<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
July 10, 1998 (July 1, 1998)
Date of Report (Date of earliest event reported)
UNION PLANTERS CORPORATION
-------------------------------------------------------
(Exact name of registrant as specified in charter)
TENNESSEE 1-10160 62-0859007
- ------------------------ ------------ -------------------
(State of incorporation) (Commission (I.R.S. Employer
File Number) Identification No.)
UNION PLANTERS ADMINISTRATIVE CENTER
7130 GOODLETT FARMS PARKWAY
MEMPHIS, TENNESSEE 38018
----------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (901) 580-6000
------------------
Not Applicable
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Union Planters Corporation (the Corporation or UPC) consummated the
acquisition of Magna Group, Inc. (MGR) on July 1, 1998, through the merger of
MGR with and into Union Planters Holding Corporation (UPHC), a corporation
organized and existing under the laws of the state of Tennessee and a wholly
owned subsidiary of UPC, with the effect that UPHC will be the surviving
corporation of the merger. Prior to the merger, MGR was a publicly traded bank
holding company headquarted in St. Louis, Missouri, and the parent company of
Magna Bank, National Association, a national banking association which operates
139 community banking locations serving Missouri, Illinois, and Iowa. At March
31, 1998, MGR had total assets of $7.3 billion, total loans of $4.4 billion,
total deposits of $5.5 billion, and total shareholders' equity of $611 million.
On May 1, 1998, MGR consummated the acquisition of Charter Financial, Inc.
(Charter) and its subsidiary, Charter Bank, S.B. Charter is located in Sparta,
Illinois, and had at the time of consummation total assets of approximately $408
million, total deposits of approximately $308 million, and total shareholders'
equity of approximately $67 million. The Charters acquisition was accounted for
as a purchase.
In determining the amount of consideration paid in the transaction, the
Corporation took into account the factors described in the subsections headed
"Background of and Reasons for the Merger" and "Opinion of UPC's Financial
Advisor" found on pages 21 and 31, respectively, of the Joint Proxy Statement
dated May 26, 1998 included in the Corporation's Registration Statement on Form
S-4 (Registration No. 333-49617) which disclosure is hereby incorporated by
reference as part of this Report.
The merger of the Corporation and MGR is being accounted for as a pooling
of interests and was consummated by the Corporation issuing .9686 shares of its
$5 par value Common Stock in exchange for each outstanding common share of MGR.
The total number of Union Planters Corporation's $5 par value Common Stock
issued in the transaction was 33.4 million.
2
<PAGE> 3
ITEM 5. OTHER INFORMATION
COMPLETED ACQUISITIONS. On July 1, 1998, the Corporation also consummated
the acquisition of Peoples First Corporation (Peoples) in Paducah, Kentucky, and
its subsidiaries, including Peoples First National Bank, Paducah, Kentucky.
Peoples, a Kentucky corporation, is a bank holding company. Peoples conducts a
complete range of commercial and personal banking activities in Western Kentucky
and Northwestern Tennessee. As of March 31, 1998, Peoples had total assets of
approximately $1.5 billion, total loans of approximately $1.1 billion, total
deposits of approximately $1.2 billion, and total shareholders' equity of
approximately $157.3 million.
The merger of the Corporation and Peoples was consummated by the
Corporation issuing .6 shares of its $5 par value Common Stock in exchange for
each outstanding common share of Peoples. The total number of shares of Union
Planters Corporation's $5 par value Common Stock issued in the transaction was
6.0 million.
On July 7, 1998 and July 8, 1998, the Corporation consummated the
acquisitions of CB&T, Inc. and Capital Savings Bancorp, Inc., respectively.
CB&T Inc., a bank holding company with total assets of approximately $271
million, is headquartered in McMinnville, Tennessee and is the parent company
of City Bank and Trust Company. Capital Savings Bancorp, Inc., a unitary
savings and loan company with total assets of approximately $232 million, is
headquartered in Jefferson City, Missouri and is the parent company of Capital
Savings Bank, FSB.
RECENTLY ANNOUNCED ACQUISITIONS. On July 1, 1998 and July 2, 1998, the
Corporation announced it had entered into definitive agreements to acquire
LaPlace Bancshares, Inc. and First Mutual Bancorp, Inc., respectively.
Reference is made to Note 2 to the pro forma financial information included in
this report on Form 8-K and to Exhibits 99(b) and 99(c) for additional
information regarding these acquisitions.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION, AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
<TABLE>
<CAPTION>
(1) Magna Group, Inc. Consolidated Financial Statements for the years
ended December 31, 1997, 1996, and 1995: Page
Page
----
<S> <C>
Consolidated Statements of Income for the years ended
December 31, 1997, 1996, and 1995 1
Consolidated Balance Sheets as of
December 31, 1997 and 1996 2
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1997, 1996, and 1995 3
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996, and 1995 4
Notes to the Consolidated Financial Statements 5
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C>
(2) Magna Group, Inc. Unaudited Interim Consolidated Financial
Statements as of and for the three months ended March 31, 1998
and 1997
Condensed Consolidated Balance Sheets as of 1
March 31, 1998 and December 31, 1997
Condensed Consolidated Statements of Income 2
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 3
Notes to Condensed Consolidated Financial Statements 4
</TABLE>
<TABLE>
<S> <C>
(B) PRO FORMA FINANCIAL INFORMATION
Union Planters 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. 1
Introduction
Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 1998 2
Unaudited Pro Forma Consolidated Statement of Earnings for the three
months ended March 31, 1998 3
Unaudited Pro Forma Consolidated Statement of Earnings for the year
ended December 31, 1997 4
Unaudited Pro Forma Consolidated Statement of Earnings for the year
ended December 31, 1996 5
Unaudited Pro Forma Consolidated Statement of Earnings for the year
ended December 31, 1995 6
Notes to Unaudited Pro Forma Consolidated Financial Statement 7
</TABLE>
(C) EXHIBITS
(2) Plan of acquisition, reorganization, arrangement, liquidation,
or succession
Agreement and Plan of Reorganization by and between Magna Group,
Inc. and Union Planters Corporation dated as of February 22,
1998 is incorporated herein by reference to Appendix A of Union
Planters Corporation's Joint Proxy Statement dated May 26, 1998
included in Union Planters
4
<PAGE> 5
Corporation's Registration Statement on Form S-4
(Registration No. 333-49617) which is incorporated by
reference as part of this report.
23 Consent of Ernst & Young.
99 (a) Union Planters Corporation press release dated July 1, 1998
announcing the consummation of the Magna Group, Inc. and
Peoples First Corporation acquisitions.
99 (b) Joint Press Release announcing First Mutual Bancorp to
Affiliate with Union Planters Corporation.
99 (c) Union Planters Corporation Press Release announcing its
intention to buy back stock to be issued in the First Mutual
Bancorp acquisition.
SIGNATURE
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 hereunto duly authorized.
Union Planters Corporation
--------------------------------------
(Registrant)
Date: July 10, 1998 /s/ M. Kirk Walters
-------------------------- --------------------------------------
M. Kirk Walters
Senior Vice President, Treasurer,
and Chief Accounting Officer
5
<PAGE> 6
Item 7(a)(1) Financial Statements of Businesses Acquired
Magna Group, Inc. Consolidated Financial Statements for
the years ended December 31, 1997, 1996, and 1995
<PAGE> 7
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans.......... $370,904 $285,151 $266,146
Securities:
Taxable......................... 103,130 93,029 71,853
Tax-exempt...................... 11,484 7,141 7,266
-------- -------- --------
114,614 100,170 79,119
Other, principally federal funds
sold.............................. 4,646 2,514 1,903
-------- -------- --------
Total Interest Income....... 490,164 387,835 347,168
INTEREST EXPENSE
Deposits............................ 204,261 158,188 138,025
Federal funds purchased............. 5,480 3,006 3,463
Repurchase agreements............... 29,945 21,481 16,147
Other short-term borrowings......... 5,275 4,325 623
Long-term debt...................... 6,175 6,748 6,059
-------- -------- --------
Total Interest Expense...... 251,136 193,748 164,317
-------- -------- --------
NET INTEREST INCOME..................... 239,028 194,087 182,851
Provision for Loan Losses............... 28,947 10,280 9,992
-------- -------- --------
Net Interest Income After
Provision for Loan
Losses.................... 210,081 183,807 172,859
NONINTEREST INCOME
Service charges on deposits......... 26,104 23,443 22,487
Trust services...................... 12,643 9,382 8,638
Credit card services................ 7,227 6,013 5,801
Brokerage and investment services... 5,773 3,341 2,361
Securities gains, net............... 2,584 817 356
Other............................... 16,951 7,362 8,220
-------- -------- --------
Total Noninterest Income.... 71,282 50,358 47,863
NONINTEREST EXPENSE
Employee compensation and other
benefits.......................... 88,311 69,142 72,993
Net occupancy....................... 19,327 17,980 17,677
Equipment........................... 9,767 8,731 8,967
FDIC insurance premiums............. 808 554 4,342
Goodwill and other intangibles...... 8,763 2,923 2,241
Other............................... 45,661 39,056 39,997
-------- -------- --------
Total Noninterest Expense... 172,637 138,386 146,217
-------- -------- --------
INCOME BEFORE INCOME TAXES.............. 108,726 95,779 74,505
Income Tax Expense...................... 36,051 32,640 23,283
-------- -------- --------
NET INCOME.............................. $ 72,675 $ 63,139 $ 51,222
======== ======== ========
AVERAGE SHARES OUTSTANDING
Basic............................... 32,090 28,183 27,704
Diluted............................. 33,749 29,819 28,736
PER SHARE DATA
Net income:
Basic........................... $2.26 $2.24 $1.85
Diluted......................... 2.21 2.19 1.81
Dividends declared.................. 1.00 .88 .80
See accompanying notes.
</TABLE>
1
<PAGE> 8
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
DECEMBER 31
-----------------------
1997 1996
---- ----
(IN THOUSANDS, EXCEPT SHARES)
<S> <C> <C>
ASSETS
Cash and due from banks............. $ 247,932 $ 180,412
Federal funds sold.................. 48,202 34,068
Securities:
Held-to-maturity (estimated
market value of $141,182 and
$156,993, respectively)....... 137,690 154,729
Available-for-sale (at estimated
market value)................. 1,850,932 1,501,178
Loans, net of unearned income....... 4,483,812 3,415,309
Reserve for loan losses......... (59,439) (45,382)
---------- ----------
Net Loans................... 4,424,373 3,369,927
Premises and equipment.............. 118,587 81,815
Accrued interest receivable......... 46,736 39,387
Goodwill and other intangibles...... 121,817 29,310
Foreclosed property................. 1,950 2,906
Other assets........................ 76,750 64,977
---------- ----------
Total Assets................ $7,074,969 $5,458,709
========== ==========
LIABILITIES
Deposits:
Noninterest bearing............. $ 711,163 $ 575,504
Interest bearing................ 4,724,832 3,622,272
---------- ----------
Total Deposits.............. 5,435,995 4,197,776
Federal funds purchased............. 92,200 25,500
Repurchase agreements............... 642,301 508,948
Other short-term borrowings......... 111,102 99,487
Long-term debt...................... 92,056 77,577
Other liabilities................... 74,962 65,460
---------- ----------
Total Liabilities........... 6,448,616 4,974,748
Commitments and contingent liabilities
STOCKHOLDERS' EQUITY
Preferred stock..................... 40 40
Common stock, $2 par value--
80,000,000 shares authorized;
33,799,995 and 28,954,500 shares
issued, respectively.............. 67,600 57,909
Capital surplus..................... 336,544 230,258
Retained earnings................... 256,611 215,744
Treasury stock--937,900 and 745,000
shares, respectively, at cost..... (32,703) (17,605)
Unearned restricted stock awards.... (4,835) --
Net unrealized gains (losses) on
securities........................ 3,096 (2,385)
---------- ----------
Total Stockholders'
Equity.................... 626,353 483,961
---------- ----------
Total Liabilities and
Stockholders' Equity...... $7,074,969 $5,458,709
========== ==========
See accompanying notes.
</TABLE>
2
<PAGE> 9
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
PREFERRED STOCK COMMON STOCK
---------------- ----------------- CAPITAL RETAINED
SHARES AMOUNT SHARES AMOUNT SURPLUS EARNINGS
------ ------ ------ ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995.... 2 $41 27,512 $55,025 $203,693 $148,417
Net income.................. 51,222
Cash dividends declared..... (22,201)
Issuance of common stock:
Conversion of capital
notes.................... 111 221 1,671
Various stock issuance
plans.................... 375 750 6,224
Change in net unrealized
gains (losses) on
securities.................
--- --- ------ ------- -------- --------
BALANCE AT DECEMBER 31, 1995.. 2 41 27,998 55,996 211,588 177,438
Net income.................. 63,139
Cash dividends declared..... (24,833)
Issuance of common stock:
Conversion of capital
notes and debentures..... 144 287 2,371
Acquisitions.............. 550 1,100 10,867
Various stock issuance
plans.................... 263 526 5,432
Purchase of class B stock... (1)
Change in net unrealized
gains (losses) on
securities.................
Purchase of treasury
stock......................
--- --- ------ ------- -------- --------
BALANCE AT DECEMBER 31, 1996.. 2 40 28,955 57,909 230,258 215,744
Net income.................. 72,675
Cash dividends declared..... (31,808)
Issuance of common stock:
Conversion of capital
notes and debentures..... 185 370 3,215
Acquisitions.............. 4,293 8,586 92,876
Various stock issuance
plans.................... 367 735 10,195
Change in net unrealized
gains (losses) on
securities.................
Amortization of restricted
stock awards...............
Purchase of treasury
stock......................
