------------------------------------------------------------------------------
Total income from affiliates 55,334 18,005 15,544
----------------------------------------------------------------------------------------------
Interest on advances and investment securities available
for sale and investment securities held to maturity 491 56 450
Gain on sale of subsidiary -- 32,288 --
Other income 3,008 2,958 2,951
----------------------------------------------------------------------------------------------
Total revenue 58,833 53,307 18,945
----------------------------------------------------------------------------------------------
EXPENSE
Interest expense 4,141 2,290 2,448
Management and service fees* 2,945 1,989 2,264
Other expense 26,747 24,176 19,897
----------------------------------------------------------------------------------------------
Total expense 33,833 28,455 24,609
----------------------------------------------------------------------------------------------
Income (loss) before income taxes and equity in
undistributed income of subsidiaries 25,000 24,852 (5,664)
Income tax (benefit) expense (620) 8,507 (2,257)
----------------------------------------------------------------------------------------------
Income (loss) before equity in undistributed
income of subsidiaries 25,620 16,345 (3,407)
Equity in undistributed income of subsidiaries* 54,531 57,004 33,104
----------------------------------------------------------------------------------------------
Net income $ 80,151 $ 73,349 $ 29,697
==============================================================================================
* Eliminated in consolidation
77
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
19 CONDENSED FINANCIAL INFORMATION OF BANK SOUTH CORPORATION (PARENT ONLY)
(continued)
CONDENSED STATEMENTS OF CASH FLOWS
Year ended December 31,
1994 1993 1992
-----------------------------------------
Thousands of dollars
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 80,151 $ 73,349 $ 29,697
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income of subsidiaries (54,531) (57,004) (33,104)
Depreciation and amortization expense-premises and equipment 376 570 353
Amortization expense-intangible and other assets 2,602 2,724 2,238
Gain on sale of subsidiary -- (32,288) --
Net (increase) decrease in other assets (83) 33,543 11,263
Net (decrease) increase in other liabilities (4,777) 13,881 1,371
---------------------------------------------------------------------------------------------------------
Total adjustments (56,413) (38,574) (17,879)
---------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 23,738 34,775 11,818
---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in other short-term investments -- -- 3,800
Net (increase) decrease in advances to subsidiaries (1,302) (5,321) 1,216
Purchase of investment securities available for sale (9,681) -- --
Purchase of investment securities held to maturity (235) (262) --
Proceeds from calls, redemptions, and maturities of investment
securities held to maturity 16 -- --
Purchases of premises and equipment (55) (974) (51)
Business combinations, net of cash acquired 1,553 (31,020) (40,000)
Capital contribution to subsidiaries (500) (14,437) --
---------------------------------------------------------------------------------------------------------
Net cash used in investing activities (10,204) (52,014) (35,035)
---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in advances from subsidiaries (1,042) 1,040 (13,066)
Net increase in commercial paper 28,157 21,616 --
Repayments of long-term debt (167) (521) (198)
Cash dividends paid (26,030) (11,267) --
Proceeds from employee and director stock purchases 10,716 5,303 1,007
Proceeds from dividend reinvestment plan 1,563 59,389 19,083
Proceeds from foreign stock issuance -- -- 39,430
---------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 13,197 75,560 46,256
---------------------------------------------------------------------------------------------------------
Net increase in cash and due from banks 26,731 58,321 23,039
Cash and due from banks at beginning of year 81,767 23,446 407
---------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 108,498 $ 81,767 $ 23,446
=========================================================================================================
20 PENDING ACQUISITIONS
On August 31, 1994, the Company agreed to acquire Gwinnett Bancshares,
Inc. ("Gwinnett"), parent company of Gwinnett Federal Bank, FSB. As of
December 31, 1994, Gwinnett had total assets of approximately $319,140,000
and total shareholders' equity of approximately $33,157,000. For the year
ended December 31, 1994, Gwinnett reported a net loss of approximately
$1,405,000. The acquisition is expected to close in the first quarter of
1995 and is expected to be accounted for using the pooling-of-interests
accounting method.
78
EX-21
7
SUBSIDIARIES OF THE COMPANY
1
EXHIBIT 21
BANK SOUTH CORPORATION
SUBSIDIARIES
Bank South, N.A.
Bank South Life Insurance Corporation
Bank South Securities Corporation
Bank South, N.A. is a Federally Chartered National Banks with its headquarters
located in Georgia. Bank South Life Insurance Corporation was incorporated in
Arizona. Bank South Securities Corporation conducts broker-dealer and public
finance activities and was incorporated in Georgia.
EX-23
8
CONSENT OF ERNST & YOUNG LLP
1
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Bank South Corporation of our report dated January 19, 1995, included in the
1994 Annual Report to Shareholders of Bank South Corporation.
We also consent to the incorporation by reference in the Bank South Corporation
(1) Registration Statement (Form S-8 No. 33-23592) dated August 1, 1988, (2)
Registration Statement (Form S-8 No. 2-87371) as amended on February 27, 1987,
(3) Registration Statement (Form S-8 No. 33-19257) dated December 23, 1987, (4)
Registration Statement (Form S-8 No. 33-19256) dated December 23, 1987, (5)
Registration Statement (Form S-3 No. 33-46896) as amended on April 21, 1992,
(6) Registration Statement (Form S-3 No. 33-61470) dated April 22, 1993, (7)
Registration Statement (Form S-8 No. 33-61518) dated April 23, 1993, (8)
Registration Statement (Form S-8 No. 33-61522) dated April 23, 1993, (9)
Registration Statement (Form S-8 No. 33-61526) dated April 23, 1993, (10)
Registration Statement (Form S-8 No. 33-66254) dated July 20, 1993, (11)
Registration Statement (Form S-8 No. 33-52791) dated March 18, 1994, and (12)
Registration Statement (Form S-8 No. 33-57791) dated February 22, 1995, of our
report dated January 19, 1995, with respect to the financial statements of Bank
South Corporation incorporated herein by reference.
Atlanta, Georgia
March 29, 1995
EX-27
9
FINANCIAL DATA SCHEDULE
9
1,000
YEAR
DEC-31-1994
JAN-01-1994
DEC-31-1994
349,619
19,495
50,649
75,431
402,469
1,945,856
1,851,892
3,771,316
80,152
6,929,265
4,749,681
1,369,924
119,030
89,554
273,224
0
0
327,852
6,929,265
293,980
104,419
14,883
413,282
121,238
171,591
241,691
6,397
1,735
262,055
92,596
92,596
0
0
80,151
1.47
1.47
7.61
22,191
1,428
0
124,656
86,511
35,898
20,646
80,152
80,152
0
46,747
EX-99
10
BANK SOUTH CORP. NOTICE & PROXY STATEMENT
1
[BANK SOUTH LOGO]
BANK SOUTH CORPORATION
55 MARIETTA STREET, N.W.
ATLANTA, GEORGIA 30303
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 20, 1995
The annual meeting of shareholders of Bank South Corporation (the
"Company") will be held on Thursday, April 20, 1995 at 11:00 a.m., at the
Inforum, 250 Williams Street, Atlanta, Georgia, for the purpose of considering
and voting upon:
1. The election of fourteen directors to constitute the Board of
Directors and to serve until the next annual meeting and until their
successors are elected and qualified;
2. A proposal to approve proposed amendments to the Bank South
Corporation 1993 Equity Incentive Plan;
3. Such other matters as may properly come before the meeting or any
adjournments thereof.
A Proxy Statement and a Proxy solicited by the Board of Directors are
enclosed herewith. Please sign, date and return the Proxy promptly in the
enclosed business reply envelope. If you attend the meeting, you may, if you
wish, withdraw your Proxy and vote in person.
Also enclosed is a copy of the Company's 1994 Annual Report to
Shareholders.
By order of the Board of Directors
RALPH E. HUTCHINS, JR.
Secretary
March 20, 1995
PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY PROMPTLY SO THAT YOUR VOTE MAY BE
RECORDED AT THE MEETING IF YOU DO NOT ATTEND PERSONALLY.
2
[BANK SOUTH LOGO]
BANK SOUTH CORPORATION
55 MARIETTA STREET, N.W.
ATLANTA, GEORGIA 30303
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
Proxies by the Board of Directors of Bank South Corporation (the "Company") for
use at the annual meeting of shareholders of the Company to be held on April 20,
1995, and any adjournment thereof, for the purposes set forth in the
accompanying notice of the meeting. The expense of this solicitation, including
the cost of preparing and mailing this Proxy Statement, will be paid by the
Company. Copies of solicitation material may be furnished to banks, brokerage
houses and other custodians, nominees and fiduciaries for forwarding to
beneficial owners of shares of the Company's Common Stock, and normal handling
charges may be paid for such forwarding service. In addition to solicitations by
mail, directors and regular employees of the Company may solicit Proxies in
person or by telephone or telegraph. Further, the Company has retained Corporate
Investors Communications, Inc., a proxy solicitation firm, to assist in
soliciting proxies from beneficial owners of shares of the Company's Common
Stock held by banks, brokerage houses and other custodians, nominees, and
fiduciaries. The Company anticipates that such assistance will cost
approximately $7,000. It is anticipated that this Proxy Statement and the
accompanying Proxy will first be mailed to shareholders on March 20, 1995.
Any Proxy given pursuant to this solicitation may be revoked by any
shareholder who attends the meeting and gives oral notice of his or her election
to vote in person, without compliance with any other formalities. In addition,
any Proxy given pursuant to this solicitation may be revoked prior to the
meeting by delivering an instrument revoking it or a duly executed Proxy bearing
a later date to the Secretary of the Company. If the Proxy is properly completed
and returned by the shareholder and is not revoked, it will be voted at the
meeting in the manner specified thereon. If the Proxy is properly executed and
returned but no choice is specified thereon, it will be voted for all the
nominees named and in favor of the proposals described below.
