<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period ___ to ___.
Commission File No. 1-10160
---------
UNION PLANTERS CORPORATION
(Exact name of registrant as specified in its charter)
Tennessee 62-0859007
- ------------------------- -------------------------------
(State of incorporation) (IRS Employer Identification No.)
Union Planters Administrative Center
7130 Goodlett Farms Parkway
Memphis, Tennessee 38018
(Address of principal executive offices)
Registrant's telephone number, including area code: (901) 580-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at April 30, 1998
- ------------------------- ------------------------------
Common stock $5 par value 84,893,432
<PAGE> 2
UNION PLANTERS CORPORATION AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1998
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
a) Consolidated Balance Sheet - March 31, 1998,
March 31, 1997, and December 31, 1997............................................................3
b) Consolidated Statement of Earnings -
Three Months Ended March 31, 1998 and 1997.......................................................4
c) Consolidated Statement of Changes in Shareholders' Equity -
Three Months Ended March 31, 1998 ...............................................................5
d) Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1998 and 1997.......................................................6
e) Notes to Unaudited Consolidated Financial Statements.............................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................................................14
Item 3. Quantitative and Qualitative Disclosures about
Market Risk.....................................................................................27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................................................................30
Item 2. Changes in Securities...........................................................................30
Item 3. Defaults Upon Senior Securities.................................................................30
Item 4. Submission of Matters to a Vote of Security Holders.............................................30
Item 5. Other Information...............................................................................30
Item 6. Exhibits and Reports on Form 8-K................................................................30
Signatures................................................................................................32
</TABLE>
2
<PAGE> 3
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
----------------------------- DECEMBER 31,
1998 1997 1997
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash and due from banks ................................................... $ 660,528 $ 650,753 $ 816,472
Interest-bearing deposits at financial institutions ....................... 20,425 48,942 24,490
Federal funds sold and securities purchased under agreements to resell .... 309,415 73,271 109,192
Trading account assets .................................................... 163,698 209,979 187,419
Loans held for resale ..................................................... 253,021 134,214 170,742
Available for sale investment securities (Amortized cost: $3,237,613,
$3,426,554, and $3,185,002, respectively) ............................... 3,287,664 3,449,824 3,247,680
Loans ..................................................................... 12,754,653 12,594,929 12,687,089
Less: Unearned income ................................................... (26,994) (34,091) (28,525)
Allowance for losses on loans ..................................... (223,837) (192,943) (225,389)
------------- ------------- -------------
Net loans ............................................................ 12,503,822 12,367,895 12,433,175
Premises and equipment, net ............................................... 338,799 332,569 330,703
Accrued interest receivable ............................................... 196,595 228,013 204,504
FHA/VA claims receivable .................................................. 138,626 90,431 134,112
Mortgage servicing rights ................................................. 98,089 63,926 61,346
Goodwill and other intangibles ............................................ 78,927 63,172 52,655
Other assets .............................................................. 364,005 341,927 332,589
------------- ------------- -------------
TOTAL ASSETS ...................................................... $ 18,413,614 $ 18,054,916 $ 18,105,079
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing .................................................... $ 2,290,776 $ 2,188,123 $ 2,323,367
Certificates of deposit of $100,000 and over ........................... 1,417,728 1,384,986 1,426,751
Other interest-bearing ................................................. 9,872,723 9,813,288 9,690,151
------------- ------------- -------------
Total deposits .................................................... 13,581,227 13,386,397 13,440,269
Short-term borrowings ..................................................... 442,051 611,757 831,627
Short-and medium-term bank notes .......................................... 135,000 350,000 135,000
Federal Home Loan Bank advances ........................................... 846,291 902,285 703,996
Other long-term debt ...................................................... 1,022,644 594,782 710,908
Accrued interest, expenses, and taxes ..................................... 182,422 181,161 145,452
Other liabilities ......................................................... 394,537 365,171 390,961
------------- ------------- -------------
TOTAL LIABILITIES ................................................. 16,604,172 16,391,553 16,358,213
------------- ------------- -------------
Commitments and contingent liabilities .................................... -- -- --
Shareholders' equity
Convertible preferred stock ............................................. 36,972 71,937 54,709
Common stock, $5 par value; 300,000,000 shares authorized;
83,865,183 issued and outstanding (79,561,731 at March 31, 1997,
and 81,650,946 at December 31, 1997) ................................. 419,326 397,809 408,255
Additional paid-in capital .............................................. 272,157 168,258 193,032
Retained earnings ....................................................... 1,060,029 1,021,510 1,061,670
Unearned compensation ................................................... (9,550) (10,377) (9,529)
Unrealized gain on available for sale securities ........................ 30,508 14,226 38,729
------------- ------------- -------------
TOTAL SHAREHOLDERS' EQUITY ........................................ 1,809,442 1,663,363 1,746,866
------------- ------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ....................... $ 18,413,614 $ 18,054,916 $ 18,105,079
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------------------
1998 1997
-------------------- --------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans ....................................................... $ 292,160 $ 287,605
Interest on investment securities
Taxable ........................................................................ 41,475 47,245
Tax-exempt ..................................................................... 7,066 7,310
Interest on deposits at financial institutions ................................... 424 438
Interest on federal funds sold and securities purchased under agreements to resell 2,710 2,423
Interest on trading account assets ............................................... 3,020 4,492
Interest on loans held for resale ................................................ 2,280 1,616
-------------------- --------------------
Total interest income .................................................... 349,135 351,129
-------------------- --------------------
INTEREST EXPENSE
Interest on deposits ............................................................. 124,085 122,366
Interest on short-term borrowings ................................................ 6,016 11,309
Interest on long-term debt ....................................................... 28,327 26,864
-------------------- --------------------
Total interest expense ................................................... 158,428 160,539
-------------------- --------------------
NET INTEREST INCOME ...................................................... 190,707 190,590
PROVISION FOR LOSSES ON LOANS ...................................................... 17,909 22,004
-------------------- --------------------
NET INTEREST INCOME AFTER PROVISION FOR LOSSES ON LOANS .................. 172,798 168,586
-------------------- --------------------
NONINTEREST INCOME
Service charges on deposit accounts .............................................. 25,746 26,242
Mortgage servicing income ........................................................ 16,191 14,921
Bank card income ................................................................. 7,498 7,781
Factoring commissions ............................................................ 7,304 6,824
Trust service income ............................................................. 2,407 2,413
Profits and commissions from trading activities .................................. 1,847 2,131
Investment securities gains ...................................................... 5,215 173
Other income ..................................................................... 29,510 22,499
-------------------- --------------------
Total noninterest income ................................................. 95,718 82,984
-------------------- --------------------
NONINTEREST EXPENSE
Salaries and employee benefits ................................................... 73,230 70,266
Net occupancy expense ............................................................ 10,644 10,737
Equipment expense ................................................................ 10,997 10,402
Other expense .................................................................... 58,753 57,241
-------------------- --------------------
Total noninterest expense ................................................ 153,624 148,646
-------------------- --------------------
EARNINGS BEFORE INCOME TAXES ............................................. 114,892 102,924
Applicable income taxes ............................................................ 40,320 36,479
-------------------- --------------------
NET EARNINGS ............................................................. $ 74,572 $ 66,445
==================== ====================
NET EARNINGS APPLICABLE TO COMMON SHARES ................................. $ 73,937 $ 64,949
==================== ====================
EARNINGS PER COMMON SHARE (NOTE 11)
Basic .................................................................... $ .89 $ .82
Diluted .................................................................. .86 .79
AVERAGE COMMON SHARES OUTSTANDING (IN THOUSANDS)
Basic .................................................................... 83,379 78,904
Diluted .................................................................. 86,974 84,465
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
CONVERTIBLE ADDITIONAL AVAILABLE
PREFERRED COMMON PAID-IN RETAINED UNEARNED FOR SALE
STOCK STOCK CAPITAL EARNINGS COMPENSATION SECURITIES TOTAL
----------- ---------- ---------- ----------- ------------ ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 ........ $ 54,709 $ 408,255 $ 193,032 $ 1,061,670 $ (9,529) $ 38,729 $1,746,866
Comprehensive income
Net earnings .................. -- -- -- 74,572 -- -- 74,572
Other comprehensive income,
net of taxes:
Net change in the
unrealized gain on
available for sale
securities ................. -- -- -- -- -- (8,221) (8,221)
----------- ---------- ---------- ----------- ------------ ---------- ----------
Total comprehensive
income ................. -- -- -- 74,572 -- (8,221) 66,351
Cash dividends
Common stock, $.50 per share .. -- -- -- (41,891) -- -- (41,891)
Preferred stock, $.50 per share -- -- -- (635) -- -- (635)
Common stock issued under
employee benefit plans and
dividend reinvestment plan,
net of stock exchanged ........ -- 4,009 12,692 -- (21) -- 16,680
Issuance of common stock for
acquisitions .................. -- 5,763 55,151 -- -- -- 60,914
Conversion of preferred stock ... (17,737) 4,435 13,302 -- -- -- --
Common stock repurchased for
use in business combinations .... -- (3,136) (2,020) (33,687) -- -- (38,843)
----------- ---------- ---------- ----------- ------------ ---------- ----------
BALANCE, MARCH 31, 1998 ......... $ 36,972 $ 419,326 $ 272,157 $ 1,060,029 $ (9,550) $ 30,508 $1,809,442
=========== ========== ========== =========== ============ ========== ==========
</TABLE>
<TABLE>
<CAPTION>
TAX NET OF
BEFORE-TAX (EXPENSE) TAX
AMOUNT BENEFIT AMOUNT
---------- ---------- ---------
<S> <C> <C> <C>
DISCLOSURE OF RECLASSIFICATION AMOUNT:
Net change in the unrealized gains on
available for sale securities arising
during the period ................... $ (8,240) $ 3,205 $ (5,035)
Less: reclassification for gains
included in net income ......... 5,215 (2,029) 3,186
---------- ---------- ----------
Net change in the unrealized gain on
available for sale securities ........... $ (13,455) $ 5,234 $ (8,221)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
1998 1997
----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings....................................................................... $ 74,572 $ 66,445
Reconciliation of net earnings to net cash provided by operating activities:
Provision for losses on loans, other real estate, and FHA/VA foreclosure claims.. 19,153 22,983
Depreciation and amortization of premises and equipment.......................... 8,611 8,559
Amortization and write-off of intangibles........................................ 7,067 6,980
Net accretion of investment securities........................................... (1,095) (2,436)
Net realized gains on sales of investment securities............................. (5,215) (116)
Deferred income tax (benefit) expense............................................ (1,099) 2,594
(Increase) decrease in assets
Trading account assets and loans held for resale............................. (58,558) 67,588
Other assets................................................................. (56,388) 54,015
Increase in accrued interest, expenses, taxes, and other liabilities............. 37,257 13,887
Other, net....................................................................... 221 65
----------- -----------
Net cash provided by operating activities 24,526 240,564
----------- -----------
INVESTING ACTIVITIES
Net decrease (increase) in short-term investments.................................. 4,065 (28,454)
Proceeds from sales of available for sale securities............................... 445,270 18,219
Proceeds from maturities, calls, and prepayments of available for sale securities.. 348,971 365,771
Purchases of available for sale securities......................................... (816,816) (441,606)
Net decrease (increase) in loans................................................... 215,794 (67,157)
Net cash received from acquisitions of financial institutions...................... 2,591 218
Purchases of premises and equipment, net........................................... (10,372) (6,507)
----------- -----------
Net cash provided (used) by investing activities........................... 189,503 (159,516)
----------- -----------
FINANCING ACTIVITIES
Net decrease in deposits........................................................... (58,951) (127,747)
Net decrease in short-term borrowings.............................................. (389,576) (133,068)
Proceeds from long-term debt, net.................................................. 454,563 239,017
Repayment of long-term debt........................................................ (109,574) (314,485)
Proceeds from issuance of common stock............................................. 15,393 9,446
Purchase and retirement of common stock............................................ (38,843) --
Cash dividends paid................................................................ (42,762) (25,227)
----------- -------------
Net cash used by financing activities...................................... (169,750) (352,064)
----------- -----------
Net increase (decrease) in cash and cash equivalents............................... 44,279 (271,016)
Cash and cash equivalents at the beginning of the period........................... 925,664 995,040
----------- -----------
Cash and cash equivalents at the end of the period................................. $ 969,943 $ 724,024
=========== ===========
SUPPLEMENTAL DISCLOSURES
Cash paid for
Interest......................................................................... $ 147,531 $ 152,785
Income taxes..................................................................... 3,168 4,730
Unrealized gain on available for sale securities................................... 50,051 23,270
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 7
UNION PLANTERS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. PRINCIPLES OF ACCOUNTING
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles. The foregoing financial
statements are unaudited, however, in the opinion of management, all
adjustments, including normal recurring adjustments, necessary for a fair
presentation of the consolidated financial statements have been included.