--- --- ------ ------- -------- --------
BALANCE AT DECEMBER 31, 1997.. 2 $40 33,800 $67,600 $336,544 $256,611
=== === ====== ======= ======== ========
<CAPTION>
NET
UNEARNED UNREALIZED TOTAL
TREASURY STOCK RESTRICTED GAINS STOCK-
---------------- STOCK (LOSSES) ON HOLDERS'
SHARES AMOUNT AWARDS SECURITIES EQUITY
------ ------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995.... -- $ -- $ -- $(35,864) $371,312
Net income.................. 51,222
Cash dividends declared..... (22,201)
Issuance of common stock:
Conversion of capital
notes.................... 1,892
Various stock issuance
plans.................... 6,974
Change in net unrealized
gains (losses) on
securities................. 36,845 36,845
---- -------- ------- -------- --------
BALANCE AT DECEMBER 31, 1995.. -- -- -- 981 446,044
Net income.................. 63,139
Cash dividends declared..... (24,833)
Issuance of common stock:
Conversion of capital
notes and debentures..... 2,658
Acquisitions.............. 11,967
Various stock issuance
plans.................... 5,958
Purchase of class B stock... (1)
Change in net unrealized
gains (losses) on
securities................. (3,366) (3,366)
Purchase of treasury
stock...................... (745) (17,605) (17,605)
---- -------- ------- -------- --------
BALANCE AT DECEMBER 31, 1996.. (745) (17,605) -- (2,385) 483,961
Net income.................. 72,675
Cash dividends declared..... (31,808)
Issuance of common stock:
Conversion of capital
notes and debentures..... 3,585
Acquisitions.............. 745 17,605 119,067
Various stock issuance
plans.................... (5,611) 5,319
Change in net unrealized
gains (losses) on
securities................. 5,481 5,481
Amortization of restricted
stock awards............... 776 776
Purchase of treasury
stock...................... (938) (32,703) (32,703)
---- -------- ------- -------- --------
BALANCE AT DECEMBER 31, 1997.. (938) $(32,703) $(4,835) $ 3,096 $626,353
==== ======== ======= ======== ========
See accompanying notes.
</TABLE>
3
<PAGE> 10
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.......................... $ 72,675 $ 63,139 $ 51,222
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses....... 28,947 10,280 9,992
Provision for losses on
foreclosed property........... 320 341 931
Depreciation, amortization and
accretion..................... 22,619 13,735 12,405
Amortization of securities
premiums and accretion of
discounts..................... 2,798 (385) 287
Deferred income tax expense..... 4 1,352 2,154
Securities gains, net........... (2,584) (817) (356)
Gain on sale of other assets.... (2,015) -- --
Gain on sale of branch
offices....................... (528) -- --
Increase in other assets........ (13,466) (10,627) (13,621)
Increase (decrease) in other
liabilities................... (6,646) 5,964 7,706
----------- --------- ---------
Net Cash Provided by Operating
Activities............................ 102,124 82,982 70,720
INVESTING ACTIVITIES
Proceeds from maturities of
held-to-maturity securities....... 19,001 12,421 19,676
Proceeds from sales of
held-to-maturity securities....... -- 89 7,194
Purchases of held-to-maturity
securities........................ (1,397) (30,405) (16,169)
Proceeds from maturities of
available-for-sale securities..... 897,469 450,713 252,189
Proceeds from sales of
available-for-sale securities..... 600,963 117,639 93,948
Purchases of available-for-sale
securities........................ (1,675,906) (756,637) (442,886)
Net increase in loans............... (178,993) (179,030) (249,968)
Proceeds from sales of foreclosed
property.......................... 5,921 8,535 9,775
Purchases of premises and
equipment......................... (20,699) (7,063) (18,164)
Cash and cash equivalents of
acquired institutions, net of cash
paid.............................. (18,989) (2,233) --
Sale of branch offices.............. (8,550) -- --
----------- --------- ---------
Net Cash Used in Investing Activities... (381,180) (385,971) (344,405)
FINANCING ACTIVITIES
Net increase in deposits............ 302,316 173,700 215,810
Cash dividends...................... (31,808) (24,833) (22,201)
Net increase (decrease) in federal
funds purchased................... 13,850 (16,290) (88,080)
Net increase in repurchase
agreements........................ 133,467 139,272 42,216
Net increase (decrease) in other
short-term borrowings............. (81,292) 10,063 35,000
Proceeds from the issuance of
long-term debt.................... 50,000 25,000 25,000
Payments of long-term debt.......... (285) (8) (64)
Purchases of treasury stock......... (32,703) (17,605) --
Other, net.......................... 7,165 5,957 6,287
----------- --------- ---------
Net Cash Provided by Financing
Activities............................ 360,710 295,256 213,968
----------- --------- ---------
Increase (Decrease) in Cash and Cash
Equivalents....................... 81,654 (7,733) (59,717)
Cash and Cash Equivalents at Beginning
of Year............................... 214,480 222,213 281,930
----------- --------- ---------
Cash and Cash Equivalents at End of
Year.................................. $ 296,134 $ 214,480 $ 222,213
=========== ========= =========
See accompanying notes.
</TABLE>
4
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1 ORGANIZATION
Magna Group, Inc. ("Magna"), a Delaware corporation, was organized in 1974
and is a registered bank holding company under the Federal Bank Holding Company
Act of 1956, as amended. Magna owns, indirectly, all of the capital stock of
Magna Bank, National Association (the "Affiliate Bank"), a national banking
association which operates 139 community banking locations serving Illinois,
Iowa and Missouri. Magna also owns certain brokerage, insurance and investment
subsidiaries.
As discussed in Note 3 to the Consolidated Financial Statements, Magna
anticipates completing the acquisition of Charter Financial, Inc. ("Charter")
in the second quarter of 1998. Charter is a thrift holding company, operating
eight community banking locations in Illinois.
Magna primarily serves consumers and small-to-midsized businesses in its
market as a "super community bank," a company whose business centers on a
customer-focused community banking orientation, has cost efficiencies that do
not compromise quality and offers a broad product line that permits a
full-service customer relationship.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Magna and its subsidiaries conform
to generally accepted accounting principles. A description of the more
significant of those policies follows.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Magna and its
subsidiaries. Significant intercompany accounts and transactions have been
eliminated in consolidation. Certain amounts for 1996 and 1995 were reclassified
to conform with statement presentation for 1997.
USE OF ESTIMATES
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. Actual results could differ from those estimates.
SECURITIES
Magna categorizes each security within its portfolio into one of three
permitted classifications at the time of purchase and reevaluates such
designation as of each balance sheet date.
Held-to-maturity securities are those which Magna has the ability and
positive intent to hold to maturity. Such securities are carried at cost,
adjusted for amortization of premiums and accretion of discounts. The adjusted
cost of specific securities is used to compute gains and losses on sales or
redemptions.
Available-for-sale securities include all debt securities not classified as
held-to-maturity or trading and marketable equity securities not classified as
trading. Available-for-sale securities are stated at estimated market value.
Unrealized holding gains and losses are reported, net of taxes, as a separate
component of stockholders' equity until realized. Realized gains and losses are
computed based on cost, adjusted for amortization of premiums and accretion of
discounts and are included in other noninterest income.
Trading securities, including options used in trading activities, are
purchased with the intent for resale within a short period of time in
anticipation of short-term market movements, and are stated at estimated market
value. Gains and losses, both realized and unrealized, on trading securities are
included in other noninterest income.
Dividends and interest income on all securities are included in interest
income.
5
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
LOANS
Interest income on loans is accrued and credited to income based on the
principal amount outstanding. The accrual of interest income generally is
discontinued when a loan becomes 90 days past due as to principal or interest
unless, in management's judgment, the loan is well secured and in the process of
collection. When interest accruals are discontinued, unpaid interest credited to
income in the current year is reversed, and interest accrued in prior years is
charged to the reserve for loan losses. Interest income on these loans is
reported on the cash basis as it is collected.
RESERVE FOR LOAN LOSSES
The reserve for loan losses is increased by provisions for losses charged to
expense and reduced by loans charged off, net of recoveries. The reserve is
maintained at a level considered adequate to provide for potential loan losses
based on management's evaluation of the anticipated impact on the loan portfolio
of current economic conditions, changes in the character and size of the
portfolio, past loan loss experience, potential loan losses on loans to specific
customers or industries, and other pertinent factors that management believes
require current recognition in estimating possible loan losses.
Specific reserves are established for any impaired commercial, commercial
real estate and real estate construction loans for which the recorded investment
in the loan exceeds the measured value of the loan. Loans subject to impairment
valuation are defined as nonaccrual loans exclusive of smaller balance
homogeneous loans such as home equity, credit cards, installment and 1-4 family
residential loans. The value of the loan is determined based on the present
value of expected future cash flows, the market price of the loan or the fair
value of the underlying collateral, if the loan is collateral dependent.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are principally computed using
straight-line methods over the estimated useful lives of the assets.
INTANGIBLE ASSETS
Intangible assets consist principally of goodwill, which represents the
excess of cost over fair value of net assets acquired in business combinations
accounted for under the purchase method. Intangible assets are amortized on a
straight-line basis over the estimated period to be benefited, ranging from 8 to
15 years. The carrying value of goodwill is reviewed periodically for
impairment.
FORECLOSED PROPERTY
Foreclosed property consists of assets acquired through foreclosure or deed
in lieu of foreclosure. Foreclosed property is valued at the lower of cost or
estimated market value, net of estimated sale expenses. Any loss incurred at the
time of acquisition or reclassification is charged to the reserve for loan
losses. Losses resulting from disposition or periodic reevaluation of foreclosed
property are charged to expense in the current period.
TRUST ASSETS
Assets held by the Affiliate Bank in fiduciary or agency capacities are not
included in the consolidated financial statements. Trust services income is
reported on the accrual method.
INTEREST RATE SWAPS
Magna periodically enters into interest rate swap agreements as part of its
overall asset/liability management strategy. Such agreements effectively modify
the interest characteristics of certain loans, investments or deposit
liabilities. These agreements involve the exchange of floating and fixed rate
interest amounts over the life of the agreement without an exchange of the
underlying principal amount. The differential to be paid or received is accrued
as interest rates change and recognized as an adjustment to interest income or
interest expense as appropriate. The related amount payable or receivable from
counterparties is included in other assets or other
6
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
liabilities. Deferred gains on terminated interest rate swap agreements are
included in other liabilities and are amortized over the remaining original life
of the terminated agreement. Magna had no interest rate swaps at December 31,
1997.
INCOME TAXES
Income taxes are recorded under the asset and liability method in which
deferred income taxes are recognized as a result of temporary differences
between the financial reporting basis and the tax basis of the assets and
liabilities of Magna.
Magna and its subsidiaries file a consolidated federal income tax return.
Each subsidiary provides for income taxes on a separate return basis, and remits
to Magna amounts determined to be currently payable.
NET INCOME PER SHARE
Basic net income per share is computed by dividing net income after
deducting preferred stock dividends, by the weighted average number of
outstanding common shares, net of unearned restricted common shares issued.
Diluted net income per share is computed by increasing average common shares and
common share equivalents by the assumed conversion into common stock of all
outstanding convertible debt instruments and assumed exercise of stock options.
Net income for diluted net income per share is adjusted for interest expense and
amortization of origination costs, net of related tax effects, on the
convertible debt instruments and preferred stock dividends. Such items are
excluded from the computation when their effects would be antidilutive.
STOCK BASED COMPENSATION
Magna grants stock options for a fixed number of shares to employees with an
exercise price equal to the fair value of the shares at the date of grant. Magna
also grants restricted stock for a fixed number of shares, at no cost, to
certain officers and key employees. Magna accounts for stock option and
restricted stock grants in accordance with Accounting Principles Board Opinion
No. 25 (APB 25), "Accounting for Stock Issued to Employees," and, accordingly,
recognizes no compensation expense for the stock option grants but does
recognize compensation expense related to restricted stock grants.
CASH FLOW INFORMATION
For purposes of the statements of cash flows, Magna considers cash and
demand deposits at other financial institutions and federal funds sold with
maturities not exceeding 90 days to be cash equivalents. Cash paid for interest
and income taxes, as well as significant non-cash investing activities, were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest.................................... $245,154 $192,801 $156,828
Income taxes................................ 33,085 31,830 17,977
Loans transferred to foreclosed property.... 4,645 5,698 8,363
</TABLE>
3 CHANGES IN ACCOUNTING METHODS
On January 1, 1996, Magna adopted Financial Accounting Standards No. 122
(FAS No. 122), "Accounting for Mortgage Servicing Rights." FAS No. 122
requires capitalization of purchased mortgage servicing rights, as well as
internally originated servicing rights. These mortgage servicing rights are
amortized over the estimated servicing period of the related loans. The adoption
of the standard had no material impact on Magna's financial position or results
of operations.
In 1996, Magna adopted the provisions of Financial Accounting Standards No.
123 (FAS No. 123), "Accounting for Stock Based Compensation." FAS No. 123
prescribes accounting and reporting standards for all stock based compensation
plans, including employee stock options, restricted stock, employee stock
purchase plans and stock appreciation rights. The standard encourages companies
to adopt the fair value method for
7
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
expense recognition in connection with stock based compensation plans but
permits entities to follow existing rules as provided under APB 25. Magna has
elected to follow APB 25 which provides for the intrinsic value method for
expense recognition.
During 1996, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 125 (FAS No. 125), "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
requires an entity to recognize financial and servicing assets it controls and
the liabilities it has incurred and to derecognize financial assets when control
has been surrendered in accordance with the criteria provided in the standard.
Magna began applying the new rules effective January 1, 1997, other than those
deferred by Financial Accounting Standards No. 127 (FAS No. 127), "Deferral of
the Effective Date of Certain Provisions of FAS Statement No. 125--An amendment
of FAS Statement No. 125," which will be applied beginning in the first quarter
of 1998. The adoption of FAS No. 125 had no material impact on Magna's financial
position or results of operations in 1997. Based on current circumstances, Magna
believes the application of those provisions deferred by FAS No. 127, also will
have no significant impact on Magna's financial position or results of
operations.
Financial Accounting Standards No. 128 (FAS No. 128), "Earnings per Share"
was effective for Magna December 31, 1997. FAS No. 128 replaced the calculation
of primary and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the FAS No. 128
requirements.
Financial Accounting Standards No. 129 (FAS No. 129), "Disclosure of
Information About Capital Structure" was effective for Magna December 31, 1997.
FAS No. 129 requires the disclosure of certain information about a company's
capital structure. The adoption of FAS No. 129 had no impact on Magna's
disclosures regarding its capital structure.
In 1997, the Financial Accounting Standards Board issued Statement No. 130
(FAS No. 130), "Reporting Comprehensive Income." FAS No. 130 establishes new
rules for the reporting and display of comprehensive income and its components.
Magna will adopt the provisions of FAS No. 130 in the first quarter of 1998, and
there will be no impact on Magna's net income or stockholders' equity.
