SECURITIES AND EXCHANGE COMMISSION
                           Washington, D. C. 20549

                                  FORM 10-K


              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                     THE SECURITIES EXCHANGE ACT OF 1934


  For the fiscal year ended December 31, 1997 Commission file number 0-4518


                           DEPOSIT GUARANTY CORP.
           (Exact name of registrant as specified in its charter)


              Mississippi                                    64-0472169
   (State or other jurisdiction of                        (I.R.S. Employer
     incorporation or organization)                     Identification No.)

 210 East Capitol Street, Jackson, MS                          39201
(Address of principal executive offices)                    (Zip Code)

      Registrant's telephone number, including area code (601) 354-8564

               Securities  registered  pursuant  to Section
                              12(b) of the Act:

    Title of Each Class                Name of Exchange on Which Registered
Common Stock, No Par Value                    New York Stock Exchange

               Securities  registered  pursuant  to Section
                            12(g) of the Act:

                                  None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-K or
 any amendment to this Form 10-K. [ ]

Aggregate market value of voting stock held by nonaffiliates of the Registrant
as of February 20, 1998:  $2,063,499,710.

Common stock, no par value, outstanding as of February 20, 1998:
                              40,831,953 shares


                                                                1


<PAGE>






















                                                                2
<PAGE>
<TABLE>
<CAPTION>

                                                       CROSS REFERENCE INDEX

                                                                                                                       Page

<S>               <C>          <C>                                                                                 <C>
PART I            Item 1       Business

                               Statistical data required by Exchange Act Guide                                          3-5
                               and   Securities   Act   Guide  3   included   in
                               Management's Discussion and Analysis                                                    7-28
                  Item 2       Properties                                                                                 5
                  Item 3       Legal Proceedings                                                                          6
                  Item 4       There has been no submission of matters to a vote
                               of shareholders during the quarter ended December
                               31, 1997.

PART II           Item 5       Market for Registrant's Common Equity and Related
                               Stockholder Matters                                                                  6,27,28
                  Item 6       Selected Financial Data                                                                    7
                  Item 7       Management's Discussion and Analysis of Financial
                               Condition and Results of Operations                                                     8-28
                  Item 8       Financial Statements and Supplementary Data                                            28-53
                  Item 9       There has been no disagreement with accountants
                               on accounting and financial matters.

PART III          Item 10      Directors and Executive Officers of the Registrant                                 4-5,54-55
                  Item 11      Executive Compensation                                                                 56-60
                  Item 12      Security Ownership of Certain Beneficial Owners                                        61,62
                               and Management
                  Item 13      Certain Relationships and Related Transactions                                            63

PART IV           Item 14      Exhibits, Financial Statement Schedules,                                                  63
                               and Reports on Form 8-K
                               (a)(1)   Financial Statements (See Item 8 for
                                        reference)
                                  (2)   Financial  Statement  Schedules normally
                                        required on Form 10-K are omitted  since
                                        they are not applicable.
                                  (3)   Exhibit index is on page 65 of this Form
                                        10-K and exhibits
                                        are filed herewith.
                               (b)      Reports on Form 8-K.
                               (c)      The response to this portion of Item 14
                                        is submitted as a
                                        separate section of this report.
                               (d)      Not applicable


</TABLE>


                                                                3


<PAGE>





                                       PART I

Item 1.  Business
General
                  Deposit  Guaranty  Corp.  (the  "Company")  is  a  Mississippi
business  corporation  organized  in 1968 as a bank holding  company  registered
under the Bank Holding Company Act of 1956, as amended and is  headquartered  in
Jackson,  Mississippi.  During 1997, the Company  merged its four  independently
chartered banking subsidiaries into Deposit Guaranty National Bank (the "Bank").
As part of the  consolidation  process,  the  Company  acquired  the 2% minority
interest  in the Bank and now owns 100% of the  Bank.  Through  the Bank,  which
includes  170  banking  offices,  the  Company  serves  customers  primarily  in
Mississippi,  Louisiana,  and  Arkansas,  offering  complete  banking,  mortgage
banking,  brokerage  and trust  services.  The Company  also  provides  mortgage
banking services in Texas, Nebraska,  Iowa, Indiana, and Oklahoma through two of
its subsidiaries.
         On January 3, 1997, the Company acquired  Jefferson Guaranty Bancorp, a
one  bank  holding   company,   headquartered  in  Metairie,   Louisiana,   with
approximately  $299 million in total assets.  The Company paid a combination  of
1,759,688  shares of the Company's  common stock and $10 million in cash for all
of the outstanding common stock of Jefferson  Guaranty Bancorp.  The transaction
was accounted for as a purchase business combination.
         On March 31, 1997, the Company acquired First Capital Bancorp,  Inc., a
bank holding company headquartered in Monroe,  Louisiana with approximately $186
million in total assets by exchanging  1,568,467  shares of the Company's common
stock for all of the  outstanding  shares of First  Capital  Bancorp.  Inc.  The
transaction was accounted for as a pooling of interests.
         On July 1, 1997, the Company acquired NBC Financial Corporation, a bank
holding company located in Baton Rouge, Louisiana with approximately $69 million
in total  assets.  The  transaction,  which  called for the  exchange of 422,529
shares of the Company's  common stock for all of the  outstanding  shares of NBC
Financial Corporation, was accounted for as a purchase business combination.
         On  August  1,  1997,  the  Company  paid  $18.9  million  cash for the
outstanding  common  shares of CitiSave  Financial  Corporation  of Baton Rouge,
Louisiana.  CitiSave  Financial  Corporation  is the parent  company of Citizens
Savings Association,  F.A., which has six banking offices in Baton Rouge and $75
million  in total  assets.  The  transaction  was  accounted  for as a  purchase
business combination.
         On March 23,  1998,  the  Company  acquired  Victory  Bancshares,  Inc.
located in Memphis,  Tennessee with  approximately $115 million in total assets.
745,650  shares of the  Company's  common  stock were  exchanged  for all of the
outstanding shares of Victory Bancshares.  The acquisition of Victory Bancshares
was accounted for as a pooling of interests.
         During the first quarter of 1997, the Board of Directors of the Company
approved the use of an accelerated  share repurchase  program with a third party
as a means of accomplishing  previously approved and future share repurchases in
connection with specific purchase business combinations.
         On  December  8, 1997,  the  Company  announced  that it had reached an
agreement to be acquired by First  American  Corporation,  a financial  services
company headquartered in Nashville,  Tennessee with $10.9 billion in assets. The
merger is expected to take place during the second quarter of 1998 in a tax free
exchange of common  stock and is expected  to be  accounted  for as a pooling of
interests. The agreement calls for the exchange of 1.17 shares of First American
Corp. stock for each share of the Company's common stock.  Information regarding
First American Corp. can be found in its annual report on Form 10-K.

Supervision and Regulation
         As a bank holding  company,  the Company's  activities and those of its
banking and nonbanking  subsidiaries  are limited to the business of banking and
activities  closely  related or  incidental  to  banking.  The  Company  may not
directly or  indirectly  acquire the ownership or control of more than 5% of any
class of  voting  shares or  substantially  all of the  assets  of any  company,
including a bank, without the prior approval of the Federal Reserve Board.
         The Bank is subject to supervision and examination by the Office of the
Comptroller  of the  Currency  ("OCC").  The Bank is insured  by, and  therefore
subject  to the  regulations  of,  the  Federal  Deposit  Insurance  Corporation
("FDIC"),  and is also subject to requirements  and  restrictions  under federal
law, including requirements to maintain reserves against deposits,  restrictions
on the types and amounts of loans that may be granted and the interest  that may
be charged thereon, and limitations on the types of investments that may be made
and the types of services that may be offered.  Other federal and state laws and
regulations also affect the operations of the Company's subsidiaries.
         The Bank is subject to  restrictions  under  federal law  applicable to
certain transactions between it and the Company and its nonbanking subsidiaries,
including  loans,  other  extensions of credit,  investments or asset purchases.
Such transactions between The Bank and the Company or any nonbanking  subsidiary
are  limited in amount to 10% of the Bank's  capital and  surplus.  The total of
such  transactions  between  the  Bank  and  the  Company  and  certain  of  its
affiliates, with certain exceptions, is limited to an aggregate of

                                                                4


<PAGE>





20% of Deposit Guaranty's capital and surplus. Furthermore, loans and extensions
of credit from the Bank to the Company or its nonbank affiliates are required to
be secured in specified  amounts by specified  types of collateral.  At December
31, 1997, the Bank could lend the Company a maximum of approximately $42 million
in aggregate.
         As a result of the  enactment  of the  Financial  Institutions  Reform,
Recovery,  and  Enforcement  Act  ("FIRREA")  on August 9,  1989,  a  depository
institution  insured by the FDIC can be held liable for any loss incurred by, or
reasonably  expected  to be  incurred  by, the FDIC in  connection  with (i) the
default of a commonly controlled FDIC-insured depository institution or (ii) any
assistance provided by the FDIC to a commonly controlled depository  institution
in danger of default if the FDIC notifies the depository  institution within two
years of incurring  such loss.  Under  Federal  Reserve  policy,  the Company is
expected to act as a source of financial  strength to its subsidiary bank and to
commit resources to support the subsidiary.
         The  Federal  Deposit  Insurance  Corporation  Improvement  Act of 1991
("FDICIA")  provides  criteria  for  categorizing  the capital  strength of FDIC
insured depository  institutions.  FDICIA  substantially  revises the depository
institution  regulatory and funding  provisions of the Federal Deposit Insurance
Act and makes revisions to several other federal banking statutes.  The Bank has
been categorized as "well capitalized" under the guidelines of FDICIA.
         The Bank is subject to FDIC  deposit  insurance  assessments.  The Bank
qualified for the lowest  assessment  allowed by FDICIA.  Beginning in 1997, the
FDIC began  assessing  the banks only for the  purpose of  retiring  debt of the
Financing  Corporation  (FICO).  This assessment is charged at an annual rate of
$.013 of Bank Insurance Fund deposits.
         During  1997,  the Company  and its  subsidiaries  were  engaged in the
general  banking  business  and  activities  closely  related  to  banking or to
managing or  controlling  banks,  as authorized by the laws of the United States
and  regulations  pursuant  thereto.  The Bank  comprises  more  than 99% of the
related  combined  revenue,  profits and assets of all industry  segments of the
Company.

Competition
         The  Company  is a leader  in many of its  markets  located  throughout
Mississippi,  Louisiana and Arkansas. In Mississippi,  Deposit Guaranty National
Bank is the second  largest bank in terms of deposits.  In  Louisiana,  the Bank
ranks sixth.
         There are numerous other banks and financial institutions which compete
with the Company  and its  subsidiaries  in making  loans,  accepting  deposits,
providing  credit,  and  performing  other  banking  services.  The Company also
competes  with  other  providers  of  financial  services,  such  as  investment
companies, brokerage firms, finance companies and insurance companies, which are
involved in marketing various types of loans, investments and other services.
         The  Company's  customer  base  falls  into  two  broad  categories  or
segments,  corporate  and  retail.  Corporate  customers  are  middle  to  large
businesses who use a range of products from loans to cash  management  services.
Competition  for  corporate  customers  is  focused  heavily  on  price.  Retail
customers  range from  individuals  to small  businesses.  Although price drives
competition  among retail  customers,  convenience  and service quality are also
important.  Retail  customers use a wide variety of products  including auto and
other consumer loans, deposit accounts and brokerage services.

Personnel
         On  December  31,   1997,   the  Company  and  its   subsidiaries   had
approximately 3,268 full-time equivalent employees.

Executive Officers of the Registrant

         The chart provided below contains  certain  information  concerning the
executive officers of the Company and its principal subsidiaries.
<TABLE>

                                                    Position(s) And Office(s)
                                                      Held With the Company                     Assumed
        Name                         Age            And Subsidiaries                       Present Office(s)
        ----                         ---          ---------------------------              ------------------

<S>                                  <C>         <C>                                          <C>
E. B. Robinson, Jr.                  56           Chairman of the Board and                   January 1, 1984
                                                  Chief Executive Officer
                                                  of the Company and the Bank

Howard L. McMillan, Jr.              59           President and Chief                         January 1, 1984
                                                  Operating Officer of the
                                                  Company and the Bank

Thomas M. Hontzas                    53           Executive Vice President                    May 18, 1982

                                                                5


<PAGE>





                                                     of the Company and
                                                     the Bank



(Continued)
                                                  Position(s) And Office(s)
                                                    Held With the Company                         Assumed
       Name                        Age                And Subsidiaries                        Present Office(s)
       ----                        ---          ---------------------------                 -------------------

W. Parks Johnson                   55           Executive Vice President                    February 16, 1994
                                                of the Company and
                                                the Bank

James S. Lenoir                    55           Executive Vice President                    February 15, 1983
                                                and Chief Credit Officer
                                                of the Company and the Bank

Arlen L. McDonald                  49           Executive Vice President                    March 16, 1976
                                                and Chief Financial
                                                Officer of the Company
                                                and the Bank

W. Stanley Pratt                   52           Executive Vice President                    September 30, 1996
                                                of the Company and
                                                the Bank

Steven C. Walker                   48           Executive Vice President                    September 30,1996
                                                of the Company and
                                                the Bank

Stephen E. Barker                  41           Controller and Principal                    February 16, 1993
                                                Accounting Officer of the
                                                Company and the Bank

J. Clifford Harrison               44           General Counsel and                         January 1, 1996
                                                Secretary of the Company
                                                and the Bank

</TABLE>


         All  executive  officers  have  held  executive  or  senior  management
positions  with the  Company or its  principal  subsidiaries  for more than five
years.

Item 2.  Properties
         The  Company  has  its  principal  office  in  Deposit  Guaranty  Plaza
("Plaza"),  210 East Capitol Street,  Jackson,  Mississippi,  a twenty-two story
office  tower.   The  Company  owns  the  Plaza  in  addition  to  the  building
("Building") at 200 East Capitol Street, Jackson,  Mississippi,  adjacent to the
Plaza. The building, completed in its present form in 1958, was renovated during
1975. Both the Plaza and the Building are occupied by the Company, the Bank, and
various tenants.
         The Company also owns the Deposit Guaranty Center,  located in downtown
Shreveport,  Louisiana, at 333 Texas Street. The complex is occupied by the Bank
and various tenants. Deposit Guaranty Center is comprised of a twenty-four story
office  tower  which was  placed in  service  in 1986,  a fifteen  story  office
building  constructed  in  1940,  and an  adjoining  parking  garage  which  was
completed in 1986.

                                                                6


<PAGE>





         The Company owns 143 of its 170 full-service branch banking facilities.
The  remaining  branch  banking  facilities  as  well  as  its  mortgage  branch
facilities  are occupied  under leases  expiring  from 1998  through  2018.  The
Company  also  holds  fee  title to 10  tracts  of land  held as  locations  for
additional banking facilities in the future.
         The  Company's  management  considers  all of its  buildings and leased
premises to be in good  condition.  None of the properties  described  above are
subject to any significant encumbrances.




Item 3.  Legal Proceedings
         The  Bank,  is a  defendant  in a case  in  which  the  plaintiffs  are
beneficiaries  of a trust  for  which  the Bank is the  trustee.  In an  amended
complaint, the plaintiffs claim that DGNB was negligent in its dealings with the
trust  property,  breached its trust duties by allegedly  abusing its discretion
and negligently handling trust assets,  engaged in self dealing, and was grossly
negligent in its handling of the trusts. The case seeks actual damages for waste
of trust assets and loss of income and punitive damages,  both in an unspecified
amount to be  proven at trial,  and  attorney  fees and court  costs.  While the
ultimate  outcome of the lawsuit cannot be predicted with certainty,  management
denies all liability  and believes  that the ultimate  resolution of this matter
will  not  have a  material  effect  on  the  Company's  consolidated  financial
statements.
         In addition,  the Company and it's  subsidiary  are subject to numerous
other  pending and  threatened  legal  actions  arising in the normal  course of
business and management  believes that the ultimate  resolution of these matters
will  not  have a  material  effect  on  the  Company's  consolidated  financial
statements.


Item 4.  Submission of Matters to a Vote of Security Holders
         There  has been no  submission  of  matters  to a vote of  shareholders
during the quarter ended December 31, 1997.


                                                              PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters
         This  information is contained  under the heading  "Dividend and Market
Information"  in Part  II  Item  7.  Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operations of this Form 10-K, at page 32.


                                                                7


<PAGE>





Item 6.  Selected Financial Data
<TABLE>
<CAPTION>

TABLE 1 - SELECTED FINANCIAL DATA
(In Thousands Except Share Data)

                                                                             Year Ended December 31,
                                                   1997              1996             1995              1994             1993
                                                   ----              ----             ----              ----             ----
Statements of earnings
<S>                                              <C>              <C>               <C>              <C>               <C>
Interest income                                  $ 485,465        $ 432,222         $ 402,704        $ 307,272         $ 299,327
Interest expense                                   200,869          182,688           173,432          125,881           124,687
                                                 ---------          -------           -------          -------           -------
Net interest income                                284,596          249,534           229,272          181,391           174,640
Provision for loan losses                            7,500            5,340             2,160          ( 4,750)          (16,000)
                                                     -----            -----             -----          --------          -------
Net interest income after provision for
     loan losses                                   277,096          244,194           227,112          186,141           190,640
Other operating income                             133,603          117,245            91,989           93,499            74,781
Other operating expenses                           271,047          237,208           211,452          180,047           171,567
                                                   -------          -------           -------          -------           -------
Income before income taxes                         139,652          124,231           107,649           99,593            93,854
Income tax expense                                  47,372           40,621            35,029           32,463            27,302
                                                    ------           ------            ------           ------            ------
Net income                                       $  92,280        $  83,610         $  72,620      $    67,130         $  66,552
                                                 =========        =========         =========      ===========         =========

Net income per share
     Basic                                          $ 2.25           $ 2.16            $ 1.89           $ 1.90            $ 1.89
     Diluted                                          2.23             2.14              1.87             1.89              1.87

Cash basis earnings per share*                        2.49             2.31              2.01             1.96              1.93

Cash dividends per share                               .83              .72               .61              .53               .47
Weighted average shares outstanding
     Basic                                      41,082,356       38,760,192        38,431,162       35,336,124        35,299,704
     Diluted                                    41,413,294       39,006,669        38,780,032       35,593,028        35,565,656

Statement of condition - averages
Total assets                                   $ 6,719,145      $ 6,026,548       $ 5,571,697      $ 4,940,977       $ 4,826,726
Earning assets                                   5,961,991        5,395,343         4,961,261        4,413,938         4,333,740
Securities available for sale                    1,456,126        1,293,830           186,194          712,184         1,308,634
Investment securities                              165,679          130,255         1,365,070          718,891           396,011
Loans                                            4,291,612        3,774,490         3,273,408        2,581,724         2,293,416
Deposits                                         5,305,687        4,750,894         4,438,797        3,997,038         3,867,669
Long-term liabilities                              128,036           67,888                 -                -                 -
Total stockholders' equity                         611,252          551,754           498,023          429,967           367,592

Selected ratios
Return on average assets                              1.37%             1.39%            1.30%             1.36%             1.38%
Return on average equity                             15.10             15.15            14.58             15.61             18.10
Net interest margin-tax equivalent                    4.90              4.77             4.75              4.24              4.18
Efficiency ratio *                                   60.92             61.50            62.83             63.10             66.35
Loans to deposits                                    80.89             79.45            73.75             64.59             59.30
Allowance for loan losses to loans                    1.46              1.56             1.64              1.95              2.56
Net charge-offs (recoveries) to average loans          .29               .10              .12               .10              (.14)
Dividend payout                                      36.89             33.10            32.01             27.89             24.67
Average equity to average assets                      9.10              9.15             8.94              8.70              7.62
Leverage ratio                                        7.47              8.23             7.87              8.43              8.13
Tier 1 risk-based                                     9.87             11.42            11.05             12.49             13.28
Total risk-based                                     11.12             12.67            12.30             13.75             14.54
</TABLE>

                                                                8


<PAGE>






All share data reflects a 2 for 1 stock split declared in 1996.
The dividend payout ratio is calculated using historical Deposit Guaranty Corp.
dividends per share.
* - Excludes the effects of acquisition related intangible amortization.

Forward Looking Information - Congress passed the Private Securities Litigation
Reform Act of 1995 in an effort to encourage corporations  to  provide
information  about  a  company's  anticipated  future financial performance.
This act provides a safe harbor for such disclosure which protects  companies
from unwarranted  litigation if actual results are different
from management expectations.  This report contains  forward-looking  statements
and  reflects  management's  current  views and  estimates  of  future  economic
circumstances,  industry conditions,  company performance and financial results.
These  forward-looking  statements  are  subject  to a  number  of  factors  and
uncertainties  which could cause the Company's  actual results and experience to
differ  from  the  anticipated  results  and  expectations   expressed  in  such
forward-looking statements.

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

FINANCIAL REVIEW
The  following  discussion  reviews the results of  operations  and assesses the
financial  condition  of  the  Company.   This  discussion  should  be  read  in
conjunction with the consolidated  financial  statements included in this Annual
Report.
                 1997 was a year of considerable change for the Company.  During
the  year,  the  Company   combined  its  four  separately   chartered   banking
subsidiaries  into one strong,  regional  franchise.  The  combining of the four
subsidiary  banks represents a significant  achievement.  During the transition,
the Company's  financial  results  remained strong and showed  improvement  over
1996.  Net income of $92.3 million for 1997  represents a 10%  improvement  from
1996. On a per share basis, the increase was only 4% or $.09 due to the dilutive
effect of an increase in the weighted average number of shares  outstanding as a
result of an acquisition and the timing of share  repurchases  relating to
those  acquisitions  accounted  for under the purchase  method of accounting.
During 1997, the Company began using cash basis earnings  per  share  as a
measure  of  financial  performance.  The  Company's management  believes  that
cash basis  earnings  per share,  which  excludes the after-tax  effect  of
purchase  accounting  related  intangible   amortization, provides an additional
measure of the Company's  operating results.  In 1997, cash basis
earnings per share  increased 8% to $2.49 compared to $2.31 for 1996. The volume
of earning assets  continued to rise  throughout  1997 primarily as a result of
acquisitions.  Deposit volumes,  excluding the effect of acquisitions, showed
little  growth  during  the year due to intense  competition  from other
financial services providers. The net interest margin, however,  remained strong
and,  at 4.90% for the year,  was well above the 4.77%  reported  for 1996.  The
combined  effect of the 11% increase in average  earning assets and the 13 basis
point  improvement  in the net interest  margin kept the balance of net interest
income at a healthy level.

     At the  end  of  1997,  total  assets  were  $6.9
billion which represents an increase of 9%, or $557 million, from December 31,
1996.  Average total assets for 1997 increased 11%, or $693 million, from 1996.
The regulatory capital ratios show some decline from 1996 yet remain high enough
to  categorize  the  Company  as  well   capitalized   according  to  regulatory
guidelines.  During 1997, the Company more fully employed its capital  through a
series of mergers that placed the Company in desirable  new markets and enhanced
its  presence  in  existing  markets.  As a result of the merger  activity,  the
leverage  ratio  declined to 7.47% at December 31,  1997,  compared to 8.23% for
1996.  The tier 1 capital and total  risk-based  capital  ratios at December 31,
1997 were  9.87% and  11.12%,  respectively,  compared  to  11.42%  and  12.67%,
respectively,  for 1996. The capital  ratios of the Bank  categorize it as "well
capitalized" according to the Federal Deposit Insurance Corporation  Improvement
Act of 1991  (FDICIA).  Much of the growth during the past three years  resulted
from targeted  acquisitions in new markets and acquisitions  designed to enhance
the Company's presence in existing markets. The following table briefly outlines
each of the mergers completed during the past three years.
<TABLE>

          Financial                                                    Total Assets             Merger                Accounting
         Institution                                 State              (Millions)               Date                  Treatment
--------------------------------------------------------------------------------------------------------------------------------

<S>                                                  <C>                  <C>                  <C>
LBO Bancorp, Inc.                                    LA                   $   96               Jan. 1995               Purchase
Citizens National Bancshares                         LA                      193               May  1995               Pooling
First Merchants Financial Corp.                      AR                      280               Aug. 1995               Purchase
Bank of Gonzales Holding Company                     LA                      126               Jun. 1996              Purchase

                                                                9


<PAGE>





Tuscaloosa Bancshares, Inc.                          LA                       41               Nov. 1996              Purchase
Jefferson Guaranty Bancorp, Inc.                     LA                      299               Jan. 1997               Purchase
First Capital Bancorp, Inc.                          LA                      186               Mar. 1997               Pooling
NBC Financial Corporation                            LA                       69               Jul. 1997               Purchase
CitiSave Financial Corporation                       LA                       75               Aug. 1997               Purchase
Victory Bancshares, Inc.                             TN                      115               Mar. 1998               Pooling
</TABLE>

     In addition to the above mergers, the Company purchased the Coahoma County,
Mississippi  operations of a local  Mississippi bank in March,  1995, adding $82
million in assets.
     On August 8, 1995, the Company  purchased  First Mortgage Corp., a mortgage
banking  operation  headquartered  in  Omaha,  Nebraska.  This  acquisition  was
accounted for as a purchase  business  combination.  First  Mortgage Corp. had a
$1.1 billion mortgage  servicing  portfolio and 6 production offices in Nebraska
and Oklahoma.
     On June 29, 1996,  the Company  purchased  McAfee  Mortgage and  Investment
Company,  a mortgage  banking  operation  headquartered  in Lubbock,  Texas in a
transaction  accounted for as a purchase business  combination.  McAfee Mortgage
and  Investment  Company  has  fifteen  offices  located  throughout  Texas  and
originated approximately $240 million in mortgage loans in 1995.


TABLE 2 - SUMMARY OF QUARTERLY RESULTS
(In Thousands Except Per Share Data)

The summary of quarterly  results of  operations  is presented in the  following
table.
<TABLE>

                                                                                             Quarter Ended
                                                                      Dec. 31          Sep. 30           Jun. 30           Mar. 31
                                                                      -------          -------           -------           -------


1997
<S>                                                                 <C>               <C>              <C>               <C>
Interest income                                                     $ 122,557         $ 122,459        $ 119,476         $ 120,973
Net interest income                                                    71,421            71,448           70,281            71,446
Provision for loan losses                                               1,875             1,875            1,875             1,875
Gains on securities transactions                                          622               838              540                86
Income before income taxes                                             37,010            35,421           33,315            33,906
Net income                                                             24,475            23,263           21,929            22,613
Net income per share
         Basic                                                            .60               .57              .54               .54
         Diluted                                                          .59               .57              .53               .53
Cash basis earnings per share*                                            .66               .64              .60               .59


1996
Interest income                                                     $ 111,877         $ 110,751        $ 104,723         $ 104,871
Net interest income                                                    65,637            64,745           59,988            59,164
Provision for loan losses                                               1,335             1,335            1,335             1,335
Gains (losses) on securities transactions                                  38                 7              487              (414)
Income before income taxes                                             29,134            33,492           30,515            31,090
Net income                                                             19,485            22,200           20,436            21,489
Net income per share
         Basic                                                            .50               .57              .53               .56
         Diluted                                                          .50               .57              .53               .55
Cash basis earnings per share*                                            .54               .61              .57               .59
<FN>

* - Basic net income  per share  excluding  the  effects of  amortization  of
acquisition related intangibles.
</FN>
</TABLE>

                                                                10


<PAGE>







         Identification of the changes in the significant components of earnings
from  quarter-to-quarter  aids  in  understanding  the  results  of  operations.
Earnings  grew  steadily  throughout  the last half of 1997 with no  significant
unusual  activity  affecting  any  quarter.  Expenses  remained  flat  with  the
exception of the effects of acquisitions.  Revenues experienced moderate growth,
which,  combined with the flat expenses yielded a favorable growing trend in net
earnings.
         During 1996,  loan growth,  increasing  yields and a lengthening of the
securities portfolio combined with an increase in interest-earning assets due to
acquisitions contributed to the increase in net interest income in the third and
fourth  quarters.  In the  first  quarter,  a $1.8  million  after-tax  gain was
realized  from the  disposition  of assets  related to expired  lease  financing
transactions. In the fourth quarter, the Company recorded an after-tax charge of
$2.4  million  for  the  estimated  cost  of the  planned  consolidation  of its
subsidiary banks under one charter and the  consolidation of certain back office
functions.