Each shareholder is entitled to one vote on each proposal per share of
common stock, par value $5.00, of the Company (the "Common Stock") held as of
the record date. In determining whether a quorum exists at the annual meeting
for purposes of all matters to be voted on, all votes "for" or "against," as
well as all abstentions (including votes to withhold authority to vote in
certain cases), with respect to the proposal receiving the most such votes, will
be counted. The vote required for the election of directors is a plurality of
the votes cast by the shares entitled to vote in the election, provided a quorum
is present. Consequently, with respect to the proposal for the election of
directors, abstentions and broker non-votes will not be counted as part of the
base number of votes to be used in determining if the proposal has received the
requisite number of base votes for approval. Thus, with respect to the proposal
for the election of directors, an abstention or broker non-vote will have no
effect. With respect to the other proposal to be voted on at the annual meeting,
the required vote for approval is a majority of the shares of Common Stock
represented and entitled to vote at the annual meeting. Consequently, with
respect to that proposal, abstentions will be counted as part of the base number
of votes to be used in determining if the proposal has received the requisite
number of base votes for approval, but broker non-votes will not be counted in
such base for such proposal. Thus, an abstention will have the same effect as a
vote "against" such proposal, while a broker non-vote will have no effect.
3
VOTING SECURITIES AND PRINCIPAL HOLDERS
The record of shareholders entitled to vote at the annual meeting was taken
as of the close of business on March 1, 1995. On that date the Company had
outstanding and entitled to vote 58,477,896 shares of Common Stock, with each
share entitled to one vote.
The following table sets forth certain information concerning the only
"persons" (as that term is defined by the Securities and Exchange Commission)
who are known by the Company to be the beneficial owners of more than 5% of the
Common Stock, the Company's only class of voting securities, as of December 31,
1994, and the ownership of the Common Stock as of that date by the most highly
compensated executive officers who are not 1995 director nominees, and all
executive officers and directors of the Company as a group. Information
regarding the beneficial ownership of Common Stock by 1995 director nominees is
included below under "Information About Nominees for Director." Positions listed
are with the Company, unless otherwise indicated.
NUMBER OF SHARES PERCENT
BENEFICIAL OWNER OWNED BENEFICIALLY(1) OF CLASS
--------------------------------------------------------------- --------------------- --------
The Trust Division of Bank South, N.A. 4,475,657(2) 8.19%
as trustee under various trusts
P.O. Box 4387
Atlanta, Georgia 30302
Ralph E. Hutchins, Jr. 177,793.74(3) *
Chief Financial Officer
Lee M. Sessions, Jr. 122,596.93(4) *
Principal Operating Officer
Retail and Trust Banking
James A. Dewberry 98,114.24(5) *
Atlanta Community Banking
All Executive Officers and Directors as a Group (24 Persons) 3,059,277.75(6) 5.59%
---------------
* Less than one percent
(1) Shares shown as held by the Bank South Corporation 401(k) Investment Plan
(the "401(k) Plan"), a tax-qualified employee benefit plan covering
eligible employees of the Company and its subsidiaries, and shares shown as
held by the Bank South Corporation 401(k) Excess Plan (the "Excess Plan"),
a nonqualified, unfunded plan of deferred compensation, are based on the
September 30, 1994 plan statements, which are the latest available.
(2) Includes 1,589,762 shares held by the 401(k) Plan, and 5,842 shares held by
the Excess Plan. The Trust Division of Bank South, N.A. is the trustee of
the 401(k) Plan and the Excess Plan. Participants have voting discretion
with respect to shares of Common Stock allocated to their accounts and the
Trust Division may only vote unallocated shares and allocated shares with
respect to which it does not receive timely voting direction from
participants. As of December 31, 1994, all of the shares held by the 401(k)
Plan and the Excess Plan were allocated to participants' accounts. The
Company disclaims beneficial ownership of shares held by the 401(k) Plan or
the Excess Plan which are voted by participants.
(3) Includes 73,263 shares that may be acquired under stock options exercisable
currently or within 60 days, 11,535.64 shares held by the Company's 401(k)
Plan, and 683.10 shares held by the Excess Plan. Also includes 381 shares
held by his wife, of which shares Mr. Hutchins disclaims beneficial
ownership. Does not include 11,067 shares subject to options not
exercisable within 60 days.
(4) Includes 104,333 shares that may be acquired under stock options exercisable
currently or within 60 days, 2,475.78 shares held by the Company's 401(k)
Plan, and 306.42 shares held by the Excess Plan. Does not include 8,667
shares subject to options not exercisable within 60 days.
2
4
(5) Includes 40,574 shares that may be acquired under stock options exercisable
currently or within 60 days and 23,985.92 shares held by the Company's
401(k) Plan. Does not include 5,067 shares subject to options not
exercisable within 60 days.
(6) Includes 78,352.71 shares held by the 401(k) Plan and Excess Plan for the
benefit of the executive officers of the Company and 1,018,789 shares that
could be acquired under stock options exercisable currently or within 60
days.
NOMINATION AND ELECTION OF DIRECTORS
(ITEM 1)
The Bylaws of the Company provide that the Board of Directors shall consist
of fourteen directors. The term of office for directors is until the next annual
meeting and until their successors are elected and qualified. Provided a quorum
is present at the annual meeting, directors shall be elected by a plurality of
the votes cast by the shares of Common Stock represented in person or by proxy
at the annual meeting.
Each Proxy executed and returned by a shareholder will be voted as
specified thereon by the shareholder. If no specification is made, such Proxy
will be voted for the election of the nominees named below to constitute the
entire Board of Directors. In the event that any nominee withdraws or for any
reason is not able to serve as a director, the Proxy will be voted for such
other person as may be designated by the Board of Directors as a substitute
nominee, but in no event will the Proxy be voted for more than fourteen
nominees. The management of the Company has no reason to believe that any
nominee will not serve if elected.
INFORMATION ABOUT NOMINEES FOR DIRECTOR
The following information relating to age, as of April 20, 1995, and
directorships in other companies, positions with the Company and Bank South,
N.A. (the "Bank"), principal employment and Common Stock owned beneficially, as
of December 31, 1994, has been furnished by the respective nominees. Except as
otherwise indicated, each nominee has been or was engaged in his or her present
or last principal employment, in the same or a similar position, for more than
five years.
NUMBER OF SHARES
OWNED
BENEFICIALLY(1)
NAME INFORMATION ABOUT NOMINEES (PERCENT OF CLASS)
------------------------- --------------------------------------------------- ------------------
Ray C. Anderson A director since 1991, Mr. Anderson is Chairman, 34,256*
President and Chief Executive Officer of Interface,
Inc., a manufacturer of carpet, textiles and
chemicals. Mr. Anderson is 60.
Kenneth W. Cannestra A director since 1986, Mr. Cannestra is Group 23,274*
President of Lockheed Aeronautical Systems Group, a
position he has held since 1988. He has also been a
Vice President of Lockheed Corporation since 1983.
Mr. Cannestra is 64.
John S. Carr A director since 1991, Mr. Carr is President of 117,842.32*(3)
John S. Carr & Associates, Inc., a real estate
development company, and John S. Carr & Company,
Inc., real estate brokerage firm. Mr. Carr is 47.
Patrick L. Flinn A director and the Chief Executive Officer of the 403,892.08*(2)(4)
Company and the Bank since joining the Company on
August 1, 1991, Mr. Flinn was named Chairman of the
Board in January 1992. Prior to joining the
Company, Mr. Flinn was Group Executive Vice
President of Real Estate and Mortgage Banking at
C&S/Sovran Corporation, which became part of
NationsBank Corporation in December 1991. He had
been at C&S/Sovran since joining its management
training program in 1966. Mr. Flinn is 53.
3
5
NUMBER OF SHARES
OWNED
BENEFICIALLY(1)
NAME INFORMATION ABOUT NOMINEES (PERCENT OF CLASS)
------------------------- --------------------------------------------------- ------------------
Sidney E. Jennette, Jr. A director since 1980, Mr. Jennette is a management 30,593.44*(5)
consultant. He retired in 1983 as Vice President --
Corporate and External Affairs of Southern Bell
Telephone and Telegraph Co. He is also a director
of Southern Saw Holdings, Inc. Mr. Jennette is 68.
Lynn H. Johnston A director since 1982, Mr. Johnston is the retired 15,048.50*
Chairman of Life Insurance Company of Georgia and
of ING America Life Corporation. He is also a
director of Haverty Furniture Companies, Inc. Mr.
Johnston is 64.
William M. McClatchey, A director since 1992, Dr. McClatchey is a 87,000*(6)
M.D. physician with Piedmont Internal Medicine
Associates, P.A., now known as Piedmont Medical
Care Foundation. He is a doctor of internal
medicine and rheumatology. Dr. McClatchey
is 47.
John E. McKinley, III A director since 1993, Mr. McKinley has been in 235,344.15*(2)(7)
charge of Credit Policy and Corporate Banking since
joining the Company on August 1, 1991. Prior to
joining the Company, Mr. McKinley was Group
Executive Vice President and Chief Credit Officer,
Corporate Banking, at C&S/Sovran Corporation, which
became part of NationsBank Corporation in December
1991. He had been at C&S/Sovran since 1969. Mr.
McKinley is 51.
Julia W. Morgan A director since 1992, Ms. Morgan is President and 129,890.89*(8)
Chief Executive Officer of Ed Morgan & Associates,
Inc., an insurance company. Ms. Morgan is 66.
Barry Phillips A director since 1978, he is a partner of 84,739.87*
Kilpatrick & Cody, attorneys. Mr. Phillips is 66.
Ben G. Porter A director since 1991, Mr. Porter is an owner of 39,406.92*
Piedmont Communications Corporation, operators of
two radio stations in Macon, Georgia. He is also a
retired Senior Vice President of and active
consultant to Charter Medical Corporation. Mr.
Porter is 61.
John W. Robinson, Jr. A director since 1991, Mr. Robinson is President of 268,745*(9)
Southern Waistbands, Inc., a manufacturer of
textile products. Mr. Robinson is 55.