In 1997, the Financial Accounting Standards Board issued Statement No. 131
(FAS No. 131), "Disclosures about Segments of an Enterprise and Related
Information." FAS No. 131 changes the basis on which companies report
information about operating segments in annual financial statements and requires
new disclosures regarding operating segments in interim financial statements.
Because the provisions of this standard relate only to informational
disclosures, the adoption of FAS No. 131, which will occur in the first quarter
of 1998, will have no impact on Magna's financial position or results of
operations.
4 ACQUISITIONS
In the fourth quarter of 1997, Magna entered into a definitive agreement to
acquire Charter. The agreement provides for the issuance of up to 2,649,259
shares of common stock of Magna, which is based on an exchange ratio of .5751
shares of Magna's common stock for each share of Charter common stock. Charter,
with assets of approximately $382,000 as of December 31, 1997, is headquartered
in Sparta, Illinois. The acquisition is expected to be accounted for as a
purchase and is expected to be completed in the second quarter of 1998.
In the first quarter of 1997, Magna completed the acquisition of Homeland
Bankshares Corporation ("Homeland"). A total of 5,038,161 shares of common
stock of Magna were issued and approximately $92,000 in cash was paid in
connection with the acquisition, which was accounted for as a purchase. At
acquisition, Homeland had approximately $1,300,000 in assets.
The following unaudited pro forma financial information contains the results
of operations for the years ended December 31, 1997 and 1996, assuming the
acquisition of Homeland had occurred on January 1, 1996. The pro
8
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
forma amounts are not necessarily indicative of the financial results that would
have actually occurred had the acquisition taken place on January 1, 1996, nor
are they necessarily indicative of future consolidated operations of Magna.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net interest income.............. $246,378 $238,142
Net income....................... 71,548 68,634
Net income per share:
Basic........................ $2.18 $2.10
Diluted...................... 2.13 2.06
</TABLE>
In the first quarter of 1996, Magna completed the acquisition of River Bend
Bancshares, Inc. ("River Bend"). A total of 550,207 shares of common stock of
Magna were issued and approximately $12,400 in cash was paid in connection with
the acquisition, which was accounted for as a purchase. At acquisition, River
Bend had approximately $160,000 in assets.
5 RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The Affiliate Bank is required to maintain average reserve balances with the
Federal Reserve Bank. The average amount of those reserve balances for the years
ended December 31, 1997 and 1996 was approximately $50,333 and $48,403,
respectively.
6 SECURITIES
The carrying value, gross unrealized gains and losses and estimated market
value of held-to-maturity securities at December 31 were as follows:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
-------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government agencies......................... $ 26,806 $ -- $ 627 $ 26,179
State and municipal................................................ 107,120 4,517 398 111,239
Other.............................................................. 3,764 -- -- 3,764
-------- ------ ------ --------
$137,690 $4,517 $1,025 $141,182
======== ====== ====== ========
<CAPTION>
1996
----------------------------------------------------------
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
-------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government agencies......................... $ 40,338 $ -- $1,482 $ 38,856
State and municipal................................................ 110,627 3,954 208 114,373
Other.............................................................. 3,764 -- -- 3,764
-------- ------ ------ --------
$154,729 $3,954 $1,690 $156,993
======== ====== ====== ========
</TABLE>
9
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The amortized cost, gross unrealized gains and losses and estimated market
value of available-for-sale securities at December 31 were as follows:
<TABLE>
<CAPTION>
1997
------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government agencies..................... $ 267,925 $ 938 $1,146 $ 267,717
State and municipal............................................ 168,118 5,355 12 173,461
Mortgage backed................................................ 1,339,599 5,707 5,718 1,339,588
Other.......................................................... 70,142 24 -- 70,166
---------- ------- ------ ----------
$1,845,784 $12,024 $6,876 $1,850,932
========== ======= ====== ==========
<CAPTION>
1996
-------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government agencies..................... $ 771,459 $1,347 $ 5,383 $ 767,423
State and municipal............................................ 23,020 413 41 23,392
Mortgage backed................................................ 680,537 3,419 4,462 679,494
Other.......................................................... 30,150 1,059 340 30,869
---------- ------ ------- ----------
$1,505,166 $6,238 $10,226 $1,501,178
========== ====== ======= ==========
</TABLE>
The carrying value and estimated market value of held-to-maturity securities
at December 31, 1997, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
ESTIMATED
CARRYING MARKET
VALUE VALUE
-------- --------
<S> <C> <C>
Due in 1 year or less........................................... $ 6,232 $ 6,242
Due after 1 year through 5 years................................ 72,699 73,705
Due after 5 years through 10 years.............................. 37,750 39,517
Due after 10 years.............................................. 21,009 21,718
-------- --------
$137,690 $141,182
======== ========
</TABLE>
Securities with carrying values of $1,505,296 and $1,308,940 at December 31,
1997 and 1996, respectively, were pledged to secure public deposits and for
other purposes.
The amortized cost and estimated market value of available-for-sale
securities at December 31, 1997, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
---------- ----------
<S> <C> <C>
Due in 1 year or less....................................... $ 206,352 $ 205,782
Due after 1 year through 5 years............................ 114,370 115,051
Due after 5 years through 10 years.......................... 21,046 21,312
Due after 10 years.......................................... 164,417 169,199
Mortgage backed securities.................................. 1,339,599 1,339,588
---------- ----------
$1,845,784 $1,850,932
========== ==========
</TABLE>
10
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
In December 1995, Magna implemented provisions of the Financial Accounting
Standards Board Special Report (FAS Special Report), "A Guide to Implementation
of Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities." Upon adoption, and in accordance with the provisions of the FAS
Special Report, Magna reassessed its securities classifications and, based on
this reassessment, reclassified securities with a book value of approximately
$135,963 from held-to-maturity to available-for-sale. Upon transfer, market
value exceeded carrying value by approximately $2,830, resulting in an after-tax
increase to stockholders' equity of approximately $1,698. The transfer had no
effect on 1995 earnings. There were no securities classified as held-to-maturity
during 1997 or 1996 that were transferred to available-for-sale securities.
Magna did not sell any held-to-maturity securities during 1997. During the
years ended December 31, 1996 and 1995, Magna sold held-to-maturity securities
with carrying values of $89 and $7,195, respectively. Such securities were sold
as a result of management's decision to liquidate certain "odd-lot" holdings
and to assimilate the portfolios of entities that were acquired in previous
years.
The following table presents the components of net securities gains:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Securities gains on:
Held-to-maturity securities......... $ -- $ 9 $ 103
Available-for-sale securities....... 3,618 1,602 1,357
------ ------ ------
Total securities gains.......... 3,618 1,611 1,460
Securities losses on:
Held-to-maturity securities......... -- -- 104
Available-for-sale securities....... 1,034 794 1,000
------ ------ ------
Total securities losses......... 1,034 794 1,104
------ ------ ------
$2,584 $ 817 $ 356
====== ====== ======
</TABLE>
7 LOANS
Loans were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1997 1996
---- ----
<S> <C> <C>
Commercial, financial and
agricultural.......................... $ 807,720 $ 648,881
Real estate:
Commercial.......................... 1,420,521 1,156,402
Residential......................... 1,271,432 942,053
Construction........................ 272,151 150,157
---------- ----------
2,964,104 2,248,612
---------- ----------
Consumer, net of unearned income........ 711,988 517,816
---------- ----------
$4,483,812 $3,415,309
========== ==========
</TABLE>
At December 31, 1997 and 1996, the aggregate principal balances of loans on
which interest was not being accrued were $29,733 and $17,133, respectively. In
addition, the aggregate principal balances on which the yield or repayment terms
had been changed due to declining financial condition of borrowers was $230 at
December 31, 1997. Magna had no such principal balances at December 31, 1996.
During 1997 and 1996, the interest income that would have been recorded in the
consolidated statements of income under the original terms of such nonaccrual
11
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
and restructured loans was approximately $3,588 and $1,709, and the interest
income actually recorded was approximately $13 and $294, respectively.
At December 31, 1997 and 1996, the recorded investment in loans that were
considered impaired under FAS No. 114 totaled approximately $22,603 and $12,316,
respectively. At December 31, 1997, the allowance for loan losses included
approximately $4,240 allocated to $11,520 of impaired loans compared to an
allowance for loan loss allocation of $2,899 to $5,145 of impaired loans at
December 31, 1996. No specific reserves were allocated to the remaining $11,083
and $7,171 of impaired loans at December 31, 1997 and 1996, respectively. In
1997 and 1996, impaired loans averaged approximately $21,199 and $14,271,
respectively, and cash basis interest recognized on these loans during the time
they were impaired was not significant.
Included in loans at December 31, 1997 and 1996 were loans made to directors
and executive officers of Magna and its principal subsidiaries or to entities in
which such individuals had a beneficial interest. Following is a summary of
activity in such loans for the year ended December 31, 1997:
<TABLE>
<S> <C>
Balance at January 1, 1997........................................ $ 66,571
New loans......................................................... 15,518
Repayments........................................................ (12,929)
Net change from changes in director and executive officer
status.......................................................... 1,463
--------
Balance at December 31, 1997...................................... $ 70,623
========
</TABLE>
Such loans were made in the ordinary course of business at normal credit
terms, including interest rates and collateral, prevailing at the time for
comparable transactions with unrelated parties, and do not involve more than
normal risk of collection.
At December 31, 1997, Magna had approximately $175,162 of residential real
estate loans pledged as collateral for Federal Home Loan Bank advances. Magna
had no loans pledged for any purpose at December 31, 1996.
8 RESERVE FOR LOAN LOSSES
Changes in the reserve for loan losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year............ $ 45,382 $ 42,623 $ 43,991
Loans charged off....................... (31,951) (13,056) (16,400)
Recoveries of previous loan charge
offs.................................. 3,915 4,645 5,040
-------- -------- --------
Net loans charged off................... (28,036) (8,411) (11,360)
Provision for loan losses............... 28,947 10,280 9,992
Reserves of acquired institutions....... 13,146 890 --
-------- -------- --------
Balance at end of year.................. $ 59,439 $ 45,382 $ 42,623
======== ======== ========
</TABLE>
12
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
9 PREMISES AND EQUIPMENT
Premises and equipment were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1997 1996
---- ----
<S> <C> <C>
Land.................................... $ 18,634 $ 12,775
Buildings............................... 104,820 83,570
Furniture and equipment................. 61,265 52,631
-------- --------
184,719 148,976
Less accumulated depreciation and
amortization.......................... 66,132 67,161
-------- --------
$118,587 $ 81,815
======== ========
</TABLE>
Total depreciation and amortization expense charged to operations amounted
to $9,907, $9,119 and $8,876 in 1997, 1996 and 1995, respectively.
Magna and its subsidiaries lease certain premises and equipment under
operating lease agreements which expire at various dates through 2070, with
certain lease agreements containing renewal options. Minimum rental commitments
under all leases for the years 1998 through 2002 and thereafter were $6,385,
$6,245, $5,384, $4,154, $4,939 and $25,461, respectively. Rent expense in 1997,
1996 and 1995 was $5,538, $5,800 and $5,682, respectively.
10 DEPOSITS
Deposits were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1997 1996
---- ----
<S> <C> <C>
Demand deposits......................... $ 711,163 $ 575,504
Interest bearing demand and other
transaction accounts.................. 623,844 542,268
Savings and market rate deposits........ 966,727 811,077
Time deposits less than $100,000........ 2,395,001 1,780,188
Time deposits $100,000 or more.......... 739,260 488,739
---------- ----------
$5,435,995 $4,197,776
========== ==========
</TABLE>
The maturities of time deposits at December 31, 1997, for the years 1998
through 2002 were $2,265,903, $588,354, $224,466, $29,869 and $20,711,
respectively.
11 REPURCHASE AGREEMENTS
Repurchase agreements totaled $642,301 and $508,948 at December 31, 1997 and
1996, respectively. The average daily balances for repurchase agreements were
$607,352 and $456,965 during 1997 and 1996, respectively. The maximum balance at
any month-end was $654,693 and $521,794 during 1997 and 1996, respectively.
13
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
12 OTHER SHORT-TERM BORROWINGS
Other short-term borrowings were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
---- ----
<S> <C> <C>
Parent company:
8-3/4% Convertible Subordinated Debentures maturing in 1998 (net of $662
discount, based on effective interest rate of 14.65%)..................... $ 14,102 $ --
-------- -------
14,102 --
Banking subsidiary:
Federal Home Loan Bank advances:
maturing in 1997, interest rate of 5.25%................................ -- 15,000
maturing in 1997, interest rate of 5.27%................................ -- 8,500
maturing in 1997, interest rate of 6.59%................................ -- 15,000
maturing in 1998, interest rate of 5.80%................................ 20,000 --
maturing in 1998, interest rate of 5.91%................................ 25,000 --
maturing in 2000, callable on a quarterly basis by the issuer,
interest rate of 4.91%................................................ -- 50,000
maturing in 2000, callable on a quarterly basis by the issuer,
interest rate of 5.58%................................................ 40,000 --
Treasury tax and loan note option account................................... 12,000 10,987
-------- -------
97,000 99,487
-------- -------
$111,102 $99,487
======== =======
</TABLE>
14
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
13 LONG-TERM DEBT
Long-term debt was comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
---- ----
<S> <C> <C>
Parent company:
7% Convertible Subordinated Capital Notes maturing in 1999.................. $10,440 $12,541
8-3/4% Convertible Subordinated Debentures maturing in 1998
(net of $1,504 discount, based on effective interest rate of 14.65%)...... -- 14,872
------- -------
10,440 27,413
Banking subsidiary:
Federal Home Loan Bank advances:
maturing in 1998, interest rate of 5.91%................................ -- 25,000
maturing in 2000, interest rate of 5.99%................................ 50,000 --
maturing in 2000, interest rate of 5.79%................................ 1,200 --
maturing in 2001, interest rate of 5.91%................................ 10,000 10,000
maturing in 2003, interest rate of 6.09%................................ 3,186 15,000
maturing in 2003, interest rate of 6.20%................................ 15,000 --
maturing in 2004, interest rate of 6.59%................................ 525 --
maturing in 2004, interest rate of 7.21%................................ 350 --
maturing in 2004, interest rate of 7.33%................................ 420 --
maturing in 2005, interest rate of 6.65%................................ 300 --
maturing in 2009, interest rate of 7.58%................................ 480 --
Other....................................................................... 155 164
------- -------
81,616 50,164
------- -------
$92,056 $77,577
======= =======
</TABLE>
The 7% Convertible Subordinated Capital Notes and the 8-3/4% Convertible
Subordinated Debentures are convertible into shares of Magna's common stock at a
conversion price of $17.48 and $24.88 per share, respectively, subject to
adjustment in certain circumstances. The Notes and Debentures are redeemable, in
whole or in part, at the option of Magna, subject to certain conditions, and are
subordinated to all senior debt of Magna. The Notes are redeemable at the option
of the holder, subject to certain limitations. At maturity, the noteholders and
debentureholders will receive either common stock or cash, at the discretion of
Magna, equal to the principal amount of the Notes or Debentures, respectively.