TABLE 3 - COMPARATIVE AVERAGE BALANCES - YIELDS AND RATES
(Dollars in Thousands)

The following table shows the major  categories of  interest-earning  assets and
interest-bearing  liabilities with their corresponding average balances, related
interest  income or expense and the resulting  yield or rate for 1997,  1996 and
1995.
<TABLE>

                                                        1997                                1996                               1995
                                                        ----                                ----                               ----

                                                  Interest   Average             Interest  Average                 Interest  Average
                                       Average     Income/   Yield/    Average   Income/    Yield/     Average      Income/   Yield/
Assets                                 Balance     Expense    Rate     Balance   Expense    Rate      Balance       Expense   Rate
------                                -------     -------     ----     -------   -------    ---      -------       -------   ------

<S>                                  <C>          <C>         <C>  <C>            <C>        <C>  <C>           <C>            <C>
Interest-earning assets:
Loans, net of unearned
     income                          $ 4,291,612  $ 374,235   8.72%$ 3,774,490    329,426    8.73%$ 3,273,408   $  289,659     8.85%
Investment securities:
     Taxable                             165,449     13,531   8.18     130,250     10,467    8.04   1,256,785       87,896     6.99
     Exempt from Federal
         income tax                          230          9  10.53           5          2    10.75    108,285       11,664    10.77
Securities available for sale:
     Taxable                          1,290,055      87,186   6.76   1,115,168     72,576     6.51    169,316       10,095     5.96
     Exempt from Federal
         income tax                      166,071     15,204   9.16     178,662     16,602     9.29     16,878        1,415     8.38
Trading account securities                 4,508        266   5.90       6,394        511     7.99      5,758          445     7.73
Federal funds sold and
     securities purchased
     under agreements to resell           40,330      2,264   5.61     184,757      9,989     5.41    107,529        6,317     5.87
Interest-bearing bank balances             3,736        193   5.17       5,617        325     5.79     23,302        1,153     4.95
                                     -----------------------------------------------------------------------------------------------

Total interest-earning assets          5,961,991    492,888   8.27   5,395,343    439,898      8.15  4,961,261      408,644     8.24
Noninterest-earning assets:
Cash and due from banks                  350,234                       302,696                         327,200
Bank premises and equipment              168,135                       147,076                         142,750
Other assets                             309,119                       235,543                         194,437
Allowance for loan losses                (68,463)                      (60,001)                        (59,126)
Unrealized gain (loss) on
     securities available for sale        (1,871)                        5,891                           5,175
                                     -----------------------------------------------------------------------------------------------

Total assets                         $ 6,719,145                   $ 6,026,548                     $ 5,571,697
                                     ===============================================================================================
</TABLE>


                                                            11


<PAGE>






For purposes of these computations,  nonaccruing loans are included in the daily
average  loan  amounts  outstanding.   Interest  income  and  average  yield  on
tax-exempt  assets have been calculated on a fully tax equivalent  basis using a
tax rate of 35% for all years.



NET INTEREST INCOME
         Net  interest  income  is  the  largest  component  of net  income  and
represents  the  income  earned  on  interest-earning  assets  less  the cost of
interest-bearing  liabilities.  This  major  source  of  income  represents  the
earnings  from the primary  business of  gathering  funds from deposit and other
sources  and  investing  those  funds in loans  and  securities.  The  long-term
objective is to manage those assets and  liabilities to maximize  income,  while
balancing interest-rate, credit, liquidity and capital risks.
         Net interest income is presented in this discussion on a tax-equivalent
basis,  so that the income  from  assets  exempt from  federal  income  taxes is
adjusted based on a statutory  marginal  federal income tax rate of 35%. The tax
equivalent net interest margin (margin) provides an indication of the efficiency
of the earnings  from  balance-sheet  activities  and is  calculated by dividing
tax-equivalent  net interest income by the average  balance of  interest-earning
assets. The margin is affected by changes in the spread between interest-earning
asset yields and  interest-bearing  liability rates (interest spread) and by the
percentage of  interest-earning  assets funded by  interest-bearing  liabilities
(liability funding).
         Tax equivalent net interest  income  increased by $35 million,  or 14%,
primarily  due to an 11%  increase  in the  level  of  average  interest-earning
assets.  The  increase  in average  interest-earning  assets was funded by a 12%
increase in average deposit balances. Much of the increase in earning assets and
deposits was the result of acquisitions completed during the year. Although loan
demand  receded from the  double-digit  growth of the past, it outpaced  deposit
growth leading to improvement in the earning

TABLE 3 - COMPARATIVE AVERAGE BALANCES - YIELDS AND RATES (continued)
(Dollars in Thousands)
<TABLE>

                                                 1997                             1996                             1995
                                                 ----                             ----                             ----

                                               Interest    Average              Interest    Average              Interest    Average
                                     Average    Income/    Yield/     Average    Income/    Yield/     Average    Income/    Yield/
Liabilities                          Balance    Expense     Rate      Balance    Expense     Rate      Balance    Expense     Rate
-----------                          -------    -------     ----      -------    -------     ----      -------    -------     ----

<S>                              <C>         <C>           <C>    <C>         <C>           <C>    <C>         <C>           <C>
Interest-bearing liabilities:
Savings and interest-bearing
     transaction deposits        $ 1,986,828 $   50,440    2.54%  $ 1,843,150 $   47,809    2.59%  $ 1,710,218 $   47,807    2.80%
Time deposits                      2,139,217    113,339    5.30     1,915,637    103,566    5.41     1,773,437     95,833    5.40
Federal funds purchased,
     securities sold under
     agreements to repurchase and
     other short-term borrowings     562,620     28,780    5.12       545,735     27,222    4.99       555,193     29,792    5.37
Long-term liabilities                128,036       8,310   6.49        67,888      4,091    6.03             -          -      -
                                     -------       -----   ----        ------      -----    ----     ---------    -------    ----

Total interest-bearing liabilities 4,816,701    200,869    4.17     4,372,410    182,688    4.18     4,038,848    173,432    4.29
Noninterest-bearing liabilities:
Deposits                           1,179,642                          992,107                          955,142

Other liabilities                    111,550                          110,277                           79,684
                                     -------                          -------                           ------

Total liabilities                  6,107,893                        5,474,794                        5,073,674

Stockholders' equity                 611,252                          551,754                          498,023
                                     -------                          -------                          -------

Total liabilities and

                                                                12


<PAGE>





     stockholders' equity        $ 6,719,145                      $ 6,026,548                      $ 5,571,697
                                 ===========                      ===========                      ===========

Net interest income/margin -
     tax equivalent                             292,019    4.90%                 257,210    4.77%                 235,212    4.75%
                                                -------    -----                 -------    -----                 -------    -----

Tax equivalent
     adjustment:
     Loans                                        2,219                            2,361                            1,917

     Investment securities                            3                                1                            3,484

     Securities available for sale                5,156                            5,219                              448

     Other                                           45                               95                               91
                                                     --                               --                               --

Total tax equivalent
     adjustment                                   7,423                            7,676                            5,940
                                                  -----                            -----                            -----

Net interest income                           $ 284,596                        $ 249,534                        $ 229,272
                                              =========                        =========                        =========
</TABLE>


asset mix with  average loan  volumes  representing  72% of the balance of total
earning assets  compared to 70% for 1996.  Average loan yields at 8.72% for 1997
remain substantially unchanged from 1996.
     The performance of the Company's securities portfolio improved considerably
from 1996. As with the loan portfolio,  the securities  portfolio also increased
in proportion to total earning  assets.  During 1996, the  securities  portfolio
comprised  26% of earning  assets,  increasing  to 27% during 1997.  The average
tax-equivalent  yield on the securities  portfolio  increased 15 basis points to
7.15% for 1997 compared to 7.00% for 1996.
     Both the loan and securities  portfolios benefited from a tightening of the
Company's liquidity position. During 1997, the average balance of lower yielding
federal funds sold and securities  purchased under agreements to resell was less
than 1% of total earning  assets  compared to over 3% for 1996. The slow down in
loan demand  allowed the Company to tighten its liquidity  position  while still
maintaining   sufficient  liquidity  to  meet  loan  demand  and  the  needs  of
depositors.  The combined effect of the improved  earning asset mix and a higher
average yield on the securities portfolio led to a 12 basis point improvement in
the average yield on the Company's earning assets.
     The funding side of the balance sheet also  contributed  to the increase in
net  interest  income,  although  to  a  lesser  extent.  The  average  rate  on
interest-bearing  deposits declined 6 basis points from 1996.  Although rates on
savings and interest-bearing  transaction accounts show a slight decline, the 11
basis  point  decline  in time  deposit  rates had the most  profound  effect on
reducing the overall cost of funds. Partially offsetting the effect of favorable
deposit rates is the use of higher-rate borrowed funds to finance the repurchase
of shares of the Company's common stock issued in acquisitions  accounted for as
purchase business  combinations.  The combined effect of lower  interest-bearing
deposit  rates and the  offsetting  effect of a growing  dependence  on borrowed
funds   resulted  in  only  a  slight  decline  in  the  average  rate  paid  on
interest-bearing liabilities.


TABLE 4 - TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS
(In Thousands)

The  following  table sets forth,  for the periods  indicated,  a summary of the
changes in interest  income and  expense  resulting  from  changes in volume and
changes in rates.


                                                                13


<PAGE>
<TABLE>


                                                               1997 Compared To 1996                     1996 Compared To 1995
                                                            Increase (Decrease) Due To                Increase (Decrease) Due To
                                                           -------------------------------------------------------------------------
                                                           Volume        Rate        Net             Volume      Rate        Net
                                                           -------------------------------------------------------------------------



<S>                                                      <C>         <C>       <C>                  <C>        <C>        <C>
Interest income on:
Loans                                                    $  45,144    $  (335) $  44,809            $ 44,340   $ (4,573)  $ 39,767
Investment securities:
       Taxable                                               2,830        234      3,064             (78,787)     1,358    (77,429)
       Exempt from Federal income tax                           90        (83)         7             (11,663)         1    (11,662)
Securities available for sale:
       Taxable                                              11,385      3,225     14,610              56,394      6,087     62,481
       Exempt from Federal income tax                       (1,170)      (228)    (1,398)             13,546      1,641     15,187
Trading account securities                                    (151)       (94)      (245)                 50         16         66
Federal funds sold and securities purchased
       under agreements to resell                           (7,814)        89     (7,725)              4,537       (865)     3,672
Interest-bearing bank balances                                (109)       (23)      (132)               (875)        47       (828)
                                                              -----       ----      -----               -----        --       -----

       Total                                                50,205      2,785     52,990              27,542      3,712     31,254
                                                            ------      -----     ------              ------      -----     ------

Interest expense on:
Savings and interest-bearing transaction deposits            3,721     (1,090)     2,631               3,716     (3,714)         2
Time deposits                                               12,096     (2,323)     9,773               7,684         49      7,733
Federal funds purchased, securities sold
       under agreements to repurchase, and other
       short-term borrowings                                   843        715      1,558                (508)    (2,062)    (2,570)
Long-term liabilities                                        3,627        592      4,219               4,091          -      4,091
                                                             -----        ---      -----               -----     -------     -----

       Total                                                20,287     (2,106)    18,181              14,983     (5,727)     9,256
                                                            ------     -------    ------              ------     -------     -----

Changes in net interest income - tax equivalent          $  29,918   $  4,891  $  34,809            $ 12,559   $  9,439   $ 21,998
                                                         =========   ========  =========            ========   ========   ========
</TABLE>


The  increase  (decrease)  due to changes in average  balances  reflected in the
above table was calculated by applying the preceding  year's rate to the current
year's change in the average balance.  The increase (decrease) due to changes in
average  rates was  calculated  by  applying  the preceeding  year's  change in
the average  rates to the  current  year's  average  balance.  Using this
method of calculating increases (decreases),  any increase or decrease due to
both changes in average  balances  and rates is  reflected  in the  changes
attributable  to average rate changes.



       Improvement in the mix of interest-bearing liabilities versus noninterest
bearing  liabilities had some positive effect on net interest  income.  In 1996,
73% of the Company's total assets were funded by  interest-bearing  liabilities.
In 1997, that percentage declined to 72% due to a 19% increase in the balance of
noninterest-bearing deposits.
       The effects of balance sheet  activities  described  above resulted in an
increase in net interest income and improvement in other performance  indicators
as  well.  The net  interest  margin,  at  4.90%  for  1997,  shows  substantial
improvement  from the 4.77% reported for 1996 as does the net interest spread of
4.10% for 1997 compared to 3.97% for 1996.
       The increase in net interest  income in 1996 over 1995 occurred mostly as
a result of an increase in business  volumes on both sides of the balance sheet.
Although  earning asset yields declined sharply from 1995 to 1996, a decrease in
rates on interest-bearing  liabilities completely offset the effect. Improvement
in the  earning  asset mix led to a 2 basis  point  improvement  in both the net
interest margin and the net interest spread.

Interest Rate Sensitivity
       Net interest  income is managed  through the  Asset/Liability  Management
(ALM) process.  A board committee  establishes ALM policy  guidelines that limit
the potential  variation in net interest income and the economic value of equity
due to market interest rate swings. The Asset/Liability Committee,  comprised of
members of  executive  management,  sets the  day-to-day  operating  guidelines,
approves  strategies  affecting net interest income and  coordinates  activities
within board policy limits.

                                                                14


<PAGE>






TABLE 5 - INTEREST SENSITIVITY
(In Thousands)

The  following  table  reflects  the  interest  sensitivity  of the Company over
various periods as of December 31, 1997,  based on contractual  maturities as of
that date.
<TABLE>

                                                               0-3            4-12            1-5          Over 5
                                                             Months          Months          Years          Years           Total
                                                          ------------------------------------------------------------------------
<S>                                                       <C>            <C>            <C>             <C>            <C>
Assets
Interest-earning assets:
Loans, net of unearned income                             $ 1,403,089    $   707,232    $ 1,771,620     $   549,742    $ 4,431,683
Investment securities                                          12,642          1,826         20,773         139,710        174,952
Securities available for sale                                 168,632        126,215        388,360         741,320      1,424,527
Trading account securities                                      1,459              -              -               -          1,459
Federal funds sold and securities
     purchased under agreements to resell                      59,590              -              -               -         59,590

Interest-bearing bank balances                                 11,218              -              -               -         11,218
                                                               ------    -----------      ---------     -----------     ----------

Total interest-earning assets                               1,656,630        835,273      2,180,753       1,430,773      6,103,429
Noninterest-earning assets                                          -              -              -         836,298        836,298
                                                          -----------   ------------    -----------     -----------    -----------

     Total assets                                         $ 1,656,630   $    835,273    $ 2,180,753     $ 2,267,071    $ 6,939,727
                                                          ===========   ============    ===========     ===========    ===========

Liabilities and stockholders' equity
Interest-bearing liabilities:
Savings deposits                                          $ 1,943,575   $          -   $          -     $         -    $ 1,943,575
Time deposits                                                 589,521        915,526        641,570          13,426      2,160,043
Short-term borrowings                                         642,812              -              -               -        642,812
                                                           ----------   ------------   ------------     -----------    -----------

     Total interest-bearing liabilities                     3,175,908        915,526        641,570          13,426      4,746,430
Noninterest-bearing deposits                                        -              -              -       1,270,344      1,270,344
Other liabilities                                                   -              -              -         101,318        101,318
Long-term debt                                                      -              -              -         186,397        186,397
Stockholders' equity                                                -              -              -         635,238        635,238
                                                          -----------    -----------    -----------     -----------    -----------

     Total liabilities and
         stockholders' equity                             $ 3,175,908    $   915,526    $   641,570     $ 2,206,723    $ 6,939,727
                                                          ===========    ===========    ===========     ===========    ===========

Interest rate contracts                                   $   405,857   $    (51,149)   $  (259,774)   $    (94,934)
Interest sensitive gap                                     (1,113,421)      (131,402)     1,279,409         (34,586)
Cumulative interest sensitive gap                          (1,113,421)    (1,244,823)        34,586               -
Cumulative interest sensitive gap
     as a percent of total assets                            (16.04)%        (17.94)%         .50%                -
                                                          -----------        --------       --------      ------------    ----------
</TABLE>


         Simulation  of the effects of  interest  rate  changes on net  interest
income is a broader  measure  of  interest  rate risk than the  static  interest
sensitive gap position and is therefore the primary tool used by the Company.  A
computer  model is used to  simulate  the  effect  of  complex  interactions  of
customer  choices,  product  promotions,  and  potential  market  interest  rate
scenarios. Derivative financial instruments and other financial instruments used
for  purposes  other than  trading are  included in this  exercise.  The Company
believes the market risk in its trading portfolio is immaterial.

                                                                15


<PAGE>





         Under a policy  established  by the Company's  Board of Directors,  the
Company  limits  the  amount  of  interest  rate  risk the  Company  can take by
establishing  variation  limits to net  interest  income and  economic  value of
equity based on simulations with specific  assumptions.  The Company supplements
these with a number of other  simulations  which  measure key  sensitivities  to
several specific rate scenarios as well as potential  competitive issues related
to loan and deposit volume levels and pricing.
         Board policy limits the negative  variation of net interest  income and
economic  value of equity to 10% and 20%  respectively.  To provide a consistent
comparative  analysis,  specific  guidelines  for each  method are  followed.  A
baseline  forecast  of net  interest  income  and  economic  value of  equity is
established assuming a stable interest rate environment. For net interest income
variation,  simulations  are run trending  interest  rates up and down 200 basis
points over the next twelve months from the baseline  forecast.  At December 31,
1997, this analysis  indicated a negative variation of approximately 2.2% with a
10% policy  limitation for an increase in rates.  The variation for a decline in
rates was estimated to be 0.5%.
         For variation in economic value of equity, simulations are run assuming
interest rates move up and down immediately by 200 basis points, remain at those
levels,  and no management  action  occurs.  This rate shock,  while unlikely in
management's  opinion,  provides  insight into some  components of interest rate
risk for the Company. At December 31, 1997, this measure indicated approximately
10.3% negative  variation in the economic value of equity with a 200 basis point
increase in external  market  interest  rates compared to a policy limit of 20%.
The variation for a decline in rates was estimated to be 6.9%.
         Given the  various  methods  used to measure and manage  interest  rate
risk,  the Company  believes  its interest  rate risk profile is in  appropriate
balance with its profit objectives.

TABLE 6 - RISK MANAGEMENT DERIVATIVE POSITION
(Dollars In Thousands)

The following  table  identifies  the year end open  positions for the Company's
risk management interest rate contracts at December 31, 1997.
<TABLE>


                                                                       Pay Rate              Receive Rate
                                                                -------------------------------------------
                                                   Fair                                                             Underlying
Maturity                            Notional       Value        Rate          Index     Rate          Index       Asset/Liability
--------                            --------       -----        ----          -----     ----          -----       ---------------

<S>                                <C>             <C>           <C>                     <C>
Interest rate swaps Pay fixed:
2007                               $  21,225       $    (545)    6.65%       Fixed       6.00%       Libor      Mortgage Loans
2004                                  85,000          (1,439)    6.33        Fixed       5.88        Libor      FHLB Advances

Pay/receive floating:
2002                                  50,000            (693)    5.75        Libor       5.77        5Y CMT     AFS Agency Bond

Interest rate floors
1998                                  50,000               -     5.00        -           -           -          Commercial loans
2000                                  65,000             563     6.00        -           -           -          Commercial loans
2001                                 185,000           1,041     5.25        -           -           -          Commercial loans
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>




DERIVATIVE ACTIVITIES

Risk Management Derivatives
         Derivative  instruments were used in 1997 and 1996 primarily as a means
of protecting  market value and income.  The specific types of derivatives  used
were interest rate swaps,  forward contracts,  interest rate caps and floors and
other option contracts.
         Interest  rate  swaps  were  the  primary  instruments  used to  manage
interest rate risk. These are contractual  agreements between  counterparties to
exchange interest streams based on notional  principal amounts over a set period
of time.  The notional  amount does not represent an amount at risk, but is used
as a basis for  determining  the actual cash flows  related to the interest rate
contracts. At

                                                                16


<PAGE>





December 31, 1997, the notional  value of interest rate swap  contracts  totaled
$156.2 million  compared to $122.6 million at December 31, 1996.  This amount is
composed of  agreements  where the Company pays fixed rates on notional  amounts
totaling $106.2 million with an average rate of 6.39%. The Company has two basis
swaps with a total  notional  value $50 million  where the Company  receives one
floating amount and pays another  floating  amount.  At December 31, 1997, there
would be no cost to replace these contracts if the  counterparty  defaults.  All
interest rate swap counterparties are at least AA-rated by Standard and Poors or
have  collateral  arrangements  with  the  Company.  A  stress  test  is used to
determine  the  effect of market  movements  on the value of the  interest  rate
swaps. The stress test estimates the value of the instrument assuming a parallel
300 basis point shift in rates.
         Interest  rate  caps were  purchased  during  1994 to limit the  future
funding rates on floating rate deposit accounts resulting from forecasted rising
interest  rates.  These  interest  rate caps were based on the three month LIBOR
rate and assigned to certificates of deposits with maturities of three months or
less. As of December 31, 1997, the Company had no outstanding  interest rate cap
contracts compared to $100 million notional value at December 31, 1996.
         Interest rate floors were  purchased  during 1995 and 1996 to limit any
loss  resulting  from falling  interest  rates.  These interest rate floors were
based on the three month LIBOR rate and  assigned  to floating  rate  commercial
loans.  The Company had  outstanding  interest rate floor contracts with a total
notional  value of $300 million at December 31, 1997 and 1996. The interest rate
floors  have one to four year  maturities  and a fair  value of $1.6  million at
December 31, 1997.



TABLE 7 - RISK MANAGEMENT DERIVATIVE POSITION
(In Thousands)
<TABLE>
<CAPTION>

The following table shows the interest rate swap activity (notional amounts) for
1997.
                                                                                                                         1997
                                                                                                                       Interest
                                               December 31,                                         December 31,        Income
Maturity                                           1996            Purchased         Matured            1997           (Expense)
--------                                           ----            ---------         -------            ----           ---------

<S>                                           <C>                   <C>               <C>              <C>                   <C>
Pay fixed
2004                                         $           -           85,000                 -           85,000              (162)
2007                                                22,622                -             1,397           21,225              (204)
                                                    ------                -             -----           ------              -----

Total                                               22,622           85,000             1,397          106,225              (366)
                                                    ------           ------             -----          -------              -----


Receive fixed
2006                                               100,000                -           100,000                -               616

Pay/Receive floating
2002                                                     -           50,000                 -           50,000               (14)


Total swaps                                   $    122,622          135,000           101,397          156,225               236
                                              ============          =======           =======          =======               ===

</TABLE>

         Forward   commitments  are  contracts  for  the  delayed   delivery  of
securities,  foreign  currencies or money market instruments in which the seller
agrees to make delivery of a specified instrument at a specified future date and
a  specified  price or yield.  Credit risk may arise from the  possibility  that
counterparties  may not have the ability to fulfill  their  commitments.  Market
risk arises  from the  movements  in interest  rates and  security  values.  The
majority of the forward commitments represent agreements to sell mortgage loans.
As of December 31, 1997, the contract  amounts for forward  commitments  totaled
$139 million compared to $131 million at December 31,1996.

Derivative Controls

                                                                17


<PAGE>





         Various  controls  are  utilized  to manage the risks  associated  with
derivative  instruments.  These controls  include  specific  internal  policies,
tracking systems, and legal contracts in conjunction with management  oversight,
internal and external  audits,  and regulatory  compliance  examinations.  These
reviews are performed on a continuous basis.
         Management  and board  oversight is achieved  through  strict  internal
policy and  operating  guidelines  which  include  specific  approvals  for each
transaction.   Specific  operating  limits  have  been  established  for  common
derivative  transactions.  Additionally,  certain  transactions require approval
from the executive committee.  An on-site compliance officer reports directly to
the Board of Directors.
         An  automated  derivatives   management  system  is  used  to  generate
position,  pricing,  and risk management reports.  This system generates reports
used to maintain accurate and timely information on all derivative positions.
         Derivatives  credit  risk  is  minimal.  Each  counterparty  is  either
AA-rated or higher by Standard and Poors or has executed a bilateral  collateral
agreement  with the  Company.  Collateral  agreements  are  designed  to protect
against  possible  default  by the  counterparties.  Active  counterparties  are
required to post collateral on any net positive market value above $100 thousand
on an ongoing basis.  As of December 31, 1997,  counterparty  collateral  with a
fair value of $590 thousand was being held.












TABLE 8 - SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES
(In Thousands)
<TABLE>
<CAPTION>

The carrying amounts of securities available for sale and investment  securities
are presented as of the dates indicated.

                                                                          December 31,
                                                        ----------------------------------------------

                                                            1997              1996              1995
                                                            ----              ----              ----

<S>                                                     <C>             <C>               <C>
Securities available for sale
U.S. Treasury and other U.S. Government agencies        $   554,999     $    711,515      $    868,626
Obligations of states and political subdivisions            182,708          180,833           144,487

Mortgage-backed securities                                  686,820          568,261           183,777

Other securities                                                  -            1,429             2,501
                                                          ---------            -----             -----

        Total securities available for sale               1,424,527        1,462,038         1,199,391
                                                          ---------        ---------         ---------

Investment securities
U.S. Treasury and other U.S. Government agencies              9,369            9,379             9,369

Obligations of states and political subdivisions                 55              105                 -


                                                                18


<PAGE>





Mortgage-backed securities                                    18,375           60,581           80,481

Other securities                                             147,153           75,022           49,183
                                                             -------           ------           ------

        Total investment securities                          174,952          145,087          139,033
                                                             -------          -------          -------

            Total securities available for sale          $ 1,599,479      $ 1,607,125      $ 1,338,424
            and investment securities
                                                         =============================================
</TABLE>

Securities Available for Sale and Investment Securities
         The   securities   portfolio  is  the  second   largest   component  of
interest-earning  assets at $1.6 billion at December 31, 1997 and 1996  compared
to $1.3  billion  at  December  31,  1995.  The  securities  portfolio  includes
securities  classified as available for sale and for investment purposes.  These
two segments of the securities portfolio are managed to optimize their long-term
total return.
         Securities  available  for  sale  are  subject  to sale  prior to their
contractual maturities allowing the Company the ability to respond to changes in
the interest rate environment.  This portfolio can also be a secondary liquidity
source  and  provide  a  balance  to  interest  rate and  credit  risks in other
categories of the balance sheet. Securities available for sale are accounted for
at fair  value  with  unrealized  gains or losses  excluded  from  earnings  and
reported as a separate component of stockholders' equity, net of deferred income
taxes. The investment securities portfolio consists of debt securities which the
Company has the  positive  intent and ability to hold to maturity and is carried
at amortized cost.
         Securities  available for sale decreased $38 million to $1.4 billion at
December 31,  1997,  compared to December 31,  1996.  Investment  securities  at
December  31, 1997 were $175  million,  an  increase of $30 million  compared to
year-end 1996. Securities, excluding mortgage-backed securities, maturing within
five years or less at December 31,  1997,  represented  21% of total  securities
compared  to  35%  at  December   31,  1996  and  61%  at  December   31,  1995.
Mortgage-backed  securities  at  December  31,  1997  increased  to 44% of total
securities  compared  to 39%  at  December  31,  1996  and  20% at  year-end
1995. Securities  exempt from Federal income taxes  represented  11% of year-end
total securities in 1997, 1996 and 1995.
         Average securities  increased $198 million, or 14%, in 1997 from 1996's
average  balance  compared  to a decrease  of $127  million in 1996 from  1995's
average  balance.  As a percent  of  average  interest-earning  assets,  average
securities  increased  slightly to 27%  compared to 26% in 1996 and 31% in 1995.
This decrease in the relative level of securities from 1995 to 1996 was a result
of loan demand.

Loans
         The loan  portfolio is the largest  component of earning  assets and is
also the  highest  yielding.  Quality  loan  growth has been a key driver in the
Company's overall financial  performance over the past three years. The trend of
growth  continued  throughout  1997,  however,  the rate of growth has been in a
steady  decline since 1995.  Loans totaled $4.4 billion at December 31, 1997, an
increase of 11%, or $452 million,  from the balance at December 31, 1996. During
1996, the portfolio grew  approximately 11% from the balances reported for 1995.
Acquisitions of other financial  institutions accounted for approximately 80% of
the 1997 loan growth  while only  approximately  23% of the 1996 loan growth was
the result of  acquisitions.  Internal loan growth rates for 1997, 1996 and 1995
were 2%, 8% and 12%, respectively.
         The  portfolio  mix at December  31,  1997  consists of 50% real estate
loans, 28% commercial,  financial and agricultural loans and 22% consumer loans,
which is  substantially  unchanged  from the portfolio mix at December 31, 1996.
Diversification  of  the  loan  portfolio  is a  means  of  reducing  the  risks
associated with fluctuations in economic conditions. At December 31, 1997, there
were no concentrations of 10% or more of total loans in any single industry. The
geographical   concentrations   of  the  loan   portfolio  are  71%  located  in
Mississippi, 25% in Louisiana, and 4% in Arkansas.