The accounting policies followed by Union Planters Corporation and its
subsidiaries (collectively, the Corporation) for interim financial reporting are
consistent with the accounting policies followed for annual financial reporting
except as noted below. The notes included herein should be read in conjunction
with the notes to the consolidated financial statements included in the
Corporation's 1997 Annual Report to Shareholders, (1997 Annual Report), a copy
of which is Exhibit 13 to the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1997 (1997 10-K). Certain 1997 amounts have been
reclassified to be consistent with the 1998 financial reporting presentation.
Effective January 1, 1998, the Corporation adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which are reflected in the Consolidated Statement of
Changes in Shareholders' Equity.
NOTE 2. ACQUISITIONS
CONSUMMATED ACQUISITIONS
In a transaction accounted for as a purchase, the Corporation acquired
Sho-Me Financial Corporation (Sho-Me) on January 1, 1998, exchanging 1,153,459
shares of the Corporation's common stock for all of the outstanding common stock
of Sho-Me. Total assets were $373.8 million at the date of acquisition. Goodwill
of $29.2 million resulted from the transaction.
Reference is made to Note 2 of the consolidated financial statements on
pages 49 through 50 of the 1997 Annual Report for information regarding
acquisitions completed in 1997.
RECENTLY COMPLETED ACQUISITION - CONSUMMATED SUBSEQUENT TO MARCH 31, 1998
<TABLE>
<CAPTION>
APPROXIMATE
DATE OF APPROXIMATE METHOD OF TOTAL ASSETS
INSTITUTION CONSUMMATION CONSIDERATION ACCOUNTING AT MARCH 31, 1998
- -------------------------------------------- ---------------- ---------------- ----------------- --------------------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C> <C>
Security Bancshares, Inc............ 4/1/98 490,821 shares Pooling of $146
Des Arc, Arkansas of common stock interests
</TABLE>
7
<PAGE> 8
PENDING ACQUISITIONS
Through its acquisition program, the Corporation has the following pending
acquisitions which are considered probable of consummation.
<TABLE>
<CAPTION>
ANTICIPATED
APPROXIMATE METHOD OF APPROXIMATE
INSTITUTION CONSIDERATION ACCOUNTING TOTAL ASSETS (1)
- ------------------------------------------------------ -------------------- -------------------- --------------------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C>
Magna Group, Inc. (MGR).............................. 35,446,000 shares Pooling of $ 7,630
St. Louis, Missouri (2) of common stock interests
Peoples First Corporation............................ 6,338,000 shares Pooling of 1,493
Paducah, Kentucky of common stock interests
Purchase of 24 branches and assumption............... $110 million Purchase 1,465
of $1.5 billion of deposits of deposit premium
California Federal Bank in Florida in cash
AMBANC Corporation................................... 3,398,000 shares Pooling of 734
Vincennes, Indiana of common stock interests
Merchants Bancshares, Inc............................ 1,952,000 shares Pooling of 552
Houston, Texas of common stock interests
Transflorida Bank.................................... 1,655,000 shares Pooling of 318
Boca Raton, Florida of common stock interests
C B & T, Inc......................................... 1,450,000 shares Pooling of 271
McMinnville, Tennessee of common stock interests
Capital Savings Bancorp, Inc......................... 801,000 shares Pooling of 232
Jefferson City, Missouri of common stock interests
First National Bancshares of Wetumpka, Inc........... 836,000 shares Pooling of 217
Wetumpka, Alabama of common stock interests
Alvin Bancshares, Inc................................ 424,000 shares Pooling of 121
Alvin, Texas of common stock interests
First Community Bancshares, Inc...................... 126,000 shares Pooling of 41
Middleton, Tennessee of common stock interests
Duck Hill Bank....................................... 42,000 shares Purchase 20
Duck Hill, Mississippi of common stock ----------
TOTAL...................................... $ 13,094
==========
</TABLE>
- ----------------------
(1) Approximate total assets at March 31, 1998.
(2) MGR entered into a definitive agreement to acquire Charter Financial, Inc.
and its wholly owned thrift subsidiary CharterBank, S.B. (collectively,
"Charter"), headquartered in Sparta, Illinois. The acquisition was
consummated May 1, 1998. At March 31, 1998 Charter had total assets of
approximately $379 million, total deposits of approximately $280 million,
and total shareholders' equity of approximately $60.3 million. The
acquisition was accounted for as a purchase. The approximate total assets
of Charter are included in the MGR total assets shown above.
8
<PAGE> 9
NOTE 3. LOANS
Loans are summarized by type as follows:
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------- DECEMBER 31,
1998 1997 1997
---------------- ---------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Commercial, financial, and agricultural.............. $ 1,979,718 $ 1,880,293 $ 1,940,781
Foreign.............................................. 180,255 139,333 207,343
Accounts receivable - factoring...................... 572,585 483,216 579,067
Real estate - construction........................... 663,664 532,459 639,696
Real estate - mortgage
Secured by 1-4 family residential.................. 3,725,745 3,673,620 3,603,097
FHA/VA government-insured/guaranteed............... 1,228,769 1,592,665 1,319,553
Other mortgage..................................... 2,125,086 1,854,608 2,055,420
Home equity.......................................... 294,110 238,933 290,634
Consumer
Credit cards and related plans..................... 515,616 629,098 558,705
Other consumer..................................... 1,401,940 1,500,023 1,427,756
Direct lease financing............................... 67,165 70,681 65,037
----------- ----------- -----------
TOTAL LOANS................................ $12,754,653 $12,594,929 $12,687,089
=========== =========== ===========
</TABLE>
Nonperforming loans are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
NONACCRUAL LOANS
Domestic.................................................... $ 91,227 $ 94,488
Foreign..................................................... 51 96
RESTRUCTURED LOANS............................................ 1,862 10,021
----------- -----------
TOTAL NONPERFORMING LOANS........................... $ 93,140 $ 104,605
=========== ===========
FHA/VA GOVERNMENT-INSURED/GUARANTEED LOANS ON NONACCRUAL STATUS $ 13,606 $ 14,794
=========== ===========
</TABLE>
NOTE 4. ALLOWANCE FOR LOSSES ON LOANS
The changes in the allowance for losses on loans for the three months
ended March 31, 1998 are summarized as follows (Dollars in thousands):
<TABLE>
<S> <C>
BALANCE, JANUARY 1, 1998......................................................................... $ 225,389
Provision for losses on loans.................................................................... 17,909
Recoveries of loans previously charged off....................................................... 4,881
Loans charged off................................................................................ (27,744)
Increase due to acquisitions..................................................................... 3,402
-----------
BALANCE, MARCH 31, 1998.......................................................................... $ 223,837
===========
</TABLE>
As of March 31, 1998, the amount of the Corporation's impaired loans and
the disclosures related thereto were not significant.
9
<PAGE> 10
NOTE 5. INVESTMENT SECURITIES
The amortized cost and fair value of investment securities are summarized
as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------------------------------------------------------
UNREALIZED
AMORTIZED --------------------------------------
COST GAINS LOSSES FAIR VALUE
----------------- ----------------- ----------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES
U.S. Government obligations
U.S. Treasury................................... $ 598,697 $ 3,680 $ 146 $ 602,231
U.S. Government agencies
Collateralized mortgage obligations........... 146,305 1,262 90 147,477
Mortgage-backed............................... 401,770 12,073 267 413,576
Other......................................... 1,390,270 9,051 834 1,398,487
---------- --------- --------- ----------
Total U.S. Government obligations....... 2,537,042 26,066 1,337 2,561,771
Obligations of states and political subdivisions.. 483,574 25,299 520 508,353
Other stocks and securities....................... 216,997 748 205 217,540
---------- --------- --------- ----------
TOTAL AVAILABLE FOR SALE SECURITIES..... $3,237,613 $ 52,113 $ 2,062 $3,287,664
========== ========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------------------------
UNREALIZED
AMORTIZED --------------------------------------
COST GAINS LOSSES FAIR VALUE
----------------- ----------------- ----------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES
U.S. Government obligations
U.S. Treasury................................... $ 727,600 $ 4,045 $ 205 $ 731,440
U.S. Government agencies
Collateralized mortgage obligations........... 101,236 1,302 100 102,438
Mortgage-backed............................... 633,184 20,260 269 653,175
Other......................................... 1,074,061 9,268 764 1,082,565
---------- --------- --------- ----------
Total U.S. Government obligations....... 2,536,081 34,875 1,338 2,569,618
Obligations of states and political subdivisions.. 480,702 28,871 431 509,142
Other stocks and securities....................... 168,219 983 282 168,920
---------- --------- --------- ----------
TOTAL AVAILABLE FOR SALE SECURITIES..... $3,185,002 $ 64,729 $ 2,051 $3,247,680
========== ========= ========= ==========
</TABLE>
Investment securities having a fair value of approximately $1.4 billion
and $1.5 billion at March 31, 1998 and December 31, 1997, respectively, were
pledged to secure public and trust funds on deposit, securities sold under
agreements to repurchase, and Federal Home Loan Bank advances.
The following table presents the gross realized gains and losses on
available for sale investment securities for the three months ended March 31,
1998 and 1997.