The combined maturities of long-term debt at December 31, 1997, for the
years 1998 through 2002 were $74, $10,519, $51,284, $10,089 and $94,
respectively.
On December 30, 1996, Magna entered into a three year, unsecured revolving
credit facility (the "Credit Facility") with a syndicate of unaffiliated
banks, which provided, at December 31, 1997, for borrowings by Magna of up to
$100,000. Under the terms of the Credit Facility, Magna may elect to convert the
outstanding principal balance of any outstanding revolving loans into term loans
for a term ending no later than December 30, 2002.
The Credit Facility contains specific covenants which, among other things,
limit dividend payments, restrict the sale of assets by Magna under certain
circumstances, provide for possible acceleration of the repayment terms upon the
merger of Magna or its subsidiaries with and into unaffiliated entities and
require the maintenance of certain financial ratios. At December 31, 1997, there
were no amounts outstanding under the Credit Facility.
15
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
14 CAPITAL STOCK
PREFERRED STOCK
At December 31, 1997 and 1996, there were 49,500 shares authorized and 1,996
shares outstanding, of Magna's 7.5% cumulative Class B, voting, $20 par value
preferred stock. At December 31, 1997 and 1996, 1,000,000 shares of no par value
preferred stock and 1,000,000 shares of Class C, non-voting, $.10 par value
preferred stock, were authorized with no shares of either category issued.
400,000 shares of the no par value preferred stock have been designated and were
reserved for issuance upon exercise of the preferred stock purchase rights.
COMMON STOCK
At December 31, 1997, 5,194,066 shares of common stock were reserved for
issuance in connection with conversion of the Convertible Subordinated Capital
Notes and Convertible Subordinated Debentures, Magna's stock-based compensation
plans, Magna's dividend reinvestment plan and Magna's employee stock purchase
plan.
PREFERRED STOCK PURCHASE RIGHTS
One preferred stock purchase right (a "Magna Right") is attached to each
share of common stock issued and outstanding or to be issued prior to certain
designated events. Each Magna Right becomes exercisable only under certain
circumstances and expires in 1998 unless first exercised, redeemed or converted.
The Magna Rights are designed to protect the interests of Magna and its
stockholders against coercive takeover tactics. The purpose of the Magna Rights
is to encourage potential acquirers to negotiate with Magna's Board of Directors
prior to attempting a takeover and to give the Board leverage in negotiating, on
behalf of all stockholders, the terms of any proposed takeover. See "Notes to
Consolidated Financial Statements--24 Pending Merger with Union Planters
Corporation."
15 REGULATORY MATTERS
Magna and the Affiliate Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can result in certain mandatory--and possibly
additional discretionary--actions by regulators that, if undertaken, could have
a direct material effect on Magna's consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework of prompt corrective
action, Magna and the Affiliate Bank must meet specific capital guidelines that
involve quantitative measures of assets, liabilities and certain off-balance
sheet items calculated under regulatory accounting practices. The capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Magna and the Affiliate Bank to maintain minimum amounts and ratios of
Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets
(as defined) and of Tier 1 capital to average assets (as defined). Management
believes that, as of December 31, 1997, Magna and the Affiliate Bank met all
capital adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notification from the federal
banking agencies categorized the Affiliate Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Affiliate Bank must maintain minimum Total and Tier 1 capital
to risk-weighted assets and Tier 1 capital to average assets ratios as set forth
in the table below. There are no conditions or events since that notification
that management believes have changed the Affiliate Bank's category.
16
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The following table summarizes the actual capital amounts and ratios for
Magna and the Affiliate Bank, as well as those required to be categorized as
adequately capitalized and well capitalized.
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
----------------- ------------------- -----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Total Capital (to risk-weighted assets):
Consolidated........................... $557,104 12.32% >= $361,820 >= 8.00% NA NA
Affiliate Bank......................... 542,496 12.09 >= 358,902 >= 8.00 >= $448,628 >= 10.00%
Tier 1 Capital (to risk-weighted assets):
Consolidated........................... 502,291 11.09 >= 181,092 >= 4.00 NA NA
Affiliate Bank......................... 487,612 10.86 >= 179,633 >= 4.00 >= 269,450 >= 6.00
Tier 1 Capital (to average assets):
Consolidated........................... 502,291 7.24 >= 277,480 >= 4.00 NA NA
Affiliate Bank......................... 487,612 7.07 >= 275,757 >= 4.00 >= 344,697 >= 5.00
As of December 31, 1996
Total Capital (to risk-weighted assets):
Consolidated........................... 499,558 14.18 >= 281,816 >= 8.00 NA NA
Affiliate Bank......................... 371,316 10.65 >= 278,836 >= 8.00 >= 348,545 >= 10.00
Tier 1 Capital (to risk-weighted assets):
Consolidated........................... 457,221 12.97 >= 141,030 >= 4.00 NA NA
Affiliate Bank......................... 328,958 9.43 >= 139,540 >= 4.00 >= 209,310 >= 6.00
Tier 1 Capital (to average assets):
Consolidated........................... 457,221 8.45 >= 216,372 >= 4.00 NA NA
Affiliate Bank......................... 328,958 6.12 >= 215,037 >= 4.00 >= 268,796 >= 5.00
</TABLE>
16 RESTRICTED NET ASSETS
Certain restrictions exist regarding the ability of the Affiliate Bank to
transfer funds to Magna in the form of cash dividends, loans or advances. During
the fourth quarter of 1996, the Affiliate Bank received, as required, prior
regulatory approval to pay a cash dividend to Magna sufficient to fund the cash
portion of the Homeland acquisition. This dividend exceeded the maximum
available without prior regulatory approval. The Affiliate Bank received
regulatory approval to pay dividends to Magna in 1997 and 1998 which would not
exceed fifty percent of the then-current period earnings. Payment of these
dividends is subject to the Affiliate Bank maintaining its status as a "well
capitalized" institution, as defined by regulatory authorities as set forth in
Note 15 to the Consolidated Financial Statements. Payment of cash dividends, by
the Affiliate Bank, beyond December 31, 1998 may require additional regulatory
approval.
17 INCOME TAXES
The components of income tax expense are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current taxes........................... $36,047 $31,288 $21,129
Deferred taxes.......................... 4 1,352 2,154
------- ------- -------
Income tax expense...................... $36,051 $32,640 $23,283
======= ======= =======
</TABLE>
17
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Included in income taxes were tax expenses of $904, $286 and $124 in 1997,
1996 and 1995, respectively, related to net securities gains.
Reconciliations between income tax expense and the amount computed by
applying the statutory federal tax rate of 35% to income before income taxes are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory rate applied to income before
income taxes.......................... $38,054 $33,523 $26,077
Effects of:
Tax-exempt income................... (4,942) (3,331) (3,293)
Goodwill amortization............... 2,512 522 281
State tax, net of federal benefit... 1,433 2,277 1,680
Adjustment to valuation allowance... -- -- (935)
Other, net.......................... (1,006) (351) (527)
------- ------- -------
Income tax expense...................... $36,051 $32,640 $23,283
======= ======= =======
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of Magna's
deferred tax assets and liabilities as of December 31, 1997 and 1996 are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Reserve for loan losses............. $23,776 $18,153
Foreclosed property................. 19 144
Deferred compensation............... 5,322 4,409
Net operating loss and built-in loss
carryforwards..................... 93 224
Alternative minimum tax credit
carryforwards..................... -- 1,067
Securities market value
adjustment........................ -- 1,603
------- -------
Total deferred tax assets before
valuation allowance........... 29,210 25,600
Valuation allowance for deferred tax
assets............................ (2,269) (2,282)
------- -------
Total deferred tax assets....... 26,941 23,318
------- -------
Deferred tax liabilities:
Premises and equipment.............. 2,260 1,254
Purchase accounting adjustments..... 1,781 2,804
Securities market value
adjustment........................ 2,052 --
Other, net.......................... 3,552 2,193
------- -------
Total deferred tax
liabilities................... 9,645 6,251
------- -------
Net deferred tax assets................. $17,296 $17,067
======= =======
</TABLE>
Magna has a net operating loss carryforward of $236 for federal tax
purposes. The net operating loss carryforward expires primarily in the years
2007 to 2008.
18
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
18 EMPLOYEE BENEFITS
PENSION PLAN
Magna and its subsidiaries have a non-contributory, defined benefit
retirement plan that covers all employees who have attained age 21 and completed
one year of service. Benefits are accrued for each year of service based upon
percentages of the designated portions of each participant's annual base
compensation. Magna's policy is to fund contributions annually within the limits
prescribed for deduction for federal income tax purposes. Contributions are
intended to provide for benefits attributed to service to date.
The assets of the pension plan include U.S. Treasury and Government agency
obligations, equity securities, equity and fixed income funds, corporate bonds,
market rate deposit accounts and cash.
The following table sets forth the funded status and amounts recognized in
Magna's balance sheets for the plan.
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1997 1996
---- ----
<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 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 present 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>
YEAR ENDED DECEMBER 31
------------------------------------
1997 1996 1995
---- ---- ----
<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>
SUPPLEMENTAL RETIREMENT PLANS
Magna has supplemental retirement plans for certain executive officers that
cover benefits that are in excess of the maximum amounts allowable under Magna's
defined benefit pension plan.
19
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
OTHER RETIREMENT PLANS
Magna has a qualified 401(k) retirement plan which covers all employees of
Magna meeting certain age and length of service requirements. Magna also has a
supplemental retirement plan for certain executives who exceed the maximum
amounts of deferral under Magna's 401(k) retirement plan. Magna makes
contributions to these plans in an amount equal to 50% of employee
contributions, subject to certain limitations. Such contributions, in the
aggregate, amounted to $1,681, $1,247 and $1,249 for the years ended December
31, 1997, 1996 and 1995, respectively.
COMPENSATION AGREEMENTS
Magna has entered into agreements with certain executives of Magna and its
subsidiaries which become operative upon a change in control of Magna and
provide for termination benefits as defined. Compensation which might be payable
under these agreements has not been accrued in the financial statements, as a
change in control and events of termination, as defined, have not occurred.
STOCK-BASED COMPENSATION PLANS
Magna has several stock-based compensation plans under which stock options,
restricted stock and performance shares may be granted to key employees. In
addition, Magna sponsors an employee stock purchase plan which allows employees
to purchase shares of Magna's common stock at a discount from market value.
Magna also has stock-based compensation plans for its Board of Directors.
The general provisions of the more significant stock-based compensation
plans are as follows:
Magna's 1992 and 1996 Amended and Restated Long-Term Performance Plans
authorized the issuance of options, appreciation rights, restricted stock and
performance awards to management personnel for up to 900,000 and 1,000,000
shares, respectively, of Magna's common stock, of which no more than 300,000
shares per plan may be issued in the form of restricted stock. All options
granted have ten year terms and vest and become fully exercisable over periods
ranging from six months to two years.
Magna's 1992 and 1996 Amended and Restated Directors' Stock Option Plans
authorized the issuance of options to nonemployee members of the Board of
Directors for up to 100,000 shares per plan, of Magna's common stock. All
options granted have ten year terms and vest and become fully exercisable over
periods ranging from immediately to three years.
Magna's 1987 Stock Option Plan has authorized the grant of options to
management personnel for up to 607,753 shares of Magna's common stock. No future
options will be granted under this plan. All outstanding options have ten year
terms and are fully vested.
Under Magna's restricted stock program, common stock of Magna may be granted
at no cost to certain officers and key employees. Upon issuance, plan
participants are entitled to cash dividends and to vote their respective shares.
Restrictions limit the sale or transfer of the shares during various vesting
periods ranging from one to eight years. Upon issuance of the stock under the
plan, unearned compensation equivalent to the market value at the date of
issuance is charged to stockholders' equity and is subsequently amortized to
expense over the respective vesting periods.
Pro forma information regarding net income and net income per share is
required by FAS No. 123, which also requires that the information be determined
as if Magna had accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that standard. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1997,
1996 and 1995, respectively: risk-free interest rates of 6.1%, 6.5% and 6.0%;
dividend yields of 2.7%, 3.5% and 3.4%; volatility factors of the expected
market price of Magna's common stock of .19, .15 and .16; and weighted-average
expected lives of the awards of 4.6, 4.7 and 5.0 years.
20
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
For purposes of pro forma disclosures, the estimated fair value of the
awards is amortized to expense over the awards' vesting period. Magna's pro
forma information follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Pro forma net income.................... $71,561 $62,742 $51,153
Pro forma net income per share:
Basic............................... $2.23 $2.23 $1.85
Diluted............................. 2.18 2.17 1.81
</TABLE>
Magna's stock option activity and related information for the years ended
December 31 is summarized in the table below.
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- --------------------------- ---------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------- -------------- ------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--beginning of
year........................ 1,037,107 $21.82 776,838 $19.25 827,759 $16.72
Granted....................... 430,160 35.53 362,678 25.62 221,365 23.62
Exercised..................... (144,640) 19.07 (91,566) 14.94 (234,298) 14.05
Forfeited or expired.......... (14,488) 30.54 (10,843) 22.77 (37,988) 21.73
--------- ------ --------- ------ -------- ------
Outstanding--end of year...... 1,308,139 $26.54 1,037,107 $21.82 776,838 $19.25
========= ====== ========= ====== ======== ======
Exercisable--end of year...... 797,708 $21.83 618,179 $19.47 511,267 $17.36
========= ====== ========= ====== ======== ======
Weighted-average fair value of
options granted during the
year........................ $6.55 $3.69 $3.96
========= ========= ========
<FN>
- --------
Exercise prices for options outstanding as of December 31, 1997 ranged from
$13.63 to $37.75. The weighted-average remaining contractual life of those
options is 8.0 years.
