<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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 July 31, 1999
- --------------------------------------- ----------------------------
Common stock $5 par value 142,968,670
<PAGE> 2
UNION PLANTERS CORPORATION AND SUBSIDIARIES
FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1999
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
a) Consolidated Balance Sheet - June 30, 1999,
June 30, 1998, and December 31, 1998................................................... 3
b) Consolidated Statement of Earnings -
Three and Six Months Ended June 30, 1999 and 1998...................................... 4
c) Consolidated Statement of Changes in Shareholders' Equity-
Six Months Ended June 30, 1999 ........................................................ 5
d) Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1999 and 1998................................................ 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............................................................................ 35
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................................... 38
Item 2. Changes in Securities.................................................................. 38
Item 3. Defaults Upon Senior Securities........................................................ 38
Item 4. Submission of Matters to a Vote of Security Holders.................................... 38
Item 5. Other Information...................................................................... 38
Item 6. Exhibits and Reports on Form 8-K....................................................... 39
Signatures............................................................................. 40
</TABLE>
2
<PAGE> 3
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------- DECEMBER 31,
1999 1998 1998
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and due from banks ................................................. $ 1,140,966 $ 1,154,531 $ 1,271,614
Interest-bearing deposits at financial institutions ..................... 49,808 28,010 47,583
Federal funds sold and securities purchased under agreements to resell... 120,762 179,882 94,568
Trading account assets .................................................. 282,199 237,049 275,992
Loans held for resale ................................................... 403,520 205,378 441,214
Available for sale investment securities (Amortized cost: $8,035,376,
$7,542,679 and $8,208,570 respectively) ............................... 7,939,035 7,610,153 8,301,703
Loans ................................................................... 20,263,128 20,238,547 19,611,168
Less: Unearned income ................................................. (32,016) (37,840) (34,342)
Allowance for losses on loans ............................... (340,586) (337,602) (321,476)
------------ ------------ ------------
Net loans .......................................................... 19,890,526 19,863,105 19,255,350
Premises and equipment, net ............................................. 584,717 543,101 553,251
Accrued interest receivable ............................................. 281,752 275,634 293,066
FHA/VA claims receivable ................................................ 137,337 132,735 126,164
Mortgage servicing rights ............................................... 115,033 103,352 101,466
Goodwill and other intangibles .......................................... 725,046 260,754 386,994
Other assets ............................................................ 589,471 448,562 542,988
------------ ------------ ------------
TOTAL ASSETS .................................................... $ 32,260,172 $ 31,042,246 $ 31,691,953
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing .................................................. $ 4,236,678 $ 3,673,019 $ 4,194,402
Certificates of deposit of $100,000 and over ......................... 2,120,692 2,888,454 2,614,694
Other interest-bearing ............................................... 18,450,271 16,698,748 18,087,359
------------ ------------ ------------
Total deposits .................................................. 24,807,641 23,260,221 24,896,455
Short-term borrowings ................................................... 2,596,517 1,901,443 1,648,039
Short- and medium-term bank notes ....................................... 105,000 135,000 105,000
Federal Home Loan Bank advances ......................................... 208,463 1,085,394 279,992
Other long-term debt .................................................... 894,798 1,036,028 1,053,740
Accrued interest, expenses, and taxes ................................... 247,195 236,460 278,237
Other liabilities ....................................................... 427,486 379,380 446,412
------------ ------------ ------------
TOTAL LIABILITIES ............................................... 29,287,100 28,033,926 28,707,875
------------ ------------ ------------
Commitments and contingent liabilities .................................. -- -- --
Shareholders' equity
Convertible preferred stock ........................................... 22,134 27,732 23,353
Common stock, $5 par value; 300,000,000 shares authorized;
142,712,856 issued and outstanding (139,567,809 at June 30, 1998,
and 141,924,958 at December 31, 1998) .............................. 713,564 697,839 709,625
Additional paid-in capital ............................................ 770,932 661,456 691,789
Retained earnings ..................................................... 1,541,608 1,595,089 1,516,712
Unearned compensation ................................................. (13,595) (16,546) (14,646)
Accumulated other comprehensive income-unrealized gain (loss)
on available for sale securities, net ............................... (61,571) 42,750 57,245
------------ ------------ ------------
TOTAL SHAREHOLDERS' EQUITY ...................................... 2,973,072 3,008,320 2,984,078
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..................... $ 32,260,172 $ 31,042,246 $ 31,691,953
============ ============ ============
</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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans ............................................ $ 428,335 $ 464,494 $ 846,106 $ 927,938
Interest on investment securities
Taxable ............................................................. 107,518 95,460 214,098 179,638
Tax-exempt .......................................................... 17,633 14,989 35,093 28,924
Interest on deposits at financial institutions ........................ 450 519 1,437 1,027
Interest on federal funds sold and securities purchased under
agreements to resell ................................................ 963 4,834 1,832 11,668
Interest on trading account assets .................................... 3,934 2,803 7,529 5,823
Interest on loans held for resale ..................................... 6,468 3,606 13,791 5,937
---------- ---------- ---------- ----------
Total interest income ......................................... 565,301 586,705 1,119,886 1,160,955
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits .................................................. 206,296 222,187 419,300 442,438
Interest on short-term borrowings ..................................... 26,088 20,403 45,342 38,113
Interest on long-term debt ............................................ 21,328 37,289 47,958 69,828
---------- ---------- ---------- ----------
Total interest expense ........................................ 253,712 279,879 512,600 550,379
---------- ---------- ---------- ----------
NET INTEREST INCOME ........................................... 311,589 306,826 607,286 610,576
PROVISION FOR LOSSES ON LOANS ........................................... 17,740 43,038 34,019 76,250
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOSSES ON LOANS........ 293,849 263,788 573,267 534,326
---------- ---------- ---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts ................................... 42,523 38,638 81,390 75,510
Mortgage banking revenue .............................................. 24,215 21,624 51,702 43,269
Bank card income ...................................................... 8,083 10,533 11,043 20,418
Factoring commissions ................................................. 7,403 7,437 14,431 14,741
Trust service income .................................................. 7,004 6,450 13,714 12,731
Profits and commissions from trading activities ....................... 1,519 1,583 1,864 3,431
Investment securities gains (losses) .................................. 3,181 (22,584) 3,192 (16,730)
Other income .......................................................... 46,788 55,744 89,634 92,814
---------- ---------- ---------- ----------
Total noninterest income ...................................... 140,716 119,425 266,970 246,184
---------- ---------- ---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits ........................................ 129,871 116,545 253,101 230,267
Net occupancy expense ................................................. 21,676 18,289 41,911 36,525
Equipment expense ..................................................... 20,218 17,387 39,238 34,427
Goodwill and other intangible amortization ............................ 12,285 6,609 25,148 12,462
Other expense ......................................................... 90,959 98,289 173,850 180,440
---------- ---------- ---------- ----------
Total noninterest expense ..................................... 275,009 257,119 533,248 494,121
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES .................................. 159,556 126,094 306,989 286,389
Applicable income taxes ................................................. 53,792 46,690 103,875 102,524
---------- ---------- ---------- ----------
NET EARNINGS .................................................. $ 105,764 $ 79,404 $ 203,114 $ 183,865
========== ========== ========== ==========
NET EARNINGS APPLICABLE TO COMMON SHARES ...................... $ 105,318 $ 78,936 $ 202,210 $ 182,764
========== ========== ========== ==========
EARNINGS PER COMMON SHARE (NOTE 10)
Basic ......................................................... $ .74 $ .57 $ 1.42 $ 1.33
Diluted ....................................................... .73 .56 1.40 1.30
AVERAGE COMMON SHARES OUTSTANDING (IN THOUSANDS)
Basic ......................................................... 142,574 138,077 142,417 137,011
Diluted ....................................................... 144,798 142,525 144,737 141,973
</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>
CONVERTIBLE ADDITIONAL
PREFERRED COMMON PAID-IN
STOCK STOCK CAPITAL
--------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1999 .............................. $ 23,353 $ 709,625 $ 691,789
Comprehensive income