<TABLE>
<CAPTION>
REALIZED GAINS REALIZED LOSSES
-------------------------------------- ----------------------------------
1998 1997 1998 1997
----------- ----------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale securities............... $ 5,286 $ 188 $ (71) $ (15)
=========== =========== =========== ===========
</TABLE>
10
<PAGE> 11
NOTE 6. OTHER NONINTEREST INCOME AND EXPENSE
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------
1998 1997
----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OTHER NONINTEREST INCOME
Gain on sale of branches/deposits and other selected assets.......... $ 1,026 $ 500
Gain on sale of residential mortgages................................ 3,129 1,043
Customer ATM usage fees.............................................. 3,036 2,993
Insurance commissions................................................ 3,072 2,641
Annuity sales income................................................. 1,087 1,831
Brokerage fee income................................................. 2,138 1,302
Letters of credit fees............................................... 1,057 1,208
VSIBG partnership earnings........................................... 1,005 679
Other income......................................................... 13,960 10,302
----------- -----------
TOTAL OTHER NONINTEREST INCOME............................... $ 29,510 $ 22,499
=========== ===========
OTHER NONINTEREST EXPENSE
Amortization of mortgage servicing rights............................ $ 4,126 $ 4,256
Amortization of goodwill and other intangibles....................... 2,941 2,724
Other contracted services............................................ 4,456 5,612
Stationery and supplies.............................................. 5,276 5,085
Postage and carrier.................................................. 4,577 4,255
Advertising and promotion............................................ 3,379 3,637
Communications....................................................... 4,320 3,507
Other personnel services............................................. 2,566 2,354
Other real estate expense............................................ 1,542 1,504
Miscellaneous charge-offs............................................ 2,397 2,193
Legal fees........................................................... 1,922 1,890
Provision for losses on FHA/VA foreclosure claims.................... 326 706
Taxes other than income.............................................. 1,772 1,621
Travel............................................................... 1,495 1,334
Consultant fees...................................................... 838 1,079
Merchant credit card charges......................................... 1,323 1,209
Dues, subscriptions, and contributions............................... 1,226 1,167
Brokerage and clearing fees on trading activities.................... 1,491 1,284
Accounting and audit fees............................................ 1,074 826
Insurance............................................................ 471 850
FDIC insurance....................................................... 827 784
Federal Reserve fees................................................. 818 711
Other expense........................................................ 9,590 8,653
----------- -----------
TOTAL OTHER NONINTEREST EXPENSE.............................. $ 58,753 $ 57,241
=========== ===========
</TABLE>
NOTE 7. INCOME TAXES
Applicable income taxes for the three months ended March 31, 1998, were
$40.3 million, resulting in an effective tax rate of 35.1%. Applicable income
taxes for the same period in 1997 were $36.5 million, resulting in an effective
tax rate of 35.4%. The variances from federal statutory rates (35% for both
years) are attributable to the level of tax-exempt income from investment
securities and loans and the effect of state income taxes. The tax expense
applicable to investment securities gains for the three months ended March 31,
1998 and 1997 were $2.0 million and $67,000, respectively.
At March 31, 1998, the Corporation had a net deferred tax asset of $99.5
million compared to $94.8 million at December 31, 1997. The net deferred tax
asset includes a deferred liability related to the net unrealized gain on
available for sale securities of $19.5 million and $24.2 million at those dates,
respectively. Management continues to believe that, based upon historical
earnings, normal operations will continue to generate sufficient taxable income
to realize the portion of the deferred tax asset that is dependent upon the
generation of future taxable income.
11
<PAGE> 12
NOTE 8. BORROWINGS
SHORT-TERM BORROWINGS
Short-term borrowings include federal funds purchased and securities sold
under agreements to repurchase and other short-term borrowings. Federal funds
purchased arise primarily from the Corporation's market activity with its
correspondent banks and generally mature in one business day. Securities sold
under agreements to repurchase are secured by U. S. Government and agency
securities.
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------- DECEMBER 31,
1998 1997 1997
---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balances at quarter end:
Federal funds purchased and securities sold under agreements to $ 440,896 $ 376,582 $ 754,939
repurchase....................................................
FHLB advances................................................. 77 232,977 75,060
Other short-term borrowings................................... 1,078 2,198 1,628
----------- ----------- -----------
Total short-term borrowings......................... $ 442,051 $ 611,757 $ 831,627
=========== =========== ===========
Federal funds purchased and securities sold under agreements to
repurchase
Daily average balance....................................... $ 480,873 $ 435,474 $ 503,514
Weighted average interest rate.............................. 4.86% 4.70% 4.92%
</TABLE>
SHORT- AND MEDIUM-TERM BANK NOTES
The Corporation's principal subsidiary, Union Planters Bank, National
Association (UPB), has a $1 billion short- and medium-term bank note program to
supplement UPB's funding sources. Under the program UPB may from time to time
issue bank notes having maturities ranging from 30 days to one year from their
respective issue dates (Short-Term Bank Notes) and bank notes having maturities
of more than one year to 30 years from their respective dates of issue
(Medium-Term Bank Notes). At March 31, 1998 and December 31, 1997, UPB had no
Short-Term Bank Notes outstanding. A summary of the Medium-Term Bank Notes
follows.
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
---------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balances at period end............................... $ 135,000 $ 135,000
Variable-rate notes.................................. -- --
Fixed-rate notes..................................... 135,000 135,000
Range of maturities.................................. 8/98 - 10/01 8/98 - 10/01
</TABLE>
FEDERAL HOME LOAN BANK (FHLB) ADVANCES
Certain of the Corporation's banking and thrift subsidiaries had
outstanding advances from the FHLB under Blanket Agreements for Advances and
Security Agreements (the Agreements). The Agreements enable these subsidiaries
to borrow funds from the FHLB to fund mortgage loan programs and to satisfy
certain other funding needs. The value of the mortgage-backed securities and
mortgage loans pledged under the Agreements must be maintained at not less than
115% and 150%, respectively, of the advances outstanding. At March 31, 1998, the
Corporation had an adequate amount of mortgage-backed securities and loans to
satisfy the collateral requirements. A summary of the advances is as follows.
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------- DECEMBER 31,
1998 1997 1997
---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at period end......................................... $ 846,291 $ 902,285 $ 703,996
Range of interest rates....................................... 3.25%-8.95% 3.25%-9.00% 3.25%-8.95%
Range of maturities........................................... 1998-2017 1998-2025 1998-2017
</TABLE>
12
<PAGE> 13
OTHER LONG-TERM DEBT
The Corporation's other long-term debt is summarized as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------- DECEMBER 31,
1998 1997 1997
------------ ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Corporation-Obligated Mandatorily Redeemable Capital Pass-through
Securities of Subsidiary Trust holding solely a Corporation-Guaranteed
Related Subordinated Note (Trust Preferred Securities)...... $ 198,982 $ 198,947 $ 198,973
Variable-rate asset-based certificates........................ 275,000 175,000 275,000
6 3/4% Subordinated Notes due 2005............................ 99,551 99,492 99,536
6.25% Subordinated Notes due 2003............................. 74,709 74,657 74,696
6.5% Putable/Callable Subordinated Notes due 2018............. 301,856 -- --
Other long-term debt.......................................... 72,546 46,686 62,703
----------- ----------- ----------
TOTAL OTHER LONG-TERM DEBT.......................... $ 1,022,644 $ 594,782 $ 710,908
=========== =========== ==========
</TABLE>
On March 18, 1998, UPB issued $300 million of 6.5% Putable/ Callable
Subordinated Notes, due March 15, 2018, putable or callable March 15, 2008. The
call option in this transaction can be exercised by the callholder to acquire
the notes on March 15, 2008, at face value, and resell them to a dealer selected
through a bidding process, at a premium based on the amount by which the 10-year
Treasury rate at that time is less than 5.3636%. The deadline for exercising the
call option is February 29, 2008.
If the call option is exercised and the notes are acquired by the
callholder, the interest rate will adjust to a new fixed rate, and the notes
will remain outstanding until March 15, 2018. If the call option is not
exercised or the callholder fails to pay the purchase price for the notes, UPB
will be required to pay the notes in full on March 15, 2008. The net proceeds
from issuing the subordinated notes were $301.6 million.
NOTE 9. SHAREHOLDERS' EQUITY
COMMON STOCK
At the Corporation's annual meeting April 16, 1998, shareholders approved
an increase in the number of authorized common shares from 100 million to 300
million.
PREFERRED STOCK
The Corporation's outstanding preferred stock, all of which is convertible
into shares of the Corporation's common stock, is summarized as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------- DECEMBER 31,
1998 1997 1997
----------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Preferred stock, without par value, 10,000,000 shares authorized
Series A Preferred Stock,
750,000 shares authorized, none issued.................... $ -- $ -- $ --
Series E, 8% Cumulative, Convertible,
Preferred Stock (stated at liquidation value of $25 per share),
1,478,888 shares issued and outstanding (2,877,474 at March 31, 1997 and
2,188,358 at December 31, 1997)........................... 36,972 71,937 54,709
----------- ----------- -----------
TOTAL PREFERRED STOCK............................... $ 36,972 $ 71,937 $ 54,709
=========== =========== ===========
</TABLE>
NOTE 10. CONTINGENT LIABILITIES
The Corporation and/or various subsidiaries are parties to certain pending
or threatened civil actions which are described in Item 3, Part I of the
Corporation's 1997 10-K and in Note 19 to the Corporation's consolidated
financial statements on page 71 of the 1997 Annual Report. Various other legal
proceedings pending against the Corporation and/or its subsidiaries have arisen
in the ordinary course of business.
13
<PAGE> 14
Based upon present information, including evaluations of certain actions
by outside counsel, management believes that neither the Corporation's financial
position, results of operations, nor liquidity will be materially affected by
the ultimate resolution of pending or threatened legal proceedings. There were
no significant developments during the first quarter of 1998 in any of the
pending or threatened actions which affected such opinion.
NOTE 11. EARNINGS PER SHARE
The calculation of net earnings per share is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------
1998 1997
---------------------- ------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
BASIC:
Net earnings................................................ $ 74,572 $ 66,445
Less preferred dividends.................................. 635 1,496
------------ ------------
Net earnings applicable to common shares.................... $ 73,937 $ 64,949
============ ============
Average common shares outstanding........................... 83,378,664 78,903,936
============ ============
Net earnings per common share--basic........................ $ .89 $ .82
============ ============
DILUTED:
Net earnings................................................ $ 74,572 $ 66,445
============ ============
Average common shares outstanding........................... 83,378,664 78,903,936
Stock option adjustment..................................... 1,258,014 1,501,288
Preferred stock adjustment.................................. 2,337,596 4,060,006
------------ ------------
Average common shares outstanding........................... 86,974,274 84,465,230
============ ============
Net earnings per common share-- diluted..................... $ .86 $ .79
============ ============
</TABLE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following provides a narrative discussion and analysis of significant
changes in the Corporation's results of operations and financial condition. This
discussion should be read in conjunction with the consolidated financial
statements and related financial analysis set forth in the Corporation's 1997
Annual Report, the interim unaudited consolidated financial statements and notes
for the three months ended March 31, 1998 included in Part I hereof, and the
supplemental financial data included in this discussion.