</TABLE>
21
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
19 NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net
income per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net income.......................... $72,675 $63,139 $51,222
Preferred stock dividends:
Class B voting preferred........ (3) (3) (3)
------- ------- -------
Numerator for basic net income per
share--income available to common
stockholders...................... 72,672 63,136 51,219
------- ------- -------
Effect of dilutive items:
Elimination of interest, net of
related tax effects on:
7% convertible subordinated
capital notes................. 526 646 757
8-3/4% convertible subordinated
debentures.................... 1,366 1,437 --
------- ------- -------
Numerator for diluted net income per
share--income available to common
stockholders after assumed
conversions....................... $74,564 $65,219 $51,976
======= ======= =======
Denominator:
Weighted average common shares
outstanding....................... 32,241 28,248 27,745
Weighted average restricted common
shares--issued but not earned..... (151) (65) (41)
------- ------- -------
Denominator for basic net income per
share............................. 32,090 28,183 27,704
------- ------- -------
Effect of dilutive securities:
Weighted average restricted common
shares--issued but not earned..... 151 65 41
Net effect of stock options......... 239 96 96
Assumed conversion of:
7% convertible subordinated
capital notes................. 636 785 895
8-3/4% convertible subordinated
debentures.................... 633 690 --
------- ------- -------
Dilutive potential common shares.... 1,659 1,636 1,032
Denominator for diluted net income
per share--adjusted
weighted-average shares and
assumed conversions............... 33,749 29,819 28,736
======= ======= =======
Basic net income per share.............. $2.26 $2.24 $1.85
======= ======= =======
Diluted net income per share............ $2.21 $2.19 $1.81
======= ======= =======
</TABLE>
For the year ended December 31, 1995, inclusion of common stock equivalents
for the 8-3/4% convertible subordinated debentures in the computation of
diluted net income per share results in antidilution and therefore, are excluded
from the computation.
20 FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards No. 107 (FAS No. 107), "Disclosures about
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques
22
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instruments.
Intangible values assigned to customer relationships are not included in
reported fair values. Accordingly, the aggregate fair value amounts presented
may not necessarily represent the underlying value of Magna.
The following methods and assumptions were used by Magna in estimating its
fair value disclosures for financial instruments, which are held for purposes
other than trading:
Cash and Cash Equivalents: The carrying amounts reported in the balance
sheet for cash and due from banks and federal funds sold approximate those
assets' fair values.
Securities: Fair values for held-to-maturity and available-for-sale
securities are based on quoted market prices or dealer quotes, where available.
If quoted market prices are not available for a specific security, fair values
are based on quoted market prices of comparable instruments.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The
fair values for fixed-rate loans are estimated using discounted cash flow
analyses, applying interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. The fair values for nonperforming
loans are estimated using assumptions regarding current assessments of
collectibility and historical loss experience.
Deposits: The fair values disclosed for deposits generally payable on
demand, such as noninterest bearing checking accounts, savings accounts,
interest bearing demand deposit accounts and market rate deposit accounts, are,
by definition, equal to the amount payable on demand at the reporting date. The
carrying amounts for variable-rate, fixed-term market rate deposit accounts and
certificates of deposit approximate their fair values at the reporting date.
Fair values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates of similar remaining maturities to a schedule of
aggregated monthly maturities on time deposits.
Federal Funds Purchased, Repurchase Agreements and Other Short-Term
Borrowings: The carrying amounts of federal funds purchased, repurchase
agreements and other short-term borrowings approximate their fair values at the
reporting date.
Long-Term Debt: The fair value of long-term debt is based on quoted market
prices for similar issues or estimates using discounted cash flow analyses,
based on current incremental borrowing rates for similar types of debt
instruments.
Off-Balance Sheet Financial Instruments: The fair values of loan commitments
and letters of credit are determined using estimated fees currently charged to
enter into similar agreements. The fair values of these instruments were not
significant to Magna's consolidated financial position.
The fair value of interest rate swaps is estimated using dealer quoted
prices which represent the cost to replace all outstanding contracts at current
market rates, taking into consideration the current creditworthiness of the
counterparties. At December 31, 1996, Magna was a party to a $50,000 notional
amount interest rate swap that effectively converted floating rate
available-for-sale securities to fixed rate. The fair value and carrying amount
of this swap reflected an unrealized loss of approximately $200 which was
included in available-for-sale securities at December 31, 1996. Magna had no
interest rate swaps at December 31, 1997.
23
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The carrying amount and estimated fair values of Magna's remaining financial
instruments were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------------------
1997 1996
-------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks............. $ 247,932 $ 247,932 $ 180,412 $ 180,412
Federal funds sold.................. 48,202 48,202 34,068 34,068
Held-to-maturity securities......... 137,690 141,182 154,729 156,993
Available-for-sale securities....... 1,850,932 1,850,932 1,501,178 1,501,178
Net loans........................... 4,424,373 4,450,242 3,369,927 3,376,643
Liabilities:
Deposits............................ $5,435,995 $5,382,181 $4,197,776 $4,197,675
Federal funds purchased............. 92,200 92,200 25,500 25,500
Repurchase agreements............... 642,301 642,301 508,948 508,948
Other short-term borrowings......... 111,102 111,102 99,487 99,487
Long-term debt...................... 92,056 92,504 77,577 91,526
</TABLE>
21 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, Magna offers a variety of financial
products to its customers to aid them in meeting their requirements for
liquidity, credit enhancement and interest rate protection. Generally accepted
accounting principles recognize these transactions as contingent liabilities
and, accordingly, they are not reflected in the accompanying financial
statements.
Letters of Credit: These transactions are used by Magna's customers as a
means of improving their credit standing in transactions with unaffiliated third
parties. Under these agreements, Magna agrees to honor certain financial
commitments in the event that its customers are unable to do so. Net outstanding
standby letters of credit amounted to $49,474 and $39,807 at December 31, 1997
and 1996, respectively. Commercial letters of credit outstanding amounted to
$377 and $478 at December 31, 1997 and 1996, respectively.
Management conducts regular reviews of these instruments on an individual
customer basis, and the results are considered in assessing the adequacy of
Magna's reserve for loan losses. Management does not anticipate any material
losses as a result of the letters of credit.
Loan Commitments: At December 31, 1997 and 1996, Magna had commitments
outstanding to extend credit totaling approximately $873,870 and $645,932,
respectively. These commitments generally require the customers to maintain
certain credit standards. Magna evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary, is
based on management's credit evaluation of the counterparty and generally
consists of certificates of deposit, marketable securities or deeds of trust, in
addition to various other forms of collateral such as accounts receivable,
inventory and fixed assets.
22 LEGAL PROCEEDINGS
Various claims and lawsuits, incidental to the ordinary course of business,
are pending against Magna and its subsidiaries. In the opinion of management,
after consultation with legal counsel, resolution of these matters is not
expected to have a material effect on Magna's financial statements.
24
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
23 PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
Following are the condensed financial statements of Magna Group, Inc.
(Parent Company Only) for the periods indicated:
<TABLE>
CONDENSED BALANCE SHEETS
<CAPTION>
DECEMBER 31
---------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks............. $ 18,068 $127,921
Held-to-maturity securities......... 3,764 3,764
Available-for-sale securities....... 236 236
Investment in subsidiaries.......... 616,507 360,418
Premises and equipment.............. 4,069 4,060
Other assets........................ 18,129 18,151
-------- --------
Total Assets................ $660,773 $514,550
======== ========
LIABILITIES
Short-term borrowings............... $ 14,102 $ --
Long-term debt...................... 10,440 27,413
Other liabilities................... 9,878 3,176
-------- --------
Total Liabilities........... 34,420 30,589
TOTAL STOCKHOLDERS' EQUITY.............. 626,353 483,961
-------- --------
Total Liabilities and
Stockholders' Equity...... $660,773 $514,550
======== ========
</TABLE>
<TABLE>
CONDENSED STATEMENTS OF INCOME
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries......... $37,662 $ 167,865 $32,856
Management fees from subsidiaries... 37,938 34,407 39,509
Other income........................ 2,220 1,670 967
------- --------- -------
77,820 203,942 73,332
EXPENSE
Interest............................ 2,861 3,142 3,215
Other expenses...................... 42,952 40,127 43,266
------- --------- -------
45,813 43,269 46,481
Income before income tax benefit and
equity in undistributed
(overdistributed) income of
subsidiaries...................... 32,007 160,673 26,851
INCOME TAX BENEFIT...................... 2,749 2,745 2,822
------- --------- -------
34,756 163,418 29,673
Equity in undistributed
(overdistributed) income of
subsidiaries...................... 37,919 (100,279) 21,549
------- --------- -------
NET INCOME.............................. $72,675 $ 63,139 $51,222
======= ========= =======
</TABLE>
25
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.......................... $ 72,675 $ 63,139 $ 51,222
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, amortization and
accretion..................... 4,332 3,252 2,574
Deferred income tax benefit..... (969) (421) (726)
Equity in (undistributed)
overdistributed income of
subsidiaries.................. (37,919) 100,279 (21,549)
Increase in other assets........ (6,133) (2,871) (4,532)
Increase (decrease) in other
liabilities................... 5,269 (2,739) 519
--------- -------- --------
Net Cash Provided by Operating
Activities............................ 37,255 160,639 27,508
INVESTING ACTIVITIES
Purchases of premises and
equipment......................... (1,488) (1,471) (1,737)
Cash paid for acquired
institution....................... (92,037) (12,444) --
--------- -------- --------
Net Cash Used in Investing Activities... (93,525) (13,915) (1,737)
FINANCING ACTIVITIES
Cash dividends...................... (31,808) (24,833) (22,201)
Purchases of treasury stock......... (32,703) (17,605) --
Other, net.......................... 10,928 5,957 6,974
--------- -------- --------
Net Cash Used in Financing Activities... (53,583) (36,481) (15,227)
--------- -------- --------
Increase (Decrease) in Cash and Cash
Equivalents....................... (109,853) 110,243 10,544
Cash and Cash Equivalents at Beginning
of Year............................... 127,921 17,678 7,134
--------- -------- --------
Cash and Cash Equivalents at End of
Year.................................. $ 18,068 $127,921 $ 17,678
========= ======== ========
</TABLE>
Cash paid for interest and income taxes, as well as significant non-cash
financing activities, were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest............................ $ 2,152 $2,458 $ 2,598
Income tax payments (refunds)....... (9,711) 928 (2,615)
Capital notes and debentures
converted into 184,915, 143,739
and 110,567 shares of common
stock, respectively............... 3,613 2,689 1,933
</TABLE>
26
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
24 PENDING MERGER WITH UNION PLANTERS CORPORATION
On February 22, 1998, Magna and Union Planters Corporation ("Union
Planters") signed a definitive agreement for the acquisition of Magna by Union
Planters. Union Planters is a Memphis-based multi-state bank holding company
with $18,100,000 in assets as of December 31, 1997. Under the terms of the
agreement, each share of Magna's common stock will be converted into .9686 of a
share of Union Planters' common stock. The acquisition is subject to certain
regulatory approvals and to the approvals of the stockholders of both Magna and
Union Planters. The acquisition is expected to be accounted for as a pooling-
of-interests and is expected to be completed in the third quarter of 1998.
Also on February 22, 1998, Magna and the Affiliate Bank entered into a first
amendment (the "Amendment") to that certain Rights Agreement dated November
11, 1988, under which the Magna Rights are authorized. The Amendment provided
that the execution of the definitive agreement and certain related documents
between Magna and Union Planters and the consummation of the acquisition, would
not cause the Magna Rights to detach from the common shares and become
exercisable. The Amendment also provided that the Rights Agreement, as amended,
would expire immediately prior to the effective time of the acquisition.
27
<PAGE> 34
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
MAGNA GROUP, INC.
We have audited the accompanying consolidated balance sheets of Magna Group,
Inc. ("Magna") as of December 31, 1997 and 1996, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1997. These financial
statements are the responsibility of Magna's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Magna at
December 31, 1997 and 1996, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
St. Louis, Missouri
January 21, 1998
Except for Note 24, as to which the date is February 22, 1998
28
<PAGE> 35
Item 7(a)(2) Financial Statements of Businesses Acquired
Magna Group, Inc. Consolidated Financial Statements as of and
for the three months ended March 31, 1998 and 1997
<PAGE> 36
<TABLE>
MAGNA GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
MARCH 31 DECEMBER 31
1998 1997
---------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 220,317 $ 247,932
Federal funds sold 95,126 48,202
Securities:
Held-to-maturity 129,305 137,690
Available-for-sale 2,109,808 1,850,932
Loans, net of unearned income 4,378,928 4,483,812
Reserve for loan losses (59,928) (59,439)
---------- ----------
Net Loans 4,319,000 4,424,373
Premises and equipment 117,253 118,587
Goodwill and other intangibles 122,188 121,817
Other assets 137,621 125,436
---------- ----------
TOTAL ASSETS $7,250,618 $7,074,969
========== ==========
LIABILITIES
Deposits:
Noninterest bearing $ 641,300 $ 711,163
Interest bearing 4,905,388 4,724,832
---------- ----------
Total Deposits 5,546,688 5,435,995
Federal funds purchased 68,725 92,200
Repurchase agreements 714,042 642,301
Other short-term borrowings 108,939 111,102
Long-term debt 115,883 92,056
Other liabilities 85,363 74,962
----------- -----------
TOTAL LIABILITIES 6,639,640 6,448,616
Commitments and contingent liabilities
STOCKHOLDERS' EQUITY
Preferred stock:
Class B, voting, $20 par value -
1,981 and 1,996 shares issued
and outstanding, respectively 40 40
Common stock, $2 par value - 34,037,452
and 33,799,995 shares issued,
respectively 68,075 67,600
Capital surplus 343,601 336,544
Retained earnings 267,982 256,611
Treasury stock - 1,473,700 and 937,900
shares respectively, at cost (60,626) (32,703)
Unearned restricted stock awards (7,596) (4,835)
Net unrealized gains(losses)
on securities (498) 3,096
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 610,978 626,353
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,250,618 $7,074,969
========== ==========
See accompanying notes.