Felker W. Ward, Jr. A director since 1982, Mr. Ward has been President 43,417.35*(10)
of Ward & Associates, Inc., investment bankers
since 1988. He also serves as a director of the
Atlanta Gas Light Company and Abrams Industries,
Inc. Mr. Ward is 61.
Virgil R. Williams A director since 1987, he is the Chairman and Chief 869,582(11)
Executive Officer of Equipment Technology, Inc., an (1.59%)
environmental engineering company. Mr. Williams is
also the Chairman of Williams Service Group, Inc.,
an industrial engineering company, the President of
Williams Communications, Inc., a communications
company, and a director of First Financial
Management Corp., a data information services
company. Mr. Williams is 55.
---------------
* Less than one percent
4
6
(1) Shares shown as held by outside directors include 2,000 shares that may be
acquired under currently exercisable stock options granted pursuant to the
1994 Stock Option Plan for Outside Directors.
(2) Shares shown as held by the 401(k) Plan and by the Excess Plan are based on
the September 30, 1994 plan statements, which are the latest available.
(3) Includes 2,124 shares held by Eric J. Nickelson, Trustee for the benefit of
Catherine B. Carr, of which shares Mr. Carr disclaims beneficial ownership,
16,016 shares held by Eric J. Nickelson, Trustee for the benefit of John S.
Carr, Deferred Compensation Plan, 2,901 shares held by Mr. Carr's wife, of
which shares Mr. Carr disclaims beneficial ownership, and 4,801 shares held
in Mr. Carr's individual retirement account.
(4) Includes, 337,000 shares that may be acquired under stock options
exercisable currently or within 60 days, 3,129.69 shares held by the
Company's 401(k) Plan, and 1,627.39 shares held by the Excess Plan. Also
includes 115 shares held by his wife, Colleen Flinn, of which shares Mr.
Flinn disclaims beneficial ownership. Does not include 14,000 shares
subject to options not exercisable within 60 days.
(5) Includes 4,846.47 shares held by his wife, Mary H. Jennette, of which
shares Mr. Jennette disclaims beneficial ownership.
(6) Includes 63,000 shares held in trust for the benefit of his children, of
which shares Dr. McClatchey disclaims beneficial ownership.
(7) Includes 177,000 shares that may be acquired under stock options
exercisable currently or within 60 days and 638.15 shares held by the
Company's 401(k) Plan. Does not include 10,000 shares subject to options
not exercisable within 60 days.
(8) Includes 46,115 shares held in trust under the Will of Edgar Morgan, Jr.,
and 2,115.80 shares held in trust by Ms. Morgan for the benefit of her
children, Edgar C. Morgan III and C. Marsha Morgan Rose, of which shares
Ms. Morgan disclaims beneficial ownership.
(9) Includes 87,237 shares held by the Estate of John W. Robinson, Sr.
(10) Includes 11,591 shares held in Ward & Associates, Inc. profit sharing plan
account.
(11) Includes 84,086 shares that may be acquired under currently exercisable
stock options, and 2,000 shares that may be acquired under currently
exercisable stock options granted pursuant to the 1994 Stock Option Plan
for Outside Directors, as disclosed in footnote (1). Also includes 1,692
shares held by Sara Williams, as custodian, of which shares Mr. Williams
disclaims beneficial ownership.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Under rules established by the Securities and Exchange Commission, the
Company is required to provide certain data and information in regard to the
compensation and benefits provided to the Company's chief executive officer and
other executive officers, including the four other most highly compensated
executive officers (collectively, these four and the chief executive officer are
referred to as the "named executive officers"). The disclosure requirements for
the named executive officers include the use of tables and a report explaining
the rationale and considerations that led to fundamental executive compensation
decisions affecting these individuals. In fulfillment of this requirement, the
Compensation Committee has prepared the following report for inclusion in this
Proxy Statement.
The report reflects the Company's compensation philosophy as endorsed by
the Board of Directors and the Compensation Committee and resulting actions
taken by the Company for the reporting periods shown in the various compensation
tables supporting the report. The Compensation Committee either approves or
recommends to the Board of Directors payment amounts and award levels for
executive officers of the Company and its subsidiaries.
COMPENSATION COMMITTEE REPORT
THE COMMITTEE
The Compensation Committee (the "Committee") is composed of four
independent, non-employee directors who have no "interlocking" relationships as
defined by the Securities and Exchange Commission.
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The Committee, during 1992, designed the executive compensation program
currently in place with the help of an independent consultant. The Committee
held shareholders' interests paramount in that process. That program, described
in last year's Proxy Statement to shareholders, continued to be in place during
1994.
The Committee continues to assess the effectiveness of, and administer
executive compensation programs in support of, compensation policies. The
Committee also reviews and approves all salary arrangements and other
remuneration for executives, evaluates executive performance, and considers
related matters. During 1994, the Committee met four times.
GOALS OF THE PROGRAM
The Committee designed the executive compensation program in order to meet
the following goals:
- From a shareholder point of view, (i) to reward executives commensurate
with the success achieved by the Company from the shareholders'
perspective, and (ii) to balance executives' short- and long-term focus.
- From a management point of view, (i) to maintain a high quality
management team to ensure continued success, and (ii) to motivate desired
behaviors in those people, either indirectly (for example, through stock
ownership) or directly (for example, through setting performance or other
qualitative goals).
OVERVIEW OF THE PROGRAM
The above goals are met primarily through the following elements of pay:
- Base salary, paid for the base job. Employment agreements provide for
minimum annual salaries for Messrs. Flinn, McKinley, Hutchins and Sessions
of $325,000, $250,000, $235,000 and $210,000, respectively. Increases in
such minimum salaries to current levels were approved by the Board of
Directors.
- Cash incentive bonuses paid pursuant to a short-term incentive plan (the
"Focused Performance Plan") that reward executives for meeting goals set
annually by the Committee.
- The issuance of stock options under the Equity Incentive Plan.
- The issuance of performance units under the Equity Incentive Plan. This
plan rewards executive officers both for (i) exceeding a minimum level of
compound annual total shareholder return (stock price increase plus
dividends), and (ii) performing well in total shareholder return against
other banks. Performance units awarded under this plan pay out partly in
stock that cannot be sold for three years.
1994 COMPENSATION PLANS
Following are the specifics of the Compensation program effective during
1994 for executive officers.
Desired Competitive Posture
The goal of the Company is to provide compensation opportunities, for each
component of compensation and for total compensation, at approximately the
middle of the market. The Company believes that this provides an appropriate
balance between the need to control expenses, and the desire to retain an
experienced and effective management team.
Sources for competitive pay information include published surveys,
databases, and proxy data, including, for example, public information compiled
from the Wyatt Financial Institution Compensation Survey. In using these sources
("the survey data"), the Company focuses on United States commercial banks of
approximately its size, with a particular focus on banks in the Southeast. While
there is likely to be a substantial overlap between the banks included in the
survey data and the banks represented in the Nasdaq bank stocks index line on
the shareholder return performance graph, below, the groups are not exactly the
same. The Compensation Committee believes that the most direct competitors for
executive talent are not
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necessarily the same as the companies that would be included in the published
industry index established for comparing shareholder returns. The Committee
considers the entire pay package when setting one portion of pay. In general, on
an average percentage basis, Bank South's executive officer compensation
opportunities are equal to, and in the same proportions by component of pay as,
the survey data.
Base Salary
Base salaries for executive officers are set with reference to the
size-adjusted median of the survey data and are based on individual performance,
tenure and experience. The Compensation Committee reviews survey data
periodically for executive pay comparisons. During its last review, base
salaries of executive officers fell within a 30% range of the median. Annual
base salary increases are calculated with reference to projected increases for
the banking industry as a whole, bank performance, and individual performance
during the prior year. Individual increases are determined subjectively by the
Compensation Committee after taking these factors into account.
Short-Term Incentives
The Focused Performance Plan, designed by the Committee during 1992, was in
effect during 1994. Performance measures for 1994 for the Chief Executive
Officer were based 100% on the entire Company's results; those for other
executive officers were based from 50% to 75% on the entire Company's results.
Measures of the entire Company's results included both short-term (annual
profit) and long-term (asset quality) measures. Actual 1994 performance measures
and the weights assigned such measures were as follows: net earnings (50%),
return on assets (10%), return on equity (10%), losses (10%),
criticized/classified loans (10%), and non-performing assets (10%).
Target awards for the Focused Performance Plan range from 30% to 40% of
base salary for executive officers, and represent the average of the survey
data. Maximum awards range from 45% to 60% of base salary. During 1994, the
Company performed above target on some measures and below target on others. For
the corporate portion of the plan, the resulting payout was 101.57% of target.
Total awards under the plan are limited to 5% of the Company's net income, but
that limitation did not come into play during 1994.
Long-Term Incentives
The long-term incentive program has two parts: stock options and
performance units. The target number of stock options to be awarded, when added
to the performance opportunities for compensation under the performance unit
plan, represent market average total long-term incentive opportunities, based on
the survey data. That is, the economic value of the stock options, when added to
the economic value of the opportunities under the performance unit plan, is
equal to the size-adjusted median economic value of long-term incentive
opportunities provided by other companies to their executives, per the survey
data. This was determined for the Company by an independent consultant at the
time the plans were designed.
Target awards under the performance unit plan for executive officers range
from 10% to 20% of base salary. Maximum awards range from 40% to 80% of base
salary.
Stock Options
In February 1994, based on the long-term incentive target award described
above, stock options were granted having a three-year vesting period. One-third
of the grants have exercise prices equal to the fair market value at the date of
grant, one-third have exercise prices equal to 110% of fair market value, and
one-third have exercise prices equal to 120% of fair market value.
The economic value of the stock options granted represents approximately
one-third of the total economic value delivered in the form of long-term
incentives. The Committee felt that this provided an appropriate mix between the
two forms of compensation, i.e., stock options and the performance unit plan.