Certain of the information included in this discussion constitutes
forward-looking statements and information that are based on management's belief
as well as certain assumptions made by, and information currently available to,
management. Specifically, this Quarterly Report contains forward-looking
statements with respect to the adequacy of the allowance for losses on loans;
the effect of legal proceedings on the Corporation's financial condition,
results of operations, and liquidity; estimated charges related to pending
acquisitions; estimated cost savings related to the integration of completed
acquisitions and the consolidation of banking subsidiaries; and Year 2000 data
systems compliance issues. When used in this discussion, the words "anticipate,"
"project," "expect," "believe," and similar expressions are intended to identify
forward-looking statements. Although management of the Corporation believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations and projections will prove to have
been correct. Such forward-looking statements are subject to certain risks,
uncertainties, and assumptions. Should one or more of these risks materialize,
or should such underlying assumptions prove to be incorrect, actual results may
vary materially from those anticipated, estimated, projected, or expected. Among
key factors that may have a direct bearing on the Corporation's operating
results are fluctuations in the economy; the relative strengths and weaknesses
in the consumer and commercial credit sectors and in the real estate market; the
actions taken by the Federal Reserve for the purpose of managing the economy;
the Corporation's ability to realize anticipated cost savings related to both
recently completed and pending acquisitions, and the consolidation of subsidiary
banks; the ability of the Corporation to achieve anticipated revenue
enhancements; its success in assimilating acquired operations into the
Corporation's culture, including its ability to instill the Corporation's credit
culture and approach to operating efficiencies into acquired operations; the
continued growth of the markets in which the Corporation operates consistent
with recent historical experience; the absence of undisclosed material
contingencies inherent in acquired operations including asset quality and
litigation contingencies; the enactment of legislation impacting the operations
of the Corporation; and the Corporation's ability to expand into new markets and
to maintain profit margins in the face of pricing pressure. Moreover, the
outcome of litigation is inherently uncertain and depends on judicial discretion
and the findings of judges and juries.
14
<PAGE> 15
SELECTED FINANCIAL DATA
The following table presents selected financial highlights for the
three-month periods ended March 31, 1998 and 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------------- PERCENTAGE
1998 1997 CHANGE
---------------- ---------------- -----------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net earnings ..................................................... $ 74,572 $ 66,445 12%
Basic earnings per common share .................................. .89 .82 9
Diluted earnings per common share .86 .79 9
Return on average assets ......................................... 1.68% 1.49%
Return on average common equity .................................. 17.50 17.16
Dividends per common share ....................................... $ .50 $ .32 56
Net interest margin (FTE) ........................................ 4.80% 4.80%
Interest rate spread (FTE) ....................................... 3.96 4.03
Expense ratio .................................................... 1.38 1.44
Efficiency ratio ................................................. 52.99 52.63
Book value per common share ...................................... $ 21.13 $ 20.00 6
Leverage ratio ................................................... 10.72% 10.05%
Common share prices
High closing price ............................................. $ 67.31 $ 47.75
Low closing price .............................................. 58.38 38.38
Closing price at quarter end ................................... 62.19 40.63
</TABLE>
- --------------------
Net interest margin = Net interest income as a percentage of earning assets
Interest rate spread = Difference in the yield on average earning assets and the
rate on average interest-bearing liabilities
Expense ratio = Operating net noninterest expense [noninterest expense minus
noninterest income, excluding significant nonrecurring revenues/expenses,
investment securities gains (losses) and goodwill and other intangibles
amortization] divided by average assets
Efficiency ratio = Operating noninterest expense (excluding significant
nonrecurring expenses and goodwill and other intangibles amortization) divided
by net interest income (FTE) plus noninterest income, excluding significant
nonrecurring revenues and investment securities gains (losses)
FTE = Fully taxable-equivalent basis
15
<PAGE> 16
OPERATING RESULTS - THREE MONTHS ENDED MARCH 31, 1998
The table which follows presents the contributions to diluted earnings per
common share. A discussion of the operating results follows this table.
UNION PLANTERS CORPORATION
CONTRIBUTIONS TO DILUTED EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, EPS
--------------------------------------- INCREASE
1998 1997 (DECREASE)
----------------- ------------------ -----------------
<S> <C> <C> <C>
Net interest income-FTE....................................... $ 2.24 $ 2.31 $(0.07)
Provision for losses on loans................................. (0.21) (0.26) 0.05
------ ------ ------
Net interest income after provision for losses on loans-FTE... 2.03 2.05 (0.02)
------ ------ ------
Noninterest income
Service charges on deposit accounts......................... 0.30 0.31 (0.01)
Mortgage servicing income................................... 0.19 0.18 0.01
Bank card income............................................ 0.09 0.09 --
Factoring commissions....................................... 0.08 0.08 --
Trust service income........................................ 0.03 0.03 --
Profits and commissions from trading activities............. 0.02 0.03 (0.01)
Investment securities gains (losses)........................ 0.06 -- 0.06
Other income................................................ 0.33 0.26 0.07
------ ------ ------
TOTAL NONINTEREST INCOME............................ 1.10 0.98 0.12
------ ------ ------
Noninterest expense
Salaries and employee benefits.............................. 0.84 0.83 (0.01)
Net occupancy expense....................................... 0.12 0.13 0.01
Equipment expense........................................... 0.13 0.12 (0.01)
Other expense............................................... 0.67 0.68 0.01
------ ------ ------
TOTAL NONINTEREST EXPENSE........................... 1.76 1.76 --
------ ------ ------
Earnings before income taxes-FTE............................ 1.37 1.27 0.10
Applicable income taxes-FTE................................... 0.51 0.48 (0.03)
------ ------ ------
Net earnings................................................ 0.86 0.79 0.07
Less preferred stock dividends................................ -- -- --
------ ------ ------
DILUTED EARNINGS PER COMMON SHARE................... $ 0.86 $ 0.79 $ 0.07
====== ====== ======
Change in net earnings applicable to
diluted earnings per share using
previous year average shares outstanding.................... $ 0.10
Change in average shares outstanding.......................... (0.03)
------
Change in net earnings........................................ $ 0.07
======
Average diluted shares (in thousands)......................... 86,974 84,465
======= =======
</TABLE>
- --------------------
FTE = Fully taxable-equivalent basis
FIRST QUARTER EARNINGS OVERVIEW
For the first quarter of 1998, the Corporation reported record earnings of
$74.6 million, or $.86 per diluted common share. This compares to net earnings
for the same period in 1997 of $66.4 million, or $.79 per diluted common share.
The record earnings level resulted in an annualized return on average assets of
1.68% and an annualized return on average common equity of 17.50% for the first
quarter of 1998 which compares to 1.49% and 17.16% for the same period in 1997.
The improvement in net earnings in 1998 is attributable to an increase in
noninterest income along with a decrease in the provision for losses on loans
partially offset by an increase in noninterest expense. The following is a more
complete discussion and analysis of the first quarter of 1998 operating results
compared to the same period in 1997.
16
<PAGE> 17
EARNINGS ANALYSIS
NET INTEREST INCOME
Net interest income (FTE) for the first quarter of 1998 was $194.9
million, approximately the same as the first quarter of 1997 which was $194.8
million, and down $1.7 million from the fourth quarter of 1997 which was $196.6
million. The slight improvement for the first quarter of 1998 compared to the
same period in 1997 is attributable to lower interest expense resulting
primarily from a $276 million decline in average interest-bearing liabilities.
Additionally, higher loan volumes were funded by maturities and sales of lower
yielding investment securities. Trading account assets, primarily the
government-guaranteed portion of SBA loans and SBA participation certificates,
also declined $64 million due to a lower volume of activity. The decrease from
the fourth quarter of 1997 relates primarily to a $181 million decline in
average investment securities and a one-basis-point decline in the average yield
on loans. Partially offsetting these declines was a six-basis-point decline in
the average rate paid on interest-bearing liabilities. Reference is made to the
Corporation's average balance sheet and analysis of volume and rate changes
which follow this discussion for additional information regarding the changes in
net interest income.
The net interest margin for the first quarter of 1998 was 4.80% which
compares to 4.80% and 4.79%, respectively, for the first and fourth quarters of
1997. The interest-rate spread decreased to 3.96% for the first quarter of 1998
from 4.03% for the same period in 1997 and increased compared to 3.88% for the
fourth quarter of 1997.
INTEREST INCOME
The following table presents a breakdown of average earning assets for the
first quarter of 1998 and 1997.
<TABLE>
<CAPTION>
MARCH 31,
------------------------
1998 1997
---------- ---------
(DOLLARS IN BILLIONS)
<S> <C> <C>
Average earning assets ................................................ $ 16.5 $ 16.5
Comprised of:
Loans ............................................................. 79% 77%
Investment securities ............................................. 18 20
Other earning assets .............................................. 3 3
Fully taxable-equivalent yield on average earning assets............... 8.71% 8.75%
</TABLE>
Interest income (FTE) decreased $2.0 million for the first quarter of 1998
compared to the same period in 1997. The decrease is attributable primarily to
declines in average trading account securities and investment securities which
decreased interest income approximately $7.3 million for the quarter. This
decrease was partially offset by an increase in loan volume partially offset by
an 11- basis-point decline in the average yield on loans, the net effect of
which was an increase in interest income of approximately $5.3 million.
17
<PAGE> 18
INTEREST EXPENSE
The following table presents a breakdown of average interest-bearing
liabilities for the first quarters of 1998 and 1997.
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------
1998 1997
----------------- -----------------
(DOLLARS IN BILLIONS)
<S> <C> <C>
Average interest-bearing liabilities $ 13.5 $ 13.8
Comprised of:
Deposits........................................................... 83% 82%
Short-term borrowings.............................................. 4 6
FHLB advances and long-term debt................................... 13 12
Rate paid on average interest-bearing liabilities 4.75% 4.72%
</TABLE>
Interest expense decreased $2.1 million in the first quarter of 1998
compared to the same period in 1997. The decrease is due primarily to a decrease
of $276.3 million in average interest-bearing liabilities which accounted for
approximately $2.5 million of the decrease in interest expense. This decrease
related primarily to a net decrease in borrowings and other time deposits. This
decline in volume was partially offset by a three-basis-point increase in the
average rate paid on interest-bearing liabilities which increased interest
expense approximately $400,000.
PROVISION FOR LOSSES ON LOANS
The provision for losses on loans for the first quarter of 1998 was $17.9
million, or .62% of average loans on an annualized basis, compared to $22.0
million, or .81% of average loans, for the same period in 1997. This also
compares to a provision for losses on loans of $36.9 million, or 1.28% of
average loans, for the fourth quarter of 1997. The provision for losses on loans
in the first quarter of 1998 continued to be impacted by the level of credit
card charge-offs which accounted for 59% of the charge-offs during the quarter.
The higher provision for losses on loans in the fourth quarter of 1997 related
to the credit card portfolio and to higher provisions taken for entities
acquired during the fourth quarter to conform to the Corporation's loan review
methodology. Reference is made to the "Allowance for Losses on Loans" discussion
for additional information regarding loan charge-offs.
NONINTEREST INCOME
Noninterest income for the first quarter of 1998 was $95.7 million, an
increase of 15.3% over the same period in 1997 and an increase of approximately
$3.9 million from the fourth quarter of 1997. The major components of
noninterest income are presented on the face of the consolidated statement of
earnings and in Note 6 to the unaudited interim consolidated financial
statements included in Item 1, Part I of this report.
