<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period ________ to ________
Commission File No. 1-10160
-------
UNION PLANTERS CORPORATION
(Exact name of registrant as specified in its charter)
Tennessee 62-0859007
- ------------------------ ---------------------------------
(State of incorporation) (IRS Employer Identification No.)
Union Planters Administrative Center
7130 Goodlett Farms Parkway
Memphis, Tennessee 38018
Registrant's telephone number, including area code: (901) 580-6000
Indicate by check [X] 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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at October 31, 1998
- ------------------------- -------------------------------
Common stock $5 par value 136,063,035
<PAGE> 2
UNION PLANTERS CORPORATION AND SUBSIDIARIES
FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
a) Consolidated Balance Sheet - September 30, 1998,
September 30, 1997, and December 31, 1997................................... 3
b) Consolidated Statement of Earnings -
Three and Nine Months Ended September 30, 1998 and 1997..................... 4
c) Consolidated Statement of Changes in Shareholders' Equity -
Nine Months Ended September 30, 1998........................................ 5
d) Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 1998 and 1997............................... 6
e) Notes to Unaudited Consolidated Financial Statements........................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................... 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................. 34
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................... 36
Item 2. Changes in Securities....................................................... 36
Item 3. Defaults Upon Senior Securities............................................. 36
Item 4. Submission of Matters to a Vote of Security Holders......................... 36
Item 5. Other Information........................................................... 36
Item 6. Exhibits and Reports on Form 8-K............................................ 36
Signatures............................................................................ 38
</TABLE>
2
<PAGE> 3
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------- DECEMBER 31,
1998 1997 1997
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash and due from banks ............................................. $ 951,190 $ 1,037,543 $ 1,182,968
Interest-bearing deposits at financial institutions ................. 25,602 110,588 36,147
Federal funds sold and securities purchased under agreements to
resell........................................................... 149,063 169,875 172,657
Trading account assets .............................................. 255,583 232,709 187,419
Loans held for resale ............................................... 202,833 159,669 175,699
Available for sale investment securities (amortized cost: $7,733,707,
$5,649,521, and $5,761,070, respectively) ....................... 7,867,587 5,709,842 5,840,704
Loans ............................................................... 19,687,321 18,971,885 19,162,214
Less: Unearned income ........................................... (33,853) (35,359) (35,506)
Allowance for losses on loans ............................. (352,643) (291,084) (310,385)
------------ ------------ ------------
Net loans ................................................... 19,300,825 18,645,442 18,816,323
Premises and equipment, net ......................................... 533,178 503,646 497,267
Accrued interest receivable ......................................... 277,319 287,415 272,874
FHA/VA claims receivable ............................................ 141,580 82,985 134,112
Mortgage servicing rights ........................................... 104,307 63,795 62,726
Goodwill and other intangibles ...................................... 361,445 195,930 188,363
Other assets ........................................................ 354,970 740,019 426,193
------------ ------------ ------------
TOTAL ASSETS ................................................ $ 30,525,482 $ 27,939,458 $ 27,993,452
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing ............................................... $ 3,290,654 $ 3,248,130 $ 3,336,274
Certificates of deposit of $100,000 and over ...................... 2,661,614 2,437,457 2,386,533
Other interest-bearing ............................................ 17,336,631 15,115,303 15,480,340
------------ ------------ ------------
Total deposits .............................................. 23,288,899 20,800,890 21,203,147
Short-term borrowings ............................................... 1,829,275 1,777,953 1,784,347
Short- and medium-term bank notes ................................... 105,000 285,000 135,000
Federal Home Loan Bank advances ..................................... 589,261 996,788 830,252
Other long-term debt ................................................ 1,048,797 730,145 735,945
Accrued interest, expenses, and taxes ............................... 274,730 253,074 232,490
Other liabilities ................................................... 456,953 414,767 403,550
------------ ------------ ------------
TOTAL LIABILITIES ........................................... 27,592,915 25,258,617 25,324,731
------------ ------------ ------------
Commitments and contingent liabilities .............................. -- -- --
Shareholders' equity
Convertible preferred stock ....................................... 24,501 57,240 54,709
Common stock, $5 par value; 300,000,000 shares authorized;
135,688,161 issued and outstanding (124,183,606 at September
30, 1997 and 124,887,630 at December 31, 1997) ................. 678,441 620,918 624,438
Additional paid-in capital .......................................... 645,649 531,023 545,520
Retained earnings ................................................... 1,517,121 1,444,721 1,409,088
Unearned compensation ............................................... (15,550) (10,131) (14,364)
Unrealized gain on available for sale securities .................... 82,405 37,070 49,330
------------ ------------ ------------
TOTAL SHAREHOLDERS' EQUITY .................................. 2,932,567 2,680,841 2,668,721
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................. $ 30,525,482 $ 27,939,458 $ 27,993,452
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------------
1998 1997 1998 1997
-------- -------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans .......................... $439,486 $433,121 $ 1,310,019 $1,271,863
Interest on investment securities
Taxable ........................................... 89,739 80,090 254,760 241,134
Tax-exempt ........................................ 16,168 12,147 42,473 35,555
Interest on deposits at financial institutions ...... 158 1,358 1,113 2,167
Interest on federal funds sold and securities
purchased under agreements to resell .............. 2,444 3,707 11,061 11,483
Interest on trading account assets .................. 3,964 3,593 9,787 11,732
Interest on loans held for resale ................... 3,975 1,754 9,912 4,954
-------- -------- ----------- ----------
Total interest income ....................... 555,934 535,770 1,639,125 1,578,888
-------- -------- ----------- ----------
INTEREST EXPENSE
Interest on deposits ................................ 212,935 202,059 620,645 586,876
Interest on short-term borrowings ................... 20,083 21,200 56,400 64,144
Interest on long-term debt .......................... 34,272 31,550 103,574 92,138
-------- -------- ----------- ----------
Total interest expense ...................... 267,290 254,809 780,619 743,158
-------- -------- ----------- ----------
NET INTEREST INCOME ......................... 288,644 280,961 858,506 835,730
PROVISION FOR LOSSES ON LOANS ......................... 47,151 38,791 122,436 104,440
-------- -------- ----------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
LOSSES ON LOANS .......................... 241,493 242,170 736,070 731,290
-------- -------- ----------- ----------
NONINTEREST INCOME
Service charges on deposit accounts ................. 37,665 35,376 107,054 104,450
Mortgage servicing income ........................... 14,906 13,839 44,527 42,457
Bank card income .................................... 10,696 10,435 31,114 29,322
Factoring commissions ............................... 8,108 8,115 22,849 21,993
Trust service income ................................ 6,545 5,859 19,238 17,452
Profits and commissions from trading activities ..... 1,222 408 4,653 5,686
Investment securities gains (losses) ................ 1,561 3,508 (15,111) 4,500
Other income ........................................ 41,814 51,920 146,161 111,786
-------- -------- ----------- ----------
Total noninterest income .................... 122,517 129,460 360,485 337,646
-------- -------- ----------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits ...................... 112,578 102,179 328,111 303,994
Net occupancy expense ............................... 18,715 18,185 52,228 52,248
Equipment expense ................................... 17,735 15,367 50,332 45,748
Other expense ....................................... 180,395 86,550 364,498 243,989
-------- -------- ----------- ----------
Total noninterest expense ................... 329,423 222,281 795,169 645,979
-------- -------- ----------- ----------
EARNINGS BEFORE INCOME TAXES ................ 34,587 149,349 301,386 422,957
Applicable income taxes ............................... 17,130 51,080 113,321 144,291
-------- -------- ----------- ----------
NET EARNINGS ................................ $ 17,457 $ 98,269 $ 188,065 $ 278,666
======== ======== =========== ==========
NET EARNINGS APPLICABLE TO COMMON SHARES .... $ 16,955 $ 97,144 $ 186,461 $ 274,832
======== ======== =========== ==========
EARNINGS PER COMMON SHARE
Basic ............................................... $ 0.13 $ 0.79 $ 1.44 $ 2.25
Diluted ............................................. 0.13 0.76 1.41 2.18
AVERAGE COMMON SHARES OUTSTANDING (IN THOUSANDS)
Basic ............................................... 133,899 123,748 129,561 122,069
Diluted ............................................. 135,261 130,069 133,784 127,925
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
CONVERTIBLE ADDITIONAL AVAILABLE
PREFERRED COMMON PAID-IN RETAINED UNEARNED FOR SALE
STOCK STOCK CAPITAL EARNINGS COMPENSATION SECURITIES TOTAL
-------- --------- ---------- ----------- ------------ ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 .......... $ 54,709 $ 624,438 $ 545,520 $ 1,409,088 $(14,364) $49,330 $ 2,668,721
Comprehensive income
Net earnings ..................... -- -- -- 188,065 -- -- 188,065
Other comprehensive income,
net of taxes:
Net change in the unrealized
gain on available for sale
securities...................... -- -- -- -- -- 31,296 31,296
-------- --------- --------- ----------- -------- ------- -----------
Total comprehensive
income................. -- -- -- 188,065 -- 31,296 219,361
Cash dividends
Common stock, $1.50 per share .... -- -- -- (149,572) -- -- (149,572)
Preferred stock, $1.50 per
share........................... -- -- -- (1,604) -- -- (1,604)
Pooled institutions prior to
pooling ........................ -- -- -- (27,503) -- -- (27,503)
Common stock issued under
employee benefit plans and
dividend reinvestment plan,
net of stock exchanged .......... -- 8,902 40,229 (137) (720) -- 48,274
Issuance of common stock for
acquisitions .................... -- 46,604 145,712 114,394 (466) 1,779 308,023
Conversion of debt of
acquired institution ............ -- 3,986 14,026 -- -- -- 18,012
Other stock transactions of
pooled institutions prior to
pooling ......................... -- (8,430) (111,514) 21,466 -- -- (98,478)
Conversion of preferred stock ..... (30,208) 7,552 22,654 -- -- -- (2)
Common stock repurchased for
use in business combinations .... -- (4,611) (10,978) (37,076) -- -- (52,665)
-------- --------- --------- ----------- -------- ------- -----------
BALANCE, SEPTEMBER 30, 1998 ...... $ 24,501 $ 678,441 $ 645,649 $ 1,517,121 $(15,550) $82,405 $ 2,932,567
======== ========= ========= =========== ======== ======= ===========
</TABLE>
- --------------------
<TABLE>
<CAPTION>
TAX
BEFORE-TAX (EXPENSE) NET OF TAX
AMOUNT BENEFIT AMOUNT
-------- -------- --------
<S> <C> <C> <C>
DISCLOSURE OF RECLASSIFICATION
AMOUNT:
Net change in the unrealized
gains on available for sale
securities arising during
the period ................. $ 36,558 $ (14,495) $ 22,063
Less: reclassification for
gains (losses) included in
net income.................. (15,111) 5,878 (9,233)
--------- --------- ---------
Net change in the unrealized
gain on available for sale
securities.................. $ 51,669 $ (20,373) $ 31,296
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings ........................................................................... $ 188,065 $ 278,666
Reconciliation of net earnings to net cash provided by operating activities:
Provision for losses on loans, other real estate, and FHA/VA foreclosure claims ...... 127,459 106,688
Provisions for merger-related charges ................................................ 51,152 --
Depreciation and amortization of premises and equipment .............................. 46,937 37,627
Amortization and write-off of goodwill, other intangibles, and mortgage servicing
rights.............................................................................. 35,764 28,182
Net accretion of investment securities ............................................... 3,744 (4,217)
Net realized (gains) losses on sales of investment securities ........................ 15,111 (4,500)
Deferred income tax (benefit) expense ................................................ (35,294) (125)
(Increase) decrease in assets
Trading account assets and loans held for resale ............................... (95,298) (18,508)
Other assets ................................................................... 65,772 (282,774)
Increase (decrease) in accrued interest, expenses, taxes, and other liabilities ...... 22,402 (16,429)
Other, net ........................................................................... 2,039 3,985
----------- -----------
Net cash provided by operating activities ...................................... 427,853 128,595
----------- -----------
INVESTING ACTIVITIES
Net decrease (increase) in short-term investments ...................................... 6,240 (85,716)
Proceeds from sales of available for sale securities ................................... 1,051,902 1,116,665
Proceeds from maturities, calls, and prepayments of available for sale securities ...... 2,993,834 1,985,512
Purchases of available for sale securities ............................................. (5,616,048) (2,955,693)
Net decrease (increase) in loans ....................................................... 744,963 (250,480)
Net cash received (used) from acquisitions of financial institutions ................... 1,434,729 (18,920)
Purchases of premises and equipment, net ............................................... (49,294) (55,013)
Other, net ............................................................................. -- 10,299
----------- -----------
Net cash provided (used) by investing activities ............................... 566,326 (253,346)
----------- -----------
FINANCING ACTIVITIES
Net decrease in deposits ............................................................... (924,148) (34,793)
Net increase in short-term borrowings .................................................. 29,021 117,098
Proceeds from long-term debt, net ...................................................... 722,340 414,080
Repayment of long-term debt ............................................................ (808,294) (373,114)
Proceeds from issuance of common stock ................................................. 36,096 21,936
Purchase and retirement of common stock ................................................ (151,095) (20,898)
Cash dividends paid .................................................................... (179,082) (116,891)
Other, net ............................................................................. -- 6,008
----------- -----------
Net cash provided (used) by financing activities ............................... (1,275,162) 13,426
----------- -----------
Net decrease in cash and cash equivalents .............................................. (280,983) (111,325)
Cash and cash equivalents at the beginning of the period ............................... 1,355,625 1,318,743
----------- -----------
Cash and cash equivalents at the end of the period ..................................... $ 1,074,642 $ 1,207,418
=========== ===========
SUPPLEMENTAL DISCLOSURES
Cash paid for
Interest ............................................................................. $ 767,867 $ 733,930
Taxes ................................................................................ 121,220 131,179
Unrealized gain on available for sale securities ....................................... 133,880 59,906
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
6
<PAGE> 7
UNION PLANTERS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. PRINCIPLES OF ACCOUNTING
The consolidated financial statements of Union Planters Corporation and
its subsidiaries (the Corporation) have been prepared in accordance with
generally accepted accounting principles. The foregoing financial statements
are unaudited; however, in the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of the consolidated financial condition, results of operations, and cash flows
for the interim periods have been included.
The accounting policies followed by the Corporation for interim financial
reporting are consistent with the accounting policies followed for annual
financial reporting except as noted below. The notes included herein should be
read in conjunction with the consolidated financial statements and related
notes included in Exhibit 99.1 to this Form 10-Q (1997 Restated Financial
Statements). The Corporation's consolidated financial statements for December
31, 1997 were restated for four acquisitions that were completed in the third
quarter of 1998 and accounted for as poolings of interests (see Note 2 to these
interim financial statements). The 1997 Restated Financial Statements became
the historical financial statements of the Corporation for 1997 upon the filing
of this Form 10-Q. Certain 1997 amounts have been reclassified to be consistent
with the 1998 financial reporting presentation.
Effective January 1, 1998, the Corporation adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which are reflected in the Consolidated Statement of
Changes in Shareholders' Equity.
7
<PAGE> 8
NOTE 2. ACQUISITIONS
CONSUMMATED ACQUISITIONS
Reference is made to Note 2 of the 1997 Restated Financial Statements for
information regarding acquisitions completed in 1997.
<TABLE>
<CAPTION>
DATE COMMON SHARES METHOD OF
INSTITUTION ACQUIRED ISSUED ACCOUNTING TOTAL ASSETS TOTAL EQUITY
- ------------------------------------- --------- --------- ---------- ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Sho-Me Financial Corporation ...... 1/1/98 1,153,459 Purchase $ 374 $ 61
Springfield, Missouri (1)
Security Bancshares, Inc. ......... 4/1/98 490,821 Pooling of 146 15
Des Arc, Arkansas Interests
Magna Group, Inc. (MGR) ........... 7/1/98 33,398,818 Pooling of 7,683 639
St. Louis, Missouri (2) and (3) Interests
Peoples First Corporation (Peoples) 7/1/98 6,031,031 Pooling of 1,427 142
Paducah, Kentucky (2) Interests
Merchants Bancshares, Inc. ........ 7/31/98 2,018,744 Pooling of 565 58
(Merchants) Interests
Houston, Texas (2)
CB&T, Inc. ........................ 7/7/98 1,449,127 Pooling of 278 34
McMinnville, Tennessee Interests
Capital Savings Bancorp, Inc. ..... 7/8/98 724,613 Pooling of 207 21
Jefferson City, Missouri Interests
First National Bancshares of
Wetumpka, Inc. .................. 7/31/98 835,709 Pooling of 202 23
Wetumpka, Alabama Interests
Alvin Bancshares, Inc. ............ 8/1/98 423,869 Pooling of 117 12
Alvin, Texas Interests
First Community Bancshares, Inc. .. 8/5/98 125,782 Pooling of 39 1
Middleton, Tennessee Interests
Duck Hill Bank .................... 8/1/98 42,396 Purchase 21 3
Duck Hill, Mississippi (4)
AMBANC Corporation (AMBANC) ....... 8/31/98 3,387,548 Pooling of 731 75
Vincennes, Indiana (2) Interests
Transflorida Bank ................. 8/31/98 1,655,371 Pooling of 334 40
Boca Raton, Florida Interests
Purchase of 24 branches and
assumption of $1.5 billion of
deposits of California Federal
Bank in Florida (5) ............ 9/11/98 N/A Purchase 1,389 N/A
---------- ------- ------
TOTAL ................... 51,737,288 $13,513 $1,124
========== ======= ======
</TABLE>
- --------------------
(1) The Corporation repurchased the majority of the shares issued in this
transaction. Goodwill and other intangibles resulting from the transaction
were approximately $29 million.
(2) The Corporation has restated its 1997 historical financial statements for
these acquisitions, which are considered significant. See Exhibit 99.1 to
this Form 10-Q.
(3) On May 1, 1998, MGR acquired Charter Bank, S.B. (Charter), an Illinois
savings bank. At the date of consummation, Charter had total assets of
approximately $406 million, total deposits of approximately $309 million,
and total shareholder's equity of approximately $67 million. Goodwill and
other intangibles resulting from the Charter acquisition were
approximately $47 million.
(4) The Corporation repurchased the majority of the shares issued in this
transaction. Goodwill and other intangibles resulting from the transaction
were $594,000.
(5) The premium paid for the deposits purchased and the resulting goodwill and
other intangibles were approximately $110 million.
8
<PAGE> 9
The following table summarizes the impact of the significant acquisitions
shown below which were accounted for as poolings of interests.
<TABLE>
<CAPTION>
NET INTEREST INCOME NONINTEREST INCOME NET EARNINGS
------------------- ------------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
JANUARY 1, 1998 TO DATE OF ACQUISITION
MGR ......................... $ 126 $ 20 $ 12
Peoples ..................... 29 5 --
AMBANC ...................... 7 3 --
Merchants ................... 17 4 2
-------- -------- --------
TOTAL ................. $ 179 $ 32 $ 14
======== ======== ========
NINE MONTHS ENDED SEPTEMBER 30, 1997
Union Planters ............... $ 574 $ 273 $ 203
MGR .......................... 178 48 50
Peoples ...................... 43 8 14
AMBANC ....................... 21 5 6
Merchants .................... 20 5 6
-------- -------- --------
UNION PLANTERS POOLED . $ 836 $ 339 $ 279
======== ======== ========
</TABLE>
PENDING ACQUISITIONS
Through its acquisition program, the Corporation has the following
pending acquisitions, which are considered probable of consummation.
<TABLE>
<CAPTION>
PROJECTED ANTICIPATED
ACQUISITION APPROXIMATE METHOD OF APPROXIMATE
INSTITUTION DATE CONSIDERATION ACCOUNTING TOTAL ASSETS
- ---------------------------------------------- ----------------------------------------- -------------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Purchase 56 branches of First Chicago
NBD Corporation in Indiana ................. 2/12/99 $294 million Purchase $ 1,800
premium in cash (1)
Ready State Bank ............................. 12/31/98 3,214,000 shares Pooling 595
Hialeah, Florida of common stock of interests
First Mutual Bancorp, Inc. ................... 12/31/98 1,100,000 shares Purchase 370
Decatur, Illinois (2) of common stock
Southeast Bancorp, Inc. ...................... 12/31/98 1,250,000 shares Pooling 335
Corbin, Kentucky of common stock of interests
First & Farmers Bancshares, Inc. ............. 1/31/99 $76 million in cash Purchase 275
Somerset, Kentucky
FSB, Inc. .................................... 12/31/98 907,000 shares Pooling 145
Covington, Tennessee of common stock of interests
La Place Bancshares, Inc. .................... 12/31/98 412,000 shares Pooling
La Place, Louisiana of common stock of interests 70
---------
TOTAL .............................. $ 3,590
=========
</TABLE>
- --------------------
(1) The purchase price of the premises and equipment to be purchased has not
yet been determined.
(2) The Corporation intends to purchase, in the open market, approximately one
million UPC common shares to facilitate its purchase of First Mutual
Bancorp, Inc.
9
<PAGE> 10
NOTE 3. LOANS
Loans are summarized by type as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------- DECEMBER 31,
1998 1997 1997
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Commercial, financial, and agricultural ..... $ 3,418,843 $ 3,112,319 $ 3,210,652
Foreign ..................................... 221,140 148,115 207,343
Accounts receivable - factoring ............. 643,894 604,214 579,067
Real estate - construction .................. 1,060,420 938,795 960,405
Real estate - mortgage
Secured by 1-4 family residential ......... 5,724,171 5,370,623 5,361,456
FHA/VA government-insured/guaranteed ...... 762,998 1,385,442 1,331,993
Other mortgage ............................ 4,155,489 3,783,698 3,828,230
Home equity ................................. 472,618 430,115 443,762
Consumer
Credit cards and related plans ............ 535,362 620,418 612,902
Other consumer ............................ 2,625,244 2,510,068 2,560,649
Direct lease financing ...................... 67,142 68,078 65,755
----------- ----------- -----------
TOTAL LOANS ....................... $19,687,321 $18,971,885 $19,162,214
=========== =========== ===========
</TABLE>
Nonperforming loans are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
NONACCRUAL LOANS
Domestic.................................................... $ 141,933 $ 132,672
Foreign..................................................... 1,276 96
RESTRUCTURED LOANS............................................ 6,414 15,250
----------- -----------
TOTAL NONPERFORMING LOANS........................... $ 149,623 $ 148,018
=========== ===========
FHA/VA GOVERNMENT-INSURED/GUARANTEED LOANS ON NONACCRUAL STATUS $ 9,309 $ 14,933
=========== ===========
</TABLE>
NOTE 4. ALLOWANCE FOR LOSSES ON LOANS
The changes in the allowance for losses on loans for the three and nine
months ended September 30, 1998, are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BEGINNING BALANCE............................................. $ 323,132 $ 310,385
Provision for losses on loans................................. 47,152 122,436
Recoveries of loans previously charged off.................... 6,215 19,628
Loans charged off............................................. (37,515) (123,530)
Increase due to acquisitions.................................. 13,659 23,724
------------ ------------
BALANCE, SEPTEMBER 30, 1998................................... $ 352,643 $ 352,643
============ ============
</TABLE>
As of September 30, 1998, the amount of the Corporation's impaired loans
and the disclosures related thereto were not considered significant.
10
<PAGE> 11
NOTE 5. INVESTMENT SECURITIES
The amortized cost and fair value of investment securities are summarized
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
--------------------------------------------------------------------------
UNREALIZED
AMORTIZED --------------------------------
COST GAINS LOSSES FAIR VALUE
----------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES
U. S. Government obligations
U. S. Treasury.................................. $ 321,269 $ 5,790 $ -- $ 327,059
U. S. Government agencies
Collateralized mortgage obligations........... 2,284,300 27,892 7,627 2,304,565
Mortgage-backed............................... 692,543 23,463 179 715,827
Other......................................... 2,246,205 21,942 442 2,267,705
----------- ----------- ----------- -----------
Total U. S. Government obligations...... 5,544,317 79,087 8,248 5,615,156
Obligations of states and political subdivisions.. 1,246,307 57,464 431 1,303,340
Other stocks and securities....................... 943,083 6,820 812 949,091
----------- ----------- ----------- -----------
TOTAL AVAILABLE FOR SALE SECURITIES..... $ 7,733,707 $ 143,371 $ 9,491 $ 7,867,587
=========== =========== =========== ===========
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------------------
UNREALIZED
AMORTIZED --------------------------------
COST GAINS LOSSES FAIR VALUE
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES
U. S. Government obligations
U. S. Treasury.................................. $ 987,384 $ 5,207 $ 907 $ 991,684
U. S. Government agencies
Collateralized mortgage obligations........... 1,237,290 5,471 4,827 1,237,934
Mortgage-backed............................... 951,955 24,151 1,061 975,045
Other......................................... 1,294,531 10,158 2,319 1,302,370
----------- ----------- ----------- -----------
Total U. S. Government obligations...... 4,471,160 44,987 9,114 4,507,033
Obligations of states and political subdivisions.. 890,912 44,159 851 934,220
Other stocks and securities....................... 398,998 1,369 916 399,451
----------- ----------- ----------- -----------
TOTAL AVAILABLE FOR SALE SECURITIES..... $ 5,761,070 $ 90,515 $ 10,881 $ 5,840,704
=========== =========== =========== ===========
</TABLE>
Investment securities having a carrying value of approximately $3.1
billion at September 30, 1998 and $3.3 billion at December 31, 1997,
respectively, were pledged to secure public and trust funds on deposit,
securities sold under agreements to repurchase and Federal Home Loan Bank
advances.
The following table presents the gross realized gains and losses on
investment securities for the nine months ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
REALIZED GAINS REALIZED LOSSES
-------------------------------- --------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale securities............... $ 8,731 $ 6,464 $ 23,842 $ 1,964
=========== =========== =========== ===========
</TABLE>
NOTE 6. OTHER ASSETS
Other assets include receivables related to GNMA, FNMA, investors,
escrows, and foreclosure advances; investment portfolio receivables; and
miscellaneous receivables totaling $41.2 million, $438.9 million and $126.3
million, respectively at September 30, 1998, September 30, 1997, and December
31, 1997. The larger balance at September 30, 1997 is due primarily to trade
date receivables related to the securitization and sale of single family
residential mortgages.
11
<PAGE> 12
NOTE 7. OTHER NONINTEREST INCOME AND EXPENSE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- --------------------------------
1998 1997 1998 1997
------------ ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OTHER NONINTEREST INCOME
Gain on sale of securitized loans................... $ -- $ -- $ 19,605 $ --
Gain on sale of branches/deposits and
other selected assets............................ (3) 10,795 2,787 11,166
Gain on sale of residential mortgages............... 3,138 9,605 9,015 12,489
Mortgage origination fees........................... 3,916 1,884 7,580 2,849
Customer ATM usage fees............................. 5,361 4,611 14,308 12,855
Insurance commissions............................... 3,589 3,278 10,218 9,549
Annuity sales income................................ 2,631 2,056 5,273 6,759
Brokerage fee income................................ 4,754 3,888 14,492 10,086
Letters of credit fees.............................. 1,741 1,500 4,710 4,357
VSIBG partnership earnings.......................... 540 787 2,432 1,626
Other income........................................ 16,147 13,516 55,741 40,050
----------- ----------- ----------- -----------
TOTAL OTHER NONINTEREST INCOME.............. $ 41,814 $ 51,920 $ 146,161 $ 111,786
=========== =========== =========== ===========
OTHER NONINTEREST EXPENSE
Merger-related expenses............................. $ 77,776 $ 4,733 $ 94,818 $ 5,364
Amortization of mortgage servicing rights........... 5,745 4,406 15,755 12,897
Amortization of goodwill and other intangibles...... 7,622 5,452 19,931 15,283
Other contracted services........................... 7,540 7,085 19,407 21,083
Stationery and supplies............................. 6,594 6,485 19,745 19,237
Postage and carrier................................. 6,883 6,636 20,977 18,636
Advertising and promotion........................... 5,051 5,357 17,045 15,028
Communications...................................... 6,265 4,812 17,850 14,048
Other personnel services............................ 4,017 3,152 10,477 8,851
Other real estate expense........................... 2,480 2,499 7,285 6,796
Miscellaneous charge-offs........................... 2,845 2,927 8,703 8,273
Legal fees.......................................... 2,780 2,794 9,139 8,668
Provision for losses on FHA/VA foreclosure claims.. 824 888 3,546 2,327
Taxes other than income............................. 2,852 2,933 9,563 8,486
Travel.............................................. 2,447 2,238 7,062 6,401
Consultant fees..................................... 3,679 2,416 7,693 6,642
Merchant credit card charges........................ 3,513 2,706 9,471 7,340
Dues, subscriptions, and contributions.............. 1,658 1,818 5,569 5,599
Brokerage and clearing fees on trading activities... 1,141 968 4,009 3,440
Accounting and audit fees........................... 921 1,208 3,278 3,688
Insurance........................................... 1,184 1,242 3,044 3,880
FDIC insurance...................................... 744 1,219 1,140 3,509
Federal Reserve fees................................ 1,040 797 3,010 2,241
Prepayment penalty--FHLB advances................... 5,860 -- 6,555 --
Write-off of impaired assets........................ 7,513 -- 7,513 --
Other expense....................................... 11,421 11,779 31,913 36,272
----------- ----------- ----------- -----------
TOTAL OTHER NONINTEREST EXPENSE............. $ 180,395 $ 86,550 $ 364,498 $ 243,989
=========== =========== =========== ===========
</TABLE>
NOTE 8. INCOME TAXES
Applicable income taxes for the nine months ended September 30, 1998,
were $113.3 million, resulting in an effective tax rate of 37.6%. Applicable
income taxes for the same period in 1997 were $144.3 million, resulting in an
effective tax rate of 34.1%. The increase in the effective rate in 1998, as
compared to 1997, is due primarily to nondeductible merger-related expenses and
the change in the mix of taxable and nontaxable revenues. The tax expense
(benefit) applicable to investment securities gains and losses for the nine
months ended September 30, 1998 and 1997 was $5.9 million and $1.8 million,
respectively.
At September 30, 1998, the Corporation had a net deferred tax asset of
$147.7 million compared to $113.8 million at December 31, 1997. The net
deferred tax asset includes a deferred tax liability related to the net
unrealized gain on available for sale securities of $39.6 million and $29.9
million at those dates, respectively. Based upon historical earnings and
anticipated future earnings, management believes that normal operations will
generate sufficient taxable income to realize in full these deferred tax
benefits. Therefore, no extraordinary strategies are deemed necessary by
management to generate taxable income for purposes of realizing the net
deferred tax asset.
12
<PAGE> 13
NOTE 9. BORROWINGS
SHORT-TERM BORROWINGS
Short-term borrowings include federal funds purchased and securities sold
under agreements to repurchase and other short-term borrowings. Federal funds
purchased arise primarily from the Corporation's market activity with its
correspondent banks and generally mature in one business day. Securities sold
under agreements to repurchase are secured by U. S. Government and agency
securities.
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------- DECEMBER 31,
1998 1997 1997
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCES AT QUARTER END:
Federal funds purchased and securities sold
under agreements to repurchase.............................. $ 1,802,136 $ 1,550,580 $ 1,553,310
FHLB advances................................................. 15,000 208,485 210,860
Other short-term borrowings................................... 12,139 18,888 20,177
----------- ----------- -----------
Total short-term borrowings......................... $ 1,829,275 $ 1,777,953 $ 1,784,347
=========== =========== ===========
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE
Daily average balance............................... $ 1,418,978 $ 1,243,994 $ 1,260,919
Weighted average interest rate...................... 5.00% 4.97% 4.98%
</TABLE>
SHORT- AND MEDIUM-TERM BANK NOTES
The Corporation's principal subsidiary, Union Planters Bank, National
Association (UPB), has a $1-billion short-and medium-term bank note program to
supplement UPB's funding sources. Under the program UPB may from time to time
issue bank notes having maturities ranging from 30 days to one year from their
respective issue dates (Short-Term Bank Notes) and bank notes having maturities
of more than one year to 30 years from their respective dates of issue
(Medium-Term Bank Notes). At September 30, 1998 and December 31, 1997, UPB had
no Short-Term Bank Notes outstanding. A summary of the Medium-Term Bank Notes
follows.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balances at period end........................................ $ 105,000 $ 135,000
Fixed-rate notes.............................................. 105,000 135,000
Range of maturities........................................... 8/99 - 10/01 8/98 - 10/01
</TABLE>
FEDERAL HOME LOAN BANK (FHLB) ADVANCES
Certain of the Corporation's banking and thrift subsidiaries had
outstanding advances from the FHLB under Blanket Agreements for Advances and
Security Agreements (the Agreements). The Agreements enable these subsidiaries
to borrow funds from the FHLB to fund mortgage loan programs and to satisfy
certain other funding needs. The value of the mortgage-backed securities and
mortgage loans pledged under the Agreements must be maintained at not less than
115% and 150%, respectively, of the advances outstanding. At September 30,
1998, the Corporation had an adequate amount of mortgage-backed securities and
loans to satisfy the collateral requirements. A summary of the advances is as
follows.
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------- DECEMBER 31,
1998 1997 1997
-------------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balances at period end........................................ $ 589,261 $ 996,788 $ 830,252
Range of interest rates....................................... 3.25% - 7.95% 3.25% - 8.95% 3.25% - 8.95%
Range of maturities........................................... 1998 - 2015 1997 - 2025 1998 - 2017
</TABLE>
13
<PAGE> 14
OTHER LONG-TERM DEBT
The Corporation's other long-term debt is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------- DECEMBER 31,
1998 1997 1997
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Corporation-Obligated Mandatorily Redeemable
Capital Pass-through Securities of Subsidiary Trust
holding solely a Corporation-Guaranteed Related
Subordinated Note (Trust Preferred Securities).............. $ 199,000 $ 198,965 $ 198,973
Variable-rate asset-based certificates........................ 275,000 275,000 275,000
6.75% Subordinated Notes due 2005............................. 99,581 99,521 99,536
6.25% Subordinated Notes due 2003............................. 74,735 74,683 74,696
6.50% Putable/Callable Subordinated Notes due 2018............ 301,763 -- --
Other long-term debt.......................................... 98,718 81,976 87,740
----------- ----------- -----------
TOTAL OTHER LONG-TERM DEBT.......................... $ 1,048,797 $ 730,145 $ 735,945
=========== =========== ===========
</TABLE>
NOTE 10. SHAREHOLDERS' EQUITY
COMMON STOCK
At the Corporation's annual meeting April 16, 1998, shareholders approved
an increase in the number of authorized common shares from 100 million to 300
million.
PREFERRED STOCK
The Corporation's outstanding preferred stock, all of which is
convertible into shares of the Corporation's common stock, is summarized as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------- DECEMBER 31,
1998 1997 1997
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Preferred stock, without par value, 10,000,000 shares authorized
Series A Preferred Stock,
750,000 shares authorized, none issued............................ $ -- $ -- $ --
Series E, 8% Cumulative, Convertible, Preferred Stock
(stated at liquidation value of $25 per share)
980,046 shares issued and outstanding (2,289,594 at September 30,
1997 and 2,188,358 at December 31, 1997).......................... 24,501 57,240 54,709
----------- ----------- -----------
TOTAL PREFERRED STOCK....................................... $ 24,501 $ 57,240 $ 54,709
=========== =========== ===========
</TABLE>
NOTE 11. CONTINGENT LIABILITIES
CONTINGENT LIABILITIES
The Corporation and/or various subsidiaries are parties to certain
pending or threatened civil actions which are described in Item 3, Part I of
the Corporation's 1997 10-K, in Note 19 to the Corporation's 1997 Restated
Financial Statements, and in Note 10 included in the unaudited interim
consolidated financial statements in the Corporation's quarterly reports on
Form 10-Q dated March 31, 1998 and June 30, 1998. Various other legal
proceedings pending against the Corporation and/or its subsidiaries have arisen
in the ordinary course of business.
Based upon present information, including evaluations of certain actions
by outside counsel, management believes that neither the Corporation's
financial position, results of operations, nor liquidity will be materially
affected by the ultimate resolution of pending or threatened lawsuits. There
were no significant developments during the third quarter of 1998 in any of the
pending or threatened actions that affected such opinion.
14
<PAGE> 15
NOTE 12. EARNINGS PER SHARE
The calculation of net earnings per share is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER30,
--------------------------------- ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
BASIC:
Net earnings................................. $ 17,457 $ 98,269 $ 188,065 $ 278,666
Less preferred dividends................... (502) (1,125) (1,604) (3,834)
------------ ------------ ------------ ------------
Net earnings applicable to common shares..... $ 16,955 $ 97,144 $ 186,461 $ 274,832
============ ============ ============ ============
Net earnings per common share--basic......... $ .13 $ .79 $ 1.44 $ 2.25
============ ============ ============ ============
DILUTED:
Net earnings................................. $ 17,457 $ 98,269 $ 188,065 $ 278,666
Elimination of interest on convertible debt -- 472 (864) 398
------------ ------------ ------------ ------------
Net earnings applicable to common shares..... $ 17,457 $ 98,471 $ 187,201 $ 279,064
============ ============ ============ ============
Average common shares outstanding............ 133,899,234 123,747,698 129,561,035 122,069,300
Stock option adjustment...................... 1,361,339 1,966,542 1,542,468 1,879,293
Preferred stock adjustment................... -- 2,994,970 1,719,003 3,451,489
Effect of other dilutive securities.......... -- 1,359,662 961,733 524,539
------------ ------------ ------------ ------------
Average common shares outstanding............ 135,260,573 130,068,872 133,784,239 127,924,621
============ ============ =========== ============
Net earnings per common share--diluted....... $ .13 $ .76 $ 1.41 $ 2.18
============ ============ ============ ============
</TABLE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following provides a narrative discussion and analysis of significant
changes in the Corporation's results of operations and financial condition.
This discussion should be read in conjunction with the consolidated financial
statements and related financial analysis set forth in the Corporation's 1997
Restated Financial Statements, the Corporation's Quarterly Reports on Form 10-Q
dated March 31, 1998 and June 30, 1998, the Corporation's interim unaudited
financial statements and notes for the three and nine months ended September
30, 1998, included in Part I hereof, and the supplemental financial data
included in this discussion. The 1997 Restated Financial Statements were
restated for four acquisitions that were completed in the third quarter of 1998
and accounted for as poolings of interests (see Note 2 to the unaudited interim
consolidated financial statements included herein). The Corporation also
restated Management's Discussion and Analysis of Results of Operations and
Financial Condition (1997 Restated MD&A) and Selected Financial Data. The 1997
Restated Financial Statements, 1997 Restated MD&A, and the restated Selected
Financial Data are filed as Exhibit 99.1 to this Form 10-Q.
Certain of the information included in this discussion contains
forward-looking statements and information that are based on management's
belief as well as certain assumptions made by, and information currently
available to management. Specifically, this 10-Q contains forward-looking
statements with respect to the adequacy of the allowance for losses on loans;
the effect of legal proceedings on the Corporation's financial condition,
results of operations, and liquidity; charges related to pending acquisitions;
cost savings related to integration of completed acquisitions; anticipated
effective dates of acquisitions; and year 2000 compliance issues. When used in
this discussion, the words "anticipate," "project," "expect," "believes," and
similar expressions are intended to identify forward-looking statements.
Although management of the Corporation believes that the expectations reflected
in such forward-looking statements are reasonable; it can give no assurance
that such expectations will prove to have been correct. Such forward-looking
statements are subject to certain risks, uncertainties, and assumptions. Should
one or more of these risks materialize, or should any such underlying
assumptions prove to be incorrect, actual results may vary materially from
those anticipated, estimated, projected, or expected. Among key factors that
may have a direct bearing on the Corporation's operating results are
fluctuations in the economy, especially in the Southeast and Midwest; the
relative strength and weakness in the consumer and commercial credit sector and
in the real estate market; the actions taken by the Federal Reserve for the
purpose of managing the economy; the Corporation's ability to realize
anticipated cost savings related to both recently completed and pending
acquisitions; the ability of the Corporation to achieve anticipated revenue
enhancements; its success in assimilating acquired operations into the
Corporation's culture, including its ability to instill the Corporation's
credit culture and approach to operating efficiencies into acquired operations;
the continued growth of the markets in which the Corporation operates
consistent with recent historical experience; the absence of undisclosed
material contingencies inherent in acquired operations, including asset quality
and litigation contingencies; the enactment of legislation impacting the
operations of the Corporation; and the Corporation's ability to expand into new
markets and to maintain profit margins in the face of pricing pressure.
15
<PAGE> 16
SELECTED FINANCIAL DATA
The following table presents selected financial highlights for the three
and nine months ended September 30, 1998
and 1997.
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
THREE MONTHS ENDED NINE MONTHS ENDED ---------------------
SEPTEMBER 30, SEPTEMBER 30, THREE NINE
-------------------------- -------------------------- ------ ------
1998 1997 1998 1997 MONTHS MONTHS
---------- ---------- ---------- ---------- ------ ------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net earnings........................ $ 17,457 $ 98,269 $ 188,065 $ 278,666 (82)% (33)%
Basic earnings per common share..... .13 .79 1.44 2.25 (84) (36)
Diluted earnings per common share... .13 .76 1.41 2.18 (83) (35)
Return on average assets............ .24% 1.40% .88% 1.37%
Return on average common equity..... 2.40 15.58 9.23 15.79
Dividends per common share.......... $ .50 $ .40 $ 1.50 $ 1.095 25 37
Net interest margin (FTE)........... 4.32% 4.47% 4.45% 4.55%
Interest rate spread (FTE).......... 3.51 3.67 3.65 3.77
Expense ratio....................... 1.50 1.42 1.50 1.50
Efficiency ratio.................... 55.69 52.63 54.51 53.02
Book value per common share......... $ 21.43 $ 21.13 1
Leverage ratio...................... 9.29% 9.67%
Common share prices:
High closing price................ $ 61.94 $ 56.50 $ 67.31 $ 56.50
Low closing price................. 40.25 49.25 40.25 38.38
Closing price at quarter end...... 50.25 55.88 50.25 55.88
</TABLE>
- --------------------
Net interest margin = Net interest income as a percentage of average earning
assets
Interest rate spread = Difference in the yield on average earning assets and
the rate on average interest-bearing liabilities
Expense ratio = Operating net noninterest expense [noninterest expense minus
noninterest income, excluding significant nonrecurring revenues/expenses,
investment securities gains (losses), and goodwill and other intangibles
amortization] divided by average assets
Efficiency ratio = Operating noninterest expense (excluding significant
nonrecurring expenses and goodwill and other intangibles amortization) divided
by net interest income (FTE) plus noninterest income, excluding significant
nonrecurring revenues and investment securities gains (losses)
FTE = Fully taxable-equivalent basis
16
<PAGE> 17
OPERATING RESULTS--NINE MONTHS ENDED SEPTEMBER 30, 1998
The following table presents the contributions to diluted earnings per
common share. A discussion of the operating results follows this table.