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Shareholder Return Plan
The Shareholder Return Plan, which is the sub-plan in accordance with which
performance units are granted under the Equity Incentive Plan, was in effect
during 1994. The Shareholder Return Plan rewards executives for total
shareholder return (stock price increase plus dividends) performance in excess
of 5% per year, and that ranks in the top two-thirds (approximately) of a group
of peer banks. For this purpose, peer banks are the American Banker Top 100 U.S.
Bank Holding Companies, excluding money center banks.
The two performance measures are weighted equally. Their use enables the
Compensation Committee to reward both for absolute increases in shareholder
value, and for what management has contributed to the shareholder return level,
isolated from broad stock market or banking industry movements.
During the two-year period beginning January 1, 1993 and ending December
31, 1994, the Company had a total shareholder return of 58% (annualized, 25.5%
per year), and performed at the 98th percentile of the peer banks. This resulted
in the maximum payout for the second performance period under the plan. Under
the plan's phase-in arrangement, however, two-thirds of the amount earned was
paid currently (67% in cash, and 33% in Company stock that may not be sold for
three years). The remaining one-third of the amount earned increases the target
award for performance during 1993 to 1995. This amount is subject to forfeiture
if the executive terminates employment, and is at risk based on performance
results during the remainder of the three-year performance period.
The use of stock-oriented performance measures, and the payout of part of
the plan's award in stock that must be held for three years, are elements of the
Company's program that tie executives' interests to shareholders' in a
significant way.
OTHER 1994 COMPENSATION
In the "All Other Compensation" column of the Summary Compensation Table
are amounts representing imputed income from group term life insurance in excess
of $50,000, 401(k) matching contributions, premiums paid for term life
insurance, and above-market earnings on deferred compensation. None of these
amounts was dependent on performance of the Company.
CHIEF EXECUTIVE OFFICER COMPENSATION
Following are the specifics of Mr. Flinn's compensation package during
1994:
Base Salary. Mr. Flinn's employment contract provides for a minimum base
salary of $325,000. This amount was negotiated in 1991 and is not based on
Company performance. Since 1991, Mr. Flinn has received increases in base salary
to $385,000, based on the Committee's subjective belief that Mr. Flinn had
contributed substantially to the Company's strong performance in intervening
years. The base salary of $385,000 is below the size-adjusted average of chief
executive salaries as reflected in the survey data, because of Mr. Flinn's
relatively short tenure in the position.
Short-Term Incentive. Mr. Flinn's target bonus is 40% of base salary and
his maximum bonus is 60% of base salary, which are set to be at the
size-adjusted average of the survey data. In recognition of 1994 performance, he
earned a bonus of $155,249 based on corporate performance that was slightly
above the targets set under the Focused Performance Plan.
Long-Term Incentive. In February 1994, Mr. Flinn received a stock option
grant of 21,000 shares, calculated as described above. This grant, plus Mr.
Flinn's target award under the Shareholder Return Plan, represent the
size-adjusted average of the survey data for his position. The exercise prices
of these options are $16.1875 for 7,000 options, $17.8063 for 7,000 options, and
$19.425 for 7,000 options.
During 1994, Mr. Flinn participated in the Shareholder Return Plan. His
target award was 20% of base salary. The plan earned awards at the maximum
amount, 80% of base salary, or $260,000. However, as noted above, only
two-thirds of the amount earned was paid currently. Mr. Flinn received a payout
of $173,333, with $115,556 received in cash, and $57,778 received in the form of
Company stock that may not be sold for three years. The remaining $86,667
increases the target award available to be paid out in early 1996 for
performance
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during the three-year performance cycle from 1993-1995. Such amount is at risk,
based both on continued employment and on future performance.
$1 MILLION DEDUCTION LIMIT
Under the Revenue Reconciliation Act of 1993, effective January 1, 1994,
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
was amended to eliminate the deductibility of certain compensation in excess of
$1 million paid to the chief executive officer and the four other most highly
compensated officers. Compensation that is "performance-based" is exempted from
such deduction limitation. The determination of whether compensation is
performance-based depends upon a number of factors, including shareholder
approval of the plan under which the compensation is paid, the exercise price at
which options or similar awards are granted, the disclosure to and approval of
the shareholders of applicable performance standards, the composition of the
Compensation Committee, and the certification by the Compensation Committee that
performance standards were satisfied.
In order to preserve the Company's ability to deduct certain
performance-based compensation under Section 162(m) of the Code, the
Compensation Committee, with the approval of the Board of Directors, has elected
to seek shareholder approval of an amendment to the Equity Incentive Plan, as
described in Item 2 of this Proxy Statement. While it will still be possible to
make awards under the Equity Incentive Plan and otherwise that do not qualify as
performance-based compensation deductible under Section 162(m), the Compensation
Committee, in structuring compensation programs for its top executive officers,
intends to give strong consideration to the deductibility of awards.
SUMMARY
In summary, the Company's overall executive compensation program is
designed to reward managers for good individual, Company and share value
performance. The Compensation Committee intends to monitor the various
guidelines that make up the program and reserves the right to adjust them as
necessary to continue to meet Company and shareholder objectives.
RAY C. ANDERSON LYNN H. JOHNSTON
BEN G. PORTER VIRGIL R. WILLIAMS
SUMMARY COMPENSATION TABLE
The table below sets forth certain elements of compensation for the named
executive officers for the periods indicated.
LONG TERM COMPENSATION
--------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------- --------------------- --------
(F)
(A) RESTRICTED (G) (H) (I)
NAME AND PRINCIPAL POSITIONS (E) STOCK OPTIONS/ LTIP ALL OTHER
(WITH THE COMPANY, UNLESS (B) (C) (D) OTHER AWARD(S) SARS PAYOUTS COMPENSATION
OTHERWISE INDICATED) YEAR SALARY BONUS(1) ($) ($) (#) ($) ($)
-------------------------------- ---- -------- -------- ----- ---------- -------- -------- ------------
Patrick L. Flinn................ 1994 $381,302 $394,713(2) -- $0 21,000 $173,334(3) $ 26,613(6)
Chairman and Chief Executive 1993 $358,631 $496,084(4)(5) -- $0 0 $ 0 --
Officer* 1992 $324,110 $272,373 -- $0 0 $ 0 --
John E. McKinley, III........... 1994 $280,875 $305,721(2) -- $0 15,000 $133,333(3) $ 19,394(6)
Principal Operating Officer, 1993 $272,138 $373,828(4)(5) -- $0 0 $ 0 --
Credit Policy and Corporate 1992 $249,315 $205,677 -- $0 0 $ 0 --
Banking*
Ralph E. Hutchins, Jr........... 1994 $233,230 $84,182 (2) -- $0 13,000 $117,333(3) $ 44,624(7)
Chief Financial Officer* 1993 $227,836 $210,667(4)(5) -- $0 0 $ 0 --
1992 $219,397 $ 0 -- $0 6,000 $ 0 --
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LONG TERM COMPENSATION
--------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------- --------------------- --------
(F)
(A) RESTRICTED (G) (H) (I)
NAME AND PRINCIPAL POSITIONS (E) STOCK OPTIONS/ LTIP ALL OTHER
(WITH THE COMPANY, UNLESS (B) (C) (D) OTHER AWARD(S) SARS PAYOUTS COMPENSATION
OTHERWISE INDICATED) YEAR SALARY BONUS(1) ($) ($) (#) ($) ($)
-------------------------------- ---- -------- -------- ----- ---------- -------- -------- ------------
Lee M. Sessions, Jr............. 1994 $233,230 $179,646(2) -- $0 13,000 $112,000(3) $ 15,002(6)
Principal Operating Officer, 1993 $226,302 $257,146(4)(5) -- $0 0 $ 0 --
Retail and Trust Banking* 1992 $209,425 $135,031 -- $0 0 $ 0 --
James A. Dewberry............... 1994 $159,562 $43,577 (2) -- $0 4,000 $ 42,133(3) $ 29,222(7)
Atlanta Community Banks 1993 $165,392 $93,066 (4)(5) -- $0 0 $ 0 --
1992 $157,568 $ 0 -- $0 6,000 $ 0 --
---------------
* Also a member of the Policy Committee, a senior management group selected by
the Chief Executive Officer, which makes general policy decisions for the
Company.
(1) Includes cash bonuses paid for 1992 pursuant to employment agreements with
Messrs. Flinn ($130,000), McKinley ($100,000) and Sessions ($84,000). Also
includes the fair market value of stock awards issued in 1992, 1993 and
1994, respectively, as part of signing bonuses to Messrs. Flinn ($142,373,
$200,617 and $239,464), McKinley ($105,677, $148,909 and $177,711), and
Sessions ($51,031, $69,644 and $84,671).
(2) Includes 1994 Focused Performance Plan bonus payments to Messrs. Flinn
($155,249), McKinley ($128,010), Hutchins ($84,182), Sessions ($94,975) and
Dewberry ($43,577).
(3) Includes cash bonuses from the Shareholder Return Plan for 1994 to Messrs.
Flinn ($115,556), McKinley ($88,889), Hutchins ($78,222), Sessions
($74,667) and Dewberry ($28,089). Also includes the fair market value of
stock bonuses from the Shareholder Return Plan for 1994 to Messrs. Flinn
($57,778), McKinley ($44,444), Hutchins ($39,111), Sessions ($37,333) and
Dewberry ($14,044).
(4) Includes 1993 Focused Performance Plan bonus payments to Messrs. Flinn
($208,800), McKinley ($158,253), Hutchins ($132,000), Sessions ($131,502)
and Dewberry ($72,000). Also includes a separate $20,000 cash bonus to Mr.
Hutchins.
(5) Includes cash bonuses from the Shareholder Return Plan for 1993 to Messrs.
Flinn ($57,778), McKinley ($44,444), Hutchins ($39,111), Sessions ($37,333)
and Dewberry ($14,044). Also includes the fair market value of stock
bonuses from the Shareholder Return Plan for 1993 to Messrs. Flinn
($28,889), McKinley ($22,222), Hutchins ($19,556), Sessions ($18,667) and
Dewberry ($7,022).