The increase in noninterest income for the quarter includes increases in
investment securities gains of $5.0 million and gains on sale of mortgage loans
of $2.1 million. The investment securities gains resulted from the sale of $296
million of securities ($109 million Treasury securities and $187 million of U.S.
government agency adjustable-rate mortgage (ARM) securities). The Treasury
securities were sold because of their low market yield and very short maturities
that resulted in a minimal gain. The ARM securities were sold because of the
prepayment risk of the underlying loans, given the current level of interest
rates. The gain on sale of mortgage loans resulted from the sale of
approximately $104 million of adjustable-rate mortgage loans. These loans were
sold because they were trading at relatively high historical levels and because
of their risk of prepayment in the current interest rate environment. Other
noninterest income categories increasing for the quarter were mortgage banking
income, brokerage income, and factoring commissions. The increase in noninterest
income from the fourth quarter of 1997 related primarily to a higher level of
investment securities gains, partially offset by a decrease in gains from the
sale of certain branch locations.
NONINTEREST EXPENSE
Noninterest expense for the first quarter of 1998 increased $5.0 million
to $153.6 million which compares to $148.6 million for the first quarter of 1997
and $179.5 million (excluding before merger-related and other significant
charges totaling $58.9 million)
18
<PAGE> 19
for the fourth quarter of 1997. The major components of noninterest expense are
detailed on the face of the consolidated statement of earnings and in Note 6 to
the unaudited interim consolidated financial statements included in Item 1, Part
I of this report.
The increase in noninterest expense for the first quarter of 1998 compared
to the same period in 1997 relates primarily to noninterest expenses of various
small acquisitions in 1997 and the Sho-Me Financial Corporation (Sho-Me)
acquisition effective January 1, 1998 which, in the aggregate, accounted for
approximately $4.8 million of the increase. Over one half of this increase
related to salaries and employee benefits of the acquired entities.
The largest component of noninterest expense, salaries and employee
benefits, was $73.2 million for the first quarter of 1998 compared to $70.3
million for the same quarter last year and compared to $74.6 million for the
fourth quarter of 1997. Full-time-equivalent employees at March 31, 1998 were
7,717 compared to 7,890 at March 31, 1997 and 7,711 at December 31, 1997.
EARNINGS CONSIDERATIONS RELATED TO PENDING ACQUISITIONS
Historically, as the Corporation acquires entities, merger-related and
other significant charges have been incurred. (Reference is made to Table 1 on
page 26 of the 1997 Annual Report). Typically, these charges include the
following: (i) salaries, employee benefits, and other employment-related charges
for employment contract payments, change in control agreements, early retirement
and involuntary separation and related benefits, postretirement expenses, and
assumed pension expenses of acquired entities; (ii) write-downs of office
buildings and equipment to be sold, lease buyouts, assets determined to be
obsolete or no longer of use, and equipment not compatible with the
Corporation's equipment; (iii) professional fees for legal, accounting,
consulting, and financial advisory services; and (iv) other expenses such as
asset write-offs, charge-offs of prepaid assets, cancellation of vendor
contracts, and other costs which normally arise from consolidation of
operational activities. These charges totaled $46.2 million, $52.8 million,
and $11.9 million in 1997, 1996, and 1995, respectively. During the first
quarter of 1998 and 1997, the Corporation did not incur any significant
merger-related charges and there were no reversals of the charges accrued in
1997. The level of the charges is directly related to the size of the
institutions being acquired. Charges of the type described in the range of
$100 million to $115 million on a pretax basis (approximately $75 million to
$80 million on an after tax basis) are expected in connection with the current
pending acquisitions (see Note 2 to the interim consolidated financial
statements). To the extent that the Corporation's recognition of these charges
is contingent upon consummation of a particular transaction, those charges
would be recognized in the period in which such transaction closes. This range
of potential charges is based on currently available information as well as
preliminary estimates and will change if additional entities are acquired.
This range is provided as an estimate of the significant charges which may be
in the aggregate required and should be viewed accordingly.
CHARTER CONSOLIDATION
On page 12 of the 1997 Annual Report is a discussion of the legal merger
of the majority of the Corporation's banking subsidiaries effective January 1,
1998. In connection with the merger, the Corporation incurred in the fourth
quarter of 1997 charges related to the decision to merge the subsidiaries
totaling approximately $16.7 million. In the first quarter of 1998, no
additional significant charges were incurred and there were no reversals of the
charges accrued in 1997. The anticipated annual cost savings from the
consolidation, approximately $15 to $20 million on a pretax basis, are still
expected but have not yet been fully recognized. A major portion is expected to
be realized in the latter part of 1998; however, the full amount of savings and
revenue enhancements are not expected until mid-1999.
19
<PAGE> 20
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED DAILY AVERAGE BALANCE SHEET AND INTEREST RATES
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------------------------------------------
1998 1997
---------------------------------- ---------------------------------
INTEREST FTE INTEREST FTE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
----------- ----------- ------ ----------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits at
financial institutions .................... $ 28,414 $ 424 6.05% $ 29,163 $ 438 6.09%
Federal funds sold and securities
purchased under agreements to resell ...... 189,854 2,710 5.79 177,938 2,423 5.52
Trading account assets ...................... 181,952 3,020 6.73 245,946 4,492 7.41
Investment securities (1) (2)
Taxable ................................... 2,518,984 41,475 6.68 2,872,352 47,245 6.67
Tax-exempt ................................ 476,483 10,617 9.04 481,814 10,931 9.20
------------ ----------- ----------- ---------
Total investment securities ......... 2,995,467 52,092 7.05 3,354,166 58,176 7.03
Loans, net of unearned income (1) (3) (4) ... 13,057,231 295,084 9.17 12,659,164 289,794 9.28
------------ ----------- ----------- ---------
TOTAL EARNING ASSETS (1) (2) (3) (4) 16,452,918 353,330 8.71 16,466,377 355,323 8.75
Cash and due from banks ..................... 611,771 ----------- 617,398
Premises and equipment ...................... 338,087 330,248
Allowance for losses on loans ............... (230,997) (191,938)
Other assets ................................ 834,015 809,563
------------ -----------
TOTAL ASSETS ........................ $ 18,005,794 $18,031,648
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Money market accounts ....................... $ 2,023,460 $ 18,806 3.77% $ 1,851,360 $ 15,818 3.47%
Savings deposits ............................ 2,493,585 13,943 2.27 2,582,169 14,898 2.34
Certificates of deposit of
$100,000 and over ......................... 1,433,140 19,724 5.58 1,369,229 18,843 5.58
Other time deposits ......................... 5,336,242 71,612 5.44 5,458,047 72,807 5.41
Short-term borrowings
Federal funds purchased and securities
sold under agreements to repurchase ..... 480,873 5,764 4.86 435,474 5,045 4.70
Short-term bank notes ...................... -- -- -- 241,667 3,448 5.79
Other ...................................... 20,217 252 5.06 197,712 2,816 5.78
Long-term debt
Federal Home Loan Bank advances ........... 863,814 12,149 5.70 948,899 13,492 5.77
Subordinated capital notes ................ 221,199 3,684 6.75 174,131 2,932 6.83
Medium-term bank notes .................... 135,000 2,236 6.72 135,000 2,236 6.72
Trust Preferred Securities ................ 198,978 4,128 8.41 198,942 4,128 8.42
Other ..................................... 323,690 6,130 7.68 213,835 4,076 7.73
------------ --------- ----------- ---------
TOTAL INTEREST-BEARING LIABILITIES .. 13,530,198 158,428 4.75 13,806,465 160,539 4.72
Noninterest-bearing demand deposits ......... 2,196,359 -- 2,105,584 --
------------ --------- ----------- ---------
TOTAL SOURCES OF FUNDS .............. 15,726,557 158,428 15,912,049 160,539
Other liabilities ........................... 518,779 503,620
Shareholders' equity ........................
Preferred stock .......................... 46,752 81,200
Common equity ............................ 1,713,706 1,534,779
------------ -----------
Total shareholders' equity .......... 1,760,458 1,615,979
------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY............................ $ 18,005,794 $18,031,648
============ ===========
NET INTEREST INCOME (1) ....................... $ 194,902 $ 194,784
=========== =========
INTEREST-RATE SPREAD (1) ...................... 3.96% 4.03%
==== ====
NET INTEREST MARGIN (1) ....................... 4.80% 4.80%
==== ====
TAXABLE-EQUIVALENT ADJUSTMENTS:
Loans ..................................... $ 644 $ 573
Investment securities ..................... 3,551 3,621
----------- ---------
TOTAL ............................... $ 4,195 $ 4,194
=========== =========
</TABLE>
(1) Taxable-equivalent yields are calculated assuming a 35% federal income tax
rate.
(2) Yields are calculated on historical cost and exclude the impact of the
unrealized gain (loss) on available for sale securities.
(3) Includes loan fees, immaterial in amount, in both interest income and the
calculation of the yield on loans.
(4) Includes loans on nonaccrual status.
20
<PAGE> 21
UNION PLANTERS CORPORATION AND SUBSIDIARIES
ANALYSIS OF VOLUME AND RATE CHANGES
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 VERSUS 1997
----------------------------------------------------------
INCREASE (DECREASE)
DUE TO CHANGE IN: (1)
------------------------------------ TOTAL
AVERAGE AVERAGE INCREASE
VOLUME RATE (DECREASE)
---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits at financial institutions......... $ (11) $ (3) $ (14)
Federal funds sold and securities purchased under agreements to 167 120 287
resell......................................................
Trading account assets...................................... (1,090) (382) (1,472)
Investment securities (FTE)................................. (6,237) 153 (6,084)
Loans, net of unearned income (FTE)......................... 9,030 (3,740) 5,290
----------- ----------- -----------
TOTAL INTEREST INCOME............................... 1,859 (3,852) (1,993)
----------- ----------- -----------
INTEREST EXPENSE
Money market accounts....................................... 1,537 1,451 2,988
Savings deposits............................................ (503) (452) (955)
Certificates of deposit of $100,000 and over................ 880 1 881
Other time deposits......................................... (1,632) 437 (1,195)
Short-term borrowings....................................... (3,771) (1,522) (5,293)
Long-term debt.............................................. 990 473 1,463
----------- ----------- -----------
TOTAL INTEREST EXPENSE.............................. (2,499) 388 (2,111)
----------- ----------- -----------
CHANGE IN NET INTEREST INCOME (FTE)........................... $ 4,358 $ (4,240) $ 118
=========== =========== ===========
PERCENTAGE INCREASE IN NET INTEREST INCOME OVER PRIOR PERIOD.. .06%
===========
</TABLE>
- --------------------
FTE - Fully taxable-equivalent basis
(1) The change due to both rate and volume has been allocated to change due to
volume and change due to rate in proportion to the relationship of the
absolute dollar amounts of the change in each.
FINANCIAL CONDITION
The Corporation's total assets were $18.4 billion at March 31, 1998
compared to $18.1 billion at both March 31, 1997 and December 31, 1997. Average
assets were $18.0 billion for both the first quarter of 1998 and the first
quarter of 1997.