TABLE 9 - MATURITY DISTRIBUTION AND YIELDS OF SECURITIES AVAILABLE FOR SALE AND
          INVESTMENT SECURITIES
(Dollars in Thousands)

The following  table shows the  maturities  and weighted  average  yields of the
Company's  securities  available for sale and investment  securities at December
31, 1997.
                                                                19


<PAGE>
<TABLE>

                                                                            Maturing
                                                                      After         After
                                                                     One Year    Five Years                 Mortgage-
                                                        Within     But Within   But Within      After       Backed       Carrying
BALANCES:                                               One Year    Five Years    Ten Years    Ten Years   Securities      Amount
---------                                               --------    ----------    ---------    ---------   ----------      ------

<S>                                                    <C>          <C>          <C>           <C>         <C>        <C>
Securities available for sale
U.S. Treasury and other U.S. Government agencies       $  15,340    $ 250,711    $ 220,462     $  68,486   $        - $    554,999
Obligations of states and political subdivisions           8,932       36,632       54,252        82,892            -      182,708
Mortgage-backed securities                                     -            -            -             -      686,820      686,820
                                                       ---------    ---------    ---------     ---------  ----------- ------------

Total securities available for sale                       24,272      287,343      274,714       151,378      686,820    1,424,527
                                                          ------      -------      -------       -------      -------    ---------


Investment securities
U.S. Treasury and other U.S. Government agencies             369        9,000            -             -            -        9,369
Obligations of states and political subdivisions              55            -            -             -            -           55
Mortgage-backed securities                                     -            -            -             -       18,375       18,375
Other securities                                           5,842       11,962      116,450        12,899            -      147,153
                                                           -----       ------      -------        ------     --------      -------

Total investment securities                                6,266       20,962      116,450        12,899       18,375      174,952
                                                           -----       ------      -------        ------     --------      -------
   Total securities available for
     sale and investment securities                    $  30,538    $ 308,305    $ 391,164     $ 164,277    $ 705,195  $ 1,599,479
                                                       =========    =========    =========     =========    =========  ===========


WEIGHTED AVERAGE YIELD:
Securities available for sale
U.S. Treasury and other U.S. Government agencies           6.66%        6.77%        6.88%        7.64%           -%

Obligations of states and political subdivisions          10.19         8.83         7.74         8.78            -

Mortgage-backed securities                                   -            -            -            -          6.99
                                                          ---------------------------------------------------------
Total securities available for sale                        7.96         7.03         7.05         8.26         6.99
                                                           ----         ----         ----         ----         ----

Investment securities
U.S. Treasury and other U.S. Government agencies           5.35         5.65         -             -              -

Obligations of states and political subdivisions           8.46           -            -            -             -

Mortgage-backed securities                                   -            -            -            -         10.01

Other securities                                           6.62         5.69         7.66         6.00            -
                                                           ----         ----         ----         ----        -----
Total investment securities                                6.56         5.67         7.66         6.00        10.01
                                                           ----         ----         ----         ----        -----
Total securities available for
     sale and investment securities                        7.67%        6.94%        7.23%        8.09%        7.07%
                                                           =====        =====        =====        =====        =====
</TABLE>

     Loans  secured by real  estate are the  largest  category  of loans at $2.2
billion at December 31, 1997. The largest  subsection of the real estate portion
of the loan  portfolio  is  loans  secured  by  one-to-four  family  residential
properties.  Loans to businesses for  intermediate  and longer term financing of
land and buildings represent the second largest component within the real estate
portfolio.  The mix of the real estate portfolio is substantially unchanged from
that reported in prior years.
     One-to-four family residential property loans are underwritten to take into
consideration family incomes available to service debt, credit histories and the
value of the properties being financed. While this group is considered low risk,
it can be adversely impacted by economic patterns.
     Loans  to   businesses   for  the  financing  of  land  and  buildings  are
underwritten taking into consideration the quantity and quality of the business'
cash flow, its future prospects and the property's  value.  Sufficient margin in
the financed  property is required  should  liquidation  of the property  become
necessary to repay the loan.

                                                                20


<PAGE>








TABLE 10 - LOAN PORTFOLIO
(In Thousands)
<TABLE>
<CAPTION>

Loans  outstanding  at the  indicated  dates  are shown in the  following  table
classified by type of loan.

                                                                                    December 31,

                                                     1997              1996             1995              1994              1993
                                                     ----              ----             ----              ----              ----

<S>                                              <C>              <C>               <C>               <C>               <C>
 Commercial, financial and
    agricultural                                 $ 1,261,556      $ 1,104,648       $ 1,010,174       $  927,551        $  712,522
Real estate - construction                           207,322          170,711           122,765           92,411            70,506
Real estate - mortgage                             2,001,094        1,800,031         1,615,166        1,152,068         1,051,752
Consumer                                             961,711          904,487           831,197          687,368           583,805
                                                     -------          -------           -------          -------           -------

                                                 $ 4,431,683      $ 3,979,877       $ 3,579,302       $2,859,398        $2,418,585
                                                 ===========      ===========       ===========       ==========        ==========

</TABLE>

     Construction  and land  development  loans are made in familiar  markets to
developers  and  builders who have a proven  record of success.  These loans are
underwritten  through the use of feasibility  studies,  sensitivity  analysis of
absorption rates and financial analysis of the developers.  Sources of repayment
may be  pre-committed  permanent  loans,  sales of  developed  properties  or an
interim or mini-permanent loan commitment. These types of loans are monitored by
on-site inspections and architects' reports. They are considered more risky than
the other real estate loans due to their ultimate  repayment  being sensitive to
interest rate changes,  general  economic  conditions  and the  availability  of
long-term financing.
     Commercial,  financial and agricultural  loans increased to $1.3 billion at
December  31, 1997 from $1.1  billion and $1.0  billion at December 31, 1996 and
1995, respectively. The commercial, financial and agricultural loan portfolio is
a diverse group of loans to small,  medium and large  businesses in a variety of
different industries. The purpose of these loans varies from supporting seasonal
working  capital  needs to the term  financing  of  equipment.  These  loans are
underwritten by a thorough evaluation of the prospective  borrower's management,
financial  condition and the business' ability to generate  sufficient cash flow
to repay the debt in an orderly  manner.  While some of the short term loans may
be made on an  unsecured  basis,  most are secured by assets  having an adequate
equity  margin.  Additionally,  most  loans to  closely  held  corporations  are
guaranteed by their owners.
     Various  Federal  and State  loan  guarantee  programs  are used to provide
credit  enhancements  for loans to small  businesses.  The use of these programs
enables  financing  to be  provided  in amounts  and on terms which might not be
otherwise  available to the small business.  All guaranteed loans are subject to
the same  underwriting  criteria as other types of loans as the use of guarantee
programs is considered as a secondary source of repayment.
     The  commercial  loan  portfolio  is  sufficiently  diverse to minimize the
impact of a decline in a single industry.  It is geographically  concentrated in
Mississippi,  Louisiana,  and Arkansas so it is exposed to the risk of a general
downturn in the economies of the markets served in these three states.


TABLE 11 - REAL ESTATE LOANS
(Dollars in Thousands)
<TABLE>
<CAPTION>

The following  table shows the  composition of real estate loans  outstanding at
December 31, 1997.

                                                             Percent of        Percent of
                                             Balance      Real Estate Loans    Gross Loans
                                            -----------------------------------------------

<S>                                         <C>                  <C>               <C>
Commercial real estate
     Construction and land development      $   207,322          9.4%              4.7%

                                                                21


<PAGE>





     Multifamily                                125,507          5.7               2.8
     Nonfarm nonresidential                     750,273         33.9              16.9
                                                -------         ----              ----

                                              1,083,102         49.0              24.4
                                              ---------         ----              ----

Residential and farmland
     Residential                              1,018,339         46.1              23.0
     Farmland                                   106,975          4.9               2.4
                                                -------          ---               ---

                                              1,125,314         51.0              25.4
                                              ---------         ----              ----

                                            $ 2,208,416        100.0%             49.8%
                                            ===========        ======             =====


</TABLE>


TABLE 12 - LOAN MATURITIES AND INTEREST RATE SENSITIVITY
(In Thousands)

The  following  table shows the amounts of loans,  excluding  consumer  and real
estate mortgage loans, in certain categories outstanding as of December 31, 1997
which,  based on remaining  scheduled  repayments of  principal,  are due in the
periods indicated. Also, the amounts due after one year are classified according
to their sensitivity to changes in interest rates.
<TABLE>

                                                          Maturing
                                        -------------------------------------------------------------
                                                          After One
                                          Within         But Within           After
                                         One Year        Five Years        Five Years          Total
                                        --------------------------------------------------------------
<S>                                     <C>               <C>              <C>             <C>
Commercial, financial and agricultural  $ 549,601         $ 588,440        $ 123,515       $ 1,261,556
Real estate - construction                 91,168            72,355           43,799           207,322
                                           ------            ------           ------           -------

                                        $ 640,769         $ 660,795        $ 167,314       $ 1,468,878
                                        =========         =========        =========       ===========


                                                            Interest Sensitivity
                                        --------------------------------------------------------------
                                                            Fixed           Variable
                                                            Rate              Rate              Total
                                        --------------------------------------------------------------
Due after one, but within five years                      $ 427,054        $ 233,741         $ 660,795
Due after five years                                        136,754           30,560           167,314
                                                            -------           ------           -------

                                                          $ 563,808        $ 264,301         $ 828,109
                                                          =========        =========         =========

</TABLE>

Consumer loans  increased $57 million,  or 6%, in 1997 versus 9% and 21% in 1996
and 1995, respectively, which is a continuation of a slowing trend in the growth
rate in that  segment of the  portfolio.  The  decline in the growth rate of the
consumer loan portfolio  reflects a national trend of slowing  consumer  demand.
The consumer loan portfolio is composed of installment loans, home equity loans,
unsecured  revolving  credit  products,   and  other  similar  types  of  credit
facilities.  Consumer credits are  underwritten  using a computer based multiple
discriminant  analysis which is commonly  called credit  scoring.  This analysis
considers  factors such as income,  debt levels and credit history.  This system
provides  uniformity in the decision making process and better quality  control.
Consumer loans are  concentrated  in  Mississippi,  Louisiana,  and Arkansas and
would be adversely  impacted by an economic  recession or other conditions which
would affect consumer incomes.

                                                                22


<PAGE>





Additionally,  the  needs  of low to  moderate  income  borrowers  is an area of
continued focus and efforts are ongoing to expand the credit facilities tailored
to their special  needs.  An extensive  branch  network  brings loan officers in
close contact with small business  customers and consumers.  The expanded use of
government  credit  enhancement  programs  has  improved the ability to meet the
needs of small  businesses  and  differentiate  the  Company  from  competitors.
Consumer credit products will continue to be aggressively  marketed and new ones
developed utilizing the high level of technology available,  however the Company
will  continue to maintain a close watch on both local and national  delinquency
trends.

DEPOSITS
         The  primary  funding  source  for loans  and  investments  is  deposit
liabilities.  The mix and repricing  alternatives can  significantly  affect the
cost of this source of funds and therefore impact the margin. Strategies used to
manage  deposit  liabilities  are designed to be flexible so that changes can be
made in  consideration  of interest rate movements and liquidity  issues.  Local
retail and commercial customers provide the majority of deposits.
         Average  deposits  increased  $555  million  to  $5.3  billion  in 1997
compared to $4.8 billion in 1996,  and $4.4 billion in 1995.  Approximately  98%
and 20% of the  increases in average  deposits for 1997 and 1996,  respectively,
resulted from acquisitions.
         Average time deposits  increased  $234  million,  or 12%, from the $2.0
billion  reported in 1996.  Average savings deposits and average demand deposits
increased $144 million and $177 million, respectively, in 1997 compared to 1996.
The deposit mix shifted slightly as average savings deposits  decreased from 39%
of total average  deposits in 1996 to 37% of total average  deposits in 1997 and
average demand deposits  increased from 20% of average total deposits in 1996 to
21% of average  deposits in 1997.  The deposit  mix has  remained  substantially
unchanged  with the exception of the slight shift from savings  deposits  toward
more demand deposits.




TABLE 13 - AVERAGE DEPOSITS
(In Thousands)
<TABLE>
<CAPTION>

The daily average  amounts of deposits for the periods  indicated are summarized
in the following table.

                                                                     Year Ended December 31,

                                                            1997              1996              1995
                                                            ----              ----              ----

<S>                                                     <C>             <C>               <C>
Demand deposits                                         $ 1,130,510     $    953,872      $    919,215
Savings and interest-bearing transaction deposits         1,986,828        1,843,150         1,710,218
Time deposits                                             2,188,349        1,953,872         1,809,364
                                                          ---------        ---------         ---------

Total                                                   $ 5,305,687      $ 4,750,894       $ 4,438,797
                                                        ===========      ===========       ===========

</TABLE>


LIQUIDITY
         Liquidity  for a financial  institution  can be  expressed  in terms of
maintaining  sufficient funds available to meet both expected and  unanticipated
obligations in a cost effective manner. Adequate liquidity allows the Company to
meet the demands of both the borrower and the  depositor on a timely  basis,  as
well as  pursue  other  business  opportunities  as  they  arise.  Liquidity  is
maintained through the Company's ability to convert assets into cash, manage the
maturities  of  liabilities  and  generate  funds on a  short-term  basis either
through the national  federal funds market,  backup lines of credit,  or through
the national CD market.
         Short-term  investments  totaling  $61  million at  December  31,  1997
provide one source of the Company's  liquidity.  Cash flows from  repayments and
maturities from the securities and loan portfolios  provide an additional source
of liquidity.  At December 31, 1997, $2.1 billion,  or 48% of total loans,  have
contractual maturities of one year or less. Additional liquidity can be achieved
through the sale of securities classified as available for sale.
         The  Company  relies  largely on core  deposits to fund loan demand and
long-term  investments.  Core  deposits,  defined  as total  deposits  less time
deposits  of $100  thousand  or more,  have  increased,  ending the year at $4.9
billion which compares to $4.6 billion at the end of 1996. Additional funding is
provided from an established federal funds market within Mississippi,  Louisiana
and other

                                                                23


<PAGE>





contiguous states.  Although the Company prefers to meet liquidity  requirements
through  internally  generated  funding  sources  and  through  the  matching of
maturities of assets and liabilities,  it also maintains  funding  relationships
with numerous other financial institutions including membership with the Federal
Home Loan Bank.
         The  consolidated  statements  of cash flows can be used to review cash
flows  from  operating,  investing  and  financing  activities.  Cash  and  cash
equivalents  increased  $33 million  during 1997 to $418 million at December 31,
1997.  Net cash  provided  by  operating  activities  of $179  million  for 1997
represents  a  substantial  increase  from $87 million  reported  for 1996.  The
increase in net cash  provided  by  operating  activities  from 1996 to 1997 was
primarily due to cash received from the sale of mortgage loans.  The increase in
net cash provided by operating activities from 1995 to 1996 was primarily due to
a decrease in the amount of cash used to fund mortgage  loans held for sale from
1995 to 1996.
         Investing activities,  primarily loans and securities, provided cash of
$19 million in 1997 compared to $117 million used in 1996.  The change from 1996
is primarily due to a slow down in loan demand.  In 1995,  investing  activities
used cash of $152 million. This use of cash was largely a result of a high level
of loan demand and increases in short-term investments.  These uses of cash were
partially   offset  by  cash   provided   by   decreases   in   securities   and
interest-bearing bank balances.
         Financing  activities  are the  primary  funding  source  of  investing
activities.  Financing  activities  include the gathering of deposits and use of
purchased  funds as well as issuance  and  repurchase  of the  Company's  stock.
Financing  activities used cash of $164 million in 1997 and provided $72 million
in cash in 1996.  A  decrease  in  deposit  volumes  (excluding  the  effect  of
acquisitions)  is  primarily  responsible  for the net use of cash in  1997.  An
increase  in short  term  borrowings  offset  some of the  effect of the drop in
deposit volumes.
         During 1997, the Company was advanced $85 million from the Federal Home
Loan Bank.  The proceeds of the advances  were used to pay off higher rate short
term borrowings and to repurchase shares of the Company's common stock to offset
the dilutive  effect of shares  issued in  acquisitions  accounted for using the
purchase method of accounting.  As another source of liquidity,  the Company has
access to an additional $294 million in advances from the Federal Home Loan Bank
based upon its collateral pledge agreement.
         During  1996,  the Company  issued debt  securities  which  netted cash
proceeds of $99  million.  Proceeds  from the debt  issuance  were used to repay
certain  short-term  borrowings and  repurchase  the Company's  common shares in
connection with certain acquisitions.
         The  parent  company  requires   liquidity  to  pay  dividends  to  its
shareholders  and  to  meet  operating  expenses.   Dividends  and  interest  on
borrowings  paid by the parent  company  are  primarily  funded  from  dividends
received  from  its  banking  subsidiary.  The  dividends  paid  by the  banking
subsidiary are subject to certain  regulations  controlling  national banks that
restrict the amount of dividends that may be  distributed.  The subsidiary  bank
has  available  for  payment of  dividends  in 1998,  without  prior  regulatory
approval, $13.9 million plus its net profits for 1998. The operating expenses of
the parent  company are  primarily  incurred in providing  management  and other
services for the subsidiary and are reimbursed  monthly to provide the cash flow
necessary  for these  operations.  From  time to time the  parent  company  uses
short-term  lines of credit and issues  long-term debt to meet  acquisition  and
expansion needs.  During 1995, the Company registered $300 million of securities
with the  Securities  and Exchange  Commission  to  facilitate  acquiring  funds
through the issuance of various instruments in the market place. At December 31,
1997, $100 million in such instruments was outstanding. These funds were used to
reduce its short-term  borrowings and to fund the repurchase of stock issued for
acquisitions accounted for as purchase business combinations.


TABLE 14 - TIME DEPOSITS OF $100 THOUSAND OR MORE, MATURITY DISTRIBUTION
(In Thousands)

Maturities of time  certificates of deposit of $100 thousand or more outstanding
at December 31, 1997, are summarized in the following table.

Time remaining until maturity
3 months or less              $ 215,577
Over 3 through 6 months         107,909
Over 6 through 12 months         83,040
Over 12 months                   75,438
                                 ------

Total                         $ 481,964
                              =========


                                                                24


<PAGE>







TABLE 15 - SHORT-TERM BORROWINGS
(Dollars in Thousands)
<TABLE>
<CAPTION>

The following table presents a summary of the Company's short-term borrowings at
December 31 for each of the last three years by category  and the  corresponding
interest rates

                                                                    Daily       Average       Maximum
                                                December 31        Average     Interest      Month-End
                                                  Balance          Balance       Rate         Balance
                                               -------------------------------------------------------

<S>                                             <C>               <C>             <C>
1997
Federal funds purchased and securities sold
       under agreements to repurchase           $ 632,939         $ 527,971       5.1%      $ 668,745

Other short-term borrowings                         9,873            34,649       6.0          68,495
                                                    -----            ------       ---
Total short-term borrowings                     $ 642,812         $ 562,620       5.1%
                                                =========         =========       ===

1996
Federal funds purchased and securities sold
       under agreements to repurchase           $ 532,537         $ 529,398       4.9%      $ 627,785
Other short-term borrowings                        10,492            16,337       5.7          44,997
                                                   ------            ------       ---
Total short-term borrowings                     $ 543,029         $ 545,735       5.0%
                                                =========         =========       ===

1995
Federal funds purchased and securities sold
       under agreements to repurchase          $  566,862         $ 539,384       5.4%      $ 650,296
Other short-term borrowings                        32,620            15,809       3.8          33,568
                                                   ------            ------       ---
Total short-term borrowings                    $  599,482         $ 555,193       5.4%
                                               ==========         =========       ===
</TABLE>

CREDIT RISK MANAGEMENT
         Asset quality is managed through a credit process that has as its basis
the  separation  of the credit  administration  function  from the line  lending
function.  This  process  includes  a system of loan  committees  to review  and
approve loans, a system of credit  quality  review  committees  that monitor the
progress of action plans on loans requiring special attention and an independent
loan review  function  which reports to the  Directors'  Loan Review  Committee.
Additionally, the Credit Administration Division works to ensure that the credit
process is carried out in accordance with credit policies.  This process assists
in the early  identification of problem or potential problem credits and assists
in determining the adequacy of the allowance for loan losses.
TABLE 16- ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(Dollars in Thousands)
<TABLE>
<CAPTION>

The  following  table  summarizes  the activity in the allowance for loan losses
over the past five years.

                                                                               Year Ended December 31,

                                                     1997              1996             1995              1994              1993
                                                     ----              ----             ----              ----              ----

<S>                                               <C>             <C>               <C>              <C>              <C>
Allowance for loan losses -
     beginning balance                            $   62,205      $    58,719       $    55,873      $    62,032      $     74,856
     Charge-offs:
         Commercial, financial and
             agricultural                              7,852            1,278             1,591            7,851             2,881
         Real estate - construction                       63              119               177              132                40

                                                                25


<PAGE>





         Real estate - mortgage                        1,957            2,786             1,723            1,691             1,846
         Consumer                                     12,979           10,126             8,833            5,234             5,375
                                                      ------           ------             -----            -----             -----

             Total charge-offs                        22,851           14,309            12,324           14,908            10,142
                                                      ------           ------            ------           ------            ------

     Recoveries:
         Commercial, financial and
             agricultural                              1,360            3,232             2,217            5,163             5,164
         Real estate - construction                      131               71               272              621             1,398
         Real estate - mortgage                        1,629            2,459             1,403            2,393             2,077
         Consumer                                      7,136            4,631             4,466            4,098             4,679
                                                       -----            -----             -----            -----             -----

             Total recoveries                         10,256           10,393             8,358           12,275            13,318
                                                      ------           ------             -----           ------            ------

     Net charge-offs (recoveries)                     12,595            3,916             3,966            2,633            (3,176)
     Provision for loan losses                         7,500            5,340             2,160           (4,750)          (16,000)
     Additions due to acquisitions                     7,541            2,062             4,652            1,224                 -
                                                       -----            -----             -----            -----                 -

Allowance for loan losses -
     ending balance                               $   64,651      $    62,205       $    58,719      $    55,873       $    62,032
                                                  ==========      ===========       ===========      ===========       ===========

Total loans outstanding:
     End of year                                 $ 4,431,683      $ 3,979,877       $ 3,579,302      $ 2,859,398       $ 2,418,585
     Average                                       4,291,612      $ 3,774,490       $ 3,273,408      $ 2,581,724       $ 2,293,416
                                                   =========      ===========       ===========      ===========       ===========
Ratios:

Allowance for loan losses
     to end of year total loans                          1.46%            1.56%             1.64%            1.95%           2.56%
Allowance for loan losses
     to net charge-offs                                  513            1,588             1,480            2,122                NM
Allowance for loan losses
     to nonperforming loans                              305              364               262              219               204
Net charge-offs (recoveries) to
     average total loans                                  .29              .10               .12              .10             (.14)
Recoveries to prior year charge-offs                    71.68            84.33             56.06           121.03            39.28
<FN>

NM - Not Meaningful
</FN>

</TABLE>


Provision and Allowance for Loan Losses
         In conjunction  with the credit process,  the allowance for loan losses
(allowance)  is maintained  at a level that is  considered  sufficient to absorb
potential  losses  in the loan  portfolio.  The  allowance  is  adjusted  by the
provision  for  loan  losses  (provision)  and is  increased  by  recoveries  of
previously charged-off loans and decreased by loan charge-offs. The provision is
the  adjustment  to expense  necessary to maintain the  allowance at an adequate
level. Various factors are taken into consideration in determining the amount of
the  provision and the adequacy of the  allowance.  These  factors  include:  1)
management's  analysis  of current  and  future  economic  conditions  and their
anticipated impact on specific borrowers; 2) the current level of classified and
criticized assets and the

                                                                26


<PAGE>





TABLE 17- ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(Dollars in Thousands)

The following table presents,  for analysis purposes only, the allocation of the
allowance by loan  categories  with respect to  individual  credits,  historical
losses, foreseeable economic conditions and other factors pertaining to specific
industries.
<TABLE>


                                                                                    December 31,

Loan Loss Allocation                                 1997              1996             1995              1994              1993
--------------------                                 ----              ----             ----              ----              ----

<S>                                                 <C>              <C>               <C>              <C>               <C>
Commercial, financial and agricultural              $ 16,672         $ 18,124          $ 13,824         $ 13,851          $ 15,683
Real estate - construction                             1,642            2,050             2,146            1,475             2,330
Real estate - mortgage                                13,105           12,090            12,741           10,372             9,285
Consumer                                              11,800           15,265            13,928           10,940            10,087
Unallocated                                           21,432           14,676            16,080           19,235            24,647
                                                      ------           ------            ------           ------            ------

                                                    $ 64,651         $ 62,205          $ 58,719         $ 55,873          $ 62,032
                                                    ========         ========          ========         ========          ========


Percentage of Loans Outstanding
Commercial, financial and agricultural               28.5%             27.8%            28.2%             32.4%             29.5%
Real estate - construction                            4.7               4.3              3.5               3.2               2.9
Real estate - mortgage                               45.1              45.2             45.1              40.3              43.5
Consumer                                             21.7              22.7             23.2              24.1              24.1
                                                     ----              ----             ----              ----              ----

                                                    100.0%            100.0%           100.0%            100.0%            100.0%
                                                    ======            ======           ======            ======            ======

</TABLE>

associated risk factors with each; 3) past due and nonperforming assets; 4) the
current level of the allowance in relation to total loans and to historical and
current loss levels; and 5) growth and composition of the loan portfolio.
         As a result of management's assessment of the adequacy of the allowance
and loan growth in 1997,  a $7.5  million  provision  was  recorded  compared to
provisions  of $5.3  million  and $2.2  million in 1996 and 1995,  respectively.
Additions  to the  allowance of $7.5  million,  $2.1  million,  and $4.7 million
resulted from acquisitions in 1997, 1996 and 1995, respectively.
         Net charge-offs remain low at .29% of average loans in 1997 compared to
 .10% and .12% of average loans in 1996 and 1995,  respectively.  Net charge-offs
were $12.6 million for 1997 compared to $4.0 million for both 1996 and 1995. Net
charge-offs  for 1997  included a charge of $6.7  million  relating  to a single
credit.  The remaining  increase in net charge-offs from 1996 and 1995 occurs in
the consumer loan portfolio.
         The allowance at December 31, 1997 was $64.7 million, or 1.46% of total
loans  compared to $62.2  million,  or 1.56% of total loans at December 31, 1996
and $58.7  million,  or 1.64% of total loans at December 31, 1995.  While future
losses are difficult to predict,  management  believes that the current level of
the allowance is adequate to cover possible  losses in the loan portfolio  based
on the Company's allowance methodology.

Nonperforming Assets
         Nonperforming  assets  consist of loans on which  interest is no longer
accrued  (nonaccrual),  certain  restructured  loans where the interest  rate or
other terms have been materially  changed due to the financial  condition of the
borrowers (restructured),  and other real estate. A loan is placed on nonaccrual
when  management  believes  there  is  reasonable  uncertainty  about  the  full
collection of both  principal and  interest,  or when the loan is  contractually
past due ninety days or more, not well secured and not in process of collection.
The policy  regarding  nonperforming  loans is to take  appropriate,  timely and
aggressive action when necessary to reach a timely resolution.
         Nonperforming  assets  increased  $4.0  million  to  $26.2  million  at
year-end 1997 compared to year-end 1996. The increase is primarily  attributable
to  acquisitions.  The December 31, 1997 total is comprised of $21.2  million of
nonaccrual loans and $5.0

                                                                27


<PAGE>





million of other real estate.  The Company had restructured loans of $694
thousand at December 31, 1996 and none at December 31,
1997 and  1995.
         An additional  $561 thousand of  outstanding  loans were not considered
nonperforming  at  December  31,  1997,  but  the  borrowers,   in  management's
assessment,  are experiencing  financial difficulties severe enough that serious
doubt exists as to the borrowers'  continued  ability to comply with the present
terms of these loans.



                                                                28


<PAGE>





TABLE 18 - NONPERFORMING ASSETS
(Dollars In Thousands)
<TABLE>
<CAPTION>

The amounts of the Company's  nonperforming  assets at the  indicated  dates are
shown in the following table.

                                                                                         December 31,

                                                              1997            1996           1995           1994            1993
                                                              ----            ----           ----           ----            ----

<S>                                                          <C>            <C>            <C>             <C>            <C>
Nonaccrual loans                                             $ 21,204       $ 16,385       $ 22,452        $ 25,556       $ 30,425
Restructured loans                                                  -            694              -               -             54
                                                             --------       --------       --------        --------       --------
Nonperforming loans                                            21,204         17,079         22,452          25,556         30,479
Other real estate                                               4,955          5,044          6,485           6,689         13,256
                                                                -----          -----          -----           -----         ------
Nonperforming assets                                         $ 26,159       $ 22,123       $ 28,937        $ 32,245       $ 43,735
                                                             ========       ========       ========        ========       ========

Accruing loans past due 90 days or more                      $ 13,723      $   9,711       $  4,767        $  3,055       $  2,935
                                                             ========      =========       ========        ========       ========


Ratios:
Nonperforming assets to loans plus other real estate            .59%            .56%           .81%          1.12%           1.80%
Nonperforming assets to total assets                            .38             .35            .48            .63             .89
</TABLE>

Interest  income of  approximately  $1.8 million on nonaccrual  loans would have
been recorded in 1997 if such loans had been in compliance  with their  original
terms. Interest income actually recorded on such loans in 1997 was $1.1 million.