Net earnings ........................................ -- -- --
Other comprehensive income,
net of taxes:
Net change in the unrealized gains
(losses) on available for sale securities ..... -- -- --
Total comprehensive income .................. -- -- --
Cash dividends
Common stock, $1.00 per share ....................... -- -- --
Preferred stock, $1.00 per share .................... -- -- --
Common stock issued under
employee benefit plans,
net of stock exchanged .............................. -- 1,675 11,103
Issuance of common stock
for acquisitions .................................... -- 7,023 71,340
Conversion of preferred stock ......................... (1,219) 305 914
Conversion of debt of an
acquired entity ..................................... -- 447 1,165
Common stock repurchased for use
in business combinations ............................ -- (5,511) (5,379)
--------- ---------- ----------
BALANCE, JUNE 30, 1999 ................................ $ 22,134 $ 713,564 $ 770,932
========= ========== ==========
<CAPTION>
UNREALIZED
GAIN (LOSSES)
ON AVAILABLE
RETAINED UNEARNED FOR SALE
EARNINGS COMPENSATION SECURITIES TOTAL
----------- ------------ ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1999 ........................ $ 1,516,712 $(14,646) $ 57,245 $ 2,984,078
Comprehensive income
Net earnings .................................. 203,114 -- -- 203,114
Other comprehensive income,
net of taxes:
Net change in the unrealized gains
(losses) on available for sale securities -- -- (118,816) (118,816)
-----------
Total comprehensive income ............ -- -- -- 84,298
Cash dividends
Common stock, $1.00 per share ................. (142,915) -- -- (142,915)
Preferred stock, $1.00 per share .............. (904) -- -- (904)
Common stock issued under
employee benefit plans,
net of stock exchanged ........................ -- 1,051 -- 13,829
Issuance of common stock
for acquisitions .............................. 4,119 -- -- 82,482
Conversion of preferred stock ................... -- -- -- --
Conversion of debt of an
acquired entity ............................... -- -- -- 1,612
Common stock repurchased for use
in business combinations ...................... (38,518) -- -- (49,408)
----------- -------- --------- -----------
BALANCE, JUNE 30, 1999 .......................... $ 1,541,608 $(13,595) $ (61,571) $ 2,973,072
=========== ======== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
TAX
BEFORE-TAX (EXPENSE) NET OF TAX
AMOUNT BENEFIT AMOUNT
---------- -------- ----------
<S> <C> <C> <C>
DISCLOSURE OF RECLASSIFICATION AMOUNT:
Net change in the unrealized gains
(losses)
on available for sale securities
arising during the period ................... $ (186,282) $ 69,416 $ (116,866)
Less: reclassification for gains
included in net income ............. 3,192 (1,242) 1,950
------------- ------- -----------
Net change in the unrealized gains
(losses)
on available for sale securities ............. $ (189,474) $ 70,658 $ (118,816)
============= ======= ===========
</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>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1999 1998
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings ...................................................................... $ 203,114 $ 183,865
Reconciliation of net earnings to net cash provided by operating activities:
Provision for losses on loans, other real estate, and FHA/VA foreclosure claims . 34,534 82,402
Depreciation and amortization of premises and equipment ......................... 31,919 28,295
Amortization of goodwill, mortgage servicing rights, and other intangibles ...... 35,736 23,926
Net amortization of investment securities ....................................... 17,146 464
Net realized (gain) loss on sales of investment securities ...................... (3,192) 16,564
Deferred income tax benefit (expense) ........................................... (19,025) 1,324
(Increase) decrease in assets
Trading account assets and loans held for resale ............................ 37,114 (77,746)
Other assets ................................................................ 48,787 (4,373)
Decrease in accrued interest, expenses, taxes, and other liabilities ............ (70,118) (55,713)
Other, net ...................................................................... 5,616 8,298
----------- -----------
Net cash provided by operating activities ................................. 321,631 207,306
----------- -----------
INVESTING ACTIVITIES
Net decrease in short-term investments ............................................ 767,174 371
Proceeds from sales of available for sale securities .............................. 837,508 686,400
Proceeds from maturities, calls, and prepayments of available for sale securities . 3,685,117 2,116,101
Purchases of available for sale securities ........................................ (4,226,403) (3,858,550)
Net decrease in loans ............................................................. 617,470 579,758
Net cash received from acquisitions of financial institutions ..................... 21,117 24,037
Purchases of premises and equipment, net .......................................... (35,079) (34,553)
Other, net ........................................................................ -- 10,177
----------- -----------
Net cash provided (used) by investing activities .......................... 1,666,904 (476,259)
----------- -----------
FINANCING ACTIVITIES
Net decrease in deposits .......................................................... (2,419,632) (234,300)
Net increase in short-term borrowings ............................................. 738,624 259,577
Proceeds from long-term debt, net ................................................. -- 514,796
Repayment of long-term debt ....................................................... (231,573) (232,020)
Proceeds from issuance of common stock ............................................ 12,778 24,224
Purchases of common stock, including transactions
of acquired entities prior to acquisition ....................................... (49,408) (139,866)
Cash dividends paid ............................................................... (143,835) (116,416)
Other, net ........................................................................ 57 4,332
----------- -----------
Net cash provided (used) by financing activities .......................... (2,092,989) 80,327
----------- -----------
Net decrease in cash and cash equivalents ......................................... (104,454) (188,626)
Cash and cash equivalents at the beginning of the period .......................... 1,366,182 1,523,039
----------- -----------
Cash and cash equivalents at the end of the period ................................ $ 1,261,728 $ 1,334,413
=========== ===========
SUPPLEMENTAL DISCLOSURES
Cash paid for
Interest ........................................................................ $ 530,453 $ 539,382
Income taxes .................................................................... 100,865 103,948
Unrealized gains (losses) on available for sale securities ........................ (96,341) 67,474
</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 1998 Annual Report to Shareholders, (1998 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, 1998 (1998 10-K).
In 1999, the Corporation has changed the presentation of mortgage
servicing income and certain other mortgage banking revenues. A new line,
mortgage banking revenues, has been added to the statement of earnings and
includes mortgage servicing income, gain on sale of residential mortgages,
mortgage origination fees, sale of servicing, and other miscellaneous fees of
the mortgage banking operations. Prior year amounts for mortgage banking
revenues and certain other 1998 amounts have been reclassified to be consistent
with the 1999 financial reporting presentation.
NOTE 2. ACQUISITIONS
CONSUMMATED ACQUISITIONS
On January 31, 1999, the Corporation exchanged 1,404,816 shares of its
common stock for all of the outstanding shares of First Mutual Bancorp. (First
Mutual), the parent of First Mutual Bank, S.B., in Decatur, Illinois, in a
transaction accounted for as a purchase. The Corporation repurchased, in the
open market, a majority of the common stock issued to facilitate the purchase.
At the date of acquisition, First Mutual had total assets of approximately $403
million, total loans of $285 million, and total deposits of $315 million.
Goodwill and other intangibles resulting from the acquisition totaled $37
million.
On February 1, 1999, the Corporation consummated the acquisition of First
& Farmers Bancshares, Inc., in Somerset, Kentucky, the parent of First &
Farmers Bank of Somerset in Somerset, Kentucky, and Bank of Cumberland in
Burkesville, Kentucky. Cash in the amount of $76 million was paid for the
acquisition which was accounted for as a purchase. At the date of acquisition,
First & Farmers Bancshares, Inc. had total assets of $411 million, total loans
of $185 million, and total deposits of $318 million. Goodwill and other
intangibles resulting from the acquisition totaled $44 million.
On March 5, 1999, the Corporation purchased 56 branches of First Chicago
NBD Corporation in Indiana. In the transaction, the Corporation purchased $855
million of loans, acquired certain branch locations and equipment totaling $16
million, and assumed $1.7 billion of deposit liabilities. The premium paid
(goodwill and other intangibles) for the purchase was approximately $274
million.
Because the above purchase acquisitions, in the aggregate, are
insignificant to the consolidated results of the Corporation, pro forma
information has been omitted. Additionally, pro forma information for the
branch purchase is not available due to lack of information available for
operation of the branches on a historical basis. Reference is made to Note 2 of
the consolidated financial statements on pages 45 through 47 of the 1998 Annual
Report for information regarding acquisitions completed in 1998.
Goodwill and other intangibles resulting from the above acquisitions will
be amortized over lives up to 25 years.
SUBSEQUENT EVENT
On July 16, 1999, the Corporation's lead bank, Union Planters Bank,
National Association (the Bank or UPB) completed the acquisition of Republic
Banking Corp. of Florida (Nasdaq:RBCF) (Republic), the parent company of
Republic National Bank of Miami, Miami, Florida. In the transaction, UPB
acquired Republic National Bank's 25 Miami-Dade and two Broward County banking
centers
7
<PAGE> 8
and approximately $1.5 billion in assets, $1.0 billion in loans, and $1.3
billion in total deposits. The purchase price is approximately $410 million in
cash. Goodwill and other intangibles resulting from the acquisition are
currently estimated to be $255.6 million, subject to change when the final
purchase accounting adjustments are completed and will be amortized over lives
up to 25 years.