UNION PLANTERS CORPORATION
CONTRIBUTIONS TO DILUTED EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, EPS
------------------------------- INCREASE
1998 1997 (DECREASE)
---------- ---------- ----------
<S> <C> <C> <C>
Net interest income-FTE............................................... $ 6.59 $ 6.70 $ (.11)
Provision for losses on loans......................................... (.92) (.82) (.10)
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOSSES ON LOANS-FTE......... 5.67 5.88 (.21)
---------- ---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts................................. .80 .82 (.02)
Mortgage servicing income........................................... .33 .33 --
Bank card income.................................................... .23 .23 --
Factoring commissions............................................... .17 .17 --
Trust service income................................................ .14 .14 --
Profits and commissions from trading activities..................... .03 .04 (.01)
Investment securities gains (losses)................................ (.11) .04 (.15)
Other income........................................................ 1.10 .87 .23
---------- ---------- ----------
Total noninterest income.................................... 2.69 2.64 .05
---------- ---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits...................................... 2.45 2.38 (.07)
Net occupancy expense............................................... .39 .41 .02
Equipment expense................................................... .38 .36 (.02)
Other expense....................................................... 2.71 1.90 (.81)
---------- ---------- ----------
Total noninterest expense................................... 5.93 5.05 (.88)
---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES-FTE............................ 2.43 3.47 (1.04)
Applicable income taxes-FTE........................................... 1.02 1.29 .27
---------- ---------- ----------
NET EARNINGS................................................ 1.41 2.18 (.77)
Less preferred stock dividends........................................ -- -- --
---------- ---------- ----------
DILUTED EARNINGS PER SHARE.................................. $ 1.41 $ 2.18 $ (.77)
========== ========== ==========
Change in net earnings applicable to diluted earnings per share using
previous year average shares outstanding............................ $ (.71)
Change in average shares outstanding.................................. (.06)
----------
Change in net earnings.............................................. $ (.77)
==========
Average diluted shares (in thousands)................................. 133,784 127,925
========== ==========
</TABLE>
- --------------------
FTE = Fully taxable-equivalent basis
THIRD QUARTER EARNINGS OVERVIEW
For the third quarter of 1998, the Corporation reported earnings of $17.5
million compared to $98.3 million for the same period in 1997. Diluted earnings
per common share for the third quarter of 1998 were $.13 compared to $.76 for
the same period in 1997. Net earnings for the nine months ended September 30,
1998 were $188.1 million, or $1.41 per diluted common share. This compares to
net earnings of $278.7 million, or $2.18 per diluted common share, for the same
period in 1997.
Results for the third quarter of 1998 and for the nine months ended
September 30, 1998 were significantly impacted by previously disclosed
merger-related expenses related to the twelve acquisitions completed during the
third quarter of 1998 (see Note 2 to the unaudited interim consolidated
financial statements). These charges totaled $77.8 million and $94.8 million,
respectively, for the three and nine months ended September 30, 1998 compared
to $4.7 million and $5.4 million, respectively, for the same periods in 1997.
In addition to these charges a number of other items impacted results for both
1998 and 1997. A summary of the significant items follows:
17
<PAGE> 18
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1998 1997 1998 1997
--------- --------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
EARNINGS BEFORE INCOME TAXES........ $ 34,587 $ 149,349 $ 301,386 $ 422,957
ADD (SUBTRACT) THE IMPACT OF THE FOLLOWING
ITEMS
Investment securities (gains) losses (1,561) (3,508) 15,111 (4,500)
Gain on sale of branches and other assets (3) (10,795) (8,187) (11,166)
Merger-related expenses............. 77,776 4,733 94,818 5,364
Write-off of impaired assets........ 7,513 -- 7,513 --
Prepayment penalty - FHLB advances.. 5,860 -- 6,555 --
ADJUSTED EARNINGS BEFORE TAXES ..... 124,172 139,779 417,196 412,655
Adjusted taxes...................... 42,733 46,988 147,071 139,918
ADJUSTED EARNINGS................... 81,439 92,791 270,125 272,737
</TABLE>
EARNINGS ANALYSIS
NET INTEREST INCOME
Net interest income (FTE) for the third quarter of 1998 was $296.3
million, an $8.2 million increase over the third quarter of 1997, which was
$288.1 million. For the nine months ended September 30, 1998, net interest
income (FTE) was $881.5 million compared to $856.9 million for the same period
in 1997. Net interest income for both the three and nine months ended September
30, 1998 was positively impacted by purchase acquisitions in the latter half of
1997 and certain smaller 1998 poolings of interests which were included from
the date of acquisition. These acquisitions improved net interest income $16.1
million and $31.5 million, respectively, for the three and nine months ended
September 30, 1998 compared to the same periods in 1997. Reference is made to
the Corporation's average balance sheet and analysis of volume and rate
changes, which follow this discussion for additional information regarding the
changes in net interest income.
The net interest margin for the third quarter of 1998 was 4.32% which
compares to 4.47% for the same quarter last year. The net interest margin for
the first nine months of 1998 was 4.45%, 10 basis points lower than the net
interest margin for the same period in 1997. The interest rate spread decreased
to 3.51% for the third quarter of 1998 from 3.67% for the third quarter of
1997.
INTEREST INCOME
The following table presents a breakdown of average earning assets for
the three and nine months ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(DOLLARS IN BILLIONS)
<S> <C> <C> <C> <C>
Average earning assets...................... $ 27.2 $ 25.6 $ 26.5 $ 25.2
Comprised of:
Loans..................................... 72% 75% 74% 75%
Investment securities..................... 26 23 24 23
Other earning assets...................... 2 2 2 2
- --------------------
Fully taxable equivalent yield on
average earning assets.................... 8.21% 8.43% 8.39% 8.50%
</TABLE>
Interest income (FTE) increased $20.7 million for the third quarter of
1998 compared to the same period in 1997. The increase is attributable to a
$1.7 billion increase in average earning assets, which resulted in a $30.8
million increase in interest income. This increase was partially offset by a 22
basis point decrease in the average yield on earning assets, which decreased
interest income, approximately $10.1 million. The lower yield on average
earning assets is attributable to a lower interest rate environment in 1998
compared to 1997. For the first nine months of 1998, interest income increased
$62.1 million due primarily to the growth of average earning assets, primarily
18
<PAGE> 19
loans and investment securities, which increased interest income approximately
$78.4 million. This increase was partially offset by an 11 basis point decrease
in the average yield on earning assets, which decreased interest income
approximately $16.3 million.
INTEREST EXPENSE
The following table presents a breakdown of average interest-bearing
liabilities for the three and nine months ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ---------------------------
1998 1997 1998 1997
--------- --------- --------- --------
(DOLLARS IN BILLIONS)
<S> <C> <C> <C> <C>
Average interest-bearing liabilities........ $ 22.6 $ 21.2 $ 22.0 $ 21.0
Comprised of:
Deposits.................................. 84% 83% 84% 83%
Short-term borrowings..................... 7 8 7 8
FHLB advances and long-term debt.......... 9 9 9 9
- --------------------
Rates paid on average interest-bearing liabilities 4.70% 4.76% 4.74% 4.73%
</TABLE>
Interest expense increased $12.5 million in the third quarter of 1998
compared to the same period in 1997. The increase is due primarily to a $1.3
billion increase in average interest-bearing liabilities, primarily growth in
interest-bearing deposits from acquired entities and the issuance of $300
million of 6.5% Putable/Callable Subordinated Notes in March 1998, which
increased interest expense approximately $16.1 million. This increase was
partially offset by a six basis points decrease in the average rate paid for
interest-bearing liabilities, which decreased interest expense approximately
$3.6 million. For the first nine months of 1998, interest expense increased
$37.5 million compared to the same period in 1997. The $1.0 billion increase in
average interest-bearing liabilities accounted for $40.0 million of the
increase. This increase was offset by a lower rate paid on average
interest-bearing liabilities, which equates to a $2.5 million decrease.
PROVISION FOR LOSSES ON LOANS
The provision for losses on loans for the third quarter of 1998 was $47.2
million, or .99% of average loans on an annualized basis, compared to $38.8
million, or .87% of average loans, for the same period in 1997. For the nine
months ended September 30, 1998, the provision for losses on loans was $122.4
million compared to $104.4 million for the same period in 1997.
The increase in the provision for losses on loans was attributable to
growth in indirect automobile, small business, crop production, and
asset-backed loans, and additional provisions to increase the level of reserves
for commercial real estate loans in banks acquired in the third quarter due to
a more aggressive strategy in dealing with these credits. Additionally, the
provision for losses on loans related to the credit card portfolio remained
high throughout the first nine months of 1998. However, subsequent to the end
of the third quarter of 1998, the Corporation entered into an agreement to sell
a majority of its credit card portfolio (see "Sale of the Credit Card
Portfolio" below). Reference is made to the "Allowance for Losses on Loans"
discussion for additional information regarding loan charge-offs and the
anticipated level of the provision for losses on loans.
NONINTEREST INCOME
Noninterest income for the third quarter of 1998 was $122.5 million, a
decrease of $6.9 million from the same period in 1997. For the nine months
ended September 30, 1998, noninterest income was $360.5 million compared to
$337.6 million for the same period in 1997. The major components of noninterest
income are presented on the face of the statement of earnings and in Note 7 to
the unaudited interim consolidated financial statements.
The decline in noninterest income for the third quarter of 1998 compared
to the same period in 1997 is due to several factors. First, in the third
quarter of 1997, the Corporation sold certain branches in East Tennessee
resulting in a gain of $10.8 million. Second, in the third quarter of 1997, the
Corporation sold approximately $300 million of mortgage loans that resulted in
the gain on the sale of residential mortgages decreasing $6.5 million for the
quarter. Finally, investment securities gains decreased $1.9 million for the
quarter. Offsetting these declines for the quarter were increases in the
following noninterest income categories: (i) service charges on deposits and
19
<PAGE> 20
other deposit related fees increased $3.0 million for the quarter; (ii)
mortgage origination fees increased $2.0 million due to higher volumes of
mortgage originations; and (iii) mortgage servicing income increased $1.1
million for the quarter.
For the nine months ended September 30, 1998, noninterest income was
significantly impacted by two items. First, during the second quarter of 1998,
the Corporation had a gain of $19.6 million from the securitization of FHA/VA
loans. The transaction involved the securitization and sale of previously
defaulted FHA and VA guaranteed loans serviced by one of the Corporation's
subsidiaries. Partially offsetting this gain were investment securities losses
of $15.1 million for the nine months ended September 30, 1998 compared to
investment securities gains of $4.5 million for the same period in 1997. The
losses in 1998 related to the write-down, in the second quarter of 1998, of
certain mortgage-backed securities of one of the entities acquired. Other items
impacting noninterest income for the nine months ended September 30, 1998
compared to the same period in 1997 were: (i) a $5.4 million gain was
recognized by one of the entities acquired related to the sale of the stock of
a company owned; (ii) mortgage origination fees increased $4.7 million between
the two periods due to a higher volume of originations; (iii) service charges
and other deposit transaction fees increased $4.1 million; (iv) brokerage fee
income increased $4.4 million due to higher transaction volumes; (v) mortgage
servicing income increased $2.1 million; and (vi) bank card income increased
$1.8 million. These increases were partially offset by an $8.4 million decrease
in gains on the sale of branches and other assets due primarily to the sale of
East Tennessee branches during the third quarter of 1997 and a decline in gain
on sale of residential mortgages of $3.5 million due to a lower volume of
transactions.
NONINTEREST EXPENSE
Noninterest expense for the third quarter of 1998 increased $107.1
million to $329.4 million compared to $222.3 million for the third quarter of
1997. For the nine months ending September 30, 1998, noninterest expense
increased $149.2 million to $795.2 million. The major components of noninterest
expense are detailed on the face of the statement of earnings and in Note 7 to
the unaudited interim consolidated financial statements.
The significant increase for both the three and nine months ended
September 30, 1998 compared to the same periods in 1997 was due to previously
disclosed merger-related expenses of $77.8 million and $94.8 million,
respectively. For the same period in 1997 these expenses totaled $4.7 million
and $5.4 million, respectively. These expenses included: (i) salaries, employee
benefits, and other employment-related charges for employment contract
payments, change in control agreements, early retirement and involuntary
separation and related benefits, postretirement expenses, and termination of
assumed pension plans of acquired entities; (ii) write-downs of office
buildings and equipment to be sold, lease buyouts, assets determined to be
obsolete or no longer of use, and equipment not compatible with the
Corporation's equipment; (iii) professional fees for legal, accounting,
consulting, and financial advisory services; and (iv) other expenses such as
asset write-offs, charge-offs of prepaid assets, cancellation of vendor
contracts, computer conversion costs, and other costs which normally arise from
consolidation of operational activities. Also contributing to the increase in
noninterest expense in 1998 were prepayment penalties of $5.9 million and $6.6
million, respectively, related to restructuring certain of the acquired
companies borrowings and asset write-off of impaired assets of $7.5 million for
both periods.
Noninterest expenses for the three and nine months ended were impacted by
purchase acquisitions and certain poolings of interests transactions which were
included in the Corporation's results from the date of acquisition. These
transactions increased noninterest expense approximately $11.6 million and
$22.5 million, respectively, for the three and nine months ended September 30,
1998 compared to the same periods in 1997. Salaries and employee benefits
represented the largest single item of these expenses and increased salary and
employee benefit expense $4.6 million and $8.8 million, respectively.
Salaries and employee benefits expense, the largest component of
noninterest expense, increased $10.4 million and $24.1 million, respectively,
for the three and nine months ended September 30, 1998 compared to the same
periods in 1997. The Corporation had 11,734 full-time-equivalent employees at
September 30, 1998 compared to 11,603 at September 30, 1997.
Currently, a significant amount of management time is being spent on the
operational consolidation of most of the banking charters, integration of
recently completed acquisitions, and ensuring Year-2000 compliance.
Additionally, the Corporation is upgrading technology and standardizing
products and services throughout the Corporation's twelve-state, 800 plus
branch network. These activities, in management's opinion, are taking
management time and energies that would otherwise be spent on other efforts.
Quantifying the exact impact is not possible. While these efforts impact
operations over the short-run, they are expected to enhance customer service as
well as earnings in the future as integration of branch facilities and back
office systems from charter consolidation and recent acquisitions are completed
and standardized products are put in place. With management's emphasis on the
activities discussed above, management expects its acquisition activity will
slow for the near term.
20
<PAGE> 21
SALE OF THE CREDIT CARD PORTFOLIO
On October 15, 1998, the Corporation sold substantially all of the credit
card portfolio of UPB to MBNA Bank America, N.A. (MBNA) and also entered into
additional agreements to sell to MBNA a large majority of the credit card
portfolios of Union Planters Bank of Kentucky (formerly Peoples) and Magna
Bank, N.A., which was merged with UPB on October 9, 1998. As part of the
transaction, MBNA has been appointed the exclusive issuer of Union Planters'
credit cards. The portfolio being sold totaled approximately $460 million. In
connection with the sale the Corporation expects to recognize a net gain from
the sale of approximately $65 million to $70 million on a pretax basis
(approximately $40 million to $43 million after taxes) in the fourth quarter of
1998. Certain estimated costs related to selling the credit card portfolios
(e.g. employee severance, equipment write-offs, other fees, etc.) have been
netted against the gain. A smaller portion of this transaction will settle in
the first quarter of 1999. In the fourth quarter of 1998, management expects to
charge-off approximately $10 million to $15 million of credit cards receivables
that will not be purchased by MBNA.
FOURTH QUARTER EARNINGS CONSIDERATIONS
Historically, as the Corporation acquires entities, merger-related and
other significant charges have been incurred. (Reference is made to Table 1 in
the 1997 Restated MD&A - Exhibit 99.1 to this Form 10-Q). Typically, these
charges include the following: (i) salaries, employee benefits, and other
employment-related charges for employment contract payments, change in control
agreements, early retirement and involuntary separation and related benefits,
postretirement expenses, and assumed pension expenses of acquired entities;
(ii) write-downs of office buildings and equipment to be sold, lease buyouts,
assets determined to be obsolete or no longer of use, and equipment not
compatible with the Corporation's equipment; (iii) professional fees for legal,
accounting, consulting, and financial advisory services; and (iv) other
expenses such as asset write-offs, charge-offs of prepaid assets, cancellation
of vendor contracts, computer conversion costs, and other costs which normally
arise from consolidation of operational activities. These charges totaled $48.1
million, $52.8 million, and $12.1 million in 1997, 1996, and 1995,
respectively. As discussed above, these expenses were $77.8 million and $94.8
million, respectively, for the three and nine months ended September 30, 1998
compared to $4.7 million and $5.4 million, respectively, for the same periods
in 1997. The level of the charges is directly related to the size of the
institution being acquired. Expenses of the type described above in the range
of $5 million to $6 million (both on a pretax and after tax basis) are expected
in the fourth quarter of 1998 in connection with the current pending
acquisitions (see Note 2 to the interim unaudited consolidated financial
statements). Additionally, expenses (primarily settlement of employment
agreements) of approximately $30 million (both on a pretax and after tax basis)
related to entities acquired in the third quarter of 1998 are expected to be
incurred in the fourth quarter of 1998 due to decisions made subsequent to
September 30, 1998. The settlement amount is subject to finalization of the
assumptions to be used in determining the amounts due under the agreements. To
the extent that the Corporation's recognition of these charges is contingent
upon consummation of a particular transaction, those charges would be
recognized in the period in which such transaction closes. This range of
potential charges is based on currently available information as well as
preliminary estimates. This range is provided as an estimate of the significant
charges which may be in the aggregate required and should be viewed
accordingly.
Subsequent to September 30, 1998, the Corporation expensed that portion
of certain restricted stock grants that would otherwise have remained
unrecognized at the recipients earliest possible retirement age. This will have
the effect of increasing benefits expense in the fourth quarter of 1998 by
approximately $8.9 million ($5.5 million on an after tax basis). Additionally,
in connection with the consolidation of certain loan and deposit functions, the
Corporation is implementing a plan to image all documents related to loans and
deposits. During the fourth quarter of 1998, the Corporation will engage a
third party to image all its current documents. The total expenses estimated to
be incurred in the fourth quarter of 1998 related to this project is
approximately $4.8 million ($2.9 million on an after tax basis).
Certain acquisitions during 1998, primarily the Sho-Me Financial
Corporation acquisition, the purchase of branches from California Federal Bank,
and the Charter acquisition (acquired by MGR in May 1998), have significantly
increased the level of goodwill and other intangibles to $361 million at
September 30, 1998. Given the changing market conditions, primarily interest
rates and the related volatility of the mortgage markets, the Corporation plans
to perform a review of the realization of these intangibles and other related
assets such as investment securities premiums during the fourth quarter of
1998. The impact of this review cannot be quantified at this time.
CHARTER CONSOLIDATION
In the 1997 Restated MD&A (filed as Exhibit 99.1 to this Form 10-Q) is a
discussion of the legal merger of the majority of the Corporation's banking
subsidiaries effective January 1, 1998 ("Charter Consolidation"). In connection
with the merger, the
21
<PAGE> 22
Corporation incurred 1997 charges totaling approximately $16.7 million. For the
nine months ended September 30, 1998, no additional significant charges were
incurred and there were no reversals of the charges accrued in 1997. The
anticipated annual cost savings from the consolidation, approximately $15 to
$20 million on a pretax basis, are still expected by mid-year to year end 1999
but have not yet been fully recognized.
IMPACT OF ACQUISITIONS
The following table presents the balance sheet impact of the 1998
acquisitions completed to date on selected balance sheet categories (Dollars in
millions):
<TABLE>
<S> <C>
BALANCE SHEET DATA (AT DATE OF ACQUISITION)
Total assets............................................... $ 13,513
Loans, net of unearned income ............................. 7,676
Allowance for losses on loans.............................. 117
Total deposits............................................. 10,850
Shareholders' equity....................................... 1,124
</TABLE>
The following table presents the estimated impact of the Corporation's
1997 and 1998 purchase acquisitions and certain poolings of interests accounted
for from date of acquisition on selected income statement categories (Dollars
in thousands):
<TABLE>
QUARTER TO DATE SEPTEMBER 30, 1998
<S> <C>
Net interest income........................................ $ 16,055
Provision for losses on loans.............................. (1,863)
Noninterest income......................................... 3,009
Noninterest expense........................................ (11,565)
-----------
Pretax earnings............................................ $ 5,636
===========
NINE MONTHS ENDED SEPTEMBER 30, 1998
Net interest income........................................ $ 31,546
Provision for losses on loans.............................. (2,579)
Noninterest income......................................... 5,727
Noninterest expense........................................ (22,546)
-----------
Pretax earnings............................................ $ 12,148
===========
</TABLE>
22
<PAGE> 23
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED DAILY AVERAGE BALANCE SHEET AND INTEREST RATES
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
1998 1997
--------------------------------- -----------------------------------
INTEREST FTE INTEREST FTE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ---- ------- ------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits at
Financial institutions.................. $ 27,516 $ 158 2.28% $ 92,578 $ 1,358 5.82%
Federal funds sold and securities
purchased under agreements to resell.... 173,476 2,444 5.59 258,099 3,707 5.70
Trading account assets.................... 250,228 3,964 6.28 199,179 3,593 7.16
Investment securities(1)(2)
Taxable................................. 5,887,563 89,739 6.05 5,002,355 80,090 6.35
Tax-exempt.............................. 1,167,637 21,438 7.28 826,920 18,777 9.01
----------- -------- ----------- --------
Total investment securities......... 7,055,200 111,177 6.25 5,829,275 98,867 6.73
Loans, net of unearned income(1)(3)(4).... 19,720,035 445,873 8.97 19,178,816 435,415 9.01
----------- -------- ----------- --------
TOTAL EARNING ASSETS(1)(2)(3)(4).... 27,226,455 563,616 8.21 25,557,947 542,940 8.43
----------- -------- ----------- --------
Cash and due from banks................... 821,124 873,664
Premises and equipment.................... 524,285 500,071
Allowance for losses on loans............. (336,662) (270,951)
Other assets.............................. 1,225,674 1,130,850
----------- -----------
TOTAL ASSETS........................ $29,460,876 $27,791,581
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Money market accounts..................... $ 2,994,046 $ 30,285 4.01% $ 2,734,518 $ 25,701 3.73%
Savings deposits.......................... 4,380,043 22,454 2.03 4,050,757 22,970 2.25
Certificates of deposit of
$100,000 and over....................... 2,613,847 39,234 5.96 2,412,204 35,045 5.76
Other time deposits....................... 8,942,697 120,961 5.37 8,525,435 118,343 5.51
Short-term borrowings
Federal funds purchased and securities
sold under agreements to repurchase... 1,524,276 19,549 5.09 1,343,394 17,100 5.05
Short-term bank notes.................... -- -- 79,348 1,150 5.75
Other.................................... 61,658 534 3.44 188,499 2,950 6.21
Long-term debt
Federal Home Loan Bank advances......... 905,378 12,127 5.31 1,087,539 14,985 5.47
Subordinated capital notes.............. 478,433 7,722 6.40 199,762 3,657 7.26
Medium-term bank notes.................. 121,304 2,020 6.61 135,000 2,236 6.57
Trust Preferred Securities.............. 198,996 4,128 8.23 198,960 4,128 8.23
Other................................... 356,836 8,276 9.20 280,277 6,544 9.26
----------- -------- ----------- --------
TOTAL INTEREST-BEARING LIABILITIES 22,577,514 267,290 4.70 21,235,693 254,809 4.76
Noninterest-bearing demand deposits....... 3,358,582 -- 3,197,788 --
----------- -------- ----------- --------
TOTAL SOURCES OF FUNDS.............. 25,936,096 267,290 24,433,481 254,809
--------
Other liabilities......................... 699,847 824,128
Shareholders' equity
Preferred stock......................... 26,565 59,899
Common equity........................... 2,798,368 2,474,073
----------- -----------
Total shareholders' equity.......... 2,824,933 2,533,972
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY........................ $29,460,876 27,791,581
=========== ===========
NET INTEREST INCOME(1)...................... $296,326 $288,131
======== ========
INTEREST-RATE SPREAD(1)..................... 3.51% 3.67%
==== ====
NET INTEREST MARGIN(1)...................... 4.32% 4.47%
==== ====
TAXABLE-EQUIVALENT ADJUSTMENTS:
Loans................................... $ 2,412 $ 540
Investment securities................... 5,270 6,630
-------- --------
TOTAL............................... $ 7,682 $ 7,170
======== ========
</TABLE>
- --------------------
(1) Taxable-equivalent yields are calculated assuming a 35% federal income tax
rate.
(2) Yields are calculated on historical cost and exclude the impact of the
unrealized gain (loss) on available for sale securities.
(3) Includes loan fees, immaterial in amount, in both interest income and the
calculation of the yield on loans.
(4) Includes loans on nonaccrual status.
23
<PAGE> 24
UNION PLANTERS CORPORATION AND SUBSIDIARIES
ANALYSIS OF VOLUME AND RATE CHANGES
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
1998 VERSUS 1997
--------------------------------------
INCREASE (DECREASE)
DUE TO CHANGE IN:(1)
--------------------
AVERAGE AVERAGE INCREASE
VOLUME RATE (DECREASE)
------ ---- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits at financial institutions ........... $ (643) $ (557) $(1,200)
Federal funds sold and securities purchased under agreements to
resell........................................................ (1,194) (69) (1,263)
Trading account assets ........................................ 838 (467) 371
Investment securities (FTE) ................................... 19,576 (7,266) 12,310
Loans, net of unearned income (FTE) ........................... 12,210 (1,752) 10,458
------- -------- -------
TOTAL INTEREST INCOME ................................. 30,787 (10,111) 20,676
------- -------- -------
INTEREST EXPENSE
Money market accounts ......................................... 2,542 2,042 4,584
Savings deposits .............................................. 1,763 (2,279) (516)
Certificates of deposit of $100,000 and over .................. 2,999 1,190 4,189
Other time deposits ........................................... 5,651 (3,032) 2,619
Short-term borrowings ......................................... (329) (788) (1,117)
Long-term debt ................................................ 3,424 (702) 2,722
------- -------- -------
TOTAL INTEREST EXPENSE ................................ 16,050 (3,569) 12,481
------- -------- -------
CHANGE IN NET INTEREST INCOME (FTE) ............................. $14,737 $ (6,542) $ 8,195
======= ======== =======
PERCENTAGE INCREASE IN NET INTEREST INCOME OVER PRIOR PERIOD .... 2.84%
=======
</TABLE>
FTE = Fully taxable-equivalent basis
(1) The change due to both rate and volume has been allocated to change due
to volume and change due to rate in proportion to the relationship of the
absolute dollar amounts of the change in each.
24
<PAGE> 25
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED DAILY AVERAGE BALANCE SHEET AND INTEREST RATES
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1998 1997
------------------------------------- ---------------------------------------
INTEREST FTE INTEREST FTE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ---- ------- ------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits at
Financial institutions................. $ 32,639 $ 1,113 4.56% $ 53,784 $ 2,167 5.39%
Federal funds sold and securities
purchased under agreements to resell... 264,945 11,061 5.58 275,241 11,483 5.58
Trading account assets................... 203,998 9,787 6.41 215,124 11,732 7.29
Investment securities(1)(2)
Taxable................................ 5,425,557 254,760 6.28 4,996,901 241,134 6.45
Tax-exempt............................. 1,008,548 56,973 7.55 803,830 55,035 9.15
----------- ---------- ----------- ----------
Total investment securities........ 6,434,105 311,733 6.48 5,800,731 296,169 6.83
Loans, net of unearned income(1)(3)(4)... 19,542,661 1,328,418 9.09 18,823,016 1,278,468 9.08
----------- ---------- ----------- ----------
TOTAL EARNING ASSETS(1)(2)(3)(4)... 26,478,348 1,662,112 8.39 25,167,896 1,600,019 8.50
---------- ----------
Cash and due from banks.................. 863,245 852,312
Premises and equipment................... 513,759 485,856
Allowance for losses on loans............ (323,335) (268,411)
Other assets............................. 1,191,983 1,002,989
----------- -----------
TOTAL ASSETS....................... $28,724,000 $27,240,642
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Money market accounts.................... $ 2,954,925 $ 87,100 3.94% $ 2,682,541 $ 73,266 3.65%
Savings deposits......................... 4,216,036 65,841 2.09 4,079,980 68,808 2.25
Certificates of deposit of
$100,000 and over..................... 2,582,288 112,494 5.82 2,288,809 98,142 5.73
Other time deposits...................... 8,698,369 355,210 5.46 8,437,101 346,660 5.49
Short-term borrowings
Federal funds purchased and securities
sold under agreements to repurchase.. 1,418,978 53,097 5.00 1,243,994 46,252 4.97
Short-term bank notes................... -- -- -- 156,282 6,798 5.82
Other................................... 60,077 3,303 7.35 244,073 11,094 6.08
Long-term debt
Federal Home Loan Bank advances........ 1,030,702 40,570 5.26 1,097,128 44,988 5.48
Subordinated capital notes............. 398,862 20,337 6.82 200,269 10,982 7.33
Medium-term bank notes................. 130,385 6,491 6.66 135,000 6,708 6.64
Trust Preferred Securities............. 198,987 12,383 8.32 198,951 12,383 8.32
Other.................................. 337,321 23,793 9.43 248,938 17,077 9.17
----------- ---------- ----------- ----------
TOTAL INTEREST-BEARING LIABILITIES 22,026,930 780,619 4.74 21,013,066 743,158 4.73
Noninterest-bearing demand deposits...... 3,289,654 -- 3,107,502 --
----------- ---------- ----------- ----------
TOTAL SOURCES OF FUNDS............. 25,316,584 780,619 24,120,568 743,158
----------
Other liabilities........................ 672,699 723,799
Shareholders' equity
Preferred stock........................ 34,380 69,370
Common equity.......................... 2,700,337 2,326,905
----------- -----------
Total shareholders' equity......... 2,734,717 2,396,275
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY........................ $28,724,000 27,240,642
=========== ===========
NET INTEREST INCOME(1).................... $ 881,493 $ 856,861
========== ==========
INTEREST-RATE SPREAD(1)................... 3.65% 3.77%
==== ====
NET INTEREST MARGIN(1).................... 4.45% 4.55%
==== ====
TAXABLE-EQUIVALENT ADJUSTMENTS:
Loans................................ $ 8,487 $ 1,651
Investment securities................ 14,500 19,480
---------- ----------
TOTAL.......................... $ 22,987 $ 21,131
========== ==========
</TABLE>
- --------------------
(1) Taxable-equivalent yields are calculated assuming a 35% federal income tax
rate.
(2) Yields are calculated on historical cost and exclude the impact of the
unrealized gain (loss) on available for sale securities.
(3) Includes loan fees, immaterial in amount, in both interest income and the
calculation of the yield on loans.
(4) Includes loans on nonaccrual status.
25
<PAGE> 26
UNION PLANTERS CORPORATION AND SUBSIDIARIES
ANALYSIS OF VOLUME AND RATE CHANGES
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1998 VERSUS 1997
------------------------------------------------------
INCREASE (DECREASE)
DUE TO CHANGE IN:(1)
---------------------------------
AVERAGE AVERAGE INCREASE
VOLUME RATE (DECREASE)
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits at financial institutions......... $ (758) $ (296) $ (1,054)
Federal funds sold and securities purchased under agreements to (429) 7 (422)
resell.....................................................
Trading account assets...................................... (585) (1,360) (1,945)
Investment securities (FTE)................................. 31,213 (15,649) 15,564
Loans, net of unearned income (FTE)......................... 48,917 1,033 49,950
----------- ----------- -----------
TOTAL INTEREST INCOME............................... 78,358 (16,265) 62,093
----------- ----------- -----------
INTEREST EXPENSE
Money market accounts....................................... 7,771 6,063 13,834
Savings deposits............................................ 2,242 (5,209) (2,967)
Certificates of deposit of $100,000 and over................ 12,763 1,589 14,352
Other time deposits......................................... 10,680 (2,130) 8,550
Short-term borrowings....................................... (6,329) (1,415) (7,744)
Long-term debt.............................................. 12,853 (1,417) 11,436
----------- ----------- -----------
TOTAL INTEREST EXPENSE.............................. 39,980 (2,519) 37,461
----------- ----------- -----------
CHANGE IN NET INTEREST INCOME (FTE)........................... $ 38,378 $ (13,746) $ 24,632
=========== =========== ===========
PERCENTAGE INCREASE IN NET INTEREST INCOME OVER PRIOR PERIOD.. 2.87%
===========
</TABLE>
- --------------------
FTE = Fully taxable-equivalent basis
(1) The change due to both rate and volume has been allocated to change due
to volume and change due to rate in proportion to the relationship of the
absolute dollar amounts of the change in each.
FINANCIAL CONDITION
The Corporation's total assets were $30.5 billion at September 30, 1998
compared to $27.9 billion at September 30, 1997, and $28.0 billion at December
31, 1997. Average assets for the three and nine months ended September 30, 1998
were $29.5 billion and $28.7 billion, respectively, compared to $27.8 billion
and $27.2 million, respectively, for both periods in 1997. The table above
provides the impact of the acquisitions on the Corporation's balance sheet.
INVESTMENT SECURITIES
The Corporation's investment securities portfolio of $7.9 billion at
September 30, 1998 consisted entirely of available for sale securities, which
are carried on the balance sheet at fair value. This compares to investment
securities of $5.8 billion at December 31, 1997. At September 30, 1998, and
December 31, 1997, these securities had net unrealized gains of $133.9 million
and $79.6 million, respectively. Reference is made to Note 5 to the interim
unaudited consolidated financial statements which provides the composition of
the investment portfolio at September 30, 1998 and December 31, 1997.
Transactions in this portfolio have the primary purpose of managing liquidity
and interest-rate risk and to take advantage of market conditions that create
economically attractive investment returns.
U. S. Treasury and U. S. Government agency obligations represented
approximately 71.4% of the investment securities portfolio at September 30,
1998. The Corporation has some credit risk in the investment portfolio;
however, management does not consider that risk to be significant and does not
believe that cash flows will be significantly impacted.
26
<PAGE> 27
The REMIC and CMO issues in the investment securities portfolio are 77%
U. S. Government agencies issues; the remaining 23% are readily marketable,
collateralized mortgage obligations backed by agency-pooled collateral or
whole-loan collateral. The limited credit risk in the investment securities
portfolio consisted of 16.6% municipal obligations and 2.6% stocks and
corporate debentures (75% of which is Federal Home Loan Bank and Federal
Reserve Bank stock), and 8.9% investment grade collateralized mortgage
obligations.
At September 30, 1998, the Corporation held approximately $63.5 million
of structured notes, which constituted approximately .8% of the investment
securities portfolio. Structured notes have uncertain cash flows, which are
driven by interest-rate movements and may expose a company to greater market
risk than traditional medium-term notes. All of the Corporation's investments
of this type are government-agency issues (primarily Federal Home Loan Bank and
Federal National Mortgage Association). The structured notes vary in type but
primarily include step-up bonds, floating-rate notes, and index-amortizing
notes. These securities have maturities less than seven years and are carried
in the Corporation's available for sale securities portfolio at fair value. At
September 30, 1998, these securities had unrealized gains of approximately
$84,000. The market risk associated with the structured notes is not considered
material to the Corporation's financial position, results of operations, or
liquidity, and involves limited credit risk.
LOANS
At September 30, 1998, loans, net of unearned income, were $19.7 billion
compared to $18.9 billion and $19.1 billion at September 30, 1997 and December
31, 1997, respectively. Average loans for the third quarter of 1998 were $19.7
billion, a 3% increase (6.8% excluding FHA/VA government-insured/guaranteed
loans) over $19.2 billion for the third quarter of 1997. For the nine months
ended September 30, 1998, average loans were $19.5 billion compared to $18.8
billion for the same period in 1997. Note 3 to the interim unaudited
consolidated financial statements included in Part I. Item 1 of this report
presents the composition of the loan portfolio.
Single-family residential loans increased $354 million between September
30, 1998 and 1997 due primarily to acquisitions. The growth has been partially
offset by declines due to the refinancing activity in the current low interest
rate environment. The level of credit card loans has declined $85 million and
$78 million, respectively, since both September 30, 1997 and year-end 1997 (See
"Sale of Credit Card Portfolio" above). Other consumer loans increased $115
million since September 30, 1997 due primarily to acquisitions. Commercial
(including foreign loans, factoring receivables, and direct lease financing),
financial, and agricultural loans have also demonstrated growth, increasing
$418 million since September 30, 1997. The amount of loans outstanding was
impacted by the sale of $381 million of FHA/VA loans that were securitized (see
the "Noninterest Income" discussion) in the second quarter of 1998 and by the
sale of $104 million of adjustable-rate mortgage loans in the first quarter of
1998.
Management believes that the loan portfolio is adequately diversified
which minimizes the risks in the portfolio. The largest concentration of loans
is single-family residential loans. Loans are spread primarily over the
twelve-state area the Corporation's banking subsidiaries serve. The Corporation
does not have any loans to hedge funds. The Corporation has a limited amount of
foreign exposure, less than 1% of the loan portfolio. The Corporation's foreign
loans are primarily U.S. dollar trade finance loans to correspondent banks in
Central and South America. The Corporation has no significant loans to foreign
governments.
ALLOWANCE FOR LOSSES ON LOANS
The Corporation maintains the allowance for losses on loans at a level
that is believed adequate to absorb losses inherent in the loan portfolio. A
formal review is prepared quarterly to assess the risk in the portfolio and to
determine the adequacy of the allowance for losses on loans. The review
includes analyses of certain problem loans, historical loan loss experience,
the levels of classified and nonperforming loans, reviews and evaluations of
specific loans, changes in the nature and volume of loans, the results of
regulatory examinations and current economic conditions, and the related impact
on specific borrowers and industry groups. This review is presented to, and
approved by, senior management and a committee of the Board of Directors.
27
<PAGE> 28
The following table provides a reconciliation of the allowance for losses
on loans (the allowance) and certain key ratios for the nine-month periods
ended September 30, 1998 and 1997 and for the year ended December 31, 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED
-------------------------------- DECEMBER 31,
1998 1997 1997
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE AT THE BEGINNING OF PERIOD............................ $ 310,385 $ 257,638 $ 257,638
LOANS CHARGED OFF
Commercial, financial, and agricultural..................... 32,273 32,062 40,436
Foreign..................................................... -- -- --
Real estate - construction.................................. 2,934 148 240
Real estate - mortgage...................................... 18,644 6,310 9,764
Credit cards and related plans.............................. 40,580 40,865 34,904
Consumer.................................................... 29,075 23,046 52,125
Direct lease financing...................................... 24 18 30
----------- ----------- -----------
Total charge-offs................................... 123,530 102,449 137,499
----------- ----------- -----------
RECOVERIES ON LOANS PREVIOUSLY CHARGED OFF
Commercial, financial, and agricultural..................... 6,776 6,767 7,896
Foreign..................................................... 20 -- 10
Real estate - construction.................................. 260 378 518
Real estate - mortgage...................................... 2,806 2,538 3,301
Credit cards and related plans.............................. 3,361 2,517 4,647
Consumer.................................................... 6,400 6,082 6,862
Direct lease financing...................................... 5 27 27
----------- ----------- -----------
Total recoveries.................................... 19,628 18,309 23,261
----------- ----------- -----------
Net charge-offs............................................... (103,902) (84,140) (114,238)
Provision charged to expense.................................. 122,436 104,440 150,606
Increase due to acquisitions.................................. 23,724 13,146 16,379
----------- ----------- -----------
BALANCE AT END OF PERIOD............................ $ 352,643 $ 291,084 $ 310,385
=========== =========== ===========
Total loans, net of unearned income, at end of period......... $19,653,468 $18,936,526 $19,126,708
Less: FHA/VA government insured/guaranteed loans.............. 762,998 1,385,442 1,331,993
----------- ----------- -----------
LOANS USED TO CALCULATE RATIOS...................... $18,890,470 $17,551,084 $17,794,715
=========== =========== ===========
Average total loans, net of unearned income, during period.... $19,542,661 $18,823,016 $18,897,828
Less: Average FHA/VA government-insured/guaranteed loans...... 1,025,467 1,531,908 1,500,120
----------- ----------- -----------
AVERAGE LOANS USED TO CALCULATE RATIOS.............. $18,517,194 $17,291,108 $17,397,708
=========== =========== ===========
RATIOS (1):
Allowance at end of period to loans, net of unearned income. 1.87% 1.66% 1.74%
Charge-offs to average loans, net of unearned income (2).... .89 .79 .79
Recoveries to average loans, net of unearned income (2)..... .14 .14 .13
Net charge-offs to average loans, net of unearned income (2) .75 .65 .66
Provision to average loans, net of unearned income (2)...... .88 .81 .87
</TABLE>
- --------------------
(1) Ratio calculations exclude FHA/VA government-insured/guaranteed loans,
since they represent minimal credit risk.
(2) Amounts annualized for September 30, 1998 and 1997.
The allowance at September 30, 1998 was $352.6 million compared to $310.4
million at December 31, 1997 and $291.1 million at September 30, 1997. Net
charge-offs for the third quarter of 1998 were $31.3 million compared to $24.1
million for the third quarter of 1997. For the nine months ended September 30,
1998, net charge-offs were $103.9 million compared to $84.1 million for the
same period in 1997. Approximately $25 million of the increase in year to date
charge-offs resulted from conforming the banks acquired in the third quarter of
1998 to the Corporation's charge-off policies. The remainder of the increase
resulted from higher losses in the retail and factoring portions of the
portfolio and losses related to one low-to-moderate income housing project
loan.
Management expects to complete a review of the portfolios of the banks
acquired in the fourth quarter of 1998. It is expected that this review, along
with a possible loss related to one large asset-backed credit will result in a
higher than normal provision in the fourth quarter. Additionally, delinquent
credit card loans not purchased in the sale of the Corporation's credit card
portfolio will be charged off
28
<PAGE> 29
resulting in additional charge-offs of approximately $10 million to $15 million.
Adjusting for the effects of conforming the charge-off policies and losses on
credit cards, management estimates that normalized charge-offs for the nine
months ended September 30, 1998 were approximately $50 million, or .36% of
average loans on an annualized basis.