</TABLE>
1
<PAGE> 37
<TABLE>
MAGNA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
THREE MONTHS ENDED
March 31
--------------------------
1998 1997
---- ----
<S> <C> <C>
Interest Income:
Interest and fees on loans $ 96,165 $ 79,187
Securities:
Taxable 28,395 24,528
Tax-exempt 3,770 2,192
-------- --------
32,165 26,720
Other interest income 2,173 1,155
-------- --------
TOTAL INTEREST INCOME 130,503 107,062
Interest Expense:
Deposits 55,464 43,584
Federal funds purchased 1,043 710
Repurchase agreements 8,415 6,755
Other short-term borrowings 1,763 1,265
Long-term debt 1,609 1,518
-------- --------
TOTAL INTEREST EXPENSE 68,294 53,832
-------- --------
NET INTEREST INCOME 62,209 53,230
Provision for Loan Losses 3,550 15,152
-------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 58,659 38,078
Noninterest Income:
Service charges on deposits 6,328 5,830
Trust services 3,316 2,975
Credit card services 1,928 1,251
Brokerage and investment services 1,676 1,200
Securities gains, net 596 130
Other 10,135 2,568
-------- --------
23,979 13,954
Noninterest Expense:
Employee compensation and
other benefits 23,365 19,825
Net occupancy 4,829 4,741
Equipment 2,697 2,473
FDIC insurance premiums 211 154
Intangible amortization 2,566 1,340
Other 16,362 9,884
-------- --------
50,030 38,417
-------- --------
INCOME BEFORE INCOME TAXES 32,608 13,615
Income Tax Expense 12,097 4,177
-------- --------
NET INCOME $ 20,511 $ 9,438
======== ========
Average Shares Outstanding:
Basic 32,510 29,866
Diluted 34,259 30,862
Earnings Per Share:
Basic $ .63 $ .32
===== =====
Diluted $ .61 $ .31
===== =====
Dividends Per Share $ .28 $ .25
===== =====
See accompanying notes.
</TABLE>
2
<PAGE> 38
<TABLE>
MAGNA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<CAPTION>
THREE MONTHS ENDED
MARCH 31
---------------------------------
1998 1997
---- ----
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 29,608 $ 22,903
INVESTING ACTIVITIES
Proceeds from maturities of held-to-maturity
securities 13,572 5,174
Purchases of held-to-maturity securities - (1,397)
Proceeds from maturities of available-
for-sale securities 312,082 216,421
Proceeds from sales of available-for-
sale securities 70,978 28,916
Purchases of available-for-sale securities (652,677) (285,964)
Net decrease(increase)in loans 100,798 (39,767)
Proceeds from sales of foreclosed property 580 853
Net purchases of premises and equipment (3,471) (1,587)
Cash and cash equivalents of acquired
institutions, net of cash paid - (18,989)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (158,138) (96,340)
FINANCING ACTIVITIES
Net increase in deposits 110,702 55,091
Cash dividends (9,140) (7,077)
Net(decrease)increase in federal
funds purchased (23,475) 107,285
Net increase in repurchase agreements 71,741 49,956
Net decrease in other short-
term borrowings (402) (78,399)
Proceeds from issuance of long-term debt 25,000 -
Payments of long-term debt (93) (82)
Purchases of treasury stock (27,923) (10,983)
Other 1,429 1,564
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 147,839 117,355
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 19,309 43,918
Cash and cash equivalents at beginning of period 296,134 214,480
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 315,443 $ 258,398
========= =========
See accompanying notes.
</TABLE>
3
<PAGE> 39
MAGNA GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of
Magna Group, Inc. and its affiliates ("Magna") have been prepared in
accordance with generally accepted accounting principles for the banking
industry and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Reference is hereby made to the notes to consolidated financial
statements contained in Magna's Annual Report on Form 10-K for the year ended
December 31, 1997. In the opinion of management, all adjustments considered
necessary for a fair presentation of the unaudited interim condensed
consolidated financial statements have been included therein and are of a
normal recurring nature. The results of operations for the interim periods
presented herein are not necessarily indicative of the results to be expected
for the full year.
NOTE B--PENDING MERGER WITH UNION PLANTERS CORPORATION
On February 22, 1998, Magna and Union Planters Corporation ("Union
Planters") signed a definitive agreement for the acquisition of Magna by
Union Planters. Union Planters is a Memphis-based multi-state bank holding
company with $18.4 billion in assets as of March 31, 1998. Under the terms
of the agreement, each share of Magna's common stock will be converted into
.9686 of a share of Union Planters' common stock. The acquisition is subject
to certain regulatory approvals and to the approvals of the stockholders of
both Magna and Union Planters. The acquisition is expected to be accounted
for as a pooling-of-interests and is expected to be completed in the third
quarter of 1998.
NOTE C--ACQUISITIONS
On May 1, 1998, Magna completed the acquisition of Charter Financial,
Inc. ("Charter") for approximately 2,507,000 shares of common stock of Magna.
The acquisition will be accounted for under the purchase method. At
acquisition, Charter had approximately $408 million in assets.
NOTE D--CHANGE IN ACCOUNTING METHODS
Effective January 1, 1998, Magna adopted Financial Accounting Standards
No. 127 (FAS No. 127), "Deferral of the Effective Date of Certain Provisions
of FAS Statement No. 125." FAS 127 deferred implementation requirements of
FAS No. 125 relating to repurchase agreements, securities lending and similar
transactions until transactions entered into after December 31, 1997. The
adoption of FAS No. 127 had no material impact on Magna's financial condition
or results of operation.
Effective January 1, 1998, Magna adopted Financial Accounting Standards
No. 130 (FAS No. 130), "Reporting Comprehensive Income."
4
<PAGE> 40
FAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components; however, the adoption of FAS No. 130
had no impact on Magna's net income or stockholders' equity. FAS No. 130
requires unrealized gains or losses on Magna's available-for-sale securities,
which prior to adoption were reported separately in stockholders' equity, to be
included in other comprehensive income.
During the first quarter of 1998 and 1997, total comprehensive income
amounted to $16.9 million and $4.8 million, respectively.
Effective January 1, 1998, Magna adopted Financial Accounting Standards
No. 131 (FAS No. 131), "Disclosures About Segments of an Enterprise and
Related Information." FAS No. 131 superseded Financial Accounting Standards
No. 14, "Financial Reporting for Segments of a Business Enterprise." FAS No.
131 changes the basis on which companies report information about operating
segments in annual financial statements and requires new disclosures
regarding operating segments in interim financial statements. FAS No. 131
also establishes standards for related disclosures about products and
services, geographic areas and major customers. Magna has determined that
all of its operations effectively operate within one reportable segment, as
defined in FAS No. 131. Accordingly, the adoption of FAS No. 131 did not
affect the historical disclosure of segment information.
NOTE E--RECLASSIFICATIONS
Certain amounts for 1997 have been reclassified to conform with 1998
financial statement presentation.
NOTE F--CAPITAL
In June 1997, Magna announced a common stock repurchase program
authorizing the repurchase of 1,700,000 shares. As of March 31, 1998, no
shares have been repurchased in connection with that program. In November
1997, Magna announced its intention to repurchase approximately 2,650,000
shares expected to be issued in connection with the acquisition of Charter.
As of March 31, 1998, Magna had repurchased 843,700 of those authorized
shares.
NOTE G--EARNINGS PER SHARE
Financial Accounting Standards No. 128 (FAS No. 128), "Earnings per
Share" was effective for Magna December 31, 1997. FAS No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. The following table
sets forth the computation of basic and diluted earnings per share:
5
<PAGE> 41
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Numerator:
Net income $20,511 $ 9,438
Preferred stock dividends:
Class B voting preferred (1) (1)
------- -------
Numerator for basic earnings per share--
income available to common stockholders 20,510 9,437
------- -------
Effect of dilutive items:
Elimination of interest, net of related
tax effects on:
7% convertible subordinated capital notes 115 136
8-3/4% convertible subordinated debentures 284 -
------- -------
Numerator for diluted earnings per share --
income available to common stockholders
after assumed conversions $20,909 $ 9,573
======= =======
Denominator:
Weighted average common shares outstanding 32,721 29,983
Weighted average restricted common shares --
issued but not earned (211) (117)
------- -------
Denominator for basic earnings per share 32,510 29,866
------- -------
Effect of dilutive securities:
Weighted average restricted common shares --
issued but not earned 211 117
Net effect of stock options 397 199
Assumed conversion of:
7% convertible subordinated capital notes 574 680
8-3/4% convertible subordinated debentures 567 -
------- -------
Dilutive potential common shares 1,749 996
Denominator for diluted earnings per share--
adjusted weighted-average shares and assumed
conversions 34,259 30,862
======= =======
Basic earnings per share $ .63 $ .32
===== =====
Diluted earnings per share $ .61 $ .31
===== =====
</TABLE>
For the three months ended March 31, 1997, inclusion of common stock
equivalents for the 8-3/4% convertible subordinated debentures in the
computation of diluted earnings per share results in antidilution.
Therefore, those common stock equivalents are excluded from the computation.
6
<PAGE> 42
Item 7(b) Pro Forma Financial Information
Union Planters Corporation 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
<PAGE> 43
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following tables contain unaudited pro forma condensed consolidated
financial statements including a balance sheet as of March 31, 1998 and
statements of earnings for the three months ended March 31, 1998 and for the
years ended December 31, 1997, 1996, and 1995. These statements present on a pro
forma basis historical results for (i) UPC for all periods, (ii) UPC and MGR for
all periods, (iii) UPC and the Other Acquisitions (as defined in Note 1 and
including MGR) as of and for the three months ended March 31, 1998 and for the
year ended December 31, 1997, and (iv) UPC, MGR, Peoples, AMBANC and Merchants
for the years ended December 31, 1996 and 1995.
All but four of the Other Acquisitions are expected to be accounted for
using the pooling-of-interests method of accounting. The pro forma information
as of March 31, 1998 and for the three months ended March 31, 1998 and for the
year ended December 31, 1997, reflect the acquisition of MGR and the Other
Acquisitions as of January 1, 1997. The pro forma information for the years
ended December 31, 1996 and 1995, reflect only the acquisitions of MGR, Peoples,
AMBANC, and Merchants because the Other Acquisitions (other than MGR, Peoples,
AMBANC, and Merchants) are not individually or in the aggregate, considered
material to UPC from a financial statement presentation standpoint. Furthermore,
the pro forma impact of the CalFed Branch Purchase on the pro forma statement of
earnings for each of the periods presented has been excluded due to lack of
information available for operation of the branches on a historical basis. Pro
forma financial information are presented for information purposes only and are
not necessarily indicative of the results of operations or combined financial
position that would have resulted had the Other Acquisitions been consummated at
the dates or during the periods indicated, nor are they necessarily indicative
of future results of operations or combined financial position. The pro forma
balance sheet reflects preliminary estimates by UPC of acquisition-related
charges to be incurred in connection with consummation of the Other
Acquisitions; however, the statements of earnings do not reflect these charges
(see Note 2). For a discussion of UPC's acquisition program, including a
discussion of the significant charges UPC has incurred incidental to
acquisitions over the past three fiscal years, see the caption "Acquisitions"
(pages 10, 11 and 12) in UPC's 1997 Annual Report to Shareholders and Note 2 to
UPC's audited consolidated financial statements for the years ended December 31,
1997, 1996, and 1995 (pages 49 and 50) contained in such UPC 1997 Annual Report
to Shareholders. UPC's 1997 Annual Report to Shareholders is included in Exhibit
13 to UPC's 1997 Form 10-K.
The unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the consolidated historical financial
statements of UPC and MGR which are incorporated by reference herein. Pro forma
results are not necessarily indicative of future operating results.
1
<PAGE> 44
UNION PLANTERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
UPC, MGR
UPC AND
PRO FORMA AND OTHER
UPC MGR ADJUSTMENTS MGR ACQUISITIONS
----------- ---------- ----------- ----------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks.......................... $ 660,528 $ 220,317 $ 880,845 $ 1,008,839
Interest-bearing deposits at financial
institutions................................... 20,425 72,076 92,501 121,716
Federal funds sold and securities purchased under
agreements to resell........................... 309,415 23,050 332,465 473,725
Trading account assets........................... 163,698 -- 163,698 163,698
Loans held for resale............................ 253,021 -- 253,021 259,017
Investment securities............................ 3,287,664 2,239,113 5,526,777 7,812,071
Loans............................................ 12,754,653 4,379,021 17,133,674 20,272,013
Less: Unearned income....................... (26,994) (93) (27,087) (34,152)
Allowance for losses on loans......... (223,837) (59,928) (283,765) (320,107)
----------- ---------- --------- ----------- -----------
Net loans.................................... 12,503,822 4,319,000 16,822,822 19,917,754
Premises and equipment 338,799 117,253 456,052 534,387
Accrued interest receivable...................... 196,595 46,523 243,118 279,665
FHA/VA claims receivable......................... 138,626 -- 138,626 138,626
Mortgage servicing rights........................ 98,089 1,237 99,326 99,832
Goodwill and other intangibles................... 78,927 120,951 199,878 375,339
Other assets..................................... 364,005 91,098 29,060(b) 484,163 519,252
----------- ---------- --------- ----------- -----------
Total assets............................. $18,413,614 $7,250,618 $ 29,060 $25,693,292 $31,703,921
=========== ========== ========= =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing.......................... $ 2,290,776 $ 641,300 $ 2,932,076 $ 3,781,318
Certificates of deposit of $100,000 and
over....................................... 1,417,728 932,141 2,349,869 2,854,920
Other interest-bearing....................... 9,872,723 3,973,247 13,845,970 17,696,215
----------- ---------- --------- ----------- -----------
Total deposits........................... 13,581,227 5,546,688 19,127,915 24,332,453
Short-term borrowings............................ 442,051 891,706 1,333,757 1,365,605
Short- and medium-term bank notes................ 135,000 -- 135,000 139,743
Federal Home Loan Bank advances.................. 846,291 106,370 952,661 1,215,073
Other long-term debt............................. 1,022,644 9,513 1,032,157 1,037,766
Accrued interest, expenses and taxes............. 182,422 76,604 90,511(b) 349,537 406,185
Other liabilities................................ 394,537 8,759 403,296 410,918
----------- ---------- --------- ----------- -----------
Total liabilities........................ 16,604,172 6,639,640 90,511 23,334,323 28,907,743
----------- ---------- --------- ----------- -----------
Shareholders' equity
Convertible preferred stock.................. 36,972 40 37,012 37,012
Common stock 419,326 68,075 89,631(a) 577,032 662,544
Additional paid-in capital................... 272,157 343,601 (150,257)(a) 457,905 580,938
(7,596)(b)
Retained earnings............................ 1,060,029 267,982 (61,451)(b) 1,266,560 1,489,763
Treasury stock............................... -- (60,626) 60,626(a) -- --
Unearned compensation........................ (9,550) (7,596) 7,596(b) (9,550) (10,021)
Net unrealized gain on available for sale
securities................................. 30,508 (498) 30,010 35,942
----------- ---------- --------- ----------- -----------
Total shareholders' equity............... 1,809,442 610,978 (61,451) 2,358,969 2,796,178
----------- ---------- --------- ----------- -----------
Total liabilities and shareholders'
equity................................. $18,413,614 $7,250,618 $ 29,060 $25,693,292 $31,703,921
=========== ========== ========= =========== ===========
</TABLE>
(a) Issuance of shares to acquire MGR (32,563,752 MGR shares outstanding
times the exchange ratio of .9686 equals 31,541,250 shares of UPC Common
Stock to be issued).