NOTE 3. LOANS
Loans are summarized by type as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------- DECEMBER 31,
1999 1998 1998
----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Commercial, financial, and agricultural .................... $ 4,156,973 $ 3,381,450 $ 3,543,925
Foreign .................................................... 319,050 232,697 197,120
Accounts receivable - factoring ............................ 613,695 702,004 615,952
Real estate - construction ................................. 1,252,069 1,121,655 1,195,779
Real estate - mortgage
Secured by 1-4 family residential ........................ 5,243,449 5,762,631 5,647,520
FHA/VA government-insured/guaranteed ..................... 598,046 811,705 759,911
Other mortgage ........................................... 4,696,723 4,439,240 4,386,182
Home equity ................................................ 538,219 474,871 482,665
Consumer
Credit cards and related plans ........................... 82,761 551,574 96,091
Other consumer ........................................... 2,695,403 2,689,362 2,622,402
Direct lease financing ..................................... 66,740 71,358 63,621
----------- ----------- -----------
TOTAL LOANS ...................................... $20,263,128 $20,238,547 $19,611,168
=========== =========== ===========
</TABLE>
Nonperforming loans are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
NONACCRUAL LOANS
Domestic................................. $ 196,749 $ 150,378
Foreign.................................. -- --
RESTRUCTURED LOANS......................... 1,655 5,612
------------ ------------
TOTAL NONPERFORMING LOANS........ $ 198,404 $ 155,990
============ ============
FHA/VA GOVERNMENT-INSURED/GUARANTEED LOANS
ON NONACCRUAL STATUS..................... $ 7,391 $ 9,232
============ ============
</TABLE>
NOTE 4. ALLOWANCE FOR LOSSES ON LOANS
The changes in the allowance for losses on loans for the three and six
months ended June 30, 1999 are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED,
JUNE 30, 1999 JUNE 30, 1999
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BEGINNING BALANCE.......................... $ 345,011 $ 321,476
Provision for losses on loans.............. 17,740 34,019
Recoveries of loans previously charged off. 12,706 24,158
Loans charged off.......................... (34,871) (60,527)
Increase due to acquisitions............... -- 21,460
----------- -----------
BALANCE, JUNE 30, 1999..................... $ 340,586 $ 340,586
=========== ===========
</TABLE>
As of June 30, 1999, the Corporation had an impaired loan totaling $6.6
million, which had a valuation reserve of $1.7 million, which was established
in the fourth quarter of 1998. The loan balance was $11.9 million at March 31,
1999 and $5.3 million was charged-off during the second quarter of 1999.
8
<PAGE> 9
NOTE 5. INVESTMENT SECURITIES
The amortized cost and fair value of investment securities are summarized
as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------------------------
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 .......................................................... $ 213,470 $ 1,242 $ 627 $ 214,085
U.S. Government agencies
Collateralized mortgage obligations .................................. 2,726,102 2,454 55,876 2,672,680
Mortgage-backed ...................................................... 712,497 6,351 10,100 708,748
Other ................................................................ 1,168,143 4,725 14,950 1,157,918
----------- ---------- ---------- -----------
Total U.S. Government obligations .............................. 4,820,212 14,772 81,553 4,753,431
Obligations of states and political ...................................... 1,337,821 25,833 18,200 1,345,454
subdivisions
Other stocks and securities .............................................. 1,877,343 2,812 40,005 1,840,150
----------- ---------- ---------- -----------
TOTAL AVAILABLE FOR SALE SECURITIES ............................ $ 8,035,376 $ 43,417 $ 139,758 $ 7,939,035
=========== ========== ========== ===========
<CAPTION>
DECEMBER 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 .......................................................... $ 390,538 $ 5,809 $ 60 $ 396,287
U.S. Government agencies
Collateralized mortgage obligations .................................. 2,581,446 12,908 6,051 2,588,303
Mortgage-backed ...................................................... 733,224 13,970 819 746,375
Other ................................................................ 1,491,394 17,695 975 1,508,114
----------- ---------- ---------- -----------
Total U.S. Government obligations .............................. 5,196,602 50,382 7,905 5,239,079
Obligations of states and political subdivisions.......................... 1,293,257 53,558 1,149 1,345,666
Other stocks and securities .............................................. 1,718,711 4,168 5,921 1,716,958
----------- ---------- ---------- -----------
TOTAL AVAILABLE FOR SALE SECURITIES............................. $ 8,208,570 $ 108,108 $ 14,975 $ 8,301,703
=========== ========== ========== ===========
</TABLE>
Investment securities having a fair value of approximately $3.2 billion
and $3.1 billion at June 30, 1999 and December 31, 1998, respectively, were
pledged to secure public and trust funds on deposit, securities sold under
agreements to repurchase, and Federal Home Loan Bank (FHLB) advances.
The following table presents the gross realized gains and losses on
available for sale investment securities for the three and six months ended
June 30, 1999 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Realized gains......... $ 5,091 $ 948 $ 5,159 $ 6,873
Realized losses........ 1,910 23,532 1,967 23,603
</TABLE>
9
<PAGE> 10
NOTE 6. OTHER NONINTEREST INCOME AND EXPENSE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OTHER NONINTEREST INCOME
ATM usage fees................................................... $ 6,074 $ 4,901 $ 11,266 $ 9,070
Annuity sales income............................................. 5,567 1,449 9,835 2,654
Brokerage fee income............................................. 4,922 5,512 9,650 9,749
Insurance commissions............................................ 4,431 3,381 8,442 6,725
Gain on sale of FHA/VA loans..................................... -- 19,605 5,317 19,605
Gain on sale of credit card portfolio............................ 874 -- 3,268 --
Gain on sale of corporate trust business......................... 2,417 -- 2,417 --
Letters of credit fees........................................... 1,810 1,643 3,168 2,980
Gain on sales of branches/deposits and other selected assets..... 1,403 1,764 2,934 2,790
Earnings (loss) of unconsolidated subsidiaries................... 417 887 (130) 1,892
Other income..................................................... 18,873 16,602 33,467 37,349
------------ ------------ ------------ ------------
TOTAL OTHER NONINTEREST INCOME........................... $ 46,788 $ 55,744 $ 89,634 $ 92,814
============ ============ ============ ============
OTHER NONINTEREST EXPENSE
Other contracted services........................................ $ 9,299 $ 6,080 $ 16,415 $ 12,188
Communications................................................... 8,302 5,962 16,360 11,970
Stationery and supplies.......................................... 9,347 6,497 16,180 13,604
Postage and carrier.............................................. 7,858 7,706 15,143 14,471
Advertising and promotion........................................ 6,789 7,390 13,480 12,393
Amortization of mortgage servicing rights........................ 4,731 5,830 10,588 10,122
Other personnel services......................................... 4,544 3,439 8,912 6,493
Merchant credit card charges..................................... 3,898 3,328 7,048 6,053
Legal fees....................................................... 2,932 2,782 6,245 5,089
Travel........................................................... 2,947 2,543 5,604 4,658
Miscellaneous charge-offs........................................ 2,762 3,192 5,148 5,903
Consultant fees.................................................. 2,294 2,495 4,328 4,181
Taxes other than income.......................................... 2,248 3,882 3,978 6,878
FDIC insurance................................................... 1,526 (701) 3,036 490
Other real estate expense........................................ 1,477 2,225 2,899 4,943
Federal Reserve fees............................................. 1,282 1,069 2,602 2,033
Brokerage and clearing fees on trading activities................ 1,509 1,377 2,585 2,868
Accounting and audit fees........................................ 1,114 1,316 2,532 2,481
Dues, subscriptions, and contributions........................... 951 1,903 2,259 3,990
Insurance........................................................ 696 1,139 1,232 2,166
Provision for losses on FHA/VA foreclosure claims................ -- 2,396 250 2,722
Merger-related expenses.......................................... -- 13,874 -- 18,340
Other expense.................................................... 14,453 12,565 27,026 26,404
------------ ------------ ------------ ------------
TOTAL OTHER NONINTEREST EXPENSE......................... $ 90,959 $ 98,289 $ 173,850 $ 180,440
============ ============ ============ ============
</TABLE>
NOTE 7. INCOME TAXES
Applicable income taxes for the six months ended June 30, 1999, were
$103.9 million, resulting in an effective tax rate of 33.8%. Applicable income
taxes for the same period in 1998 were $102.5 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 both the three and six
months ended June 30, 1999 was $1.2 million, which compares to income tax
benefits of $8.8 million and $6.5 million, respectively, for the same periods
in 1998.