NONPERFORMING ASSETS
NONACCRUAL, RESTRUCTURED, AND PAST DUE LOANS AND FORECLOSED PROPERTIES
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------- DECEMBER 31,
1998 1997 1997
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
NONACCRUAL LOANS
Domestic.................................................... $ 141,933 $ 130,538 $ 132,672
Foreign..................................................... 1,276 96 96
RESTRUCTURED LOANS............................................ 6,414 15,520 15,250
----------- ----------- -----------
TOTAL NONPERFORMING LOANS........................... 149,623 146,154 148,018
----------- ----------- -----------
FORECLOSED PROPERTY
Other real estate owned, net................................ 22,787 26,910 26,106
Other foreclosed property................................... 4,412 4,708 5,062
----------- ----------- -----------
TOTAL FORECLOSED PROPERTIES......................... 27,199 31,618 31,168
----------- ----------- -----------
TOTAL NONPERFORMING ASSETS.......................... $ 176,822 $ 177,772 $ 179,186
=========== =========== ===========
LOANS 90 DAYS OR MORE PAST DUE AND NOT ON NONACCRUAL STATUS
Domestic.................................................... $ 54,588 $ 43,447 $ 47,467
Foreign..................................................... -- -- --
----------- ----------- -----------
TOTAL LOANS 90 DAYS OR MORE PAST DUE................ $ 54,588 $ 43,447 $ 47,467
=========== =========== ===========
FHA/VA GOVERNMENT-INSURED/GUARANTEED LOANS
Loans 90 days or more past due and not on nonaccrual status. $ 348,954 $ 513,951 $ 517,124
Nonaccrual.................................................. 9,309 -- 14,923
RATIOS(1):
Nonperforming loans as a percentage of loans................ .79% .83% .83%
Nonperforming assets as a percentage of loans plus foreclosed .93 1.01 1.01
properties.................................................
Allowance for losses on loans as a percentage of nonperforming loans 236 199 210
Loans 90 days or more past due and not on nonaccrual status
as a percentage of loans.................................. .29 .25 .27
</TABLE>
- --------------------
(1) FHA/VA government-insured/guaranteed loans are excluded from loans in the
ratio calculations.
The breakdown of nonaccrual loans and loans 90 days or more past due and
not on nonaccrual status, both excluding FHA/VA loans, is as follows:
<TABLE>
<CAPTION>
LOANS 90 DAYS
NONACCRUAL LOANS (1) OR MORE PAST DUE (1)
-------------------------------- -------------------------------
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
LOAN TYPE 1998 1997 1998 1997
- ------------------------------------------------------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Secured by single family residential................... $ 65,264 $ 63,707 $ 12,867 $ 13,551
Secured by nonfarm nonresidential...................... 20,369 15,260 7,116 4,151
Other real estate...................................... 17,690 19,676 5,075 4,395
Commercial, financial, and agricultural,
including foreign loans and direct lease financing... 30,809 25,524 15,822 4,125
Credit cards and related plans......................... 281 -- 8,215 15,343
Other consumer......................................... 8,796 8,601 5,493 5,902
----------- ----------- ----------- -----------
TOTAL........................................ $ 143,209 $ 132,768 $ 54,588 $ 47,467
=========== =========== =========== ===========
</TABLE>
- --------------------
(1) See the preceding table for the amount of FHA/VA
government-insured/guaranteed loans on nonaccrual status and 90 days or
more past due and not on nonaccrual status.
29
<PAGE> 30
LOANS OTHER THAN FHA/VA LOANS. As a percentage of loans and foreclosed
properties, nonperforming assets were .93% at September 30, 1998 compared to
1.01% at September 30, 1997 and .93% at June 30, 1998. The coverage of
nonperforming loans (allowance for losses on loans as a percentage of
nonperforming loans) was 236% at September 30, 1998, which compares to 199% at
September 30, 1997 and 226% at June 30, 1998.
Restructured loans decreased $8.8 million from December 31, 1997 to $6.4
million at September 30, 1998. The decline relates primarily to two loans which
were removed from restructured status since they have been and are currently
paying in accordance with contractual terms of the restructuring and had
effective interest rates, at the time of modification, equal to or greater than
new loans with comparable risk. Nonaccrual loans increased $10.4 million and
$8.6 million from December 31, 1997 and June 30, 1998, respectively. Foreclosed
properties decreased $4.0 million from December 31, 1997 and were level with
the balances outstanding at June 30, 1998.
Loans 90 days or more past due and still accruing interest totaled $54.6
million, or .29% of loans, at September 30, 1998. This compares to loans 90
days past due of $47.5 million, or .27%, of loans at December 31, 1997. The
table above details the composition of these loans.
FHA/VA LOANS. FHA/VA government-insured/guaranteed loans (FHA/VA loans)
do not, in management's opinion, have traditional credit risk and risk of
principal loss is considered minimal. FHA/VA loans 90 days or more past due and
still accruing interest totaled $349 million at September 30, 1998 which
compares to $517 million at December 31, 1997. The decrease in past due loans
relates primarily to a decline in the overall size of the FHA/VA portfolio and
to FHA loans being moved to foreclosure sooner due to changed FHA requirements.
The rate of foreclosure and loan payoffs continues to exceed the acquisition
and buyout of delinquent loans from GNMA servicing pools. At September 30, 1998
and December 31, 1997, $9.3 million and $14.9 million, respectively, of these
loans were placed on nonaccrual status by management because the contractual
payment of interest by FHA/VA had stopped due to missed filing dates. No loss
of principal is expected from these loans.
POTENTIAL PROBLEM ASSETS
Potential problem assets consist of assets which are generally secured
and not currently considered nonperforming, but where information about
possible credit problems has caused management to have serious doubts as to the
ability of the borrowers to comply in the future with present repayment terms.
Historically, these assets have been loans, which have become nonperforming. At
September 30, 1998, the Corporation had potential problem assets (all of which
were loans) of $57.3 million.
DEPOSITS
The Corporation's core deposit base is its most important and stable
funding source and consists of deposits from the communities served by the
Corporation.
<TABLE>
<CAPTION>
AVERAGE DEPOSITS
-------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------------------- SEPTEMBER 30,
SEPTEMBER 30, JUNE 30, ----------------------------
1998 1997 1998 1998 1997
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Demand deposits ............................ $ 3,358,582 $ 3,197,788 $ 3,347,222 $ 3,289,654 $ 3,107,502
Money market acounts(1) .................... 2,994,046 2,734,518 2,929,718 2,954,925 2,682,541
Savings deposits(2) ........................ 4,380,043 4,050,757 4,193,679 4,216,036 4,079,980
Other time deposits(3) ..................... 8,942,697 8,525,435 8,578,214 8,698,369 8,437,101
----------- ----------- ----------- ----------- -----------
Total core deposits .............. 19,675,368 18,508,498 19,048,833 19,158,984 18,307,124
Certificates of deposit of $100,000 and over 2,613,847 2,412,204 2,576,684 2,582,288 2,288,809
----------- ----------- ----------- ----------- -----------
Total average deposits ........... $22,289,215 $20,920,702 $21,625,517 $21,741,272 $20,595,933
=========== =========== =========== =========== ===========
</TABLE>
- --------------------
(1) Includes money market savings accounts, High Yield accounts, and super NOW
accounts.
(2) Includes regular and premium savings accounts and NOW accounts.
(3) Includes certificates of deposit under $100,000, investment savings
accounts, and other time deposits.
Average deposits for the third quarter of 1998 were $22.3 billion, which
represents increases of $1.4 billion and $664 million, respectively, from the
average deposits for the third quarter of 1997 and the second quarter of 1998.
Small acquisitions in late 1997 and early 1998 increased total deposits
approximately $3.3 billion. Also, during 1997 and the first and second quarters
of 1998, the Corporation sold certain branch locations including related
deposits which totaled approximately $255 million.
30
<PAGE> 31
LIQUIDITY
The Corporation requires liquidity sufficient to meet cash requirements
for deposit withdrawals, to make new loans and satisfy loan commitments, to
take advantage of attractive investment opportunities, and to repay borrowings
at maturity. Deposits, available for sale securities, and money market
investments are the Corporation's primary sources of liquidity. Liquidity is
also achieved through short-term borrowings, borrowings under available lines
of credit, and issuance of securities and debt instruments in the financial
markets. The Corporation has adequate liquidity to meet its operating
requirements.
Parent company liquidity is achieved and maintained by dividends received
from subsidiaries, interest on advances to subsidiaries, and interest on its
available for sale investment securities portfolio. At September 30, 1998, the
parent company had cash and cash equivalents totaling $194.2 million and net
working capital of $230.7 million. At October 1, 1998, the Corporation's
banking subsidiaries could have paid dividends totaling $119 million without
prior regulatory approval. The actual amount of dividends planned to be paid in
the fourth quarter of 1998 will be limited by management to approximately $74
million due to capital and liquidity requirements of individual financial
institutions. The payment of additional dividends by the Corporation's
subsidiaries will be dependent on the future earnings and growth of the
subsidiaries. Management believes that the parent company has adequate
liquidity to meet its cash needs, including the payment of its regular
dividends, servicing of its debt, and cash needed for acquisitions.
SHAREHOLDERS' EQUITY
The Corporation's total shareholders' equity increased by $263.8 million
from December 31, 1997 to $2.9 billion at September 30, 1998. The increase was
due to common stock issued in connection with benefit plans and acquisitions of
$275.8 million, the net increase in the unrealized gain on available for sale
securities of $31.3 million, and retained net earnings of $9.4 million. These
increases were partially offset by the repurchase of $52.7 million of common
stock in connection with acquisitions.
CAPITAL ADEQUACY
The following table presents capital adequacy information for the
Corporation:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------- DECEMBER 31,
1998 1997 1997
----- ----- -----
<S> <C> <C> <C>
CAPITAL ADEQUACY DATA
Total shareholders' equity/total assets (at period end).......... 9.61% 9.60% 9.53%
Average shareholders' equity/average total assets................ 9.52 8.80 9.36
Tier 1 capital/unweighted average assets (leverage ratio)(1)..... 9.29 9.67 9.62
</TABLE>
- --------------------
(1) Based on period-end capital and quarterly adjusted average assets.
31
<PAGE> 32
The following table presents the Corporation's risk-based capital and
capital adequacy ratios. The Corporation's regulatory capital ratios qualify
the Corporation for the "well-capitalized" regulatory classification.
RISK-BASED CAPITAL
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------- DECEMBER 31,
>>> 1998 1997 1997
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
TIER 1 CAPITAL
Shareholders' equity............................................. $ 2,932,567 $ 2,680,841 $ 2,668,721
Trust Preferred Securities and minority interest in consolidated 208,765 213,396 214,360
subsidiaries.....................................................
Less: Goodwill and other intangibles............................ (355,525) (186,902) (180,635)
Disallowed deferred tax asset............................. (1,235) (1,596) (1,651)
Unrealized gain on available for sale securities.......... (82,405) (37,070) (49,330)
Other deductions.......................................... -- (114) --
----------- ----------- -----------
TOTAL TIER 1 CAPITAL.............................. 2,702,167 2,668,555 2,651,465
TIER 2 CAPITAL
Allowance for losses on loans ................................... 251,567 238,156 233,429
Qualifying long-term debt........................................ 476,079 174,204 174,232
Nonqualifying securities......................................... -- -- (71)
----------- ----------- -----------
TOTAL CAPITAL BEFORE DEDUCTIONS................... 3,429,813 3,080,915 3,059,055
Less: investment in unconsolidated subsidiaries.................. (10,866) (2,078) (10,628)
------------ ----------- -----------
TOTAL CAPITAL..................................... $ 3,418,947 3,078,837 3,048,427
========== =========== ===========
RISK-WEIGHTED ASSETS............................................... $20,024,313 $18,999,577 $18,601,136
=========== =========== ===========
RATIOS AS A PERCENT OF END OF PERIOD RISK-WEIGHTED ASSETS
Tier 1 capital................................................... 13.49% 14.05% 14.25%
Total capital.................................................... 17.07 16.20 16.39
</TABLE>
At September 30, 1998, total shareholders' equity was 9.61% of total
assets and the leverage ratio was 9.29% compared to 9.53% and 9.62%,
respectively, at December 31, 1997. The decrease in the Tier I capital ratio
and leverage ratio is attributable primarily to the increase in goodwill and
other intangibles by $173.1 million (deducted from Tier 1 capital) since
December 31, 1997 in connection with acquisitions. This decrease was partially
offset by the growth in total shareholders' equity. The increase in the total
capital to risk-weighted assets ratio is primarily attributable to the
issuance, by UPB, of $300 million of 6.5% Putable/Callable Subordinated Notes,
due March 15, 2018, putable or callable on March 15, 2008, which qualify as
Tier II capital for regulatory purposes. Reference is made to Note 9 to the
interim unaudited consolidated financial statements included in Part I. Item 1
of this report for additional information regarding these subordinated notes.
YEAR-2000 RISK FACTORS
The Corporation's 1997 Restated MD&A discusses under the heading "Year
2000 Risk Factors" potential problems which could affect the Corporation's data
processing systems with the advent of the "Year 2000," the steps taken and to
be taken by the Corporation to address these potential problems, and the
estimated cost of achieving Year-2000 compliance. The Corporation is currently
on schedule to be fully compliant and tested by December 31, 1998, as stated in
its 1997 Annual Report. The Corporation continues to estimate that it will
incur expenses approximating $750,000 to achieve Year-2000 compliance with
respect to its own systems. The $750,000 does not include the cost of computer
equipment scheduled to be replaced in the normal course of business, which is
estimated to be $3.8 million and constitutes a reallocation within the capital
budget. The Corporation's practice is to convert the data processing systems of
acquired entities to the Corporation's data processing systems, which are
expected to be Year-2000 compliant. Therefore, the aggregate cost related to
pending acquisitions becoming Year-2000 compliant is not considered significant
beyond normal conversion costs (see the discussion of merger-related charges
under the heading "Earnings Considerations Related to Pending Acquisitions").
The Corporation is developing contingency plans in three broad
categories. The first set of contingency plans, which has been completed, is
for all critical applications that are not currently Year-2000 compliant and
tested, even though it is expected that these applications will be compliant on
schedule. The second set of contingency plans will address any Year-2000
related failures of critical applications after they have been fully tested and
put into production. Although there is a low probability that a fully compliant
and tested application will have a Year-2000 related failure, it is deemed
prudent to have a contingency plan in place. The third and final set of
contingency plans will address other disruptions, some of which are beyond the
control of the Corporation. Some examples would be
32
<PAGE> 33
disruption of utilities such as power, water, or telecommunications. Also
included in this category would be any major hardware failures that would
require processing to be moved to a disaster recovery backup site. The
Corporation's Business Resumption Plan does cover most of the potential
disruptions in this category, and the appropriate sections from that plan will
be incorporated into the Year-2000 contingency plan. The Corporation will
complete all contingency plans by December 31, 1998.
The Year-2000 compliance of future potential acquisitions is a potential
risk factor of the Corporation's acquisition program. As part of its due
diligence process, the systems and application software of the target
acquisitions are reviewed to determine if they are Year-2000 compliant or, upon
conversion to the Corporation's systems, will be Year-2000 compliant prior to
year end 1998. Regulatory authorities have indicated they will not approve
applications for permission to effect acquisitions unless the applicant has
provided assurance satisfactory to them that they will be Year-2000 compliant
and that the status of an applicant's Year-2000 compliance could impact the
availability of expedited processing of applications.
As discussed in the 1997 Restated Financial Statements, the Corporation
has risk arising from the advent of Year-2000 related to its lending activities
and could be adversely affected should significant customers of the Corporation
fail to address the issues appropriately. The Corporation is continuing to
monitor the Year-2000 compliance efforts of its major borrowing customers.
Major customers are rated as to their efforts toward Year-2000 compliance. If
resources employed or progress toward compliance is deemed insufficient, the
Corporation works with and assists the customers to achieve a satisfactory
level of compliance. The potential impact of major customers not taking
appropriate actions cannot be quantified at this time.
The Corporation also faces risks from the Year-2000 related to other
financial institutions that provide short-term funding sources to its banking
subsidiaries. If these entities are not Year-2000 compliant, their ability to
provide short-term funding to the Corporation will be impacted and could have
an adverse impact on the Corporation. The Corporation is reviewing these
entities' efforts to become Year-2000 compliant in an effort to minimize any
risk.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (FASB 133). FASB 133 provides a
consistent standard for the recognition and measurement of derivatives and
hedging activities. The new Standard resolves the inconsistencies that existed
with respect to derivatives accounting, and dramatically changes the way many
derivative transactions and hedged items are reported.
FASB 133 requires all derivatives to be recorded on the balance sheet at
fair value and establishes "special accounting" for the following three
different types of hedges: hedges of changes in fair value of assets,
liabilities, or firm commitments (fair value hedges); hedges of the variable
cash flows of forecasted transactions (cash flow hedges); and hedges of foreign
currency exposure of net investment in foreign operations. The Statement is
effective for years beginning after June 15, 1999, but companies can early
adopt as of the beginning of any fiscal quarter that begins after June 1998.
The Corporation is evaluating the impact of this new Standard and has not
determined if it will adopt the new Standard early.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise, an amendment of FASB No. 65.
FASB No. 65, "Accounting for Certain Mortgage Banking Activities," establishes
accounting and reporting standards for certain activities of mortgage banking
enterprises. Statement No. 65, as amended by FASB No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," and Statement No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities," requires that after the securitization of a mortgage loan held
for sale, an entity engaged in mortgage banking activities classify the
resulting mortgage-backed security as a trading security. This Statement
further amends FASB No. 65 to require that after securitization of mortgage
loans held for sale, an entity engaged in mortgage banking activities classify
the resulting mortgage-backed securities or other retained interests based on
its ability and intent to sell or hold the investments. This Statement conforms
the subsequent accounting for securities retained after the securitization of
mortgage loans by a mortgage banking enterprise with the subsequent accounting
for securities retained after the securitization of other types of assets by a
nonmortgage banking enterprise. The implementation of this new standard is not
expected to have a material impact on the Corporation's operations.
33
<PAGE> 34
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET LIABILITY AND MARKET RISK MANAGEMENT
The Corporation's assets and liabilities are principally financial in
nature and the resulting earnings thereon, primarily net interest income, are
subject to changes as a result of changes in market interest rates and the mix
of the various assets and liabilities. Interest rates in the financial markets
affect the Corporation's decisions on pricing its assets and liabilities, which
impacts net interest income, the Corporation's primary cash flow stream. As a
result, a substantial part of the Corporation's risk management activities is
devoted to managing interest-rate risk. Currently, the Corporation does not
have any significant risks related to foreign exchange, commodities or equity
risk exposure.
INTEREST-RATE RISK. One of the most important aspects of management's
efforts to sustain long-term profitability for the Corporation is the
management of interest-rate risk. Management's goal is to maximize net interest
income within acceptable levels of interest-rate risk and liquidity. To achieve
this goal, a proper balance must be maintained between assets and liabilities
with respect to size, maturity, repricing date, rate of return, and degree of
risk. Reference is made to the "Investment Securities," "Loans," and "Other
Earning Assets" discussions in the 1997 Annual Report and in this discussion
for additional information regarding risks related to these items.
The Corporation's Funds Management Committee oversees the conduct of
global asset/liability management. The Committee reviews the asset/liability
structure and interest-rate risk monthly for the lead bank and quarterly for
the Corporation's other subsidiaries.
The Corporation uses interest-rate sensitivity (GAP) analysis to monitor
the amounts and timing of balances exposed to changes in interest rates, as
shown in the following table. The analysis presented has been made at a point
in time and could change significantly on a daily basis. The GAP Report is not
relied upon exclusively to evaluate the impact of, or predict how the
Corporation is positioned to react to, changing interest rates. Other methods
such as simulation analysis are also considered in evaluating the Corporation's
interest-rate risk. Key assumptions in the simulation analysis include
prepayment speeds on mortgage-related assets, cash flows and maturities of
financial instruments held for purposes other than trading, changes in volumes
and pricing, deposit sensitivity, and management's financial capital plan.
These assumptions are inherently uncertain and, as a result, the simulation
cannot precisely estimate net interest income or precisely predict the impact
of higher or lower interest rates on net interest income. Actual results will
differ from simulated results due to timing, magnitude, and frequency of
interest rate changes and changes in market conditions and management
strategies, among others.
At September 30, 1998, the GAP analysis indicated that the Corporation
was asset sensitive with $833 million more assets than liabilities repricing
within one year. At 3% of total assets, this position was within management's
policy limit of 10% of total assets.
34
<PAGE> 35
UNION PLANTERS CORPORATION AND SUBSIDIARIES
RATE SENSITIVITY ANALYSIS AT SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
INTEREST-SENSITIVE WITHIN (1) (7)
----------------------------------------------------------------------------------------
NON-
0-90 91-160 181-365 1-3 3-5 5-15 OVER INTEREST-
DAYS DAYS DAYS YEARS YEARS YEARS 15 YEARS BEARING TOTAL
------ ------- ------- ------ ------ ------- -------- --------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans and leases (2) (3) (4) ...... $7,587 $ 1,994 $ 2,979 $4,544 $1,731 $ 510 $ 12 $ 330 $19,687
Investment securities (5) (6) ..... 1,473 728 820 2,323 1,078 1,023 423 -- 7,868
Other earning assets .............. 613 14 5 1 -- -- -- -- 633
Other assets ...................... -- -- -- -- -- -- -- 2,337 2,337
------ ------- ------- ------ ------ ------- ------- ------- -------
Total Assets .............. $9,673 $ 2,736 $ 3,804 $6,868 $2,809 $ 1,533 $ 435 $ 2,667 $30,525
====== ======= ======= ====== ====== ======= ======= ======= =======
SOURCES OF FUNDS
Money market deposits (7) (8) ..... $ 973 $ -- $ 973 $1,297 $ -- $ -- $ -- $ -- $ 3,243
Other savings and time deposits ... 3,868 2,232 2,462 3,416 302 1,810 4 -- 14,094
Certificates of deposit of
$100,000 and over ............... 928 549 620 513 48 3 -- -- 2,661
Short-term borrowings ............. 1,809 6 10 4 -- -- -- -- 1,829
Short- and medium-term bank notes -- -- -- 45 60 -- -- -- 105
Federal Home Loan Bank advances ... 582 1 1 2 1 2 -- -- 589
Other long-term debt .............. 366 -- -- 82 100 501 -- 1,049
Noninterest-bearing deposits ...... -- -- -- -- -- -- -- 3,290 3,290
Other liabilities ................. -- -- -- -- -- -- -- 732 732
Shareholders' equity .............. -- -- -- -- -- -- -- 2,933 2,933
------ ------- ------- ------ ------ ------- ------- ------- -------
Total sources of funds .... $8,526 $ 2,788 $ 4,066 $5,277 $ 493 $ 1,915 $ 505 $ 6,955 $30,525
====== ======= ======= ====== ====== ======= ======= ======= =======
Interest-rate sensitivity gap ....... $1,147 $ (52) $ (262) $1,591 $2,316 $ (382) $ (70) $(4,288) --
Cumulative interest-rate
sensitivity gap (8) ............... 1,147 1,095 833 2,424 4,740 4,358 4,288 -- --
Cumulative gap as a percentage
of total assets (8) ............... 4% 4% 3% 16% 16% 14% 14% -- --
</TABLE>
- ------------------------------
Management has made the following assumptions in presenting the above analysis:
(1) Assets and liabilities are generally scheduled according to their
earliest repricing dates regardless of their contractual maturities.
(2) Nonaccrual loans and accounts receivable-factoring are included in the
noninterest-bearing category.
(3) Fixed-rate mortgage loan maturities are estimated based on the currently
prevailing principal-prepayment patterns of comparable mortgage-backed
securities.
(4) Delinquent FHA/VA loans are scheduled based on foreclosure and repayment
patterns.
(5) The scheduled maturities of mortgage-backed securities and CMOs assume
principal prepayment of these securities on dates estimated by
management, relying primarily upon current and consensus interest-rate
forecasts in conjunction with the latest three-month historical prepayment
schedules.
(6) Securities are generally scheduled according to their call dates when
valued at a premium to par.
(7) Money market deposits and savings deposits that have no contractual
maturities are scheduled according to management's best estimate of their
repricing in response to changes in market rates. The impact of changes
in market rates would be expected to vary by product type and market.
(8) If all money market, NOW, and savings deposits had been included in the
0-90 Days category above, the cumulative gap as a percentage of total
assets would have been negative (4%) (4%) and (4%) for the 0-90 Days,
91-180 Days, and 181-365 Days categories and positive 1%, 3%, 4%, and 4%,
respectively, for the 1-3 Years, 3-5 Years, 5-15 Years, and over 15 Years
categories at September 30, 1998.
35
<PAGE> 36
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
During the period covered by this report, there have been no new material
legal proceedings or material developments in pending material litigation to
which the Corporation or any of its subsidiaries is a party or of which any of
their property is subject, other than ordinary routine litigation incidental to
their business. Information concerning legal proceedings is contained in Item
3, Part I of the Corporation's 1997 Form 10-K, Note 19 to the Corporation's
consolidated financial statements on page 71 of the 1997 Annual Report, and
Note 11 to the Corporation's unaudited interim consolidated financial
statements included herein under Item 1 of Part I.
ITEM 2 -- CHANGES IN SECURITIES
None
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 -- OTHER INFORMATION
None
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
11 Computation of Earnings per Common Share (incorporated by
reference to Note 12 to the Corporation's unaudited interim
consolidated financial statements included herein)
23 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule - September 30, 1998 Form 10-Q (for SEC
use only)
27.2 Financial Data Schedule -- Restated 1997 Financial Statements
(Exhibit 99.1) (for SEC use only) 23 Consent of
PricewaterhouseCoopers LLP
99.1 Union Planters Corporation 1997 audited financial statements,
Management's Discussion and Analysis of Results of Operations
and Financial Condition, and Selected Financial Data restated
for acquisitions completed in the third quarter of 1998 and
accounted for as a poolings of interests (See Note 2 to the
unaudited interim consolidated financial statements for a
description of the acquisitions completed in the third quarter
of 1998)
36
<PAGE> 37
b) Reports on Form 8-K:
<TABLE>
<CAPTION>
Date of Current Report Subject
---------------------- -------
<S> <C>
2. July 10, 1998 Consummation of the Magna Group, Inc. acquisition was reported under
Item 2, and consummation and announcement of other acquisitions was
reported under Item 5. The following financial statements were filed
pursuant to Item 7: (1) Magna Group, Inc. Consolidated Financial
Statements for the years ended December 31, 1997, 1996, and 1995,
consisting of Consolidated Statements of Income for the years ended
December 31, 1997, 1996, and 1995, Consolidated Balance Sheets as of
December 31, 1997 and 1996, Consolidated Statements of Changes in
Stockholders' Equity for the years ended December 31, 1997, 1996, and
1995, Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996, and 1995, and Notes to the Consolidated
Financial Statements; (2) Magna Group, Inc. Unaudited Interim Consolidated
Financial Statements as of and for the three months ended March 31, 1998
and 1997, consisting of Condensed Consolidated Balance Sheets as of
March 31, 1998 and December 31, 1997, Condensed Consolidated
Statements of Income for the three months ended March 31, 1998 and 1997,
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1997, and the Notes to Condensed Consolidated
Financial Statements; and (3) the Corporation's unaudited pro forma
consolidated financial statements as of and for the three months ended
March 31, 1998 and for the three years ended December 31, 1997, consisting
of Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 1998,
Unaudited Pro Forma Consolidated Statement of Earnings for the three
months ended March 31, 1998, Unaudited Pro Forma Consolidated
Statement of Earnings for the year ended December 31, 1996, Unaudited Pro
Forma Consolidated Statement of Earnings for the year ended December 31,
1995, and Notes to Unaudited Pro Forma Consolidated Statement.
3. July 16, 1998 Press release announcing second quarter of 1998 net earnings, reported
under Item 5
4. September 1, 1998 Announcement of agreement to acquire Ready State Bank reported under Item 5.
5. September 8, 1998 Announcement of agreement to acquire 51 branches of First Chicago NBO
Corporation in Indiana with approximately $1.8 billion in deposits, reported
under Item 5.
6. October 15, 1998 Press release announcing third quarter of 1998 net earnings, reported under
Item 5.
7. October 16, 1998 Announcement of the sale of the credit card portfolio,reported under Item 5.
</TABLE>
37
<PAGE> 38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNION PLANTERS CORPORATION
-------------------------------
(Registrant)
Date: November 10, 1988
--------------------------
By: /s/ Benjamin W. Rawlins, Jr.
---------------------------------------
Benjamin W. Rawlins, Jr.
Chairman and Chief Executive Officer
By: /s/ John W. Parker
---------------------------------------
John W. Parker
Executive Vice President and
Chief Financial Officer
By: /s/ M. Kirk Walters
---------------------------------------
M. Kirk Walters
Senior Vice President,Treasurer,
and Chief Accounting Officer
38
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the previously filed
Registration Statements on Form S-3 (Nos. 333-02377, 333-11817, and 33-27814)
and Form S-8 (Nos. 333-59911, 333-28507, 333-41089, 333-17363, 333-13207,
333-13205, 333-02363, 2-87392, 33-23306, 33-35928, 33-53454, 33-55257, 33-56269
and 33-65467) of Union Planters Corporation of our report dated October 15,
1998, which appears on page B-2 of Exhibit 99.1 in this Quarterly Report on Form
10-Q for the quarter ended September 30, 1998 of Union Planters Corporation.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Memphis, Tennessee
November 11, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF UNION PLANTERS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998 AND IS QUALIFED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 951,190
<INT-BEARING-DEPOSITS> 25,602
<FED-FUNDS-SOLD> 149,063
<TRADING-ASSETS> 255,583
<INVESTMENTS-HELD-FOR-SALE> 7,867,587
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 19,856,301
<ALLOWANCE> 352,643
<TOTAL-ASSETS> 30,525,482
<DEPOSITS> 23,288,899
<SHORT-TERM> 1,829,275
<LIABILITIES-OTHER> 731,683
<LONG-TERM> 1,743,058
0
24,501
<COMMON> 678,441
<OTHER-SE> 2,229,625
<TOTAL-LIABILITIES-AND-EQUITY> 30,525,482
<INTEREST-LOAN> 1,319,931
<INTEREST-INVEST> 297,233
<INTEREST-OTHER> 21,961
<INTEREST-TOTAL> 1,639,125
<INTEREST-DEPOSIT> 620,645
<INTEREST-EXPENSE> 159,974
<INTEREST-INCOME-NET> 858,506
<LOAN-LOSSES> 122,436
<SECURITIES-GAINS> (15,111)
<EXPENSE-OTHER> 795,169
<INCOME-PRETAX> 301,386
<INCOME-PRE-EXTRAORDINARY> 188,065
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 188,065
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.41
<YIELD-ACTUAL> 8.39
<LOANS-NON> 152,518
<LOANS-PAST> 403,542
<LOANS-TROUBLED> 6,414
<LOANS-PROBLEM> 57,252
<ALLOWANCE-OPEN> 310,385
<CHARGE-OFFS> 123,530
<RECOVERIES> 19,628
<ALLOWANCE-CLOSE> 352,643
<ALLOWANCE-DOMESTIC> 352,643
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF UNION PLANTERS CORPORATION FOR THE TWELVE MONTHS ENDED
DECEMBER 1, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-01-1997
<EXCHANGE-RATE> 1
<CASH> 1,182,968
<INT-BEARING-DEPOSITS> 36,147
<FED-FUNDS-SOLD> 172,657
<TRADING-ASSETS> 187,419
<INVESTMENTS-HELD-FOR-SALE> 5,840,704
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 19,302,407
<ALLOWANCE> 310,385
<TOTAL-ASSETS> 27,993,452
<DEPOSITS> 21,203,147
<SHORT-TERM> 1,784,347
<LIABILITIES-OTHER> 636,040
<LONG-TERM> 1,701,197
0
54,709
<COMMON> 624,438
<OTHER-SE> 1,989,574
<TOTAL-LIABILITIES-AND-EQUITY> 27,993,452
<INTEREST-LOAN> 1,718,324
<INTEREST-INVEST> 368,416
<INTEREST-OTHER> 33,072
<INTEREST-TOTAL> 2,119,812
<INTEREST-DEPOSIT> 790,442
<INTEREST-EXPENSE> 207,221
<INTEREST-INCOME-NET> 1,122,149
<LOAN-LOSSES> 150,606
<SECURITIES-GAINS> 4,781
<EXPENSE-OTHER> 950,986
<INCOME-PRETAX> 474,599
<INCOME-PRE-EXTRAORDINARY> 312,297
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 312,297
<EPS-PRIMARY> 2.50
<EPS-DILUTED> 2.43
<YIELD-ACTUAL> 8.53
<LOANS-NON> 147,701
<LOANS-PAST> 564,591
<LOANS-TROUBLED> 15,250
<LOANS-PROBLEM> 38,700
<ALLOWANCE-OPEN> 257,638
<CHARGE-OFFS> 137,499
<RECOVERIES> 23,261
<ALLOWANCE-CLOSE> 310,385
<ALLOWANCE-DOMESTIC> 310,385
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
Union Planters Corporation 1997 Restated
Selected Financial Data, Management's Discussion and Analysis of Results of
Operations and Financial Condition, and Audited
Consolidated Financial Statements
<PAGE> 2
INDEX TO EXHIBIT 99.1
<TABLE>
<CAPTION>
Item Page No.
- ---- --------
<S> <C>
Selected Financial Data for the five years
ended December 31, 1997 A - 1
Management's Discussion and Analysis of
Results of Operation and Financial
Condition for the three years ended
December 31, 1997 A - 2
1997 Audited Financial Statements
Report of Management B - 1
Report of Independent Accountants B - 2
Consolidated Balance Sheet B - 3
Consolidated Statement of Earnings B - 4
Consolidated Statement of Changes in
Shareholders' Equity B - 5
Consolidated Statement of Cash Flows B - 6
Notes to Consolidated Financial Statements B - 7
</TABLE>
<PAGE> 3
UNION PLANTERS CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, (1)
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ------------ -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net interest income ....................... $ 1,122,149 $ 1,043,942 $ 944,694 $ 881,875 $ 779,756
Provision for losses on loans ............. 150,606 84,198 47,393 23,000 49,267
Investment securities gains (losses) ...... 4,781 4,942 2,008 (21,053) 12,160
Other noninterest income .................. 449,261 383,824 355,317 297,596 282,124
Noninterest expense ....................... 950,986 942,733 818,944 845,217 737,608
----------- ----------- ----------- ------------ -----------
Earnings before income taxes,
extraordinary item,
and accounting changes .................. 474,599 405,777 435,682 290,201 287,165
Applicable income taxes ................... 162,302 139,649 145,485 92,325 86,669
----------- ----------- ----------- ------------ -----------
Earnings before extraordinary
item and accounting changes ............. 312,297 266,128 290,197 197,876 200,496
Extraordinary item and accounting
changes, net of taxes.................... -- -- -- -- 4,757
----------- ----------- ----------- ------------ -----------
Net earnings .............................. $ 312,297 $ 266,128 $ 290,197 $ 197,876 $ 205,253
=========== =========== =========== ============ ===========
PER COMMON SHARE DATA(2)
Basic
Earnings before extraordinary
item and acconting changes ............ $ 2.50 $ 2.24 $ 2.55 $ 1.74 $ 2.11
Net earnings ............................ 2.50 2.24 2.55 1.74 2.16
Diluted
Earnings before extraordinary
item and
accounting changes .................... 2.43 2.17 2.46 1.71 1.97
Net earnings ............................ 2.43 2.17 2.46 1.71 2.02
Cash dividends ............................ 1.495 1.08 .98 .88 .72
Book value ................................ 20.93 19.87 18.64 15.66 15.23
BALANCE SHEET DATA (AT PERIOD END)
Total assets .............................. $27,993,452 $26,427,236 $24,596,205 $ 22,620,487 $20,330,065
Loans, net of unearned income ............. 19,126,708 17,819,088 15,713,783 14,381,566 11,815,553
Allowance for losses on loans ............. 310,385 257,638 243,395 237,377 229,334
Investment securities ..................... 5,840,704 5,667,251 5,976,297 5,810,934 5,970,140
Total deposits ............................ 21,203,147 19,899,772 19,014,248 17,954,001 16,989,720
Short-term borrowings ..................... 1,784,347 1,732,437 1,074,673 980,935 432,461
Long-term debt(3)
Parent company .......................... 373,746 373,459 214,758 114,790 114,729
Subsidiary banks ........................ 1,327,451 1,426,433 1,193,861 937,160 530,810
Total shareholders' equity ................ 2,668,721 2,376,768 2,147,621 1,768,009 1,657,832
Average assets ............................ 27,366,896 26,003,849 23,261,530 21,796,952 19,462,599
Average shareholders' equity .............. 2,562,009 2,247,335 1,963,852 1,779,158 1,481,351
Average shares outstanding
(in thousands)(2)
Basic ................................... 122,812 115,794 110,255 107,981 90,360
Diluted ................................. 129,397 123,793 117,673 114,810 96,001
PROFITABILITY AND CAPITAL RATIOS
Return on average assets .................. 1.14% 1.02% 1.25% .91% 1.05%
Return on average common equity ........... 12.51 12.32 15.60 11.89 14.65
Net interest income (taxable-
equivalent)/average earning assets(4) ... 4.57 4.45 4.52 4.53 4.28
Loans/deposits ............................ 90.21 89.54 82.64 80.10 69.55
Common and preferred dividend
payout ratio ............................ 50.76 41.58 31.26 35.98 28.26
Equity/assets (period end) ................ 9.53 8.99 8.73 7.82 8.15
Average shareholders' equity/
average total assets..................... 9.36 8.64 8.44 8.16 7.61
Leverage ratio ............................ 9.62 9.32 8.41 7.93 8.02
Tier 1 capital/risk-weighted assets ....... 14.25 14.39 13.32 12.75 13.47
Total capital/risk-weighted assets ........ 16.39 16.63 15.71 14.57 15.41
CREDIT QUALITY RATIOS(5)
Allowance/period end loans ................ 1.74 1.59 1.65 1.74 2.02
Nonperforming loans/total loans ........... .83 .81 .80 .76 1.22
Allowance/nonperforming loans ............. 210 195 206 228 166
Nonperforming assets/loans and
foreclosed properties ................... 1.01 1.04 1.03 1.06 1.73
Provision/average loans ................... .87 .54 .33 .18 .45
Net charge-offs/average loans ............. .66 .49 .31 .21 .38
</TABLE>
- ----------
(1) Reference is made to "Basis of Presentation" in Note 1 to the Corporation's
consolidated financial statements.
(2) Share and per share amounts have been retroactively restated for
significant acquisitions accounted for as poolings of interests and to
reflect the change in presentation of EPS as discussed in Note 16 to the
consolidated financial statements.
(3) Long-term debt includes Medium-Term Bank Notes, Federal Home Loan Bank
(FHLB) advances, Trust Preferred Securities, variable rate asset-backed
certificates, subordinated notes and debentures, obligations under capital
leases, mortgage indebtedness, and notes payable with maturities greater
than one year.
(4) Average balances and calculations exclude the impact of the net unrealized
gains or losses on available for sale securities.
(5) FHA/VA government-insured/guaranteed loans have been excluded, since they
represent minimal credit risk to the Corporation. See Tables 9 and 10 and
the "Loans" discussion which follow.
A-1
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following provides a narrative discussion and analysis of the major
trends affecting the results of operations and financial condition of Union
Planters Corporation (the Corporation or Union Planters) after giving
retroactive effect to the Corporation's acquisitions of Magna Group, Inc. (Magna
Group) and Peoples First Corporation (Peoples First) on July 1, 1998, Merchants
Bancshares, Inc. (Merchants) on July 31, 1998, and AMBANC Corp. (AMBANC) on
August 31, 1998, all of which were accounted for as poolings of interests. The
discussion restates the discussion in the Corporation's 1997 Annual Report to
Shareholders. It should be read with the consolidated financial statements and
accompanying notes beginning on page B-1 and the financial tables at the end of
this discussion. Additionally, the discussion should be read in conjunction with
the Corporation's Management Discussion and Analysis of Results of Operations
and Financial Condition (September 1998 MD & A) and unaudited interim
consolidated financial statements for the period ending September 30, 1998
(September 1998 Interim Financial Statements) included in the Corporation's
Quarterly Report on Form 10-Q (September 1998 Form 10-Q).
THE COMPANY
Union Planters is a $28.0 billion, multi-state bank holding company whose
primary business is banking. The Corporation is the largest bank holding company
headquartered in Tennessee and is one of the fifty largest bank holding
companies headquartered in the United States. Union Planters Bank, National
Association (Union Planters Bank or UPB), headquartered in Memphis, Tennessee,
is the Corporation's largest subsidiary. The principal banking markets of the
Corporation are in Tennessee, Illinois, Mississippi, Missouri, Florida,
Kentucky, Iowa, Arkansas, Louisiana, Texas, Indiana, and Alabama. The
Corporation's existing market areas are served by 720 banking offices and 861
ATMs as of March 1, 1998. A majority-owned subsidiary of the Corporation's
Florida banking subsidiary, which was acquired December 31, 1997, Capital
Factors, Inc. (Capital Factors), provides receivable-based commercial financing
and related fee-based credit, collection, and management information services
through four regional offices located in New York, New York; Los Angeles,
California; Charlotte, North Carolina; and its headquarters in South Florida
(Boca Raton, Florida) and an asset-based lending office in Atlanta, Georgia.
As part of the Corporation's banking services, its subsidiaries are engaged
in factoring operations; mortgage origination and servicing; investment
management and trust services; the issuance of credit and debit cards; the
origination, packaging, and securitization of loans, primarily the government-
guaranteed portions of Small Business Administration (SBA) loans; the purchase
of delinquent FHA/VA government-insured/guaranteed loans from third parties and
GNMA pools serviced for others; full-service and discount brokerage services;
commercial finance business; trade-finance activities; and the sale of
bank-eligible insurance products and services.
OVERVIEW
Net earnings for 1997 were $312.3 million, a $46.2 million, or 17%, increase
from $266.1 million in 1996. Basic and diluted earnings per share for the year
were $2.50 and $2.43, respectively, which were both increases of 12% over $2.24
and $2.17, respectively, for 1996. Return on average assets (ROA) was 1.14% in
1997 compared to 1.02% in 1996. Return on average common equity (ROE) increased
to 12.51% in 1997 from 12.32% in 1996.