INVESTMENT SECURITIES
The Corporation's investment securities portfolio of $3.3 billion at March
31, 1998 consisted entirely of available for sale securities which are carried
on the balance sheet at fair value. This compares to investment securities of
$3.4 billion and $3.2 billion at March 31, 1997 and December 31, 1997,
respectively. At March 31, 1998, March 31, 1997, and December 31, 1997, these
securities had net unrealized gains of $50.1 million, $23.3 million, and $62.7
million, respectively. Reference is made to Note 5 to the unaudited interim
consolidated financial statements which provides the composition of the
investment portfolio at March 31, 1998 and December 31, 1997.
U. S. Treasury and U. S. Government agency obligations represented
approximately 77.9% of the investment securities portfolio at March 31, 1998.
The Corporation has some credit risk in the investment portfolio; however,
management does not consider that risk to be significant and does not believe
that cash flows will be significantly impacted.
The REMIC and CMO issues in the investment portfolio are 90% U. S.
Government agency issues; the remaining 10% are readily marketable, nonagency
collateralized mortgage obligations backed by agency-pooled collateral or
whole-loan collateral. All nonagency issues currently held are rated "AAA" by
either Standard & Poor's or Moody's. Approximately 32% of the REMIC and CMO
portions of the investment securities portfolio are floating-rate issues, the
majority being indexed to LIBOR or PRIME. The
21
<PAGE> 22
Corporation's normal practice is to purchase investment securities at or near
par value to reduce the risk of premium write-offs on unexpected prepayments.
The limited credit risk in the investment portfolio at March 31, 1998 consisted
of 15.5% municipal obligations and 6.6% other stocks and securities (primarily
Federal Reserve Bank and Federal Home Loan Bank Stock).
At March 31, 1998, the Corporation had approximately $79.8 million of
structured notes, which constituted approximately 2.4% of the investment
securities portfolio. Structured notes have uncertain cash flows which are
driven by interest-rate movements and may expose a company to greater market
risk than traditional medium-term notes. All of the Corporation's investments of
this type are U. S. Government agency issues (primarily Federal Home Loan Bank
and Federal National Mortgage Association). The structured notes vary in type
but primarily include step-up bonds and index-amortizing notes. These securities
are carried in the Corporation's available for sale securities portfolio at fair
value. These securities had an unrealized gain of $111,000 at March 31, 1998.
The market risk associated with the structured notes is not considered material
to the Corporation's financial position, results of operations, or liquidity.
LOANS
Loans, net of unearned income, at March 31, 1998 were $12.7 billion
compared to $12.6 billion and $12.7 billion at March 31, 1997 and December 31,
1997, respectively. Average loans for the first quarter of 1998 were $13.1
billion, a 3.1% increase over $12.7 billion for the first quarter of 1997.
Excluding the FHA/VA government-insured/guaranteed loans, the impact of
acquisitions, and loan sales, average loans for the quarter grew approximately
6% compared to the same period in 1997. Note 3 to the unaudited interim
consolidated financial statements included in Part I. Item 1 of this report
presents the composition of the loan portfolio.
ALLOWANCE FOR LOSSES ON LOANS
The Corporation maintains the allowance for losses on loans at a level
which is believed adequate to absorb losses inherent in the loan portfolio. A
formal review is prepared quarterly to assess the risk in the portfolio and to
determine the adequacy of the allowance for losses on loans. The review includes
analyses of certain problem loans, historical loan loss experience, the level of
classified and nonperforming loans, reviews and evaluations of specific loans,
changes in the nature and volume of loans, the results of regulatory
examinations, and current economic conditions and the related impact on specific
borrowers and industry groups. The review is presented to, and approved by
senior management and a committee of the Board of Directors.
22
<PAGE> 23
The following table provides a reconciliation of the allowance for losses
on loans (the allowance) at the dates indicated and certain key ratios for the
three-month periods ended March 31, 1998 and 1997 and for the year ended
December 31, 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED
------------------------------------- DECEMBER 31,
1998 1997 1997
---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE AT THE BEGINNING OF PERIOD............................ $ 225,389 $ 189,118 $ 189,118
LOANS CHARGED OFF
Commercial, financial, and agricultural..................... 3,287 3,192 17,089
Foreign..................................................... -- -- --
Real estate - construction.................................. 1,385 49 192
Real estate - mortgage...................................... 1,233 977 5,714
Credit cards and related plans.............................. 16,330 12,946 50,070
Consumer.................................................... 5,505 5,602 25,971
Direct lease financing...................................... 4 1 30
----------- ----------- -----------
Total charge-offs................................... 27,744 22,767 99,066
----------- ----------- -----------
RECOVERIES ON LOANS PREVIOUSLY CHARGED OFF
Commercial, financial, and agricultural..................... 1,197 1,714 5,904
Foreign..................................................... -- -- 10
Real estate - construction.................................. 46 65 174
Real estate - mortgage...................................... 798 560 2,750
Credit cards and related plans.............................. 928 484 6,686
Consumer.................................................... 1,912 1,762 2,920
Direct lease financing...................................... -- 3 27
----------- ----------- -----------
Total recoveries.................................... 4,881 4,588 18,471
----------- ----------- -----------
Net charge-offs............................................... 22,863 18,179 80,595
Provision charged to expense.................................. 17,909 22,004 113,633
Increase due to acquisitions.................................. 3,402 -- 3,233
----------- ----------- -----------
BALANCE AT END OF PERIOD............................ $ 223,837 $ 192,943 $ 225,389
=========== =========== ===========
Total loans, net of unearned income, at end of period......... $12,727,659 $12,560,838 $12,658,564
Less: FHA/VA government insured/guaranteed loans.............. 1,228,769 1,592,665 1,319,553
----------- ----------- -----------
LOANS USED TO CALCULATE RATIOS...................... $11,498,890 $10,968,173 $11,339,011
=========== =========== ===========
Average total loans, net of unearned income, during period.... $13,057,231 $12,659,164 $12,706,965
Less: Average FHA/VA government-insured/guaranteed loans...... 1,274,161 1,583,016 1,487,085
----------- ----------- -----------
AVERAGE LOANS USED TO CALCULATE RATIOS.............. $11,783,070 $11,076,148 $11,219,880
=========== =========== ===========
RATIOS (1):
Allowance at end of period to loans, net of unearned income. 1.95% 1.76% 1.99%
Charge-offs to average loans, net of unearned income (2).... .96 .83 .88
Recoveries to average loans, net of unearned income (2)..... .17 .17 .16
Net charge-offs to average loans, net of unearned income (2) .79 .67 .72
Provision to average loans, net of unearned income (2)...... .62 .81 1.01
</TABLE>
- --------------------
(1) Ratio calculations exclude FHA/VA government-insured/guaranteed loans,
since they represent minimal credit risk.
(2) Amounts annualized for March 31, 1998 and 1997
The allowance at March 31, 1998, was $223.8 million, a decrease of $1.6
million from December 31, 1997, as compared to $192.9 million at March 31, 1997.
Net charge-offs for the first quarter of 1998 were $22.9 million compared to
$18.2 million and $25.5 million for the first and fourth quarters of 1997,
respectively. The majority of the increase in net charge-offs for the first
quarter of 1998 compared to the same period in 1997 relates primarily to the
credit card and other consumer loan portfolios.
23
<PAGE> 24
NONPERFORMING ASSETS
NONACCRUAL, RESTRUCTURED, AND PAST DUE LOANS AND FORECLOSED PROPERTIES
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------- DECEMBER 31,
1998 1997 1997
---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
NONACCRUAL LOANS
Domestic.................................................... $ 91,227 $ 82,024 $ 94,488
Foreign..................................................... 51 96 96
RESTRUCTURED LOANS............................................ 1,862 10,998 10,021
----------- ----------- -----------
TOTAL NONPERFORMING LOANS........................... 93,140 93,118 104,605
----------- ----------- -----------
FORECLOSED PROPERTY
Other real estate owned, net................................ 20,862 29,935 22,059
Other foreclosed property................................... 1,805 1,834 1,993
----------- ----------- -----------
TOTAL FORECLOSED PROPERTIES......................... 22,667 31,769 24,052
----------- ----------- -----------
TOTAL NONPERFORMING ASSETS.......................... $ 115,807 $ 124,887 $ 128,657
=========== =========== ===========
LOANS 90 DAYS OR MORE PAST DUE AND NOT ON NONACCRUAL STATUS
Domestic.................................................... $ 27,119 $ 19,841 $ 24,063
Foreign..................................................... -- -- --
----------- ----------- -----------
TOTAL LOANS 90 DAYS OR MORE PAST DUE................ $ 27,119 $ 19,841 $ 24,063
=========== =========== ===========
FHA/VA GOVERNMENT-INSURED/GUARANTEED LOANS
Loans 90 days or more past due and not on nonaccrual status. $ 438,038 $ 599,723 $ 516,692
Nonaccrual.................................................. 13,606 -- 14,794
RATIOS (1):
Nonperforming loans as a percentage of loans................ .81% .85% .92%
Nonperforming assets as a percentage of loans plus foreclosed
properties.................................................. 1.01 1.14 1.13
Allowance for losses on loans as a percentage of nonperforming loans 240 207 215
Loans 90 days or more past due and not on nonaccrual status
as a percentage of loans.................................. .24 .18 .21
</TABLE>
- ------------------
(1) FHA/VA government-insured/guaranteed loans are excluded from loans in the
ratio calculations.
The breakdown of nonaccrual loans and loans 90 days or more past due and
not on nonaccrual status, both excluding FHA/VA loans, is as follows:
<TABLE>
<CAPTION>
LOANS 90 DAYS
NONACCRUAL LOANS (1) OR MORE PAST DUE (1)
---------------------------------- ---------------------------------
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
LOAN TYPE 1998 1997 1998 1997
- ----------------------------------------------------- -------------- -------------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Secured by single family residential.................... $ 49,093 $ 54,018 $ 2,401 $ 3,872
Secured by nonfarm nonresidential....................... 10,479 9,678 556 962
Other real estate....................................... 13,742 16,201 2,283 1,556
Commercial, financial, and agricultural,
including foreign loans and direct lease financing 12,251 8,770 6,137 1,164
Credit cards and related plans.......................... 630 -- 11,841 14,679
Other consumer.......................................... 5,083 5,917 3,901 1,830
----------- ----------- ------------ ------------
TOTAL......................................... $ 91,278 $ 94,584 $ 27,119 $ 24,063
=========== =========== ============ ============
</TABLE>
- --------------------
(1) See the preceding table for the amount of FHA/VA government-insured
guaranteed/loans on nonaccrual and 90 days or more past due and not on
nonaccrual status.
24
<PAGE> 25
LOANS OTHER THAN FHA/VA LOANS. As a percentage of loans and foreclosed
properties, nonperforming assets were 1.01% at March 31, 1998 compared to 1.14%
at March 31, 1997 and 1.13% at December 31, 1997. The coverage of nonperforming
loans (allowance for losses on loans as a percentage of nonperforming loans) was
240% at March 31, 1998, which compares to 207% at March 31, 1997 and 215% at
year end 1997.