At June 30, 1999, the Corporation had a net deferred tax asset of $251.1
million compared to $160.6 million at December 31, 1998. Included in the net
deferred tax asset at June 30, 1999 is $34.9 million related to the unrealized
loss on available for sale securities. This compares to a deferred liability of
$35.9 million at December 31, 1998 related to the unrealized gain on available
for sale securities. 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.
10
<PAGE> 11
NOTE 8. BORROWINGS
SHORT-TERM BORROWINGS
Short-term borrowings include federal funds purchased and securities sold
under agreements to repurchase, FHLB advances, and other short-term borrowings.
Federal funds purchased arise from the Corporation's market activity with its
correspondent banks and borrowing to meet liquidity needs 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>
JUNE 30,
---------------------------- DECEMBER 31,
1999 1998 1998
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balances at quarter end:
Federal funds purchased and securities sold under agreements to $ 1,695,978 $ 1,879,835 $ 1,647,249
repurchase.........................................................
FHLB advances...................................................... 900,000 5,000 --
Other short-term borrowings........................................ 539 16,608 790
------------ ------------ ------------
Total short-term borrowings.............................. $ 2,596,517 $ 1,901,443 $ 1,648,039
============ ============ ============
Federal funds purchased and securities sold under agreements to
repurchase
Daily average balance............................................ $ 1,906,142 $ 1,378,770 $ 1,454,025
Weighted average interest rate................................... 4.42% 5.11% 5.17%
</TABLE>
SHORT- AND MEDIUM-TERM SENIOR NOTES
The Corporation's principal subsidiary, UPB, has a $5 billion senior and
subordinated bank note program to supplement UPB's funding sources. Under the
program UPB may from time to time issue senior bank notes having maturities
ranging from 30 days to one year from their respective issue dates (Short-Term
Senior Notes), senior bank notes having maturities of more than one year to 30
years from their respective dates of issue (Medium-Term Senior Notes), and
subordinated bank notes with maturities from 5 years to 30 years from their
respective dates of issue (Subordinated Notes). At June 30, 1999 and December
31, 1998, UPB had no Short-Term Senior Notes or Subordinated Notes outstanding
under this program. A summary of the Medium-Term Senior Notes follows.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balances at period end.......... $ 105,000 $ 105,000
Variable-rate notes............. -- --
Fixed-rate notes................ 105,000 105,000
Range of maturities............. 10/99 - 10/01 10/99 - 10/01
</TABLE>
FEDERAL HOME LOAN BANK ADVANCES
Certain of the Corporation's banking and thrift subsidiaries had
outstanding advances from the FHLB under Blanket Agreements for Advances and
Security Agreements (the Agreements). The Agreements enable these subsidiaries
to borrow funds from the FHLB to fund mortgage loan programs and to satisfy
certain other funding needs. The value of the mortgage-backed securities and
mortgage loans pledged under the Agreements must be maintained at not less than
115% and 150%, respectively, of the advances outstanding. At June 30, 1999, 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>
JUNE 30, DECEMBER 31,
-----------------------------
1999 1998 1998
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at period end.... $ 208,463 $ 1,085,394 $ 279,992
Range of interest rates.. 3.25% - 6.85% 3.25% - 8.95% 3.25% - 8.36%
Range of maturities...... 2000 - 2015 1998 - 2017 1999 - 2015
OTHER LONG-TERM DEBT
</TABLE>
11
<PAGE> 12
Other Long-Term Debt
The Corporation's other long-term debt is summarized as follows.
Reference is made to Note 9 to the consolidated financial statements in the
1998 Annual Report for additional information regarding these borrowings.
<TABLE>
<CAPTION>
JUNE 30,
-------------------------- DECEMBER 31,
1999 1998 1998
-------------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Corporation-Obligated Mandatorily Redeemable Capital
Pass-through Securities of Subsidiary Trust holding
solely a Corporation-Guaranteed
Related Subordinated Note (Trust Preferred Securities).. $ 199,027 $ 198,991 $ 199,009
Variable-rate asset-based certificates.................... 201,509 253,740 275,000
6 3/4% Subordinated Notes due 2005........................ 99,625 99,566 99,595
6.25% Subordinated Notes due 2003......................... 74,774 74,722 74,748
6.5% Putable/Callable Subordinated Notes due 2018......... 301,623 301,809 301,716
Revolving loan............................................ -- 73,800 74,500
Subordinated notes of acquired entities due 1998 and 1999. 3,283 8,347 4,896
Other long-term debt...................................... 14,957 25,053 24,276
------------ ------------ ------------
TOTAL OTHER LONG-TERM DEBT...................... $ 894,798 $ 1,036,028 $ 1,053,740
============ ============ ============
</TABLE>
NOTE 9. SHAREHOLDERS' EQUITY
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>
JUNE 30, DECEMBER 31,
------------------------------
1999 1998 1998
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Preferred stock, without par value, 10,000,000 shares authorized
Series F Preferred Stock
300,000 shares authorized, none issued (1)................ $ -- $ N/A $ N/A
Series E, 8% Cumulative, Convertible,
Preferred Stock (stated at liquidation value of $25
per share), 885,354 shares issued and outstanding
(1,109,270 at June 30, 1998 and
934,128 at December 31, 1998)....................... 22,134 27,732 23,353
------------ ------------ ------------
TOTAL PREFERRED STOCK............................... $ 22,134 $ 27,732 $ 23,353
============ ============ ============
</TABLE>
- --------------------
(1) At June 30, 1998 and December 31, 1998, the Corporation had authorized
but unissued shares of Series A Preferred Stock related to a Shareholder
Rights Plan. That plan expired January 19, 1999 and was replaced by a new
Shareholder Rights Plan, which relates to a new Series F Preferred Stock.
See Note 10 to the consolidated financial statements in the 1998 Annual
Report.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
On July 16, 1999, the Corporation increased the authorized shares for the
Dividend Reinvestment and Stock Purchase Plan by 2,000,000 shares.