Significant pretax items which adversely impacted 1997 results include the
following: (i) $48.1 million of merger-related charges; (ii) $16.7 million of
charges related to the consolidation of substantially all of the banking
subsidiaries owned by the Corporation at year end 1997 into its lead bank, Union
Planters Bank; and (iii) a $66.4 million increase in the provision for losses on
loans related primarily to acquisitions and the credit card portfolio. These
items were partially offset by gains on the sale of branches of $16.3 million
and investment securities gains of $4.8 million. Reference is made to Table 1
which presents a comparison of the Corporation's results for the past five years
identifying significant items impacting net earnings. Excluding the significant
items impacting 1997 results, earnings would have been approximately $336.9
million.
Results for 1996 were similarly impacted. The significant pretax charges
included the following items: (i) $52.8 million of merger-related charges; (ii)
$29.9 million related to special legislation which required financial
institutions to pay a one-time assessment on deposits insured by the Savings
Association Insurance Fund (SAIF); (iii) $19.8 million of provisions for losses
on FHA/VA foreclosure claims of an acquired entity; and (iv) $19.6 million of
write-offs of intangibles. These items were partially offset by gains on the
sale of branches and other selected assets of $7.1 million, investment
securities gains of $4.9 million, and a one-time court-awarded trust fee of $1.3
million. Excluding these significant items, earnings for 1996 would have been
approximately $335.7 million.
A more detailed discussion and analysis of the 1997 results of operations
and financial condition follows.
A-2
<PAGE> 5
FORWARD-LOOKING INFORMATION
Certain of the information included in this discussion constitutes
forward-looking statements and information that are based on management's belief
as well as certain assumptions made by, and information available to management.
Specifically, this discussion contains forward-looking statements with respect
to the effects of projected changes in interest rates; the adequacy of the
allowance for losses on loans; the effect of legal proceedings on the
Corporation's financial condition, results of operations, and liquidity;
estimated charges related to pending acquisitions; estimated cost savings
related to the integration of completed acquisitions and the consolidation of
banking subsidiaries; and Year-2000 data systems compliance issues. When used in
this discussion, the words "anticipate," "project," "expect," "believe," and
similar expressions are intended to identify forward-looking statements.
Although management of the Corporation believes that the expectations reflected
in such forward-looking statements are reasonable, it can give no assurance that
such expectations and projections will prove to have been correct. Such
forward-looking statements are subject to certain risks, uncertainties, and
assumptions. Should one or more of these risks materialize, or should such
underlying assumptions prove to be incorrect, actual results may vary materially
from those anticipated, estimated, projected or expected. Among key factors that
may have a direct bearing on the Corporation's operating results are
fluctuations in the economy; the relative strengths and weakness in the consumer
and commercial credit sectors and in the real estate market; the actions taken
by the Federal Reserve for the purpose of managing the economy; the
Corporation's ability to realize anticipated cost savings related to both
recently completed acquisitions, pending acquisitions, and the consolidation of
subsidiary banks; the ability of the Corporation to achieve anticipated revenue
enhancements; its success in assimilating acquired operations into the
Corporation's culture, including its ability to instill the Corporation's credit
culture and approach to operating efficiencies into acquired operations; the
continued growth of the markets in which the Corporation operates consistent
with recent historical experience; the absence of undisclosed material
contingencies inherent in acquired operations including asset quality and
litigation contingencies; the enactment of federal legislation impacting the
operations of the Corporation; and the Corporation's ability to expand into new
markets and to maintain profit margins in the face of pricing pressure.
Moreover, the outcome of litigation is inherently uncertain and depends on
judicial interpretations of law, the exercise of judicial discretion and the
findings of judges and juries.
ACQUISITIONS
Acquisitions have been, and are expected to continue to be a significant
part of the Corporation's growth and have enhanced the market positions of the
Corporation in the various states which it serves. The Corporation through
December 31, 1997 had completed 41 acquisitions over the past five years adding
approximately $14.5 billion in total assets. Subsequent to December 31, 1997 and
through October 31, 1998, the Corporation has completed 14 acquisitions adding
approximately $13.5 billion in total assets. The consolidated financial
statements for the years ended December 31, 1997 and this discussion and
analysis of the financial condition, results of operations, and liquidity have
been retroactively restated for four of these acquisitions (Magna Group, Peoples
First, AMBANC and Merchants). The table on the next page provides a summary of
the acquisitions completed in 1995, 1996, 1997, and in 1998 through October 31,
1998. See Note 2 to the 1997 Restated Financial Statements included herein and
Note 2 to the September 1998 Interim Financial Statements for additional
discussion and a summary of pending acquisitions.
A-3
<PAGE> 6
<TABLE>
<CAPTION>
UNION PLANTERS CORPORATION
ACQUISITIONS COMPLETED SINCE JANUARY 1, 1995
ACCOUNTING
INSTITUTION ACQUIRED DATE STATE ASSETS CONSIDERATION METHOD
---------------------------- ----- --------- ------- -------------------------- --------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
First State Bancorporation, Inc. 7/95 Tennessee $ 116 .4 million shares of Series E Purchase
preferred
Planters Bank and Trust Company 9/95 Arkansas 59 .3 million shares of common stock Pooling
Capital Bancorporation, Inc. 12/95 Missouri 1,105 4.1 million shares of common stock Pooling
First Bancshares of Eastern
Arkansas, Inc. 1/96 Arkansas 64 $ 10.9 million cash Purchase
First Bancshares of N. E.
Arkansas, Inc. 1/96 Arkansas 65 $ 9.2 million cash Purchase
Leader Financial Corporation 10/96 Tennessee 3,411 15.3 million shares of common stock Pooling
Franklin Financial Group, Inc. 10/96 Tennessee 137 .7 million shares of common stock Pooling
Valley Federal Savings Bank 10/96 Alabama 122 .4 million shares of common stock Pooling
BancAlabama, Inc. 10/96 Alabama 98 .4 million shares of common stock Pooling
Financial Bancshares, Inc. 12/96 Missouri 326 1.2 million shares of common stock Pooling
PFIC Corporation 2/97 Tennessee 4 .1 million shares of common stock Purchase
SBT Bancshares, Inc. 10/97 Tennessee 99 .6 million shares of common stock Pooling
Citizens of Hardeman County
Financial Services, Inc. 10/97 Tennessee 62 .2 million shares of common stock Pooling
Magna Bancorp, Inc. 11/97 Mississippi 1,191 7.1 million shares of common stock Pooling
First Acadian Bancshares, Inc. 12/97 Louisiana 81 .3 million shares of common stock Pooling
Capital Bancorp 12/97 Florida 2,156 6.5 million shares of common stock Pooling
Sho-Me Financial Corp. 1/98 Missouri 374 1.2 million shares of common stock Purchase
Security Bancshares, Inc. 4/98 Arkansas 146 .5 million shares of common stock Pooling
Peoples First Corp. 7/98 Kentucky 1,427 6.0 million shares of common stock Pooling
Magna Group, Inc. 7/98 Missouri 7,683 33.4 million shares of common stock Pooling
Capital Savings Bancorp, Inc. 7/98 Missouri 207 .7 million shares of common stock Pooling
City Bank and Trust Co. 7/98 Tennessee 278 1.4 million shares of common stock Pooling
Merchants Bancshares 7/98 Texas 565 2.0 million shares of common stock Pooling
First National Bancshares of
Wetumpka 7/98 Alabama 202 .8 million shares of common stock Pooling
Alvin Bancshares, Inc. 8/98 Texas 117 .4 million shares of common stock Pooling
Duck Hill Bank 8/98 Mississippi 21 42 thousand shares of common stock Purchase
First Community Bancshares, Inc. 8/98 Tennessee 39 .1 million shares of common stock Pooling
Transflorida Bank 8/98 Florida 334 1.7 million shares of common stock Pooling
AMBANC Corp. 8/98 Indiana 731 3.4 million shares of common stock Pooling
Florida Branch Purchase 9/98 Florida 1,389 .1 million cash Purchase
-------
Total assets of completed transactions $22,609
=======
</TABLE>
Management's philosophy has been to provide additional diversification of
the revenue sources and earnings of the Corporation through the acquisition of
well-managed financial institutions. The strategy generally targets in-market
institutions, institutions in contiguous markets, institutions having
significant local market share, and institutions which would enhance the
Corporation's product lines.
Historically and where practical, the Corporation has permitted an acquired
institution to remain as a separate entity and to retain its local board of
directors and officers. With the changing environment in the banking industry,
particularly changes in the laws which generally permit banks headquartered in
different states to merge, management made the decision in 1997 to merge
substantially all of its banking subsidiaries into its lead bank, Union Planters
Bank, effective January 1, 1998 (see "Charter Consolidation").
All of the states in which the Corporation's banking subsidiaries are
headquartered now permit bank mergers which result in interstate branching.
Therefore, it is legally permissible for the Corporation to merge banking
subsidiaries into Union Planters Bank. However, under special circumstances
management may deem it advantageous to maintain certain acquired institutions as
separate entities.
Historically, as the Corporation acquires entities, merger-related and other
charges have been incurred (see Table 1). Typically, these charges include the
following: (i) salaries, employee benefits, and other employment-related charges
for employment contract payments, change in control agreements, early retirement
and involuntary separation and related benefits, postretirement expenses, and
assumed pension termination expenses of acquired entities; (ii) write-downs of
office buildings and equipment to be sold, lease buyouts, assets determined to
be obsolete or no longer of use, and equipment not compatible with the
Corporation's equipment; (iii) professional fees for legal, accounting,
consulting, and financial advisory services; (iv) additions to the provision for
losses on loans; and (v) other expenses such as asset write-offs, charge-offs of
prepaid assets, cancellation of vendor contracts, and other costs which
A-4
<PAGE> 7
normally arise from consolidation of operational activities. These charges
totaled $48.1 million, $52.8 million, and $12.1 million in 1997, 1996, and 1995,
respectively. The level of the charges is directly related to the size of the
institution being acquired. Charges in the range of $100 million to $115 million
(pretax basis) are expected in connection with the pending acquisitions at March
3, 1998 (actual charges incurred through September 30, 1998 were $95 million,
see "Noninterest Expense" in the September 1998 MD & A included in the
Corporation's September 1998 Form 10-Q). This range of charges is an estimate
and will change if additional entities are acquired.
The Year-2000 compliance (see "Year-2000 Risk Factors" discussion) of
pending and future acquisitions is a potential risk factor for the Corporation's
acquisition program. As part of its due diligence process, the systems and
application software of the target institutions are reviewed to determine if
they are Year-2000 compliant or, upon conversion to the Corporation's systems,
will be Year-2000 compliant and tested prior to year end 1998. Regulatory
authorities have indicated they will not approve applications for prior
permission to effect acquisitions unless the applicant has provided assurance
satisfactory to them that they will be Year-2000 compliant. Reference is made to
"Year-2000 Risk Factors" in the September 1998 MD & A included in the
Corporation's September 1998 From 10-Q.
CHARTER CONSOLIDATION
During 1997, management reevaluated its philosophy with respect to the
operation of institutions acquired and determined a change in philosophy was
indicated in order to compete in the changing banking industry. The decision was
made to merge most of the Corporation's separate banking subsidiaries into UPB.
Certain subsidiaries remain as separate banks due to specific operating reasons
but are expected eventually to be merged into UPB.
The legal merger of 31 of the Corporation's banking subsidiaries into UPB
and the name changes were made effective January 1, 1998. Integration of the
"back-office" functions (e.g. accounting, deposit services, item processing,
mortgage servicing, credit administration, etc.) is expected to be accomplished
over the next 24 months and to result in significant operating economies by
eliminating duplicate processes, advertising for multiple entities, and certain
regulatory costs.
Management continues to believe that it is imperative that customer
decisions should be made locally as has been the past practice. In matters
affecting their customers, the merging banks have been given very broad
discretion in the past and that is expected to continue in the future.
Maintaining its policy of close liaison with the regions, communities, and
customers served, the Corporation will utilize resources such as community
advisory boards to enable the Corporation to continue to be sensitive to local
banking requirements and customer preferences.
The Corporation incurred charges in 1997 totaling approximately $16.7
million related to the decision to combine substantially all its subsidiary
banks under one charter. These charges related primarily to employee severance
payments, write-offs of data processing equipment, and other costs related to
integrating the operations of the new organization. Operationally, all of the
changes are not expected to be fully implemented until late 1998 or early 1999.
Annual cost savings from the January 1, 1998 consolidation of the
Corporation's existing banking subsidiaries are estimated to be approximately
$15 million to $20 million on a pretax basis. Additional pretax revenue
enhancements are expected, primarily related to additional liquidity from the
new organization, but those amounts cannot be quantified at this time. A portion
of the anticipated savings will be realized in 1998; however, the full amount of
savings and revenue enhancements are not expected to be realized for
approximately 18 to 24 months. Reference is made to "Charter Consolidation" in
the September 1998 MD & A included in the Corporation's September 1998 Form 10-Q
for updated information.
EARNINGS ANALYSIS
NET INTEREST INCOME
Net interest income is the most significant source of revenues for the
Corporation. Net interest income is comprised of interest income and
loan-related fees less interest expense. Net interest income is affected by a
number of factors including the level, pricing, mix, and maturity of earning
assets and interest-bearing liabilities; interest rate fluctuations; and asset
quality. For purposes of this discussion, net interest income is presented on a
fully-taxable equivalent basis (FTE), which adjusts tax-exempt income to an
amount that would yield the same after-tax income had the income been subject to
taxation at the federal statutory income tax rate (currently 35% for the
Corporation). Reference is made to Table 4 and Table 5 which present the
Corporation's average balance sheet and volume/rate analysis for each of the
three years in the period ended December 31, 1997.
A-5
<PAGE> 8
Net interest income for 1997 was $1.15 billion, a 7% increase from the $1.07
billion reported in 1996. In 1996, net interest income grew 10% from the $972.5
million reported in 1995. The net interest margin (net interest income as a
percentage of average earning assets) was 4.57% in 1997 compared to 4.45% and
4.52%, respectively, in 1996 and 1995. The interest-rate spread between earning
assets and interest-bearing liabilities was 3.79% in 1997, an increase of 9
basis points from the 1996 spread of 3.70% and compared to 3.80% in 1995.
The $79 million increase in net interest income in 1997 was attributable
primarily to an increase in average loans. Average loans increased $1.95
billion, which were funded primarily by sales and maturities of investment
securities. Also contributing to the increase was a 6-basis-point increase in
the average yield on investment securities.
The improvement in net interest income between 1995 and 1996 was
attributable to the growth of average earning assets, primarily loans, which
increased $2.6 billion. This growth was the principal reason for the $206.6
million increase in interest income. Partially offsetting the increase in
interest income was a $108.3 million increase in interest expense. This increase
is attributable to the increase in funding liabilities (short- and long-term
borrowings and interest-bearing deposits) in response to the growth of average
earning assets.
A breakdown of the components of average earning assets and interest-bearing
liabilities is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
AVERAGE EARNING ASSETS (IN BILLIONS) ............................ $25.2 $24.1 $21.5
Comprised of:
Loans ......................................................... 75% 70% 71%
Investment securities ......................................... 23 27 26
Other earning assets .......................................... 2 3 3
Yield earned on average earning assets .......................... 8.53 8.42 8.46
AVERAGE INTEREST-BEARING LIABILITIES (IN BILLIONS) .............. $21.1 $20.2 $18.1
Comprised of:
Deposits ...................................................... 83% 83% 87%
Short-term borrowings ......................................... 8 9 7
FHLB advances, short- and medium-term bank notes and other
long-term debt .............................................. 9 8 6
Rate paid on average interest-bearing liabilities ............... 4.74 4.72 4.66
</TABLE>
The mix of average earning assets changed in 1997 as average loans increased
to 75% of average earning assets while average investment securities decreased
to 23%. The decline in the investment securities was due to the use of these
assets as the primary source of funding for the loan growth. The mix of average
interest-bearing liabilities has remained fairly constant over the past three
years with deposits being the primary funding source. Over the last three years
there has been an increase in wholesale borrowings as a funding source due to
relatively attractive interest rates.
PROVISION FOR LOSSES ON LOANS
The provision for losses on loans in 1997 totaled $150.6 million, an
increase of $66.4 million from the $84.2 million reported in 1996, and was
$103.2 million higher than the $47.4 million reported in 1995. At the same time,
net charge-offs increased to $114.2 million in 1997 from $76.3 million in 1996
and $44.9 million in 1995. As a percentage of average loans, excluding FHA/VA
government-insured/guaranteed loans, the provision for losses on loans was .87%,
.54% and .33%, respectively, for 1997, 1996, and 1995.
The large increase in the provision for losses on loans over the last three
years related principally to the increase in net charge-offs and acquisitions.
The increase in charge-offs was concentrated in the credit card and other
consumer loan categories. Total credit card and other consumer loan net
charge-offs were $75.5 million in 1997 compared to $50.8 million and $27.7
million in 1996 and 1995, respectively. The high level of charge-offs in this
category of loans can be attributed to increases in delinquencies and a high
level of personal bankruptcies. Direct marketing initiatives for credit cards
beginning in 1994 and purchases of credit card portfolios in 1996 to develop new
business have also contributed to the increase in charge-offs over the last
three years. The credit card portfolio had higher charge-off rates than other
parts of the loan portfolio during this three-year period. Reference is made to
"Sale of the Credit Card Portfolio" in the September 1998 MD & A included in the
Corporation's September 1998 Form 10-Q for information related to the
Corporation entering into an agreement to sell substantially all of the credit
card portfolio. Also contributing to the higher provision for losses on loans in
1997 was an increase of approximately $57.3 million related to acquired
entities.
Management expects the amount of charge-offs to stabilize or decline
slightly in 1998, excluding the impact of any additional acquisitions, which
should correspondingly reduce the amount of the provision for losses on loans.
However, there can be no assurance this will occur. There are a number of
factors that impact the level of the provision for losses on loans, some of
which are beyond management's control, such as current and anticipated economic
conditions and the related impact on specific borrowers, the
A-6
<PAGE> 9
level of personal bankruptcies, the level of nonperforming assets, and changes
in the nature of the loan portfolio. Reference is made to "Provision for Losses
on Loans" in the September 1998 MD & A included in the Corporation's September
1998 Form 10-Q for information regarding the Corporation's actual provision
through September 30, 1998 and expected future provisions.
NONINTEREST INCOME
Noninterest income for the year increased 16.8% to $454.0 million from
$388.8 million in 1996. Noninterest income for 1995 was $357.3 million. The
major components of noninterest income are presented on the face of the
statement of earnings and in Note 13 to the consolidated financial statements.
Table 1 on page A-17 at the end of this discussion presents a five-year trend of
the major components, including certain significant items impacting the
five-year trend.
There were several major items contributing to the growth in noninterest
income in 1997. Gains from the sale of branches and other selected assets,
primarily the sale of certain branches in upper East Tennessee, were $16.3
million in 1997, an increase of $9.2 million from $7.1 million in 1996 and
compared to $1.9 million in 1995. During the third quarter of 1997, the
Corporation securitized and sold approximately $347.1 million of fixed- and
adjustable-rate single family residential mortgage loans to enhance liquidity,
take advantage of low interest rates and narrow spreads on adjustable rate
mortgage securities. This was the primary reason for the $8.6 million increase
in the gain on sale of residential mortgages, to $15.4 million compared to $6.8
million in 1996 and $6.4 million in 1995. Bank card income rose $7.6 million to
$39.5 million in 1997 due primarily to a higher volume of transactions. These
revenues were $31.9 million and $27.2 million, respectively, in 1996 and 1995.
Service charges on deposit accounts and ATM transaction fees increased revenues
$10.6 million to $160.0 million compared to $149.4 million in 1996 and $139.8
million in 1995. This growth is related to increased volume of transactions and
increased fees, new fees and fewer waived fees due to an evaluation of the fee
structure in 1994. Annuity sales income and insurance commissions increased $5.0
million in 1997 to $23.1 million compared to $18.1 million in 1996 and $11.3
million in 1995. The growth of this fee income source is the result of increased
emphasis on non-traditional bank products. Income from other real estate,
primarily related to the Magna Bancorp, Inc. acquisition, increased $2.8 million
in 1997 to $6.0 million from $3.2 million in 1996.
Other major items included in noninterest income are as follows: (i)
Mortgage servicing income totaled $58.6 million in 1997, a decrease of $5.8
million from $64.4 million in 1996, due primarily to lower volumes of loans
serviced resulting from increased refinancing activity. Mortgage servicing
income was $56.9 million in 1995. (ii) Factoring commissions, which resulted
from the primary business of Capital Factors, totaled $30.1 million in 1997
compared to $26.1 million in 1996 and $19.5 million in 1995. Capital Factors is
a specialized financial services company providing related fee-based credit,
collection, and management information service. Its clients are primarily small-
to medium-size companies in various industries, including textiles, apparel and
furniture manufacturing and, recently, entities involved in health care and
temporary employment service industries. The increase in these fees is the
result of increased sales volume. These fees are seasonal and subject to
fluctuation. (iii) Trust service income was $23.9 million in 1997, an increase
in revenues of $2.4 million from 1996 due primarily to a one-time fee recognized
in 1996 and compares to $18.8 million in 1995. (iv) Profits and commissions from
trading activities totaled $7.3 million in 1997 compared to $5.8 million in 1996
and $12.4 million in 1995 related primarily to the Corporation's SBA
broker/dealer operations, with some revenues resulting from securities trading
activity of an acquired entity. The SBA broker/dealer operation purchases,
pools, and securitizes the government-guaranteed portions of SBA loans. The
higher level of profits and commissions in 1995 related to favorable market
conditions. Revenues in 1996 declined due to a shortage of government funding
which impacted the trading operations. Revenues from this operation are volatile
and future revenues cannot be predicted.
Management continues to place emphasis on the growth of noninterest income
to enhance the Corporation's profitability. Areas receiving increased emphasis
include annuity sales, bank-eligible insurance products, securities brokerage
fees, mortgage servicing, and factoring revenues. These activities traditionally
have higher profit margins and favorable cost structures. Also, these activities
provide a hedge against decreased revenues if loan volumes decline due to the
interest-rate environment or areas served by the Corporation experience an
economic downturn. Other traditional revenue sources will continue to be
emphasized and are expected to be enhanced by the Corporation's acquisition
program.
NONINTEREST EXPENSE
Noninterest expense totaled $951.0 million in 1997, an increase of $8.3
million from 1996 which totaled $942.7 million. This compares to $819.0 million
in 1995. The components of noninterest expense are presented on the face of the
statement of earnings and in Note 13 to the consolidated financial statements.
Noninterest expenses were impacted by a number of charges over the last
three years which are separately identified in Table 1. The largest items were
merger-related charges which totaled $48.1 million in 1997 compared to $52.8
million and $12.1 million, respectively in 1996 and 1995. Reference is made to
the "Acquisitions" section above for a discussion of the nature of these
charges.
A-7
<PAGE> 10
In 1997, noninterest expense was also increased by certain charges totaling
$16.7 million related to management's decision to combine substantially all of
the Corporation's separate banking subsidiaries (see the "Charter Consolidation"
discussion).
Noninterest expense in 1996 included a $29.9 million, one-time Savings
Association Insurance Fund (SAIF) assessment resulting from the enactment of the
Deposit Insurance Fund Act of 1996 to recapitalize the SAIF. Other significant
charges in 1996 included the write-off of certain intangibles which totaled
$19.6 million ($2.8 million in 1997).
Provisions for losses on FHA/VA foreclosure claims totaled $8.0 million in
1997 compared to $25.2 million in 1996, which included a $19.8 million
additional provision related to an acquired entity, and $5.6 million in 1995.
The provisions for losses on FHA/VA foreclosure claims arise from the
Corporation's mortgage servicing operations. In its capacity as servicer of
loans, including FHA/VA government-insured/guaranteed loans, the Corporation
collects and processes payments made by borrowers; remits funds to investors,
taxing authorities, and insurers; and coordinates foreclosure and disposition of
collateral properties. In connection with its responsibilities, the Corporation
advances funds which are repaid through foreclosure-sale proceeds and through
claims made against the Federal Housing Authority and/or Veterans Administration
(FHA/VA claims). Under certain circumstances, the FHA/VA claims are sometimes
rejected or otherwise cannot be collected in full. The provisions for FHA/VA
foreclosure claims represent management's estimate of losses attributable to
current and future FHA/VA claims inherent in the servicing portfolio at each
reporting date.
Excluding the significant items discussed above, noninterest expenses were
$881.9 million in 1997, an increase of $61.3 million, or 7.5%, over $820.6
million in 1996 and an increase of $75.2 million, or 9.3% over $806.7 million in
1995.
Salaries and employee benefits which represent the largest category of
noninterest expense were $412.7 million in 1997, which compares to $389.0
million in 1996 and $371.1 million in 1995. At December 31, 1997, the
Corporation had 11,454 full-time-equivalent employees which compares to 11,145
and 11,058, respectively, at December 31, 1996 and 1995. Growth in the number of
employees as the result of acquisitions has been offset by reductions of the
number of employees required due to consolidation of operations and sales of
branch locations. The level of expense in this category is impacted by merit
salary increases and incentive compensation. Management is expecting a net
reduction of 600 to 700 employees in connection with its consolidation of
banking subsidiaries (see the "Charter Consolidation" discussion) The reduction
is expected to be accomplished through attrition and employee separation.
Net occupancy and equipment expense totaled $129.4 million in 1997, an
increase of only $1.1 million from 1996 due primarily to sales of branch
locations and was $8.1 million higher than 1995 due primarily to acquisitions.
Management does not expect any significant growth in this category of expenses
due to the consolidation of banking subsidiaries which is expected to reduce
these costs overall, principally equipment expense. However, future acquisitions
and expenditures for technology upgrades will impact this category of expenses.
TAXES
Applicable income taxes consist of provisions for federal and state income
taxes totaling $162.3 million in 1997, or an effective rate of 34.2%. This
compares to applicable income taxes of $139.6 million in 1996 and $145.5 million
in 1995. These amounts resulted in effective tax rates of 34.4% and 33.4%,
respectively, in 1996 and 1995. The variances from federal statutory rates (35%
for all three years) are attributable to the level of tax-exempt income from
investment securities and loans and the effect of state income taxes. For
additional information regarding the Corporation's effective tax rates for all
periods, see Note 15 to the consolidated financial statements.
Realization of a portion of the $113.8 million net deferred tax asset, which
is included in other assets, is dependent upon the generation of future taxable
income sufficient to offset future deductions. Management believes that, based
upon historical earnings and anticipated future earnings, normal operations will
continue to generate sufficient future taxable income to realize in full these
deferred tax benefits. Therefore, no extraordinary strategies are deemed
necessary by management to generate sufficient taxable income for purposes of
realizing the net deferred tax asset.
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<PAGE> 11
FINANCIAL CONDITION ANALYSIS
The Corporation reported $28.0 billion of total assets at December 31, 1997
compared to $26.4 billion at December 31, 1996 (Prior to the restatement for the
acquisitions of Magna Bancorp, Capital-Miami, Magna Group, Peoples First,
Merchants, and AMBANC which were significant poolings of interests, originally
reported total assets were $15.2 billion at December 31, 1996). The two
acquisitions completed in 1997, Magna Bancorp and Capital-Miami, added $3.6
billion in total assets and the four acquisitions completed in 1998
(retroactively included in this report) added $10.4 billion in total assets.
Average assets were $27.4 billion for 1997, compared to $26.0 billion and $23.3
billion, respectively, for 1996 and 1995. Table 3, which follows this
discussion, presents the balance sheet impact of acquired institutions for the
last three years. Reference is also made to "Impact of Acquisitions" in the
September 1998 MD & A included in the Corporation's September 1998 Form 10-Q.
INVESTMENT SECURITIES
As part of its securities portfolio management strategy, the Corporation
classifies all of its investment securities as available for sale securities,
which are carried on the balance sheet at fair market value. This strategy gives
management flexibility to actively manage the investment portfolio as market
conditions and funding requirements change. The Corporation's shareholders'
equity is subject to fluctuation due to changes in the fair market value of the
available for sale investment portfolio.
The investment securities portfolio was $5.8 billion at December 31, 1997
compared to $5.7 billion at December 31, 1996. Average investment securities
were $5.7 billion and $6.5 billion, respectively, for these periods. The
investment portfolio had a net unrealized gain of $79.6 million at year end 1997
compared to a net unrealized gain of $40.8 million at year end 1996. The decline
in average investment securities in 1997 was due primarily to the additional
funding required to support loan growth during the year. Note 4 to the
consolidated financial statements provides the composition of the portfolio at
December 31, 1997 and 1996, along with a breakdown of the maturities and
weighted average yields of the portfolio at December 31, 1997.
U.S. Treasury and U.S. Government agency obligations represented 77.2% of
the investment securities portfolio at December 31, 1997. The Corporation has
some credit risk in the investment securities portfolio; however, management
does not consider that risk to be significant and does not believe that cash
flows will be significantly impacted.
The REMIC and CMO issues held in the investment securities portfolio are 94%
U.S. Government agency issues; the remaining 6% are readily marketable
collateralized mortgage obligations backed by agency-pooled collateral or whole
loan collateral. The limited credit risk in the investment securities portfolio
at December 31, 1997 consisted of 15.5% municipal obligations, 4.3% other stocks
and securities (primarily Federal Reserve Bank and Federal Home Loan Bank
Stock), and 2.5% investment grade collateralized mortgage obligations.
At December 31, 1997, the Corporation had approximately $178.8 million of
"structured notes" (as currently defined by regulatory agencies), which
constituted approximately 3.1% of its investment securities portfolio.
Structured notes have uncertain cash flows which are driven by interest-rate
movements and may expose a company to greater market risk than traditional
medium-term notes. All of the Corporation's investments of this type are
government agency issues (primarily Federal Home Loan Banks and Federal National
Mortgage Association). The structured notes vary in type but primarily include
step-up bonds and index-amortizing notes. These securities had an unrealized
loss of $1.4 million at December 31, 1997. The market risk of these securities
is not considered material to the Corporation's financial position, results of
operations, or liquidity.
LOANS
Loans are the largest component of the Corporation's average earning assets,
or 75% of the total. Average loans grew 11.6% in 1997 following growth of 11.2%
in 1996. Total loans were $19.2 billion at December 31, 1997 compared to $17.9
billion at December 31, 1996. Table 7 and Note 5 to the consolidated financial
statements provide summary information regarding the loan portfolio. The average
balance sheet, Table 4, provides the average balance and average yield on loans
for the last three years.
SINGLE-FAMILY RESIDENTIAL LOANS. These loans totaled $5.4 billion at
December 31, 1997 and were the largest segment of the loan portfolio,
constituting 28% of total loans. Single-family residential loans increased $129
million, or 2.5%, between December 31, 1997 and 1996, due primarily to the level
of refinancing activity in the real estate market and offset by the
securitization and sale of approximately $347.1 million of fixed- and
adjustable-rate loans in the third quarter of 1997. This increase was partially
offset by growth of the portfolio due to acquisitions during 1997. Single-family
residential loans are expected to remain the largest portion of the loan
portfolio. These loans historically have a lower level of charge-offs than the
other portions of the portfolio.
A-9
<PAGE> 12
COMMERCIAL LOANS. Commercial, financial, and agricultural loans, including
foreign commercial loans and direct lease financing, were $3.5 billion at
December 31, 1997, constituting 18% of the loan portfolio. These loans increased
11.1% in 1997 from $3.1 billion at December 31, 1996. This segment of the
portfolio experienced growth in 1997 due to the favorable economic conditions.
In connection with the acquisition of Capital-Miami, additional foreign risk
exposure was added to the portfolio. The foreign portion of this segment
represents only 1% of the overall loan portfolio and is not considered
significant. Foreign loans are primarily U.S. dollar trade finance loans to
correspondent banks in Central and South America. The Corporation has no
significant loans to foreign governments.
OTHER MORTGAGE LOANS. This segment of the loan portfolio totaled $3.8
billion at December 31, 1997, an increase of $700 million, or 22%, from the 1996
year end total of $3.1 billion. The components of other mortgage loans are as
follows: loans secured by nonfarm nonresidential properties (commercial real
estate loans), 79%; loans secured by multifamily residential properties, 13%;
and loans secured by farmland, 8%.
FHA/VA GOVERNMENT-INSURED/GUARANTEED LOANS (FHA/VA LOANS). The FHA/VA loan
portfolio was $1.3 billion at December 31, 1997 compared to $1.6 billion at year
end 1996, a decrease of 15%. As a loan servicer, the Corporation is obligated to
pass through to the holders of a GNMA mortgage-backed security, the coupon rate,
whether or not the interest due on the underlying loans has been collected from
the borrower. When an FHA/VA government-insured/guaranteed single-family loan
which carries an above-market rate of interest has been in default for more than
90 days, it is the Corporation's policy to buy the delinquent FHA/VA loan out of
the GNMA pools serviced by the Corporation. This action eliminates the
Corporation's obligation to pay the coupon rate. The Corporation thereby earns
the net interest-rate differential between the coupon rate which it would
otherwise be obligated to pay to the GNMA holder and the Corporation's lower
cost of funds. Furthermore, management has purchased, on a negotiated basis,
additional delinquent FHA/VA government-insured/guaranteed loans from other GNMA
servicers to leverage the operating costs of this operation. Reference is made
to the Corporation's September 1998 Form 10-Q for updated information regarding
FHA/VA loans.
Since all of these loans are FHA/VA government-insured/guaranteed loans, the
Corporation's investment is expected to be recoverable through claims made
against the FHA or the VA. Management believes the credit risk and the risk of
principal loss is minimal. For this reason, management has excluded these loans
from the credit quality data and resulting ratios. Any losses incurred would not
be significantly greater or less than if the Corporation had continued solely as
servicer of the FHA/VA loans. The risk involving these loans arises from not
complying timely with FHA/VA's foreclosure process and certain unreimbursable
foreclosure costs. The Corporation, by purchasing the delinquent FHA/VA loans,
also assumes the interest-rate risk associated with funding a loan if timely
foreclosure should not occur. Risk also exists, under certain circumstances,
that claims might be rejected by the FHA or the VA or otherwise not be able to
be collected in full. Provisions for these types of losses are provided through
noninterest expense as provisions for losses on FHA/VA foreclosure claims (see
the "Noninterest Expense" discussion) and the corresponding liability is carried
in other liabilities. Provisions for losses on FHA/VA foreclosure claims totaled
$8.0 million, $25.2 million, and $5.6 million, respectively, in 1997, 1996, and
1995. At December 31, 1997, the Corporation had a servicing reserve of $33.3
million as compared to $37.2 million at December 31, 1996.
CONSUMER LOANS. This segment of the portfolio represented 17% of the loan
portfolio at December 31, 1997, and decreased 1.0% from year end 1996. Consumer
loans include loans to individuals which totaled $2.6 billion and credit card
loans which totaled $613 million at December 31, 1997, an increase of 2.0% and
decrease of 12.2%, respectively, from $2.5 billion and $698 million,
respectively, at December 31, 1996. This segment of the portfolio has
experienced a high level of charge-offs over the last three years due to the
high level of personal bankruptcies. The growth of the credit card portfolio
prior to 1997 is attributable to marketing campaigns and the purchase of credit
card portfolios. Reference is made to "Sale of the Credit Card Portfolio" in the
September 1998 MD & A included in the Corporation's September 1998 Form 10-Q for
updated information.
REAL ESTATE CONSTRUCTION LOANS. These loans totaled $960 million at December
31, 1997, an increase of $177 million, or 22.7%, from the year end 1996 amount
of $783 million. The growth of these loans resulted primarily from the favorable
economic conditions in the areas served by the Corporation.
ACCOUNTS RECEIVABLE -- FACTORING. This category of the portfolio totaled
$579 million at December 31, 1997, an increase of $126 million from the December
31, 1996 total of $453 million. Capital Factors provides factoring and other
specialized commercial financial services to small- and medium-size companies.
Capital Factors purchases accounts receivable from its clients pursuant to
factoring agreements with them. Its clients primarily include manufacturers,
importers, wholesalers and distributors in the apparel and textile-related
industries and, to a lesser extent, in consumer goods-related industries. More
recently, Capital Factors has provided services to companies in the healthcare
industry. Also included in this category are asset-based loans which are
collateralized primarily by receivables owned by the borrowers.
A-10
<PAGE> 13
LOAN OUTLOOK. The primary factors affecting the growth of the Corporation's
loan portfolio are the economic conditions in the areas served and the level of
its acquisition activity. Reference is made to "Loans" in the September 1998 MD
& A included in the Corporation's September 1998 Form 10-Q for information
regarding actual loan growth through September 30, 1998.
ALLOWANCE FOR LOSSES ON LOANS
The allowance for losses on loans (the allowance) at December 31, 1997 was
$310.4 million, or 1.74% of loans, compared to $257.6 million, or 1.59% of
loans, at December 31, 1996. In calculating the allowance to loans, FHA/VA loans
have been excluded (see "FHA/VA Government-Insured/Guaranteed Loans" discussion
above). Management's policy is to maintain the allowance at a level deemed
sufficient to absorb estimated losses in the loan portfolio. The allowance is
reviewed quarterly in accordance with the methodology described in Note 1 to the
consolidated financial statements. Tables 8 and 10 which follow this discussion
provide detailed information regarding the allowance for each of the five years
in the period ended December 31, 1997.
Net charge-offs were $114.2 million in 1997, an increase of $37.9 million,
or 49.8%, compared to $76.3 million in 1996. All of the increase is attributable
to credit card and other consumer loans. All other categories of loans
experienced a decrease in net charge-offs. Credit card net charge-offs totaled
$45.3 million in 1997, an increase of $17.0 million over 1996 which totaled
$28.3 million. Other consumer loan net charge-offs were $30.3 million in 1997
compared to $22.5 million in 1996. The increase in both of these categories has
been impacted by the high level of personal bankruptcies over the last few
years. Direct marketing initiatives for credit cards in 1994 and subsequent
years and purchases of credit card portfolios to develop new business also
contributed to the increase in credit card charge-offs.
LOAN CONCENTRATIONS
Management believes that the loan portfolio is adequately diversified. The
loan portfolio is for the most part spread over 12 states (Tennessee, Illinois,
Mississippi, Missouri, Florida, Kentucky, Iowa, Arkansas, Louisiana, Texas,
Indiana, and Alabama) where the Corporation has banking operations.
Additionally, Capital Factors has operations in New York, California, Florida,
North Carolina and Georgia. The Corporation has a limited amount of foreign
exposure, less than 1% of the loan portfolio. At December 31, 1997, the
Corporation had no concentrations of loans to a single industry constituting as
much as 10% of total loans.
The largest concentration of loans is in single family residential loans,
comprising 28% of the loan portfolio, which historically has had low loss
experience. The Corporation also held $1.3 billion of FHA/VA loans which
accounted for an additional 7% of the loan portfolio at year end 1997. These
loans are also single family residential loans.
Management has sought to achieve diversification between large and
smaller-sized loans in an effort to reduce risk in the portfolio. At December
31, 1997, the Corporation's largest loan relationship, excluding the lending
relationships of Capital Factors, was $36.6 million and there were only 53
relationships of $10 million or more, which constituted in the aggregate less
than 4% of the total loan portfolio. Capital Factors has six client lending
relationships greater than $10 million and nine customer credits exceeding $10
million with the largest relationship being $35 million to a national department
store chain.
NONPERFORMING ASSETS
LOANS OTHER THAN FHA/VA LOANS. Nonperforming assets consist of nonaccrual
loans, restructured loans, and foreclosed properties. Table 9 presents
nonperforming assets in two categories, FHA/VA loans and all other loans. For
this discussion and for the credit quality information presented in this report,
FHA/VA loans are excluded from the calculations because of their minimal
exposure to principal loss. (Reference is made to the discussion of "FHA/VA
Government-Insured/Guaranteed Loans" above.)
At December 31, 1997, nonperforming assets totaled $179.2 million, or 1.01%
of loans and foreclosed properties. This compares to $170.1 million, or 1.04% of
loans and foreclosed properties at December 31, 1996. Nonaccrual loans at year
end 1997 totaled $132.8 million, or .75% of total loans which compares to $114.8
million, or .71% of total loans for the same period in 1996. Restructured loans
and foreclosed properties were $15.3 million and $31.2 million, respectively, at
December 31, 1997. This compares to $17.1 million and $38.2 million,
respectively, at December 31, 1996. Loans 90 days or more past due and not on
nonaccrual status, which are not included in nonperforming assets, were $47.5
million, or .27% of loans at December 31, 1997. This compares to $40.6 million,
or .25%, of loans at December 31, 1996. A breakdown of nonaccrual loans and
loans 90 days or more past due and not on nonaccrual status, both excluding
FHA/VA loans, follows:
A-11
<PAGE> 14
<TABLE>
<CAPTION>
LOANS 90 DAYS
NONACCRUAL LOANS OR MORE PAST DUE
------------------- --------------------
DECEMBER 31, DECEMBER 31,
------------------- --------------------
LOAN TYPE 1997 1996 1997 1996
-------------------------------------------------- ---------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Secured by single family residential............. $ 63,707 $ 60,442 $ 13,551 $ 8,318
Secured by nonfarm nonresidential................ 15,260 16,165 4,151 5,865
Other real estate................................ 19,676 7,286 4,395 2,063
Commercial, financial, and agricultural,
including foreign loans and direct lease
financing...................................... 25,524 23,104 4,125 4,673
Credit card and related plans.................... -- 50 15,343 12,307
Other consumer................................... 8,601 7,720 5,902 7,405
-------- -------- -------- --------
Total.................................. $132,768 $114,767 $ 47,467 $ 40,631
======== ======== ======== ========
</TABLE>
FHA/VA LOANS. As discussed in the "Loans" section of this report, FHA/VA
loans do not, in management's opinion, have traditional credit risk similar to
the rest of the loan portfolio and risk of principal loss is considered minimal.
FHA/VA loans 90 days or more past due and still accruing interest totaled $517.1
million at December 31, 1997 compared to $724.7 million at December 31, 1996.
The decrease in the loans past due relates to the decline in the volume of these
loans. At December 31, 1997, $14.9 million of FHA/VA loans were placed on
nonaccrual status by management because the contractual payment of interest by
FHA/VA had stopped due to missed filing dates. This policy will be followed on a
prospective basis. No loss of principal is expected from these loans.
POTENTIAL PROBLEM ASSETS. Potential problem assets consist of assets which
are generally secured and are not currently considered nonperforming and include
those assets where information about possible credit problems has raised serious
doubts as to the ability of the borrowers to comply with present repayment
terms. Historically, such assets have been loans which have ultimately become
nonperforming. At December 31, 1997, the Corporation had potential problem
assets (all loans) aggregating $38.7 million, comprised of 34 loans, the largest
of which was $13.8 million.
OTHER EARNING ASSETS
Other earning assets include interest-bearing deposits at financial
institutions, federal funds sold, securities purchased under agreements to
resell, and trading account assets. These assets averaged $534 million in 1997
with an average yield of 6.19%. This compares to $624 million in 1996 with a
6.01% average yield and $704 million in 1995 with an average yield of 6.37%.