(6) Includes imputed income from group term life insurance in excess of $50,000
($2,287 for Mr. Flinn; $1,681 for Mr. McKinley; and $846 for Mr. Sessions),
401(k) employer matching contributions ($22,396 for Mr. Flinn; $16,371 for
Mr. McKinley; and $13,512 for Mr. Sessions), and insurance premiums paid by
the Company for term life insurance on behalf of the executive ($1,930 for
Mr. Flinn; $1,342 for Mr. McKinley; and $644 for Mr. Sessions).
(7) Includes imputed income from group term life insurance in excess of $50,000
($2,327 for Mr. Hutchins and $2,851 for Mr. Dewberry), 401(k) employer
matching contributions ($13,512 for Mr. Hutchins and $9,574 for Mr.
Dewberry), insurance premiums paid by the Company for term life insurance
on behalf of the executive ($1,871 for Mr. Hutchins and $2,016 for Mr.
Dewberry), and the dollar value of above-market amounts earned on 1985 and
1990 deferred compensation ($26,914 for Mr. Hutchins and $14,781 for Mr.
Dewberry).
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LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
The following tables contain information about long-term incentive awards
made to the named executive officers during 1993 and 1994 under the Shareholder
Return Plan. Table II, which is a restatement of Table II from the 1994 Proxy
Statement is provided to show additional deferral from the 1993-1994 performance
period, which increased the target award for the 1993-1995 performance period.
See "Compensation Committee Report" above.
TABLE I
(1994-1996 PERFORMANCE CYCLE)
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS
-------------------------------------------
(A) (B) (C) (D) (E) (F)
----------------------------- ------------ ------------- ----------- ----------- -----------
NUMBER OF PERFORMANCES
SHARES, OR OTHER
UNITS PERIOD UNTIL
OR OTHER MATURATION OR THRESHOLD TARGET MAXIMUM
NAME RIGHTS(#)(1) PAYOUT ($ OR #)(2) ($ OR #)(3) ($ OR #)(4)
----------------------------- ------------ ------------- ----------- ----------- -----------
Patrick L. Flinn............. 70,000 1994-1996 $17,500 $70,000 $ 280,000
John E. McKinley, III........ 53,000 1994-1996 $13,250 $53,000 $ 212,000
Ralph E. Hutchins, Jr........ 44,000 1994-1996 $11,000 $44,000 $ 176,000
Lee M. Sessions, Jr.......... 44,000 1994-1996 $11,000 $44,000 $ 176,000
James A. Dewberry............ 16,000 1994-1996 $ 4,000 $16,000 $ 64,000
---------------
(1) Grants under this plan are expressed in dollars.
(2) Represents 25% of amount in column (b).
(3) Represents 100% of amount in column (b).
(4) Represents 400% of amount in column (b).
TABLE II
(1993-1995 PERFORMANCE CYCLE)
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS
-------------------------------------------
(A) (B) (C) (D) (E) (F)
----------------------------- ------------ ------------- ----------- ----------- -----------
NUMBER OF PERFORMANCES
SHARES, OR OTHER
UNITS PERIOD UNTIL
OR OTHER MATURATION OR THRESHOLD TARGET MAXIMUM
NAME RIGHTS(#)(1) PAYOUT ($ OR #)(5) ($ OR #)(6) ($ OR #)(7)
----------------------------- ------------ ------------- ----------- ----------- -----------
Patrick L. Flinn........ 65,000(2) 1993-1995 $81,250 $ 325,000 $1,300,000
173,333(3)
86,667(4)
John E. McKinley, III... 50,000(2) 1993-1995 $62,500 $ 250,000 $1,000,000
133,333(3)
66,667(4)
Ralph E. Hutchins, 44,000(2) 1993-1995 $55,000 $ 220,000 $ 880,000
Jr.................... 117,333(3)
58,667(4)
Lee M. Sessions, Jr..... 42,000(2) 1993-1995 $52,500 $ 210,000 $ 840,000
112,000(3)
56,000(4)
James A. Dewberry....... 15,800(2) 1993-1995 $19,750 $ 79,000 $ 316,000
42,133(3)
21,067(4)
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---------------
(1) Under the Plan's phase-in arrangement, one-third of the amount earned in
1993 and two-thirds of the amount earned in 1994 was paid currently. The
remainder was deferred to increase the target award amount for performance
throughout the three-year period. This amount is subject to forfeiture if
the executive terminates employment and is at risk based on performance
during the remainder of the three-year period. Grants under this plan are
expressed in dollars.
(2) Original target award.
(3) Two-thirds of payout deferred from 1993 actual performance and again subject
to performance during 1993-1995.
(4) One-third of payout deferred from 1993-1994 actual performance and again
subject to performance during 1993-1995.
(5) Represents 25% of total amount in column (b).
(6) Represents 100% of total amount in column (b).
(7) Represents 400% of total amount in column (b).
Payouts under the Shareholder Return Plan are based upon total shareholder
return (stock price increase plus dividends) in excess of 5% per year and the
corresponding percentile ranking among peer banks (currently the American Banker
Top 100 U.S. Bank Holding Companies, excluding money center banks). The two
measures are weighted equally. Payments under the plan are at risk based on
performance results during the performance period.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table contains information about option awards made to the
named executive officers on February 17, 1994 under the Equity Incentive Plan.
See "Compensation Committee Report" above.
GRANT DATE
INDIVIDUAL GRANTS VALUE
--------------------------------------------------------------------------------------------- ----------
(A) (B) (C) (D) (E) (F)
--------------------------------- ------------ ------------ ------------ ---------- ----------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARS GRANTED TO EXERCISE OR GRANT DATE
GRANTED (#) EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME (1)(2) FISCAL YEAR ($/SHARE)(3) DATE VALUE(4)
--------------------------------- ------------ ------------ ------------ ---------- ----------
Patrick L. Flinn................. 7,000 1.47% $16.1875 2/17/04 $ 30,660
7,000 1.47% $17.8063 2/17/04 $ 26,530
7,000 1.47% $19.4250 2/17/04 $ 23,030
John E. McKinley, III............ 5,000 1.05% $16.1875 2/17/04 $ 21,900
5,000 1.05% $17.8063 2/17/04 $ 18,950
5,000 1.05% $19.4250 2/17/04 $ 16,450
Ralph E. Hutchins, Jr............ 4,333 0.91% $16.1875 2/17/04 $ 18,979
4,333 0.91% $17.8063 2/17/04 $ 16,422
4,334 0.91% $19.4250 2/17/04 $ 14,259
Lee M. Sessions, Jr.............. 4,333 0.91% $16.1875 2/17/04 $ 18,979
4,333 0.91% $17.8063 2/17/04 $ 16,422
4,334 0.91% $19.4250 2/17/04 $ 14,259
James A. Dewberry................ 1,333 0.28% $16.1875 2/17/04 $ 5,839
1,333 0.28% $17.8063 2/17/04 $ 5,052
1,334 0.28% $19.4250 2/17/04 $ 4,389
---------------
(1) Options granted in 1994 are exercisable starting 12 months after the initial
grant date, with one-third of the shares covered thereby becoming
exercisable on each successive anniversary date, with full vesting
occurring on the third anniversary date.
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(2) Under the terms of the Equity Incentive Plan, the Compensation Committee
retains the discretion, subject to plan limits, to modify the terms and
conditions of outstanding options.
(3) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of already owned shares or by offset of the underlying
shares, subject to certain conditions.
(4) The estimated grant date present values reflected in the above table are
determined using the Black-Scholes model, incorporating the following
material assumptions and adjustments:
- The exercise prices of the option grant vary according to the following
schedule: (i) one-third of the grant at $16.1875, the fair market value of
the underlying stock on the date of grant; (ii) one-third of the grant at
$17.8063, 110% of the fair market value of the underlying stock on the
date of grant; and (iii) one-third of the grant at $19.425, 120% of the
fair market value of the underlying stock on the date of grant.
- An option term of 10 years.
- An interest rate of 5.97%, which represents the interest rate on a U.S.
Treasury security with a maturity date corresponding to that of the option
term.
- Volatility of 28.871%, calculated using daily stock prices for the
one-year period prior to the grant date.
- Dividends at the rate of $0.50 per share, representing the expected
annualized dividends to be paid with respect to a share of the Company's
Common Stock at the date of grant.
- Reductions to reflect the probability of forfeiture due to termination
prior to vesting, and to reflect the probability of a shortened option
term due to termination of employment prior to the option expiration date.
The percentages assumed for the respective exercise prices are shown
below:
TERMINATION PRIOR TERMINATION PRIOR TO
EXERCISE PRICE TO VESTING OPTION EXPIRATION DATE
---------------------------- ----------------- ----------------------
$16.1875.................... 4.00% 13.82%
$17.8063.................... 7.84% 15.54%
$19.425..................... 11.53% 16.84%
The ultimate values of the options will depend on the future market price of the
Company's Common Stock, which cannot be forecast with reasonable accuracy. The
actual value, if any, an optionee will realize upon exercise of an option will
depend on the excess of the market value of the Company's Common Stock over the
exercise price on the date the option is exercised.
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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table shows stock option exercises by the named executive
officers during 1994, including the aggregate value of gains on the date of
exercise. In addition, this table includes the number of shares covered by both
exercisable and non-exercisable options as of December 31, 1994. Also reported
are the values for "in-the-money" options, which represent the positive spread
between the exercise price of any such existing options and the year-end price
of the Company's Common Stock.
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FY-END (#) FY-END ($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED(1) UNEXERCISABLE UNEXERCISABLE
-------------------------------- --------------- ----------- --------------- ---------------
Patrick L. Flinn................ 20,000 $ 243,750 337,000/ $3,123,438/
14,000 $ 0
John E. McKinley, III........... 28,000 $ 357,000 177,000/ $1,742,813/
10,000 $ 0
Ralph E. Hutchins, Jr........... 10,775 $ 107,636 73,263/ $ 343,831/
11,067 $ 17,400
Lee M. Sessions, Jr............. -- -- 104,333/ $1,181,770/
8,667 $ 0
James A. Dewberry............... 10,775 $ 122,452 40,574/ $ 213,712/
5,067 $ 17,400
---------------
(1) Market value of underlying Common Stock at exercise date, minus the exercise
price.