CAPITAL AND DIVIDENDS
         Dividends paid are  substantially  provided by dividends from the Bank.
The approval of the  Comptroller  of the Currency (OCC) is required if the total
of all  dividends  declared by a national  bank in any calendar year exceeds the
total of its net profits for that year combined with its retained net profits of
the  preceding  two  years.  In 1998,  the Bank has  available  for  payment  of
dividends to the Company,  without  approval of the Comptroller of the Currency,
$13.9 million plus its net profits for 1998.
         The two sources of capital  are  internally  generated  capital and the
capital markets.  Primary reliance historically has been on internally generated
capital.  Net income for 1997, 1996 and 1995 added $92.3 million,  $83.6 million
and $72.6 million,  respectively,  to capital.  Capital was further increased by
$2.9  million,   $5.8  million  and  $1.6  million  in  1997,   1996  and  1995,
respectively,  with the  issuance of common stock as a result of the exercise of
executive  stock  options.  Capital was decreased by dividends of $33.6 million,
$28.0 million and $23.1 million declared in 1997, 1996, and 1995,  respectively.
Capital was also decreased by $8.4 million and $1.7 million,  respectively, as a
result of the Company's  acquisitions,  net of  repurchases  of its common stock
during 1997 and 1996. As a result of the  implementation of a repurchase program
related to certain  acquisitions  accounted  for using the  purchase  accounting
method,  the Company purchased 2.9 million shares,  1.6 million shares,  and 2.6
million  shares of its common stock during  1997,  1996 and 1995,  respectively.
These shares were purchased for the purpose of offsetting the 7.9 million shares
issued in the  acquisitions  of LBO Bancorp,  Inc.,  First  Merchants  Financial
Corporation,  Bank of Gonzales Holding  Company,  Tuscaloosa  Bancshares,  Inc.,
Jefferson  Guaranty  Bancorp,  Inc., NBC Financial  Corporation  and the Deposit
Guaranty National Bank minority interests over the past three years.
         Capital includes the unrealized gains on securities available for sale,
net of deferred  income  taxes,  which were $2.3  million at  December  31, 1997
compared  to $1.6  million  and $19.1  million  at  December  31,  1996 and
1995, respectively.  Average stockholders' equity to average assets for 1997 was
9.10% compared to 9.15% in 1996 and 8.94% in 1995.
         Under the  risk-based  capital  guidelines,  the minimum ratio of total
capital to risk-weighted  assets,  (total capital),  is 8%. At least half of the
total capital is to be comprised of tier I capital. Under these guidelines,  the
Company's tier I capital and total capital

                                                                29


<PAGE>





ratios were 9.87% and 11.12%,  respectively,  at December  31, 1997  compared to
11.42% and 12.67%,  respectively,  at  December  31, 1996 and 11.05% and 12.30%,
respectively, at December 31, 1995.
         The  Office  of  the   Comptroller  of  the  Currency  (OCC)  also  has
established  risk-based  capital  guidelines for national  banks.  The Company's
strategy related to risk-based  capital is to maintain capital levels which will
be  sufficient  to  qualify  its  banking  subsidiaries  as "well  capitalized".
Maintaining  capital  ratios  at the "well  capitalized"  level  avoids  certain
restrictions  which,  for  example,  could  impact the Deposit  Guaranty's  FDIC
assessments, trust services and asset/liability management.
         At December 31, 1997,  the tier I and total capital ratios for the Bank
were well above the minimum 6% and 10% levels  required to be  categorized  as a
"well capitalized" insured depository institution.
         The Federal Reserve Board and the OCC have established minimum leverage
ratios for bank holding  companies and national banks,  respectively,  requiring
such  banking  organizations  to  maintain  tier 1 capital of at least 4% of the
quarterly  average  assets (net of the  allowance for loan losses) less goodwill
and other  nonqualifying  intangible  assets.  FDICIA also established a minimum
leverage  ratio  requirement  of 5% for  "well  capitalized"  institutions.  The
leverage  ratios for  December  31,  1997,  1996 and 1995 were 7.47%,  8.23% and
7.87%,  respectively.  The  Company's  banking  subsidiaries  have  maintained a
leverage ratio well above the minimum required by the bank's regulators.
         Capital  adequacy is continuously  monitored to ensure that appropriate
levels of  capital  are  maintained  to meet both  current  operating  needs and
anticipated future requirements. The capital guidelines play a crucial role in a
banking organization's plans for business, asset allocations,  acquisitions, and
expansion.

OTHER OPERATING INCOME
         Growth in  noninterest  related  sources  of income is one of the
Company's key long-term  strategies.  This strategy is to develop innovative new
sources of  noninterest  related  income and to reprice  existing  services  and
products to maximize their  profitability.  Other operating income includes fees
for trust  services,  deposit  service  charges,  mortgage loan servicing  fees,
income from broker/dealer services and many other corporate and retail products.
         During 1997,  other  operating  income was $133.6  million  compared to
$117.2 million in 1996, an increase of $16.4 million. Other operating income for
1996 included gains from the  disposition  of assets covered by lease  financing
transactions  of $2.7  million.  Excluding  this unusual item,  other  operating
income increased $19.1 million, or 16%, from 1996 to 1997.  Approximately 31% of
the 1997 increase in other operating income was due to acquisitions.  Securities
gains account for an additional  7% of the increase  which mostly  resulted from
securities called under the Company's  covered call option writing program.  The
remaining increase was due to a 6% increase in core fee revenue sources.
         Service charges on deposit accounts historically represented one of the
primary sources of other operating income.  Revenues in this area increased $6.6
million,  or 18%, to $42.1 million in 1997 compared to 1996.  Approximately $4.8
million of this increase was a result of  acquisitions.  The remaining  increase
was  primarily  the result of  continuing  growth in business  volumes of demand
deposit  accounts.  Fees for trust  services  increased 16%, to $19.1 million in
1997 from  $16.4  million  in 1996.  This  increase  was the result of new trust
business  and an  increase  in the value of assets  under  trust  management  as
acquisitions accounted for less than 2% of the increase.
         Other service charges,  commissions and fees increased $6.6 million, or
12%,  from $56.6 million in 1996 to $63.3  million in 1997.  Approximately  $3.0
million of this  increase  was a result of fee income  generated by the acquired
companies.  The remainder of the increase  resulted from  increased  income from
broker/dealer  services,  mortgage loan  servicing and customer  utilization  of
other retail services.
         Other income decreased $1.5 million to $7.0 million in 1997 as compared
to 1996 due to a gain of $2.7 million from the  disposition of assets related to
lease  financing  transactions  recorded in 1996.  Excluding  the  unusual  gain
recorded in 1997,  other income increased $1.2 million or 21% due to an increase
in  premiums  received  from the sale of student  loans in the normal  course of
business as such loans enter repayment status.
         During 1996,  other  operating  income was $117.2  million  compared to
$92.0 million in 1995, an increase of $25.2 million.  Excluding the $2.7 million
in gains from the disposition of assets covered by lease financing  transactions
and the additional $6.3 million  resulting from the adoption of a new accounting
pronouncement, other operating income increased $16.2 million, or 18%, from 1995
to 1996.  Approximately  $7.1 million of this increase was due to  acquisitions.
The  remaining  increase was due to a 14%  increase in core fee revenue  sources
including  deposit  service  charges,  trust  fees  and due to $1.8  million  in
premiums received on expired written call option contracts.

OTHER OPERATING EXPENSE
         Enhancing  operational  efficiency without  sacrificing service quality
continues to be a priority. A key measure used in the banking industry to assess
the level of noninterest  expense is the efficiency  ratio,  which is defined as
noninterest expense divided by

                                                                30


<PAGE>





the sum of  tax-equivalent  net interest  income plus  noninterest  income.  The
Company excludes the effects of acquisition-related intangible amortization from
the efficiency ratio calculation as such charges,  which require no further cash
outlay, have no effect on operational efficiency.  The efficiency ratio measures
the level of expense required to generate one dollar of revenue.  Improvement in
the efficiency ratio is measured by a reduction in the percentage reported.  The
efficiency  ratios for 1997,  1996,  and 1995 were  60.92%,  61.50% and  62.83%,
respectively.  In an effort to control  expenses,  a formal  plan was adopted in
1996 to consolidate the Company's four independently chartered bank subsidiaries
under one charter. The benefits of consolidation include streamlining management
and consolidation of back-office  operations.  As 1997 was a year of transition,
the effects of such consolidation  efforts will have a more pronounced effect on
enhancing efficiency in future periods.
         Other  operating  expense  increased  $33.8 million,  or 14%, to $271.0
million in 1997 compared to 1996.  Approximately  $24.1 million,  or 71%, of the
increase  can  be  attributed  to  acquisitions.   Excluding   acquisitions  and
nonrecurring  charges  in both  years,  expenses  grew at a 4% rate in 1997 from
1996.
         Salaries  and  employee  benefits,  which  account  for  52%  of  other
operating  expense,  increased $10.1 million in 1997 compared to 1996.  Salaries
and employee  benefits  for 1996 include a charge of $2.2 million for  personnel
severance  costs  related to the  consolidation  plan.  Excluding the effects of
acquisitions and the severance accrual, salaries and employee benefits increased
only $1.4 million, or 1% in 1997.
         Combined net  occupancy and equipment  expense  increased  $5.9 million
over  1996,  of which  approximately  $5.6  million  was due to an  increase  in
depreciation,  rentals and  maintenance for branch banking  facilities  acquired
through acquisitions.  The remaining increase was less than 1% of 1996 occupancy
and equipment expenses.
         Service fees increased $1.2 million in 1997 compared to 1996 largely as
a result of  acquisitions  which account for  approximately  $1.0 million of the
increase. Service fees remained high in 1997 and 1996 as compared to prior years
due to professional and consulting fees incurred in an ongoing effort to enhance
products and their delivery to the customer,  and to provide efficiencies within
the  organization.  This investment is expected to be returned through increased
operational efficiencies and enhanced revenue in future periods. The increase of
$1.8 million,  or 17%, in  communication  expense is mostly due to the Company's
geographic  expansion through  acquisitions.  In 1997,  acquisitions  added $1.1
million to this  expense  category.  Advertising  and public  relations  expense
increased $1.4 million,  or 14%, due to the Company's  broader  market  coverage
resulting from expansion in new markets.
         Intangible  amortization  increased  $4.7  million,  or 67%,  to  $11.5
million in 1997  compared to 1996.  This  increase  was due to  amortization  of
goodwill and core deposit  premiums from  acquisitions  that were consummated in
1997 and 1996.  Other expense  increased $8.2 million,  to $38.7 million in 1997
compared to $30.5 million in 1996. Factors contributing to the increase in other
expense  include  a  $2.4  million   increase  in  mortgage   servicing   rights
amortization,  a $1.4 million  increase in Louisiana  bank shares taxes,  mostly
caused by  acquisitions,  $1.2 million in  additional  software  expenses and an
increase in other losses, mostly check forgeries and robberies, of approximately
$1.2 million.
         In 1996, other operating  expense  increased $25.8 million,  or 12%, to
$237.2 million compared to 1995.  Other operating  expense for 1995 included the
accrual of $3.5 million for the  estimated  cost of a proposed  settlement  of a
class action suit concerning  collateral  protection insurance which was settled
in 1996 without  additional  expense.  Excluding  acquisitions  and nonrecurring
charges in both years,  expenses grew at a 3% rate in 1996 verses 1995. Salaries
and employee  benefits,  which increased $18.1 million in 1996 compared to 1995,
included  a  charge  of  $2.2  million  for  severance   costs  related  to  the
consolidation  plan.  Net  occupancy  and  equipment  expense and  service  fees
increased  largely as a result of  acquisitions.  The FDIC assessment  decreased
$4.8  million  from  1995 to 1996.  This  decrease  was the  result  of the FDIC
reducing the premium rate on insured deposits.

INCOME TAXES
         Income tax expense was $47.4 million in 1997, compared to $40.6 million
in 1996 and $35.0 million in 1995. The increase in tax expense  between 1997 and
1996 was primarily the result of increased  pretax  earnings.  The effective tax
rate was 34% for 1997 and 33% for 1996 and 1995.  These  effective tax rates are
lower than the statutory  income tax rate  primarily due to tax exempt  interest
income received on certain loans and debt securities.

OUTLOOK
         The Company's  ability to sustain continued growth is largely dependent
upon the economies of the tri-state area of Mississippi,  Louisiana and Arkansas
with Mississippi having the most significant influence with 71% of the Company's
total  loans and  Louisiana  coming in second with 25% of the  Company's  loans.
During this decade,  both Mississippi and Louisiana have seen rapid growth, most
of which has been led by expansion in the gaming industry in both states. During
this period,  Mississippi's  rate of growth had surpassed  that of the southeast
region and the nation.  Louisiana's  economy also continued to grow at a healthy
pace after

                                                                31


<PAGE>





recovering  from a  recession  during  the  1980's.  As a direct  result  of the
favorable economic  conditions in the markets served, the Company prospered with
several years of steady, quality loan growth.
         During 1997,  favorable  economic  conditions  continued in Mississippi
although the rate of growth showed signs of slowing as measured by sales tax and
corporate income tax collections. The slow down in growth is attributable to the
maturing of the gaming  industry in  Mississippi  and the resulting  decrease in
construction  activity.  The slow down in the Mississippi economy led to flat to
moderate loan demand  throughout  1997 which is expected to continue in the near
future.
         Louisiana,  a state  whose  growth is  closely  linked  to  energy  and
manufacturing, experienced moderate growth throughout 1997. Continuing growth is
expected  over the  next two  years as a  result  of  anticipated  increases  in
extraction  jobs in the energy  industry.  Although  the  expected  increase  in
offshore drilling activity should have little direct effect on the Company,  the
related  growth in Louisiana's  feeder  industries  such as retail  services and
transportation  should  support  continued,  moderate  growth in both  loans and
deposits.  Although the recent decline in oil prices may temper this growth, the
Company's outlook remains positive as improved extraction technology is expected
to overcome the effects of the price decline.
         The  Company's  net interest  margin has  remained  strong for the past
three years with a 13 basis point increase in 1997 over 1996.  Favorable deposit
pricing has been the key factor in  maintaining  the net interest  margin at its
current level as well as an improving  earning asset mix. In 1998,  loan volumes
are  expected  to  continue  to grow at a faster  rate  than  deposits  which is
expected to maintain the net interest margin close to its current level.
         Loan quality indicators,  although well within management's  acceptable
ranges,  have shown some deterioration  from 1996.  Although most of the current
year  increase  in the ratio of net  charge-offs  to average  total loans is the
result of a single charge-off,  there has been a slight rising trend of consumer
charge-offs and delinquencies that is expected to continue into 1998. Despite an
expected  increase in  delinquencies,  loan quality  indicators  are expected to
remain well within an acceptable range.
         The Company made great strides in  increasing  fee income in 1997 which
is  expected  to  continue  through  1998.  The  Company  continues  to  explore
nontraditional ways to provide services to an expanding customer base as well as
ways to enhance the wide range of existing banking services  offered.  Continued
deregulation of the banking  industry will open doors to new and innovative ways
to serve the Company's customer base. Expense control continues to be an area of
intense  focus  as  the  Company  seeks  ways  to  increase   profitability  and
shareholder  value. Steps taken to consolidate the back office and the Company's
move to a  one-charter  organization  are expected to reap  dividends in 1998 by
improving  operational  efficiency with the changes remaining transparent to the
customer.  Expenses  are  expected to remain  flat with  moderate  increases  in
revenue.
         On December 8, 1997, the Company  announced an agreement to be acquired
by First American  Corporation.  The merger is expected to be consummated in the
second quarter of 1998. Information regarding First American Corporation and its
economic outlook can be found in its Annual Report on Form 10-K.

DIVIDEND AND MARKET INFORMATION
         The Company's  common stock trades on the New York Stock Exchange under
the symbol "DEP".  Prior to December 5, 1996, the Company's  common stock traded
in the over-the-counter  market under the NASDAQ symbol "DEPS" and was quoted on
NASDAQ's National Market System. The following table sets forth the range of the
high and low  prices of the  common  stock,  as  reported  by the New York Stock
Exchange and NASDAQ, respectively,  and the dividends declared per share for the
periods indicated.
                                       Dividends          Prices
                                       Per Share   High       Low
                  --------------------------------------------------

                  1997
                  First Quarter      $    .20     $ 33.38    $ 29.63
                  Second Quarter          .20       31.88      30.00
                  Third Quarter           .20       33.38      31.88
                  Fourth Quarter          .23       57.31      33.75


                  1996
                  First Quarter      $   .165     $ 23.75    $ 21.50
                  Second Quarter         .175       24.13      22.00
                  Third Quarter          .175       24.50      22.00
                  Fourth Quarter         .200       31.00      24.00

This table reflects a 2 for 1 stock split which was effective December 2, 1996.

                                                                32


<PAGE>





Until the expected consummation of the acquisition by First American Corporation
in the  second  quarter of 1998,  it is the  present  intention  of the Board of
Directors  to continue  the payment of cash  dividends  on the common stock on a
quarterly basis, dependent on expected future normalized earnings, the financial
condition of the Company,  the assessment of future capital needs of the Company
and such other  factors as the Board of Directors may deem  relevant.  As a bank
holding  company,  the  Company's  ability to pay dividends is to a great extent
dependent  upon  dividend  payments it  receives  from its  subsidiaries,  which
dividend  payments are subject to the limitations  described in the notes to the
consolidated  financial  statements.  On  February  20,  1998  there  were 7,118
stockholders of record of the Company's common stock.

YEAR 2000
The year 2000 computer issue is caused by computer  programs being written using
two  digits to  identify  the  applicable  year  rather  than  four.  Since most
application  software only  contains the two digits,  many systems will identify
January  1, 2000 as January 1, 1900 which  could  result in  material  errors in
calculation of interest accruals on loan and deposit  accounting systems as well
as problems with  determination  of loan due dates. The magnitude of the problem
extends  beyond the computer  environment  as many  business  machines and other
office equipment also have date sensitive functions.  In addition,  there can be
no guarantee that the systems of other companies or  counterparties on which the
Company  relies  will be  remediated  on a  timely  basis or that a  failure  to
remediate  by  another  party  would not have a material  adverse  effect on the
Company. The Company has been actively addressing  operations concerns regarding
the coming  millennium  change since early 1996. A committee was formed to steer
the process of identifying  the systems,  equipment,  vendors and customers that
may be affected  by the year 2000.  The  committee  has also been  charged  with
developing a plan to be in complete  compliance by December 31, 1998,  including
adequate  testing.  At December 31, 1997, all affected systems and equipment had
been  identified  and  progress  is well under way to bring  these  systems  and
equipment into compliance.  The Company has also initiated formal communications
with all of its significant  vendors and  counterparties to determine the extent
to which the  Company may be affected  by their  failure to  adequately  address
their own year 2000  issues.  Both  external  and  internal  costs  incurred  in
bringing existing systems into compliance are being expensed as incurred.  Where
management has determined that replacement of existing systems is required, such
costs are being capitalized and will be amortized over the estimated useful life
of the system.  Costs  incurred  during  1997 and 1996 were not  material to the
Company's  consolidated  financial statements.  On December 8, 1997, the Company
announced   an  agreement   to  be  acquired  by  First   American   Corporation
headquartered in Nashville,  Tennessee.  The merger is expected to take place in
the second  quarter of 1998.  In connection  with the merger,  almost all of the
Company's  subsidiary reporting systems are expected to be converted to those of
First  American  Corporation  during the third  quarter of 1998.  Following  the
announcement  of the  merger  and in  anticipation  of the  systems  conversion,
efforts to bring  existing  systems into  compliance  were  suspended,  with the
exception of those  systems that are not  expected to be  converted.  Should the
merger not be consummated, upgrades of existing systems will be resumed. In this
event,  the costs which will be expensed over the next two years to complete the
process of bringing the Company's systems and equipment into compliance with the
year 2000  issue are not  expected  to have a material  effect on the  financial
statements  as the  Company's  systems  are  provided by and will be upgraded by
third party vendors and equipment upgrades will be minimal. Although the cost to
bring systems and equipment into  compliance has not been and is not anticipated
to have a material  effect on the  Company's  financial  statements,  failure to
comply  could have a  material  adverse  effect on the  Company's  business  and
financial results.  Additionally,  the Company's credit risk associated with its
borrowers may increase as a result of their  failure to  adequately  prepare for
the millennium  change. As a result,  the Company  anticipates that increases in
problem loans and credit  losses are possible in future years.  At this time, it
is not possible to quantify such losses related to this issue.


Item 8.  Financial Statements and Supplementary Data
The Company's  consolidated financial statements are listed below. The Company's
supplementary  financial  information is included in the table entitled "Summary
Quarterly  Results"  located  in this Form 10-K at Part II Item 7.  Management's
Discussion and Analysis of Financial Condition and Results of Operations.


                                 INDEX TO FINANCIAL STATEMENTS

Independent Auditors' Report                                                 29
Consolidated Statements of Condition - December 31, 1997 and 1996            30
Consolidated Statements of Earnings - Years Ended December 31, 1997,

                                                                33


<PAGE>





         1996, and 1995                                                      31
Consolidated Statements of Changes in Stockholders' Equity - Years
         Ended December 31, 1997, 1996, and 1995                             32
Consolidated Statements of Cash Flows - Years Ended December 31, 1997,
         1996, and 1995                                                      33
Notes to Consolidated Financial Statements                                34-53





                                                                34


<PAGE>






                   INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
Deposit Guaranty Corp.:

          We have audited the consolidated financial statements of
Deposit  Guaranty Corp. and  subsidiaries as listed in the  accompanying  index.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

          We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

          In our opinion,  the  consolidated  financial  statements  referred to
above  present  fairly,  in all material  respects,  the  financial  position of
Deposit  Guaranty Corp. and  subsidiaries  as of December 31, 1997 and 1996, and
the  results of their  operations  and their cash flows for each of the years in
the  three-year  period ended  December 31, 1997, in conformity  with  generally
accepted accounting principles.



Jackson, Mississippi                          KPMG Peat Marwick LLP
February 12, 1998

                                                           35


<PAGE>



<TABLE>
<CAPTION>


                             CONSOLIDATED STATEMENTS OF CONDITION
                                     Deposit Guaranty Corp.


(In Thousands Except Share Data)                                                                      December 31,
--------------------------------                                                                      ------------
                                                                                                 1997              1996
                                                                                                 ----              ----

<S>                                                                                         <C>              <C>
Assets
Cash and due from banks                                                                     $    418,137     $    385,009
Interest-bearing bank balances                                                                    11,218            1,732
Federal funds sold and securities purchased under agreements to resell                            59,590           47,640
Trading account securities                                                                         1,459            2,505
Securities available for sale                                                                  1,424,527        1,462,038
Investment securities (fair value:  1997-$181,266; 1996-$152,412)                                174,952          145,087
Loans                                                                                          4,431,683        3,979,877
    Allowance for loan losses                                                                    (64,651)         (62,205)
                                                                                         ---------------  --------------
             Net loans                                                                         4,367,032        3,917,672
                                                                                            ------------     ------------
Premises and equipment                                                                           171,190          148,327
Intangible assets                                                                                137,084           89,239
Other assets                                                                                                      174,538
          183,648
    Total assets                                                                             $ 6,939,727      $ 6,382,897
                                                                                             ===========      ===========

Liabilities
Deposits:
    Noninterest-bearing                                                                      $ 1,270,344      $ 1,160,914
    Interest-bearing                                                                           4,103,618        3,864,835
                                                                                            ------------     ------------
             Total deposits                                                                    5,373,962        5,025,749
Federal funds purchased, securities sold under agreements to repurchase
    and other short-term borrowings                                                              642,812          543,029
Long-term liabilities                                                                            186,397           99,405
Other liabilities                                                                                101,318          133,448
                                                                                           -------------    -------------
    Total liabilities                                                                          6,304,489        5,801,631
                                                                                            ------------     ------------

Stockholders' equity
Cumulative preferred stock, no par value, authorized:  25,000,000 shares
    of class A voting; and 25,000,000 shares of class B non-voting; issued
    and outstanding:  none                                                                             -                -
Common stock, no par value, authorized 100,000,000 shares; issued and
    outstanding:  1997 - 40,830,231 shares; 1996 - 39,185,394 shares                              22,355           21,491
Surplus                                                                                          154,748          174,995
Retained earnings                                                                                455,872          383,211
Unrealized gain on securities available for sale, net of deferred income taxes                     2,263            1,569
                                                                                         ---------------  ---------------
    Total stockholders' equity                                                                   635,238          581,266
                                                                                           -------------    -------------
    Total liabilities and stockholders' equity                                               $ 6,939,727      $ 6,382,897
                                                                                             ===========      ===========

</TABLE>











                                                           36


<PAGE>





See accompanying notes to consolidated financial statements.

<TABLE>
<CAPTION>

                             CONSOLIDATED STATEMENTS OF EARNINGS
                                     Deposit Guaranty Corp.


(In Thousands Except Share Data)                                                             Year Ended December 31,
--------------------------------                                                             -----------------------
                                                                                        1997          1996         1995
                                                                                        ----          ----         ----
<S>                                                                                   <C>          <C>          <C>
Interest income
Interest and fees on loans                                                            $ 372,016    $ 327,065    $ 287,742
Interest on investment securities:
    Taxable                                                                              13,531       10,467       87,896
    Exempt from Federal income tax                                                            6            1        8,180
Interest on securities available for sale:
    Taxable                                                                              87,186       72,576       10,095
    Exempt from Federal income tax                                                       10,048       11,383          967
Interest on trading account securities                                                      221          416          354
Interest on Federal funds sold and securities purchased under agreements to resell        2,264        9,989        6,317
Interest on bank balances                                                                   193          325        1,153
                                                                                    ------------   ---------   ----------
    Total interest income                                                               485,465      432,222      402,704
                                                                                     ----------   ----------   ----------
Interest expense
Interest on deposits                                                                    163,779      151,375      143,640
Interest on Federal funds purchased, securities sold under agreements to
    repurchase and other short-term borrowings                                           28,780       27,222       29,792
Interest on long-term liabilities                                                         8,310        4,091            -
                                                                                   ------------ ------------   ----------
    Total interest expense                                                              200,869      182,688      173,432
                                                                                     ----------   ----------   ----------
Net interest income                                                                     284,596      249,534      229,272
Provision for loan losses                                                                 7,500        5,340        2,160
                                                                                   ------------ ------------  -----------
Net interest income after provision for loan losses                                     277,096      244,194      227,112
                                                                                     ----------   ----------   ----------
Other operating income
Service charges on deposit accounts                                                      42,143       35,584       32,084
Fees for trust services                                                                  19,084       16,413       14,793
Gains on securities transactions                                                          2,086          118          919
Other service charges, commissions and fees                                              63,266       56,624       39,250
Other                                                                                     7,024        8,506        4,943
                                                                                    ----------- ------------ ------------
    Total other operating income                                                        133,603      117,245       91,989
                                                                                     ----------   ----------  -----------
Other operating expense
Salaries and employee benefits                                                          139,792      129,660      111,556
Net occupancy                                                                            19,523       16,073       13,838
Equipment                                                                                20,083       17,618       16,196
Service fees                                                                             17,428       16,237       12,735
Communication                                                                            12,430       10,607        9,100
FDIC assessment                                                                             689           94        4,906
Advertising and public relations                                                         10,851        9,484        8,668
Intangible amortization                                                                  11,580        6,917        5,734
Other                                                                                    38,671       30,518       28,719
                                                                                    -----------  -----------  -----------
    Total other operating expense                                                       271,047      237,208      211,452
                                                                                     ----------   ----------   ----------
Income before income taxes                                                              139,652      124,231      107,649
Income tax expense                                                                       47,372       40,621       35,029
                                                                                    -----------  -----------  -----------
Net income                                                                           $   92,280   $   83,610   $   72,620
                                                                                     ==========   ==========   ==========
Net income per share:
    Basic                                                                                $ 2.25       $ 2.16       $ 1.89
    Diluted                                                                                2.23         2.14         1.87

Weighted average shares outstanding:

                                                           37


<PAGE>





    Basic                                                                            41,082,356   38,760,192   38,431,162
    Diluted                                                                          41,413,294   39,006,669   38,780,032
</TABLE>


See accompanying notes to consolidated financial statements.

<TABLE>
<CAPTION>


             CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                  Deposit Guaranty Corp.