Over the past three years these earning assets comprised three to four percent
of total average earning assets.
The decline in other average earning assets from 1996 is attributable to a
$125 million decrease in federal funds sold and securities purchased under
agreements to resell. This decrease was due to utilizing these funds to meet
other funding needs, primarily loans. The other significant component of this
category was trading account assets which represents the government-guaranteed
portions of SBA loans. Trading assets averaged $205 million in 1997, an increase
of $12 million from 1996 and compared to $185 million in 1995. The average yield
on these assets over the past three years has ranged from 7.20% to 7.65%.
Management considers the interest-rate and credit risk related to all of these
assets to be minimal.
DEPOSITS
The Corporation's deposit base is its primary source of liquidity and
consists of deposits from the communities served by the Corporation. At December
31, 1997, the Corporation had the largest deposit base of any independent bank
holding company headquartered in Tennessee. Tables 4 and 6 present the
components of the Corporation's average deposits. Note 8 to the consolidated
financial statements presents the maturities of interest-bearing deposits at
December 31, 1997.
Deposits were $21.2 billion at December 31, 1997 and averaged $20.7 billion
for the year. This compares to period end and average deposits for 1996 of $19.9
billion and $19.7 billion, respectively. The increase in average deposits in
1997 is attributable primarily to acquisitions.
The composition of average deposits over the last three years was as
follows:
<TABLE>
<CAPTION>
TYPE OF DEPOSITS 1997 1996 1995
--------------------------------------- ------ ------ -----
<S> <C> <C> <C>
Noninterest-bearing deposits.......... 15% 15% 15%
Money market deposits................. 13 14 14
Savings deposits...................... 20 19 20
Other time deposits................... 41 42 43
Certificates of deposit of $100,000
and over............................. 11 10 8
</TABLE>
A-12
<PAGE> 15
CAPITAL AND DIVIDENDS
Shareholders' equity increased $292 million in 1997 to $2.7 billion, or
9.53% of total assets. This compares to shareholders' equity of $2.4 billion, or
8.99% of total assets at December 31, 1996. The primary source of growth in
shareholders' equity in 1997 was earnings retention of $152.4 million, stock
issuance in connection with the dividend reinvestment plan and employee benefit
plans of $29.5 million, issuance of stock in connection with acquisitions of
$26.7 million, and the net change in the unrealized gains (losses) on available
for sale securities of $23.7 million. Partially offsetting these increases was a
decrease of $42.1 million resulting from the repurchase of shares of common
stock in connection with a business combination accounted for as a purchase.
Another major source of growth was from stock transactions of pooled
institutions prior to pooling of $101.8 million. The consolidated statement of
changes in shareholders' equity details the changes in equity for the last three
years.
The Corporation and its subsidiaries must comply with the capital guidelines
established by the regulatory agencies that supervise their operations. These
agencies have adopted a system to monitor the capital adequacy of all insured
financial institutions. The system includes ratios based on the risk-weighting
of on- and off-balance-sheet transactions. If an institution's ratios should
fall below certain levels, it would become subject to regulatory action. The
Corporation's and its principal subsidiary's regulatory capital ratios, capital
adequacy requirements, and prompt corrective action provisions are included in
Note 12 to the consolidated financial statements. Also, Table 13 presents the
Corporation's risk-based capital ratios for the last three years. At December
31, 1997, all of the Corporation's financial institutions met the requirements
for well-capitalized institutions.
The Corporation declared cash dividends on its common stock of $1.495 per
share in 1997, an increase of 38% over the 1996 amount of $1.08 per share. In
January 1998, the regular quarterly dividend was increased to $.50 per share
($2.00 per share annually). The Corporation also declared and paid cash
dividends on its 8% Series E Convertible Preferred Stock of $2.00 per share in
both 1997 and 1996.
The primary sources for payment of dividends by the Corporation to its
shareholders are management fees and dividends received from its subsidiaries,
interest on loans to subsidiaries, and interest on its available for sale
investment securities. Payment of dividends by the Corporation's banking
subsidiaries is subject to various statutory limitations which are described in
Note 12 to the consolidated financial statements. Reference is made to the
"Liquidity" discussion for additional information regarding the parent company's
liquidity.
ASSET/LIABILITY AND MARKET RISK MANAGEMENT
The Corporation's assets and liabilities are principally financial in nature
and the resulting earnings thereon, primarily net interest income, are subject
to changes as a result of changes in market interest rates and the mix of the
various assets and liabilities. Interest rates in the financial markets affect
the Corporation's decisions on pricing its assets and liabilities which impacts
net interest income, the Corporation's primary cash flow stream. As a result, a
substantial part of the Corporation's risk-management activities are devoted to
managing interest-rate risk. Currently, the Corporation does not have any
significant risks related to foreign exchange, commodities or equity risk
exposures.
INTEREST-RATE RISK. One of the most important aspects of management's
efforts to sustain long-term profitability for the Corporation is the management
of interest-rate risk. Management's goal is to maximize net interest income
within acceptable levels of interest-rate risk and liquidity. To achieve this
goal, a proper balance must be maintained between assets and liabilities with
respect to size, maturity, repricing date, rate of return, and degree of risk.
Reference is made to the "Investment Securities," "Loans," and "Other Earning
Assets" discussions for additional information regarding the risks related to
these items.
The Corporation, on a limited basis, has used off-balance-sheet financial
instruments to manage interest-rate risk. At December 31, 1997 and 1996, the
Corporation had no such instruments outstanding. Note 17 to the consolidated
financial statements provides a reconciliation of the Corporation's
interest-rate-swap information for 1996.
The Corporation's Funds Management Committee oversees the conduct of global
asset/liability and interest-rate risk management. The Committee reviews the
asset/liability structure and interest-rate risk monthly for the lead bank and
quarterly for the Corporation's other subsidiaries.
The Corporation uses interest-rate sensitivity analysis (GAP) to monitor the
amounts and timing of balances exposed to changes in interest rates. Since this
type of analysis is made at a point in time and could change significantly, and
certain assumptions are subjectively determined by each institution, management
has chosen not to restate Table 11 and this discussion to include the four
acquisitions completed in the third quarter of 1998 and accounted for as
poolings of interests. Instead, reference is made to "Item 3.
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<PAGE> 16
Quantitative and Qualitative Disclosures About Market Risk" in the Corporation's
Quarterly Report on Form 10-Q dated September 30, 1998 for a more current
discussion of the amounts and timing of balances exposed to changes in interest
rates.
LIQUIDITY. Liquidity for the Corporation is its ability to meet cash
requirements for deposit withdrawals, to make new loans and satisfy loan
commitments, to take advantage of attractive investment opportunities, and to
repay borrowings when they mature. As discussed previously, the Corporation's
primary sources of liquidity are its deposit base, available for sale
securities, and money-market investments. Liquidity is also achieved through
short-term borrowings, borrowing under available lines of credit, and issuance
of securities and debt instruments in the marketplace.
Parent company liquidity is achieved and maintained by dividends received
from subsidiaries, interest on advances to subsidiaries, interest on the
available for sale investment securities portfolio, and management fees charged
to subsidiaries. At December 31, 1997, the parent company had cash and cash
equivalents totaling $432.9 million. The parent company's net working capital
position at December 31, 1997 was $444.6 million.
At January 1, 1998, the parent company could have received dividends from
subsidiaries of $163 million without prior regulatory approval. The payment of
additional dividends by the Corporation's subsidiaries will be dependent on the
future earnings of the subsidiaries. Management believes that the parent company
has adequate liquidity to meet its cash needs, including the payment of its
regular dividends, servicing of its debt, and cash needed for acquisitions.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The disclosures regarding the fair value of financial instruments are
included in Note 18 to the consolidated financial statements along with a
summary of the methods and assumptions used by the Corporation in determining
fair value. The differences between the fair values and book values were
primarily caused by differences between contractual and market interest rates at
the respective year ends. Fluctuations in the fair values will occur from period
to period due to changes in the composition of the balance sheet and changes in
market interest rates.
FOURTH QUARTER RESULTS
The Corporation's net income for the fourth quarter of 1997 was $33.6
million, or $.26 for both basic and diluted earnings per share. This compares to
$48.2 million, or $.40 for basic and $.39 diluted earnings per share for the
fourth quarter of 1996.
Results for the fourth quarter of 1997 were impacted by the following
significant pretax items: (i) $41.1 million of merger-related charges, (ii)
$16.6 million of charges related to the charter consolidation, and (iii) a $17.6
million increase in the provision for losses on loans primarily related to
acquisitions and the credit card portfolio. These items were offset by gains on
sales of branches of $5.1 million.
Results for the fourth quarter of 1996 included similar pretax charges.
These charges included the following: (i) $44.9 million of merger-related
charges, (ii) $13.7 million of write-offs of intangibles, and (iii) $5.2 million
of provisions for losses on FHA/VA claims related to an acquired entity. The
fourth quarter of 1996 charges were partially offset by $4.4 million of
investment securities gains. These significant items are discussed in more
detail in the "Earnings Analysis" section above.
Net interest income on a taxable-equivalent basis was $292.5 million for the
fourth quarter of 1997, $18.0 million higher than 1996's fourth quarter. The net
interest margin was 4.57%, an 11-basis-point increase from 1996. The improvement
relates primarily to loan growth funded by maturities and sales of lower
yielding investment securities and reductions of short-term borrowings.
The provision for losses on loans for the fourth quarter was $46.2 million
compared to $24.0 million for the same period in 1996. The higher provision
related to acquisitions and the credit card portfolio.
Noninterest income for the fourth quarter of 1997 was $116.1 million, an
increase of $17.5 million over 1996. Noninterest expense was $305.1 million for
the fourth quarter of 1997, an increase of $31.6 million from the same period in
1996. Noninterest expenses were impacted by the items described above.
Table 14, Selected Quarterly Financial Data, presents certain quarterly
financial data for 1997 and 1996.
A-14
<PAGE> 17
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
REPORTING COMPREHENSIVE INCOME. In June 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income." The Statement establishes standards
for the reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in financial statements. This Statement
requires that all items to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. This Statement
does not require a specific format for that financial statement but requires
that an enterprise display an amount representing total comprehensive income for
the period in that financial statement.
This Statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. This Statement was effective for fiscal years beginning
after December 15, 1997 and did not have a significant impact on the
Corporation's financial position or results of operations. Reclassification of
financial statements for earlier periods provided for comparative purposes is
required.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. In June
1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an Enterprise
and Related Information." This Statement establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. This Statement
supersedes FASB Statement No. 14, "Financial Reporting for Segments of a
Business Enterprise", but retains the requirement to report information about
major customers. It amends FASB Statement No. 94, "Consolidation of All
Majority-Owned Subsidiaries," to remove the special disclosure requirements for
previously unconsolidated subsidiaries.
This Statement requires that a public business enterprise report financial
and descriptive information about its reportable operating segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.
This Statement is effective for financial statements for periods beginning
after December 15, 1997. The Corporation's primary business is banking and it
currently does not have a segment under the above standard or the previous
standard. Management is continuing to examine the way it evaluates its business
and if certain operating units meet the tests for segment reporting, it will be
provided in future financial statements.
Reference is made to "Impact of Recently Issued Accounting Standards" in the
September 1998 MD & A included in the Corporation's 1998 Form 10-Q for
information regarding additional standards that have been issued in 1998.
YEAR 2000 RISK FACTORS
In February 1997, the Corporation implemented its "Y2K Project" to address a
potential problem with which substantially all users of automated data
processing and information systems are confronted. This problem arises from the
use of older systems of only two digits to represent the year applicable to a
transaction, e.g., "97" to represent "1997" rather than the full four digits.
Computer systems so programmed may not operate properly when the last two digits
of the year become "00" as will occur on January 1, 2000. In some cases
inputting a date later than December 31, 1999, would cause a computer to stop
operating while in other cases incorrect output may result. This potential
problem could affect a wide variety of automated systems such as mainframe
applications, personal computers, communications systems, and other information
systems routinely used in all industries.
The Corporation uses a vendor-provided system as its "core" banking
application software to process data pertaining to its demand deposits, savings
accounts, CDs and other deposits; certain loans; and like items. On August 21,
1996, the provider certified the Corporation's "core" banking applications to be
Year-2000 compliant and was tested in the first half of 1998. Other third-party
provided application software is used to process substantially all of the
Corporation's other data, e.g., its mortgage servicing, credit cards, trust
accounts, automated clearing house transfers, wire transfer function, electronic
banking, discount securities broker operations, investment-security management
operations, and others. Testing of these systems is expected to be completed
prior to December 31, 1998, either through installation of presently available
software upgrades or through installation of, and conversion to presently
available alternative systems. Each third-party-provider is contractually bound
at its own expense to bring its software into
A-15
<PAGE> 18
Year-2000 compliance and to maintain it in compliance should problems be
identified during testing. By December 1998, testing of all third-party provided
software and hardware is expected to be completed.
Although substantially all of the date-sensitive software and applications
utilized in the Corporation's information systems is provided by outside
vendors, the Corporation has itself developed some software "in-house" primarily
to permit its several systems and their users to communicate with one another.
Pursuant to the Corporation's Y2K Project, a consulting firm specializing in
Year-2000 software compliance matters has been retained to review all
in-house-developed software to assess the scope of the remedial work required to
bring it into Year-2000 compliance. This review commenced on December 1, 1997
and has been substantially completed. It is currently estimated that the
Corporation will spend approximately $750,000 on its Y2K Project. The $750,000
does not include the cost of computer equipment scheduled to be replaced in the
normal course of business, which is estimated to be $3.8 million and constitutes
a reallocation within the capital budget. The Corporation's practice is to
convert the data processing systems of acquired entities to the Corporation's
data processing systems, which are expected to be Year-2000 compliant.
Therefore, the aggregate cost related to pending acquisitions becoming Year-2000
compliant is not considered significant beyond normal conversion costs.
The Corporation is developing contingency planning in three broad
categories. The first set of contingency plans is for all critical applications
that are not Y2K compliant and tested, even though it is expected that these
applications will be compliant on schedule. The second set of contingency plans
will address any Y2K related failures of critical applications that are in
production. Although there is a low probability that a fully compliant and
tested application will have a Y2K related failure, it is still necessary to
have a contingency plan in place. The third and final set of contingency plans
address other disruptions, some of which are beyond the control of the
Corporation. Some examples would be disruption of utilities such as power, water
and telecommunications. Also, included in this category would be hardware
failures that would require processing to be moved to a disaster recovery backup
site. The Corporation's Business Resumption Plan does cover most of the
potential disruptions in this category, and the appropriate sections from that
plan will be incorporated into the Y2K contingency plan. The Corporation expects
to have its contingency plans in place by December 31, 1998.
In summary, the Corporation's Y2K Project's goal and management's
expectation is to have all software reviewed and modified or replaced as
necessary to achieve Year-2000 compliance and to be tested with satisfactory
results prior to year-end 1998. Based upon currently available information,
management has no reason to believe that its goal and expectation will not be
met and does not anticipate that the cost of effecting Year-2000 compliance will
have a material impact on the Corporation's financial condition, results of
operations, or liquidity.
Notwithstanding the foregoing, the Corporation continues to bear some risk
arising from the advent of the Year-2000 and could be adversely affected should
governmental entities, third-party vendors or significant customers of the
Corporation fail to address the issues appropriately; or should the
Corporation's providers fail to perform under their aforementioned maintenance
contracts with it; or should required, qualified, system technical personnel
become unavailable before Year-2000 compliance has been achieved. With a view to
identifying and minimizing the risk to the Corporation's loan portfolio, the
Corporation is conferring with its major borrowing customers to emphasize the
importance of Year-2000 issues and to encourage them to implement promptly Y2K
projects of their own. A senior-level management committee is addressing these
issues and providing guidance to lending personnel. Presently, management has no
reason to believe that any customers with which it has significant banking
relationships are failing to take appropriate action to effect Year-2000
compliance or that its software vendors will be unable to perform under their
contracts.
Reference is made to "Year-2000 Risk Factors" in the September 1998 MD & A
included in the Corporation's September 1998 Form 10-Q for updated information
regarding the Corporation's Year-2000 compliance efforts.
A-16
<PAGE> 19
TABLE 1. SUMMARY OF CONSOLIDATED RESULTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income ........................... $ 2,119,812 $ 1,997,845 $ 1,790,298 $ 1,498,927 $ 1,321,477
Interest expense .......................... (997,663) (953,903) (845,604) (617,052) (541,721)
----------- ----------- ----------- ----------- -----------
NET INTEREST INCOME ............. 1,122,149 1,043,942 944,694 881,875 779,756
PROVISION FOR LOSSES ON LOANS ............. (150,606) (84,198) (47,393) (22,999) (49,267)
----------- ----------- ----------- ----------- -----------
NET INTEREST INCOME
AFTER PROVISION FOR
LOSSES ON LOANS ............... 971,543 959,744 897,301 858,876 730,489
NONINTEREST INCOME
Service charges on deposit accounts ..... 144,545 141,119 134,242 112,473 98,227
Mortgage servicing income ............... 58,593 64,395 56,873 53,427 48,155
Bank card income ........................ 39,497 31,866 27,234 16,611 15,872
Factoring commissions ................... 30,140 26,066 19,519 17,371 15,376
Trust service income .................... 23,888 20,225 18,784 18,996 17,881
Profits and commissions from
trading activities ................... 7,323 5,768 12,364 5,073 15,620
Other income ............................ 128,985 85,969 84,376 71,445 70,075
----------- ----------- ----------- ----------- -----------
Total noninterest income ........ 432,971 375,408 353,392 295,396 281,206
----------- ----------- ----------- ----------- -----------
NONINTEREST EXPENSE
Salaries and employee benefits .......... 412,662 388,972 371,136 366,689 335,957
Net occupancy expense ................... 69,888 70,142 66,224 64,167 56,318
Equipment expense ....................... 59,489 58,113 55,044 49,431 45,702
Other expense ........................... 339,815 303,426 314,280 306,410 289,500
----------- ----------- ----------- ----------- -----------
Total noninterest expense ....... 881,854 820,653 806,684 786,697 727,477
----------- ----------- ----------- ----------- -----------
EARNINGS BEFORE OTHER
OPERATING ITEMS,
INCOME TAXES,
EXTRAORDINARY ITEM, AND
ACCOUNTING CHANGES ............ 522,660 514,499 444,009 367,575 284,218
OTHER OPERATING ITEMS
Investment securities gains (losses) .... 4,781 4,942 2,008 (21,053) 12,160
Restructuring charges ................... -- -- -- (28,929) --
Merger-related expenses ................. (48,112) (52,786) (12,114) (15,123) (2,113)
Charter consolidation expenses .......... (16,742) -- -- -- --
Consumer loan marketing program
expenses ............................. -- -- -- (14,446) --
Gain on sale of collateral
related to a troubled
debt restructuring ................... -- -- -- -- 901
Gain on sales of branches and
other selected assets ................ 16,290 7,147 1,925 (15) 17
One-time trust fees related to a
court award .......................... -- 1,268 -- -- --
Special regulatory assessment to
recapitalize the SAIF ................ -- (29,914) -- -- --
Write-off of mortgage servicing
rights, goodwill, and other
intangibles .......................... (2,778) (19,579) (146) (8) (3,094)
Additional provisions for losses
on FHA/VA foreclosure claims of
acquired entity ...................... -- (19,800) -- -- --
Provisions for data processing
systems conversions and
abandonment of property .............. -- -- -- -- (4,424)
Litigation settlements .................. (1,500) -- -- 2,200 (500)
----------- ----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME
TAXES, EXTRAORDINARY ITEM,
AND ACCOUNTING CHANGES ......... 474,599 405,777 435,682 290,201 287,165
Applicable income taxes ................... (162,302) (139,649) (145,485) (92,325) (86,669)
----------- ----------- ----------- ----------- -----------
EARNINGS BEFORE
EXTRAORDINARY ITEM AND
ACCOUNTING CHANGES ............ 312,297 266,128 290,197 197,876 200,496
Extraordinary item and accounting
changes, net of taxes ................... -- -- -- -- 4,757
----------- ----------- ----------- ----------- -----------
NET EARNINGS .................... $ 312,297 $ 266,128 $ 290,197 $ 197,876 $ 205,253
=========== =========== =========== =========== ===========
</TABLE>
A-17
<PAGE> 20
<TABLE>
<CAPTION>
TABLE 2. CONTRIBUTION TO DILUTED EARNINGS PER SHARE
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995 1994 1993
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net interest income-- FTE................... $ 8.89 $ 8.65 $ 8.26 $ 7.93 $ 7.95
Provision for losses on loans............... (1.17) (0.68) (0.40) (0.20) (0.48)
--------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOSSES ON
LOANS-- FTE..................... 7.72 7.97 7.86 7.73 7.47
NONINTEREST INCOME
Service charges on deposit accounts....... 1.12 1.14 1.14 0.98 0.99
Mortgage servicing income................. 0.45 0.52 0.48 0.47 0.36
Bank card income.......................... 0.30 0.26 0.23 0.14 0.37
Factoring commissions..................... 0.23 0.21 0.17 0.15 0.16
Trust service income...................... 0.18 0.16 0.16 0.17 0.19
Profits and commissions from trading
activities............................. 0.06 0.05 0.11 0.04 0.16
Investment securities gains (losses)...... 0.04 0.04 0.02 (0.18) 0.14
Other income.............................. 1.13 0.76 0.73 0.64 0.68
--------- -------- -------- -------- --------
Total noninterest income.......... 3.51 3.14 3.04 2.41 3.05
--------- -------- -------- -------- --------
NONINTEREST EXPENSE
Salaries and employee benefits............ (3.19) (3.14) (3.15) (3.19) (3.32)
Net occupancy expense..................... (0.54) (0.57) (0.56) (0.56) (0.57)
Equipment expense......................... (0.46) (0.47) (0.47) (0.46) (0.48)
Other expense............................. (3.14) (3.42) (2.77) (3.14) (3.01)
--------- -------- -------- -------- --------
Total noninterest expense......... (7.33) (7.60) (6.95) (7.35) (7.38)
--------- -------- -------- -------- --------
EARNINGS BEFORE INCOME
TAXES -- FTE, EXTRAORDINARY ITEM,
AND ACCOUNTING CHANGES.......... 3.90 3.51 3.95 2.79 3.14
Applicable income taxes-- FTE............... (1.47) (1.34) (1.47) (1.05) (1.14)
--------- -------- -------- -------- --------
EARNINGS BEFORE EXTRAORDINARY ITEM
AND ACCOUNTING CHANGES.......... 2.43 2.17 2.48 1.74 2.00
Extraordinary item and accounting changes,
net of taxes................................ -- -- -- -- 0.05
Preferred stock dividends................... -- -- (0.02) (0.03) (0.03)
--------- -------- -------- -------- --------
NET EARNINGS...................... $ 2.43 $ 2.17 $ 2.46 $ 1.71 $ 2.02
========= ======== ======== ======== ========
Change in net earnings applicable to diluted
earnings per share using previous year
average shares outstanding................ $ 0.37 $ (0.18) $ 0.82 $ 0.02 $ 0.64
Change in average shares outstanding........ (0.11) (0.12) (0.07) (0.33) (0.31)
--------- -------- -------- -------- --------
Change in net earnings............ $ 0.26 $ (0.30) $ 0.75 $ (0.31) $ 0.33
========= ======== ======== ======== ========
AVERAGE DILUTED SHARES (IN THOUSANDS)....... 129,397 123,793 117,673 114,810 96,001
========= ======== ======== ======== ========
</TABLE>
- ----------
FTE -- Fully taxable-equivalent
A-18
<PAGE> 21
TABLE 3. BALANCE SHEET IMPACT OF CONSUMMATED ACQUISITIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------------------------------------------
MAGNA CAPITAL- PEOPLES MAGNA MERCHANTS
GROUP(1) MIAMI FIRST(1) BANCORP AMBANC(1) BANCSHARES(1) OTHERS TOTAL
---------- ---------- ---------- ---------- -------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits at
financial institutions $ 8,227 $ 18,441 $ 3,079 $ 23,032 $ 298 $ 53 $ 100 $ 53,230
Loans, net of unearned
income 4,483,812 1,617,896 1,101,707 883,404 540,433 342,192 150,279 9,119,723
Allowance for losses on
loans (59,439) (30,676) (16,442) (15,983) (5,428) (3,687) (3,138) (134,793)
---------- ---------- ---------- ---------- -------- ------------ -------- -----------
Net loans 4,424,373 1,587,220 1,085,265 867,421 535,005 338,505 147,141 8,984,930
Investment securities 1,992,114 219,796 320,062 115,189 150,219 130,629 60,565 2,988,574
Intangible assets 121,817 1,477 12,106 11,051 2,098 1,067 2,746 152,362
Cash and cash equivalents 247,932 238,197 43,741 74,751 37,313 37,510 26,030 705,474
Other real estate, net 1,950 1,652 236 9,579 729 1,323 759 16,228
Premises and equipment 118,587 28,037 20,310 32,090 12,934 14,733 4,607 231,298
Other assets 163,461 60,825 19,767 57,401 20,799 22,131 4,192 348,576
---------- ---------- ---------- ---------- -------- ------------ -------- -----------
Total assets $7,078,461 $2,155,645 $1,504,566 $1,190,514 $759,395 $ 545,951 $246,140 $13,480,672
========== ========== ========== ========== ======== ============ ======== ===========
LIABILITIES
Deposits $5,435,995 $1,290,429 $1,176,841 $ 887,437 $665,685 $ 484,357 $214,988 $10,155,732
Other interest-bearing
liabilities 937,659 429,691 157,576 141,803 8,778 - 280 1,675,787
Other liabilities 76,341 290,533 13,102 33,531 6,577 3,607 3,876 427,567
---------- ---------- ---------- ---------- -------- ------------ -------- -----------
Total liabilities $6,449,995 $2,010,653 $1,347,519 $1,062,771 681,040 $ 487,964 $219,144 $12,259,086
========== ========== ========== ========== ======== ============ ======== ===========
PURCHASE PRICE/CAPITAL
CONTRIBUTION/EQUITY 628,466 144,992 157,047 127,743 78,355 57,987 26,996 1,221,586
========== ========== ========== ========== ======== ============ ======= ===========
<CAPTION>
1996 1995
------------------------------------------ ----------
LEADER OTHERS TOTAL TOTAL
----------- --------- ---------- -----------
<S> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits at
financial institutions $ 241 $ 2,540 $ 2,781 $ 2,367
Loans, net of unearned
income 2,248,213 487,274 2,735,487 923,678
Allowance for losses on
loans (31,645) (6,479) (38,124) (19,717)
----------- --------- ---------- -----------
Net loans 2,216,568 480,795 2,697,363 903,961
Investment securities 836,583 212,303 1,048,886 169,373
Intangible assets 52,985 9,356 62,341 15,608
Cash and cash equivalents 36,802 73,628 110,430 138,525
Other real estate, net 1,070 1,414 2,484 2,590
Premises and equipment 19,013 20,293 39,306 29,173
Other assets 247,659 12,295 259,954 18,736
----------- --------- ---------- -----------
Total assets $ 3,410,921 $ 812,624 $ 4,223,545 $ 1,280,333
=========== ========= =========== ===========
LIABILITIES
Deposits $ 1,697,496 $ 710,800 $ 2,408,296 $ 1,138,644
Other interest-bearing
liabilities 1,384,610 18,585 1,403,195 30,682
Other liabilities 72,755 9,319 82,074 16,036
----------- --------- ----------- -----------
Total liabilities $ 3,154,861 $ 738,704 $ 3,893,565 $ 1,185,362
=========== ========= =========== ===========
PURCHASE PRICE/CAPITAL
CONTRIBUTION/EQUITY 256,060 73,920 329,980 94,971
=========== ========= =========== ===========
</TABLE>
(1) Magna Group, Peoples First, AMBANC, and Merchants are reflected in the
December 31, 1997 restated financial statements. These four acquisitions
were consummated during the third quarter of 1998.
A-19
<PAGE> 22
TABLE 4. AVERAGE BALANCE SHEETS AND AVERAGE INTEREST RATES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
1997 1996 1995
---------------------------------- ------------------------------------ ---------------------------
INTEREST FTE INTEREST FTE INTEREST FTE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ---- ------- ------- ---- ------- ------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits
at financial
institutions............. $ 60,160 $ 3,012 5.01% $ 36,806 $ 2,154 5.85% $ 100,336 $ 6,395 6.37%
Federal funds sold and
securities purchased
under agreements to
resell................... 269,146 15,104 5.61 394,056 21,420 5.44 418,560 24,305 5.81
Trading account assets..... 204,765 14,956 7.30 192,856 13,895 7.20 185,497 14,192 7.65
Investment securities
(1)(2)
Taxable securities....... 4,926,614 320,457 6.50 5,741,503 372,163 6.48 4,794,728 304,652 6.35
Tax-exempt securities.... 811,247 71,282 8.79 750,414 67,342 8.97 756,864 70,045 9.25
----------- ---------- ----------- ---------- ----------- ----------
Total investment
securities......... 5,737,861 391,739 6.83 6,491,917 439,505 6.77 5,551,592 374,697 6.75
Loans, net of unearned
income (1)(3)(4)......... 18,897,828 1,723,033 9.12 16,944,142 1,547,744 9.13 15,240,378 1,398,496 9.18
----------- ---------- ----------- ---------- ----------- ----------
TOTAL EARNING
ASSETS (1)
(2)(3)(4).......... 25,169,760 2,147,844 8.53 24,059,777 2,024,718 8.42 21,496,363 1,818,085 8.46
Cash and due from banks.... 866,601 849,670 832,620
Premises and equipment..... 487,068 465,197 434,710
Allowance for losses on
loans.................... (270,666) (258,627) (242,842)
Other assets............... 1,114,133 887,832 740,679
----------- ----------- -----------
TOTAL ASSETS......... $27,366,896 $26,003,849 $23,261,530
=========== =========== ===========
</TABLE>
A-20
<PAGE> 23
TABLE 4. AVERAGE BALANCE SHEETS AND AVERAGE INTEREST RATES
(CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
Money market accounts...... $ 2,732,518 $ 100,891 3.69% $ 2,699,987 $ 93,282 3.45% $ 2,519,439 $ 74,466 2.96%
Savings deposits........... 4,041,591 91,209 2.26 3,804,842 89,436 2.35 3,705,827 91,311 2.46
Certificates of deposit of
$100,000 and over........ 2,269,719 128,693 5.67 1,890,924 108,846 5.76 1,532,823 78,776 5.14
Other time deposits........ 8,525,834 469,649 5.51 8,400,035 464,116 5.53 7,939,854 450,671 5.68
Short-term borrowings...... 1,565,179 80,764 5.16 1,805,007 94,708 5.25 1,248,613 70,067 5.61
Short-term bank notes...... 119,493 6,973 5.84 88,361 5,136 5.81 459 34 7.41
Long-term debt
Federal Home Loan Bank
advances............... 994,588 58,544 5.89 1,030,832 59,979 5.82 852,610 52,509 6.16
Subordinated capital
notes.................. 197,569 14,229 7.20 240,807 18,551 7.70 160,280 13,543 8.45
Medium-term bank notes... 135,000 8,943 6.62 42,637 2,801 6.57 -- -- --
Trust Preferred
Securities............. 198,956 16,511 8.30 10,871 872 8.02 -- -- --
Other.................... 272,511 21,257 7.80 216,324 16,176 7.48 181,551 14,227 7.84
------------ ---------- ------------ ---------- ----------- --------
TOTAL
INTEREST-BEARING
LIABILITIES........ 21,052,958 997,663 4.74 20,230,627 953,903 4.72 18,141,456 845,604 4.66
Noninterest-bearing demand
deposits................. 3,107,395 -- 2,878,092 -- 2,709,935 --
------------ ---------- ------------ ---------- ----------- --------
TOTAL SOURCES OF
FUNDS.............. 24,160,353 997,663 23,108,719 953,903 20,851,391 845,604
Other liabilities............ 644,534 647,795 446,287
Shareholders' equity....... 2,562,009 2,247,335 1,963,852
------------ ------------ -----------
TOTAL LIABILITIES
AND
SHAREHOLDERS'
EQUITY............. $ 27,366,896 $ 26,003,849 $23,261,530
============ ============ ===========
NET INTEREST
INCOME(1).................. $1,150,181 $1,070,815 $972,481
========== ========== ========
INTEREST RATE
SPREAD(1).................. 3.79% 3.70% 3.80%
====== ===== ====
NET INTEREST
MARGIN(1).................. 4.57% 4.45% 4.52%
====== ===== ====
TAXABLE-EQUIVALENT
ADJUSTMENTS
Loans...................... $ 4,708 $ 5,160 $ 5,286
Investment securities...... 23,324 21,713 22,501
---------- ---------- --------
Total................ $ 28,032 $ 26,873 $ 27,787
========== ========== ========
</TABLE>
- ----------
(1) Fully taxable-equivalent yields are calculated assuming a 35% federal income
tax rate.
(2) Yields are calculated on historical cost and exclude the impact of the
unrealized gain (loss) on available for sale securities.
(3) Includes loan fees, immaterial in amount, in both interest income and the
calculation of the yield on loans.
(4) Includes loans on nonaccrual status.
A-21
<PAGE> 24
TABLE 5. ANALYSIS OF VOLUME AND RATE CHANGES
<TABLE>
<CAPTION>
1997 VERSUS 1996 1996 VERSUS 1995
----------------------------------- --------------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGE IN: (1) DUE TO CHANGE IN:(1)
--------------------- TOTAL ------------------- TOTAL
AVERAGE AVERAGE INCREASE AVERAGE AVERAGE INCREASE
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
--------- ------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits
at financial institutions ........... $ 1,175 $ (317) $ 858 $ (3,849) $ (392) $ (4,241)
Federal funds sold and
securities purchased
under agreements to resell.......... (7,114) 798 (6,316) (1,383) (1,502) (2,885)
Trading account assets ................ 868 193 1,061 550 (847) (297)
Investment
securities--FTE .................... (52,502) 4,736 (47,766) 62,440 2,368 64,808
Loans, net of unearned
income--FTE ........................ 175,358 (69) 175,289 156,288 (7,040) 149,248
--------- ------- --------- --------- -------- --------
TOTAL INTEREST
INCOME ...................... 117,785 5,341 123,126 214,046 (7,413) 206,633
--------- ------- --------- --------- -------- --------
INTEREST EXPENSE
Money market accounts ................. 1,738 5,871 7,609 6,274 12,542 18,816
Savings deposits ...................... 4,568 (2,795) 1,773 2,483 (4,358) (1,875)
Certificates of deposit of
$100,000 and over .................. 21,718 (1,871) 19,847 19,736 10,334 30,070
Other time deposits ................... 8,108 (2,575) 5,533 25,637 (12,192) 13,445
Short-term borrowings ................. (11,415) (692) (12,107) 34,296 (4,553) 29,743
Long-term debt ........................ 20,894 211 21,105 23,096 (4,996) 18,100
--------- ------- --------- --------- -------- --------
TOTAL INTEREST
EXPENSE ..................... 45,611 (1,851) 43,760 111,522 (3,223) 108,299
--------- ------- --------- --------- -------- --------
CHANGE IN NET INTEREST
INCOME ................................ $ 72,174 $ 7,192 $ 79,366 $ 102,524 $ (4,190) $ 98,334
========= ======= ========= ========= ======== ========
PERCENTAGE INCREASE IN NET
INTEREST INCOME OVER PRIOR
PERIOD................................. 7.49% 10.51%
========= ========
</TABLE>
- ----------
FTE -- Fully taxable-equivalent
(1) The change due to both rate and volume has been allocated to change due to
volume and change due to rate in proportion to the relationship of the
absolute dollar amounts of the change in each.
TABLE 6. AVERAGE DEPOSITS(1)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Noninterest-bearing demand............ $ 3,107,395 $ 2,878,092 $ 2,709,935 $ 2,634,714 $ 2,406,548
Money market(2)....................... 2,732,518 2,699,987 2,519,439 2,756,346 2,958,427
Savings(3)............................ 4,041,591 3,804,842 3,705,827 3,877,046 3,111,971
Other time(4)......................... 8,525,834 8,400,035 7,939,854 7,189,601 6,689,128
----------- ----------- ----------- ----------- -----------
TOTAL AVERAGE CORE DEPOSITS... 18,407,338 17,782,956 16,875,055 16,457,707 15,166,074
Certificates of deposit of $100,000
and over............................ 2,269,719 1,890,924 1,532,823 1,288,157 1,252,992
----------- ----------- ----------- ----------- -----------
TOTAL AVERAGE DEPOSITS........ $20,677,057 $19,673,880 $18,407,878 $17,745,864 $16,419,066
=========== =========== =========== =========== ===========
</TABLE>
- ----------
(1) Table 4 presents the average rate paid on the above deposit categories for
the three years in the period ended December 31, 1997.
(2) Includes money market savings accounts and super NOW accounts.
(3) Includes regular savings accounts, NOW accounts, and premium savings
accounts.
(4) Includes certificates of deposit of less than $100,000, investment savings
deposits, IRAs, and Club accounts.
A-22
<PAGE> 25
TABLE 7. COMPOSITION OF THE LOAN PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ------------ ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural. $ 3,210,652 $ 2,916,514 $ 2,850,310 $ 2,668,418 $2,416,192
Foreign................................. 207,343 145,483 127,623 115,316 84,163
Accounts receivable-- factoring......... 579,067 452,522 319,487 247,135 221,377
Real estate-- construction.............. 960,405 782,984 683,792 587,264 444,471
Real estate-- mortgage
Secured by 1-4 family residential..... 5,361,456 5,233,199 4,898,074 4,749,066 3,768,680
FHA/VA government-insured/guaranteed.. 1,331,993 1,569,027 1,006,397 744,891 479,090
Other mortgage........................ 3,828,230 3,129,691 2,666,678 2,513,818 2,243,478
Home equity............................. 443,762 355,615 320,871 289,503 259,784
Consumer
Credit cards and related plans........ 612,902 698,175 488,896 344,709 172,522
Other consumer........................ 2,560,649 2,509,331 2,336,539 2,138,128 1,760,874
Direct lease financing.................. 65,755 74,891 76,967 52,558 37,256
----------- ------------ ----------- ----------- ----------
TOTAL LOANS..................... 19,162,214 17,867,432 15,775,634 14,450,806 11,887,887
Less: Unearned income................... 35,506 48,344 61,851 69,240 72,334
----------- ------------ ----------- ----------- ----------
TOTAL LOANS, NET OF UNEARNED
INCOME........................ $19,126,708 $ 17,819,088 $15,713,783 $14,381,566 $11,815,553
=========== ============ =========== =========== ===========
</TABLE>
A-23
<PAGE> 26
TABLE 8. ALLOCATION OF THE ALLOWANCE FOR LOSSES ON LOANS BY CATEGORY OF LOANS
AND THE PERCENTAGE OF LOANS BY CATEGORY TO TOTAL LOANS OUTSTANDING
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------------- --------------------- -------------------- ---------------------- ---------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
OF LOANS TO OF LOANS TO OF LOANS TO OF LOANS TO OF LOANS TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
-------- ----------- -------- ----------- ------ ----------- --------- ----------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial,
financial,
and
agricultural. $ 75,060 21% $ 57,114 21% $ 67,108 21% $ 71,295 21% $ 84,983 23%
Foreign........ 3,150 1 1,300 1 1,400 1 300 1 8,000 1
Real
estate --
construction.. 12,177 6 8,549 5 10,231 5 8,688 4 6,245 4
Real estate--
mortgage....... 121,791 52 112,875 51 95,629 51 102,280 53 92,295 53
Consumer..... 97,285 20 76,812 22 67,836 21 54,286 20 37,286 19
Direct lease
financing..... 922 - 988 - 1,191 1 528 1 525 -
-------- ---- -------- --- -------- --- -------- --- -------- ---
Total... $310,385 100% $257,638 100% $243,395 100% $237,377 100% $229,334 100%
======== ==== ======== === ======== === ======== === ======== ===
</TABLE>
The allocation of the allowance is presented based in part on evaluations of
specific loans, past history, and economic conditions within specific industries
or geographic areas. Since all of these factors are subject to change, the
current allocation of the allowance is not necessarily indicative of the
breakdown of future losses. No portion of the allowance for losses on loans has
been allocated to FHA/VA government-insured/guaranteed loans since they
represent minimal credit risk.