12
<PAGE> 13
NOTE 10. EARNINGS PER SHARE
The calculation of net earnings per share is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
BASIC
Net earnings ............................................... $ 105,764 $ 79,404 $ 203,114 $ 183,865
Less preferred dividends ................................. 446 468 904 1,101
------------ ------------ ------------ ------------
Net earnings applicable to common shares ................... $ 105,318 $ 78,936 $ 202,210 $ 182,764
============ ============ ============ ============
Average common shares outstanding .......................... 142,574,377 138,077,129 142,417,387 137,011,578
============ ============ ============ ============
Net earnings per common share - basic ...................... $ .74 $ .57 $ 1.42 $ 1.33
============ ============ ============ ============
DILUTED
Net earnings ............................................... $ 105,764 $ 79,404 $ 203,114 $ 183,865
Elimination of interest on convertible debt ................ (63) 359 20 757
------------ ------------ ------------ ------------
Net earnings applicable to common shares ................... $ 105,701 $ 79,763 $ 203,134 $ 184,622
============ ============ ============ ============
Average common shares outstanding .......................... 142,574,377 138,077,129 142,417,387 137,010,578
Stock option adjustment .................................... 875,418 1,798,611 941,836 1,816,469
Preferred stock adjustment ................................. 1,135,295 1,502,270 1,147,331 1,917,625
Effect of other dilutive securities ........................ 212,758 1,147,390 230,149 1,228,162
------------ ------------ ------------ ------------
Average common shares outstanding .......................... 144,797,848 142,525,400 144,736,703 141,972,834
============ ============ ============ ============
Net earnings per common share - diluted .................... $ .73 $ .56 $ 1.40 $ 1.30
============ ============ ============ ============
</TABLE>
NOTE 11. LINES OF BUSINESS REPORTING
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
-----------------------------------------------------------------
OTHER
OPERATING PARENT CONSOLIDATED
BANKING UNITS COMPANY TOTAL
------------ ----------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net interest income .......... $ 298,517 $ 15,745 $ (2,673) $ 311,589
Provision for losses on loans (15,509) (2,231) -- (17,740)
Noninterest income (1) ...... 75,130 52,707 (37) 127,800
Noninterest expense .......... (226,781) (45,889) (2,078) (274,748)
Other significant items, net 8,647 2,623 1,385 12,655
------------ ----------- --------- ------------
Earnings before taxes (1) .... $ 140,004 $ 22,955 $ (3,403) $ 159,556
============ =========== ========= ============
Average assets ............... $ 30,045,750 $ 2,718,084 $ 224,964 $ 32,988,798
============ =========== ========= ============
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
-----------------------------------------------------------------
OTHER
OPERATING PARENT CONSOLIDATED
BANKING UNITS COMPANY TOTAL
------------ ----------- --------- ------------
<S> <C> <C> <C> <C>
Net interest income .......... $ 576,994 $ 35,091 $ (4,799) $ 607,286
Provision for losses on loans (30,508) (3,511) -- (34,019)
Noninterest income (1) ...... 138,646 106,019 136 244,801
Noninterest expense .......... (438,314) (89,830) (4,843) (532,987)
Other significant items, net.. 11,000 9,483 1,425 21,908
------------ ----------- --------- ------------
Earnings before taxes (1) .... $ 257,818 $ 57,252 $ (8,081) $ 306,989
============ =========== ========= ============
Average assets ............... $ 29,630,962 $ 2,805,984 $ 234,233 $ 32,671,179
============ =========== ========= ============
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998
-----------------------------------------------------------------
OTHER
OPERATING PARENT CONSOLIDATED
BANKING UNITS COMPANY TOTAL
------------ ------------ --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net interest income .......... $ 280,350 $ 25,851 $ 625 $ 306,826
Provision for losses on loans (29,238) (13,800) -- (43,038)
Noninterest income (1) ....... 74,569 44,952 1,114 120,635
Noninterest expense .......... (203,162) (40,112) (1,157) (244,431)
Merger-related and other
significant items .......... (31,997) 19,605 (1,506) (13,898)
------------ ----------- --------- ------------
Earnings before taxes (1) .... $ 90,522 $ 36,496 $ (924) $ 126,094
============ =========== ========= ============
Average assets ............... $ 27,469,639 $ 2,964,554 $ 313,136 $ 30,747,329
============ =========== ========= ============
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
-------------------------------------------------------------
OTHER
OPERATING PARENT CONSOLIDATED
BANKING UNITS COMPANY TOTAL
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
Net interest income .......... $ 555,810 $ 53,381 $ 1,385 $ 610,576
Provision for losses on loans (50,400) (25,850) -- (76,250)
Noninterest income (1) ....... 147,240 85,378 2,496 235,114
Noninterest expense .......... (400,770) (73,903) (2,422) (477,095)
Merger-related and other
significant items .......... (4,034) -- (1,922) (5,956)
------------ ----------- --------- ------------
Earnings before taxes (1) .... $ 247,846 $ 39,006 $ (463) $ 286,389
============ =========== ========= ============
Average assets ............... $ 26,966,099 $ 3,086,315 $ 293,712 $ 30,346,126
============ =========== ========= ============
</TABLE>
- -----------------------
(1) Parent company noninterest income and earnings before taxes are net of
the intercompany dividend eliminations of $24.6 million and $6.3 million
for the three months ended June 30, 1999 and 1998, respectively, and
$109.1 million and $48.0 million, respectively, for the six months ended
June 30, 1999 and 1998.
13
<PAGE> 14
NOTE 12. 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 1998 10-K, in Note 20 to the Corporation's consolidated
financial statements on page 67 of the 1998 Annual Report, and in Note 12 of
the Quarterly Report on Form 10-Q for the quarterly period ended March 31,
1999. Various other legal proceedings pending against the Corporation and/or
its subsidiaries have arisen in the ordinary course of business.
Based upon present information, including evaluations of certain actions
by outside counsel, management believes that neither the Corporation's
financial position, results of operations, nor liquidity will be materially
affected by the ultimate resolution of pending or threatened legal proceedings.
There were no significant developments during the second quarter of 1999 in any
of the pending or threatened actions that affected such opinion.
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 1998
Annual Report, the interim unaudited consolidated financial statements and
notes for the three and six months ended June 30, 1999 included in Part I
hereof, and the supplemental financial data included in this discussion.
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING INFORMATION
This discussion contains certain forward-looking statements (as defined
in the Private Securities Litigation Reform Act of 1995). Such statements are
based on management's expectations as well as certain assumptions made by, and
information available to, management. Specifically, this discussion contains
forward-looking statements with respect to the following items:
- - effects of projected changes in interest rates
- - effects of changes in general economic conditions
- - 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 and estimated cost
savings related to the integration of completed acquisitions and the
consolidation of banking subsidiaries
- - Year 2000 issues related to the Corporation and third parties
When used in this discussion, the words "anticipate," "project,"
"expect," "believe," "should" and similar expressions are intended to identify
forward-looking statements.
These forward-looking statements involve significant risks and
uncertainties including changes in general economic and financial market
conditions, changes in banking laws and regulations, the Corporation's ability
to execute its business plans, including its plan to address the Year 2000
issue, and the ability of third parties to address Year 2000 issues. Although
the Corporation believes that the expectations reflected in the forward-looking
statements are reasonable, actual results could differ materially.
14
<PAGE> 15
SELECTED FINANCIAL DATA
The following table presents selected financial highlights for the three-
and six-month periods ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- PERCENTAGE ---------------------------- PERCENTAGE
1999 1998 CHANGE 1999 1998 CHANGE
-------------- -------------- -------------- -------------- ------------ -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net earnings........................... $ 105,764 $ 79,404 33% $ 203,114 $ 183,865 10%
Per share
Basic.............................. .74 .57 30 1.42 1.33 7
Diluted............................ .73 .56 30 1.40 1.30 8
Return on average assets............. 1.29% 1.04% 1.25% 1.22%
Return on average common equity...... 14.19 10.97 13.80 12.89
Cash earnings.......................... $ 115,757 $ 85,702 35 $ 223,671 $ 195,705 14
Per share
Basic.............................. .81 .62 31 1.56 1.42 10
Diluted............................ .80 .60 33 1.55 1.38 12
Return on average tangible assets.... 1.44% 1.13% 1.41% 1.31%
Return on average tangible common 20.47 12.96 19.11 14.95
equity
Dividends per common share............. $ .50 $ .50 $ 1.00 $ 1.00
Net interest margin (FTE).............. 4.35% 4.47% 4.28% 4.52%
Interest rate spread (FTE)............. 3.68 3.66 3.59 3.72
Expense ratio.......................... 1.64 1.53 1.62 1.53
Efficiency ratio....................... 58.46 54.53 58.30 53.87
Book value per common share............ $ 20.68 $ 21.36
Shareholders' equity to total assets... 9.22% 9.69%
Leverage ratio......................... 7.79 9.60
Common share prices
High closing price................... $ 45.31 $ 62.56 $ 48.75 $ 67.31
Low closing price.................... 40.31 53.94 40.31 53.94
Closing price at quarter end......... 44.69 58.81
</TABLE>
- --------------------
Cash earnings = Net earnings adjusted for the after-tax impact of goodwill and
other intangibles amortization
Return on average tangible assets = Cash earnings divided by average tangible
assets (average total assets minus average goodwill and other intangibles)
Return on average tangible common equity = Cash earnings minus preferred stock
dividends divided by average common equity (average common equity minus average
goodwill and other intangibles)
Net interest margin = Net interest income (FTE) as a percentage of earning
assets
Interest rate spread = Difference in the FTE 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 AND SIX MONTHS ENDED JUNE 30, 1999
The following table presents a summary of the Corporation's operating
results for the three and six months ended June 30, 1999 and 1998 identifying
significant items impacting the results for the periods shown.