                                                                                     Unrealized
                                                                                       Gain on
                                                                                     Securities
                                                Common                   Retained     Available     Treasury
(In Thousands Except Share Data)                 Stock       Surplus     Earnings     For Sale        Stock        Total
---------------------------------                -----       -------     --------     --------        -----        -----

<S>                                          <C>           <C>           <C>       <C>           <C>           <C>
Balance, December 31, 1994                   $   19,361    $  154,726    $ 269,508 $      1,973  $    (2,019)  $  443,549
Net income for 1995                                   -             -       72,620            -            -       72,620
Net change in unrealized gain on securities
     available for sale, net of deferred income
     tax     of $10,447                               -             -            -       17,117            -       17,117
Cash dividends declared ($ .605 per share)            -             -      (23,075)           -            -      (23,075)
Issuance of 6,114,582 shares of common stock
     in acquisitions                              3,348        64,094        8,580            -            -       76,022
Purchase of 2,645,800 shares and retirement
     of 2,785,800 shares of common stock         (1,526)      (49,253)           -            -        2,019      (48,760)
Issuance of 134,400 shares of common stock
     under executive stock option plan               74         1,027            -            -            -        1,101
Tax benefit from exercise of stock options            -           479            -            -            -          479
                                                 ------------------------------------------------------------------------
Balance, December 31, 1995                       21,257       171,073      327,633       19,090            -      539,053
Net income for 1996                                   -             -       83,610            -            -       83,610
Net change in unrealized gain on securities
     available for sale, net of deferred income
     tax     of $10,656                               -             -            -      (17,521)           -      (17,521)
Cash dividends declared ($ .715 per share)            -             -      (28,000)           -            -      (28,000)
Issuance of 1,687,888 shares of common stock
     in acquisitions                                926        36,523          (32)           -            -       37,417
Purchase and retirement of 1,629,900 shares
     of common stock                               (894)      (38,206)           -            -            -      (39,100)
Issuance of 368,120 shares of common stock
     under executive stock option plan              202         3,643            -            -            -        3,845
Tax benefit from exercise of stock options            -         1,962            -            -            -        1,962
                                                 ------------------------------------------------------------------------
Balance, December 31, 1996                       21,491       174,995      383,211        1,569            -      581,266
Net income for 1997                                   -             -       92,280            -            -       92,280
Net change in unrealized gain on securities
     available for sale, net of deferred income
     tax     of $375                                  -             -            -          694            -          694
Cash dividends declared ($ .830 per share)            -             -      (33,558)           -            -      (33,558)
Issuance of 4,410,470 shares of common stock
     in acquisitions                              2,378        68,220       13,939            -            -       84,537
Purchase and retirement of 2,900,636 shares
     of common stock                             (1,588)      (91,337)           -            -            -      (92,925)
Issuance of 135,003 shares of common stock
     under executive stock option plan               74         1,857            -            -            -        1,931
Tax benefit from exercise of stock options            -         1,013            -            -            -        1,013
                                             ----------------------------------------------------------------------------
Balance, December 31, 1997                   $   22,355    $  154,748    $ 455,872 $      2,263$           -   $  635,238
                                             ============================================================================

</TABLE>
                                                           38


<PAGE>












See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>


                             CONSOLIDATED STATEMENTS OF CASH FLOWS
                                      Deposit Guaranty Corp.


(In Thousands)                                                                                 Year Ended December 31,
                                                                                             1997       1996       1995
                                                                                         --------------------------------
Cash flows from operating activities
<S>                                                                                      <C>        <C>        <C>
Net income                                                                               $   92,280 $   83,610 $   72,620
Adjustments to reconcile net income to net cash provided by operating activities:
     Provision for loan losses                                                                7,500      5,340      2,160
     Provision for losses on other real estate                                                  736        165        154
     Provision for depreciation and amortization                                             38,769     31,176     25,998
     Provision for deferred income taxes                                                      6,847      1,979     (3,259)
     Amortization (accretion) of premium (discount) on investment securities, net                86        563    (23,339)
     Accretion of discount on securities available for sale, net                             (2,641)    (3,477)      (666)
     Deferred loan fees and costs                                                            (2,251)    (2,677)    (2,716)
     Decrease in other liabilities                                                          (10,518)    (7,034)    (3,306)
     Increase in other assets                                                                (4,300)    (9,378)   (11,940)
     Net cash received from (paid for) loans held for resale                                 56,120    (19,796)   (49,934)
     Gains on securities available for sale transactions                                       (323)       (12)      (919)
     Gains on investment securities transactions                                             (1,763)      (106)         -
     Other, net                                                                              (1,900)     6,269     (4,621)
                                                                                         ---------------------------------
         Net cash provided by operating activities                                          178,642     86,622        232
                                                                                         ---------------------------------
Cash flows from investing activities
Net (increase) decrease in interest-bearing bank balances                                    (9,423)    (1,732)   135,298
Net (increase) decrease in Federal funds sold and securities
     purchased under agreements to resell                                                    51,896    399,129   (209,410)
Proceeds from sales of securities available for sale                                      1,551,028  1,391,991    423,530
Proceeds from maturities and principal repayments of investment securities                   65,956     46,077    816,065
Proceeds from maturities and principal repayments of securities available for sale          209,693    545,643    174,371
Purchases of investment securities                                                          (88,619)   (52,104)  (643,049)
Purchases of securities available for sale                                               (1,600,939)(2,154,049)  (492,674)
Net increase in loans                                                                      (149,658)  (284,040)  (348,698)
Proceeds from sales of other real estate                                                      3,384      4,591      3,578
Purchases of premises and equipment                                                         (25,607)   (18,263)   (18,551)
Proceeds from sales of premises and equipment                                                 1,602        742        586
Payment for purchase of common stock of acquired companies and other acquisition costs      (28,952)    (3,593)   (19,739)
Cash and due from banks of acquired companies                                                38,365      8,304     26,646
                                                                                        ----------------------------------
         Net cash provided (used) by investing activities                                    18,726   (117,304)  (152,047)
                                                                                        ----------------------------------
Cash flows from financing activities
Net increase (decrease) in deposits                                                        (217,902)   101,217    238,759
Net increase (decrease) in Federal funds purchased, securities sold
     under agreements to repurchase, and other short-term borrowings                         91,981    (66,851)    31,963
Repayment of line of credit to fund loans held for resale                                         -          -    (32,955)
Proceeds from long-term liabilities                                                          85,000     99,381          -
Proceeds from the exercise of common stock options                                            1,931      3,845      1,101
Purchases of common stock                                                                   (92,925)   (39,100)   (48,760)
Cash dividends paid                                                                         (32,325)   (26,507)   (21,355)
                                                                                        ----------------------------------
         Net cash provided (used) by financing activities                                  (164,240)     71,985   168,753
                                                                                        ----------------------------------
         Increase in cash and due from banks                                                 33,128     41,303     16,938
         Cash and due from banks at beginning of year                                       385,009    343,706    326,768
                                                                                        ----------------------------------

                                                           39


<PAGE>





         Cash and due from banks at year end                                              $ 418,137  $ 385,009  $ 343,706
                                                                                        ================================
</TABLE>

Income  taxes:  The Company  made income tax  payments of $37.2  million,  $38.6
million and $35.5  million  during the years ended  December 31, 1997,  1996 and
1995, respectively.

Interest: The Company paid $197.6 million,  $183.3 million and $168.7 million in
interest on deposits and other  borrowings  during the years ended  December 31,
1997, 1996 and 1995, respectively.


See accompanying notes to consolidated financial statements.

                                                           40


<PAGE>






                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              Deposit Guaranty Corp.



NOTE 1 - BUSINESS, BASIS OF FINANCIAL STATEMENT PRESENTATION, ACCOUNTING
         POLICIES AND RECENT PRONOUNCEMENTS

BUSINESS
         The Company  and its  subsidiaries  are engaged in the general  banking
business  and  activities  closely  related to  banking.  Banking  services  are
provided  primarily to customers in Mississippi,  Louisiana and Arkansas through
the Company's banking  subsidiary.  The Company is subject to the regulations of
certain federal agencies and undergoes periodic examinations by those regulatory
authorities.
         On December 8, 1997, the Company  announced an agreement to be acquired
by First American Corp.  headquartered  in Nashville,  Tennessee.  The merger is
expected to take place during the second  quarter of 1998 in a tax free exchange
of common stock and is expected to be accounted for as a pooling of interests.

BASIS OF FINANCIAL STATEMENT PRESENTATION
         The consolidated  financial statements have been prepared in conformity
with generally  accepted  accounting  principles.  In preparing the consolidated
financial statements,  the Company is required to make estimates and assumptions
that affect the reported  amounts of assets and  liabilities  as of the dates of
the  statements of condition  and the reported  amounts of revenues and expenses
for the years then ended.  Actual results could differ  significantly from those
estimates.
         Material  estimates  that are  particularly  susceptible to significant
change in the near-term  relate to the  determination  of the allowance for loan
losses and the valuation of real estate acquired in connection with foreclosures
or in  satisfaction  of  loans.  In  connection  with the  determination  of the
allowance for loan losses and real estate owned, the Company obtains independent
appraisals for significant properties.
         The  Company  believes  that the  allowances  for loan  losses and real
estate owned are  adequate.  While the Company  uses  available  information  to
recognize  losses on loans and real  estate  owned,  future  adjustments  to the
allowances may be necessary based on changes in economic conditions.

ACCOUNTING POLICIES

CONSOLIDATION
         The  consolidated  financial  statements of the Company include Deposit
Guaranty  Louisiana  Corp.  (DGLC) and G & W Life  Insurance  Co.,  wholly-owned
subsidiaries  and  Deposit   Guaranty   National  Bank  (DGNB),  a  wholly-owned
subsidiary of DGLC. All significant  intercompany accounts and transactions have
been eliminated in consolidation.

CASH EQUIVALENTS
         The Company  considers  only cash and amounts due from banks to be cash
equivalents.

TRADING ACCOUNT SECURITIES
         Trading  account  securities  are reported at fair value.  Realized and
unrealized gains or losses on trading account  securities are reflected in other
operating income.

SECURITIES AVAILABLE FOR SALE
         Securities  available  for sale prior to maturity  are reported at fair
value with unrealized  gains and losses excluded from earnings and reported as a
separate  component of  stockholders'  equity,  net of related  deferred  income
taxes.  Premiums are amortized  and  discounts  are accreted  using the interest
method.   The   amortization   of  premiums   and   accretion  of  discounts  on
mortgage-backed  securities  is  periodically  adjusted  to  reflect  the actual
prepayment  experience of the underlying  mortgage loans. Gains or losses on the
sale of these  securities,  computed based on the carrying value of the specific
securities  sold,  are classified as gains on securities  transactions  in other
operating income.

INVESTMENT SECURITIES
         Investment securities are securities which the Company has the positive
intent and  ability to hold to  maturity.  Investment  securities  are stated at
cost, adjusted for amortization of premiums and accretion of discounts using the
interest

                                                           41


<PAGE>





method. The amortization of premiums and discounts on mortgage-backed securities
is  periodically  adjusted to reflect the actual  prepayment  experience  of the
underlying mortgage loans.

                                                           42


<PAGE>





LOANS HELD FOR SALE
         Mortgage loans originated and intended for sale in the secondary market
are carried at the lower of cost or estimated market value in the aggregate. Net
unrealized  losses are  recognized  through a valuation  allowance by charges to
income.

LOANS
         Loans  that  management  has the  intent  and  ability  to hold for the
foreseeable   future  or  until  maturity  or  pay-off  are  reported  at  their
outstanding  principal  adjusted for any  charge-offs,  the  allowance  for loan
losses, and any deferred fees or costs.

DERIVATIVE FINANCIAL INSTRUMENTS
         TRADING INSTRUMENTS:  Derivative financial instruments held for trading
are  recorded  at fair  value.  These  instruments  are used by the  Company  to
generate  additional other operating  income.  Realized and unrealized gains and
losses on trading  positions are recognized in other operating income during the
period in which the gain or loss  occurs.  Interest  income and expense  arising
from trading instruments are included in other operating income.
         RISK MANAGEMENT INSTRUMENTS:  As part of its asset/liability management
activities,  the Company may enter into interest rate futures,  forwards,  swaps
and option contracts.  These derivative financial instruments are categorized as
risk management  instruments and are carried at fair value unless the instrument
qualifies  for  hedge  accounting  treatment.  Adjustments  on  risk  management
instruments carried at fair value are reflected in other operating income. Gains
and losses  realized on futures and forward  contracts  qualifying as hedges are
deferred and amortized over the terms of the related  assets or liabilities  and
are included as adjustments to interest income or interest expense.  Settlements
on interest rate swaps and option contracts are recognized over the lives of the
agreements as adjustments to interest income or interest expense.
         Interest  rate  contracts  used  in  connection   with  the  securities
available  for sale  portfolio  are carried at fair value with gains and losses,
net of applicable  deferred  income  taxes,  reported in  stockholders'  equity,
consistent with the reporting of unrealized gains and losses on such securities.
Premiums  paid for interest  rate floors  qualifying  for hedge  accounting  are
deferred and classified with the assets and liabilities hedged and are amortized
to interest income or expense over the life of the instrument.

INTEREST AND FEES ON LOANS
         Interest  on loans is  recognized  based on the  interest  method.  The
recognition  of interest is  suspended  on  commercial  loans when  principal or
interest is past due ninety days or more and  collateral  is inadequate to cover
principal and interest or when, in the opinion of management, full collection is
unlikely.  Interest on such loans is subsequently  recognized only in the period
in which  payments are received,  and in certain  situations,  such payments are
applied to reduce  principal  when loans are unsecured or collateral  values are
deficient.  A  nonaccrual  loan is  returned  to  accrual  status  provided  all
principal  and interest  amounts are  reasonably  assured of repayment  within a
reasonable   period  and  the  borrower  has  demonstrated   sustained   payment
performance.  Nonrefundable  loan fees and direct origination costs are deferred
and  amortized  over  the  life  of the  loan  as an  adjustment  of the  yield.
Commitment  fees are  deferred and  recognized  as  noninterest  income over the
commitment period.

ALLOWANCE FOR LOAN LOSSES
         The  allowance  for loan  losses is  maintained  at a level  considered
adequate to provide for reasonably  foreseeable  potential  losses on loans. The
allowance is based on management's  evaluation of the loan portfolio considering
economic  conditions,  volume  and  composition  of  the  loan  portfolio,  past
experience and other relevant factors.
         Impaired and  restructured  loans are measured at the present  value of
expected future cash flows, discounted at the loan's effective interest rate or,
as a practical  expedient,  at the loan's  observable  market  price or the fair
value of the  collateral if the loan is  collateral  dependent.  The  difference
between the impaired loan's carrying value and the fair value is recognized as a
valuation adjustment and included in the allowance for loan losses.

OTHER REAL ESTATE OWNED
         Other real estate  owned  includes  assets  that have been  acquired in
satisfaction of debt. Other real estate owned is reported in other assets and is
recorded at the lower of cost or estimated  fair value less  estimated  costs to
sell. Any valuation adjustments required prior to foreclosure are charged to the
allowance  for loan losses.  Subsequent to  acquisition,  losses on the periodic
revaluation  of the  property  are charged to current  period  earnings as other
operating expense. Costs of operating

                                                           43


<PAGE>





and  maintaining  the  properties,  net of related  income and gains (losses) on
their disposition, are charged to other operating expense as incurred.
         Expenditures  to complete or improve  properties are capitalized if the
expenditures  are  expected  to be  recovered  upon  the  ultimate  sale  of the
property.

PREMISES AND EQUIPMENT
         Premises  and   equipment   are  stated  at  cost.   Depreciation   and
amortization are computed  principally using the  straight-line  method over the
estimated  useful  lives  of  the  assets.  Any  gain  or  loss  resulting  from
disposition is included in other operating income.  Expenditures for maintenance
and repairs are charged to other operating  expense and renewals and betterments
are capitalized.
         Effective  January 1, 1996,  the  Company  adopted  the  provisions  of
Statement of Financial  Accounting  Standards (SFAS) No. 121 "Accounting for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of."
SFAS  No.  121  requires  that  long-lived   assets  and  certain   identifiable
intangibles  to be held and  used by the  Company  be  reviewed  for  impairment
whenever events or changes in circumstances indicate that the carrying amount of
an  asset  may  not  be  recoverable.  Measurement  of an  impairment  loss  for
long-lived  assets and  identifiable  intangibles that an entity expects to hold
and use is based on the fair value of the asset.  This  statement  requires that
the majority of long-lived  assets and certain  identifiable  intangibles  to be
disposed of be reported at the lower of carrying  amount or fair value less cost
to sell.  The  adoption  of SFAS No. 121 did not have a  material  impact on the
consolidated financial statements.

INTANGIBLE ASSETS
         Goodwill,  representing the excess of the cost of acquisitions over the
fair value of the net assets  acquired,  is  amortized  using the  straight-line
method over periods not exceeding 15 years. Core deposit  intangibles  represent
the net  present  value of the future  economic  benefits  related to the use of
deposits  assumed and are amortized on a straight-line  basis generally over ten
years.
         The Company reviews its intangible assets for possible  impairment when
there is a significant event that may detrimentally  impact the underlying basis
of the asset.

MORTGAGE SERVICING RIGHTS
         Mortgage servicing rights,  which represent the right to receive future
servicing  income,  are  amortized  over the period of,  and in  proportion  to,
estimated net servicing  income.  At least annually,  the Company  evaluates the
carrying  amount  of its  servicing  rights  for  impairment  by  analyzing  the
discounted cash flows of such assets under current market conditions.

INCOME TAXES
         Deferred tax assets and  liabilities  are recognized for the future tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases.  Deferred tax assets and liabilities are measured using enacted tax rates
expected  to apply to  taxable  income in the years in which  the  deferred  tax
liability or asset is expected to be settled or realized.

NET INCOME PER SHARE
         Effective  December  31,  1997,  the  Company  adopted  SFAS  No.  128,
"Earnings  Per Share." SFAS No. 128  establishes  standards  for  computing  and
presenting earnings per share. Basic net income per share is based on net income
available  to common  shareholders  divided by the  weighted  average  number of
shares  outstanding  during each year. Diluted net income per share reflects the
potential  dilution that could occur if  securities or other  contracts to issue
common stock were  exercised  or converted  into common stock or resulted in the
issuance  of common  stock  that  then  shared in the  Company's  earnings.  The
dilutive  effect of securities and contracts  potentially  convertible to common
stock is calculated  using the treasury  stock  method.  Prior periods have been
restated to conform to the new presentation.

RECLASSIFICATIONS
         Certain prior period amounts have been reclassified to conform with the
1997 presentation.


                                                           44


<PAGE>





RECENT PRONOUNCEMENTS
         In June 1996, the Financial  Accounting  Standards  Board (FASB) issued
SFAS No. 125,  "Accounting  for Transfers and Servicing of Financial  Assets and
Extinguishments  of  Liabilities."   This  statement  provides   accounting  and
reporting  standards  for  transfers  and  servicing  of  financial  assets  and
extinguishment  of liabilities.  SFAS No. 125 requires that an entity  recognize
the  financial  and  servicing  assets it controls  and the  liabilities  it has
incurred,  derecognize  financial assets when control has been surrendered,  and
derecognize  liabilities when extinguished.  This statement provides  consistent
accounting for distinguishing  transfers of financial assets that are sales from
transfers that are secured  borrowings.  This statement,  as amended by SFAS No.
127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125,"  is  effective  for  transfers  and  servicing  of  financial  assets  and
extinguishments  of  liabilities  occurring  after  December  31,  1996,  and is
effective  after  December  31, 1997,  for  repurchase  agreements,  dollar-roll
agreements,  securities lending, and similar transactions.  The adoption of this
statement  did  not  have  a  material  impact  on  the  consolidated  financial
statements.
         In June 1997,  the FASB issued SFAS No. 130,  "Reporting  Comprehensive
Income." This statement establishes standards for reporting comprehensive income
and its components in a full set of general-purpose  financial statements.  SFAS
No.  130  requires  that all items  that are  required  to be  recognized  under
accounting  standards as  components  of  comprehensive  income be reported in a
financial  statement  displayed  with the  same  prominence  as other  financial
statements.  The  statement  requires that the Company  classify  items of other
comprehensive  income by their  nature and  display the  accumulated  balance of
other  comprehensive  income  separately  from retained  earnings and additional
paid-in  capital in the equity  section of the Statement of Condition.  SFAS No.
130 is  effective  for fiscal years  beginning  after  December  15,  1997.  The
adoption  of this  statement  will not have a material  impact on the  financial
statements.
         In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an  Enterprise  and  Related  Information."  SFAS No. 131  requires  that the
Company  report  financial  and  descriptive  information  about its  reportable
segments.  Financial information is required to be reported on the basis that is
used internally for evaluating segment  performance and deciding how to allocate
resources to segments.  This  statement  also requires  that the Company  report
descriptive  information  about the way the operating  segments were determined,
the  products  and  services  provided by the  operating  segments,  differences
between the measurements used in reporting segment information and those used in
the Company's  financial  statements,  and changes in the measurement of segment
amounts  from  period  to  period.  SFAS  No.  131 is  effective  for  financial
statements for periods  beginning  after December 15, 1997. The adoption of this
statement will provide  additional  disclosures in the financial  statements for
the year ended December 31, 1998.


NOTE 2 - ACQUISITIONS
         Bank mergers and acquisitions completed by the Company during the three
years ended December 31, 1997, along with the related accounting treatment,  are
as follows (dollars in millions):
<TABLE>

                                                                                     Common           Cash      Accounting
        Financial Institution            State          Date          Assets      Shares Issued       Paid       Treatment
        ---------------------            ------         -----         -------     -------------       ----       ---------
<S>                                       <C>        <C>               <C>            <C>            <C>
LBO Bancorp, Inc.                         LA         Jan. 1995         $   96         1,360,842      $   -      Purchase
Citizens National Bancshares, Inc.        LA         May 1995             193         2,765,688          -      Pooling
First Merchants Financial Corporation     AR         Aug. 1995            280         1,988,052          4      Purchase
Bank of Gonzales Holding Company          LA         Jun. 1996            126         1,267,346          -      Purchase
Tuscaloosa Bancshares, Inc.               LA         Nov. 1996             41           420,542          -      Purchase
Jefferson Guaranty Bancorp, Inc.          LA         Jan. 1997            299         1,759,688         10      Purchase
First Capital Bancorp, Inc.               LA         Mar.1997             186         1,568,467          -      Pooling
NBC Financial Corporation                 LA         July 1997             69           422,529          -      Purchase
CitiSave Financial Corporation            LA         Aug. 1997             75                 -         19      Purchase
</TABLE>

         For  those   acquisitions   accounted   for  as  a  purchase   business
combination,  the results of  operations  have been  included  in the  financial
statements from the date of acquisition.  The pro forma effect on prior earnings
of such  acquisitions  is not  significant.  For  acquisitions  accounted for as
pooling of  interests,  the  results of  operations  have been  included  in the
financial  statements  from the  beginning  of the  year  acquired.  Prior  year
financial  statements  have not been  restated  as the  changes  would have been
immaterial.

                                                           45


<PAGE>





         In  addition to the mergers  included in the table  above,  the Company
acquired a branch operation and two mortgage  companies.  On March 10, 1995, the
Company  purchased  the  Coahoma  County,  Mississippi,  operations  of a  local
Mississippi bank. This acquisition added assets of approximately $82 million.
         On August 8, 1995, the acquisition of First Mortgage Corp. located in
Omaha, Nebraska, was completed for $15.8 million in a purchase business
combination.  At the acquisition date, First Mortgage Corp. had a $1.1 billion
mortgage servicing portfolio and six production offices in Nebraska and
Oklahoma.
         On June 29,  1996,  the  Company  purchased  for $3.6  million,  McAfee
Mortgage and Investment  Company,  located in Lubbock,  Texas,  in a transaction
accounted for as a purchase business combination. McAfee Mortgage and Investment
Company has 15 offices  located  throughout  Texas and originated  approximately
$240 million in mortgage loans in 1995.
         On June 1, 1997,  Deposit  Guaranty issued 659,786 shares of its common
stock in exchange for the 2% interest in Deposit Guaranty National Bank owned by
minority  shareholders.  With this  acquisition,  the  Company  became  the sole
shareholder of Deposit Guaranty National Bank.
         On  September  24,  1997,  Deposit  Guaranty  entered into a definitive
agreement to acquire Victory Bancshares, Inc. located in Memphis, Tennessee. The
acquisition  of Victory  Bank,  with  approximately  $115 million in assets,  is
expected  to be  consummated  during the first  quarter  of 1998.  The number of
shares  of  Deposit  Guaranty  common  stock  to be  exchanged  for  all  of the
outstanding  shares of Victory  Bancshares  will be between  745,650 and 808,435
based on the exchange ratio which will be calculated based on the average market
price of Deposit  Guaranty common stock on the twenty  consecutive  trading days
prior to the effective date. The  acquisition of Victory  Bancshares is expected
to be accounted for as a pooling of interests.


NOTE 3 - NET INCOME PER SHARE
         Net income and  weighted  average  shares used to  calculate  basic net
income  per share and  diluted  net  income  per share are  presented  below (in
thousands except per share data):

                                        Net            Number
1997                                  Income          of Shares     Per Share
-----------------------------------------------------------------------------
Basic net income per share           $ 92,280            41,082       $2.25
Effect of dilutive securities:
     Forward purchase commitment            -                18        -
     Stock options                          -               313        -
---------------------------------------------------------------------------
Diluted net income per share         $ 92,280            41,413       $2.23
                                     ========            ======       =====

1996
Basic net income per share            $83,610            38,760       $2.16
Effect of dilutive securities:
     Stock options                          -               246        -
---------------------------------------------------------------------------
Diluted net income per share          $83,610            39,006       $2.14
                                      =======            ======       =====

1995
Basic net income per share            $72,620            38,431       $1.89
Effect of dilutive securities:
     Stock options                          -               349        -
---------------------------------------------------------------------------
Diluted net income per share          $72,620            38,780       $1.87
                                      =======            ======       =====


NOTE 4 - SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES
         On November 27, 1995,  the Company  transferred  investment  securities
with a  carrying  amount of $1.1  billion  and a fair  value of $1.2  billion to
securities available for sale, as allowed by the FASB's Special Report, "A Guide
to Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities."

                                                           46


<PAGE>



<TABLE>
<CAPTION>


         The amortized cost and estimated fair value of securities available for
sale, and investment securities follow (in thousands):

                                                                                    December 31,
                                                                                Gross            Gross           Estimated
                                                            Amortized        Unrealized       Unrealized           Fair
Securities available for sale                                 Cost              Gains           Losses             Value
-----------------------------                              ---------------------------------------------------------------
<S>                                                        <C>                 <C>              <C>           <C>
1997
U.S. Treasury and other U.S. Government agencies           $  555,614          $ 1,170          $ (1,785)     $   554,999
Obligations of states and political subdivisions              179,021            3,877              (190)         182,708
Mortgage-backed securities                                    686,283            1,675            (1,138)         686,820
                                                              -------            -----            -------         -------
                                                           $1,420,918          $ 6,722          $ (3,113)     $ 1,424,527
                                                           ==========          =======          =========     ===========

1996
U.S. Treasury and other U.S. Government agencies          $   715,808        $   2,994        $   (7,287)    $    711,515
Obligations of states and political subdivisions              175,977            6,092            (1,236)         180,833
Mortgage-backed securities                                    567,235            3,008            (1,982)         568,261
Other securities                                                1,424                5                 -            1,429
                                                          ---------------------------------------------------------------
                                                          $ 1,460,444         $ 12,099         $ (10,505)     $ 1,462,038
                                                          ===========         ========         ==========     ===========


                                                                                    December 31,
                                                                                Gross            Gross           Estimated
                                                            Amortized        Unrealized       Unrealized           Fair
Investment securities                                         Cost              Gains           Losses             Value
---------------------                                      ---------------------------------------------------------------
1997
U.S. Treasury and other U.S. Government agencies           $    9,369      $         -             $ (59)     $     9,310
Obligations of states and political subdivisions                   55                -                 -               55
Mortgage-backed securities                                     18,375            1,467                 -           19,842
Other securities                                              147,153            4,907                (1)         152,059
                                                              -------            -----                ---         -------
                                                            $ 174,952          $ 6,374             $ (60)       $ 181,266
                                                            =========          =======             ======       =========

1996
U.S. Treasury and other U.S. Government agencies          $     9,379       $        -            $ (110)     $     9,269
Obligations of states and political subdivisions                  105                -                 -              105
Mortgage-backed securities                                     60,581            5,047                 -           65,628
Other securities                                               75,022            2,423               (35)          77,410
                                                               ------            -----               ----          ------
                                                            $ 145,087          $ 7,470            $ (145)       $ 152,412
                                                            =========          =======            =======       =========
</TABLE>

         The amortized cost and estimated fair value of securities available for
sale and investment  securities at December 31, 1997, by  contractual  maturity,
are shown below (in thousands). Expected maturities will differ from contractual
maturities  because  borrowers may have the right to call or prepay  obligations
with or without call or prepayment penalties.