A-24
<PAGE> 27
TABLE 9. NONACCRUAL, RESTRUCTURED, AND PAST DUE LOANS AND FORECLOSED PROPERTIES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Domestic............................................ $ 132,672 $ 114,671 $ 101,513 $ 83,263 $101,984
Foreign............................................. 96 96 2,072 334 7,312
Restructured loans.................................... 15,250 17,097 14,583 20,289 28,679
--------- --------- --------- --------- --------
TOTAL NONPERFORMING LOANS..................... 148,018 131,864 118,168 103,886 137,975
--------- --------- --------- --------- --------
Foreclosed properties:
Other real estate, net.............................. 26,106 36,052 30,832 41,038 58,022
Other foreclosed properties......................... 5,062 2,167 2,823 693 938
--------- --------- --------- --------- --------
TOTAL FORECLOSED PROPERTIES................... 31,168 38,219 33,655 41,731 58,960
--------- --------- --------- --------- --------
TOTAL NONPERFORMING ASSETS.................... $ 179,186 $ 170,083 $ 151,823 $ 145,617 $196,935
========= ========= ========= ========= ========
Loans 90 days or more past due and not on
nonaccrual status:
Domestic............................................ $ 47,467 $ 40,631 $ 30,502 $ 20,434 $ 24,919
Foreign............................................. -- -- -- 1,500 --
--------- --------- --------- --------- --------
TOTAL LOANS 90 DAYS OR MORE PAST DUE.......... $ 47,467 $ 40,631 $ 30,502 $ 21,934 $ 24,919
========= ========= ========= ========= ========
FHA/VA GOVERNMENT-INSURED/GUARANTEED LOANS:
Loans 90 days or more past due and not on
nonaccrual status................................. $ 517,124 $ 724,691 $ 558,038 $ 282,523 $144,892
Nonaccrual.......................................... 14,933 77 404 -- --
</TABLE>
TABLE 10. ALLOWANCE FOR LOSSES ON LOANS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD.......... $ 257,638 $ 243,395 $ 237,377 $ 229,334 $ 193,974
LOANS CHARGED OFF
Commercial, financial, and
agricultural........................ 40,436 22,792 19,449 16,343 26,372
Foreign............................... -- 3,391 743 6,893 1,389
Real estate-- construction............ 240 685 460 430 1,482
Real estate-- mortgage................ 9,764 9,462 12,081 13,023 12,239
Consumer.............................. 34,904 29,559 19,908 14,302 15,285
Credit cards and related plans........ 52,125 30,516 15,070 3,655 3,530
Direct lease financing................ 30 48 52 6 52
------------ ------------ ------------ ------------ -----------
Total charge-offs.............. 137,499 96,453 67,763 54,652 60,349
------------ ------------ ------------ ------------ -----------
RECOVERIES ON LOANS PREVIOUSLY CHARGED
OFF
Commercial, financial, and agricultural 7,896 7,622 9,113 13,086 9,420
Foreign............................... 10 -- 1,632 1,523 28
Real estate-- construction............ 518 39 557 939 137
Real estate-- mortgage................ 3,301 3,253 4,243 4,986 2,024
Consumer.............................. 4,647 7,086 6,172 6,106 6,439
Credit cards and related plans........ 6,862 2,173 1,120 929 916
Direct lease financing................ 27 4 52 133 54
------------ ------------ ------------ ------------ -----------
Total recoveries............... 23,261 20,177 22,889 27,702 19,018
------------ ------------ ------------ ------------ -----------
Net charge-offs......................... 114,238 76,276 44,874 26,950 41,331
Provisions charged to expense........... 150,606 84,198 47,393 23,000 49,267
Allowance related to the sale of certain
loans................................. -- (1,628) -- -- --
Increase due to acquisitions............ 16,379 7,949 3,499 11,993 27,424
------------ ------------ ------------ ------------ -----------
BALANCE AT END OF PERIOD................ $ 310,385 $ 257,638 $ 243,395 $ 237,377 $ 229,334
============ ============ ============ ============ ===========
Total loans, net of unearned income, at
end of period.......................... $ 19,126,708 $ 17,819,088 $ 15,713,783 $ 14,381,566 $11,815,553
Less: FHA/VA government-insured/
guaranteed loans....................... 1,331,993 1,569,027 1,006,397 744,891 479,090
------------ ------------ ------------ ------------ -----------
LOANS USED TO CALCULATE RATIOS........ $ 17,794,715 $ 16,250,061 $ 14,707,386 $ 13,636,675 $11,336,463
============ ============ ============ ============ ===========
Average total loans, net of unearned
income, during period................. $ 18,897,828 $ 16,944,142 $ 15,240,378 $ 13,162,904 $11,323,382
Less: Average FHA/VA government-
insured/guaranteed loans.............. 1,500,120 1,300,065 881,082 603,181 376,511
------------ ------------ ------------ ------------ -----------
AVERAGE LOANS USED TO CALCULATE
RATIOS.............................. $ 17,397,708 $ 15,644,077 $ 14,359,296 $ 12,559,723 $10,946,871
============ ============ ============ ============ ===========
CREDIT QUALITY RATIOS(1)
Allowance at end of period to loans, net
of unearned income.................. 1.74% 1.59% 1.65% 1.74% 2.02%
Allowance at end of period to average
loans, net of unearned income....... 1.78 1.65 1.70 1.89 2.09
Allowance for losses on loans as a
percentage of nonperforming loans... 210 195 206 228 166
</TABLE>
A-25
<PAGE> 28
TABLE 10. ALLOWANCE FOR LOSSES ON LOANS (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C>
Net charge-offs to average loans,
net of unearned income.............. .66 .49 .31 .21 .38
Provision to average loans,
net of unearned income.............. .87 .54 .33 .18 .45
Nonperforming loans as a percentage
of loans............................ .83 .81 .80 .76 1.22
Nonperforming assets as a percentage
of loans plus foreclosed
properties.......................... 1.01 1.04 1.03 1.06 1.73
Loans 90 days or more past due
and not on nonaccrual status
as a percentage of loans............ .27 .25 .21 .16 .22
</TABLE>
- ----------
(1) Ratio calculations exclude FHA/VA government-insured/guaranteed loans since
they represent minimal credit risk to the Corporation. See the "Loans"
discussion for additional information regarding the FHA/VA
government-insured/guaranteed loans and Table 9 for the detail of
nonperforming assets.
TABLE 11. RATE SENSITIVITY ANALYSIS AT DECEMBER 31, 1997
Reference is made to "Item 3. Quantitative and Qualitative Disclosures About
Market Risk" in the September 1998 Form 10-Q.
TABLE 12. INVESTMENT SECURITIES AND OTHER EARNING ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1997 1996 1995
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S. Government obligations
U.S. Treasury ..................................... $ 991,684 $1,211,584 $1,253,344
U.S. Government agencies .......................... 3,515,349 3,250,641 3,582,762
---------- ---------- ----------
Total U.S. Government obligations ......... 4,507,033 4,462,225 4,836,106
Obligations of states and political subdivisions .... 934,220 786,213 774,099
Other investment securities ......................... 399,451 418,813 366,092
---------- ---------- ----------
Total investment securities ............... 5,840,704 5,667,251 5,976,297
Interest-bearing deposits at financial
institutions ...................................... 36,147 24,872 77,900
Federal funds sold and securities
purchased under Agreements to resell ............... 172,657 250,842 618,578
Trading account assets .............................. 187,419 260,266 136,772
Loans held for resale ............................... 175,699 113,604 128,166
---------- ---------- ----------
Total investment securities
and other earning assets ................ $6,412,626 $6,316,835 $6,937,713
========== ========== ==========
</TABLE>
TABLE 13. RISK-BASED CAPITAL
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1997 1996 1995
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
TIER 1 CAPITAL
Shareholders' equity ........................ $ 2,668,721 $ 2,376,768 $ 2,147,621
Trust Preferred Securities and minority
interest in consolidated subsidiaries ..... 214,360 211,522 999
Less: Goodwill and other intangibles ....... (180,635) (96,382) (87,854)
Disallowed deferred tax asset ........ (1,651) (1,896) (1,950)
Unrealized gain on available
for sale securities ............. (49,330) (25,202) (41,639)
------------ ------------ ------------
TOTAL TIER 1 CAPITAL ................ 2,651,465 2,464,810 2,017,177
TIER 2 CAPITAL
Allowance for losses on loans ............... 233,429 210,041 187,407
Qualifying long-term debt ................... 174,232 174,121 174,166
Non-qualifying securities ................... (71) -- --
------------ ------------ ------------
TOTAL CAPITAL BEFORE DEDUCTIONS ..... 3,059,055 2,848,972 2,378,750
Less investment in unconsolidated
subsidiaries .............................. (10,628) (1,812) (214)
------------ ------------ ------------
TOTAL CAPITAL ....................... $ 3,048,427 $ 2,847,160 $ 2,378,536
============ ============ ============
RISK-WEIGHTED ASSETS .......................... $ 18,601,136 $ 17,122,657 $ 15,143,345
============ ============ ============
RATIOS
Equity to assets ............................ 9.53% 8.99% 8.73%
Leverage ratio(1) ........................... 9.62 9.32 8.41
Tier 1 capital to risk-weighted assets(1) ... 14.25 14.39 13.32
Total capital to risk-weighted assets(1) .... 16.39 16.63 15.71
</TABLE>
A-26
<PAGE> 29
TABLE 13. RISK-BASED CAPITAL
(CONTINUED)
(1) Regulatory minimums for institutions considered "well-capitalized" are 5%,
6%, and 10% for the leverage, Tier 1 capital to risk-weighted assets, and
Total capital to risk-weighted assets ratios, respectively. As of December
31, 1997, all of the Corporation's banking subsidiaries were considered
"well-capitalized" for purposes of FDIC deposit insurance assessments. See
Note 12 to the consolidated financial statements for a comparison of the
Corporation's capital levels and ratios to the regulatory minimums for
"adequately capitalized" and "well capitalized."
TABLE 14. SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
1997 QUARTERS ENDED(1)
------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net interest income....... $ 271,330 $ 283,439 $ 280,961 $ 286,419 $ 1,122,149
Provision for losses
on loans................ (38,746) (26,903) (38,791) (46,166) (150,606)
Investment securities
gains (losses).......... 358 634 3,508 281 4,781
Noninterest income........ 101,455 105,739 125,952 116,115 449,261
Noninterest expense....... (206,290) (217,408) (222,281) (305,007) (950,986)
------------ ------------ ------------ ------------ ------------
Earnings before income
taxes................... 128,107 145,501 149,349 51,642 474,599
Applicable income taxes... 44,021 49,190 51,080 18,011 162,302
------------ ------------ ------------ ------------ ------------
Net earnings.............. $ 84,086 $ 96,311 $ 98,269 $ 33,631 $ 312,297
============ ============ ============ ============ ============
PER COMMON SHARE DATA
Net earnings
Basic................ $ .69 $ .77 $ .79 $ .26 $ 2.50
Diluted.............. .67 .75 .76 .26 2.43
Dividends............... .32 .375 .40 .40 1.495
UPC COMMON STOCK
DATA(2)
High trading price...... $ 47.75 $ 52.13 $ 56.50 $ 67.88 $ 67.88
Low trading price....... 38.38 41.25 49.25 57.00 38.38
Closing price........... 40.63 51.88 55.88 67.88 67.88
Trading volume (in
thousands)(3)........ 11,211 11,449 8,310 10,001 40,971
KEY FINANCIAL DATA
Return on average
assets................. 1.28% 1.42% 1.40% .50% 1.14%
Return on average
common equity........ 14.38 15.67 15.58 4.44 12.51
Expense ratio(4)........ 1.54 1.55 1.42 1.78 1.57
Efficiency ratio(5)..... 53.15 53.29 52.63 58.87 54.51
Equity/assets (period
end)................. 9.21 9.44 9.61 9.53 9.53
Average earning assets.. $ 24,503,198 $ 25,430,950 $ 25,557,947 $ 25,574,395 $ 25,169,760
Interest income-- FTE... 516,601 541,241 542,940 547,062 2,147,844
Yield on average
earning
assets-- FTE......... 8.55% 8.57% 8.43% 8.49% 8.53%
Average interest-
bearing
liabilities.......... $ 20,579,398 $ 21,216,898 $ 21,235,693 $ 21,100,185 $ 21,052,958
Total interest expense.. 238,322 250,016 254,809 254,516 997,663
Rate on average
interest-bearing
liabilities.......... 4.70% 4.77% 4.76% 4.79% 4.74%
Net interest
income-- FTE......... $ 278,279 $ 291,225 $ 288,131 $ 292,546 $ 1,150,181
Net interest
margin-- FTE......... 4.61% 4.59% 4.47% 4.54% 4.57%
</TABLE>
A-27
<PAGE> 30
TABLE 14. SELECTED QUARTERLY FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
1996 QUARTERS ENDED(1)
------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net interest income....... $ 253,560 $ 261,856 $ 260,385 $ 268,141 $ 1,043,942
Provision for losses
on loans................ (18,651) (19,771) (21,744) (24,032) (84,198)
Investment securities
gains (losses).......... 735 (20) (158) 4,385 4,942
Noninterest income........ 89,937 96,952 98,296 98,639 383,824
Noninterest expense....... (208,429) (211,690) (249,103) (273,511) (942,733)
------------ ------------ ------------ ------------ ------------
Earnings before income
taxes................... 117,152 127,327 87,676 73,622 405,777
Applicable income taxes... 38,904 44,374 30,925 25,446 139,649
------------ ------------ ------------ ------------ ------------
Net earnings.............. $ 78,248 $ 82,953 $ 56,751 $ 48,176 $ 266,128
============ ============ ============ ============ ============
PER COMMON SHARE DATA
Net earnings
Basic................ $ .67 $ .70 $ .47 $ .40 $ 2.24
Diluted.............. .64 .68 .46 .39 2.17
Dividends............... .27 .27 .27 .27 1.08
UPC COMMON STOCK
DATA(2)
High trading price...... $ 31.75 $ 31.25 $ 36.25 $ 41.38 $ 41.38
Low trading price....... 29.00 29.63 28.63 34.63 28.63
Closing price........... 30.25 30.38 35.50 39.00 39.00
Trading volume (in
thousands)(3)........ 5,862 5,221 9,506 7,795 28,383
KEY FINANCIAL DATA
Return on average
assets................ 1.24% 1.31% .88% .73% 1.02%
Return on average
common equity......... 14.76 15.51 10.21 8.32 12.32
Expense ratio(4)........ 1.77 1.67 1.63 1.71 1.69
Efficiency ratio(5)..... 57.51 55.73 56.35 56.08 56.40
Equity/assets (period
end).................. 8.72 8.69 8.70 8.99 8.99
Average earning assets.. $ 23,482,156 $ 23,934,995 $ 24,323,982 $ 24,481,767 $ 24,059,777
Interest income-- FTE... 493,374 504,173 509,290 517,881 2,024,718
Yield on average
earning assets-- FTE.. 8.45% 8.47% 8.33% 8.42% 8.42%
Average interest-
bearing
liabilities........... $ 19,661,199 $ 20,151,605 $ 20,548,890 $ 20,529,747 $ 20,230,627
Total interest expense.. 233,111 235,416 242,078 243,298 953,903
Rate on average
interest-bearing
liabilities........... 4.77% 4.70% 4.69% 4.71% 4.72%
Net interest
income-- FTE......... $ 260,263 $ 268,757 $ 267,212 $ 274,583 $ 1,070,815
Net interest
margin-- FTE......... 4.46% 4.52% 4.37% 4.46% 4.45%
</TABLE>
- ----------
FTE -- Fully taxable-equivalent basis
(1) Quarterly amounts for 1996 and 1997 have been restated for the fourth
quarter 1997 acquisitions of Magna and Capital-Miami and the 1998
acquisitions of Magna Group, Peoples First, AMBANC, and Merchants which were
accounted for using the pooling of interests method of accounting. Certain
quarterly amounts for acquired entities have been restated from originally
reported amounts due to certain adjustments to conform to the Corporation's
policies.
(2) Union Planters Corporation's common stock is listed on the New York Stock
Exchange (NYSE) and is traded under the symbol UPC. All share prices
represent closing prices as reported by the NYSE. There were approximately
20,000 holders of the Corporation's common stock as of December 31, 1997
(approximately 36,000 as of September 30, 1998).
(3) Trading volume represents total volume for the period shown as reported by
NYSE.
(4) The expense ratio equals noninterest expense minus noninterest income
(excluding significant nonrecurring revenues and expenses, investment
securities gains and losses, and goodwill and other intangibles
amortization) divided by average assets.
(5) The efficiency ratio is calculated excluding the same items as in the
expense ratio calculation, dividing noninterest expense by net interest
income (FTE) plus noninterest income.
A-28
<PAGE> 31
TABLE 15. UNION PLANTERS CORPORATION'S BANKING SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31, 1997(1)
---------------------------------------------
ASSETS LOANS DEPOSITS EQUITY
------ ------- -------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
TENNESSEE
Union Planters Bank, N.A
Memphis Bank ....................................................... $5,407 $3,605 $2,840 $ 509.9
Nashville Bank ..................................................... 1,059 591 961 78.6
Humboldt Bank ...................................................... 441 291 390 37.5
Knoxville Bank ..................................................... 434 306 349 36.5
Jackson Bank ....................................................... 326 195 297 22.1
Cookeville Bank .................................................... 247 158 227 17.8
Shelbyville Bank ................................................... 201 126 171 17.3
Harriman Bank ...................................................... 188 122 171 13.2
Crossville Bank .................................................... 183 88 163 12.9
Goodlettsville Bank ................................................ 180 125 167 11.1
Chattanooga Bank ................................................... 130 71 115 13.1
Lexington Bank ..................................................... 112 74 103 7.1
Brownsville Bank ................................................... 92 50 74 5.2
Somerville Bank .................................................... 89 55 81 6.4
Woodbury Bank ...................................................... 80 61 70 6.6
Hohenwald Bank ..................................................... 58 34 50 4.5
Erin Bank .......................................................... 52 31 46 5.1
Union Planters Bank of the Lakeway Area (Morristown) ................. 212 151 181 15.4
Union Planters Bank of Northwest Tennessee FSB (Paris) ............... 173 124 154 11.3
Selmer Bank & Trust Company .......................................... 95 49 86 8.0
------ ------ ------ --------
Total Tennessee ............................................. $9,759 $6,307 $6,696 $ 839.6
====== ====== ====== ========
MISSOURI
Magna Bank, N.A ...................................................... $7,041 $4,484 $5,447 $ 611.7
Union Planters Bank, N.A
Cape Girardeau Bank ................................................ 670 528 598 44.8
St. Louis Bank ..................................................... 197 132 175 19.4
Springfield Bank ................................................... 189 138 169 18.7
Columbia Bank ...................................................... 100 86 80 6.2
------ ------ ------ --------
Total Missouri .............................................. $8,197 $5,368 $6,469 $ 700.8
====== ====== ====== ========
MISSISSIPPI
Union Planters Bank, N.A
Hattiesburg Bank ................................................... $1,316 $1,020 $1,001 $ 135.8
Jackson Bank ....................................................... 757 510 664 57.1
Clarksdale Bank .................................................... 597 319 539 43.0
Grenada Bank ....................................................... 509 363 461 44.3
New Albany Bank .................................................... 296 195 266 18.8
------ ------ ------ --------
Total Mississippi ........................................... $3,475 $2,407 $2,931 $ 299.0
====== ====== ====== ========
FLORIDA
Union Planters Bank of Florida (Miami) ............................... $2,156 $1,618 $1,290 $ 145.0
====== ====== ====== ========
KENTUCKY
Peoples First Bank, N.A .............................................. $1,329 $ 985 $1,031 $ 129.6
Union Planters Bank, N.A
Franklin Bank ...................................................... 115 88 105 7.3
------ ------ ------ --------
Total Kentucky .............................................. $1,444 $1,073 $1,136 $ 136.9
====== ====== ====== ========
ARKANSAS
Union Planters Bank, N.A
Jonesboro Bank ..................................................... $ 713 $ 456 $ 521 $ 57.5
Clinton Bank ....................................................... 93 64 82 6.5
------ ------ ------ --------
Total Arkansas .............................................. $ 806 $ 520 $ 603 $ 64.0
====== ====== ====== ========
LOUISIANA
Union Planters Bank, N.A
Baton Rouge Bank ................................................... $ 698 $ 509 $ 605 $ 50.9
====== ====== ====== ========
TEXAS
Merchants State Bank ................................................. $ 546 $ 342 $ 486 $ 53.9
====== ====== ====== ========
INDIANA
AmBank Indiana, N.A .................................................. $ 480 $ 344 $ 425 $ 44.8
====== ====== ====== ========
ALABAMA
Union Planters Bank, N.A
Decatur Bank ....................................................... $ 449 $ 335 $ 417 $ 27.5
====== ====== ====== ========
ILLINOIS
AmBank Illinois, N.A ................................................ $ 278 $ 196 $ 240 $ 31.2
====== ====== ====== ========
</TABLE>
- -------------------
(1) State totals do not add to consolidated amounts due to eliminations.
Intercompany loans have been excluded from the individual bank totals.
A-29
<PAGE> 32
UNION PLANTERS CORPORATION
BANKS AND COMMUNITIES SERVED
<TABLE>
<CAPTION>
OFFICES
-------
<S> <C>
TENNESSEE
UNION PLANTERS BANK, N.A
MEMPHIS BANK
Bartlett, Collierville, Cordova, Germantown, and
Memphis ................................................ 40
NASHVILLE BANK
Antioch, Brentwood, Columbia, Dickson, Donelson,
Eagleville, Franklin, Gallatin, Goodlettsville,
Hendersonville, Lebanon, Madison, Mt. Juliet,
Murfreesboro, Nashville, and Smyrna .................... 25
HUMBOLDT BANK
Dyersburg, Elbridge, Gibson, Humboldt, Martin,
Newbern, Obion, Ridgely, Ripley, Rutherford,
Tiptonville, Trenton, Union City, and Yorkville ........ 29
KNOXVILLE BANK
Alcoa, Clinton, Greenback, Jefferson City,
Knoxville, Maryville, Morristown, Sevierville
and Oak Ridge .......................................... 17
JACKSON BANK
Jackson, Henderson and Milan ........................... 10
COOKEVILLE BANK
Alexandria, Algood, Baxter, Byrdstown, Celina,
Cookeville, Dowelltown, Monterey, and Smithville ....... 8
SHELBYVILLE BANK
Fayetteville, Monteagle, Shelbyville, and Tracy
City ................................................... 7
HARRIMAN BANK
Harriman, Kingston, Oliver Springs, Rockwood,
Sunbright, and Wartburg ................................ 6
CROSSVILLE BANK
Crossville and Fairfield Glade ......................... 6
GOODLETTSVILLE BANK
Goodlettsville, Springfield, and White House ........... 4
CHATTANOOGA BANK
Chattanooga, Cleveland, and East Ridge ................. 8
LEXINGTON BANK
Lexington .............................................. 3
BROWNSVILLE BANK
Brownsville and Stanton ................................ 4
SOMERVILLE BANK
Bolivar, Somerville, and Whiteville .................... 3
WOODBURY BANK
Auburntown and Woodbury ................................ 3
HOHENWALD BANK ........................................... 3
ERIN BANK
Cumberland City and Erin ............................... 2
UNION PLANTERS BANK OF THE LAKEWAY AREA
Jefferson City, Morristown, Newport, and
Talbott ................................................ 7
UNION PLANTERS BANK OF NORTHWEST TENNESSEE FSB
Camden, Huntingdon, McKenzie, Paris, and
Waverly ................................................ 6
SELMER BANK AND TRUST COMPANY
Bethel Springs, Ramer, and Selmer ...................... 4
PEOPLES FIRST BANK, N.A
Clarksville ............................................. 3
</TABLE>
A-30
<PAGE> 33
<TABLE>
<S> <C>
ILLINOIS
MAGNA BANK, N.A.
Alton, Ashley, Belleville, Bloomington, Cahokia,
Carbondale, Centralia, Collinsville, Columbia,
Creve Coeur, Decatur, Dupo, East Peoria, East St. Louis,
Fairview Heights, Freeburg, Glen Carbon, Godfrey,
Goreville, Granite City, Highland, Hoyleton,
Lebanon, Lincoln, Madison, Marissa, Mascoutah, Morton,
Murphysboro, Nashville, New Holland, Normal,
O'Fallon, Peoria, East Alton, Salem, St. Clair,
Scott Air Force Base, Sesser, Smithton, Sparta,
Springfield, Swansea, Troy, Wood River ........................ 71
AMBANK ILLINOIS, N.A.
Casey, Flat Rock, Martinsville, Mt. Carmel,
Palestine, Robinson, West Union, and
Westfield ..................................................... 9
MISSISSIPPI
UNION PLANTERS BANK, N.A.
HATTIESBERG BANK
Bassfield, Bay St. Louis, Biloxi, Collins,
Ellisville, Gulfport, Hattiesburg, Laurel, Moss
Point, Mount Olive, Ocean Springs, Pascagoula,
Petal, and Prentiss ........................................... 38
UNION PLANTERS BANK, N.A.
JACKSON BANK
Brandon, Byram, Canton, Clinton, Collinsville,
Crystal Springs, Decatur, Flowood, Forest,
Hazlehurst, Jackson, Madison, Meridian, Newton,
Pearl, Philadelphia, Ridgeland, Terry, Union, and
Vicksburg .................................................... 38
CLARKSDALE BANK
Batesville, Charleston, Clarksdale, Cleveland,
Drew, Friars Point, Greenville, Greenwood, Itta
Bena, Lambert, Leland, Lula, Moorhead, Pope,
Shaw, Sledge, and Sumner ..................................... 29
GRENADA BANK
Ackerman, Calhoun City, Columbus, Derma, Eupora,
Grenada, Houston, Kosciusko, Louisville, Water
Valley, West Point, and Winona ............................... 21
NEW ALBANY BANK
Ashland, Baldwyn, New Albany, Oxford, Ripley, and
Tupelo ....................................................... 12
MEMPHIS BANK
Olive Branch and Southaven ................................... 4
MISSOURI
MAGNA BANK, N.A.
Arnold, Ballwin, Bridgeton, Chesterfield,
Florissant, Maryland Heights St. Charles, St.
Louis, St. Peters, O'Fallen, St. Ann, and Town &
Country ....................................................... 39
UNION PLANTERS BANK, N.A.
CAPE GIRARDEAU BANK
Advance, Benton, Cape Girardeau, Charleston,
Dexter, East Prairie, Jackson, Marble Hill,
Matthews, New Madrid, Oran, Perryville, Poplar
Bluff, Ste. Genevieve, Scott City, and Sikeston .............. 24
ST. LOUIS BANK
Affton, Clayton, Rock Hill, and St. Louis .................... 6
SPRINGFIELD BANK
Aurora, Bolivar, Branson, El Dorado, Mt. Vernon,
Ozark, Republic, Spring, and Springfield ..................... 17
COLUMBIA BANK
Ashland and Columbia ......................................... 4
FLORIDA
UNION PLANTERS BANK OF FLORIDA
Boca Raton, Coral Gables, Coral Springs,
Deerfield Beach, Delray Beach, Ft. Lauderdale,
Hialeah, Miami, North Bay Village, North Miami
Beach, South Miami Beach, Plantation, and West
Palm Beach ................................................... 28
</TABLE>
A-31
<PAGE> 34
<TABLE>
<S> <C>
KENTUCKY
PEOPLES FIRST BANK, N.A.
Beaver Dam, Benton, Calvert City, Central City,
Greenville, Hartford, LaCenter, Livermore,
Mayfield, Morgantown, Murray, Paducah, Salem,
Smithland and Symsonia ..................................... 25
UNION PLANTERS BANK, N.A.
FRANKLIN BANK
Adairville and Franklin ................................... 4
IOWA
MAGNA BANK, N.A.
Arlington, Aurora, Cedar Falls, Cedar Rapids,
Conalville, Decorah, Des Moines, Dysart,
Gilbertville, Indianola, Iowa City, Lacona,
Martensdale, Milo, Monticello, Oelwein, Traer,
Urbandale, Vinton, Waterloo, and West Des Moines ........... 29
ARKANSAS
UNION PLANTERS BANK, N.A.
JONESBORO BANK
Bono, Brookland, Cherokee Village, Hardy,
Jonesboro, Mammoth Spring, Marmaduke, Newport,
Paragould, Rector, Sidney, and Weiner ..................... 22
CLINTON BANK
Bee Branch, Clinton, Fairfield Bay, Leslie,
Marshall, and Mountain View ............................... 6
MEMPHIS BANK
Cotton Plant, Crawfordsville, Earle, Forrest
City, Joiner, Luxora, Marion, Osceola, and West
Memphis ................................................... 14
LOUISIANA
UNION PLANTERS BANK, N.A.
BATON ROUGE BANK
Baton Rouge, Covington, Galliano, Larose,
Mandeville, and Thibodaux ................................. 22
TEXAS
MERCHANTS STATE BANK, INC.
Dickinson, Houston, Humble, La Marque, League
City, Pasadena, Pearland, South Houston, and
Texas City ................................................. 14
INDIANA
AMBANK INDIANA, N.A.
Bicknell, Evansville, Linton, Monroe City,
Patoka, Princeton, Sandborn, and Vincennes ................. 16
ALABAMA
UNION PLANTERS BANK, N.A.
DECATUR BANK
Athens, Decatur, Florence, Hartselle, Huntsville,
Madison, Moulton, Muscle Shoals, Owens Cross
Roads, Sheffield, and Tuscumbia ............................ 17
HATTIESBURG BANK
Chickasaw, Daphane, Foley, Mobile, and
Saraland .................................................. 13
---
TOTAL BRANCH OFFICES .......................................... 720
===
</TABLE>
A-32
<PAGE> 35
1997 AUDITED FINANCIAL STATEMENTS
<PAGE> 36
REPORT OF MANAGEMENT
The accompanying financial statements and related financial information
were prepared by the management of Union Planters Corporation in accordance with
generally accepted accounting principles and, where appropriate, reflect
management's best estimates and judgment. Management is responsible for the
integrity, objectivity, consistency, and fair presentation of the financial
statements and all financial information contained in this annual report.
Management maintains and depends upon internal accounting systems and
related internal controls. Internal controls are designed to ensure that
transactions are properly authorized and recorded in the Corporation's financial
records and to safeguard the Corporation's assets from material loss or misuse.
The Corporation utilizes internal monitoring mechanisms and an extensive
external audit to monitor compliance with, and assess the effectiveness of the
internal controls. Management believes the Corporation's internal controls
provide reasonable assurance that the Corporation's assets are safeguarded and
that its financial records are reliable.
The Audit Committee of the Board of Directors meets periodically with
representatives of the Corporation's independent accountants, the corporate
audit manager, and management to review accounting policies, control procedures,
and audit and regulatory examination reports. The independent accountants and
corporate audit manager have free access to the Committee, with and without the
presence of management, to discuss the results of their audit work and their
evaluation of the internal controls and the quality of financial reporting.
The financial statements have been audited by PricewaterhouseCoopers
LLP, independent accountants, who were engaged to express an opinion as to the
fairness of presentation of such financial statements.
/s/ Benjamin W. Rawlins, Jr. /s/ Jack W. Parker
Benjamin W. Rawlins, Jr. Jack W. Parker
Chairman and Executive Vice President and
Chief Executive Officer Chief Financial Officer
B-1
<PAGE> 37
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Union Planters Corporation
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of earnings, of changes in shareholders' equity
and of cash flows present fairly, in all material respects, the financial
position of Union Planters Corporation (the Corporation) and its subsidiaries at
December 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Corporation's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Memphis, Tennessee
October 15, 1998
B-2
<PAGE> 38
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks .......................................... $ 1,182,968 $ 1,067,901
Interest-bearing deposits at financial institutions .............. 36,147 24,872
Federal funds sold and securities purchased under
agreements to resell .......................................... 172,657 250,842
Trading account assets ........................................... 187,419 260,266
Loans held for resale ............................................ 175,699 113,604
Available for sale investment securities (amortized cost:
$5,761,070 and $5,626,405, respectively) ...................... 5,840,704 5,667,251
Loans ............................................................ 19,162,214 17,867,432
Less: Unearned income ......................................... (35,506) (48,344)
Allowance for losses on loans ........................... (310,385) (257,638)
------------ ------------
Net loans ............................................... 18,816,323 17,561,450
Premises and equipment, net ...................................... 497,267 461,508
Accrued interest receivable ...................................... 272,874 292,492
FHA/VA claims receivable ......................................... 134,112 80,560
Mortgage servicing rights ........................................ 62,726 67,490
Goodwill and other intangibles ................................... 188,363 106,462
Other assets ..................................................... 426,193 472,538
------------ ------------
TOTAL ASSETS ............................................. $ 27,993,452 $ 26,427,236
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing ........................................... $ 3,336,274 $ 3,074,922
Certificates of deposit of $100,000 and over .................. 2,386,533 1,996,378
Other interest-bearing ........................................ 15,480,340 14,828,472
------------ ------------
Total deposits ........................................... 21,203,147 19,899,772
Short-term borrowings ............................................ 1,784,347 1,467,437
Short-and medium-term bank notes ................................. 135,000 400,000
Federal Home Loan Bank advances .................................. 830,252 1,051,146
Other long-term debt ............................................. 735,945 613,746
Accrued interest, expenses, and taxes ............................ 232,490 237,749
Other liabilities ................................................ 403,550 380,618
------------ ------------
TOTAL LIABILITIES ........................................ 25,324,731 24,050,468
------------ ------------
Commitments and contingent liabilities (Notes 14, 17, 19) ........ -- --
Shareholders' equity
Convertible preferred stock (Note 10) ......................... 54,709 83,809
Common stock, $5 par value; 300,000,000 shares authorized;
124,887,630 issued and outstanding (115,398,637 in 1996) ..... 624,438 576,993
Additional paid-in capital .................................... 545,520 383,216
Retained earnings ............................................. 1,409,088 1,318,047
Unearned compensation ......................................... (14,364) (10,499)
Unrealized gain on available for sale securities, net ......... 49,330 25,202
------------ ------------
TOTAL SHAREHOLDERS' EQUITY ............................... 2,668,721 2,376,768
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............... $ 27,993,452 $ 26,427,236
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
B-3
<PAGE> 39
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995
------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans ......................... $ 1,710,267 $ 1,535,299 $ 1,388,227
Interest on investment securities
Taxable ......................................... 320,506 372,233 304,771
Tax-exempt ...................................... 47,910 45,560 47,200
Interest on deposits at financial institutions ..... 3,012 2,154 6,395
Interest on federal funds sold and securities
purchased under agreements to resell ............ 15,104 21,420 24,305
Interest on trading account assets ................. 14,956 13,895 14,191
Interest on loans held for resale .................. 8,057 7,284 5,209
------------ ------------ ------------
Total interest income ...................... 2,119,812 1,997,845 1,790,298
------------ ------------ ------------
INTEREST EXPENSE
Interest on deposits ............................... 790,442 755,679 695,223
Interest on short-term borrowings .................. 87,737 99,843 70,102
Interest on long-term debt ......................... 119,484 98,381 80,279
------------ ------------ ------------
Total interest expense ..................... 997,663 953,903 845,604
------------ ------------ ------------
NET INTEREST INCOME ........................ 1,122,149 1,043,942 944,694
PROVISION FOR LOSSES ON LOANS ........................ 150,606 84,198 47,393
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR
LOSSES ON LOANS .......................... 971,543 959,744 897,301
NONINTEREST INCOME
Service charges on deposit accounts ................ 144,545 141,119 134,242
Mortgage servicing income .......................... 58,593 64,395 56,873
Bank card income ................................... 39,497 31,866 27,234
Factoring commissions .............................. 30,140 26,066 19,519
Trust service income ............................... 23,888 21,493 18,784
Profits and commissions from trading activities .... 7,323 5,768 12,364
Investment securities gains ........................ 4,781 4,942 2,008
Other income ....................................... 145,275 93,117 86,301
------------ ------------ ------------
Total noninterest income ................... 454,042 388,766 357,325
------------ ------------ ------------
NONINTEREST EXPENSE
Salaries and employee benefits ..................... 412,662 388,972 371,136
Net occupancy expense .............................. 69,888 70,142 66,224
Equipment expense .................................. 59,489 58,113 55,044
Other expense ...................................... 408,947 425,506 326,540
------------ ------------ ------------
Total noninterest expense .................. 950,986 942,733 818,944
------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES ............... 474,599 405,777 435,682
Applicable income taxes .............................. 162,302 139,649 145,485
------------ ------------ ------------
NET EARNINGS ............................... $ 312,297 $ 266,128 $ 290,197
============ ============ ============
NET EARNINGS APPLICABLE TO COMMON
SHARES ................................... $ 307,355 $ 259,181 $ 281,582
============ ============ ============
EARNINGS PER COMMON SHARE (NOTE 16)
Basic .............................................. $ 2.50 $ 2.24 $ 2.55
Diluted ............................................ 2.43 2.17 2.46
AVERAGE SHARES OUTSTANDING
Basic .............................................. 122,811,723 115,793,830 110,255,311
Diluted ............................................ 129,397,350 123,792,575 117,673,018
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
B-4
<PAGE> 40
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON
ADDITIONAL AVAILABLE
PREFERRED COMMON PAID-IN RETAINED UNEARNED FOR SALE
STOCK STOCK CAPITAL EARNINGS COMPENSATION SECURITIES TOTAL
--------- --------- ---------- ----------- ------------ ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 .................... $ 101,098 $ 532,569 $ 234,692 $ 986,705 $ (7,614) $ (79,441) $ 1,768,009
Net earnings .............................. -- -- -- 290,197 -- -- 290,197
Cash dividends
Common stock, $.98 per share ............ -- -- -- (39,925) -- -- (39,925)
Preferred stock ......................... -- -- -- (7,251) -- -- (7,251)
Pooled institutions prior to pooling .... -- -- -- (44,305) -- -- (44,305)
Common stock issued under employee benefit
plans and dividend reinvestment plan, net
of stock exchanged ...................... -- 4,480 12,969 (516) 1,528 -- 18,461
Issuance of stock for acquisitions (Note 2) 9,712 1,740 5,551 3,585 -- (436) 20,152
Other stock transactions of pooled
institutions prior to pooling ........... -- 11,302 41,633 (18,368) -- -- 34,567
Conversion of preferred stock ............. (5,200) 1,268 3,932 -- -- -- --
Redemption of preferred stock of acquired
Entity .................................. (13,800) -- -- -- -- -- (13,800)
Change in unrealized gain (loss) on
available for sale securities, net of
taxes ................................... -- -- -- -- -- 121,516 121,516
--------- --------- --------- ----------- -------- --------- -----------
BALANCE, DECEMBER 31, 1995 .................. 91,810 551,359 298,777 1,170,122 (6,086) 41,639 2,147,621
Net earnings .............................. -- -- -- 266,128 -- -- 266,128
Cash dividends
Common stock, $1.08 per share ........... -- -- -- (54,333) -- -- (54,333)
Preferred stock ......................... -- -- -- (6,944) -- -- (6,944)
Pooled institutions prior to pooling .... -- -- -- (50,408) -- -- (50,408)
Common stock issued under employee benefit
plans and dividend reinvestment plan, net
of stock exchanged ...................... -- 6,228 32,807 (6,539) (4,413) -- 28,083
Issuance of stock for acquisitions (Note 2) -- 13,626 16,882 22,888 -- 419 53,815
Other stock transactions of pooled
institutions prior to pooling ........... -- 3,181 24,832 (22,867) -- -- 5,146
Conversion of preferred stock ............. (8,001) 2,599 5,402 -- -- -- --
Gain from issuance of subsidiary's common
Stock, net of tax ....................... -- -- 4,516 -- -- -- 4,516
Change in net unrealized gain on available
for sale securities, net of taxes ....... -- -- -- -- -- (16,856) (16,856)
--------- --------- --------- ----------- -------- --------- -----------
BALANCE, DECEMBER 31, 1996 .................. 83,809 576,993 383,216 1,318,047 (10,499) 25,202 2,376,768
Net earnings .............................. -- -- -- 312,297 -- -- 312,297
Cash dividends
Common stock, $1.495 per share .......... -- -- -- (108,003) -- -- (108,003)
Preferred stock ......................... -- -- -- (4,939) -- -- (4,939)
Pooled institutions prior to pooling .... -- -- -- (46,937) -- -- (46,937)
Common stock issued under employee benefit
plans and dividend reinvestment plan, net
of stock exchanged ...................... -- 6,402 32,531 (5,595) (3,865) -- 29,473
Issuance of stock for acquisitions (Note 2) -- 5,704 (2,289) 22,897 -- 424 26,736
Other stock transactions of pooled
institutions prior to pooling ........... -- 31,426 118,341 (47,993) -- -- 101,774
Conversion of preferred stock ............. (29,100) 7,275 21,822 -- -- -- (3)
Common stock repurchased .................. -- (3,362) (8,101) (30,686) -- -- (42,149)
Change in net unrealized gain on available
for sale securities, net of taxes ....... -- -- -- -- -- 23,704 23,704
--------- --------- --------- ----------- -------- --------- -----------
BALANCE, DECEMBER 31, 1997 .................. $ 54,709 $ 624,438 $ 545,520 $ 1,409,088 $(14,364) $ 49,330 $ 2,668,721
========= ========= ========= =========== ======== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
B-5
<PAGE> 41
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings ................................................... $ 312,297 $ 266,128 $ 290,197
Reconciliation of net earnings to net cash provided by operating
activities:
Provision for losses on loans, other real estate, and FHA/VA
foreclosure claims ......................................... 162,078 110,383 51,934
Depreciation and amortization of premises and equipment ...... 53,396 52,866 48,883
Amortization and write-offs of intangibles ................... 41,276 55,412 36,314
Provisions for merger-related expenses ....................... 30,635 36,095 10,182
Provisions for charter consolidation and other expenses ...... 14,196 -- --
Net accretion of investment securities ....................... (3,731) (7,792) (1,177)
Net realized gains on sales of investment securities ......... (4,781) (4,942) (2,008)
Deferred income tax benefit .................................. (2,874) (34,757) (1,593)
Decrease (increase) in assets
Trading account assets and loans held for resale ........... 11,472 (165,818) (57,857)
Other assets ............................................... 16,912 (112,437) (5,730)
(Decrease) increase in accrued interest, expenses, taxes, and
other liabilities .......................................... (39,541) 54,609 69,463
Other, net ................................................... (4,214) (8,306) (856)
----------- ----------- -----------
Net cash provided by operating activities .................. 587,121 241,441 437,752
----------- ----------- -----------
INVESTING ACTIVITIES
Net (increase) decrease in short-term investments .............. (2,902) 32,950 (9,963)
Proceeds from sales of available for sale securities ........... 1,288,320 1,049,215 774,245
Proceeds from maturities, calls, and prepayments of available
for sale securities .......................................... 2,382,627 2,663,861 1,000,988
Purchases of available for sale securities ..................... (3,598,641) (2,914,586) (1,378,882)
Proceeds from maturities, calls, and prepayments of held to
maturity securities .......................................... 53,697 193,133 356,613
Purchases of held to maturity securities ....................... (10,998) (151,328) (172,854)
Net increase in loans .......................................... (400,696) (1,797,700) (1,638,117)
Net cash received from acquired institutions ................... 26,030 54,764 40,489
Purchases of premises and equipment, net ....................... (67,985) (49,909) (55,023)
Other, net ..................................................... (20,766) 11,721 9,325
----------- ----------- -----------
Net cash used by investing activities ........................ (351,314) (907,879) (1,073,179)
----------- ----------- -----------
FINANCING ACTIVITIES
Net increase (decrease) in deposits ............................ 152,487 (636) 621,437
Net (decrease) increase in short-term borrowings ............... (78,406) 12,371 30,824
Proceeds from long-term debt, net .............................. 466,723 852,537 681,700
Repayment of long-term debt .................................... (546,126) (307,575) (249,148)
Redemption of preferred stock .................................. -- -- (13,800)
Proceeds from issuance of common stock ......................... 33,944 20,996 24,155
Proceeds from public offering by an acquired institution of its
subsidiary's common stock .................................... -- 17,633 --
Proceeds from sale of treasury stock by an acquired institution
prior to acquisition ......................................... 20 159 2,151
Purchase and retirement of common stock ........................ (35,946) (1,882) (174)
Purchases of common stock, including stock transactions of
acquired entities prior to acquisition ....................... (7,140) (4,000) (3,176)
Cash dividends paid ............................................ (158,929) (110,688) (90,654)
Other, net ..................................................... (25,552) (11,953) 6,287
----------- ----------- -----------
Net cash (used) provided by financing activities ............. (198,925) 466,962 1,009,602
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ............. 36,882 (199,476) 374,175
Cash and cash equivalents at the beginning of the period ......... 1,318,743 1,518,219 1,144,044
----------- ----------- -----------
Cash and cash equivalents at the end of the period ............... $ 1,355,625 $ 1,318,743 $ 1,518,219
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES
Cash paid for
Interest ..................................................... $ 1,009,786 $ 998,723 $ 840,410
Taxes ........................................................ 181,330 185,433 128,109
Unrealized gain on available for sale securities ............... 79,634 40,846 69,093
</TABLE>
NONCASH ACTIVITIES. See Notes 1, 2 and 10, respectively, regarding other real
estate transfers, acquisitions, and conversions of preferred stock.