(b) Acquisition - related charges -- see Note 2.
2
<PAGE> 45
UNION PLANTERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
UPC, MGR,
UPC AND
AND OTHER
UPC MGR ACQUISITIONS
------------- ------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Interest income
Interest and fees on loans.......................... $ 292,160 $ 388,325 $ 465,341
Interest on investment securities
Taxable.......................................... 41,475 69,870 83,000
Tax-exempt....................................... 7,066 10,836 13,777
Interest on deposits at financial institutions...... 424 470 735
Interest on federal funds sold and securities
purchased under agreements to resell............. 2,710 4,837 6,387
Interest on trading account assets.................. 3,020 3,020 3,020
Interest on loans held for resale................... 2,280 2,280 2,383
----------- ----------- -----------
Total interest income............................ 349,135 479,638 574,643
----------- ----------- -----------
Interest expense
Interest on deposits................................ 124,085 179,549 221,207
Interest on short-term borrowings................... 6,016 17,237 21,987
Interest on long-term debt.......................... 28,327 29,936 30,779
----------- ----------- -----------
Total interest expense........................... 158,428 226,722 273,973
----------- ----------- -----------
Net interest income.............................. 190,707 252,916 300,670
Provision for losses on loans......................... 17,909 21,459 24,775
----------- ----------- -----------
Net interest income after provision for losses on
loans.......................................... 172,798 231,457 275,895
Noninterest income
Service charges on deposit accounts................. 25,746 32,074 36,435
Mortgage servicing income........................... 16,191 16,453 16,890
Bank card income.................................... 7,498 9,426 9,641
Factoring commissions............................... 7,304 7,304 7,304
Trust service income................................ 2,407 5,723 6,381
Profits and commissions from trading activities..... 1,847 1,848 1,848
Investment securities gains......................... 5,215 5,811 6,552
Other income........................................ 29,510 41,058 43,559
----------- ----------- -----------
Total noninterest income......................... 95,718 119,697 128,610
Noninterest expense
Salaries and employee benefits...................... 73,230 96,595 113,940
Net occupancy expense............................... 10,644 15,473 18,137
Equipment expense................................... 10,997 13,694 16,052
Other expense....................................... 58,753 77,892 90,669
----------- ----------- -----------
Total noninterest expense........................ 153,624 203,654 238,798
----------- ----------- -----------
Earnings before income taxes..................... 114,892 147,500 165,707
Applicable income taxes............................. 40,320 52,417 59,139
----------- ----------- -----------
Net earnings..................................... $ 74,572 $ 95,083 $ 106,568
=========== =========== ===========
Earnings per common share
Basic............................................... $ .89 $ .82 $ .80
Diluted............................................. .86 .79 .78
Weighted average shares outstanding (in thousands)
Basic............................................... 83,379 114,868 131,931
Diluted............................................. 86,974 120,157 137,409
</TABLE>
3
<PAGE> 46
UNION PLANTERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
UPC, MGR
UPC AND
AND OTHER
UPC MGR ACQUISITIONS
------------- ------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Interest income
Interest and fees on loans.......................... $1,165,925 $1,536,829 $1,839,742
Interest on investment securities
Taxable........................................ 187,221 290,351 343,598
Tax-exempt..................................... 29,032 40,516 52,133
Interest on deposits at financial institutions...... 2,627 2,794 3,346
Interest on federal funds sold and securities
purchased under agreements to resell.............. 9,114 13,593 18,387
Interest on trading account assets.................. 14,956 14,956 14,956
Interest on loans held for resale................... 7,819 7,819 7,982
---------- ---------- ----------
Total interest income..................... 1,416,694 1,906,858 2,280,144
---------- ---------- ----------
Interest expense
Interest on deposits................................ 494,517 698,778 860,526
Interest on short-term borrowings................... 41,280 81,980 104,620
Interest on long-term debt.......................... 110,512 116,687 120,184
---------- ---------- ----------
Total interest expense.................... 646,309 897,445 1,085,330
---------- ---------- ----------
Net interest income....................... 770,385 1,009,413 1,194,814
Provision for losses on loans............................ 113,633 142,580 154,163
---------- ---------- ----------
Net interest income after provision for
losses on loans......................... 656,752 866,833 1,040,651
Noninterest income
Service charges on deposit accounts................. 107,248 133,352 151,454
Mortgage servicing income........................... 57,265 58,216 59,002
Bank card income.................................... 31,317 38,544 39,239
Factoring commissions............................... 30,140 30,140 30,140
Trust service income................................ 9,020 21,663 24,355
Profits and commissions from trading activities..... 7,295 7,295 7,295
Investment securities gains......................... 2,104 4,688 5,481
Other income........................................ 117,221 138,994 152,124
---------- ---------- ----------
Total noninterest income.................. 361,610 432,892 469,090
---------- ---------- ----------
Noninterest expense
Salaries and employee benefits...................... 284,648 372,959 440,212
Net occupancy expense............................... 44,813 64,140 73,676
Equipment expense................................... 43,812 53,579 62,466
Other expense....................................... 324,431 379,663 430,225
---------- ---------- ----------
Total noninterest expense................. 697,704 870,341 1,006,579
---------- ---------- ----------
Earnings before income taxes.............. 320,658 429,384 503,162
Applicable income taxes.................................. 111,897 147,948 173,787
---------- ---------- ----------
Net earnings.............................. $ 208,761 $ 281,436 $ 329,375
========== ========== ==========
Earnings per common share
Basic............................................... $ 2.54 $ 2.48 $ 2.52
Diluted............................................. 2.45 2.40 2.45
Weighted average shares outstanding (in thousands)
Basic............................................... 80,336 111,418 128,555
Diluted............................................. 85,195 117,884 135,180
</TABLE>
4
<PAGE> 47
UNION PLANTERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
UPC UPC, MGR,
AND PEOPLES, AMBANC,
UPC MGR AND MERCHANTS
----------- ----------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Interest income
Interest and fees on loans...................... $1,095,148 $1,380,299 $1,535,342
Interest on investment securities
Taxable.................................... 247,716 340,745 372,233
Tax-exempt................................. 30,839 37,980 45,560
Interest on deposits at financial
institutions.................................. 1,593 1,679 1,996
Interest on federal funds sold and securities
purchased under agreements to resell.......... 16,948 19,376 21,578
Interest on trading account assets.............. 13,895 13,895 13,895
Interest on loans held for resale............... 6,852 6,852 7,241
---------- ---------- ----------
Total interest income................. 1,412,991 1,800,826 1,997,845
---------- ---------- ----------
Interest expense
Interest on deposits............................ 512,668 670,856 755,680
Interest on short-term borrowings............... 64,689 93,501 100,543
Interest on long-term debt...................... 90,782 97,530 97,680
---------- ---------- ----------
Total interest expense................ 668,139 861,887 953,903
---------- ---------- ----------
Net interest income................... 744,852 938,939 1,043,942
Provision for losses on loans........................ 68,948 79,228 84,198
---------- ---------- ----------
Net interest income after provision
for losses on loans................. 675,904 859,711 959,744
Noninterest income
Service charges on deposit accounts............. 107,535 130,978 141,119
Mortgage servicing income....................... 63,003 63,981 63,981
Bank card income................................ 24,975 30,988 31,636
Factoring commissions........................... 26,066 26,066 26,066
Trust service income............................ 10,130 19,512 21,496
Profits and commissions from trading
activities.................................... 5,765 5,765 5,765
Investment securities gains..................... 4,099 4,916 4,942
Other income.................................... 78,929 88,654 93,761
---------- ---------- ----------
Total noninterest income.............. 320,502 370,860 388,766
---------- ---------- ----------
Noninterest expense
Salaries and employee benefits.................. 282,726 351,868 388,972
Net occupancy expense........................... 47,215 65,195 70,142
Equipment expense............................... 44,418 53,149 60,704
Other expense................................... 357,458 399,991 422,915
---------- ---------- ----------
Total noninterest expense............. 731,817 870,203 942,733
---------- ---------- ----------
Earnings before income taxes.......... 264,589 360,368 405,777
Applicable income taxes.............................. 93,115 125,755 139,649
---------- ---------- ----------
Net earnings.......................... $ 171,474 $ 234,613 $ 266,128
========== ========== ==========
Earnings per common share
Basic........................................... $ 2.13 $ 2.18 $ 2.24
Diluted......................................... 2.05 2.11 2.17
Weighted average shares outstanding (in thousands)
Basic........................................... 77,240 104,539 115,726
Diluted......................................... 83,542 112,425 123,714
</TABLE>
5
<PAGE> 48
UNION PLANTERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
UPC UPC, MGR,
AND PEOPLES, AMBANC,
UPC MGR AND MERCHANTS
----------- ----------- -----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Interest income
Interest and fees on loans...................... $ 986,230 $1,252,376 $1,388,252
Interest on investment securities
Taxable.................................... 202,890 274,743 304,771
Tax-exempt................................. 32,400 39,666 47,200
Interest on deposits at financial
institutions.................................. 5,284 5,375 6,244
Interest on federal funds sold and securities
purchased under agreements to resell.......... 19,965 21,777 24,456
Interest on trading account assets.............. 14,191 14,191 14,191
Interest on loans held for resale............... 4,858 4,858 5,184
---------- ---------- ----------
Total interest income................. 1,265,818 1,612,986 1,790,298
---------- ---------- ----------
Interest expense
Interest on deposits............................ 478,641 616,666 695,224
Interest on short-term borrowings............... 44,492 64,725 70,706
Interest on long-term debt...................... 73,234 79,293 79,674
---------- ---------- ----------
Total interest expense................ 596,367 760,684 845,604
---------- ---------- ----------
Net interest income................... 669,451 852,302 944,694
Provision for losses on loans........................ 33,917 43,909 47,393
---------- ---------- ----------
Net interest income after provision
for losses on loans................. 635,534 808,393 897,301
Noninterest income
Service charges on deposit accounts............. 102,932 125,419 134,243
Mortgage servicing income....................... 55,903 56,787 56,787
Bank card income................................ 20,758 26,559 27,124
Factoring commissions........................... 19,519 19,519 19,519
Trust service income............................ 8,326 16,964 18,786
Profits and commissions from trading
activities.................................... 12,362 12,362 12,362
Investment securities gains..................... 1,433 1,789 2,008
Other income.................................... 72,477 82,174 86,497
---------- ---------- ----------
Total noninterest income.............. 293,710 341,573 357,326
---------- ---------- ----------
Noninterest expense
Salaries and employee benefits.................. 264,663 337,656 371,136
Net occupancy expense........................... 44,061 61,738 66,224
Equipment expense............................... 42,251 51,218 57,289
Other expense................................... 256,214 302,794 324,295
---------- ---------- ----------
Total noninterest expense............. 607,189 753,406 818,944
---------- ---------- ----------
Earnings before income taxes.......... 322,055 396,560 435,683
Applicable income taxes.............................. 110,799 134,082 145,486
---------- ---------- ----------
Net earnings.......................... $ 211,256 $ 262,478 $ 290,197
========== ========== ==========
Earnings per common share
Basic........................................... $ 2.79 $ 2.56 $ 2.56
Diluted......................................... 2.66 2.46 2.46
Weighted average shares outstanding (in thousands)
Basic........................................... 72,512 99,346 110,196
Diluted......................................... 78,798 106,632 117,604
</TABLE>
6
<PAGE> 49
Note 1. RECENTLY COMPLETED AND OTHER PENDING ACQUISITIONS
RECENTLY COMPLETED ACQUISITIONS. Since December 31, 1997 and as of
June 30, 1998, UPC has completed the acquisition of two institutions (the
"Recently Completed Acquisitions").
<TABLE>
<CAPTION>
Asset Size Type of
Institution (In Millions) Consideration
- ------------------------------------------------ ------------------- -------------------
<S> <C> <C>
Sho-Me Financial Corporation, Mt. Vernon, $374 Approximately
Missouri, and its subsidiary, 1st Savings Bank, 1,153,459 shares
f.s.b. of UPC Common
Stock
Security Bancshares, Inc., Des Arc, Arkansas, 146 Approximately
and its subsidiaries, Farmers & Merchants Bank, 490,821 shares of
Des Arc, Arkansas, and Merchants and Farmers UPC Common
Bank, West Helena, Arkansas Stock
-------------------
TOTAL $520
===================
</TABLE>
OTHER PENDING ACQUISITIONS. As of June 30, 1998, UPC has entered into
definitive agreements to acquire the following financial institutions
(collectively, the "Other Pending Acquisitions" and, together with the Recently
Completed Acquisitions, the "Other Acquisitions") which UPC's management
considers probable of consummation and which are expected to close in 1998. For
purposes of these pro forma financial statements the term "Other Pending
Acquisitions" includes the Charter Acquisition.