Restructured loans decreased $8.2 million from December 31, 1997 to $1.9
million at March 31, 1998. The decline related to two loans which were removed
from restructured status since they have been and are currently paying in
accordance with contractual terms of the restructuring and had effective
interest rates, at the time of modification, equal to or greater than new loans
with comparable risk. Nonaccrual loans and the carrying value of foreclosed
properties also decreased $3.3 million and $1.4 million to $91.3 million and
$22.7 million, respectively.
Loans 90 days or more past due and still accruing interest totaled $27.1
million, or .24% of loans, at March 31, 1998. This compares to loans 90 days
past due of $24.1 million, or .21% of loans at December 31, 1997. The table
above details the composition of these loans.
FHA/VA LOANS. FHA/VA government-insured/guaranteed loans (FHA/VA loans) do
not, in management's opinion, have traditional credit risk inherent in the
balance of the loan portfolio and risk of principal loss is considered minimal.
FHA/VA loans 90 days or more past due and still accruing interest totaled $438.0
million at March 31, 1998 which compared to $516.7 million at December 31, 1998.
The decrease in past due loans relates primarily to a decline in the overall
size of the FHA/VA portfolio and to FHA loans being moved to foreclosure sooner
due to changed FHA requirements. The rate of foreclosure and loan payoffs
continues to exceed the acquisition and buyout of delinquent loans from GNMA
servicing pools. At March 31, 1998 and December 31, 1997, $13.6 million and
$14.8 million, respectively, of these loans were placed on nonaccrual status by
management because the contractual payment of interest by FHA/VA had stopped due
to missed filing dates. No loss of principal is expected from these loans.
POTENTIAL PROBLEM ASSETS
Potential problem assets consist of assets which are generally secured and
not currently considered nonperforming, but where information about possible
credit problems has caused management to have serious doubts as to the ability
of the borrowers to comply in the future with present repayment terms.
Historically, these assets have been loans which have become nonperforming. At
March 31, 1998, the Corporation had potential problem assets (all of which were
loans) of $24.6 million.
DEPOSITS
The Corporation's core deposit base is its most important and stable
funding source and consists of deposits from the communities served by the
Corporation.
<TABLE>
<CAPTION>
AVERAGE DEPOSITS
---------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31, THREE MONTHS ENDED
-------------------------------------------- DECEMBER 31,
1998 1997 1997
-------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Demand deposits................................... $ 2,196,359 $ 2,105,584 $ 2,306,222
Money market accounts (1)......................... 2,023,460 1,851,360 1,935,461
Savings deposits (2).............................. 2,493,585 2,582,169 2,421,726
Other time deposits (3)........................... 5,336,242 5,458,047 5,248,491
----------- ----------- -----------
Total core deposits..................... 12,049,646 11,997,160 11,911,900
Certificates of deposit of $100,000 and over...... 1,433,140 1,369,229 1,385,830
----------- ----------- -----------
Total average deposits ................. $13,482,786 $13,366,389 $13,297,730
=========== =========== ===========
</TABLE>
- --------------------
(1) Includes money market savings accounts, High Yield accounts, and super NOW
accounts.
(2) Includes regular and premium savings accounts and NOW accounts.
(3) Includes certificates of deposit under $100,000, investment savings
accounts, and other time deposits.
25
<PAGE> 26
Average deposits for the first quarter of 1998 were $13.5 billion, which
represents increases of $116.4 million and $185.1 million, respectively, from
the average deposits for the first quarter of 1997 and the fourth quarter of
1997. Small acquisitions in late 1997 and the Sho-Me Financial Corporation
acquisition January 1, 1998 increased total deposits approximately $415 million.
Also, during 1997 and the first quarter of 1998, the Corporation has sold
certain branch locations including related deposits which totaled approximately
$250 million.
LIQUIDITY
The Corporation requires liquidity sufficient to meet cash requirements
for deposit withdrawals, to make new loans and satisfy loan commitments, to take
advantage of attractive investment opportunities, and to repay borrowings at
maturity. Deposits, available for sale securities, and money market investments
are the Corporation's primary sources of liquidity. Liquidity is also achieved
through short-term borrowings, borrowings under available lines of credit, and
issuance of securities and debt instruments in the financial markets. The
Corporation has adequate liquidity to meet its operating requirements.
Parent company liquidity is achieved and maintained by dividends received
from subsidiaries, interest on advances to subsidiaries, and interest on its
available for sale investment securities portfolio. At March 31, 1998, the
parent company had cash and cash equivalents totaling $322.1 million and net
working capital of $379.0 million. At April 1, 1998, the Corporation's banking
subsidiaries could have paid dividends totaling $172.4 million without prior
regulatory approval. The actual amount of dividends that will be paid in the
second quarter of 1998 will be limited by management to approximately $44.0
million due to capital and liquidity requirements of individual financial
institutions. The payment of additional dividends by the Corporation's
subsidiaries will be dependent on the future earnings and growth of the
subsidiaries. Management believes that the parent company has adequate liquidity
to meet its cash needs, including the payment of its regular dividends,
servicing of its debt, and cash needed for acquisitions.
SHAREHOLDERS' EQUITY
The Corporation's total shareholders' equity increased by $62.6 million
from December 31, 1997 to $1.8 billion at March 31, 1998. The increase was due
to retained net earnings of $32.0 million and common stock issued in connection
with benefit plans and acquisitions of $77.6 million which was partially offset
by the repurchase of $38.8 million common stock in connection with the Sho-Me
acquisition and by the net change in the unrealized gain on available for sale
securities which reduced shareholders' equity $8.2 million.
CAPITAL ADEQUACY
The following table presents capital adequacy information for the Corporation:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------- DECEMBER 31,
1998 1997 1997
--------------- -------------- ---------------
CAPITAL ADEQUACY DATA
<S> <C> <C> <C>
Total shareholders' equity/total assets (at period end).............. 9.83% 9.21% 9.65%
Average shareholders' equity/average total assets.................... 9.78 8.96 9.40
Tier 1 capital/unweighted average assets (leverage ratio) (1)........ 10.72 10.05 10.48
Dividend payout ratio................................................ 57.03 37.71 54.96
</TABLE>
- --------------------
(1) Based on period-end capital and quarterly adjusted average assets.
26
<PAGE> 27
The following table presents the Corporation's risk-based capital and
capital adequacy ratios. The Corporation's regulatory capital ratios qualify the
Corporation for the "well-capitalized" regulatory classification.
RISK-BASED CAPITAL
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------------- DECEMBER 31,
1998 1997 1997
---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
TIER 1 CAPITAL
Shareholders' equity............................................. $ 1,809,442 $ 1,663,363 $ 1,746,866
Trust Preferred Securities and minority interest in consolidated 216,433 212,079 214,460
subsidiaries.....................................................
Less: Goodwill and other intangibles............................ (71,954) (53,290) (44,570)
Disallowed deferred tax asset............................. (1,415) (1,777) (1,601)
Unrealized gain on available for sale securities.......... (30,508) (14,226) (38,729)
----------- ----------- -----------
TOTAL TIER 1 CAPITAL 1,921,998 1,806,149 1,876,426
TIER 2 CAPITAL
Allowance for losses on loans ................................... 154,265 152,269 152,177
Qualifying long-term debt........................................ 476,116 174,149 174,232
----------- ----------- -----------
TOTAL CAPITAL BEFORE DEDUCTIONS.......................... 2,552,379 2,132,567 2,202,835
Less investment in unconsolidated subsidiaries................... (10,752) (2,207) (10,628)
------------ ----------- -----------
TOTAL CAPITAL............................................ $ 2,541,627 $ 2,130,360 $ 2,192,207
=========== =========== ===========
RISK-WEIGHTED ASSETS............................................... $12,271,662 $12,136,529 $12,100,939
=========== =========== ===========
RATIOS AS A PERCENT OF END OF PERIOD RISK-WEIGHTED ASSETS..........
Tier 1 capital................................................... 15.66% 14.88% 15.51%
Total capital.................................................... 20.71 17.55 18.12
</TABLE>
At March 31, 1998, total shareholders' equity was 9.83% of total assets
and the leverage ratio was 10.72% compared to 9.65% and 10.48%, respectively, at
December 31, 1997. The improvement in the Tier I capital ratio and leverage
ratio is attributable primarily to the Corporation's retained net earnings. The
increase in the total capital to risk-weighted assets ratio is primarily
attributable to the issuance, by UPB, of $300 million of 6.5% Putable/Callable
Subordinated Notes, due March 15, 2018, putable or callable on March 15, 2008,
which qualify as Tier II capital for regulatory purposes. Reference is made to
Note 8 to the interim consolidated financial statements included in Part I. Item
1 of this report for additional information regarding these subordinated notes.
YEAR 2000 RISK FACTORS
The 1997 Annual Report contained a discussion of the potential problems
that may occur related to the "Year 2000," the Corporation's plans to address
"Year 2000" problems, and the estimated costs for the Corporation to become
"Year 2000" compliant. The estimated costs disclosed did not include computer
equipment that is scheduled to be replaced in the normal course of business. The
Corporation is currently on schedule to be fully compliant and tested by
December 31, 1998 as is discussed in the 1997 Annual Report. With the number of
pending acquisitions, it is expected that either the Corporation or the target
acquisition will incur additional costs in excess of the Corporation's
originally estimated costs to become "Year 2000" compliant. The amount of those
costs cannot be estimated at this time; however they are not expected to be
material to the Corporation's results of operation or financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET LIABILITY AND MARKET RISK MANAGEMENT
The Corporation's assets and liabilities are principally financial in
nature and the resulting earnings thereon, primarily net interest income, are
subject to changes as a result of changes in market interest rates and the mix
of the various assets and liabilities. Interest rates in the financial markets
affect the Corporation's decisions on pricing its assets and liabilities which
impacts net interest income, the Corporation's primary cash flow stream. As a
result, a substantial part of the Corporation's risk management activities is
devoted to managing interest-rate risk. Currently, the Corporation does not have
any significant risks related to foreign exchange, commodities or equity risk
exposure.
27
<PAGE> 28
INTEREST-RATE RISK. One of the most important aspects of management's efforts to
sustain long-term profitability for the Corporation is the management of
interest-rate risk. Management's goal is to maximize net interest income within
acceptable levels of interest-rate risk and liquidity. To achieve this goal, a
proper balance must be maintained between assets and liabilities with respect to
size, maturity, repricing date, rate of return, and degree of risk. Reference is
made to the "Investment Securities," "Loans," and "Other Earning Assets"
discussions in the 1997 Annual Report and in this discussion for additional
information regarding risks related to these items.
The Corporation's Funds Management Committee oversees the conduct of
global asset/liability management. The Committee reviews the asset/liability
structure and interest-rate risk monthly for the lead bank and quarterly for the
Corporation's other subsidiaries.