                                                                 Estimated
                                               Amortized           Fair
Securities available for sale                    Cost              Value
-----------------------------                    ----              -----
Due in one year or less                    $      24,221    $      24,272
Due after one year through five years            285,773          287,343
Due after five years through ten years           273,491          274,714
Due after ten years                              151,150          151,378
                                                 -------          -------
                                                 734,635          737,707
Mortgage-backed securities                       686,283          686,820
                                                 -------          -------

                                                           47


<PAGE>





                                            $ 1,420,918      $ 1,424,527
                                            ===========      ===========


                                                           48


<PAGE>





                                                               Estimated
                                             Amortized           Fair
Investment securities                          Cost              Value
----------------------                         ----              -----
Due in one year or less                     $    6,266      $     6,290
Due after one year through five years           20,962           20,955
Due after five years through ten years         116,450          121,280
Due after ten years                             12,899           12,899
                                                ------           ------
                                               156,577          161,424
Mortgage-backed securities                      18,375           19,842
                                                ------           ------
                                             $ 174,952        $ 181,266
                                             =========        =========

         Gross gains of $8.3  million,  $10.8 million and $1.2 million and gross
losses of $7.9  million,  $10.8 million and $338 thousand were realized on sales
of securities available for sale in 1997, 1996, and 1995, respectively. Included
in gross gains for 1997, 1996 and 1995 were $1.7 million, $107 thousand and $829
thousand, respectively related to premiums received for exercised written option
contracts on securities available for sale.
         Securities available for sale and investment securities with a carrying
amount of $1,194.0  million (fair value  $1,196.8  million) at December 31, 1997
were pledged to secure public and trust deposits, for repurchase agreements, and
for other purposes.


NOTE 5 - LOANS
         The Company makes commercial, financial,  agribusiness, real estate and
consumer  loans to  customers.  Although  the  Company  has a  diversified  loan
portfolio,  a substantial  portion of its loan portfolio is  concentrated in the
states of Mississippi,  Louisiana and Arkansas.  Loans held for sale at December
31, 1997 and 1996 were  $241.1  million and $295.1  million,  respectively.  The
valuation  allowance  on such  loans  at  December  31,  1997  and  1996 was not
significant. The Company services mortgage loans, and at December 31, 1997, 1996
and 1995, the loan servicing portfolio  approximated $3.8 billion,  $3.8 billion
and $3.5 billion,  respectively.  The composition of the loan portfolio  follows
(in thousands):


                                                    December 31,
                                               1997              1996
                                           ----------------------------
Commercial, financial and agricultural     $ 1,261,556      $ 1,104,648
Real estate - construction                     207,322          170,711
Real estate - mortgage                       2,001,094        1,800,031
Consumer                                       961,711          904,487
                                           -----------      -----------
Total loans                                $ 4,431,683      $ 3,979,877
                                           ===========      ===========

         In the  ordinary  course of  business,  the Company  makes loans to its
directors and principal  officers of its subsidiaries,  as well as other related
parties. In the opinion of management,  such loans are made on substantially the
same terms, including interest rates and collateral,  as those prevailing at the
time for comparable  transactions  with other  parties.  A summary of changes in
such loans during 1997 follows (in thousands):


Balance at January 1                            $   45,402

Additions                                          157,856

Reductions (including participations sold)        (159,169)
                                                ----------
Balance at December 31                          $   44,089
                                                ==========


                                                           49


<PAGE>





         Transactions in the allowance for loan losses follow (in thousands):

                                              1997       1996         1995
                                              ----       ----         ----
Balance at January 1                        $ 62,205    $ 58,719    $ 55,873
Additions due to acquisitions                  7,541       2,062       4,652
Loans charged-off                            (22,851)    (14,309)    (12,324)
Recoveries on loans previously charged-off    10,256      10,393       8,358
                                              ------      ------       -----
Net charge-offs                              (12,595)     (3,916)     (3,966)
Provision for loan losses                      7,500       5,340       2,160
                                               -----       -----       -----
Balance at December 31                      $ 64,651    $ 62,205    $ 58,719
                                            ========    ========    ========

         The  Company's  total  recorded  investment  in  impaired  loans  as of
December 31, 1997 and 1996 was $16.6  million and $11.7  million,  respectively.
Included in the balance of impaired  loans at December 31, 1997 and 1996 is $6.4
million and $4.0 million which have related  allowances of $2.8 million and $782
thousand, respectively for estimated credit losses determined in accordance with
the provisions of SFAS No. 114. The remaining  $10.2 million and $7.7 million of
the balance of impaired loans at December 31, 1997 and 1996, respectively do not
require an allowance  under the  provisions  of SFAS No. 114 since the estimated
discounted  future cash flows or the collateral value was considered  sufficient
to cover any future deficiencies in loan payments.  However, a general allowance
for loan  losses is  available  to absorb  losses on these  loans.  The  average
recorded  investment in impaired loans for the years ended December 31, 1997 and
1996 was $16.3 million and $14.5 million,  respectively.  All impaired loans are
on  nonaccrual  status and are  subject to the  nonaccrual  method for  interest
income  recognition.  There was no interest income  recognized in 1997, 1996 and
1995 on loans identified as impaired.
         Loans on a nonaccrual status amounted to approximately $21.2 million at
December 31, 1997 and $16.4 million at December 31, 1996. The effect on interest
income of nonaccrual loans was not material in 1997, 1996 or 1995.  Restructured
loans were not significant in 1997 and 1996.
         Other real  estate  owned was $5.0  million at  December  31,  1997 and
December 31, 1996. Transactions in the allowance for losses on other real estate
follow (in thousands):

                                     1997             1996              1995
                                     ----             ----              ----
Balance at January 1                $ 1,236           $ 1,730          $ 2,024
Additions due to acquisitions           209               197                -
Provision charged to expense            736               165              154
Losses charged to the allowance        (608)             (856)            (448)
                                      -----             -----            ----
Balance at December 31              $ 1,573           $ 1,236          $ 1,730
                                    =======           =======          =======


NOTE 6 - PREMISES AND EQUIPMENT
         A summary of premises and equipment follows (in thousands):

                                                             December 31,
                                                         1997         1996
                                                      -----------------------
Land                                                  $   34,030   $  27,485
Buildings and leasehold improvements                     196,831     177,087
Furniture and equipment                                  122,911     107,465
                                                         -------     -------
                                                         353,772     312,037
Less:  Accumulated depreciation and amortization        (182,582)   (163,710)
                                                       ---------   --------
Premises and equipment, net                            $ 171,190   $ 148,327
                                                       =========   =========


NOTE 7 - DEPOSITS
      The  aggregate  amount of  certificates  of  deposit,  each with a minimum
denomination of $100,000,  was $481.9 million and $395.6 million at December 31,
1997 and 1996, respectively.

                                                           50


<PAGE>








                                                           51


<PAGE>





NOTE 8 - SHORT-TERM BORROWINGS
      Federal funds purchased and securities sold under agreements to repurchase
generally mature within one to four days from the transaction  date. Other short
term  borrowings  consist of term federal  funds  purchased and treasury tax and
loan  deposits  and  generally  are  repaid  within  one to 120  days  from  the
transaction date.
      Information  concerning  securities sold under agreements to repurchase is
summarized as follows (dollars in thousands):

                                               1997              1996
                                               ----              ----
Average balance during the year              $ 311,623        $ 280,876
Maximum month-end balance during the year      394,029          346,215
Balance at December 31                         394,029          271,435
Average interest rate during the year           4.74%             4.65%

   Securities  underlying the repurchase  agreements  remain under the Company's
control.


NOTE 9 - LONG-TERM LIABILITIES
     In April 1996, the Company issued $100 million in 7.25% Senior Notes due in
 2006.  These notes are not  callable  prior to  maturity  and no  sinking  fund
is  required. Interest on the notes is paid  semi-annually.  During 1997, the
Company received $85 million in advances  from the Federal Home Loan Bank.  The
advances,  which accrue  interest at a variable rate of interest with an average
rate of 5.73% at December 31, 1997,  mature in 2004. The advances are
collateralized  by Federal Home Loan Bank stock and first  mortgage  real
estate  loans.  Interest  on the advances is paid  monthly.  The table below
shows the  components  of  long-term liabilities included in the Company's
statements of condition (in thousands):
<TABLE>

                                             December 31, 1997                  December 31, 1996
                                             -----------------                  -----------------
                                           Par            Carrying            Par            Carrying
                                          Value            Amount            Value            Amount

<S>                                     <C>              <C>               <C>             <C>
Senior notes                            $ 100,000        $ 101,397         $ 100,000       $   99,405
Federal Home Loan Bank advances            85,000           85,000                 -                -
                                           ------           ------         ---------       ----------
     Total                              $ 185,000        $ 186,397         $ 100,000       $   99,405
                                        =========        =========         =========       ==========
</TABLE>

     The Company  maintains a $50 million line of credit at a  commercial  bank.
The line of credit,  which is for general corporate purposes,  bears interest at
an  adjustable  rate  based  on  LIBOR  and  expires  in May  1998.  There is no
commitment  fee or  compensating  balance  arrangement  relating to this line of
credit and there was no balance outstanding at December 31, 1997 or 1996.


NOTE 10 - LEASES
         Operating  leases  (primarily  for branch bank space) expire at various
dates.  Most of these  leases may be renewed  beyond  their  present  expiration
dates. Future minimum payments under noncancelable operating leases with initial
or  remaining  terms  of one  year or more at  December  31,  1997,  follow  (in
thousands):

1998                                   $   3,146
1999                                       2,500
2000                                       2,156
2001                                         843
2002                                         796
Thereafter                                 3,650
                                           -----
Total minimum lease payments            $ 13,091
                                        ========


                                                           52


<PAGE>





          At December 31, 1997,  the Company  leases office space to others with
expirations at various dates through 2005.  These leases have an average term of
approximately  three years and require  total minimum  rentals of  approximately
$19.1  million.  Most of  these  leases  may be  renewed  beyond  their  present
expiration dates.
         Rental  expense of $10.5  million,  $7.1  million,  and $5.8 million in
1997, 1996 and 1995  respectively,  included  amounts for short-term  cancelable
leases and minimum rentals under operating leases.
NOTE 11 - INCOME TAXES
<TABLE>
<CAPTION>

         Total income tax expense was allocated as follows (in thousands):

                                                                                1997             1996              1995
                                                                                ----             ----              ----
<S>                                                                           <C>               <C>              <C>
Income before income taxes                                                    $ 47,372          $ 40,621         $ 35,029
Other noncurrent intangible assets, for recognition of acquired tax
      benefits that previously were included in the valuation allowance              -                 -           (2,949)
Other noncurrent intangible assets, for recognition of acquired tax
      benefits relating to a prior purchase business combination                     -                 -             (181)
Stockholders' equity, for compensation expense for tax purposes in
      excess of amount recognized for financial reporting purposes              (1,013)           (1,962)            (479)
Stockholders' equity, for gains on securities available for sale for
      financial reporting purposes                                                 375           (10,656)          10,447
                                                                              --------         ---------         ------
                                                                              $ 46,734         $  28,003         $ 41,867
                                                                              ========         =========         ========
</TABLE>

         The current and deferred  components  of income tax expense  follow (in
thousands):

                       1997             1996              1995
                       ----             ----              ----
Current
      Federal        $ 38,250          $ 36,900         $ 36,020
      State             1,600             1,742            2,268
Deferred
      Federal           6,903             1,835           (2,673)
      State               619               144             (586)
                          ---               ---             ----
                     $ 47,372          $ 40,621         $ 35,029
                     ========          ========         ========

         The   differences   between  the  income  tax  expense   shown  on  the
consolidated  statements  of earnings  and the amounts  computed by applying the
Federal  income  tax  rate of 35% to  income  before  income  taxes  follow  (in
thousands):

                                               1997       1996         1995
                                               ----       ----         ----
Amount computed at statutory tax rates       $ 48,878    $ 43,481    $ 37,677
Increases (decreases):
     Cash surrender value of life insurance    (1,680)     (1,461)     (1,834)
     Tax exempt interest income                (4,189)     (4,840)     (3,951)
     Amortization of intangible assets          2,508       1,406         926
     State income taxes, net                    1,443       1,226       1,093
     Other, net                                   412         809       1,118
                                                  ---         ---       -----
                                             $ 47,372    $ 40,621    $ 35,029
                                             ========    ========    ========

         The tax effects of temporary  differences that give rise to significant
portions of the net deferred tax asset follow (in thousands):

                                                     December 31,
                                                1997              1996
                                               --------------------------
Deferred tax assets
Allowance for loan losses                      $ 24,909         $ 23,815
Other real estate owned                             947              700

                                                           53


<PAGE>





Deferred compensation                             12,396           11,503
Investment tax credit carryforwards                1,548            2,398
Other                                              7,297            5,718
                                                   -----            -----
      Total gross deferred tax asset            $ 47,097         $ 44,134
                                                --------         --------



(Continued)
                                                         December 31,
                                                  1997              1996
                                                --------------------------
Deferred tax liabiliti-
Bank premises and equipment                     $   7,314        $   4,505
Pension plan                                        5,592            4,931
Leveraged leases                                        -              225
Core deposit intangibles                           12,175            8,472
Mortgage servicing rights                          10,031            7,989
Unrealized gain on securities available for         1,345              970
 sale
Other                                               2,787            1,574
                                                    -----            -----
      Total gross deferred tax liability           39,244           28,666
                                                   ------           ------
      Net deferred tax asset                    $   7,853        $  15,468
                                                =========        =========

         There was no valuation allowance for the gross deferred tax asset as of
December  31,  1997,  1996 and  1995.  The net  change  in the  total  valuation
allowance  for the year ended  December 31, 1995 was a decrease of $3.0 million.
This decrease is due to management's  belief that it is now more likely than not
that DGLC will be able to utilize  the  entire  portion  of the  investment  tax
credit carryforwards.
         At  December  31,  1997,   the  Company  had   investment   tax  credit
carryforwards  for federal  income tax  purposes of  approximately  $1.6 million
which are  available to reduce  DGLC's  future  federal  income  taxes,  if any,
through 2001.
         The ultimate  realization  of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those  temporary
differences  become deductible.  Management  considers the scheduled reversal of
deferred tax  liabilities,  projected  future taxable  income,  and tax planning
strategies in making this assessment. Based upon the level of historical taxable
income and anticipated future taxable income over the periods which the deferred
tax assets are  realizable,  management  believes it is more likely than not the
Company will realize the benefits of these deferred tax assets.
         Income taxes resulting from securities transactions were $731 thousand,
$41 thousand, and $322 thousand in 1997, 1996 and 1995, respectively.


NOTE 12 - EMPLOYEE BENEFIT PLANS
         The Company has the following employee benefit plans:

     - A defined  benefit  pension plan based upon age, length of employment and
     hours of service  covering  substantially  all  employees;  - A  retirement
     savings plan covering  substantially all employees; - Deferred compensation
     and stock plans covering  certain key executives,  directors,  and advisory
     directors;  - Incentive stock plan covering  certain key executives;  and -
     Employee stock purchase plan available to all full-time  employees who have
     attained legal majority and have one year of continuous service.

         Employee benefit expense  (benefit)  related to these plans follows (in
thousands):

                                   1997             1996              1995
                                   ----             ----              ----
Pension plan                     $   (817)         $   (436)        $    (17)
Retirement savings plan             3,411             2,902            2,693

                                                           54


<PAGE>





Deferred compensation plan              3,964             3,695            3,253
Other plans                               868               793              393
                                          ---               ---              ---
                                      $ 7,426           $ 6,954          $ 6,322
                                      =======           =======          =======

         Benefits under the defined  benefit  pension plan are based on years of
service  and  the  employee's   compensation  during  the  last  five  years  of
employment.  The Company's  funding policy is to contribute an amount which will
satisfy  the  minimum  funding  requirements  of ERISA and will not  exceed  the
maximum  tax-deductible  amount allowed by the IRS. The annual  contribution  is
determined by an enrolled actuary and  incorporates  benefits earned to date and
in the future.

                                                           55


<PAGE>


<TABLE>
<CAPTION>



         The  following  table sets forth the  plan's  funded  status and amount
recognized in the Company's consolidated statements of condition (in thousands):

                                                                                                      December 31,
                                                                                                 1997              1996
                                                                                              ----------------------------
<S>                                                                                           <C>              <C>
Actuarial present value of benefit obligations:
      Accumulated benefit obligation, including vested benefits of $97,016
          in 1997 and $88,855 in 1996.                                                        $   99,182       $   90,622
                                                                                              ----------       ----------
      Projected benefit obligation for service rendered to date                                $ 115,038        $ 104,546
Plan assets at fair value, primarily corporate securities                                        171,978          134,853
                                                                                                 -------          -------
Plan assets in excess of projected benefit obligation                                             56,940           30,307
Unrecognized net gain from past experience different from that assumed                           (42,617)         (16,818)
Prior service cost not yet recognized in net periodic pension cost                                 1,629            1,807
Unrecognized net asset, net of amortization over a fifteen-year period                            (1,853)          (2,192)
                                                                                                 -------          ------
Prepaid pension cost                                                                          $   14,099       $   13,104
                                                                                              ==========       ==========
</TABLE>
<TABLE>
<CAPTION>

         Net pension benefit included the following components (in thousands):

                                                       1997             1996              1995
                                                       ----             ----              ----
<S>                                                  <C>                <C>              <C>
Service cost - benefits earned during the year       $  4,375           $ 3,656          $ 2,781
Interest cost on projected benefit obligation           7,681             6,954            6,318
Actual return on plan assets                          (38,910)          (10,734)          (8,571)
Net amortization and deferral                          26,037              (312)            (545)
                                                      --------              -----           -----
Net periodic pension benefit                        $    (817)         $   (436)        $    (17)
                                                    ==========         =========        =========
</TABLE>

         The  weighted-average  discount rate used in determining  the actuarial
present value of the projected  benefit  obligations was 7.25% in 1997 and 1996.
The rate of  increase in future  compensation  was 5.0% in 1997 and 1996 and the
expected long-term rate of return on plan assets was 9.0% in 1997 and 1996.
         Under  the   retirement   savings  plan,   the  Company   automatically
contributes an amount equal to 2% of each participant's base salary to the plan.
A participant,  in addition, may elect to contribute up to 15% of base salary to
the plan. The Company  contributes an additional amount to the plan equal to 50%
of the participant's contribution up to 5% of base salary.
         Participants of the deferred  compensation  plan can defer a portion of
their  compensation  for payment after  retirement or termination of employment.
Life insurance  contracts have been purchased which may be used to fund payments
under the plan.
         The  incentive  stock plan  includes the  granting of  incentive  stock
options,  nonqualified stock options,  stock appreciation rights, and restricted
stock awards.  Stock options are granted at a price equal to the market value of
the stock at the date of grant and are  exercisable  for a period  not to exceed
ten years from the date of grant.  The maximum  number of shares  subject to the
plan is 1.91 million.
         The Company accounts for the incentive stock plan under APB Opinion No.
25, under which no compensation cost has been recognized.  Had compensation cost
for the plan been  determined  consistent  with SFAS No. 123, the  Company's net
income and earnings per share would have been reduced to the following pro forma
amounts (in thousands except per share data):

                                    1997             1996              1995
                                    ----             ----              ----
Net income
      As reported                 $ 92,280          $ 83,610         $ 72,620
      Pro forma                     91,565            82,482           71,364
Basic net income per share
      As reported                   $ 2.25            $ 2.16           $ 1.89
      Pro forma                       2.23              2.13             1.86
Diluted net income per share

                                                           56


<PAGE>





      As reported                  $ 2.23           $ 2.14            $ 1.87
      Pro forma                      2.21             2.11              1.84

         Because the SFAS No. 123 method of  accounting  has not been applied to
options  granted prior to January 1, 1995, the resulting pro forma  compensation
cost may not be representative of that to be expected in future years.
         In the above pro forma  disclosures,  the fair  value of each  grant is
estimated on the date of grant using the Black-Scholes option pricing model with
the following  weighted  average  assumptions  used for grants in 1997, 1996 and
1995,  respectively:  risk-free  investment  rate of  6.87%,  6.34%  and  6.28%,
expected dividend yield of 2.58%, 2.55% and 2.55%, expected life of seven years,
and expected volatility of 22.40%, 21.58%, and 19.99%.
         The  following  table  summarizes  the  Company's  option  activity (in
thousands):

                                            1997       1996         1995
                                            ----       ----         ----
Options outstanding at beginning of year     678         886         848
Options issued and assumed                   131         160         180
Options exercised and expired               (135)       (368)       (142)
                                            -----       -----       ----
Options outstanding at end of year           674         678         886
                                             ===         ===         ===

         All options are nonqualified stock options.  The exercise prices of the
options are  $31.00,  $23.63,  and $17.75 per share for options  issued in 1997,
1996 and 1995, respectively.  The weighted average exercise price of all options
outstanding at December 31, 1997 is $18.54.
         Participants  in the employee  stock purchase plan may contribute up to
5% of their  base  salary.  The  Company's  contribution  to each  participant's
account is 25% of the participant's contribution. Common stock of the Company is
purchased for the plan on the open market.
         The  Company  also  provides  certain  health  care and life  insurance
benefits for retired employees.  For those employees who have retired and active
employees  eligible to retire as of January 1, 1993,  the Company  shares in the
cost of these  benefits.  Employees  eligible to retire are those age 55 with 10
years of service.  The Company  pays 50% of the cost of these  benefits  for the
retiree and covered spouse until the retiree becomes Medicare eligible (age 65).
After  the  retiree  attains  age 65,  the  retiree  pays the full cost of these
benefits.  Active  employees not eligible to retire before  January 1, 1993, pay
the  full  cost of  coverage  for  these  benefits  at  retirement.  The plan is
unfunded.
         The following  table sets forth the amount  recognized in the Company's
consolidated statements of condition (in thousands):

                                                                 December 31,
                                                              1997       1996
                                                             ------------------
Accumulated postretirement benefit obligation
      Retired participants                                   $    879   $ 1,235
      Fully eligible active plan participants                     581       342
      Other active plan participants                              397       209
                                                                  ---       ---
                                                                1,857     1,786
Unrecognized net gain from past experience different from
      that assumed and from changes in actuarial assumptions      321       409
                                                                  ---       ---
Accrued postretirement benefit cost                           $ 2,178   $ 2,195
                                                              =======   =======
<TABLE>
<CAPTION>

         Net  periodic   postretirement  benefit  cost  included  the  following
components (in thousands):

                                                          1997             1996              1995
                                                          ----             ----              ----
<S>                                                     <C>               <C>              <C>
Service cost - benefits earned during the period        $   33            $   27           $   20
Interest costs on projected benefit obligation             128               112              136
Net amortization and deferral                              (14)              (52)             (29)
                                                           ----              ----             ---
Net periodic postretirement benefit cost                $  147            $   87            $ 127
                                                        ======            ======            =====

</TABLE>

                                                           57


<PAGE>





         The discount rate used in determining  the  accumulated  postretirement
benefit  obligation  was 7.25% in 1997 and 1996.  The  assumed  health care cost
trend rate used in measuring the accumulated  postretirement  benefit obligation
was 9.8% in 1997 and 10.6% in 1996,  graded down to 9.0% in 1998 and graded down
each year to an ultimate  rate of 5% in 2008. If the health care cost trend rate
assumptions  were  increased  by  1%,  the  accumulated  postretirement  benefit
obligation as of December 31, 1997, would be increased by 1%. The effect of this
change on the  aggregate  of the service and  interest  cost  components  of net
periodic postretirement benefit cost for 1997 would be an increase of 1%.

NOTE 13 - EQUITY RESTRICTIONS
         DGNB is subject to certain regulations  controlling national banks that
restrict the amount of dividends that may be distributed and the amount of loans
that may be made by the bank to the parent.
         Dividends paid by the Company are substantially provided from dividends
received from DGNB. The approval of the  Comptroller of the Currency is required
if the total of all  dividends  declared by a national bank in any calendar year
exceeds the total of its net profits,  as defined,  for that year  combined with
its retained net profits of the  preceding  two years.  DGNB has  available  for
payment of dividends in 1998,  without regulatory  approval,  $13.9 million plus
its net profits for 1998.


NOTE 14 - REGULATORY MATTERS
         The  Company  is subject to  various  regulatory  capital  requirements
administered  by the federal banking  agencies.  Failure to meet minimum capital
requirements  can  initiate  certain  mandatory,  or  discretionary  actions  by
regulators  that, if undertaken,  could have a direct and material effect on the
Company's  financial  statements.  Under  capital  adequacy  guidelines  and the
regulatory  framework  for  prompt  corrective  action,  the  Company  must meet
specific capital guidelines that involve quantitative  measures of the Company's
assets,  liabilities,  and certain  off-balance-sheet  items as calculated under
regulatory   accounting   practices.   The   Company's   capital   amounts   and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
         Quantitative  measures  established  by  regulation  to ensure  capital
adequacy require the Company to maintain minimum amounts and ratios of total and
Tier I capital  (as  defined in the  regulations)  to  risk-weighted  assets (as
defined), and of Tier I capital (as defined) to average assets (as defined). The
minimum required ratios of Total and Tier 1 capital to risk-weighted  assets and
Tier 1  capital  to  average  assets  are  8.0%,  4.0% and  4.0%.  respectively.
Management believes that the Company meets all capital adequacy  requirements to
which it is subject at December 31, 1997.
         At December 31, 1997, the most recent  notification  from the Office of
the Comptroller of the Currency categorized the Company's subsidiary bank, DGNB,
as well capitalized under the regulatory framework for prompt corrective action.
During 1997, the Company's other  subsidiary  banks were merged into DGNB. To be
categorized as well  capitalized,  the Company's  subsidiary  bank must maintain
Total risk-based,  Tier I risk-based,  and Tier I leverage ratios of 10.0%, 6.0%
and 5.0% respectively. There are no conditions or events since that notification
that management believes have changed the bank's category.
         The Company's and its significant banking  subsidiaries' actual capital
amounts and ratios are presented in the following table (dollars in thousands):
<TABLE>

                                                December 31, 1997                  December 31, 1996
                                                -----------------                  -----------------
                                            Amount             Rate            Amount             Rate
<S>                                        <C>                 <C>            <C>                 <C>
Total Capital (to Risk-Weighted Assets)
         Consolidated                      $ 557,620           11.12%         $ 554,254           12.67%
         Deposit Guaranty National Bank      614,070           12.34            430,478           13.32
         Commercial National Bank                N/A            N/A             109,072           12.79

Tier 1 Capital (to Risk-Weighted Assets)
         Consolidated                        494,896            9.87            499,489           11.42
         Deposit Guaranty National Bank      551,829           11.09            390,267           12.07
         Commercial National Bank                N/A            N/A              98,345           11.54

Tier 1 Capital (to Average Assets)

                                                           58


<PAGE>





         Consolidated                         494,896            7.47            499,489            8.23
         Deposit Guaranty National Bank       551,829            8.37            390,267            8.96
         Commercial National Bank                 N/A            N/A              98,345            9.05
</TABLE>

         The Company is required to maintain cash on hand or noninterest-bearing
balances  with the  Federal  Reserve  Bank to meet  reserve  requirements.  Such
reserve  requirements  are  based  on a  percentage  of the  volume  of  certain
deposits.  The average  required  balances with the Federal Reserve Bank for the
year ended December 31, 1997, was approximately $2 million.


NOTE 15 - OFF-BALANCE SHEET RISK, COMMITMENTS AND CONTINGENCIES
         In the normal  course of business  the Company is a party to  financial
instruments  with  off-balance  sheet  risk to meet the  financing  needs of its
customers  and to reduce its own  exposure to  fluctuations  in interest  rates.
These financial  instruments include  commitments to extend credit,  standby and
commercial  letters of credit,  securities lent,  futures and forward contracts,
interest  rate  contracts and options.  Those  instruments  involve,  to varying
degrees,  elements of credit and/or  interest rate risk in excess of the amounts
recognized in the consolidated  financial  statements.  The contract or notional
amounts of those  instruments  reflect the extent of involvement the Company has
in particular classes of financial instruments.
         The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit and
standby  and  commercial  letters of credit is  represented  by the  contractual
notional amount of those instruments.  The Company uses the same credit policies
in making  commitments  and  conditional  obligations  as it does for on-balance
sheet instruments. For futures, forward contracts,  interest rate contracts, and
options,  the contract or notional  amounts do not represent  exposure to credit
loss.  Credit risk for those  instruments is controlled by limits and monitoring
procedures.

COMMITMENTS
         At December 31, 1997, the financial  instruments  with contract amounts
representing  credit risk and those with notional or contract amounts  exceeding
the amount of credit risk are listed in the following table (in thousands):
<TABLE>

                                                                                      Contract
                                                                                       Amount

<S>                                                                                  <C>
Financial instruments with contract amounts representing credit risk:
      Commitments to extend credit                                                   $1,235,542
      Standby letters of credit                                                          96,003
      Commercial letters of credit                                                        3,617
Financial  instruments with notional or contract amounts exceeding the amount of
credit risk:
      Commitments to purchase securities                                                 20,080
      Commitments to sell securities                                                     19,880
</TABLE>

         Commitments  to extend  credit are  agreements to lend money with fixed
expiration  dates  or  other  termination   clauses.  The  Company  periodically
reassesses the customers' creditworthiness through ongoing credit reviews. Since
many of the  commitments  are expected to expire  without being drawn upon,  the
total commitment amounts do not necessarily  represent future cash requirements.
Collateral  is obtained  based on the  Company's  assessment  of the  customer's
creditworthiness.
         Standby  letters of credit are  conditional  commitments  issued by the
Company to guarantee the performance of a customer to a third party.  The credit
risk and collateralization  policy involved in issuing standby letters of credit
is essentially the same as that involved in extending loans to customers.
         The Company  issues  commercial  letters of credit which are short-term
commitments  used to finance  commercial  contracts  for the  shipment of goods.
Under these instruments,  the Company substitutes its own  creditworthiness  for
that  of  the  customer  by  committing  to  pay a  third  party  under  certain
contractual conditions.  These instruments are collateralized by the goods being
shipped.