UNION PLANTERS CORPORATION
SUMMARY OF CONSOLIDATED RESULTS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1999 1998 1999 1998
-------------- --------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.................................................... $ 565,301 $ 586,705 $ 1,119,886 $ 1,160,955
Interest expense................................................... 253,712 279,879 512,600 550,379
------------ ------------ ------------ ------------
NET INTEREST INCOME........................................... 311,589 306,826 607,286 610,576
PROVISION FOR LOSSES ON LOANS...................................... (17,740) (43,038) (34,019) (76,250)
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOSSES ON LOANS....... 293,849 263,788 573,267 534,326
NONINTEREST INCOME
Service charges on deposit accounts.............................. 42,523 38,638 81,390 75,510
Mortgage banking revenue......................................... 24,215 21,624 51,702 43,269
Bank card income................................................. 8,083 10,533 11,043 20,418
Factoring commissions............................................ 7,403 7,437 14,431 14,741
Trust service income............................................. 7,004 6,450 13,714 12,731
Profits and commissions from trading activities.................. 1,519 1,583 1,864 3,431
Other income..................................................... 37,053 34,370 70,657 65,014
------------ ------------ ------------ ------------
Total noninterest income...................................... 127,800 120,635 244,801 235,114
------------ ------------ ------------ ------------
NONINTEREST EXPENSE
Salaries and employee benefits................................... 129,871 116,545 253,101 230,267
Net occupancy expense............................................ 21,676 18,289 41,911 36,525
Equipment expense................................................ 20,218 17,387 39,238 34,427
Goodwill and other intangibles amortization...................... 12,285 6,609 25,148 12,462
Other expense.................................................... 90,698 85,601 173,589 163,414
------------ ------------ ------------ ------------
Total noninterest expense..................................... 274,748 244,431 532,987 477,095
------------ ------------ ------------ ------------
EARNINGS BEFORE MERGER-RELATED CHARGES, OTHER SIGNIFICANT ITEMS
AND INCOME TAXES................................................ 146,901 139,992 285,081 292,345
MERGER-RELATED CHARGES AND OTHER SIGNIFICANT ITEMS
Gain on sale of the credit card portfolio........................ 874 -- 3,268 --
Gain on securitization and sale of FHA/VA loans.................. -- 19,605 5,317 19,605
Gain on sale of corporate trust business......................... 2,417 -- 2,417 --
Gain on sale of ARM loans........................................ 5,041 -- 5,041 --
Net gain on sales of branches and other selected assets.......... 1,403 1,764 2,934 8,190
Investment securities gains (losses)............................. 3,181 (22,584) 3,192 (16,730)
Merger-related expenses.......................................... -- (13,869) -- (18,335)
Charter consolidation and other charges related to ongoing
integration of operations..................................... -- (695) -- (695)
Other, net....................................................... (261) 1,881 (261) 2,009
------------ ------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES.................................. 159,556 126,094 306,989 286,389
Applicable income taxes............................................ (53,792) (46,690) (103,875) (102,524)
------------ ------------ ------------ ------------
NET EARNINGS.................................................. $ 105,764 $ 79,404 $ 203,114 $ 183,865
============ ============ ============ ============
NET EARNINGS....................................................... $ 105,764 $ 79,404 $ 203,114 $ 183,865
MERGER-RELATED CHARGES AND OTHER SIGNIFICANT ITEMS, NET OF TAXES... (7,733) 9,734 (13,387) 6,603
GOODWILL AND OTHER INTANGIBLES AMORTIZATION, NET OF TAXES.......... 9,993 6,298 20,557 11,840
------------ ------------ ------------ ------------
EARNINGS BEFORE MERGER-RELATED CHARGES, OTHER SIGNIFICANT ITEMS,
GOODWILL AND OTHER INTANGIBLES AMORTIZATION, NET OF TAXES....... $ 108,024 $ 95,436 $ 210,284 $ 202,308
============ ============ ============ ============
</TABLE>
16
<PAGE> 17
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
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, EPS
------------------------------ INCREASE
1999 1998 (DECREASE)
-------------- --------------- --------------
<S> <C> <C> <C>
Net interest income-FTE $ 4.33 $ 4.42 $ (0.09)
Provision for losses on loans........................ 0.24 0.54 0.30
----------- ----------- -----------
Net interest income after provision for losses on
loans-FTE............................................ 4.09 3.88 0.21
----------- ----------- -----------
Noninterest income
Service charges on deposit accounts................ 0.56 0.53 0.03
Mortgage banking revenue........................... 0.36 0.30 0.06
Bank card income................................... 0.08 0.15 (0.07)
Factoring commissions.............................. 0.10 0.10 --
Trust service income............................... 0.09 0.10 (0.01)
Profits and commissions from trading activities.... 0.01 0.02 (0.01)
Investment securities gains (losses)............... 0.02 (0.12) 0.14
Other income....................................... 0.62 0.66 (0.04)
----------- ----------- -----------
TOTAL NONINTEREST INCOME................... 1.84 1.74 0.10
----------- ----------- -----------
Noninterest expense
Salaries and employee benefits..................... 1.75 1.62 (0.13)
Net occupancy expense.............................. 0.29 0.26 (0.03)
Equipment expense.................................. 0.27 0.24 (0.03)
Goodwill and other intangible amortization......... 0.17 0.09 (0.08)
Other expense...................................... 1.20 1.27 0.07
----------- ----------- -----------
TOTAL NONINTEREST EXPENSE.................. 3.68 3.48 (0.20)
----------- ----------- -----------
Earnings before income taxes-FTE................... 2.25 2.14 0.11
Applicable income taxes-FTE.......................... 0.85 0.84 (0.01)
----------- ----------- -----------
Net earnings....................................... 1.40 1.30 0.10
Less preferred stock dividends....................... -- -- --
----------- ----------- -----------
$ 1.40 $ 1.30 $ 0.10
=========== =========== ===========
Change in net earnings applicable to diluted earnings
per share using previous year average shares
outstanding........................................ $ 0.13
Change in average shares outstanding................. (0.03)
-----------
Change in net earnings............................... $ 0.10
===========
Average diluted shares (in thousands) ............... 144,737 141,973
========== ==========
</TABLE>
17
<PAGE> 18
ACQUISITIONS
The following tables present the estimated impact (as of June 30, 1999 and
for the three and six months then ended compared to the same periods in 1998) on
the balance sheet and statement of earnings of acquisitions accounted for as
purchases, which were completed after June 30, 1998. The impact of certain
acquisitions is estimated because the entities were merged immediately into
existing operations of the Corporation.
<TABLE>
<CAPTION>
BALANCE AT DATE OF ACQUISITION
--------------------------------------------------------------
INDIANA FLORIDA
BRANCH BRANCH OTHER
PURCHASE PURCHASE ACQUISITIONS TOTAL
-------------- -------------- -------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Cash and due from banks........ $ 22 $ 1,272 $ 28 $ 1,322
Interest-bearing deposits at
financial institutions....... 745 -- 29 774
Available for sale securities -- -- 185 185
Loans.......................... 855 2 720 1,577
Allowance for losses on loans (15) -- (12) (27)
Premises and equipment, net.... 16 5 13 34
Goodwill and other intangibles 274 110 81 465
Other assets................... 7 -- 21 28
------------ ------------ ------------ ------------
Total assets......... $ 1,904 $ 1,389 $ 1,065 $ 4,358
============ ============ ============ ============
Total deposits................. $ 1,698 $ 1,383 $ 910 $ 3,991
Short-term borrowings.......... 198 -- 10 208
Long-term debt................. -- -- 20 20
Other liabilities.............. 8 6 17 31
------------ ------------ ------------ ------------
Total liabilities.... $ 1,904 $ 1,389 $ 957 $ 4,250
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED NET IMPACT OF ACQUISITIONS
----------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 VERSUS 1998 JUNE 30, 1999 VERSUS 1998
---------------------------- -----------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net interest income............. $ 33,842 $ 50,281
Provision for losses on loans... (991) (1,111)
Noninterest income.............. 6,354 9,232
Noninterest expense............. (27,070) (46,141)
--------- ---------
Earnings before taxes........... $ 12,135 $ 12,261
========= =========
</TABLE>
ACQUISITION COMPLETED SUBSEQUENT TO JUNE 30, 1999
On July 16, 1999, UPB, the Corporation's lead bank, completed the purchase
of Republic Banking Corp. of Florida (Republic), the parent company of Republic
National Bank of Miami, for $410 million cash. In the transaction, UPB acquired
25 Miami-Dade and two Broward County banking centers. The table below presents
preliminary selected pro forma financial information relating to the
acquisition. The information is subject to change since some of the purchase
accounting adjustments have not been finalized.
18
<PAGE> 19
<TABLE>
<CAPTION>
PRO FORMA JUNE 30, 1999
-------------------------------------------------------------
UNION PLANTERS PURCHASE
CORPORATION REPUBLIC ACCOUNTING
JUNE 30, 1999 JULY 16, 1999 ADJUSTMENTS PRO FORMA
------------- -------------- -------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Loans, net...................... $ 19,890 $ 939 $ -- $ 20,829
Investment securities and other
earning assets................ 8,795 489 (411) 8,873
Goodwill and other intangibles 725 11 256 992
Total assets.................... 32,260 1,539 (154) 33,645
Total deposits.................. 24,808 1,318 -- 26,126
Shareholders' equity to total
assets........................ 9.22% -- -- 8.84%
Leverage ratio.................. 7.79% -- -- 6.73%
</TABLE>
EARNINGS OVERVIEW
For the second quarter of 1999, the Corporation reported earnings of
$105.8 million, or $.73 per diluted common share. This compares to net earnings
for the same period in 1998 of $79.4 million, or $.56 per diluted common share.