7
<PAGE> 50
<TABLE>
<CAPTION>
Actual or
Institution Asset Size Type of Projected
(In Millions)(1) Consideration(2) Closing Date
- --------------------------------------------- ---------------- ---------------------------- ---------------
<S> <C> <C> <C>
Magna Group, Inc., St. Louis, Missouri, and $7,657 Approximately 35,446,000 July 1,
its subsidiaries, including Magna Bank, St. shares of UPC Common 1998
Louis, Missouri ("MGR")(3) Stock
Peoples First Corporation, Paducah, Kentucky 1,493 Approximately 6,338,000 July 1,
and its subsidiaries, including Peoples First shares of UPC Common 1998
National Bank, Paducah, Kentucky ("Peoples") Stock
Purchase of 24 branches and assumption of 1,465 $110 million deposit September 11,
$1.5 billion of deposits of California Federal premium in cash 1998
Bank in Florida ("CalFed Branch Purchase")
AMBANC Corporation, Vincennes, Indiana, 734 Approximately 3,398,000 August 31,
and its subsidiaries, AMBANC Illinois, N.A. shares of UPC Common 1998
and AMBANC Indiana ("AMBANC") Stock
Merchants Bancshares, Inc., Houston, Texas, 552 Approximately 2,000,000 July 31,
and its subsidiary, Merchants Bank, Houston, shares of UPC Common 1998
Texas ("Merchants") Stock
Alvin Bancshares, Inc., Alvin, Texas and its 121 Approximately 425,000 August 1
subsidiary Alvin State Bank, Alvin, Texas shares of UPC Common 1998
Stock
TransFlorida Bank, Boca Raton, Florida 318 Approximately 1,655,000 August 31,
shares of UPC Common 1998
Stock
CB&T, Inc., McMinnville, Tennessee, and its 271 Approximately 1,450,000 July 7,
subsidiary, City Bank & Trust Company, shares of UPC Common 1998
McMinnville, Tennessee Stock
Capital Savings Bancorp, Inc., Jefferson City, 232 Approximately 801,000 July 8,
Missouri, and its subsidiary, Capital Savings shares of UPC Common 1998
Bank, FSB, Jefferson City, Missouri Stock
217 Approximately 836,000 July 31,
First National Bancshares of Wetumpka, Inc., shares of UPC Common 1998
Wetumpka, Alabama, and its subsidiary, First Stock
National Bank, Wetumpka, Alabama
First Community Bancshares, Inc., Middleton, 41 Approximately 129,000 August 5,
TN, and its subsidiary, Bank of Middleton, shares of UPC Common 1998
Middleton, Tennessee Stock
Duck Hill Bank, Duck Hill, Mississippi 20 Approximately 42,000 August 1,
-------- shares of UPC Common 1998
Stock
TOTALS $ 13,121
========
</TABLE>
--------------------
(1) Approximate total assets at March 31, 1998
(2) Assumes no adjustment to shares pursuant to exchange ratio adjustment
mechanisms.
(3) Includes the proforma impact of the Charter Acquisition.
RECENTLY ANNOUNCED ACQUISITIONS. On July 1, 1998, the Corporation
announced that it had entered into a definitive agreement to acquire LaPlace
Bancshares Inc. and its subsidiary, Bank of LaPlace of St. John the Baptist
Parish, both headquartered in LaPlace, Louisiana. LaPlace Bancshares, Inc. has
total assets of approximately $69 million. The acquisition is subject to
regulatory approval, approval of the shareholders of LaPlace Bancshare, Inc. and
certain contractual conditions. The Corporation expects to account for this
acquisition as a pooling of interests and expects to issue approximately 415,000
shares of the Corporation common stock.
Additionally, on July 2, 1998, the Corporation announced it had entered
into a definitive agreement to acquire First Mutual Bancorp, Inc. (First Mutual)
in a transaction to be accounted for as a purchase. First Mutual, headquartered
in Decatur, Illinois, is a bank holding company with approximately $391 million
in total assets. The transaction is subject to regulatory approval, approval of
shareholders of First Mutual, and certain contractual conditions. The
Corporation expects to issue approximately 1.1 million shares of its common
stock in the acquisition. Additionally, the Corporation intends to purchase, in
the open market, the common shares to facilitate its purchase of First Mutual.
A copy of the joint press release announcing the proposed acquisition and a
press release announcing the Corporation intention to purchase the shares to be
issued in the transaction are attached as Exhibits 99 (b) and (c) of this report
on Form 8-K.
These two recently announced acquisitions are not considered material
to the pro forma financial statements and are not included in the pro forma
financial information.
Note 2. EARNINGS CONSIDERATIONS RELATED TO THE MERGER AND THE OTHER
ACQUISITIONS.
It is expected that either UPC or the institutions to be acquired
in connection with the Merger and the Other Pending Acquisitions will incur
charges arising from such acquisitions and from the assimilation of those
institutions into the UPC organization. Most of the charges are expected to
relate to the Magna Group, Inc. and Peoples First Corporation, Inc.
acquisitions. Anticipated charges would normally arise from matters such as, but
not limited to; (i) legal, accounting, financial advisory and consulting fees;
(ii) payment of contractual benefits triggered by a change of control, early
retirement and involuntary separation and related benefits; (iii) costs
associated with elimination of duplicate facilities and branch consolidations;
(iv) data processing charges; (v) cancellation of vendor contracts, and (vi)
other contingencies and similar costs which normally arise from the
consolidation of operational activities.
The Other Acquisitions (with the exception of Duck Hill Bank, the
Charter Acquisition, and the CalFed Branch Purchase, each of which is expected
to be accounted for as a purchase) are expected to be accounted for as poolings
of interest. UPC currently estimates incurring aggregate pre-tax charges in the
range of $100 million to $115 million (approximately $91 million related to MGR)
before taxes in connection with the consummation of the Merger and the Other
Acquisitions. On an after tax basis these charges are estimated in the range of
$75 million to $80 million (approximately $61 million related to MGR). To the
extent that UPC's recognition of these acquisition-related charges is contingent
upon consummation of a particular transaction, those charges would be recognized
in the period in which such transaction closes. The pro forma impact of these
charges is included in the pro forma balance sheet information included in this
Proxy Statement.
The range of anticipated charges to be incurred in connection with
consummating the Other Acquisitions is a preliminary estimate of the significant
charges which may, in the aggregate, be required and should be viewed
accordingly. These charges are reflected in the pro forma consolidated balance
sheet. Moreover, this range has been based on the due diligence that has been
performed to date in connection with the Merger and the Other Acquisitions and
the range may be subject to change and the actual charges incurred may be higher
or lower than what is currently contemplated, once these institutions are
assimilated from an operational perspective and various contingencies are either
satisfied or eliminated. Furthermore, the range of anticipated charges will
change if additional entities are acquired. UPC regularly evaluates the
potential acquisition of, and holds discussions with, various potential
acquisition candidates. As a general rule, UPC will publicly announce such
acquisitions only after a definitive agreement has been reached, and only if UPC
considers the acquisition to be of such a size as to be a significant
acquisition. Since the range of anticipated acquisition-related charges is
likely to change with additional acquisitions, and since UPC regularly engages
in acquisitions, such range could change, and the reader should view such
information accordingly.
8
<PAGE> 1
EXHIBIT 23
Consent of Ernst & Young LLP
<PAGE> 2
Consent of Independent Auditors
We consent to the inclusion in this Current Report (Form 8-K) of Union Planters
Corporation and to the incorporation by reference in the previously filed
Registration Statements on Form S-3 (Nos. 33-27814, 333-02377, and 333-11817)
and Form S-8 (Nos. 2-87392, 33-23306, 33-35928, 33-53454, 33-55257, 33-56269,
33-65467, 333-02363, 333-13205, 333-13207, 333-17363, 333-28507 and 333-41089)
of our report dated January 21, 1998, except for Note 24, as to which the date
is February 22, 1998, on the consolidated financial statements of Magna Group,
Inc. as of December 31, 1997 and 1996, and for the three-year period ended
December 31, 1997, included in Magna's 1997 Annual Report (Form 10-K).
/S/ ERNST & YOUNG LLP
St. Louis, Missouri
July 10, 1998
<PAGE> 1
EXHIBIT 99 (a)
Union Planters Corporation Press Release
Announcing the Consummation of the
Magna Group, Inc. and
Peoples First Corporation Acquisitions
<PAGE> 2
FOR IMMEDIATE RELEASE:
UNION PLANTERS ANNOUNCES COMPLETION OF TWO ACQUISITIONS
MEMPHIS, Tenn.--July 1, 1998--Union Planters Corporation (NYSE:UPC)
announced today that it has completed the acquisitions of Magna
Group (NYSE:MGR) and Peoples First Corporation (NASDAQ:PFKY).
Announced on February 22, 1998, the transaction with the St. Louis based Magna
Group will be accounted for as a pooling of interests and will provide a
tax-free exchange of 0.9686 shares of UPC common stock for each common share of
Magna Group. For customer convenience, it is anticipated that Magna Bank will
convert to the Union Planters operating system and adopt the Union Planters name
in October of 1998.
Union Planters also announced that it has completed its acquisition of Peoples
First Corporation, based in Paducah, Kentucky under the terms of the definitive
agreement of November 18, 1997. Peoples First National Bank plans to change its
name to Union Planters in August of 1998 and convert its Kentucky branches to
the Union Planters operating system in the first quarter of 1999. The
Clarksville, Tennessee branches will consolidate with the existing Union
Planters Bank in that market area in August of this year.
The transaction will be accounted for as a pooling of interests and will provide
a tax-free exchange of 0.6 shares of UPC common stock for each common share of
Peoples First Corporation.
The following companies are also scheduled to affiliate with Union
Planters this year:
First National Bancshares of Wetumpka, Inc., Wetumpka, Ala.
Merchants Bancshares, Inc., Houston, Texas
CB&T, Inc., McMinnville, Tenn.
Capital Savings Bancorp, Inc., Jefferson City, Mo.
Alvin Bancshares, Inc., Alvin, Texas
First Community Bancshares, Inc., Middleton, Tenn.
Duck Hill Bank, Duck Hill, Miss.
Ambanc Corporation, Vincennes, Ind.
Transflorida Bank , Boca Raton, Fla.
and the purchase of California Federal's franchise in Florida.
<PAGE> 3
Union Planters Corporation, headquartered in Memphis, Tennessee, is a
multi-state bank holding company with over 800 financial service offices in
Tennessee, Alabama, Arkansas, Florida, Illinois, Iowa, Kentucky, Louisiana,
Mississippi and Missouri.
-end-
For More Information:
Financial contact:
Jack Parker
Executive Vice President and
Chief Financial Officer
901.580.6781
Media contact:
Bill Andrews
Senior Vice President
901.580.2892
<PAGE> 1
EXHIBIT 99 (B)
Union Planters Corporation Press Release Announcing
First Mutual Bancorp to Affiliate with
Union Planters
<PAGE> 2
FOR IMMEDIATE RELEASE:
First Mutual Bancorp To Affiliate With Union Planters
Memphis, TN (NYSE:UPC) -- July 2, 1998-- Union Planters Corporation and First
Mutual Bancorp, Inc., headquartered in Decatur, Illinois, jointly announced
today that they have signed a definitive agreement for the acquisition of First
Mutual by Union Planters. The announcement was made by Benjamin W. Rawlins,
Jr., Chairman and Chief Executive Officer of Union Planters Corporation, C. R.
Chastain, Chairman of the Board and Paul K. Reynolds, President and Chief
Executive Officer of First Mutual.
Under the agreement, in a tax-free exchange, shareholders of First Mutual would
receive $18.50, in UPC common stock, for each First Mutual common share. The
transaction would be valued at approximately $65.3 million based on Union
Planters' July 2 closing common stock price of $59 7/16. The acquisition is
expected to be accounted for as a purchase transaction and is scheduled to be
closed prior to year-end.
In connection with the agreement, First Mutual has granted Union Planters an
option to purchase 19.9% of its common stock in certain circumstances. The
transaction is subject to shareholder and regulatory approval and other
customary terms and conditions.
In making the announcement, Paul Reynolds stated, "We look forward to the added
conveniences that we will be able to provide our customers as a part of the
Union Planters family of banks. Union Planters has been successful because of
their long-standing commitment to community banking." Chastain added, "We agree
with that philosophy and look forward to having the benefits of additional
products, services and locations that Union Planters will bring us while
keeping decisions as close to the customer as possible."
Ben Rawlins stated, " Union Planters has a long history of community banking.
We realize that decisions are best made when they are at the local level. We
look forward to working with the First Mutual team in providing better
financial solutions for their customers while keeping that home town touch. In
addition, our recent affiliation with Magna Bank will give First Mutual
customers access to an increased number of banking locations in Illinois."
<PAGE> 3
First Mutual Bancorp, Inc., is a bank holding company, with approximately $391
million in total assets. First Mutual conducts a complete range of banking
activities through 14 banking offices in Illinois.
Founded in 1869, Union Planters, headquartered in Memphis, Tennessee, is one of
the 30 largest banking organizations in the country, with total assets of
approximately $27.5 billion. Union Planters serves its customers with banking
offices in Tennessee, Alabama, Arkansas, Florida, Illinois, Iowa, Kentucky,
Louisiana, Mississippi and Missouri. The Small Business Administration recently
named Union Planters as one of the nation's five most small business friendly
lenders.
(end)
For more information:
(First Mutual)
Paul Reynolds
President & CEO
First Mutual Bank, S.B.
135 East Main Street
Decatur, IL 62523
(P) 217.429.2306
(Financial)
Jack W. Parker
Executive Vice President & CFO
Union Planters Corporation
7130 Goodlett Farms Parkway
Cordova, TN 38018
(P) 901.580.6781
(Media)
Bill Andrews
Senior Vice President
Union Planters Corporation
7130 Goodlett Farms Parkway
Cordova, TN 38018
(P) 901.580.2892
(F) 901.580.2396
<PAGE> 1
EXHIBIT 99 (C)
Union Planters Corporation Press Release Announcing
A Stock Buyback for the First Mutual Acquisition
<PAGE> 2
UNION PLANTERS ANNOUNCES STOCK BUYBACK FOR FIRST MUTUAL ACQUISITION
MEMPHIS, Tenn.--July 3, 1998--Union Planters Corporation (NYSE:UPC) announced
today that it intends to purchase, in the open market, approximately one
million UPC common shares to facilitate its purchase of First Mutual Bancorp.
The acquisition and stock buyback are both expected to be completed by the end
of this year.
As announced on July 2, First Mutual Bancorp, headquartered in Decatur,
Illinois, is a $391 million bank holding company. The acquisition will be
accounted for as a purchase transaction.
-end-
For additional information:
Financial
Jack Parker
Executive Vice President & CFO
901/580-6781
Media
Bill Andrews
Senior Vice President
901/580-2892