PENSION PLAN
The Company maintains a tax-qualified, non-contributory defined benefit
retirement plan (the "Pension Plan") for the benefit of eligible salaried
employees of the Company and its subsidiaries. The Pension Plan provides for the
payment of fixed annual benefits upon an employee's normal retirement at age 65.
Benefits may also be paid upon early retirement prior to the normal retirement
age as provided in the Pension Plan.
Until December 31, 1992, annual benefits under the Pension Plan were based
upon each employee's years of service and final average earnings. The Pension
Table in the Proxy Statement for the Company's 1993 Annual Meeting of
Shareholders illustrated the estimated annual benefits payable upon retirement
under the Pension Plan as of December 31, 1992, and the Supplemental Executive
Retirement Plan that pays the highest level of benefits, to persons in specified
remuneration and years-of-service categories, based upon an assumed retirement
at age 65.
Effective as of January 1, 1993, the Company's Pension Plan was converted
to a cash-balance plan, such that benefits thereunder are no longer determined
primarily by final average compensation and years of service. Instead, each year
beginning in 1993, there is credited to a hypothetical account on behalf of each
participant (i) a percentage of such participant's annual compensation
(generally ranging from 2.25% to 7.75%, based on the age of the participant),
(ii) 5% interest on the hypothetical account balance, and (iii) possible
additional interest on the hypothetical account balance at a rate determined by
the Board of Directors in its sole discretion. Upon termination of employment of
a participant, the amount in the participant's hypothetical account as of such
date, together with the participant's retirement benefit earned under the
Pension Plan as in effect on December 31, 1992, will be distributed to the
participant. Amounts held in the participant's hypothetical account may, at the
election of the participant, be paid out either in a single lump sum or in an
annuity form. Such benefits may be distributed after the participant terminates
employment. The participant's retirement benefit earned under the Pension Plan
as in effect on December 31,
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1992 will generally be paid as an annuity either at the participant's early
retirement or normal retirement date. The estimated annual benefits payable
under the amended Pension Plan upon retirement at normal retirement age for each
of the named executive officers (taking into account the legal pensionable
earnings limits described below and not including any supplemental retirement
benefits, but including amounts that have accrued under the Pension Plan as in
effect on December 31, 1992) is as follows: Mr. Flinn -- $25,686; Mr.
McKinley -- $27,912; Mr. Hutchins -- $71,166; Mr. Sessions -- $27,999; and Mr.
Dewberry -- $105,816.
Earnings used to calculate benefits under the Pension Plan may not exceed
$150,000 for 1994. With certain exceptions for previously accrued benefits,
annual benefits under the Pension Plan may not exceed the lesser of 100% of the
participant's average annual compensation for his high three years or $118,008
for 1994, regardless of the benefits otherwise provided by the Pension Plan.
The Company also maintains a defined benefit Supplemental Executive
Retirement Plan ("SERP") covering Messrs. Flinn, McKinley, Hutchins and
Sessions, which provides for the payment of death and retirement benefits in
excess of the Pension Plan limits and the legal pensionable earnings limits
described above. The SERP benefits vary from participant to participant, in
accordance with a formula based on years of service and average annual salary
and bonus for the three highest of the five final years of service. Any SERP
benefits received by the named executive officers will be offset by Social
Security benefits and by benefits payable under the Pension Plan and, in the
case of Messrs. Flinn, McKinley and Sessions, by benefits payable under the
pension plan of a former employer. In addition, the Company maintains a defined
benefit Supplemental Executive Retirement Plan covering Mr. Dewberry which
provides for the payment of death and retirement benefits that cannot be
provided under the cash balance plan because of the Pension Plan limits and
legal pensionable earnings limits described above.
PERFORMANCE GRAPH
The Securities and Exchange Commission requires that the Company include in
this Proxy Statement a line-graph presentation comparing the Company's
cumulative, five-year shareholder returns on an indexed basis with an overall
stock market index and either a published industry index or an index of peer
companies selected by the Company. The following graph compares the Company's
shareholder returns with the Nasdaq Composite Index and the Nasdaq Bank Stocks
Index.
[GRAPH]
Measurement Period Bank South Nasdaq Bank
(Fiscal Year Covered) Corporation Nasdaq (U.S.) Stocks
1989 100.00 100.00 100.00
1990 56.90 84.92 73.23
1991 53.62 136.28 120.17
1992 111.92 158.58 174.87
1993 147.54 180.93 199.33
1994 176.37 176.92 198.69
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EMPLOYMENT AND SEVERANCE AGREEMENTS
Employment Agreements. The Company entered into employment agreements with
Patrick L. Flinn, John E. McKinley, III and Lee M. Sessions, Jr. in 1991 and
with Ralph E. Hutchins, Jr. in 1995. The agreements are for three years, but
they automatically extend on a daily basis such that the remaining term is
always three years. Either party to each agreement may elect to terminate this
automatic extension, in which event the agreement will run for three years from
such date. The agreements provide for minimum annual salaries to Messrs. Flinn,
McKinley, Sessions and Hutchins of $325,000, $250,000, $210,000, and $235,000,
respectively, and, with respect to Messrs. Flinn, McKinley and Sessions, minimum
annual incentive bonus payments for 1991 and 1992 equal to 40% of their salary.
The agreements also provide for the grant of stock options to Mr. Flinn to
purchase over specified periods 200,000 shares at $6.50 per share, 75,000 shares
at $9.50 per share and 75,000 shares at $11.50 per share; to Mr. McKinley to
purchase over specified periods 150,000 shares at $6.50 per share and 50,000
shares at $10.50 per share; and to Mr. Sessions to purchase over specified
periods 100,000 shares at $6.00 per share. Additionally, the agreements provide
for the participation of the executive in a Supplemental Executive Retirement
Plan of the Company. See "Compensation of Executive Officers and
Directors -- Pension Plan."
In order to replace certain stock options granted to Messrs. Flinn,
McKinley and Sessions by their former employer which were forfeited upon such
executives' termination of employment, their agreements provide for awards of
shares of the Company's Common Stock. The amount of the stock award reflects the
difference between the exercise price of the former options and the market value
of the former employer's stock as of a specified date. The aggregate amounts of
the stock awards for Messrs. Flinn, McKinley and Sessions were 38,830, 28,820
and 14,410 shares, respectively. The awards were paid in three equal annual
installments on October 1, 1992, 1993 and 1994 with respect to Messrs. Flinn and
McKinley and on October 18, 1992, 1993 and 1994 with respect to Mr. Sessions.
With respect to all four employment agreements, the Company may terminate
the employment of the executive at any time during the term of the agreements.
The obligations of the Company cease under the agreements if the termination is
for cause, death or disability; otherwise, the executive is entitled to the
remaining payments due under the agreement. The executive may also terminate his
employment at any time. If the executive terminates as a result of the Company's
breach of the agreement or there is an "involuntary termination" of the
executive as a result of a change in control of the Company, he will be entitled
to the remaining payments under the agreement.
Severance Agreements. The Company has entered into severance agreements
with Messrs. Flinn, McKinley, Hutchins, Sessions and Dewberry which provide for
benefits to the executives if their employment is terminated in connection with
a "change in control" (as defined in such agreements) of the Company. The term
of these agreements with Messrs. Flinn, McKinley, Hutchins and Sessions runs
concurrently with that of such officers' employment agreements, which are
described above. Mr. Dewberry's agreement is for a term of three years,
renewable for one year periods at the discretion of the Compensation Committee.
Each of such agreements provides for the Company to pay the executive a lump
sum, discounted to its present value, in an amount equal to 36 months of his
current salary at the time of termination and a bonus, which is calculated as
three times the average of the bonuses earned by him during the preceding two
years. In addition, the executive will continue to participate in health and
life insurance programs maintained by the Company for 36 months and may, to the
extent permitted by the applicable plan, continue to participate in any
retirement plans maintained by the Company for such period. If continued
participation in any plan is not permitted, the Company will provide other
coverage or pay or provide to the executive a supplemental benefit equal to the
present value, on the date of termination, of the excess of what the executive
would have received had such coverage continued for 36 months over the amount he
actually received under such plan. Any benefits payable to Messrs. Flinn,
McKinley, Hutchins or Sessions pursuant to these severance agreements will be
reduced by any payments from the Company under his employment agreement that are
made as a result of termination following a change in control of the Company.
The agreements with Messrs. Hutchins and Dewberry were entered into in 1995 and
1993, respectively, in replacement of other severance agreements then in effect.
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Benefits under the agreements described above may be modified or reduced to
the extent necessary to avoid exposing the executive to an excise tax and to
avoid disallowance of a deduction to the Company for payments to the executive
for federal tax purposes.
DIRECTOR COMPENSATION
During 1994, each director was paid a retainer of $16,000 and $500 for each
Board of Directors meeting attended. In addition, members of the Audit Committee
were paid a fee of $700 for each meeting attended, and members of the
Compensation Committee, Executive Committee, Asset/Liability Management
Committee, Credit Committee, Community Development Committee and Investment
Management/Trust Services Committee were paid a fee of $500 for each meeting
attended. Committee chairpersons received the committee member's fee plus a
chairman's fee of $100 for each committee meeting attended. Officers of the
Company or its subsidiaries did not receive fees for service on the Board of
Directors and committees. Outside directors were limited to $1,000 per day per
director, not including the annual retainer.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Directors Ray C. Anderson, Ben G. Porter, Lynn H. Johnston and Virgil R.
Williams, none of whom is an officer or employee of the Company, served on the
Compensation Committee of the Board of Directors of the Company for the past
fiscal year. Mr. Williams is a director of First Financial Management Corp.,
which owns International Banking Technologies, Inc., a company that assists
retailers and financial institutions in the design and installation of in-store
banking facilities. During 1994, the Bank engaged the services International
Banking Technologies, Inc. for construction and remodeling of banking premises
and certain other services, for which the Bank paid approximately $7,055. Mr.