Cash earnings for the second quarter of 1999 were $115.8 million, or $.80 per
diluted common share compared to $85.7, or $.60 per diluted common share for the
same period in 1998. These results compare to quarterly net earnings and cash
earnings and the related diluted common share amounts for the first quarter of
1999 of $97.4 million, or $.67 per share, and $107.9 million, or $.75 per share,
respectively. Net earnings for the second quarter of 1999 resulted in an
annualized return on average assets (ROA) of 1.29% and an annualized return on
average common equity (ROE) of 14.19% for the second quarter of 1999 which
compares to 1.04% and 10.97%, respectively, for the same period in 1998. These
ratios were 1.22% and 13.39%, respectively, for the first quarter of 1999.
The increase in net earnings in the second quarter of 1999 compared to the
same period in 1998 is attributable primarily to lower provisions for losses on
loans and an increase in noninterest income. Partially offsetting these items
was an increase in noninterest expenses, primarily goodwill and other
intangibles amortization and noninterest expenses related to acquired entities
accounted for as purchase acquisitions. The "Summary of Consolidated Results"
above and the following discussion and analysis of operating results provides a
more complete discussion of the significant items affecting the Corporation's
results.
For the six months ended June 30, 1999, net earnings were $203.1 million,
or $1.40 per diluted common share, compared to $183.9 million, or $1.30 per
diluted common share, for the same period in 1998. Cash earnings for this period
in 1999 were $223.7 million, or $1.55 per diluted common share. This compares to
$195.7 million, or $1.38 per diluted common share for the same period in 1998.
Earnings for the first six months of 1999 resulted in a ROA of 1.25% and a ROE
of 13.80% compared to 1.22% and 12.89%, respectively, in 1998.
EARNINGS ANALYSIS
NET INTEREST INCOME
Net interest income (FTE) for the second quarter of 1999 was $321.2
million which compares to $315.5 million for the second quarter of 1998 and
$305.1 million for the first quarter of 1999. For the six months ended June 30,
1999, net interest income (FTE) was $626.3 million compared to $627.5 million
for the same period in 1998. 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 second quarter of 1999 was 4.35% which
compares to 4.47% and 4.22% for the second quarter of 1998 and first quarter of
1999, respectively. The interest-rate spread increased to 3.68% for the second
quarter of 1999 from 3.66% for the same period in 1998 and increased from 3.50%
for the first quarter of 1999.
Net interest income has been impacted by a number of factors over the last
two years. The significant items impacting net interest income are listed below.
19
<PAGE> 20
- Over this period lower mortgage rates have resulted in a high
level of refinancing activity by borrowers. This has resulted
in prepayments on mortgage-backed investments and single
family mortgage loans, approximately 38% of earning assets at
June 30, 1999. The prepayments have forced the Corporation to
reinvest the funds at lower interest rates. During the second
quarter of 1999 mortgage interest rates began to increase
which may reduce the level of refinancing.
- The sale of the credit card portfolio (approximately $440
million of loans in the fourth quarter of 1998 and
approximately $20 million of loans in the first quarter of
1999), a portfolio yielding approximately 12%, lowered the
overall yield on earning assets.
- The securitization and sale of FHA/VA loans (approximately
$132 million of loans with a weighted average yield of
approximately 9.7% sold in the first quarter of 1999 and
approximately $381 million of loans with a weighted average
yield of approximately 9.9% sold in the second quarter of
1998) has lowered the overall yield on earning assets.
- The funds received in the Florida and Indiana branch purchases
have been invested primarily in investment securities, a lower
yielding investment alternative than loans.
- The yield on the investment portfolio increased from 6.35% in
the first quarter of 1999 to 6.41% in the second quarter of
1999 as a result of higher reinvestment opportunities from
rising interest rates and the sale in late April of
approximately $425 million of low-yielding mortgage-backed
securities of an acquired entity.
- Rates paid for interest-bearing deposits decreased 22 basis
points from the first quarter of 1999 to the second quarter of
1999, resulting in an overall weighted average rate paid
of 3.90%.
Emphasis is being placed on reducing high cost borrowings of acquired
entities to improve their margins. Additionally, standard pricing of basic
transaction accounts and standard terms on other depository products were
implemented during the first quarter of 1999, which produced improvements in the
net interest margin in the second quarter of 1999. Over the longer term, more
guidance from the UPC Funds Management Division and day-to-day discipline in
pricing both assets and liabilities should also produce improvements in the
margin. Growth of loans is being emphasized and should produce improvements in
the margin since the growth would be funded by lower yielding investment
securities. The Corporation's current loan to deposit ratio at 82% provides
capacity for growth.
INTEREST INCOME
The following table presents a breakdown of average earning assets for
the three and six months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
(DOLLARS IN BILLIONS)
<S> <C> <C> <C> <C>
Average earning assets $ 29.6 $ 28.3 $ 29.5 $ 28.0
Comprised of:
Loans.......................................... 71% 73% 70% 74%
Investment securities.......................... 28 25 29 24
Other earning assets .......................... 1 2 1 2
- --------------------
Fully taxable-equivalent yield on average earning
assets........................................... 7.78% 8.43% 7.79% 8.49%
</TABLE>
Interest income (FTE) decreased $20.5 million for the second quarter of
1999 compared to the same period in 1998. The decrease is attributable primarily
to a decrease in the yield on average earning assets from 8.43% for the second
quarter of 1998 to 7.78% for the second quarter of 1999, which equated to a
$44.2 million decrease in interest income. The lower yield is attributable to
the factors discussed above. This decrease was partially offset by an increase
in average earning assets, which increased interest income approximately $23.7
million. Compared to the first quarter of 1999, interest income increased
approximately $11.6 million due to growth of average earning assets. This
increase was partially offset by a $.7 million decrease due to a decrease in the
average yield on loans.
20
<PAGE> 21
For the six months ended June 30, 1999, interest income decreased $38.9
million compared to the same period in 1998. The yield on earning assets
decreased from 8.49% in 1998 to 7.79% in 1999. The yield decline resulted in a
$90.1 million decline in interest income. Partially offsetting this decrease was
a $1.5 billion increase in average earning assets which represented a $51.2
million increase in interest income. Growth of investment securities resulted
from funds received in the Corporation's branch purchase transactions, primarily
the Florida and Indiana Branch purchases.
INTEREST EXPENSE
The following table presents a breakdown of average interest-bearing
liabilities for the three and six months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
(DOLLARS IN BILLIONS)
<S> <C> <C> <C> <C>
Average interest-bearing liabilities $ 24.8 $ 23.5 $ 24.6 $ 23.3
Comprised of:
Deposits....................................... 86% 84% 86% 84%
Short-term borrowings.......................... 9 6 8 6
FHLB advances and long-term debt............... 5 10 6 10
- --------------------
Rate paid on average interest-bearing liabilities.. 4.10% 4.77% 4.20% 4.77%
</TABLE>
Interest expense decreased $26.2 million in the second quarter of 1999
compared to the same period in 1998. The decrease was due primarily to a
decrease in the rates paid on average interest-bearing liabilities, which
accounted for approximately $32.3 million of the decrease. The average rate paid
for interest-bearing liabilities was 4.10% for the second quarter of 1999
compared to 4.77% for the same period in 1998. This decrease was partially
offset by a $1.3 billion increase in average interest-bearing liabilities, which
increased interest expense approximately $6.1 million. The increase in average
interest-bearing liabilities related to the Florida and Indiana Branch Purchases
in the third quarter of 1998 and first quarter of 1999, respectively. Compared
to the first quarter of 1999, interest expense decreased $5.2 million in the
second quarter of 1999. A decrease in the average rate paid on average
interest-bearing liabilities accounted for $8.7 million of the decrease in
interest expense and was partially offset by an approximate $3.5 million
increase due to an increase in average interest-bearing liabilities. The
decrease directly related to the implementation of standard pricing and terms
for deposit products in all of the Corporation's markets as discussed above.