The accompanying notes are an integral part of these consolidated financial
statements.
B-6
<PAGE> 42
UNION PLANTERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Union Planters Corporation (the Corporation) is a multi-state bank
holding company headquartered in Memphis, Tennessee. These financial statements
reflect on a retroactive basis the acquisitions of Magna Group, Peoples First,
AMBANC and Merchants which were acquired in 1998 and accounted for as poolings
of interests. The Corporation, after retroactively reflecting the four 1998
acquisitions, operates nine banking subsidiaries with branches in Tennessee,
Mississippi, Florida, Missouri, Arkansas, Louisiana, Alabama, Kentucky, Texas,
Illinois, Iowa, and Indiana and has 720 banking offices and 867 ATMs. At
December 31, 1997, the Corporation had consolidated total assets of $28 billion,
making it one of the 50 largest bank holding companies based in the United
States and the largest headquartered in Tennessee. Through its subsidiaries, the
Corporation provides a diversified range of financial services in the
communities in which it operates including consumer, commercial, and corporate
lending; retail banking; and other ancillary financial services traditionally
furnished by full-service financial institutions. Additional services offered
include factoring operations; mortgage origination and servicing; investment
management and trust services; the issuance of credit and debit cards; the
origination, packaging, and securitization of loans, primarily the
government-guaranteed portion of Small Business Administration (SBA) loans; the
purchase and collection of delinquent FHA/VA government-insured/guaranteed loans
from third parties and from GNMA pools serviced for others; full-service and
discount brokerage; and the sale of annuities and bank-eligible insurance
products.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES. The accounting and reporting policies of the
Corporation and its subsidiaries conform with generally accepted accounting
principles and general practices within the financial services industry. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
The most significant estimate relates to the adequacy of the allowance for
losses on loans. Actual results could differ from those estimates. The following
is a summary of the more significant accounting policies of the Corporation.
BASIS OF PRESENTATION. The consolidated financial statements include
the accounts of the Corporation and its subsidiaries after elimination of
significant intercompany accounts and transactions. Prior period consolidated
financial statements have been restated to include the accounts of significant
acquisitions accounted for using the pooling of interests method of accounting.
Other acquisitions accounted for as poolings of interests are included from
their dates of acquisition. Business combinations accounted for as purchases are
included in the consolidated financial statements from their respective dates of
acquisition. Assets and liabilities of financial institutions accounted for as
purchases are adjusted to their fair values as of their dates of acquisition.
Certain 1995 and 1996 amounts have been reclassified to conform with the 1997
financial reporting presentation.
STATEMENT OF CASH FLOWS. Cash and cash equivalents include cash and due
from banks and federal funds sold. Federal funds sold in the amounts of $173
million, $251 million, and $619 million at December 31, 1997, 1996, and 1995,
respectively, are included in cash and cash equivalents. Noncash transfers to
foreclosed properties from loans for the years ended December 31, 1997, 1996,
and 1995 were $34.3 million, $32.4 million, and $32.0 million, respectively.
Other noncash transactions are detailed in Notes 2 and 10.
SECURITIES AND TRADING ACCOUNT ASSETS. Debt and equity securities that
are bought and principally held for the purpose of selling them in the near term
are classified as trading securities. These consist primarily of the
government-guaranteed portion of SBA loans and SBA participation certificates.
Gains and losses on sales and fair-value adjustments of trading securities are
included in profits and commissions from trading activities.
Debt and equity securities which the Corporation has not classified as
held to maturity or trading are classified as available for sale securities and,
as such, are reported at fair value, with unrealized gains and losses, net of
deferred taxes, reported as a component of shareholders' equity. Gains or losses
from sales of available for sale securities are computed using the specific
identification method and are included in investment securities gains (losses).
Debt securities that the Corporation has the positive intent and
ability to hold to maturity are classified as held to maturity securities and
carried at cost, adjusted for the amortization of premium and accretion of
discount using the level-yield method.
B-7
<PAGE> 43
Generally, the held to maturity portfolios of acquired entities are reclassified
to the available for sale portfolio upon acquisition. At December 31, 1997 and
1996, the Corporation had no securities classified as held to maturity.
LOANS HELD FOR RESALE. Loans held for resale include mortgage and other
loans and are carried at the lower of cost or fair value on an aggregate basis.
LOANS. Loans are carried at the principal amount outstanding. Interest
income on loans is recognized using constant yield methods except for unearned
income which is recorded as income using a method which approximates the
interest method. Loan origination fees and direct loan origination costs are
deferred and recognized over the life of the related loans as adjustments to
interest income.
NONPERFORMING LOANS. Nonperforming loans consist of nonaccrual loans
and restructured loans. Loans, other than installment loans, are generally
placed on nonaccrual status and interest is not recorded if, in management's
opinion, payment in full of principal or interest is not expected or when
payment of principal or interest is more than 90 days past due, unless the loan
is both well-secured and in the process of collection. FHA/VA
government-insured/guaranteed loans which are 90 days or more past due are
placed on nonaccrual status when interest claim reimbursements are likely to be
denied due to missed filing dates in the foreclosure process. Upon the
occurrence of an adverse change in the account status (e.g., filing of
bankruptcy, repossession of collateral, foreclosure, or death of the borrower)
and after appropriate legal compliance, installment loans (including accrued
interest) are written down to the net realizable value of the underlying
collateral. Such loans are reviewed periodically for further write-downs until
fully liquidated. Income recognized on credit card loans is discontinued upon
the occurrence of an adverse change in the financial condition of the borrower.
Credit card loans are charged-off when an account becomes past due after
notification of a customer's bankruptcy or death, while all other credit card
loans are charged off if no payment has been received for 150 days. As of
December 31, 1997 and 1996, the amounts of impaired loans and related
disclosures thereto were not considered material.
ALLOWANCE FOR LOSSES ON LOANS. The allowance for losses on loans
represents management's best estimate of potential losses inherent in the
existing loan portfolio. The allowance for losses on loans is increased by the
provision for losses on loans charged to expense and reduced by loans charged
off, net of recoveries. The provision for losses on loans is determined based on
management's assessment of several factors: current and anticipated economic
conditions and the related impact on specific borrowers and industry groups,
historical loan loss experience, the level of classified and nonperforming
loans, reviews and evaluations of specific loans, changes in the nature and
volume of the loan portfolio, and the results of regulatory examinations.
PREMISES AND EQUIPMENT. Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation expense is computed
using the straight-line method and is charged to operating expense over the
estimated useful lives of the assets. Depreciation expense has been computed
principally using estimated lives of five to forty years for premises and three
to ten years for furniture and equipment. Leasehold improvements are amortized
using the straight-line method over the shorter of the initial term of the
respective lease or the estimated useful life of the improvement. Costs of major
additions and improvements are capitalized. Expenditures for maintenance and
repairs are charged to operations as incurred.
GOODWILL AND OTHER INTANGIBLES. The unamortized costs in excess of the
fair value of acquired net tangible assets are included in goodwill and other
intangibles. Identifiable intangibles, except for premiums on purchased deposits
which are amortized on a straight-line method over 10 years, are amortized over
the estimated periods benefited. The remaining costs (goodwill) are generally
amortized on a straight-line basis over 15 years. For acquisitions where the
fair value of net assets acquired exceeds the purchase price, the resulting
negative goodwill is allocated proportionally to noncurrent, nonmonetary assets.
IMPAIRMENT OF CERTAIN ASSETS. Effective January 1, 1996, the
Corporation 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," which requires impairment losses
to be recorded on long-lived assets used in operations and certain related
identifiable intangibles when indications of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Additionally, long-lived assets and certain related
identifiable intangibles to be disposed of are reported at the lower of carrying
amount or fair value, less selling costs. The Corporation has adopted this
methodology for evaluating impairment of goodwill and other intangibles separate
from any associated long-lived assets. In applying this methodology, the
Corporation evaluates the carrying value of the goodwill and other intangibles
against undiscounted after-tax cash flows from the acquired assets. If such cash
flows exceed the carrying value, no impairment adjustment is recorded. If such
cash flows are less than the carrying values, the cash flows are then discounted
and the carrying values are adjusted to the amount of the discounted cash flows.
Additionally, the fair value of the assets/business is also considered in
evaluating the carrying value of the goodwill. The adoption of this statement
did not have a material impact on the Corporation, since existing policies for
determining impairment of long-lived assets, including goodwill and other
intangibles, were similar to the new standard.
B-8
<PAGE> 44
MORTGAGE SERVICING RIGHTS. Mortgage servicing rights are accounted for
under the provisions of SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," which became effective
January 1, 1997. SFAS No. 125 superseded SFAS No. 122, "Accounting for Mortgage
Servicing Rights," but did not significantly change the methodology used to
account for servicing rights. The Corporation had adopted SFAS No. 122 as of
July 1, 1995 and at that time began capitalizing originated servicing rights.
The adoption did not have a material impact on financial position or results of
operations. Prior to that date, capitalization had been limited to purchased
servicing. The servicing rights capitalized are amortized in proportion to and
over the period of estimated servicing income. Management stratifies servicing
rights based on origination period and interest rate and evaluates the
recoverability in relation to the impact of actual and anticipated loan
portfolio prepayment, foreclosure, and delinquency experience. The Corporation
did not have a valuation allowance associated with the mortgage servicing rights
portfolio as of December 31, 1997.
OTHER REAL ESTATE. Properties acquired through foreclosure and unused
bank premises are stated at the lower of the recorded amount of the loan or the
property's estimated net realizable value, reduced by estimated selling costs.
Write-downs of the assets at, or prior to, the date of foreclosure are charged
to the allowance for losses on loans. Subsequent write-downs, income and expense
incurred in connection with holding such assets, and gains and losses realized
from the sales of such assets are included in noninterest income and expense.
STOCK COMPENSATION. The Corporation has elected not to adopt the
recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires a fair-value-based method of accounting for stock
options and similar equity awards. The Corporation elected to continue applying
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its stock compensation
plans and, accordingly, does not recognize compensation cost, except for stock
grants. See Note 14 for a summary of the pro forma effect if the accounting
provisions of SFAS No. 123 had been elected.
INCOME TAXES. The Corporation files a consolidated Federal income tax
return which includes all of its subsidiaries except for credit life insurance
companies and certain pass-through entities. Income tax expense is allocated
among the parent company and its subsidiaries as if each had filed a separate
return. The provision for income taxes is based on income reported for
consolidated financial statement purposes and includes deferred taxes resulting
from the recognition of certain revenues and expenses in different periods for
tax-reporting purposes. Deferred tax assets and liabilities are measured using
the enacted tax rates expected to apply to taxable income in the year in which
those temporary differences are expected to be realized or settled. Recognition
of certain deferred tax assets is based upon management's belief that, based
upon historical earnings and anticipated future earnings, normal operations will
continue to generate sufficient future taxable income to realize these benefits.
A valuation allowance is established for deferred tax assets when, in the
opinion of management, it is "more likely than not" that the asset will not be
realized.
B-9
<PAGE> 45
NOTE 2. ACQUISITIONS
CONSUMMATED ACQUISITIONS
POOLINGS OF INTERESTS
The Corporation consummated the following acquisitions which were
accounted for using the pooling of interests method of accounting. Financial
information for all periods has been restated for the Magna Group, Peoples
First, Merchants, Ambanc, Capital-Miami, Magna Bancorp, Leader, and
Capital-Missouri acquisitions. Prior period amounts have not been restated for
the remaining acquisitions that were not considered, in the aggregate, material
to the consolidated financial statements.
<TABLE>
<CAPTION>
COMMON
DATE SHARES TOTAL TOTAL
ACQUIRED ISSUED ASSETS EQUITY
-------- ---------- --------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
1998 ACQUISITIONS(1)
Magna Group, Inc.(2)......................... 7/1/98 33,398,818 $ 7,683.0 $639.0
Peoples First Corp. ......................... 7/1/98 6,031,031 1,427.0 142.0
Merchants Bancshares, Inc. .................. 7/31/98 2,018,744 565.0 58.0
Ambanc Corp. ................................ 8/31/98 3,387,548 736.0 75.0
---------- --------- ------
Total.............................. 44,836,141 $10,411.0 $914.0
========== ========= ======
1997 ACQUISITIONS
Capital Bancorp (Capital-Miami).............. 12/31/97 6,494,889 $ 2,155.6 $145.0
Magna Bancorp, Inc. ......................... 11/1/97 7,103,272 1,190.5 127.7
Other acquisitions (three acquisitions)...... Various 1,081,552 242.0 24.5
---------- --------- ------
Total.............................. 14,679,713 $ 3,588.1 $297.2
========== ========= ======
1996 ACQUISITIONS
Leader Financial Corporation (Leader)........ 10/1/96 15,285,575 $ 3,410.9 $256.1
Other acquisitions (four acquisitions)....... Various 2,779,655 683.1 53.9
---------- --------- ------
Total.............................. 18,065,230 $ 4,094.0 $310.0
========== ========= ======
1995 ACQUISITIONS
Capital Bancorporation, Inc.
(Capital-Missouri)......................... 12/31/95 4,087,124 $ 1,105.1 $ 74.8
Planters Bank and Trust Company.............. 9/1/95 348,029 59.0 6.6
---------- --------- ------
Total.............................. 4,435,153 $ 1,164.1 $ 81.4
========== ========= ======
</TABLE>
(1) These 1998 acquisitions are reflected in the 1997 restated financial
statements.
(2) Magna Group's total assets include its acquisition of Charter
Financial, Inc. with total assets of approximately $406 million during
the second quarter of 1998 and Homeland Bancshares Corporation with
total assets of approximately $1.3 billion in March 1997. Both
acquisitions were accounted for as purchases and resulted in goodwill
of approximately $47 million and $100 million, respectively.
The following table summarizes the impact of the Magna Group, Peoples
First, Ambanc, and Merchants acquisitions on the Corporation's net interest
income, noninterest income, and net earnings.
<TABLE>
<CAPTION>
NET INTEREST NONINTEREST NET
INCOME INCOME EARNINGS
------------ ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1997
Union Planters ............... $ 770,385 $ 361,610 $ 208,761
Magna Group .................. 239,028 71,282 72,675
Peoples First ................ 57,891 10,548 16,187
Ambanc ....................... 27,813 4,349 8,286
Merchants .................... 27,032 6,253 6,388
---------- ---------- ----------
Union Planters pooled .... $1,122,149 $ 454,042 $ 312,297
========== ========== ==========
1996
Union Planters ............... $ 744,852 $ 320,502 $ 171,474
Magna Group .................. 194,087 50,358 63,139
Peoples First ................ 54,114 8,535 17,164
Ambanc ....................... 24,170 5,677 6,385
Merchants .................... 26,719 3,694 7,966
---------- ---------- ----------
Union Planters pooled .... $1,043,942 $ 388,766 $ 266,128
========== ========== ==========
1995
Union Planters ............... $ 669,451 $ 293,710 $ 211,256
Magna Group .................. 182,851 47,863 51,222
Peoples First ................ 47,594 7,944 14,767
Ambanc ....................... 19,597 4,655 5,907
Merchants .................... 25,201 3,153 7,045
---------- ---------- ----------
Union Planters pooled .... $ 944,694 $ 357,325 $ 290,197
========== ========== ==========
</TABLE>
B-10
<PAGE> 46
PURCHASE ACQUISITIONS
The Corporation acquired four institutions in the three years ended
December 31, 1997 that were accounted for as purchases. Total assets of the
institutions at their respective dates of acquisition were approximately $249.9
million. Consideration of $36.1 million paid for the institutions included cash
and shares of the Corporation's common stock and Series E preferred stock,
resulting in total intangibles of $14.9 million. Because these purchase
acquisitions, in the aggregate, are insignificant to the consolidated results of
the Corporation, pro forma information has been omitted.
PENDING ACQUISITIONS
The following is a listing of the Corporation's consummated or pending
acquisitions from December 31, 1997 through October 31, 1998. The Corporation
has not restated its historical financial statements for the acquisitions
consummated subsequent to December 31, 1997 which were accounted for as pooling
of interests since they were not considered significant to the consolidated
financial statements.
<TABLE>
<CAPTION>
ACTUAL OR ANTICIPATED
PROJECTED DATE APPROXIMATE METHOD OF
INSTITUTION OF ACQUISITION CONSIDERATION ACCOUNTING TOTAL ASSETS(1)
-------------------------------------------- -------------- ---------------- ----------- --------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
SUBSEQUENT CONSUMMATIONS
Sho-Me Financial Corporation................ 1/98 1,153,459 shares Purchase $ 374
Springfield, Missouri of common stock
Security Bancshares, Inc.................... 4/98 490,821 shares Pooling of 146
Des Arc, Arkansas of common stock Interests
First National Bancshares of Wetumpka,
Inc....................................... 7/98 835,709 shares Pooling of 202
Wetumpka, Alabama of common stock Interests
C B & T, Inc................................ 7/98 1,449,127 shares Pooling of 278
McMinnville, Tennessee of common stock Interests
Capital Savings Bancorp, Inc................ 7/98 724,613 shares Pooling of 207
Jefferson City, Missouri of common stock Interests
First Community Bancshares, Inc............. 8/98 125,782 shares Pooling of 39
Middleton, Tennessee of common stock Interests
Transflorida Bank........................... 8/98 1,655,371 shares Pooling of 334
Boca Raton, Florida of common stock Interests
Duck Hill Bank.............................. 8/98 42,396 shares Purchase 21
Duck Hill, Mississippi of common stock
Alvin Bancshares, Inc. ..................... 8/98 423,869 shares Pooling of 117
Alvin, Texas of common stock Interests
Purchase of 24 branches and assumption ..... 9/98 $110 million Purchase 1,389
of $1.4 billion of deposits of California deposit premium ------
Federal Bank in Florida in cash
TOTAL SUBSEQUENT CONSUMMATIONS ... 3,107
------
PENDING
La Place Bancshares, Inc. .................. 12/98 412,000 shares Pooling of 70
La Place, Louisiana (3) of common stock Interests
First Mutual Bancorp, Inc. ................. 12/98 1,100,000 shares Purchase 370
Decatur, Illinois (3) of common stock
FSB, Inc. .................................. 12/98 907,000 shares Pooling of 145
Covington, Tennessee (3) of common stock Interests
Southeast Bancorp, Inc...................... 12/98 1,250,000 shares Pooling of 335
Corbin, Kentucky (3) of common stock Interests
Ready State Bank............................ 12/98 3,214,000 shares Pooling of 595
Hieleah, Florida (3) of common stock Interests
</TABLE>
B-11
<PAGE> 47
<TABLE>
<S> <C> <C> <C> <C>
First & Farmers Bancshares, Inc............. 1/99 $76 million in Purchase 275
Somerset, Kentucky (3) cash
Purchase 56 branches of First Chicago ...... 2/99 $294 million Purchase 1,800
NBD Corporation in Indiana(3) deposit premium ------
in cash
TOTAL PENDING ACQUISITION 3,590
------
TOTAL SUBSEQUENT AND PENDING
ACQUISITIONS $6,697
======
</TABLE>
- ----------
(1) Total assets at date of acquisition or approximately amount for pending
acquisitions.
(2) The Corporation repurchased in the open market the majority of the
shares issued in this transaction. Goodwill resulting from the
transaction was $29.3 million.
(3) Agreements signed subsequent to December 31, 1997.
NOTE 3. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Corporation's banking subsidiaries are required to maintain
noninterest-bearing average reserve balances with the Federal Reserve Bank.
Average balances required to be maintained for such purposes during 1997 and
1996 were $171 million and $180 million, respectively.
NOTE 4. INVESTMENT SECURITIES
The following is a summary of the Corporation's investment securities,
all of which were classified as "available for sale."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------
UNREALIZED
AMORTIZED -------------------------- FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government obligations
U.S. Treasury .......................... $ 987,384 $ 5,207 $ 907 $ 991,684
U.S. Government agencies
Collateralized mortgage obligations . 1,237,290 5,471 4,827 1,237,934
Mortgage-backed ..................... 951,955 24,151 1,061 975,045
Other ............................... 1,294,531 10,158 2,319 1,302,370
---------- ---------- ---------- ----------
Total U.S. Government obligations . 4,471,160 44,987 9,114 4,507,033
Obligations of states and political
subdivisions.............................. 890.912 44,159 851 934,220
Other stocks and securities .............. 398,998 1,369 916 399,451
---------- ---------- ---------- ----------
Total available for sale securities $5,761,070 $ 90,515 $ 10,881 $5,840,704
========== ========== ========== ==========
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------------------
UNREALIZED
AMORTIZED -------------------------- FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government obligations
U.S. Treasury .......................... $1,209,075 $ 5,390 $ 2,881 $1,211,584
U.S. Government agencies
Collateralized mortgage obligations . 580,025 3,267 1,917 581,375
Mortgage-backed securities .......... 1,272,526 24,845 5,144 1,292,227
Other ............................... 1,383,620 2,173 8,754 1,377,039
---------- ---------- ---------- ----------
Total U.S. Government obligations . 4,445,246 35,675 18,696 4,462,225
Obligations of states and political
subdivisions ............................ 759,267 29,641 2,695 786,213
Other stocks and securities .............. 421,892 1,847 4,926 418,813
---------- ---------- ---------- ----------
Total available for sale securities $5,626,405 $ 67,163 $ 26,317 $5,667,251
========== ========== ========== ==========
</TABLE>
B-12
<PAGE> 48
The following table presents the gross realized gains and losses on
available for sale investment securities for the years ended December 31, 1997,
1996, and 1995.
<TABLE>
<CAPTION>
REALIZED GAINS REALIZED LOSSES
-------------------------------------------- --------------------------------------------
1997 1996 1995 1997 1996 1995
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$ 8,953 $ 9,898 $ 10,324 $ (4,172) $ (4,956) $ (8,316)
</TABLE>
During the second quarter of 1998, the Corporation recorded a pre-tax
loss of $22.8 million related to the impairment of certain mortgage-backed
securities due to declines and the overall volatility of current and projected
interest rates.
Investment securities having a fair value of approximately $3.3 billion
and $2.9 billion at December 31, 1997 and 1996, respectively, were pledged to
secure public and trust funds on deposit, securities sold under agreements to
repurchase, and Federal Home Loan Bank (FHLB) advances.
The fair values, contractual maturities, and weighted average yields of
available for sale investment securities as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
MATURING
-------------------------------------------------------------------------------------------------------
WITHIN ONE AFTER ONE BUT AFTER FIVE BUT
YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS TOTAL
---------------- ------------------- ----------------- ------------------ ------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- ----- ---------- ----- -------- ----- -------- ----- ---------- -----
(FULLY TAXABLE-EQUIVALENT BASIS/DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
obligations
U.S. Treasury ....... $514,264 5.68% $ 467,614 6.19% $ 5,506 7.08% $ -- --% $ 987,384 5.92%
U.S. Government
agencies
Collateralized
mortgage
obligations ....... 20,090 6.26 67,592 6.54 107,414 6.40 1,042,194 6.73 1,237,290 6.69
Mortgage-backed ... 25,233 5.95 177,188 6.73 115,037 7.16 634,497 7.58 951,955 7.33
Other ............. 273,297 5.72 745,755 6.25 206,211 6.84 69,268 7.15 1,294,531 6.28
-------- ---------- -------- ---------- ----------
Total U.S.
Government
obligations . 832,884 5.71 1,458,149 6.30 434,168 6.82 1,745,959 7.06 4,471,160 6.54
Obligations of states
and political
subdivisions ........ 57,681 8.37 197,722 8.64 329,334 8.82 306,175 8.71 890,912 8.71
Other stocks and
securities Federal
Reserve Bank and
Federal Home Loan
Bank stock .......... -- -- -- -- -- -- 180,496 6.73 180,496 6.73
Bonds, notes, and
debentures ........ 3,287 7.56 2,238 11.82 4,329 8.05 -- -- 9,854 8.74
Collateralized
mortgage
obligations ....... 2,361 5.98 10,112 5.35 291 6.20 134,957 6.49 147,721 6.40
Other ............... 37,880 6.18 5,799 5.15 -- -- 17,248 6.91 60,927 6.29
-------- ---------- -------- ---------- ----------
Total other
stocks and
securities .. 43,528 5.47 18,149 6.08 4,620 7.93 332,701 6.64 398,998 6.50
-------- ---------- -------- ---------- ----------
Total amortized
cost of
available for
sale
securities .. $934,093 5.86% $1,674,020 6.47% $768,122 7.43% $2,384,835 7.18% $5,761,070 6.79%
======== ========== ======== ========== ==========
Total fair
value...... $918,546 $1,674,712 $816,490 $2,430,956 $5,840,704
======== ========== ======== ========== ==========
</TABLE>
The weighted average yields are calculated by dividing the sum of the
individual security yield weights (effective yield times book value) by the
total book value of the securities. The weighted average yield for obligations
of states and political subdivisions is adjusted to a taxable-equivalent yield,
using a federal income tax rate of 35%. Expected maturities of securities will
differ from contractual maturities because some borrowers have the right to call
or prepay obligations without prepayment penalties. The investment securities
portfolio is expected to have a principal weighted average life of approximately
3.56 years.
B-13
<PAGE> 49
NOTE 5. LOANS
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial, financial, and agricultural.............. $ 3,210,652 $ 2,916,514
Foreign.............................................. 207,343 145,483
Accounts receivable-- factoring...................... 579,067 452,522
Real estate-- construction........................... 960,405 782,984
Real estate-- mortgage
Secured by 1-4 family residential.................. 5,361,456 5,233,199
FHA/VA government-insured/guaranteed............... 1,331,993 1,569,027
Other mortgage..................................... 3,828,230 3,129,691
Home equity.......................................... 443,762 355,615
Consumer
Credit cards and related plans..................... 612,902 698,175
Other consumer..................................... 2,560,649 2,509,331
Direct lease financing............................... 65,755 74,891
----------- -----------
Total loans................................ $19,162,214 $17,867,432
=========== ===========
</TABLE>
Nonperforming loans are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans.......................... $132,768 $114,767
Restructured loans........................ 15,250 17,097
-------- --------
Total........................... $148,018 $131,864
======== ========
</TABLE>
The impact on net interest income of nonperforming loans was not
material for the three years ended December 31, 1997. Also, there were no
significant outstanding commitments to lend additional funds at December 31,
1997.
Certain of the Corporation's bank subsidiaries, principally Union
Planters Bank, National Association (UPB), have granted loans to the
Corporation's directors, executive officers, and their affiliates. These loans
were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated persons and do not involve more than normal risks of collectability.
The aggregate dollar amount of these loans was $115.8 million and $146.3 million
at December 31, 1997 and 1996, respectively. During 1997, $33.5 million of new
loans and advances under credit lines were made to related parties; repayments
totaled approximately $37 million. Additionally, the balance at December 31,
1996 was reduced by $27 million for loans related to a former director and other
loans no longer considered related-party relationships.
Included in December 31, 1996 related-party loans was a $5.5 million
tax-exempt loan made in 1986 to a partnership in which a director, who is also a
brother-in-law of an executive officer, is a partner. At the time the loan was
made, neither the borrower nor any of its partners, officers, directors, or
beneficial owners was affiliated or associated with the Corporation or any of
its subsidiaries. The loan was made in the ordinary course of business on
substantially the same terms, including interest rate and collateral
requirements, as those prevailing at the time for comparable transactions. The
loan had previously performed as required; however, during 1996 because of
significant depreciation in the value of the collateral, a $2.0 million
charge-off was taken and the remaining $3.4 million was placed on nonaccrual
status, although the loan was not in default. In 1997, the $3.4 million balance
was collected, including interest due.
In the second quarter of 1998, UPB securitized approximately $381
million of FHA/VA government-insured/guaranteed loans which resulted in a
pre-tax gain of $19.6 million.
Additionally, in October 1998, the Corporation sold approximately $460
million of its credit card portfolio to a third party which is expected to
result in a pre-tax gain of approximately $65 to $70 million.
B-14
<PAGE> 50
NOTE 6. ALLOWANCE FOR LOSSES ON LOANS
The changes in the allowance for losses on loans are summarized as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance, January 1............................. $ 257,638 $ 243,395 $ 237,377
Increase due to acquisitions................. 16,379 7,949 3,499
Decrease due to the sale of certain loans.... -- (1,628) --
Provision for losses on loans................ 150,606 84,198 47,393
Recoveries of loans previously charged off... 23,261 20,177 22,889
Loans charged off............................ (137,499) (96,453) (67,763)
--------- --------- ---------
Balance, December 31........................... $ 310,385 $ 257,638 $ 243,395
========= ========= =========
</TABLE>
NOTE 7. PREMISES AND EQUIPMENT
A summary of premises and equipment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Land..................................... $ 96,036 $ 89,964
Buildings and improvements............... 391,612 359,140
Leasehold improvements................... 43,155 51,534
Equipment................................ 287,813 304,709
Construction in progress................. 20,017 19,163
-------- --------
838,633 824,510
Less accumulated depreciation and
amortization............................. 341,366 363,002
-------- --------
Total premises and equipment... $497,267 $461,508
======== ========
</TABLE>
NOTE 8. INTEREST-BEARING DEPOSITS
The following table presents the maturities of interest-bearing
deposits at December 31, 1997 (Dollars in millions).
<TABLE>
<S> <C>
1998........................................................ $ 8,550
1999........................................................ 1,698
2000........................................................ 602
2001........................................................ 147
2002........................................................ 143
2003 and after.............................................. 33
-------
Total time deposits.................................... 11,173
Interest-bearing deposits with no stated maturity...... 6,694
-------
Total interest-bearing deposits................... $17,867
=======
</TABLE>
B-15
<PAGE> 51
NOTE 9. BORROWINGS
SHORT-TERM BORROWINGS
Short-term borrowings include federal funds purchased and securities
sold under agreements to repurchase, commercial paper, and other short-term
borrowings having maturities of less than one year. Federal funds purchased
arise primarily from the Corporation's market activity with its correspondent
banks and generally mature in one business day. Securities sold under agreements
to repurchase are secured by U. S. Government and agency securities.
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Year-end balances
Federal funds purchased and securities sold under
agreements to repurchase........................... $1,553,310 $1,105,445 $1,379,327
FHLB advances......................................... 210,860 345,616 154,500
Other short-term borrowings........................... 20,177 16,376 1,497
---------- ---------- ----------
Total short-term borrowings................... $1,784,347 $1,467,437 $1,535,324
========== ========== ==========
Federal funds purchased and securities sold under
agreements to repurchase
Daily average balance................................. $1,260,919 $1,538,932 $1,081,778
Weighted average interest rate........................ 4.98% 5.13% 5.51%
Maximum outstanding at any month end.................. $1,707,551 $1,956,734 $1,774,693
Weighted average interest rate at December 31......... 5.44% 5.24% 5.26%
</TABLE>
SHORT- AND MEDIUM-TERM BANK NOTES
In 1996, the Corporation's principal subsidiary, UPB, established a
$1-billion short- and medium-term bank note program to supplement UPB's funding
sources. Under the program UPB may from time-to-time issue bank notes having
maturities ranging from 30 days to one year from their respective issue dates
(Short-Term Bank Notes) and bank notes having maturities of more than one year
to 30 years from their respective dates of issue (Medium-Term Bank Notes). A
summary of the bank notes follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- -------------------------
SHORT-TERM MEDIUM-TERM SHORT-TERM MEDIUM-TERM
BANK NOTES BANK NOTES BANK NOTES BANK NOTES
---------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balances at year end.................. $ N/A $ 135,000 $ 265,000 $ 135,000
Average balance for the year.......... 119,493 135,000 88,361 42,637
Weighted average interest rate........ 5.84% 6.62% 5.81% 6.57%
Weighted average interest rate at
year end............................ N/A 6.59 5.69 6.59
Fixed rate notes...................... $ N/A $ 135,000 $ 265,000 $ 135,000
Range of maturities................... N/A 8/98-10/01 1/97-5/97 8/98-10/01
</TABLE>
The principal maturities of Medium-Term Bank Notes subsequent to
December 31, 1997 are $30 million in 1998, $45 million in 1999, and $60 million
in 2001.
B-16
<PAGE> 52
FEDERAL HOME LOAN BANK ADVANCES
Certain of the Corporation's banking and thrift subsidiaries had
outstanding advances from the FHLB under Blanket Agreements for Advances and
Security Agreements (the Agreements). The Agreements enable these subsidiaries
to borrow funds from the FHLB to fund mortgage loan programs and to satisfy
certain other funding needs. The value of the mortgage-backed securities and
mortgage loans pledged under the Agreements must be maintained at not less than
115% and 150%, respectively, of the advances outstanding. At December 31, 1997,
the Corporation's subsidiaries had an adequate amount of mortgage-backed
securities and loans to satisfy the collateral requirements. A summary of the
advances is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1997 1996
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at year end. $ 830,252 $ 1,051,146
Range of interest rates 3.25%--8.95% 3.25%--9.00%
Range of maturities. 1998--2017 1997--2017
</TABLE>
The principal maturities of FHLB advances subsequent to December 31,
1997 are $172.7 million in 1998, $195.5 million in 1999, $206.0 million in 2000,
$79.8 million in 2001, $32.7 million in 2002, and $143.6 million after 2002.
Subsequent to December 31, 1997, a portion of FHLB advances were repaid
resulting in a $6.6 prepayment penalty.
OTHER LONG-TERM DEBT
The Corporation's other long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Corporation-Obligated Mandatorily Redeemable Capital Pass-through
Securities of Subsidiary Trust holding solely a
Corporation-Guaranteed Related Subordinated Note
(Trust Preferred Securities)...................................... $198,973 $198,938
Variable rate asset-backed certificates............................. 275,000 175,000
63/4% Subordinated Notes due 2005................................... 99,536 99,477
6.25% Subordinated Notes due 2003................................... 74,696 74,644
Other long-term debt................................................ 87,740 65,687
-------- --------
Total other long-term debt................................. $735,945 $613,746
======== ========
</TABLE>
The Corporation-Obligated Mandatorily Redeemable Capital Pass-through
Securities of Subsidiary Trust holding solely a Corporation-Guaranteed Related
Subordinated Note represents Capital Securities issued by Union Planters Capital
Trust A (the UPC Trust). In 1996, the UPC Trust issued $200 million liquidation
amount of 8.20% Capital Trust Pass-through Securities(SM) (Trust Preferred
Securities) at 99.468% which represented an undivided beneficial interest in the
assets of the UPC Trust, a statutory business trust created under the laws of
the state of Delaware. The Corporation owns all of the common securities of the
UPC Trust representing an undivided beneficial interest in the assets of the UPC
Trust. The sole asset of the UPC Trust is $206.2 million (carrying value of
$205.1 million at December 31, 1997 and 1996) of 8.20% Junior Subordinated
Deferrable Interest Debentures of the Corporation issued at 99.468%, which will
mature on December 15, 2026. The distributions payable on the Trust Preferred
Securities are a fixed rate per annum, 8.20% of the stated liquidation amount,
and are cumulative from the date of issuance.
The Corporation has the right, at any time, subject to certain
conditions, to defer payments of interest on the Subordinated Debentures, in
which case distributions on Trust Preferred Securities would likewise be
deferred. Upon electing to defer such interest payments, the Corporation will be
prohibited from paying dividends on its common and preferred stock and interest
on certain outstanding borrowings. The Subordinated Debt and therefore, the
Trust Preferred Securities are redeemable by the Corporation at a call price,
plus accrued and unpaid interest to the date of redemption, in whole or in part
and from time-to-time on or after December 15, 2006, subject to certain
conditions. In certain limited circumstances, primarily related to certain tax
events, the Subordinated Debt and therefore, the Trust Preferred Securities are
redeemable at par, plus accrued interest to date of redemption. The Trust
Preferred Securities qualify as Tier 1 regulatory capital and are reported in
bank regulatory reports as a minority interest in a consolidated subsidiary.
In June 1994, December 1994, and July 1995, Capital Factors, Inc., a
majority-owned subsidiary, through a wholly owned financing trust subsidiary,
issued $100 million, $25 million, and $50 million, respectively, of Variable
Rate Asset-Backed Certificates (senior certificates) with maturity dates of
December 1999, June 2000, and January 2001. The senior certificates bear an
interest rate
B-17
<PAGE> 53
of LIBOR plus 1.25%. The interest rates on December 31, 1997 and 1996 were 7.23%
and 6.86%, respectively. The senior certificates may not be redeemed prior to
their stated maturity. In April 1997, a fourth series of variable rate
asset-backed certificates (the Variable Funding Certificates) that mature in
June 2004 were issued. Unlike the previously issued Certificates which were
fixed as to principal amount, the Variable Funding Certificates provide for a
monthly settlement of principal, which may increase or decrease the outstanding
amount. The fourth series includes the issuance of $95.25 million of senior
Variable Funding Certificates and $4.75 million of senior subordinated Variable
Funding Certificates which bear interest rates of LIBOR plus 0.75% and LIBOR
plus 1.50%, respectively. The interest rates on December 31, 1997 were 6.73% and
7.48%, respectively. Interest on all certificates is payable monthly. The senior
certificates are collateralized by interest-earning advances to factoring
clients which totaled approximately $323.8 million at December 31, 1997. Such
advances are made on receivables before they are due or collected by Capital
Factors, Inc., which services and administers these advances and related
receivables under an agreement with another financial institution. The senior
certificates are subject to acceleration if certain collateral requirements are
not maintained. Remaining deferred issuance costs of $2.1 million are being
amortized over the terms of the related series. Such costs are included in other
assets on the balance sheets. A cash collateral account is required pursuant to
the terms of the aforementioned agreement. Such restricted cash collateral
amounted to $10.1 million at December 31, 1997.
During November 1993, the Corporation issued in a public offering $75
million of 6.25% Subordinated Capital Notes due 2003 at 99.305%. In November
1995, the Corporation issued in another public offering $100 million of 6 3/4%
Subordinated Capital Notes due 2005 at 99.408%. The Notes qualify as Tier 2
regulatory capital.
Included in other long-term debt is a $50-million revolving loan
payable to another financial institution which was established by Capital
Factors, Inc., in 1996. At December 31, 1997 and 1996, $43.6 million and $15.9
million, respectively, was outstanding under the revolving line. Interest
accrues on this line at LIBOR plus 2.15% (8.09% and 7.76% at December 31, 1997
and 1996) with interest payable monthly. The loan matures in March 1999, with an
automatic one-year renewal. The revolving loan agreement has certain financial
covenants and ratios, including those related to Capital Factors' debt to net
worth, profitability, and net cash flows. Also included at December 31, 1997 and
1996 is a privately placed $10 million 7.95% subordinated note issued in
connection with Capital Factors' securitized financing. Interest on the note is
payable monthly and it matures in July 2001. At December 31, 1997 and 1996,
other long-term debt also included other borrowings of $9.1 million and $12.0
million, respectively.
The principal maturities of other long-term debt subsequent to December
31, 1997 are $17.2 million in 1998, $157.1 million in 1999, $27.7 million in
2000, $60.4 million in 2001, $299.0 million in 2002, and $174.5 million after
2002.
The ability of the Corporation to service its long-term debt
obligations is dependent upon the future profitability of its banking
subsidiaries and their ability to pay dividends and management fees to the
Corporation (see Note 12).
NOTE 10. SHAREHOLDERS' EQUITY
COMMON STOCK
At the Corporation's annual meeting held on April 16, 1998,
shareholders approved an increase in the number of authorized common shares from
100 million to 300 million.
DIVIDENDS
The payment of dividends is determined by the Board of Directors taking
into account the earnings, capital levels, cash requirements, and the financial
condition of the Corporation and its subsidiaries, applicable government
regulations and policies, and other factors deemed relevant by the Board of
Directors, including the amount of dividends payable to the Corporation by its
subsidiaries. Various federal laws, regulations, and policies limit the ability
of the Corporation's subsidiary banks to pay dividends. See Note 12, "Regulatory
Capital and Restrictions on Dividends and Loans from Subsidiaries."
B-18
<PAGE> 54
PREFERRED STOCK
The Corporation's preferred stock is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
PREFERRED STOCK, WITHOUT PAR VALUE, 10,000,000 SHARES
AUTHORIZED FOR ALL ISSUES:
Series A Preferred Stock................................. $ -- $ --
Series E Preferred Stock................................. 54,709 83,809
------- -------
Total preferred stock............................. $54,709 $83,809
======= =======
</TABLE>
SERIES A PREFERRED STOCK (SHARE PURCHASE RIGHTS PLAN). In 1989, the
Board of Directors of the Corporation adopted a Share Purchase Rights Plan and
distributed a dividend of one Preferred Share Purchase Right (Right) for each
outstanding share of the Corporation's $5 par value Common Stock and for each
share to be issued thereafter. The Rights are generally designed to deter
coercive takeover tactics and to encourage all persons interested in acquiring
control of the Corporation to deal with each shareholder on a fair and equal
basis. Each Right trades in tandem with its respective share of common stock
until the occurrence of certain events, in which case it would separate from the
common stock and entitle the registered holder, subject to the terms of the
Rights Agreement, to purchase certain equity securities at a price below their
market value. The Corporation has authorized 750,000 shares of Series A
Preferred Stock for issuance under the Share Purchase Rights Plan, none of which
have been issued.
SERIES B PREFERRED STOCK. All 44,000 outstanding shares of a Series B
Preferred Stock were converted by holders into 339,765 shares of the
Corporation's common stock in 1996.
SERIES E PREFERRED STOCK. At December 31, 1997 and 1996, 2,188,358 and
3,352,347 shares, respectively, of the Corporation's 8% Cumulative, Convertible,
Preferred Stock, Series E (Series E Preferred Stock) were issued and
outstanding. Such shares have a stated value of $25 per share on which dividends
accrue at the rate of 8% per annum; dividends are cumulative and are payable
quarterly. The Series E Preferred Stock is not subject to any sinking fund
provisions and has no preemptive rights. Such shares have a liquidation
preference of $25 per share plus unpaid dividends accrued thereon, and with the
prior approval of the Federal Reserve, may be redeemed by the Corporation in
whole or in part at any time after March 31, 1997 at $25 per share. At any time
prior to redemption, each share of Series E Preferred Stock is convertible, at
the option of the holder, into 1.25 shares of the Corporation's Common Stock.