                                                           59


<PAGE>





         Securities   lending   involves   transactions  in  which  two  parties
simultaneously  lend  securities  of varying  grades to each other,  agreeing to
return these same securities at a future date. Collateral guidelines require the
lender of the relative lesser grade  securities to deliver,  through a tri-party
custodian,  securities  exceeding  102% of the  market  value of the  securities
received by such lender.  In order to reduce market risk, the  securities,  both
lent and received, are marked-to-market daily by the custodian.  The process can
be terminated daily, so there is no term exposure.  Furthermore, since this is a
securities  loan, the Company retains  ownership of such  securities  under this
program.
         Commitments  to  purchase  and sell  securities,  futures  and  forward
contracts are contracts for delayed delivery of securities,  foreign  currencies
or money market  instruments  in which the seller  agrees to make  delivery of a
specified  instrument at a specified future date, at a specified price or yield.
Risks arise from the possible  inability of  counterparties to meet the terms of
their contracts and from movements in interest rate and securities values.


                                                           60


<PAGE>





DERIVATIVES
         Risk management derivative instruments are used to manage the Company's
exposure to interest rate and market risk. Exposure to market risk is managed in
accordance with risk limits set by senior  management.  All positions are netted
for   risk-management   purposes.   Credit  risk  is  minimized  by  using  only
exchange-traded futures and options,  utilizing a position netting strategy, and
requiring that all positions be fully collateralized.
         The  notional  or  contract  amounts  on  risk  management   derivative
instruments  normally  exceed  the  amount of credit  risk to the  Company.  The
positions of the Company in these instruments at December 31, 1997 is summarized
in the following table (in thousands):

                                       Contract or
                                        Notional
                                         Amount
--------------------------------------------------
Interest rate swap agreements        $   156,225
Interest rate floors                     300,000
Forward contracts                        139,195

         Interest rate swap agreements are entered into by the Company primarily
to manage  interest rate  exposure.  These are  contractual  agreements  between
counterparties to exchange interest streams based on notional  principal amounts
over a set period of time.  Interest rate swap agreements  normally  involve the
exchange of fixed and floating rate  interest  payment  obligations  without the
exchange of the underlying  principal amounts.  The notional or principal amount
does  not  represent  an  amount  at  risk,  but is used  only  as a  basis  for
determining the actual cash flows related to the interest rate contracts. Market
risk,  due to  potential  fluctuations  in interest  rates,  is inherent in swap
agreements. At December 31, 1997, the Company had no aggregate estimated cost of
replacement  ( the cost of  replacing an existing  contract if the  counterparty
defaults)  for  the  interest  rate  swap  contracts.  All  interest  rate  swap
counterparties have collateral arrangements with the Company.
         Interest-rate  caps with three-year  maturities  were purchased  during
1994 in anticipation of further  increases in interest rates,  and were assigned
to certificates of deposit with maturities of three months or less. The interest
rate caps  allowed the Company to limit its  exposure  to  unfavorable  interest
fluctuations  over  and  above a  "capped"  rate.  A  premium  was paid for this
protection.  The risk  assumed by the  Company  was limited to the amount of the
premium and not the notional  amount of the  interest  rate cap. At December 31,
1997, the Company did not have any outstanding interest rate caps.
         Interest-rate  floors with five-year  maturities were purchased  during
1995 in  anticipation  of  decreases  in interest  rates,  and were  assigned to
commercial  loans.  The  interest-rate  floors  allow the  Company  to limit its
exposure to unfavorable interest fluctuations below a particular rate. A premium
is paid for this  protection.  The risk assumed by the Company is limited to the
amount of the premium and not the notional amount of the interest-rate floor. At
December 31, 1997, the unamortized  portion of the interest-rate  floor was $1.9
million.
         Futures and forward contracts are contracts for the delayed delivery of
securities in which the seller agrees to make delivery of a specified instrument
at a specified future date, at a specified price or yield.  Risks arise from the
possible  inability of the  counterparties  to meet the terms of their contracts
and from movements in interest rates and securities  values. The Company intends
to offset or close out open positions prior to settlement;  therefore, the total
contract  amounts of futures and forward  contracts  represent the extent of the
Company's involvement. The Company is subject only to the change in value of the
instruments.  Future contracts settle in cash daily,  therefore there is minimal
risk to the Company.
         The Company was a party to a small number of foreign  exchange spot and
forward transactions during 1997. These contracts generally involve the exchange
of  United  States  currency  for  a  foreign  currency.  Spot  foreign-exchange
transactions  normally settle within two business days, and forward transactions
can settle up to a year in the future.  At December 31, 1997, the Company had no
foreign exchange contracts outstanding.
         Option  contracts  allow the holder of the option to purchase or sell a
financial  instrument  from the  seller or writer of the  option at a  specified
price within a specified period of time. The Company has written call options on
securities held in the available for sale securities  portfolio during the year.
Options  which have been  written do not expose the Company to credit  risk.  At
December 31, 1997, the Company had no option contracts outstanding.

LITIGATION

                                                           61


<PAGE>





         DGNB is a defendant in a case in which the plaintiffs are beneficiaries
of a  trust  for  which  DGNB  is the  trustee.  In an  amended  complaint,  the
plaintiffs  claim  that  DGNB was  negligent  in its  dealings  with  the  trust
property,  breached  its trust duties by allegedly  abusing its  discretion  and
negligently  handling  trust assets,  engaged in self  dealing,  and was grossly
negligent in its handling of the trusts. The case seeks actual damages for waste
of trust assets and loss of income and punitive damages,  both in an unspecified
amount to be  proven at trial,  and  attorney  fees and court  costs.  While the
ultimate  outcome of the lawsuit cannot be predicted with certainty,  management
denies all liability  and believes  that the ultimate  resolution of this matter
will  not  have a  material  effect  on  the  Company's  consolidated  financial
statements.
         In  addition,  the  Company is subject to  numerous  other  pending and
threatened  legal  actions  arising  in  the  normal  course  of  business,  and
management  believes that the ultimate resolution of these matters will not have
a material effect on the Company's consolidated financial statements.


NOTE 16 - STOCK SPLIT
         The Company  declared a two-for-one  stock split effective  December 2,
1996. All shares  outstanding and per share amounts are calculated  assuming the
split occurred at the beginning of the earliest period presented.


NOTE 17 - FAIR VALUES OF FINANCIAL INSTRUMENTS
         SFAS No. 107, "Disclosures About Fair Value of Financial  Instruments,"
requires  that the Company  disclose  estimated  fair  values for its  financial
instruments. Because no market exists for a significant portion of the financial
instruments,  fair  value  estimates  are based on  judgments  regarding  future
expected loss experience, current economic conditions, and other factors.
         These estimates are subjective in nature and involve  uncertainties and
matters  of  significant  judgment  and  therefore  cannot  be  determined  with
precision.  Changes in  assumptions  significantly  affect the  estimates and as
such, the derived fair value may not be indicative of the value negotiated in an
actual sale and may not be  comparable  for the Company  versus other  financial
institutions.
         In  addition,   the  fair  value   estimates   are  based  on  existing
on-and-off-balance  sheet financial  instruments  without attempting to estimate
the value of anticipated future business and the value of assets and liabilities
that are not  considered  financial  instruments.  For example,  the Company has
significant  fee  generation   businesses  that  are  not  considered  financial
instruments  and  their  value  has not been  incorporated  into the fair  value
estimates.  Significant assets that are not considered  financial assets include
trust services,  mortgage banking  operations,  brokerage network,  deferred tax
assets, bank premises and equipment,  core deposit intangibles and goodwill.  In
addition,  the tax  ramifications  related to the  realization of the unrealized
gains and losses can have a significant  effect on fair value estimates and have
not been considered in the estimates.
Fair value estimates, methods, and assumptions are set forth below.
         CASH AND SHORT-TERM  INVESTMENTS:  The carrying  amount is a reasonable
estimate of fair value for cash,  interest-bearing bank balances,  federal funds
sold and securities  purchased under agreements to resell due to the maturity of
those instruments being less than six months.
         TRADING  ACCOUNT  SECURITIES:  The carrying  amount of trading  account
securities  is fair  value  which  is  based  on  quoted  market  prices,  where
available.  If a quoted market price is not  available,  fair value is estimated
using quoted market prices for similar securities.
         SECURITIES  AVAILABLE FOR SALE AND INVESTMENT  SECURITIES:  Fair values
for securities available for sale and investment  securities are based on quoted
market prices, where available. If quoted market prices are not available,  fair
values are based on quoted market prices of comparable instruments.
         LOANS:  The fair  values are  estimated  for  portfolios  of loans with
similar characteristics. Loans are segregated by type such as commercial taxable
and nontaxable, residential mortgage and consumer. Each loan category is further
segmented  into fixed and  adjustable  rate interest terms and by performing and
nonperforming categories.
         The fair  value of  performing  adjustable-rate  loans is the  carrying
value adjusted for the discounted value of the expected future loan losses.  The
fair value of performing  fixed-rate  loans is calculated  by  discounting  cash
flows based on estimated  scheduled  maturities  reduced by expected future loan
losses.  The discount  rate is estimated  using the rate  currently  offered for
similar loans with similar  maturities.  The fair value of residential  mortgage
loans is based on quoted market prices.

                                                           62


<PAGE>





         The fair value of  nonperforming  loans is  calculated  by  discounting
expected  cash  flows  as  projected  based  on  historical  cash  flows of such
nonperforming  loans  adjusted for expected  loan losses.  The discount  rate is
estimated using the rates currently  offered for acceptable credit quality loans
with similar maturities.
         DEPOSITS:  The fair value of deposits with no stated maturity,  such as
noninterest-bearing demand deposits and savings accounts, is equal to the amount
payable  on  demand,  which is also  their  carrying  amount.  The fair value of
certificates  of deposit is based on the discounted  value of  contractual  cash
flows.  The discount  rate is estimated  using the rates  currently  offered for
deposits of similar maturities.
         SHORT-TERM BORROWINGS: The carrying amounts of federal funds purchased,
securities sold under agreements to repurchase and other  short-term  borrowings
approximate their fair values due to the short maturity of those instruments.
         LONG-TERM  DEBT:  The fair  value of the  Company's  long-term  debt is
estimated  using  discounted  cash flow analyses based on the Company's  current
incremental borrowing rates for similar types of borrowing arrangements.
         COMMITMENTS:  The fair value of commercial commitments to extend credit
and  letters of credit is the  remaining  unamortized  amount of the prepaid fee
charged to enter into the  agreement or the  discounted  cash flows of estimated
fees that will be charged over the life of the agreement taking into account the
remaining terms of the agreements and counterparties'  credit standing. The fair
value of  residential  mortgage  lending  commitments  is based on quoted market
prices considering  expected funding, the contractual interest rates and current
market rates.
         DERIVATIVES:  Interest rate swaps,  interest  rate caps,  interest rate
floors,  futures,  forwards,  and option  contracts  are the primary  derivative
financial instruments used by the Company. The fair values of interest rate swap
agreements,  interest rate caps, interest rate floors,  futures,  forwards,  and
option  contracts are obtained from market  quotes.  These values  represent the
estimated  amount the Company would receive or pay to terminate the contracts or
agreements,  taking into account current  interest rates and, when  appropriate,
the current creditworthiness of the counterparties.
<TABLE>
<CAPTION>

         The estimated fair values of the Company's financial instruments are as
follows (in thousands):

                                                                 December 31, 1997                  December 31, 1996
                                                                 -----------------                  -----------------
                                                            Carrying            Fair           Carrying            Fair
                                                             Amount             Value           Amount             Value
                                                         ----------------------------------------------------------------
<S>                                                      <C>               <C>              <C>              <C>
Financial Assets
      Cash and short-term investments                    $    488,945      $   488,945      $    434,381     $    434,381
      Trading account securities                                1,459            1,459             2,505            2,505
      Securities available for sale                         1,424,527        1,424,527         1,462,038        1,462,038
      Investment securities                                   174,952          181,266           145,087          152,412
      Loans                                                 4,367,032        4,390,859         3,917,672        3,919,005

Financial Liabilities
      Deposits                                              5,373,962        5,380,493         5,025,749        5,042,909
      Short-term borrowings                                   642,812          642,812           543,029          543,029
      Long-term liabilities                                   186,397          189,544            99,405          100,659

Commitments
      Commitments to extend credit                             (3,839)          (8,696)           (1,514)          (6,576)
      Letters of credit                                             -             (273)                -           (1,222)
      Commitments to purchase securities                            -               32                 -             (894)
      Commitments to sell securities                                -                -                 -              (18)

Risk Management Derivatives
      Interest rate swap agreements                               (53)          (2,677)              198            1,607
      Forward contracts                                             -           (5,741)                -              377
      Interest rate caps                                            -                -               751                7
      Interest rate floors                                      1,883            1,604             2,669            2,814

</TABLE>


                                                           63


<PAGE>


<TABLE>
<CAPTION>



NOTE 18 - DEPOSIT GUARANTY CORP. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
STATEMENTS OF CONDITION
(in Thousands)

                                                                                                      December 31,
                                                                                                 1997              1996
                                                                                             ----------------------------
<S>                                                                                           <C>               <C>
Assets
Cash on deposit with bank subsidiary                                                          $    2,604        $  47,196
Interest-bearing bank balance with unaffiliated bank                                               7,600                -
Securities purchased from bank subsidiary under agreements to resell                              21,500                -
Investment in subsidiaries:
      Bank subsidiaries                                                                          705,709          637,423
      Nonbank subsidiaries                                                                         8,090            7,742
Cash dividends receivable from bank subsidiaries                                                  11,500            8,376
Other assets                                                                                      27,103           27,651
                                                                                               ---------        ---------
      Total assets                                                                             $ 784,106        $ 728,388
                                                                                               =========        =========

Liabilities
Cash dividends payable                                                                       $     9,389      $     8,156
Long-term liabilities                                                                            101,397           99,405
Other liabilities                                                                                 38,082           39,561
                                                                                                  ------      -----------
      Total liabilities                                                                          148,868          147,122
                                                                                                 -------       ----------
Stockholders' equity                                                                             635,238          581,266
                                                                                                 -------       ----------
      Total liabilities and stockholders' equity                                               $ 784,106        $ 728,388
                                                                                               =========        =========

</TABLE>
<TABLE>
<CAPTION>

STATEMENTS OF EARNINGS
(in Thousands)

                                                                                             Year Ended December 31,
                                                                                          1997         1996         1995
                                                                                      -----------------------------------
<S>                                                                                   <C>           <C>          <C>
Income
Cash dividends from bank subsidiaries                                                 $ 143,858     $ 30,620     $ 24,334
Consultant and management fees from subsidiaries                                         35,902       34,289       28,114
Interest from subsidiaries                                                                  466        1,963          557
Other                                                                                       784          167          108
                                                                                            ---   ----------   ----------
      Total income                                                                      181,010       67,039       53,113
                                                                                        -------     --------     --------
Expenses
Interest                                                                                  7,804        4,693          437
Salaries and employee benefits                                                           23,368       25,597       21,118
Other                                                                                    18,003       18,213       13,968
                                                                                         ------     --------     --------
Total expenses                                                                           49,175       48,503       35,523
                                                                                         ------     --------     --------
Income before income taxes and equity in undistributed income
      (dividends in excess of income) of subsidiaries                                   131,835       18,536       17,590
Income tax benefit                                                                        6,519        5,211        4,513
                                                                                          -----   ----------    ---------
Income before equity in undistributed income (dividends in excess of
      income) of subsidiaries                                                           138,354       23,747       22,103
Equity in undistributed income (dividends in excess of income) of subsidiaries:
      Bank subsidiaries                                                                 (46,422)      59,337       49,691
      Nonbank subsidiaries                                                                  348          526          826
                                                                                            ---    ---------     --------
Net income                                                                             $ 92,280     $ 83,610     $ 72,620
                                                                                       ========     ========     ========

</TABLE>

                                                           64


<PAGE>



<TABLE>
<CAPTION>


STATEMENTS OF CASH FLOWS
(in Thousands)

                                                                                                Year Ended December 31,
                                                                                          1997         1996          1995
                                                                                       -----------------------------------
<S>                                                                                    <C>          <C>          <C>
Cash flows from operating activities
Net income                                                                             $ 92,280     $ 83,610     $ 72,620
Adjustments to reconcile net income to net cash provided by operating activities:
      Provision for depreciation and amortization                                         2,175        3,344       2,9862
      Increase (decrease) in other liabilities                                           (1,479)      11,723        5,557
      Increase in other assets                                                             (504)      (9,129)      (3,424)
      Dividends in excess of income (equity in undistributed income)
          of subsidiaries                                                                46,074      (59,863)     (50,517)
                                                                                         ------   -----------  ----------
          Net cash provided by operating activities                                     138,546       29,685       27,222
                                                                                        -------    ---------   ----------
Cash flows from investing activities
Net increase in interest bearing balances with non affiliated bank                       (7,600)           -            -
Net decrease (increase) in securities purchased from bank subsidiary
      under agreements to resell                                                        (21,500)           -       13,466
Net decrease in notes receivable from nonbank subsidiary                                      -        2,990          750
Payments for investments in and advances to subsidiaries                                (28,952)        (174)      (9,294)
Purchases of premises and equipment                                                      (3,961)      (2,071)      (1,086)
Proceeds from sales of premises and equipment                                               156          301           11
                                                                                            ---          ---           --
          Net cash provided (used) by investing activities                              (61,857)       1,046        3,847
                                                                                        --------  ----------    ---------
Cash flows from financing activities
Increase (decrease) in short-term borrowings                                                  -      (27,600)      27,600
Proceeds from long-term liabilities                                                           -       99,381            -
Proceeds from early termination of swap contract on long-term liabilities                 2,038            -            -
Proceeds from exercise of common stock options                                            1,931        3,845          997
Purchases of common stock                                                               (92,925)     (39,100)     (32,382)
Cash dividends paid                                                                     (32,325)     (26,507)     (21,355)
                                                                                        --------   ----------    --------
          Net cash provided (used) by financing activities                             (121,281)      10,019      (25,140)
                                                                                       ---------   ---------     --------
          Net increase (decrease) in cash                                               (44,592)      40,750        5,929
          Cash at beginning of year                                                      47,196        6,446          517
                                                                                         ------   ----------   ----------
          Cash at end of year                                                       $     2,604     $ 47,196     $  6,446
                                                                                    ===========     ========     ========
</TABLE>


                                                           66


<PAGE>





                                                              PART III

Item 10.  Directors and Executive Officers of the Registrant
         The Board of Directors of the Company is divided into three (3) classes
- four (4) Class A  Directors,  five (5) Class B Directors  and four (4) Class C
Directors.
         The following table provides certain information about directors of the
Company.  The column  "Directorships  Held in Other  Companies"  indicates other
directorships held in any company with a class of securities registered pursuant
to  Section  12 of  the  Securities  Exchange  Act of  1934  or  subject  to the
requirements  of  Section  15(d) of that  Act or any  company  registered  as an
investment company under the Investment Company Act of 1940.

<TABLE>

                                                                                                               Directorships
                                  Positions & Offices With Company Or          Director of                     Held in Other
       Directors                 Principal Occupations and Employment            Company          Age            Companies
-----------------------------------------------------------------------------------------------------------------------------------

<S>                          <C>                                             <C>                   <C>     <C>
Richard H. Bremer            President, CSW Energy Services; President       1994 to present       49
(Class A)                    and Chief Executive Officer, Southwestern
                             Electric Power Co. September, 1990 to
                             May 1996

Howard L. McMillan, Jr.      President and Chief Operating Officer of the    1984 to present       59
(Class A)                    Company

Richard D. McRae, Jr.        President, McRae Investments (private           1992 to present       50
(Class A)                    investment company); President and
                             Chief Operating Officer, Proffitt's, Inc.
                             (retail department stores) April, 1994
                             to September, 1994; President and Chief
                             Executive Officer, McRae's, Inc. 1988 to
                             April, 1994

John N. Palmer               Chairman and Chief Executive Officer,           1985 to April,        63       Mobile Telecommuni-
(Class A)                    Mobile Telecommunications Technologies          1986; April,                   cation Technologies
                             Corp. (telecommunications)                      1987 to present                Corp.; Entergy
                                                                                                            Corporation; East
                                                                                                            Group Properties

Haley R. Barbour             Partner, Barbour Griffith and Rogers, Wash.,    1985-1986;            50       Mobile Telecom-
(Class B)                    D.C. (law firm); Chairman, Policy Impact        1997 to present                munications Tech-
                             Communications, Washington, D.C. (public                                       nologies Corp.;
                             relations firm); Vice Chairman, International                                  Mississippi Chemical
                             Equity Advisors, Washington, D.C.;                                             Corporation
                             (counseling & lobbying firm); Managing
                             Director, National Environmental Strategics,
                             Washington, D.C. (environmental consulting
                             firm); Chairman, Republican National
                             Committee January, 1993 to January, 1997;
                             Partner, Barbour and Rogers, predecessor law
                             firm to Barbour Griffith and Rogers

William R. James             President of Pruet Production Co.,              1997 to present       48
(Class B)                    Chesley Pruet Drilling Co., Rapad

                                                                67


<PAGE>





                             Oilfield Services, Rapad Petroleum
                             Distributors, Inc. and Pruet Energy Corp.
                             A managing partner, Pruet Oil Company


                                                                                                               Directorships
                              Positions & Offices With Company Or              Director of                     Held in Other
       Directors             Principal Occupations and Employment                Company          Age            Companies
------------------------------------------------------------------------------------------------------------------------------------

Booker T. Jones              President, Chief Executive Officer,             1997 to present       54
(Class B)                    MINACT, Inc. (Jackson, MS based
                             management training firm)

E.B. Robinson, Jr.           Chairman of the Board and Chief                 1981 to present       56
(Class B)                    Executive Officer of the Company

J. Kelley Williams           Chairman and Chief Executive Officer,           1975 to present       63       ChemFirst, Inc.
(Class B)                    ChemFirst, Inc. (industrial and agricultural
                             specialty chemicals, chemical industry
                             products and services)

Sharon S. Greener            Chairman of the Board of Stribling              1997 to present       54
(Class C)                    Equipment, Inc. (John Deere industrial
                             equipment dealership) and Empire Truck
                             Sales, Inc. (Freightliner heavy truck
                             dealership)

Warren A. Hood, Jr.          Chairman of the Board, Hood Industries,         1990 to present       46
(Class C)                    Inc. (manufacturing of building and
                             forest products)

Charles L. Irby              Chairman of the Board and President,            1989 to present       43
(Class C)                    Irby Construction Company (power and
                             telecommunications contractor);
                             Vice President, Stuart C. Irby Co. (wholesale
                             electrical supplier)

W.R. Newman, III             President, J.A. Bentley Lumber Company;         1972 to present       58
(Class C)                    Vice President, 1989 to 1990 and
                             Director, 1989 to present, Pacific
                             Coast Paging, Inc. (paging and answering
                             service, southern California); President
                             and Director, ManuTech, Inc. 1988 to 1990
                             (manufacturer of gas logs)
</TABLE>


                           SECTION 16(a) BENEFICIAL REPORTING COMPLIANCE

         Section  16(a) of the  Securities  Exchange  Act of 1934  requires  the
Company's  directors  and  executive  officers to file with the  Securities  and
Exchange  Commission  initial  reports of  ownership  and  reports of changes in
ownership of Common  Stock.  Executive  officers and  directors  are required by
Securities  and  Exchange  Commission  Regulations  to furnish the Company  with
copies of all Section 16(a) forms they file. To the Company's  knowledge,  based
solely on a review of the copies of such  reports  furnished  to the Company and
written  representations that no other reports were required,  during the fiscal
year ended December 31, 1997, all section

                                                                68


<PAGE>





16(a) filing  requirements  applicable to the Company's  executive  officers and
directors were compiled with, except Haley Barbour who filed his Form 3 late and
Mr. Lenoir who reported late on an amended Form 4 a December,  1996  acquisition
by gift to a trust in which he has a pecuniary interest.
         Additional  information concerning executive officers of the Company is
located on page 4 of this Form 10-K under Part I Item 1., Business.



Item 11.  Executive Compensation
         Shown  below  is  information   concerning  the  annual  and  long-term
compensation  for services in all  capacities to the Company for the years ended
1997,  1996  and  1995 of the  CEO  and  the  Company's  four  (4)  most  highly
compensated  officers  other than the CEO  (collectively,  the "Named  Executive
Officers"):
<TABLE>
<CAPTION>


                                                     SUMMARY COMPENSATION TABLE

                                                                                                          Long-Term
                                                                                                        Compensation
                                                               Annual Base Compensation                   Awards(1)       All Other
                                                                                       Other Annual        Options        Compensa-
Name and Principal Position             Year          Salary($)        Bonus($)       Compensation($)     (Shares)       tion($)(2)
---------------------------             ----          ---------        --------       ---------------     --------       ----------

<S>                                     <C>          <C>                 <C>                <C>              <C>          <C>
E.B. Robinson, Jr.                      1997         $ 399,128           285,243            -                25,000       $ 89,347
   Chairman of the Board & Chief        1996           395,980           349,340            -                22,000         86,158
   Executive Officer of the Company     1995           380,899           406,918            -                34,000         70,485

Howard L. McMillan, Jr.                 1997           253,935           151,232            -                12,000         66,190
   President & Chief Operating          1996           253,935           185,216            -                10,400         53,449
   Officer of the Company               1995           253,309           244,195            -                16,200         38,582

Steven C. Walker                        1997           219,956           113,189            -                10,000         33,779
   Executive Vice President             1996           220,093           145,920            -                 9,000         28,135
                                        1995           219,906           194,329            -                34,000         19,936

James S. Lenoir                         1997           165,928            90,631            -                 5,000         28,612
   Executive Vice President & Chief     1996           160,570           105,656            -                 4,400         24,530
   Credit Officer of the Company        1995           160,570           141,063            -                 7,000         15,194

Arlen L. McDonald                       1997           157,402            78,851            -                 5,000         24,030
   Executive Vice President & Chief     1996           156,383           103,838            -                 4,400         21,158
   Financial Officer of the Company     1995           149,883           130,981            -                 7,000         15,290

</TABLE>

         (1) Although the Company's  incentive  plan permits grants of Incentive
Stock Options,  Restricted  Stock Awards and SARs, no grants of these incentives
have been made. All stock options are post-1996 stock split equivalents.

         (2)  "All Other Compensation" consists of:



                                                                69


<PAGE>

                                                  Above Market
                                      Company        Earnings
                                   Contribution     On Deferred
                         Name    To the 401k Plan  Compensation  Total
                  -----------------------------------------------------




                  Robinson            $ 5,687         $ 83,660 $ 89,347
                  McMillan              6,644           59,546   66,190
                  Walker                7,309           26,470   33,779
                  Lenoir                3,181           25,431   28,612
                  McDonald              5,858           18,172   24,030


Option Grants
         Shown below is information  on grants of stock options  pursuant to the
Company's incentive plan during 1997 to the Named Executive  Officers.  No SAR's
were granted under that plan in 1997.


                                                                70


<PAGE>

<TABLE>
<CAPTION>




                                                  OPTION GRANTS IN LAST FISCAL YEAR

                                       Individual Grants                                              Potential Realizable Value
                                                  % of Total                                       at Assumed Annual Rates of Stock
                                                Options Granted      Exercise                        Price Appreciation for Option
                             Options Granted    to Employees in      Price (2)     Expiration                  Term (3)
                                                                                                   -----------------------------
       Name                  in 1997 (#)(1)          1997          ($ Per Share)      Date             5.0%($)         10.0%($)
-------------------------------------------------------------------------------------------------------------------------------


<S>                               <C>                <C>             <C>         <C>                 <C>               <C>
E.B. Robinson, Jr.                25,000             19.1%           $ 31.00     April 15, 2007      $ 487,393         $ 547,507

Howard L. McMillan, Jr.           12,000              9.2              31.00     April 15, 2007        233,949           262,804

Steven C. Walker                  10,000              7.6              31.00     April 15, 2007        194,957           219,003

James S. Lenoir                    5,000              3.8              31.00     April 15, 2007         97,479           109,501

Arlen L. McDonald                  5,000              3.8              31.00     April 15, 2007         97,479           109,501
</TABLE>

         (1)  All stock options were exercisable six (6) months after the date
              of the grant.

         (2)  The exercise price was equal to the closing price on the NYSE on
              the date of the grant.

         (3) The  valuation  of the stock  grants at five  percent  (5%) and ten
             percent  (10%)  appreciation  rates are  solely to comply  with
             Securities  and Exchange  Commission  ("SEC")  Regulations  and are
             not intended to imply future value of Company Stock.