Williams is or was also a partner in certain other businesses to which the Bank
made payments for goods and services in 1994 as follows: (i) Williams Adair
Equity Corp., a real estate development firm which the Bank paid a total of
approximately $83,358 for maintenance performed on banking premises, (ii)
Williams Investment Realty, a real estate management company which the Bank paid
approximately $786,469 primarily for rental of 42,573 square feet of office
space pursuant to a lease expiring in December 31, 2005, (iii) Heritage
Lawrenceville Investors, a real estate management company which the Bank paid
approximately $4,812 for rental of office space in Gwinnett County pursuant to a
lease that expired in 1994, (iv) Oak Road Investors, a real estate management
company which the Bank paid approximately $39,841 for rental of its Five Oaks
Branch location, and (v) Georgia Trend, a magazine publication for which the
Bank paid subscriptions of approximately $6,686.
CERTAIN TRANSACTIONS
During 1994, the Company and its subsidiaries paid Kilpatrick & Cody
approximately $1,001,489 for unreimbursed legal services. Barry Phillips, a
director of the Company, is a partner in that firm.
During 1994, John S. Carr & Associates, Inc., a real estate development
company affiliated with John S. Carr, a director of the Company, received
approximately $10,746 from the Company for real estate consulting services.
During 1994, the Company engaged Life Insurance Company of Georgia to
provide long-term disability insurance for eligible employees. The premium paid
to Life Insurance Company of Georgia in 1994 for this insurance was $34,793 for
the fourth quarter of 1993. Lynn H. Johnston, a director of the Company, is
Chairman of Life Insurance Company of Georgia.
During 1994, Abrams Construction, a general contracting company affiliated
with Bernard W. Abrams, a director of the Company, received approximately
$74,997 for the renovations to various properties.
For information about transactions with companies that are affiliates of
Virgil R. Williams, a director of the Company, see "Compensation Committee
Interlocks and Insider Participation" above.
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Subsidiaries of the Company have had, and expect to have in the future,
banking transactions in the ordinary course of business with directors and
officers of the Company and their associates, including corporations of which
such officers or directors are shareholders, directors and/or officers, on the
same terms (including interest rates and collateral) as those prevailing at the
time for comparable transactions with other persons. Such transactions have not
involved more than the normal risk of collectability or represented other
unfavorable features.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held nine meetings during the year ended December
31, 1994. All of the directors attended at least 75% of the aggregate of such
meetings and the meetings of each committee of the Board on which they served,
except that Mr. Anderson attended approximately 71% of the aggregate number of
meetings of the Board, Executive Committee and Compensation Committee during
1994.
The Board of Directors has a standing Audit Committee composed of Sidney E.
Jennette, Jr. (Chairman), Ray C. Anderson, Julia W. Morgan and Felker W. Ward,
Jr. The Audit Committee has the responsibility of reviewing the Company's
financial statements, evaluating internal accounting controls, reviewing reports
of regulatory authorities and determining that all audits and examinations
required by law are performed. It recommends to the Board of Directors the
appointment of the independent auditors for the next fiscal year, reviews and
approves their audit plan and reviews with the independent auditors the results
of their audit and management's response thereto. The Audit Committee also
reviews the adequacy of the internal audit budget and personnel, the internal
audit plan and schedule, and results of audits performed by the internal audit
staff. The Audit Committee is responsible for overseeing the entire audit
function and appraising the effectiveness of internal and external audit
efforts. The Audit Committee reports its findings to the Board of Directors. The
Audit Committee held four meetings during the year ended December 31, 1994.
The Board of Directors has a standing Compensation Committee composed of
Lynn H. Johnston (Chairman), Ray C. Anderson, Ben G. Porter, and Virgil R.
Williams. The function of the Compensation Committee is to review and approve
the compensation of executive officers and establish targets and incentive
awards under incentive compensation plans of the Company. See "Compensation of
Executive Officers and Directors -- Compensation Committee Report." The
Compensation Committee reports to the Board of Directors. The Compensation
Committee held four meetings during the year ended December 31, 1994.
The Executive Committee of the Board of Directors also served as the
nominating committee in connection with the 1995 annual meeting of shareholders.
The Executive Committee held eleven meetings in 1994, one of which served as a
meeting of the nominating committee. The Executive Committee is comprised of
Lynn H. Johnston (Chairman), Kenneth W. Cannestra, Barry Phillips, Ben G.
Porter, Virgil R. Williams and Patrick L. Flinn.
During 1994, the Board of Directors also had an Asset/Liability Management
Committee composed of Kenneth W. Cannestra (Chairman), Sidney E. Jennette, Jr.,
William M. McClatchey, M.D., and Ben G. Porter; a Community Development
Committee, composed of William M. McClatchey, M.D. (Chairman), Julia W. Morgan,
and Felker W. Ward, Jr.; a Credit Committee composed of Barry Phillips
(Chairman), John S. Carr, Patrick L. Flinn, Sidney E. Jennette, Jr., and John W.
Robinson, Jr.; and an Investment Management/Trust Services Committee, composed
of John W. Robinson, Jr. (Chairman), Bernard W. Abrams, John S. Carr and William
M. McClatchey, M.D.
The Executive Committee will consider nominations by shareholders of
candidates for election to the Board of Directors of the Company that comply
with the bylaws of the Company. The bylaws require, among other things, that any
shareholder desiring to nominate a director must notify the President of the
Company by first class registered mail between 14 and 50 days before the
scheduled meeting and that such notification contain: (1) the names and
addresses of nominees to be proposed; (2) their principal present occupations;
(3) to the knowledge of the shareholder who proposes to make such nomination,
the total number of shares that may be voted for each of the proposed nominees;
and (4) the names and addresses of the shareholders proposing such nominations
and the number of shares of Common Stock owned by such shareholders. The
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meeting is currently expected to be held on or about April 20, 1995. Any such
shareholder nominations should be sent to Bank South Corporation, 55 Marietta
Street N.W., Atlanta, Georgia 30303, Attention: Patrick L. Flinn, President. For
further details as of the timing of submissions and the information required to
be contained in any nomination, see Article III, Section 3 of the Company's
bylaws, a copy of which may be obtained from the Secretary of the Company upon
written request delivered to the address indicated above.
APPROVAL OF AMENDMENT TO THE BANK SOUTH CORPORATION
1993 EQUITY INCENTIVE PLAN
(ITEM 2)
The Bank South Corporation 1993 Equity Incentive Plan (the "Plan") was
approved by the shareholders on April 15, 1993. On February 16, 1995, the
Compensation Committee and the Board of Directors of the Company approved
certain amendments to the Plan (the "Amendment"), and the Board of Directors
directed that the Amendment be submitted to the shareholders at the 1995 Annual
Meeting. The Amendment will become effective upon the affirmative vote of a
majority of the shares of Common Stock of the Company represented and entitled
to vote at the Annual Meeting.
The proposed Amendment consists of certain technical amendments, described
below, to ensure the federal tax deductibility by the Company of certain awards
under the Plan to certain "covered employees" (as defined below) of the Company
under Section 162(m) of the Code, as well as an amendment to Article 10 of the
Plan relating to the effect on outstanding performance unit awards in the event
of a change in control of the Company. (The term "covered employees" means the
chief executive officer and the four other most highly compensated officers of
the Company as of the end of the performance year ("Covered Employees"), and for
1994 would have been Messrs. Flinn, McKinley, Hutchins, Sessions and Dewberry.)
These amendments are being submitted for shareholder approval in order to
preserve the Company's ability to deduct certain performance-based compensation
under Code Section 162(m).
SUMMARY DESCRIPTION OF THE PROPOSED AMENDMENTS TO THE PLAN
The following is a summary of the proposed Amendment. A copy of the full
text of the Plan, as proposed to be amended, will be furnished to any
shareholder upon written request made to the Secretary of the Company. Except as
described herein the Plan is not proposed to be amended. The Company's 1993
Proxy Statement contains a summary description of the Plan provisions not
proposed to be amended.
AMENDMENTS TO COMPLY WITH CODE SECTION 162(M)
Committee Composition. The proposed Amendment would amend Article 3,
Section 3.1, of the Plan to provide that the committee administering the Plan
(the "Committee") shall be comprised solely of directors who are eligible to
administer the Plan pursuant to Rule 16b-3 under the Exchange Act and Code
Section 162(m) and the rules and regulations thereunder, and that if for any
reason the Compensation Committee does not so qualify to administer the Plan,
the Board of Directors shall appoint a different Committee consisting solely of
qualifying directors to administer the Plan. Currently the Plan requires only
that the Committee consist of directors eligible to administer the Plan pursuant
to Rule 16b-3 under the Exchange Act. The proposed amendment will not result in
a change in the composition of the Compensation Committee for fiscal year 1995.
Limitation on Number of Option Shares. The proposed Amendment would also
amend Article 4, Section 4.1, of the Plan to provide that the maximum number of
shares of Common Stock that may be the subject of options granted to any one
individual in any consecutive three-year period is 150,000 shares. This maximum
limitation is required to preserve the deductibility by the Company of the value
of nonqualified stock options awarded to the Covered Employees under the Plan
under Code Section 162(m). Currently the Plan does not provide a maximum option
award per individual.
Parameters for Certain Performance Units. The Amendment would add a new
Section 7.9 to Article 7 of the Plan, setting forth the parameters under which
the Committee may establish performance goals for
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performance units under the Plan that will qualify as "performance-based"
compensation. Such parameters are proposed to shareholders in response to the
enactment in 1993 of Code Section 162(m), which imposes limits on the ability of
public companies to deduct compensation in excess of $1 million paid to Covered
Employees in certain circumstances. If the shareholders approve the Amendment,
all incentive compensation awarded under the parameters of Section 7.9 of the
Plan to the Covered Employees should qualify for an exception to Section 162(m)
of the Code relating to performance-based compensation and, therefore, should be
deductible by the Company for federal income tax purposes.