Holders of Series E Preferred Stock have no voting rights except for those
provided by law and in certain other limited circumstances.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Dividend Reinvestment and Stock Purchase Plan (the Plan) authorizes
the issuance of 2,000,000 shares (1,187,867 issued through December 31, 1997) of
common stock to shareholders who choose to invest all or a portion of their cash
dividends or make optional cash purchases. On certain investment dates, shares
may be purchased with reinvested dividends and optional cash payments without
brokerage commissions. Shares issued under the Plan totaled 271,615, 241,060,
and 189,921 in 1997, 1996, and 1995, respectively.
B-19
<PAGE> 55
NOTE 11. UNION PLANTERS CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents at subsidiary banks .......... $ 432,947 $ 274,622
Investment securities available for sale ............... 132,690 213,491
Advances to and receivables from subsidiaries .......... 5,112 9,535
Investment in bank and bank holding company subsidiaries 2,440,347 2,247,329
Investment in nonbank subsidiaries ..................... 22,700 17,137
Other assets ........................................... 67,965 27,583
---------- ----------
TOTAL ASSETS ................................... $3,101,761 $2,789,697
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt (Note 9) ................................ $ 379,360 $ 379,212
Loans from and payables to subsidiaries ................ 5,324 8,384
Other liabilities ...................................... 48,356 25,333
Shareholders' equity (Note 10) ......................... 2,668,721 2,376,768
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..... $3,101,761 $2,789,697
========== ==========
</TABLE>
CONDENSED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INCOME
Dividends from bank and bank holding company subsidiaries $ 233,990 $ 152,534 $ 162,810
Dividends from nonbank subsidiaries ..................... 3,355 950 500
Fees and interest from subsidiaries ..................... 73,919 46,326 32,219
Interest and dividends on investments, loans, and
interest-bearing deposits at other financial
institutions ......................................... 8,265 12,888 4,611
Other income ............................................ 1,775 398 478
--------- --------- ---------
Total income .................................... 321,304 213,096 200,618
--------- --------- ---------
EXPENSES
Interest expense ........................................ 28,776 16,351 10,400
Salaries and employee benefits .......................... 34,413 22,233 16,190
Other expense ........................................... 42,911 37,032 23,607
--------- --------- ---------
Total expenses .................................. 106,100 75,616 50,197
--------- --------- ---------
EARNINGS BEFORE INCOME TAXES AND EQUITY IN
UNDISTRIBUTED EARNINGS OF SUBSIDIARIES ........ 215,204 137,480 150,421
Tax benefit ............................................... (10,283) (5,701) (7,576)
--------- --------- ---------
EARNINGS BEFORE EQUITY IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARIES ............................... 225,487 143,181 157,997
Equity in undistributed earnings of subsidiaries .......... 86,810 122,947 132,200
--------- --------- ---------
NET EARNINGS .................................... $ 312,297 $ 266,128 $ 290,197
========= ========= =========
</TABLE>
B-20
<PAGE> 56
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings ............................................ $ 312,297 $ 266,128 $ 290,197
Equity in undistributed earnings of subsidiaries ........ (86,810) (122,947) (132,200)
Deferred income tax (benefit) expense ................... (8,660) (2,770) 425
Other, net .............................................. (1,018) 7,472 9,409
--------- --------- ---------
Net cash provided by operating activities ....... 215,809 147,883 167,831
--------- --------- ---------
INVESTING ACTIVITIES
Net decrease (increase) in short-term investments ....... -- 10,000 (10,000)
Purchases of available for sale securities .............. (122,802) (437,340) (389,624)
Proceeds from sales of available for sale securities .... 205,029 397,931 221,532
Net increase in investment in and receivables from
subsidiaries ......................................... (34,259) (36,778) (55,261)
Purchases of premises and equipment, net ................ (3,981) (126) (5,279)
Net cash received from acquired entities ................ 18,384 -- --
--------- --------- ---------
Net cash provided by (used in) investing
activities .................................... 62,371 (66,313) (238,632)
--------- --------- ---------
FINANCING ACTIVITIES
Net decrease in commercial paper ........................ -- -- (2,971)
Proceeds from issuance of long-term debt, net ........... 439 205,089 99,956
Repayment and defeasance of long-term debt .............. (488) (40,349) (49)
Net (repayments) proceeds from loans from and payables to
subsidiaries ......................................... (3,060) 5,133 (9,668)
Proceeds from issuance of common stock, net ............. 22,781 16,336 12,934
Repurchase of common stock .............................. (35,009) -- --
Cash dividends paid ..................................... (105,151) (61,352) (47,128)
Other, net .............................................. 633 -- --
--------- --------- ---------
Net cash (used) provided by financing
activities .................................... (119,855) 124,857 53,074
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ...... 158,325 206,427 (17,727)
Cash and cash equivalents at the beginning of the year .... 274,622 68,195 85,922
--------- --------- ---------
Cash and cash equivalents at the end of the year .......... $ 432,947 $ 274,622 $ 68,195
========= ========= =========
</TABLE>
- ----------
NONCASH ACTIVITIES. See Note 2 and Note 10, respectively, regarding acquisitions
in 1997, 1996, and 1995 and the conversions of Series B and E Preferred Stock.
NOTE 12. REGULATORY CAPITAL AND RESTRICTIONS ON DIVIDENDS AND LOANS FROM
SUBSIDIARIES
REGULATORY CAPITAL
The Corporation and its banking subsidiaries are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Corporation or its banking
subsidiaries' financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Corporation and its
banking subsidiaries must meet specific capital guidelines that involve
quantitative measures of the Corporation's and its banking subsidiaries' assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Corporation's and its banking subsidiaries' capital
amounts and classifications 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 Corporation and its banking subsidiaries to maintain
minimum amounts and ratios (set forth in the table below for the Corporation and
its significant subsidiaries, UPB and Magna Bank) of total and Tier 1 capital
(as defined in the regulations) to risk-weighted assets (as defined), and Tier 1
capital (as defined) to average assets (as defined). As of December 31, 1997,
management believes that the Corporation, UPB, Magna Bank, and the Corporation's
other banking subsidiaries met all capital adequacy requirements to which they
are subject.
B-21
<PAGE> 57
At December 31, 1997, the most recent notification from the Office of
the Comptroller of the Currency (OCC) categorized UPB as well capitalized under
the regulatory framework for prompt corrective action. Additionally, all of the
Corporation's other banking subsidiaries were categorized as well capitalized
and the Corporation's capital levels and ratios would be considered well
capitalized. To be categorized as well capitalized, an institution must maintain
Tier 1 leverage, Tier 1 risk-based, and total risk-based capital ratios as set
forth in the table below. Subsequent to December 31, 1997, the Corporation
merged the majority of its separate banking subsidiaries into UPB. Because the
merged banks' capital levels were lower than UPB's, it is expected that UPB's
capital ratios will decline as a result of the merger. UPB is still expected to
be considered well capitalized following this merger. There are no other
conditions or events since the latest notification that management believes have
changed any of the institutions' categories. The capital and ratios of the
Corporation, UPB, and Magna Bank are presented in the table below. No amount was
deducted from capital for interest-rate risk.
<TABLE>
<CAPTION>
MINIMUM
FOR MINIMUM TO BE WELL
ACTUAL CAPITAL ADEQUACY CAPITALIZED(1)
----------------- ----------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ------- ------ ------- ------ -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997:
LEVERAGE (TIER 1 CAPITAL TO AVERAGE
ASSETS)
Consolidated ......................... $2,651 9.62% $1,012 4.00% N/A N/A
UPB(2) ............................... 489 9.21 212 4.00 $ 265 5.00%
Magna Bank(3) .......................... 488 7.07 276 4.00 345 5.00
TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS)
Consolidated ......................... $2,651 14.25% $ 744 4.00% N/A N/A
UPB(2) ............................... 489 15.02 130 4.00 $ 195 6.00%
Magna Bank(3) ........................ 488 10.86 180 4.00 269 6.00
TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS)
Consolidated ......................... $3,048 16.39% $1,488 8.00% N/A N/A
UPB(2) ............................... 530 16.28 260 8.00 $ 326 10.00%
Magna Bank(3) ........................ 542 12.09 359 8.00 449 10.00
AS OF DECEMBER 31, 1996:
LEVERAGE (TIER 1 CAPITAL TO AVERAGE
ASSETS)
Consolidated ......................... $2,465 9.32% $1,058 4.00% N/A N/A
UPB .................................. 384 7.25 212 4.00 $ 265 5.00%
Magna Bank(3) ........................ 329 6.12 215 4.00 269 5.00
TIER 1 CAPITAL (TO RISK-WEIGHTED
ASSETS)
Consolidated ......................... $2,465 14.39% $ 685 4.00% N/A N/A
UPB .................................. 384 13.92 110 4.00 $ 165 6.00%
Magna Bank(3) ........................ 329 9.43 140 4.00 209 6.00
TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS)
Consolidated ......................... $2,847 16.63% $1,370 8.00% N/A N/A
UPB .................................. 416 15.11 220 8.00 $ 275 10.00%
Magna Bank(3) ........................ 371 10.65 279 8.00 349 10.00
</TABLE>
- -------------
(1) Not applicable (N/A) for bank holding companies such as the
Corporation.
(2) Excludes the impact of the subsequent merger of the majority of the
Corporation's banking subsidiaries into UPB.
(3) In October 1998, Magna Bank was merged with UPB.
RESTRICTIONS ON DIVIDENDS AND LOANS FROM SUBSIDIARIES
The amount of dividends which the Corporation's subsidiaries may pay is
limited by applicable laws and regulations. For the subsidiary national banks,
prior regulatory approval is required if dividends to be declared in any year
would exceed net earnings of the current year (as defined under the National
Bank Act) plus retained net profits for the preceding two years. The payment of
dividends by state-chartered bank subsidiaries is regulated by applicable state
laws and the regulations of the Federal Deposit Insurance Corporation (FDIC).
The payment of dividends by savings and loan subsidiaries is subject to the
regulations of the Office of Thrift Supervision (OTS). At January 1, 1998, its
banking subsidiaries could have paid dividends to the Corporation aggregating
$163 million without prior regulatory approval. Future dividends will be
dependent on the level of earnings of the subsidiary financial institutions.
B-22
<PAGE> 58
The Corporation's banking subsidiaries are limited by federal law in
the amount of credit which they may extend to their nonbank affiliates,
including the Corporation. Loans and other extensions of credit (loans) to a
single nonbank affiliate may not exceed 10% nor shall loans to all nonbank
affiliates exceed 20% of an individual bank's capital plus its allowance for
losses on loans. Such loans must be collateralized by assets having market
values of 100% to 130% of the loan amount depending on the nature of the
collateral. The law imposes no restrictions upon extensions of credit between
FDIC-insured banks which are 80%-owned subsidiaries of the Corporation.
NOTE 13. OTHER NONINTEREST INCOME AND EXPENSE
The major components of other noninterest income and expense are
summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OTHER NONINTEREST INCOME
Gain on sale of branches/deposits and other selected assets .. $ 16,290 $ 7,147 $ 1,925
Gain on sale of residential mortgages ........................ 15,375 6,777 6,371
Customer ATM usage fee ....................................... 15,489 8,292 5,579
Insurance commissions ........................................ 12,552 14,148 10,003
Annuity sales income ......................................... 10,500 3,920 1,344
Brokerage fee income ......................................... 10,025 5,973 4,421
Letter of credit fees ........................................ 5,714 6,147 6,069
VSIBG partnership earnings ................................... 2,332 2,890 1,992
Other income ................................................. 56,998 37,823 48,597
-------- -------- --------
Total other noninterest income ........................ $145,275 $ 93,117 $ 86,301
======== ======== ========
OTHER NONINTEREST EXPENSE
Amortization and write-off of goodwill, other intangibles,
and mortgage servicing rights:
Amortization of mortgage servicing rights .................. $ 17,506 $ 18,276 $ 19,180
Amortization of goodwill and other intangibles ............. 21,071 17,659 17,360
Write-off of mortgage servicing rights, goodwill, and
other intangibles ........................................ 2,699 19,477 52
Other expense ................................................ 64,537 50,376 57,569
Merger-related expenses(2) ................................... 48,112 52,786 12,108
Stationery and supplies ...................................... 28,285 24,886 24,215
Postage and carrier .......................................... 25,388 23,311 21,929
Other contracted services .................................... 22,745 19,059 13,944
Advertising and promotion .................................... 21,825 20,944 22,832
Communications ............................................... 19,769 18,863 15,360
Charter consolidation expenses(3) ............................ 16,742 -- --
Legal fees ................................................... 12,081 12,539 12,227
Miscellaneous charge-offs .................................... 11,519 7,454 6,562
Other personnel services ..................................... 10,815 10,156 8,562
Taxes other than income ...................................... 10,463 9,047 8,490
Other real estate expense .................................... 10,107 4,599 5,119
Consultant fees .............................................. 9,704 7,529 7,345
Merchant credit card charges ................................. 9,316 9,079 8,337
Dues, subscriptions, and contributions ....................... 8,129 6,696 7,338
Provision for losses on FHA/VA foreclosure claims(1) ......... 8,016 25,163 5,622
Travel ....................................................... 7,873 6,774 6,469
Accounting and audit fees .................................... 5,235 5,789 5,483
Insurance .................................................... 4,924 5,502 5,946
FDIC insurance ............................................... 4,431 12,094 25,262
Brokerage and clearing fees on trading activities ............ 4,339 4,207 6,233
Federal Reserve fees ......................................... 3,316 3,327 2,996
One-time SAIF assessment on deposits ......................... -- 29,914 --
-------- -------- --------
Total other noninterest expense ....................... $408,947 $425,506 $326,540
======== ======== ========
</TABLE>
- ----------
(1) The amount for 1996 includes $19.8 million of provisions for losses on
FHA/VA foreclosure claims related to an acquired entity.
(2) Includes amounts for employment contract payments, severance,
postretirement benefit expenses, and pension expense of acquired
entities; write-downs of office buildings and equipment including
assets to be sold, lease buyouts, assets determined to be obsolete or
no longer of use and equipment not compatible with the Corporation's
equipment; professional fees including legal, accounting, consulting,
and financial advisory services; and other expenses including write-off
of assets, charge-offs of prepaid expenses, and miscellaneous
merger-related expenses. The majority of these charges are being paid
in cash over the 12 month period subsequent to December 31, 1997,
excluding asset write-downs.
(3) Effective January 1, 1998, the Corporation merged most of its separate
banking subsidiaries with UPB. Charter consolidation expenses include
amounts for employee severance payments, write-offs of data processing
equipment, and other miscellaneous costs related to combining most of
the Corporation's banking subsidiaries into UPB. The majority of these
charges are being paid in cash over the next 12 to 18 months subsequent
to December 31, 1997, excluding asset write-downs.
B-23
<PAGE> 59
NOTE 14. EMPLOYEE BENEFIT PLANS
401(K) RETIREMENT SAVINGS PLAN. The Corporation's 401(k) Retirement Savings Plan
(401(k) Plan) is available to employees having one or more years of service and
who work in excess of 1,000 hours per year. Employees may voluntarily contribute
1 to 16 percent of their gross compensation on a pretax basis up to a maximum of
$9,500 in 1997 and the Corporation makes a matching contribution of 50 to 100
percent of the amounts contributed by the employee (up to 6% of compensation)
depending upon his or her eligible years of service. The Corporation's
contributions to the 401(k) Plan for 1997, 1996, and 1995 were $4.0 million,
$3.0 million, and $2.7 million, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. The Employee Stock Ownership Plan and
Trust (ESOP) is noncontributory and covers employees having one or more years of
service and who work in excess of 1,000 hours per year. The amounts of
contributions to the ESOP are determined annually at the discretion of the Board
of Directors and were $3.5 million, $3.5 million, and $3.0 million for 1997,
1996, and 1995, respectively. At December 31, 1997, the ESOP held 1,049,235
shares of the Corporation's common stock, all of which were allocated to
participants.
STOCK INCENTIVE PLANS. Certain employees and directors of the Corporation and
its subsidiaries are eligible to receive options or restricted stock grants
under the 1992 Stock Incentive Plan. A maximum of 6,000,000 shares of the
Corporation's common stock may be issued through the exercise of nonstatutory or
incentive stock options and as restricted stock awards. The option price is the
fair value of the Corporation's shares at the date of grant. Options granted
generally become exercisable in installments of 20% to 33 1/3% each year
beginning one year from date of grant. Additional options under a former plan
and options assumed in connection with various acquisitions remain outstanding;
however, no further options will be granted under such plans. Additional
information with respect to the number of shares of the Corporation's common
stock which are subject to stock options is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1997 1996
-------------------------- --------------------------
WEIGHTED- WEIGHTED-
AVERAGE PRICE NUMBER AVERAGE PRICE NUMBER
------------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
Options
Outstanding, beginning of year.............. $21.59 5,778,088 $14.76 4,519,581
Granted..................................... 50.66 1,546,240 32.96 2,234,934
Exercised................................... 13.82 (1,186,000) 15.66 (895,304)
Canceled or surrendered..................... 28.81 (55,390) 18.15 (81,124)
---------- ---------
Outstanding, end of year.................... 30.44 6,082,938 21.35 5,778,087
========== =========
Options becoming exercisable during the year.. $34.97 1,740,991 $18.74 1,812,717
====== ========== ====== =========
Options exercisable at end of year............ $24.44 3,879,699 $15.13 3,134,720
====== ========== ====== =========
</TABLE>
Exercise prices ranged from $1.72 to $65.1875 in 1997 and from $1.72 to
$39.875 in 1996. The contractual remaining life of all options was seven years
at December 31, 1997.
The following table summarizes information about stock options
outstanding on December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
RANGE OF WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING CONTRACTUAL LIFE PRICE OUTSTANDING PRICE
----- ----------- ---------------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
1.72-12.75 793,902 4.45 $ 7.25 793,902 $ 7.25
13.01-30.00 2,089,329 5.24 20.58 1,893,744 20.06
30.01-49.00 2,529,790 8.01 36.86 921,846 36.51
49.01-65.19 669,917 9.88 64.44 270,207 64.63
--------- ---------
1.72-65.19 6,082,938 6.80 30.44 3,879,699 24.45
========= =========
</TABLE>
Restricted stock grants aggregating 209,000 shares were awarded in the
fourth quarter of 1997 having a fair value of $7.5 million. Restrictions on the
grants lapse in annual increments over twelve years. The market value of the
restricted stock grants is charged to expense as the restrictions lapse. Amounts
expensed for 1997 and 1996 were $490,000 and $238,000, respectively, and the
ending balance at December 31, 1997 was $6.8 million, which is included in
unearned compensation in shareholders' equity.
Had compensation cost for the Corporation's stock option plans been
consistently determined based upon the fair value at the grant date for awards
under the methodology prescribed under SFAS No. 123, the Corporation's net
income and earnings per share would have been reduced as shown in the table
below. The fair value of each option grant is estimated on the date of grant
using the Black-
B-24
<PAGE> 60
Scholes option-pricing model with the following assumptions in 1997 and 1996,
respectively: expected dividend yield 2.50% and 3.16%; expected volatility of
22.79% and 25.73%; risk-free interest rate of 5.89% and 5.94%; and an expected
life of 4.0 years and 4.55 years. Forfeitures are recognized as they occur.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1997 1996
------ ------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net earnings-- as reported.... $312.1 $266.2
Net earnings-- pro forma...... 305.1 263.3
Earnings per share-- as reported
Basic....................... 2.50 2.24
Diluted..................... 2.43 2.17
Earnings per share-- pro forma
Basic....................... 2.45 2.21
Diluted..................... 2.37 2.14
</TABLE>
Due to the inclusion of option grants since January 1, 1995, the
effects of applying SFAS No. 123 may not be representative of the pro forma
impact in future years.
RETIREE HEALTHCARE AND LIFE INSURANCE. The Corporation provides certain
healthcare and life insurance benefits to retired employees who had completed 20
years of unbroken full-time service immediately prior to retirement and who have
attained age 60 or more. Healthcare benefits are provided partially through an
insurance company (for retirees age 65 and above) and partially through direct
payment of claims.
The following table reflects the Corporation's net periodic
postretirement benefit costs for 1997, 1996, and 1995 which were determined
assuming a discount rate of 7% for 1997 and 1996 and 8% for 1995 and an expected
return on Plan assets of 5%.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost..................................................... $ 330 $ 322 $ 203
Interest cost of accumulated postretirement benefit obligation... 919 938 1,005
Amortization of unrecognized net gain............................ (164) (39) (5)
Return on Plan assets............................................ (458) (534) (363)
------- ------- -------
Total.................................................. $ 627 $ 687 $ 840
======= ======= =======
</TABLE>
The following table sets forth the Plans' funded status and the amounts
reported in the Corporation's consolidated balance sheet:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1997 1996
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Fair value of Plan assets (primarily tax-free municipal
obligations)............................................ $10,968 $10,927
------- -------
Accumulated postretirement benefit obligation (APBO):
Retirees................................................ 9,109 9,326
Fully eligible Plan participants........................ 279 253
Other active Plan participants.......................... 3,608 4,287
------- -------
Total APBO...................................... 12,996 13,866
------- -------
APBO in excess of Plan assets................... $(2,028) $(2,939)
======= =======
Reconciliation of funded status to reported amounts:
Accrued liability included in consolidated balance
sheet, including unfunded portion of transition
obligation............................................ $(6,413) $(6,000)
Unrecognized net gain................................... 4,385 3,061
------- -------
APBO in excess of Plan assets................... $(2,028) $(2,939)
======= =======
</TABLE>
The assumed discount rate used to measure the APBO was 7% at both
December 31, 1997 and 1996. The weighted average healthcare cost trend rate in
1997 was 9%, gradually declining to an ultimate projected rate in 2001 of 5%. A
one percent increase in the assumed healthcare cost trend rates for each future
year would have increased the aggregate of the service and interest cost
components of the 1997 net periodic postretirement benefit cost by $138,000 and
would have increased the APBO as of December 31, 1997 by $1.0 million. Due to
the granting of prior credit for service to the employees of the acquisitions
completed in 1998, the APBO increased by approximately $1.9 million which was
expensed in the period of acquisition.
B-25
<PAGE> 61
ACQUIRED INSTITUTIONS. Certain of the acquired institutions have sponsored
various employee benefit and retirement plans. Such plans have been or are in
the process of being terminated and their employees now participate in the
Corporation's benefit and retirement plans. At December 31, 1997, certain
institutions acquired in 1997 had outstanding plans including defined benefit
pension plans, 401(k) plans, and ESOPs. The liabilities, if any, for such
terminations have been recorded as of December 31, 1997.
Magna Group and its subsidiaries have a non-contributory, defined
benefit plan that will cover all Magna Group's employees who have attained age
21 and completed one year of service. The funded status and amounts recognized
in Magna Group's balance sheet for the plan are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1997 1996
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of ($25,662) and ($20,538) at December 31,
1997 and 1996 respectively ................................. $(26,181) $(20,924)
======== ========
Projected benefit obligation for services rendered to date.. $(34,383) $(26,869)
Plan assets at fair value, primarily listed stocks and
corporate and U.S. debt securities ........................ 35,044 27,262
-------- --------
Plan assets greater than projected benefit obligation ...... 661 393
Unrecognized net gain from past experience different
from that assumed and effect of changes in assumptions ..... (1,993) (830)
Unrecognized net asset at beginning of year, being
recognized over 13.8 years beginning January 1, 1986 ....... (477) (720)
Unrecognized prior year service cost ....................... (1,218) (564)
-------- --------
Accrued pension expense .................................... $ (3,027) $ (1,721)
======== ========
</TABLE>
The weighted average discount rate and the rate of increase in future
compensation levels used in determining the actuarial preset value of the
projected benefit obligation were 7.0% and 5.5%, respectively, for 1997 and
7.25% and 5.5%, respectively, for 1996. The expected long-term rate of return on
plan assets was 8.75% for 1997 and 1996 and 7.5% for 1995.
Net pension expense included the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the year .. $ 2,204 $ 2,006 $ 1,595
Interest cost on projected benefit obligation 2,049 1,833 1,805
Actual return on plan assets .................. (5,759) (4,451) (5,171)
Net amortization and deferral ................. 2,987 2,076 3,066
------- ------- -------
Net pension expense ................. $ 1,481 $ 1,464 $ 1,295
======= ======= =======
</TABLE>
Included in unearned compensation in shareholders' equity at December
31, 1997 and 1996, respectively, is $2.8 million and $3.2 million for a
leveraged ESOP maintained by an acquired institution. At December 31, 1997, the
ESOP held 420,900 unallocated shares of the Corporation's common stock which
will be allocated to the appropriate participants as the related debt is paid.
Effective January 1, 1998, this ESOP was merged with the Corporation's ESOP.
NOTE 15. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CURRENT TAX EXPENSE
Federal ........................... $ 154,929 $ 154,901 $ 133,346
State ............................. 11,123 19,206 12,956
--------- --------- ---------
Total current tax expense . 166,052 174,107 146,302
--------- --------- ---------
DEFERRED TAX (BENEFIT) EXPENSE
Federal ........................... (5,918) (28,011) (2,966)
State ............................. 2,168 (6,447) 2,149
--------- --------- ---------
Total deferred tax benefit ..... (3,750) (34,458) (817)
--------- --------- ---------
Total income tax .......... $ 162,302 $ 139,649 $ 145,485
========= ========= =========
</TABLE>
B-26
<PAGE> 62
Deferred tax assets/liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSETS
Losses on loans and other real estate ............. $108,141 $ 94,159
Postretirement and postemployment benefits ........ 5,273 3,973
Amortization of intangibles ....................... 11,665 10,970
Deferred compensation plans ....................... 18,811 11,750
Merger-related and charter consolidation expenses . 6,340 8,088
Allowance for losses on FHA/VA foreclosure claims . 8,895 12,325
Mortgage servicing rights ......................... 5,642 7,646
Other deferred items .............................. 15,566 22,101
-------- --------
Total deferred tax assets ................. 180,333 171,012
-------- --------
DEFERRED TAX LIABILITIES
Basis difference on FHLB stock .................... 13,614 9,448
Unrealized gain on available for sale securities .. 29,866 17,153
Other deferred items .............................. 23,004 30,424
-------- --------
Total deferred tax liabilities ............ 66,484 57,025
-------- --------
Deferred tax asset, net ................... $113,849 $113,987
======== ========
</TABLE>
The change in the net deferred tax asset during the year is a result of
the addition of net deferred tax assets of acquired companies, the net change in
unrealized gain on available for sale securities, and the current period
deferred tax benefit.
A reconciliation of income tax expense computed at the applicable
statutory income tax of 35% to actual income tax expense is computed below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax ......................... $ 166,055 $ 141,820 $ 152,311
State income taxes, net of federal tax benefit .. 9,531 9,275 10,634
Tax-exempt interest, net ........................ (18,065) (17,444) (18,008)
Other, net ...................................... 4,781 5,998 548
--------- --------- ---------
Applicable income tax ................. $ 162,302 $ 139,649 $ 145,485
========= ========= =========
</TABLE>
Income tax expense (benefit) applicable to securities transactions was
$6.8 million for 1997, $1.35 million for 1996, and ($320,000) for 1995.
NOTE 16. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share," which became effective for reporting periods
ending after December 15, 1997. Under the provisions of SFAS No. 128, primary
and fully diluted earnings per share were replaced with basic and diluted
earnings per share in an effort to simplify the computation of these measures
and align them more closely with the methodology used internationally. Basic
earnings per share is arrived at by dividing net earnings available to common
shareholders by the weighted-average number of common shares outstanding and
does not include the impact of any potentially dilutive common stock
equivalents. The diluted earnings per share calculation method is similar to,
but slightly different from, the previously required fully diluted earnings per
share method and is arrived at by dividing net earnings less dividends on
nonconvertible preferred stock by the weighted-average number of shares
outstanding, adjusted for the dilutive effect of outstanding stock options and
the conversion impact of convertible equity securities. For purposes of
comparability, all prior-period earnings per share data have been restated.
The calculation of net earnings per share follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995
------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
BASIC:
Net earnings ................................... $ 312,297 $ 266,128 $ 290,197
Less preferred dividends .................... (4,942) (6,947) (8,615)
------------- ------------- -------------
Net earnings applicable to common shares ....... $ 307,355 $ 259,181 $ 281,582
============= ============= =============
</TABLE>
B-27
<PAGE> 63
<TABLE>
<S> <C> <C> <C>
Average common shares outstanding .............. 122,811,723 115,793,830 110,255,311
============= ============= =============
Net earnings per common share-- basic .......... $ 2.50 $ 2.24 $ 2.55
============= ============= =============
DILUTED:
Net earnings ................................... $ 312,297 $ 266,128 $ 290,197
Less dividends on nonconvertible preferred
stock ..................................... (3) (3) (1,364)
Elimination of interest on convertible debt . 1,892 2,083 757
------------- ------------- -------------
Net earnings applicable to common shares ....... $ 314,186 $ 268,208 $ 289,590
============= ============= =============
Average common shares outstanding .............. 122,811,723 115,793,830 110,255,311
Stock option adjustment ........................ 1,913,527 2,068,269 1,915,835
Preferred stock adjustment ..................... 3,296,688 4,438,833 4,595,262
Effect of other dilutive securities ............ 1,375,412 1,491,643 906,610
------------- ------------- -------------
Average common shares outstanding .............. 129,397,350 123,792,575 117,673,018
============= ============= =============
Net earnings per common share-- diluted ........ $ 2.43 $ 2.17 $ 2.46
============= ============= =============
</TABLE>
NOTE 17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, the Corporation becomes a party to
various types of financial instruments in order to meet the financing needs of
its customers and to reduce its exposure to fluctuations in interest rates.
These instruments involve, to varying degrees, elements of credit and
interest-rate risk and are not reflected in the accompanying consolidated
financial statements. For these instruments, the exposure to credit loss is
limited to the contractual amount of the instrument. The Corporation follows the
same credit policies in making commitments and contractual obligations as it
does for on-balance-sheet instruments. In addition, controls for these
instruments related to approval, monetary limits, and monitoring procedures are
established by the Corporation's Directors' Loan Committee. The following table
presents the contractual amounts of these types of instruments.
<TABLE>
<CAPTION>
CONTRACT AMOUNT
DECEMBER 31,
---------------------
1997 1996
------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C>
FINANCIAL INSTRUMENTS WHOSE CONTRACT AMOUNTS REPRESENT CREDIT RISK
Commitments to extend credit (excluding credit card plans).......... $2,730 $2,178
Commitments to extend credit under credit card plans................ 2,326 1,905
Standby, commercial, and similar letters of credit.................. 267 262
</TABLE>
Commitments to extend credit are legally binding agreements to extend
credit to customers for specific purposes, at stipulated rates, with fixed
expiration and review dates if the conditions in the agreement are met, and may
require payment of a fee. Since many of the commitments normally expire without
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. Collateral held, if any, varies but may include
accounts receivable, inventory, property, plant and equipment, income producing
properties, or securities. Loan commitments with an original maturity of one
year or less or which are unconditionally cancelable totaled $4.3 billion and
loan commitments with a maturity over one year which are not unconditionally
cancelable totaled $832 million.
Letters of credit are conditional commitments issued by the Corporation
to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The Corporation in some cases holds
various types of collateral to support those commitments for which collateral is
deemed necessary. The outstanding letters of credit expire between 1998 and
2008.
Other outstanding off-balance-sheet instruments are forward contracts,
interest-rate swap agreements, and commitments to purchase or sell when-issued
securities. The following table presents the notional amounts of these types of
instruments.
<TABLE>
<CAPTION>
NOTIONAL AMOUNT
DECEMBER 31,
---------------------
1997 1996
---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C>
FINANCIAL INSTRUMENTS WHOSE NOTIONAL CONTRACT AMOUNTS EXCEED THE
AMOUNTS OF ACTUAL CREDIT RISK
Forward contracts............................................... $333 $ 87
When-issued securities
Commitments to sell........................................... 61 142
Commitments to purchase....................................... 79 108
</TABLE>
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<PAGE> 64
Forward contracts are contracts for delayed delivery of securities or
money market instruments in which the seller agrees to make delivery at a
specified future date of a specified instrument, at a specified price or yield.
Risks arise from the possible inability of the counterparties to meet the terms
of their contracts and from market movements in securities values and interest
rates. The Corporation as seller utilizes short-term forward commitments to
deliver mortgages to protect the Corporation against the risk of rate changes
which could impact the value of mortgage originations to be securitized or
otherwise sold to investors. Such commitments to deliver mortgages generally
have maturities of 90 days or less.
The Corporation has a policy for its use of derivative products,
including interest-rate swaps, which has been approved and is monitored by the
Funds Management Committee and the Board of Directors. The Corporation is not
currently trading derivative products. The policy requires that individual
positions for derivative products shall not exceed $100-million notional amount
and that open positions in the aggregate shall not exceed 10% of consolidated
total assets. Any exceptions to the policy must be approved by the Board of
Directors. The policy requires open positions to be reviewed monthly by the
Funds Management Committee to ensure compliance with established policies. At
December 31, 1997, the Corporation had no interest-rate swap/cap agreements
outstanding. The following table provides a reconciliation of interest-rate
swaps/cap for 1996.
<TABLE>
<CAPTION>
NOTIONAL AMOUNT
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
BALANCE AT JANUARY 1, 1996.................................... $ 530
Maturities.................................................. (200)
Interest-rate swaps/cap of acquired entities terminated at
acquisition as the instruments were no longer effective... (330)
-----
BALANCE AT DECEMBER 31, 1996.................................. $ --
=====
</TABLE>
The impact on the Corporation's net interest income of the
interest-rate swaps/cap outstanding was a net reduction of approximately $1.5
million in 1996 and $2.9 million in 1995. The impact of the termination of the
interest-rate swaps/cap related to an acquired entity was a $1.1 million loss
which was recorded in noninterest expense in 1996.
When-issued securities are commitments to either purchase or sell
securities when, as, and if they are issued. The trades are contingent upon the
actual issuance of the security. These transactions represent conditional
commitments made by the Corporation and risk arises from the possible inability
of the counterparties to meet the terms of their contracts and from market
movements in securities values and interest rates.
MORTGAGE LOAN SERVICING. The Corporation was acting as servicing agent
for residential mortgage loans totaling approximately $10.9 billion at December
31, 1997 compared to $12.2 billion at December 31, 1996. The loans serviced for
others are not included in the Corporation's consolidated balance sheet. The
following table presents a reconciliation of the changes in mortgage servicing
rights for the two years ended December 31, 1997.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1997 1996
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Beginning balance.................... $ 67,490 $ 67,481
Additions............................ 12,767 23,148
Sale of servicing rights............. -- (841)
Write-off of servicing rights........ -- (4,016)
Amortization of servicing rights..... (17,531) (18,282)
-------- --------
Ending balance....................... $ 62,726 $ 67,490
======== ========
</TABLE>
In its capacity as servicer of certain of these loans, the Corporation
is responsible for foreclosure and the related costs of foreclosure. These costs
are estimated each period based on historical loss experience and are shown as
provisions for losses on FHA/VA foreclosure claims in noninterest expense. At
December 31, 1997 and 1996, the Corporation had reserves for these losses of
$33.3 million and $37.2 million, respectively.
In the normal course of business, the Corporation sells mortgage loans
and makes certain limited representations and warranties to the purchaser.
Management does not expect any significant losses to arise from these
representations and warranties.
CONCENTRATIONS OF CREDIT RISK. Through its subsidiary banks' offices in
Tennessee, Mississippi, Florida, Missouri, Arkansas, Louisiana, Alabama, and
Kentucky, the Corporation grants commercial, agricultural, residential, and
consumer loans to customers throughout those states. The amount and percentage
of total loans outstanding by the state in which the subsidiaries were
headquartered at December 31, 1997 were as follows: Tennessee $6.3 billion
(33%); Illinois $2.5 billion (13%); Mississippi $2.4
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<PAGE> 65
billion (13%); Missouri $2.1 billion (11%); Florida $1.6 billion (8%); Kentucky
$1.2 billion (6%); Iowa $1 billion (5%); Arkansas $520 million (3%); Louisiana
$509 million (3%); Texas $348 million (2%); Indiana $344 million (2%) and
Alabama $335 million (2%). In connection with its acquisition of Capital-Miami,
the Corporation now has exposure related to foreign lending of approximately
$207 million (1%). Although the Corporation has a diversified loan portfolio,
the ability of its debtors to honor their contracts is to some extent dependent
upon economic conditions prevailing throughout the above and surrounding areas.
NOTE 18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and fair values of the Corporation's financial
instruments are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------- -----------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and short-term investments ......... $ 1,391,772 $ 1,391,772 $ 1,343,615 $ 1,343,615
Trading account assets .................. 187,419 187,419 260,266 260,266
Loans held for resale ................... 175,699 175,730 113,604 113,658
Investment securities -- available for
sale .................................. 5,840,704 5,840,704 5,667,251 5,667,251
Net loans ............................... 18,816,323 18,940,372 17,561,450 17,799,890
Mortgage servicing rights ............... 62,726 112,962 67,490 106,410
FINANCIAL LIABILITIES
Noninterest-bearing ..................... $ 3,336,274 $ 3,336,274 $ 3,074,922 $ 3,074,922
Interest-bearing ........................ 17,866,873 17,845,088 16,824,850 16,844,175
Short-term borrowings ................... 1,784,347 1,784,347 1,467,437 1,467,437
Short- and medium-term notes ............ 135,000 136,918 400,000 400,411
Federal Home Loan Bank advances ......... 830,252 829,718 1,051,146 1,053,538
Other long-term debt, excluding capital
lease obligations ..................... 734,799 734,048 611,973 619,205
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Forward contracts ....................... -- (1,037) -- 19
</TABLE>
The following methods and assumptions were used by the Corporation in
estimating the fair value for financial instruments:
CASH AND SHORT-TERM INVESTMENTS. The carrying amount for cash and
short-term investments approximates the fair value of the assets. Included in
this classification are cash and due from banks (non-earning assets), federal
funds sold, securities purchased under agreements to resell, and interest-
bearing deposits at financial institutions.
TRADING ACCOUNT ASSETS. These instruments are carried in the
consolidated balance sheet at values which approximate their fair values based
on quoted market prices of similar instruments.
LOANS HELD FOR RESALE. These instruments are carried in the
consolidated balance sheet at the lower of cost or fair value. The fair values
of these instruments are based on subsequent liquidation values of the
instruments which did not result in any significant gains or losses.
INVESTMENT SECURITIES. Fair values of these instruments are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on the quoted values of similar instruments.
LOANS. The fair values of loans are estimated using discounted cash
flow analyses and using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality and risk.
MORTGAGE SERVICING RIGHTS. The fair values of mortgage servicing rights
are estimated using discounted cash flow analyses.
DEPOSITS. The fair values of demand deposits (i.e., checking accounts,
savings accounts, money market deposit accounts, and NOW accounts) are, by
definition, equal to the amount payable on demand at the reporting date (i.e.,
their carrying amount). The fair values of time deposits (i.e., certificates of
deposit, IRAs, investment savings, etc.) are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on these
instruments to a schedule of aggregated expected monthly maturities on time
deposits.
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<PAGE> 66
SHORT-TERM BORROWINGS. The carrying amount of short-term borrowings
(i.e., federal funds purchased, securities sold under agreements to repurchase,
commercial paper, and other short-term borrowings) approximates their fair
values.
SHORT- AND MEDIUM-TERM BANK NOTES. The fair value of these notes is
estimated using discounted cash flow analyses and using current LIBOR-based
indices.
FEDERAL HOME LOAN BANK ADVANCES. The fair value of these advances is
estimated using discounted cash flow analyses and using the FHLB-quoted rates of
borrowing for advances with similar terms.
OTHER LONG-TERM DEBT. The fair value of long-term debt was estimated
from dealer quotes.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS. Fair values of
off-balance-sheet instruments are based on current settlement values for forward
contracts. The fair value of commitments to extend credit and letters of credit
(see Note 17) is not presented, since management believes the fair value to be
insignificant.
NOTE 19. CONTINGENT LIABILITIES
The Corporation and/or various subsidiaries are parties to various
pending civil actions, all of which are being defended vigorously. Additionally,
the Corporation and/or its subsidiaries are parties to various legal proceedings
that have arisen in the ordinary course of business. Management is of the
opinion, based upon present information, including evaluations by outside
counsel, that neither the Corporation's financial position, results of
operations, nor liquidity will be materially affected by the ultimate resolution
of pending or threatened legal proceedings.
The Corporation's five banks (UPC Banks) located in Mississippi (which
were merged into UPB January 1, 1998) are defendants in various related lawsuits
pending in state and federal courts in Mississippi related to the placement of
collateral protection insurance (CPI) by the UPC Banks in the 1980s and early
1990s. Two of the federal actions, which have been consolidated (the
Consolidated Action), purport to have been brought as class actions and include
allegations that premiums were excessive and improperly calculated; coverages
were improper and not disclosed; and improper payments were paid to the UPC
Banks by the insurance companies, allegedly constituting violations of various
state and federal statutes and common law. The CPI programs appear to have been
substantially similar in many respects to CPI programs of other Mississippi
banks, often with the same insurance companies. Consequently, there are now
similar putative class actions pending against various Mississippi banks
(including those against the UPC Banks), various insurance agencies and
companies based upon their CPI programs. The relief sought in the purported
class actions includes actual damages, treble damages under certain statutes,
other statutory damages, and unspecified punitive damages. During the fourth
quarter of 1997, an agreement in principle was reached by the UPC Banks with
attorneys for the putative class to settle the Consolidated Action within
amounts previously established. Final settlement is subject to execution of a
definitive agreement, court approval, and the UPC Banks' acceptance of the
number of opt-outs from the class settlement. Other subsidiaries of the
Corporation have been involved in similar litigation relating to CPI on mobile
home loans. One such suit was filed as a putative class action in June 1995
against Leader Federal Bank for Savings (Leader Federal) and eighteen other
unrelated defendants, requesting $200 million in punitive damages against each
defendant. Another individual suit filed in June 1995 against Leader Federal as
a counterclaim to a foreclosure suit demanded judgment for compensatory damages
and punitive damages of $10 million. An agreement to settle these cases was
reached, and court approval obtained, in the fourth quarter of 1996, within
amounts previously established. Payments to class members were substantially
completed during 1997. Two other CPI-related actions were filed against Leader
Federal, a subsidiary, and an unrelated insurance company in January 1996. One
such case demanded compensatory damages of $5,000 and punitive damages of $20
million, while the other sought $10,000 in compensatory damages and $50 million
in punitive damages. These suits were settled during 1997 for nominal amounts.
B-31