<TABLE>
<CAPTION>

                           OPTIONS EXERCISED IN 1997 AND YEAR END OPTION VALUE

                                                                                    Number of
                                                                              Securities Underlying
                           Shares Acquired on                                  Unexercised Options       Value of Unexercised
                                Exercise                    Value              At Year End (#) (1)       In the Money Options
       Name                    In 1997 (#)              Realized ($)        Exercisable/Unexercisable     At Year End ($) (2)
-----------------------------------------------------------------------------------------------------------------------------


<S>                             <C>                      <C>                         <C>                    <C>
E.B. Robinson, Jr.                   -                           -                  149,000/0               $ 5,641,125

Howard L. McMillan, Jr.              -                           -                   38,600/0                 1,290,125

Steven C. Walker                21,000                   $ 365,750                   60,000/0                 2,189,250

James S. Lenoir                      -                           -                   40,400/0                 1,627,675

Arlen L. McDonald                7,000                      99,750                    9,400/0                   275,675

</TABLE>

         (1) All stock options granted prior to 1993 were  exercisable  upon the
grant of the option.  All stock options granted in 1993,  1994,  1995, 1996, and
1997 are exercisable six (6) months after the date of grant.

         (2)  Based on the closing price on the New York Stock Exchange
($56.875) on December 31, 1997.


                                                                71


<PAGE>





Retirement Income Plan
         Under its Retirement  Income Plan, the Company offers retirement income
benefits to employees  of the Company and its  subsidiaries  who are  twenty-one
(21) years of age,  have been  employed for one (1) year and have  completed one
thousand  (1,000)  hours of service.  Benefits  payable under the plan are based
upon the five (5) year  average base salary of the  participant,  which does not
include  payments under any benefit  program or bonuses,  and the  participant's
credited years of service.  Base salary in 1996 for the individuals named in the
Summary Compensation Table was as follows: E.B. Robinson, Jr. ($399,128); Howard
L.  McMillan,  Jr.  ($253,935);  Steven C.  Walker  ($219,956);  James S. Lenoir
($165,928);  and Arlen L. McDonald  ($157,402).  Normal retirement age under the
plan is  sixty-two  (62),  but  participants  may elect an early or a  postponed
retirement date, in which case benefits are adjusted.  Contributions to the plan
made by the Company or its subsidiaries are determined actuarially.
         The following table indicates the estimated  annual benefits payable to
persons in specified  classifications  upon  retirement at age  sixty-two  (62),
assuming the highest salary earning years are during the five (5) years prior to
retirement. Amounts shown are not subject to offset for social security or other
items. Amounts shown are computed on a life-only option basis.


 Five Years
Average Base                        Credited Years of Service
   Salary         15        20        25         30        35        40
---------------------------------------------------------------------------

    $50,000   $   9,938   $ 13,250 $ 16,563   $ 19,875  $ 23,188  $ 26,113
     75,000      16,200     21,600   27,000     32,400    37,800    42,188
    100,000      22,463     29,950   37,438     44,925    52,413    58,263
    150,000      34,988     46,650   58,313     69,975    81,638    90,413
    200,000      37,493     49,990   62,488     74,985    87,483    96,843
    300,000      37,493     49,990   62,488     74,985    87,483    96,843
    400,000      37,493     49,990   62,488     74,985    87,483    96,843
    500,000      37,493     49,990   62,488     74,985    87,483    96,843


         Credited years of service upon retirement for the individuals named
above are anticipated to be as follows:  E.B. Robinson, Jr. (36); Howard L.
McMillan, Jr. (37); Steven C. Walker (25); James S. Lenoir (40); and Arlen L.
McDonald (42).

Director Compensation
         Non-officer  directors receive an annual retainer fee of $3,000, a $500
fee for  each  board  meeting  attended  and a $400 fee for  attendance  at each
meeting of any  committees on which they serve.  Committee  Chairmen  receive an
additional  $200 fee for each  committee  meeting  attended  as Chairman of such
committee.  Each  non-officer  director also receives an annual  retainer fee of
$3,000 and $300 for each board meeting  attended as director of Deposit Guaranty
National Bank.
         First American Directorships;  Advisory Boards. Pursuant to the pending
Merger Agreement with First American Corporation,  the First American Board will
be  expanded  by five  members,  and the  First  American  Board  will  fill the
vacancies  created by such expansion with such current  members of the Company's
Board as will be mutually  agreed upon by First American and the Company.  As of
the date of this Form 10-K,  the First  American  Board has not  selected any of
such  individuals  for  positions.  The Merger  Agreement  also  provides  that,
following  the  Effective  Time of the merger,  First  American  will cause each
member of the Company's  Board who is not elected to serve on the First American
Board (as described above), and each member of the Board of Directors of Deposit
Guaranty National Bank to be appointed to or elected to serve on (or to continue
to serve on) one of the Advisory Boards. All members of the Advisory Boards will
be entitled to serve on the  Advisory  Boards for minimum of  thirty-six  months
following the Effective  Time, and will be paid specified  retainers and meeting
fees in respect of their service on the Advisory Boards.
         Pursuant to the Company's  Directors  Deferred Income Plan, the Company
permits  non-officer  directors  to elect  annually  to defer up to one  hundred
percent  (100%) of fees to be earned  during the  following  year.  The  minimum
deferral amount per year is one thousand  dollars  ($1,000).  Generally  amounts
deferred are payable with interest to the  participant  in  accordance  with the
participant's  agreement  with the Company,  or upon  termination of employment,
disability  or  retirement,  or  to  the  participant's   beneficiaries  if  the
participant  dies.  The interest rate,  adjusted  annually  varies  depending on
several  factors,  including the event which results in the  distribution of the
deferred  amounts and the age of the  participant  at the time of deferral.  The
interest  rates  for  pre-retirement  benefits,   post-retirement  payments  and
disability  benefits are based upon a percentage of the 12-month  average of the
Moody's Average Corporate Yield,  published monthly by Moody's Investor Service.
Post retirement benefits are paid in ten (10) annual installments.

                                                                72


<PAGE>





The  termination   benefit   consists  of  a  lump  sum  benefit  equal  to  the
participant's  deferral with interest  thereon at the effective  rate of ten
(10) year U.S. Treasury  Obligations on January 1 of the year of deferral
compounded annually  from the first day of the plan year in which the deferral
was made. If a participant's  service as a director terminates for any reason
during a period of two (2)  years  after a  change  in  control  of the
Company,  prior  to the participant meeting the requirements for receiving post
retirement benefits, the person will be entitled to termination  benefits,  but
at the same rates used in the calculation for post- retirement payments.

         First American has agreed to assume and to perform all of the Company's
obligations  under the  Deferred  Income  Plans,  and has further  agreed not to
terminate  or amend the  Deferred  Income  Plans in any  manner  adverse  to the
interests of the Deferred Income Plan participants. The Merger Agreement further
contemplates  that  the  Deferred  Income  Plans  may be  amended  prior  to the
Effective  Time of the merger to provide  that there may be no  amendment of the
Deferred  Income  Plans in any way which would  impair the right of the Deferred
Income Plan  participants  to accrue  interest at favorable rates or to elect to
receive  early  retirement  benefits  pursuant  to the  existing  provisions  of
Deferred Income Plans.

Employment Contracts and Termination of Employment and Change of Control
Arrangements.  In connection with the execution of the Merger Agreement,  Mr.
Robinson has entered in to an employment  agreement with First American which
will become effective  if  the  First  American  merger  is  consummated.
Pursuant  to  the agreement,  Mr. Robinson will be employed by First American as
Vice Chairman and Chief  Operating  Officer,  President of First American
National Bank, and as a member of First  American's  Policy Team.  Mr.  Robinson
will also serve on the First  American  Board and on the First  American
Board's  executive  committee during the term of the  agreement.  The term of
the  agreement  commences on the Effective  Time and continues  until the last
day of the calendar month in which Mr. Robinson's 62nd birthday occurs.
         Mr. Robinson's salary will be no less than $600,000 per year during the
term of the agreement,  or, if greater, 80% of the base salary paid to the chief
executive  officer of First  American.  Mr.  Robinson  will also be  eligible to
receive an annual  incentive bonus,  targeted at 50% of his base salary,  with a
maximum potential bonus award equal to 100% of base salary. In no event will the
base  salary and bonus paid to Mr.  Robinson  be less than 80% of the sum of the
annual  base  salary  and bonus  paid to the chief  executive  officer  of First
American with respect to the same year. As of the Effective  Time, Mr.  Robinson
will be granted 45,000  restricted shares of First American Common Stock, and an
option to acquire  90,000 shares of First  American  Common Stock,  which option
will have an exercise  price equal to the fair  market  value of First  American
Common Stock as of the date of grant.  The  restrictions on the restricted stock
will lapse, and the options will vest and become  exercisable,  in each case, in
three equal  installments,  on each of the first three anniversaries of the date
of grant (subject to acceleration  upon a change of control of First  American).
The options  generally have a ten-year term from the date of grant. In addition,
Mr. Robinson will receive an annual stock incentive grant during the term of the
agreement with a value equal to 166% of his base salary.
         Mr. Robinson will also be paid an annual retirement  benefit commencing
at age 62, which  benefit will be equal to 60% of Mr.  Robinson's  final average
pay (as defined in the  agreement),  less  benefits  payable under certain other
retirement  plans and  arrangements of the Company.  The agreement also provides
for a retirement benefit to be paid to Mr. Robinson's spouse, should she survive
him.
         The  agreement  further  provides  that,  upon any  termination  of Mr.
Robinson's  employment  with First American other than for cause or by reason of
death or  disability,  or if Mr.  Robinson  terminates  his  employment for good
reason (as defined in the merger agreement) he is generally  entitled to payment
of any unpaid  salary,  a pro rata  bonus,  immediate  vesting of the option and
restricted stock granted pursuant to the agreement,  continuation of medical and
welfare benefits  through the date on which the term of the agreement  otherwise
would have ended, and additional  service credit for purposes of the calculation
of retirement benefits. In addition, Mr. Robinson will be entitled to a lump sum
payment  equal to the  product  of (i) the  number  of  months  from the date of
termination  until the end of the calendar  month in which Mr.  Robinson's  62nd
birthday occurs divided by 12, and (ii) the sum of Mr. Robinson's  existing base
salary and highest bonus earned in the three years prior to the Effective  Time.
If payments  received by Mr. Robinson are subject to an excise tax under Section
4999 of the Code, Mr. Robinson will be entitled to receive an additional  amount
necessary  to make him whole  with  respect  to such  excise  tax,  unless  such
payments  (excluding  additional  amounts  payable due to the excise tax) do not
exceed 110% of the greatest  amount  which could be paid without  giving rise to
the excise tax, in which case no  additional  payments will be made with respect
to the excise tax, and the payments  otherwise due Mr.  Robinson will be reduced
in an amount necessary to prevent the application of the excise tax.
         The  agreement   also  provides  that  Mr.   Robinson  is  entitled  to
participate  in the employee  benefit  plans,  practices and policies  which are
applicable to peer  executives of First  American,  including  change in control
severance  agreements  which  are  to be  entered  into  prior  to or as of  the
Effective Time. The agreement, once effective,  supersedes any other employment,
severance or change in control agreement between Mr. Robinson and the Company.

                                                                73


<PAGE>





         In connection with the execution of the Merger Agreement,  Mr. McMillan
has also entered in to an employment  agreement  with First  American which will
become  effective if the First American merger is  consummated.  Pursuant to the
agreement,  Mr.  McMillan will be employed by First  American as Chairman of the
Company's operations within First American.  The term of the agreement commences
on the Effective Time and continues until the third anniversary thereof.
         Mr. McMillan's salary will be no less than $350,000 per year during the
term of the agreement.  Mr.  McMillan will also be eligible to receive an annual
incentive bonus,  targeted at 50% of his base salary,  with a maximum  potential
bonus award equal to 100% of base salary. As of the Effective Time, Mr. McMillan
will also be granted 15,000  restricted  shares of First American  Common Stock,
and an option to acquire  30,000 shares of First  American  Common Stock,  which
option shall have an exercise  price equal to the fair market value of the First
American  Common  Stock  as of  the  date  of  grant.  The  restrictions  on the
restricted stock will lapse, and the options shall vest and become  exercisable,
in  each  case,  in  three  equal  installments,  on  each  of the  first  three
anniversaries  of the date of grant  (subject to  acceleration  upon a change of
control of First American).  The options generally have a ten-year term from the
date of grant. In addition,  Mr. McMillan will receive an annual stock incentive
grant  during the term of the  agreement  with a value equal to 100% of his base
salary.
         Mr. McMillan will also be paid an annual retirement  benefit commencing
at age 62, which benefit shall be equal to 50% of Mr.  McMillan's  final average
pay (as defined in the  agreement),  less  benefits  payable under certain other
retirement  plans and  arrangements of the Company.  The agreement also provides
for a retirement benefit to be paid to Mr. McMillan's spouse, should she survive
him.
         The  agreement  further  provides  that,  upon any  termination  of Mr.
McMillan's  employment  with First American other than for cause or by reason of
death or  disability,  or if Mr.  McMillan  terminates  his  employment for good
reason (as defined in the merger  agreement) he is generally  entitled to a lump
sum payment of any unpaid  salary,  a pro rata bonus,  immediate  vesting of the
option and restricted stock granted  pursuant to the agreement,  continuation of
medical and welfare benefits through the date on which the term of the agreement
otherwise would have ended,  and additional  service credits for purposes of the
calculation of retirement benefits.  In addition,  Mr. McMillan will be entitled
to a payment  equal to the  product of (i) the number of months from the date of
termination  until the end of the term  divided  by 12,  and (ii) the sum of Mr.
McMillan's  existing  base  salary and highest  bonus  earned in the three years
prior to the Effective Time. If payments received by Mr. McMillan are subject to
an excise tax under Section 4999 of the Code,  Mr.  McMillan will be entitled to
receive an  additional  amount  necessary to make him whole with respect to such
excise tax, unless such payments  (excluding  additional  amounts payable due to
the excise tax) do not exceed 110% of the  greatest  amount  which could be paid
without giving rise to the excise tax, in which case no additional payments will
be made with  respect to the excise  tax,  and the  payments  otherwise  due Mr.
McMillan will be reduced in an amount  necessary to prevent the  application  of
the excise tax.
         The  agreement   also  provides  that  Mr.   McMillan  is  entitled  to
participate  in the employee  benefit  plans,  practices and policies  which are
applicable to peer  executives of First  American,  including  change in control
severance  arrangements  which  are to be  entered  into  prior  to or as of the
Effective Time. The agreement, once effective,  supersedes any other employment,
severance or change in control agreement between Mr. McMillan and the Company.
         Change in Control Termination Agreements.  The Company has entered into
Change of Control  Termination  Agreements (the "Change of Control  Agreements")
with Messrs. Robinson,  McMillan, Steven C. Walker, Arlen L. McDonald, Thomas M.
Hontzas,  James S. Lenoir,  W. Stan Pratt and W. Parks  Johnson (each a "Covered
Executive") with an original term commencing on January 1, 1997 through December
31, 1997. The term of each of the Change of Control Agreements was automatically
extended  pursuant to its terms on November 1, 1997 for an  additional  one-year
period.  In addition,  each Change of Control  Agreement  provides that,  upon a
change of control of the Company (which  occurred upon the signing of the Merger
Agreement),  each such  agreement  will  continue  in effect  for a period of 36
months following the month the change of control occurs.
         The Change of Control  Agreements  provide that, if, during the term of
the  agreement,  the  employment  of a Covered  Executive is  terminated  by the
Company without cause following a change in control, or if the Covered Executive
terminates  his  employment  with the Company for good reason (as defined in the
Change  of  Control  Agreement)  following  a change  of  control,  the  Covered
Executive will be entitled to receive a severance payment generally equal to two
times  (three  times for  Messrs.  Robinson,  McMillan  and  Walker) the Covered
Executive's base salary, two times (three times for Messrs.  Robinson,  McMillan
and Walker) his average annual bonus for the last three years, immediate payment
of deferred  compensation  (other  than  compensation  deferred  pursuant to the
Company's  Executive  Deferred Income Plan),  and to the continuation of medical
insurance benefits for two years (three years for Messrs. Robinson, McMillan and
Walker)  following  termination  of employment  (or until the Covered  Executive
otherwise  secures  equivalent  coverage).  Pursuant  to the  Change of  Control
Agreements,  all the  Company's  Employee  Stock  Options  held  by the  Covered
Executive will become  exercisable  in accordance  with the terms of the Deposit
Guaranty  Stock  Based  Long-Term  Incentive  Plan  II,  in the  event of such a
termination.  Payments made to each Covered  Executive (other than Mr. Robinson)
pursuant to a Change of Control  Agreement (and other payments made to a Covered
Executive)  are subject to reduction in order to prevent the  application of the
excise tax under Section 4999 of the Code to such payments. Under Mr. Robinson's
Change of Control Agreement,

                                                                74


<PAGE>





Mr.  Robinson  is  entitled  to  receive  an  additional  payment  in an  amount
sufficient for Mr. Robinson to be made whole  notwithstanding  the imposition of
the excise tax. Pursuant to the Merger Agreement as of the Effective Time, First
American has agreed to assume and honor,  or to cause an appropriate  subsidiary
to assume an honor, the Change of Control  Agreements,  among other  employment,
severance and other compensation agreements entered into between the Company and
directors, officers and employees thereof. Following the Effective Time, Messrs.
Robinson  and  McMillan  will not be  entitled to receive  benefits  under their
respective Change of Control Agreements.






Item 12.  Security Ownership of Certain Beneficial Owners and Management
<TABLE>
<CAPTION>

         The following table shows the persons that are the beneficial owners of
more than five percent (5%) of the Company's Common Stock:

          Name and Address                 Amount and Nature      Percentage of
         of Beneficial Owner            of Beneficial Ownership       Class
-------------------------------------------------------------------------------

<S>                                           <C>                      <C>
Deposit Guaranty National Bank                2,640,600                6.40%
P.O. Box 1200
Jackson, MS  39205

Charles L. Irby and Affiliated Interests      2,084,172                5.05%
815 S. State Street
Jackson, MS  39207
</TABLE>

         (1) This  information  is as of December 31, 1997. On that date, in its
capacity as trustee,  the Bank had sole voting  power with  respect to 2,482,835
shares of Company  Common  Stock and shared  voting power with respect to 60,620
shares of Company Common Stock. In addition,  it had sole investment  power with
respect to 2,366,529 shares of Company Common Stock and shared  investment power
with respect to 112,474  shares of Company  Common Stock.  E.B.  Robinson,  Jr.,
Howard L.  McMillan,  Jr.,  William R. James,  Arlen L.  McDonald and Richard D.
McRae,  Jr. are members of the Asset  Management  Services  Committee of Deposit
Guaranty  National  Bank and in such capacity  share voting or investment  power
with other members of this  committee  with respect to certain shares of Company
Common Stock held by Deposit Guaranty National Bank as trustee. The other member
of the Asset Management Services Committee is Thomas M. Hontzas,  Executive Vice
President of the Company.
         (2) This information is as of February 20, 1998.  Includes 8,400 shares
held by Charles L. Irby and 2,011,272 shares held by Irby  Construction  Company
to which  Charles L. Irby has sole voting and  investment  power.  Also includes
64,500 shares held by the Elizabeth M. Irby  Foundation to which Charles L. Irby
has shared voting and investment power.
         The following table shows the number of shares of the Company's  Common
Stock  beneficially  owned by each director,  the CEO and the Company's four (4)
most highly  compensated  officers other than the CEO  (collectively  the "Named
Executive Officers") and by all directors,  nominees and executive officers as a
group, as of February 20, 1998. Except as otherwise indicated, each director has
sole voting and investment  power with respect to the shares shown in the table.
The amounts  shown in the table do not include  beneficial  ownership of certain
shares held by Deposit Guaranty National Bank as trustee,  with respect to which
E.B.  Robinson,  Jr.,  Howard L. McMillan,  Jr.,  Arlen L. McDonald,  William R.
James,  Richard D. McRae and certain other  officers which may be deemed to have
shared voting or investment  power as described  above,  except that shares with
respect to which  directors  or  officers  have  beneficial  ownership  in their
individual  capacities as participants in the Company's  Employee Stock Purchase
Plan are included.


                                                                75


<PAGE>





        Directors, and Named     Amount and Nature of    Percentage
         Executive Officers      Beneficial Ownership     of Class
-------------------------------------------------------------------

Haley R. Barbour                        49,648 1              *
Richard H. Bremer                        1,000                *
Sharon S. Greener                       33,896                *
Warren A. Hood, Jr.                     40,000                *
Charles L. Irby                      2,084,172 2            5.05%
W.R. James                               68,67 3              *
B.T. Jones                                 400                *
James S. Lenoir                        105,553 4              *
Arlen L. McDonald                       12,638 5              *
Howard L. McMillan, Jr.                146,568 6              *
Richard D. McRae, Jr.                  178,688 7              *
W.R. Newman, III                        56,436 8              *
John N. Palmer                          67,064                *
E.B. Robinson, Jr.                     318,427 9              *
Steven C. Walker                        61,230 10             *
J. Kelley Williams                      12,264                *

21 Directors and Executive
Officers as a Group                  3,397,925 11           8.24%

*  Less than 1 percent

1Mr. Barbour has shared voting and investment power with respect to 3,352 shares
with his wife and 1,352 shares held by his wife.

2Mr. Charles L. Irby shares voting and investment power with respect to 64,500
shares held by the Elizabeth M. Irby Foundation.

3Mr. James has shared voting and investment power with respect to 10,000 shares
which are held by Pruet Production Co. of which he is President.

4The amount  shown  includes  40,400  shares  which Mr.  Lenoir has the right to
acquire through exercise of options granted under the Company's incentive plan.

5Mr.  McDonald has shared voting and investment power with respect to 400 shares
held by his wife. The amount shown includes 9,400 shares which Mr.  McDonald has
the right to acquire  through  exercise of options  granted  under the Company's
incentive plan.

6Mr.  McMillan  has shared  voting and  investment  power with respect to 39,071
shares  held by his wife or jointly  with his wife.  The amount  shown  includes
38,600 shares which Mr.  McMillan has the right to acquire  through  exercise of
options granted under the Company's incentive plan.

7Mr. McRae has shared voting and investment power with respect to 151,080 shares
which are held by McRae Foundation, Inc. and 16,000 shares which are held by
TWORDC Foundation.

8Mr. Newman shares voting and investment power with respect to 29,632 shares
held by his wife.

9Mr.  Robinson has shared  voting  power with  respect to 48,129  shares held by
family members. The amount shown also includes 149,000 shares which Mr. Robinson
has the right to acquire through exercise of options granted under the Company's
incentive plan.

10The  amount shown  includes  60,000  shares which Mr.  Walker has the right to
acquire through exercise of options.


                                                                76


<PAGE>





11The amount includes 428,352 shares which executive  officers have the right to
acquire through exercise of options granted under the Company's incentive plan.

Item 13.  Certain Relationships and Related Transactions

Other Transactions With Management
         Through its  subsidiary  bank, the Company makes loans to its directors
and principal officers of its subsidiaries, and to associates of these directors
and  principal  officers.  All such  loans were made in the  ordinary  course of
business,  and at the time the loans were made, were on  substantially  the same
terms, including interest rates and collateral,  as those prevailing at the time
for comparable  transactions  with other persons,  and did not involve more than
normal risk of collectibility or present other unfavorable features.

                                                              PART IV
<TABLE>
<CAPTION>

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)      Documents filed as part of this report
<S>      <C>                                                                                                 <C>
(a)(1).  Independent Auditors' Report                                                                           29
         Consolidated Statements of Condition - December 31, 1997 and 1996                                      30
         Consolidated Statements of Earnings - Years Ended December 31, 1997, 1996, and 1995                    31
         Consolidated Statements of Changes in Stockholders' Equity - Years Ended December 31,
         1997, 1996, and 1995                                                                                   32
         Consolidated Statements of Cash Flows - Years Ended December 31, 1997, 1996, and 1995                  33
         Notes to Consolidated Financial Statements                                                          34-53
   (2).  Financial Statement Schedules normally required on Form 10-K are
         omitted since they are not applicable
   (3).  Exhibit index is on page 65 of this Form 10-K and exhibits are filed herewith
(b)      Reports on Form 8-K since September 30, 1997
         Report filed on December 15, 1997
         Other Events:  Deposit Guaranty Corp. entered into an agreement to
         merge with and into First American Corporation. Under the
         Agreement, each share of Deposit  Guaranty common stock will
         be converted into 1.17 shares of First American Corporation
         common stock.
         Report filed on February 5, 1998
         Financial Statements, ProForma Financial Information and
         Exhibits:  Deposit Guaranty  reports  record  earnings  and
         files  statements  of financial highlights.
</TABLE>

                                                             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, in the City of Jackson,
Mississippi, on March 26, 1998.


                                               DEPOSIT GUARANTY CORP.


                                               BY:  /s/ E. B. Robinson, Jr.
                                               -------------------------------
                                               E. B. Robinson, Jr.
                                               Chairman of the Board

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed by the following  persons on behalf of the Registrant and
in the capacities and on the dates indicated.

                                                                77


<PAGE>










                                                                78


<PAGE>





             Name                         Title                     Date

/s/ E. B. Robinson, Jr.       Chairman of the Board         March 26, 1998
----------------------------
E. B. Robinson, Jr.           and Director
Principal Executive Officer

/s/ Howard L. McMillan, Jr.   President and Director        March 24, 1998
---------------------------
Howard L. McMillan, Jr.

/s/ Arlen L. McDonald         Executive Vice President      March 24, 1998
----------------------------
Arlen L. McDonald
Principal Financial Officer

/s/ Stephen E. Barker         Controller                    March 25, 1998
----------------------------
Stephen E. Barker
Principal Accounting Officer

/s/ Richard H. Bremer         Director                      March 27, 1998
----------------------------
Richard H. Bremer

/s/ Haley R. Barbour          Director                      March 27, 1998
----------------------------
Haley R. Barbour

/s/ Sharon S. Greener         Director                      March 25, 1998
----------------------------
Sharon S. Greener

/s/ Warren A. Hood, Jr.       Director                      March 25, 1998
----------------------------
Warren A. Hood, Jr.

/s/ Charles L. Irby           Director                      March 26, 1998
----------------------------
Charles L. Irby

/s/ William R. James          Director                      March 25, 1998
----------------------------
William R. James

/s/ Booker T. Jones           Director                      March 27, 1998
----------------------------
Booker T. Jones

/s/ Richard D. McRae, Jr.     Director                      March 25, 1998
----------------------------
Richard D. McRae, Jr.

/s/ W. R. Newman, III         Director                      March 24, 1998
----------------------------
W. R. Newman, III

/s/ John N. Palmer            Director                      March 26, 1998
----------------------------
John N. Palmer

/s/ J. Kelley Williams        Director                      March 24, 1998
----------------------------
J. Kelley Williams


                                                                79


<PAGE>


<TABLE>
<CAPTION>



EXHIBIT INDEX

                            Exhibit
 Exhibit                    Number
---------
<S>                            <C>     <C>
Agreement and Plan of          2       This document was previously filed as Exhibit 1 to the
Merger, dated as of                    Company's Current Report on Form 8-K filed December 15,
December 7, 1997 by                    1997 and is hereby specifically incorporated by reference
and between First American             herein.
Corporation and Deposit
Guaranty Corp.

Articles of Incorporaiton    3(I)      This document was previously filed as Exhibit 3(a) to the
                                       Company's Quarterly Report on Form 10-Q for the quarter
                                       ended March 31, 1996 and is here by specifically
                                       incorporated by reference herein.

Bylaws                       3(II)     Filed herewith

Material Contracts            10
(1)  Executive Variable Pay            The written description of the Executive Variable Pay Plan
                                       included under the caption "Executive Compensation" in the
                                       definitive Proxy Statement of the Company, dated March 24,
                                       1992,  filed with the Commission pursuant to Rule 14a-6 and is
                                       hereby specifically incorporated by reference herein.

(2)  Deferred Income Plan              The original plan and an amendment to the plan were
      and Amendment I                  previously filed as Exhibit 10 to the Company's Annual Report on


(3)  Stock-Based, Long-Term            This document was previously filed as Exhibit 10 to the
       Incentive Plan                  Company's Annual Report on Form 10-K (file number


(4)  Stock-Based, Long-Term            This document was previously filed as Exhibit "A" to
     the Incentive Plan II             definitive Proxy Statement of the Company dated March
     29, 1993,

(5)  Employment Contracts              This document was previously filed as Exhibit 10 to the Company's
                                       Annual Report on Form 10-K (file number 0-4518) for the fiscal
                                       year ended December 31, 1996 and is hereby incorporated by
                                       reference herein.  The amendment to this document is filed herewith.
                                                                                            --------------

Statement Re:  Computation of   11     Filed herewith
Per Share Earnings

Subsidiaries of the Company     21     Filed herewith

Independent Auditors' Consent   23     Filed herewith


                                                                80


<PAGE>





Financial Data Schedule         27      Filed herewith
</TABLE>

                                                                81