With respect to performance units granted under Section 7.9 of the Plan,
the Committee shall within 90 days of the beginning of the applicable
performance period, or any earlier or later date to the extent required or
permitted by Code Section 162(m) without causing the award to fail to qualify as
performance-based compensation, select the Covered Employees and any other
participants to receive performance units for the performance period in question
and adopt in writing each of the following: (i) a Target Award for each
participant expressed in terms of a number of units, each worth $1, to be earned
at target performance, (ii) a performance measure based on the Company's
compound annual total shareholder return (stock price increase plus dividends)
over the performance period, (iii) a performance measure based on the percentile
ranking of the Company's compound annual total shareholder return as compared to
a peer group of similar institutions selected by the Committee for such period,
and (iv) a mathematical matrix combining the two performance measures as a
method of determining the percent of the Target Award to be earned by the
participant with respect to the applicable performance period, including, in
each case, a threshold performance level below which no award will be earned and
a maximum award level. Section 7.9 will provide that no award will be paid to a
participant unless the relevant performance criteria are met or exceeded.
As part of the Amendment, Section 7.9 of the Plan provides that in no event
shall any Covered Employee receive an award in excess of $2,000,000 for any one
performance period. Except as may be permitted under Code Section 162(m) or the
rules and regulations thereunder, once established, neither the Target Award nor
the performance criteria for a performance unit applicable to a Covered Employee
pursuant to new Section 7.9 of Plan may be amended.
Whether or not the shareholders approve the Amendment to the Plan, the
Committee may grant performance units under the Plan that do not qualify as
performance-based compensation under Code Section 162(m). The payment of any
such nonqualifying performance units to a Covered Employee could be
non-deductible by the Company, in whole or in part, under Code Section 162(m),
depending on such Covered Employee's total compensation in the applicable year.
CHANGE IN CONTROL AMENDMENT
The proposed Amendment would amend Article 10 of the Plan to provide that
upon the occurrence of a "change in control" of the Company (as defined in the
Plan), unless otherwise specifically prohibited by the terms of Section 11 of
the Plan (relating to amendment, modification or termination of the Plan), all
open performance periods for performance units granted under the Plan will end,
and within 120 days after the occurrence of the change in control, the value of
performance units granted for those performance periods will be paid in cash to
the participant (in an amount calculated as described below), as though all
performance periods had been completed in full, and any restrictions on sale of
shares received in connection with prior performance periods will lapse. The
amount to be paid to the participant in the event of a change in control shall
be calculated by measuring total shareholder return over the performance period
in question, using as the ending measure (both as to the Company and the
comparison peer group) the average performance results over the 20 trading days
prior to the earlier of (i) the announcement of the change in control or (ii)
the announcement of an agreement in principle, or the signing of a definitive
agreement, to enter into a transaction that would, if consummated, constitute a
change in control (the "Announcement Date"), and including all dividends paid
through the Announcement Date. In contrast, Article 10 currently provides that
the value of performance units to be paid out in the event of a change in
control would be based on assumed "target" performance levels.
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This Amendment could result in higher or lower awards than "target" level
depending on the level indicated by actual performance preceding the change in
control. If the Amendment had been in effect during 1994 and a change in control
had occurred in such year, then, based on the favorable total shareholder return
of the Company both on a stand-alone basis and as compared to the selected group
of peer institutions, the awards would have been paid at the maximum level, or
four times the "target" amount. As indicated in the Summary Compensation Charts
under Item 1 of this Proxy Statement, awards were in fact earned and paid at the
"maximum" level in the ordinary course of 1994, absent a change in control.
Conversely, if a change in control were to occur at a time of unfavorable total
shareholder return, both on a stand-alone basis and as compared to the selected
group of peer institutions, awards would be paid at below-target levels, if at
all, again reflecting the level of award actually earned. In other words, the
amended provision would merely maintain the status quo for award levels in a
non-change-in-control environment; it would neither reward nor punish executives
as a result of an intervening change in control.
The Compensation Committee and the Board of Directors believe that the
proposed Amendment to Article 10 of the Plan, by causing the award payments to
be based on the Company's actual performance during performance periods
terminated by a change in control, will motivate executives to maintain
sustained maximum levels of performance during economic cycles favorable to a
potential change in control.
BENEFITS TO NAMED EXECUTIVES AND OTHERS
All full-time, active employees of the Company and its subsidiaries are
eligible to participate in the Plan. However, no award will be made under the
Plan to any person without Compensation Committee approval. The Committee has
identified approximately 12 executives who will receive options and/or
performance units under the Plan in 1995, including, subject to shareholder
approval of the Amendment to the Plan, performance units for the performance
cycle beginning in 1995, as indicated in the following table:
1993 EQUITY INCENTIVE PLAN
---------------------------------------------
NUMBER OF OPTIONS(O) OR
NAME AND POSITION DOLLAR VALUE($) PERFORMANCE UNITS(U)
------------------------------------------------------- --------------- -----------------------
Patrick L. Flinn....................................... $ (1) 21,000(O)
Chairman and Chief Executive Officer $ 77,000(2) 77,000(U)
John E. McKinley, III.................................. $ (1) 15,000(O)
Principal Operating Officer, $ 56,600(2) 56,600(U)
Credit Policy and Corporate Banking
Ralph E. Hutchins, Jr.................................. $ (1) 13,000(O)
Chief Financial Officer $ 47,000(2) 47,000(U)
Lee M. Sessions, Jr.................................... $ (1) 13,000(O)
Principal Operating Officer, $ 47,000(2) 47,000(U)
Retail and Trust Banking
James A. Dewberry...................................... N/A 0(O)
Atlanta Community Banks N/A 0(U)
All Executive Officers, as a Group..................... $ (1) 113,000(O)
$ 339,480(2) 339,480(U)
All Non-Executive Directors, as a Group................ N/A 0(O)
N/A 0(U)
All Non-Executive Officer Employees, as a Group........ $ (1) 266,600(O)
$ 48,500(2) 48,500(U)
---------------
(1) On a per share basis, this amount will be equal to the excess of the fair
market value of the Common Stock on the date of exercise of the option over
the exercise price. The exercise prices for one-third of these options are
$17.125, $18.8375, and $20.55, respectively. The closing price for the
Common Stock quoted on the Nasdaq National Market System was $19.00 as of
March 1, 1995.
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(2) The value of a performance unit will depend on the degree to which the
relevant performance criteria will have been met at the end of the
performance period in 1997. The value shown is the Target Award amount.
Actual awards may be a greater or lesser amount.
FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND TO PARTICIPANTS
The proposed Amendment to the Plan should have no federal income tax effect
on participants under the Plan. If approved by the shareholders, the Amendment
will preserve the Company's ability to deduct the value of certain awards paid
under the Plan to the named executive officers.
The Board of Directors recommends that the shareholders approve the
proposed Amendment to the Plan.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES
OF COMMON STOCK REPRESENTED AND ENTITLED TO VOTE AT THE MEETING IN PERSON OR BY
PROXY IS REQUIRED FOR APPROVAL OF THE PROPOSED AMENDMENT TO THE PLAN. THE BOARD
OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PROPOSED AMENDMENT TO
THE PLAN, AND THE ENCLOSED PROXY, IF PROPERLY COMPLETED AND RETURNED, WILL BE SO
VOTED UNLESS A SHAREHOLDER EXECUTING THE PROXY SPECIFICALLY VOTES AGAINST THIS
PROPOSAL OR ABSTAINS FROM VOTING BY MARKING THE APPROPRIATELY DESIGNATED BLOCK
ON THE PROXY.
INFORMATION CONCERNING THE COMPANY'S INDEPENDENT AUDITOR
The certified public accounting firm of Ernst & Young LLP was the
independent auditor for the Company during the year ended December 31, 1994.
Representatives of Ernst & Young LLP are expected to be present at the
shareholders' meeting and will have the opportunity to make a statement if they
desire to do so and to respond to appropriate questions. On March 16, 1995, the
Audit Committee of the Board of Directors of the Company recommended the
engagement of Ernst & Young LLP as its independent auditors for the fiscal year
ending December 31, 1995.
The reports of Ernst & Young LLP on the Company's financial statements for
fiscal years 1992, 1993 and 1994 did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope, or accounting principles. In connection with the audits of the
Company's financial statements for each of the past two fiscal years, there were
no disagreements with the auditors on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure which,
if not resolved to the satisfaction of the auditors, would have caused the
auditors to make reference to the matter in connection with their reports.
SECTION 16(A) REPORTING
The Company is required to identify any director or officer who failed to
timely file with the Securities and Exchange Commission a required report
relating to ownership and changes in ownership of the Company's securities.
Based on material provided to the Company, the Company believes that all such
filing requirements with respect to the Company's fiscal year ended December 31,
1994 were complied with except that Dr. William McClatchey made one late filing
on Form 4 with respect to shares purchased under his company's profit sharing
plan, Mr. John Carr made one late filing on Form 4 with respect shares acquired
under a dividend reinvestment account, and Mr. Blake Young reported on Form 5
his holding of 53 shares held in an individual retirement account which should
have been included on his initial Form 3 report.
SHAREHOLDER PROPOSALS
In accordance with the provisions of Rule 14a-8(a)(3)(1) of the Securities
and Exchange Commission, proposals of shareholders intended to be presented at
the Company's 1996 annual meeting must be received by the Company by November
21, 1995, in order to be eligible for inclusion in the Company's Proxy Statement
and form of proxy for that meeting.
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OTHER MATTERS THAT MAY COME BEFORE THE MEETING
The management of the Company knows of no matters other than those stated
above that are to be brought before the meeting. However, if any other matter
should be presented for consideration and voting, it is the intention of the
persons named in the enclosed form of Proxy to vote the Proxy in accordance with
their judgment of what is in the best interest of the Company.
By order of the Board of Directors
RALPH E. HUTCHINS, JR.
Secretary
March 20, 1995
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