The Corporation uses interest-rate sensitivity (GAP) analysis to monitor
the amounts and timing of balances exposed to changes in interest rates, as
shown in the following table. The analysis presented has been made at a point in
time and could change significantly on a daily basis. The GAP Report is not
relied upon exclusively to evaluate the impact of, or predict how the
Corporation is positioned to react to, changing interest rates. Other methods
such as simulation analysis are also considered in evaluating the Corporation's
interest-rate risk. Key assumptions in the simulation analysis include
prepayment speeds on mortgage-related assets, cash flows and maturities of
financial instruments held for purposes other than trading, changes in volumes
and pricing, deposit sensitivity, and management's financial capital plan. These
assumptions are inherently uncertain and, as a result, the simulation cannot
precisely estimate net interest income or precisely predict the impact of higher
or lower interest rates on net interest income. Actual results will differ from
simulated results due to timing, magnitude, and frequency of interest rate
changes and changes in market conditions and management strategies, among
others.
At March 31, 1998, the GAP analysis indicated that the Corporation was
asset sensitive with $902 million more assets than liabilities repricing within
one year. At 5% of total assets, this position was within management's policy
limit of 10% of total assets.
Balance sheet simulation analysis has been conducted at March 31, 1998 to
determine the impact on net interest income for the coming twelve months under
several interest-rate scenarios. One such scenario uses rates at March 31, 1998,
and holds the rates and volumes constant for simulation. When this position is
subjected to immediate and parallel shifts in interest rates ("rate shocks") of
200 basis points rising and 200 basis points falling, the annual impact on the
Corporation's net interest income is a positive $30 million and a negative $40
million pretax, respectively. Another simulation uses management's conclusions
as to a "most likely" scenario of interest rates remaining constant until the
latter part of 1998 and then gradually declining 50 basis points resulting in a
$2 million pretax decrease in net interest income from the constant rate/volume
projection. These scenarios are consistent with the Corporation's policy of
limiting the projected impact on net interest income of changes in interest
rates to 5% of shareholders' equity.
28
<PAGE> 29
UNION PLANTERS CORPORATION AND SUBSIDIARIES
RATE SENSITIVITY ANALYSIS AT MARCH 31, 1998
<TABLE>
<CAPTION>
INTEREST-SENSITIVE WITHIN (1) AND (7)
--------------------------------------------------------------------------------------------
NON-
0-90 91-365 1-3 3-5 5-15 OVER 15 INTEREST-
DAYS DAYS YEARS YEARS YEARS YEARS BEARING TOTAL
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans and leases(2)(3)(4).......... $4,938 $2,937 $2,732 $1,331 $ 481 $ 12 $ 324 $12,755
Investment securities(5)(6)........ 762 417 803 427 730 149 -- 3,288
Other earning assets............... 678 67 1 -- -- -- -- 746
Other assets....................... -- -- -- -- -- -- 1,625 1,625
------ ------ ------ ------ ------ ------ ------- -------
Total Assets............... $6,378 $3,421 $3,536 $1,758 $1,211 $ 161 $ 1,949 $18,414
====== ====== ====== ====== ====== ====== ======= =======
SOURCES OF FUNDS
Money market deposits(7)(8)........ $ 656 $ 656 $ 875 $ -- $ -- $ -- $ -- $2,187
Other savings and time deposits.... 2,159 2,659 1,699 186 974 9 -- 7,686
Certificates of deposit of
$100,000 and over................ 492 720 173 31 1 1 -- 1,418
Short-term borrowings.............. 440 2 -- -- -- -- -- 442
Short- and medium-term bank notes.. -- 30 85 20 -- -- -- 135
Federal Home Loan Bank advances.... 734 11 30 22 49 -- -- 846
Other long-term debt............... 331 7 -- 10 675 -- -- 1,023
Noninterest-bearing deposits....... -- -- -- -- -- -- 2,291 2,291
Other liabilities.................. -- -- -- -- -- -- 577 577
Shareholders' equity............... -- -- -- -- -- -- 1,809 1,809
------ ------ ------ ------ ------ ------ ------- -------
Total sources of funds $4,812 $4,085 $2,862 $ 269 $1,699 $ 10 $ 4,677 $18,414
====== ====== ====== ====== ====== ====== ======= =======
Interest-rate sensitivity gap $1,566 $ (664) $ 674 $1,489 $ (488) $ 151 $(2,728)
Cumulative interest-rate
sensitivity gap(8)............... 1,566 902 1,576 3,065 2,577 2,728 --
Cumulative gap as a percentage
of total assets(R) 9% 5% 9% 17% 14% 15% --
- --------------------
</TABLE>
Management has made the following assumptions in presenting the above analysis:
(1) Assets and liabilities are generally scheduled according to their earliest
repricing dates regardless of their contractual maturities.
(2) Nonaccrual loans and accounts receivable-factoring are included in the
noninterest-bearing category.
(3) Fixed-rate mortgage loan maturities are estimated based on the currently
prevailing principal-prepayment patterns of comparable mortgage-backed
securities.
(4) Delinquent FHA/VA loans are scheduled based on foreclosure and repayment
patterns.
(5) The scheduled maturities of mortgage-backed securities and CMOs assume
principal prepayment of these securities on dates estimated by management,
relying primarily upon current and consensus interest-rate forecasts in
conjunction with the latest three-month historical prepayment schedules.
(6) Securities are generally scheduled according to their call dates when
valued at a premium to par.
(7) Money market deposits and savings deposits that have no contractual
maturities are scheduled according to management's best estimate of their
repricing in response to changes in market rates. The impact of changes in
market rates would be expected to vary by product type and market.
(8) If all money market, NOW, and savings deposits had been included in the
0-90 Days category above, the cumulative gap as a percentage of total
assets would have been negative (8%) and (8%) for the 0-90 Days and 91-365
Days categories and positive 4%, 12%, 15%, and 15%, respectively, for the
1-3 Years, 3-5 Years, 5-15 Years, and over 15 Years categories at March
31, 1998.
29
<PAGE> 30
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
During the period covered by this report, there have been no new material
legal proceedings or material developments in pending material litigation to
which the Corporation or any of its subsidiaries is a party or of which any of
their property is subject, other than ordinary routine litigation incidental to
their business. Information concerning legal proceedings is contained in Item 3,
Part I of the Corporation's 1997 Form 10-K , Note 19 to the Corporation's
consolidated financial statements on page 71 of the 1997 Annual Report, and Note
10 to the Corporation's unaudited interim consolidated financial statements
included herein under Item 1 of Part I.
ITEM 2 -- CHANGES IN SECURITIES
(a) Following the receipt of shareholder approval at the annual meeting of
shareholders of the Corporation held April 16, 1998, the Corporation amended its
charter to increase the number of shares of common stock the Corporation is
authorized to issue from 100 million shares to 300 million shares. The charter
amendment did not otherwise affect the rights of holders of the Corporation's
common stock.
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 -- OTHER INFORMATION
None
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
2(a) Agreement and Plan of Reorganization By and Between Magna
Group, Inc. and Union Planters Corporation, dated as of
February 22, 1998 (incorporated by reference to Appendix A
to the Corporation's Registration Statement on Form S-4
filed with the Securities and Exchange Commission on April
7, 1998, Registration Statement No. 333-49617)
2(b) Agreement and Plan of Reorganization dated March 31, 1998,
between Union Planters Corporation and AMBANC Corp.
(incorporated by reference to Exhibit 1 to Schedule
13D, dated March 31, 1998, filed by Union Planters
Corporation (Commission File No. 1-10160) with respect to
the common stock of AMBANC Corp. (Commission File No.
0-10710) )
3(a) Restated Charter of Incorporation, as most recently amended
on April 16, 1998 (previously filed)
4(a) All instruments defining the rights of the holders of the
Union Planters Bank, National Association 6.50%
Putable/Callable Subordinated Notes Due March 15, 2018,
putable or callable on March 15, 2008 which instruments are
not being filed herewith in reliance upon item
601(b)(4)(iii)(A) of Regulation S-K and the related
AGREEMENT PURSUANT TO ITEM 601(b)(4)(iii)(A) and 601 (b)
(4) (v) OF REGULATION S-K dated May 8, 1998 of Union
Planters Corporation filed with the Commission, a copy of
which is Exhibit 4(b) hereto
30
<PAGE> 31
4(b) Copy of Registrant's AGREEMENT PURSUANT TO ITEM 601(b)(4)
(iii)(A) OF REGULATION S-K dated May 8, 1998 (previously
filed)
11 Computation of Per Share Earnings (incorporated by
reference to Note 11 to the Corporation's unaudited interim
consolidated financial statements included herein)
27 Financial Data Schedule (for SEC use only)(previously
filed)
b) Reports on Form 8-K:
<TABLE>
<CAPTION>
Date of Current Report. Subject
- -------------------------------- ---------------------------
<S> <C>
1. January 15, 1998 Press release announcing year ended
December 31, 1997 net earnings, reported
under Item 5
2. February 23, 1998 Announcement of definitive agreement to
acquire Magna Group, Inc., reported under
Item 5
3. April 16, 1998 Press release announcing first quarter 1998
net earnings, reported under Item 5
</TABLE>
31
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNION PLANTERS CORPORATION
-------------------------------
(Registrant)
Date: May 26, 1988
------------
By: /s/ Benjamin W. Rawlins, Jr.
--------------------------------------
Benjamin W. Rawlins, Jr.
Chairman and Chief Executive Officer
By: /s/ John W. Parker
--------------------------------------
John W. Parker
Executive Vice President and
Chief Financial Officer
By: /s/ M. Kirk Walters
--------------------------------------
M. Kirk Walters
Senior Vice President, Treasurer,
and Chief Accounting Officer
32
<PAGE> 33
UNION PLANTERS CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------------- ------------------------------------------------
<S> <C>
2(a) Agreement and Plan of Reorganization By and Between
Magna Group, Inc. and Union Planters Corporation dated
as of February 22, 1998 (incorporated by reference to
Appendix A to the Corporation's Registration Statement
on Form S-4 filed with the Securities and Exchange
Commission on April 7, 1998, Registration Statement No.
333-49617)
2(b) Agreement and Plan of Reorganization dated March 31,
1998, between Union Planters Corporation and AMBANC
Corp.(incorporated by reference to Exhibit 1 to Schedule
13D, dated March 31, 1998, filed by Union Planters
Corporation (Commission File No. 1-10160) with respect
to the common stock of AMBANC Corp. (Commission File No.
0-10710) )
3(a) Restated Charter of Incorporation, as most recently
amended on April 16, 1998 (previously filed)
4(a) All instruments defining the rights of the holders of
the Union Planters Bank, National Association 6.50%
Putable/Callable Subordinated Notes Due March 15, 2018,
putable or callable on March 15,2008 which instruments
are not being filed herewith in reliance upon item
601(b)(4)(iii)(A) of Regulation S-K and the related
AGREEMENT PURSUANT TO ITEM 601(b)(4)(iii)(A) and 601 (b)
(4) (v) OF REGULATION S-K dated May 8, 1998 of Union
Planters Corporation filed with the Commission, a copy
of which is Exhibit 4(b) hereto
4(b) Copy of Registrant's AGREEMENT PURSUANT TO ITEM 601(b)
(4)(iii)(A) OF REGULATION S-K dated May 8, 1998 (previously
filed)
11 Computation of Per Share Earnings (incorporated by
reference to Note 11 to the Corporation's unaudited
interim consolidated financial statements included
herein)
27 Financial Data Schedule (for SEC use only)(previously filed)
</TABLE>