For the six months ended June 30, 1999, interest expense decreased $37.8
million compared to the same period in 1998. The decrease related primarily to a
decrease in the average rate paid for interest-bearing liabilities from 4.77%
for the first six months of 1998 to 4.20% in 1999. This resulted in a reduction
in interest expense of $54.9 million. Partially offsetting this decrease was a
$1.4 billion increase in average interest-bearing liabilities, which increased
interest expense $17.1 million. The growth of interest-bearing liabilities
related primarily to the branch purchases (Florida and Indiana).
PROVISION FOR LOSSES ON LOANS
The provision for losses on loans for the second quarter of 1999 was $17.7
million, or .35% of average loans on an annualized basis, compared to $43.0
million, or .88% of average loans, for the same period in 1998. The provision
for the second quarter of 1999 compared to a provision of $16.3 million, or .33%
of average loans, in the first quarter of 1999. For the six months ended June
30, 1999, the provision for losses on loans was $34.0 million, or .34% of
average loans, compared to $76.3 million, or .79% of average loans, for the same
period in 1998.
The decrease in the provision for losses between 1999 and 1998 for the
above periods was due primarily to the sale of substantially all of the credit
card portfolio, which resulted in a decline in the provision of approximately
$12.5 million ($23.0 million year to date). The remaining decrease was
attributable to lower provisions for losses on loans related to entities
acquired in 1998. Reference is made to the "Allowance for Losses on Loans"
discussion for additional information regarding loan charge-offs and other items
impacting the provision for losses on loans.
21
<PAGE> 22
NONINTEREST INCOME
Noninterest income for the second quarter of 1999 was $140.7 million, an
increase of $21.3 million from the second quarter of 1998 and an increase of
$14.5 million from the first quarter of 1999. For the six months ended June 30,
1999, noninterest income increased $20.8 million compared to the same period in
1998. The major components of noninterest income are presented on 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 following items, which are identified in the "Summary of Consolidated
Results," impacted noninterest income. These transactions are not considered
normal reoccurring items, although certain of the items do reoccur periodically.
- The Corporation had investment securities gains of $3.2 million for
both the three and six months ended June 30, 1999 compared to
investment securities losses of $22.6 million and $16.7 million,
respectively, for the same periods in 1998. The loss in 1998 was
attributable to the premium write-down of certain high-coupon
mortgage-backed securities of an acquired entity resulting from the
anticipated acceleration of prepayments of the underlying loans.
- Pretax gains on the securitization and sale of FHA/VA loans were
$5.3 million in the first quarter of 1999 (approximately $132
million of loans) and $19.6 million in the second quarter of 1998
(approximately $380 million of loans). These transactions involve
the sale of previously past due FHA and VA guaranteed loans owned
and serviced by UPB. Additional sales may take place in the future
depending on market conditions and delinquency status of the
portfolio.
- During the second quarter of 1999, the Corporation sold
approximately $296 million of ARM loans which resulted in a pretax
gain of $5.0 million. The sale was made to increase liquidity and
free capital for other needs. The sale is not expected to have a
significant impact on net interest income.
- The Bank's Trust Division sold its Corporate Trust Business
(primarily general obligation bond administration for government
entities) in the second quarter of 1999 resulting in a pretax gain
of $2.4 million. An additional gain of $2.1 million may be
recognized in 2001, contingent upon business retention.
- In the fourth quarter of 1998 the Corporation sold its credit card
business. The majority of the gain was recorded in the fourth
quarter of 1998 but portions of the sale did not occur until 1999,
resulting in pretax gains on the sale of the credit card portfolio
of $2.4 million and $874,000, respectively in the first and second
quarters of 1999. Additional gains are expected in 1999 related to
the sale of the credit card portfolios of acquired entities.
- Pretax gains on the sale of branches and other selected assets were
$1.4 million and $2.9 million, respectively, compared to $1.8
million and $2.8 million, respectively for the same periods in 1998.
The Corporation may sell certain branches and related loans and
deposits in the future and may incur additional gains or losses.
The increase in noninterest income, excluding the items discussed above,
for the second quarter of 1999 and year to date through June 30, 1999 compared
to the same periods in 1998 is attributable primarily to the following items:
- $5.1 million increase in service charges on deposit accounts and
transaction related fees ($8.1 million increase year to date)
- $4.1 million increase in annuity sales income ($7.2 million increase
year to date)
- $2.6 million increase in mortgage banking revenues ($8.4 million
increase year to date)
- $1.1 million increase in insurance commissions ($1.7 million
increase year to date)
The increase in noninterest income was offset by declines in bank card
income of $2.5 million and $9.4 million, respectively, for the three and six
months ended June 30, 1999 compared to the same periods in 1998. The decrease
resulted from the sale of the credit card portfolio in the fourth quarter of
1998. The majority of the current bank card income results from the merchant
servicing business, where management expects moderate growth. Additionally, the
Corporation continues to receive fees related to new cards being issued in Union
Planters name and fees related to loan balances outstanding of the portfolio
sold. These fees are expected to be lower than the revenues recognized
previously.
The growth of service charges on deposits and other transaction related
fees is attributable to acquired entities and increased levels of activity. The
Florida and Indiana Branch Purchases increased the number of deposit customers
and increased the transaction volumes.
The increase in annuity sales income and insurance commissions is the
result of greater efforts on increasing this fee income source. The Corporation
currently has 1,780 licensed annuity sales personnel, 125 property and casualty
insurance agents and 100 life and health
22
<PAGE> 23
insurance agents. Complementing these efforts is expansion of the Corporation's
brokerage business. Currently the Corporation has 425 "Series 6" registered
representatives and 70 "Series 7" registered representatives. Brokerage fee
income was $4.9 million and $9.7 million, respectively for the three and six
months ended June 30, 1999 and compared to $5.5 million and $9.7 million,
respectively, for the same periods in 1998.
Mortgage banking revenues have increased due to higher volume levels
attributable to the high level of refinancing activity in the low interest rate
environment during the first quarter of 1999. Activity slowed some in the second
quarter of 1999. The Corporation is also expanding these efforts by purchasing
wholesale mortgage production offices. The Corporation has purchased 11 mortgage
banking offices in Houston, Texas; Tampa, Florida; San Antonio, Texas; and
Irvine, Dublin, Campbell, Capitola, Saratoga, Santa Maria, and Bakersfield,
California. These purchases complement existing Union Planters' mortgage
production operations and should provide additional revenues in the future.
NONINTEREST EXPENSE
Noninterest expense for the second quarter of 1999 increased $17.9 million
to $275.0 million which compares to $257.1 million for the second quarter of
1998 and $258.2 million for the first quarter of 1998. The major components of
noninterest expense are detailed on 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 significant items impacting noninterest expense for the second quarter
of 1999 compared to the same period in 1998 follow:
- $13.9 million decrease in merger-related expenses
- $13.3 million increase in salaries and employee benefits
(approximately $11.1 million related to acquisitions and $1.8
million related to acquired mortgage production offices)
- $6.2 million increase in occupancy and equipment expense
(approximately $3.9 million related to acquisitions)
- $5.7 million increase in goodwill and other intangibles amortization
related to purchase acquisitions and branch purchases
- $3.2 million increase in other contracted services
- $2.9 million increase in stationery and supplies expense
- $2.3 million increase in communications expense
- $2.4 million decrease in provisions for losses on FHA/VA foreclosure
claims
The significant items impacting noninterest expense for the six months
ended June 30, 1999 compared to the same period in 1998 follow:
- $22.8 million increase in salaries and employee benefits
(approximately $18.1 million related to acquisitions and $2.6
million related to new production mortgage offices)
- $18.3 million decrease in merger-related expenses
- $10.2 million increase in occupancy and equipment expense
(approximately $6.3 million related to acquisitions and $829,000
related to new production mortgage offices)
- $12.7 million increase in goodwill and other intangibles
amortization related to purchase acquisitions and branch purchases
- $4.4 million increase in communications expense
- $4.2 million increase in other contracted services
- $2.4 million increase in other personnel expenses
- $2.9 million decrease in taxes other than income taxes, primarily
franchise taxes
- $2.5 million decrease in provisions for losses on FHA/VA foreclosure
expenses
The largest component of noninterest expense, salaries and employee
benefits, was $129.9 million for the second quarter of 1999 compared to $116.5
million for the same quarter last year and compared to $123.2 million for the
first quarter of 1999. Full-time-equivalent employees at June 30, 1999 were
13,076 compared to 12,289 at June 30, 1998, 13,160 at March 31, 1999 and 12,330
at December 31, 1998. Excluding the impact of acquisitions, the mortgage
production offices purchased in 1999, the impact of the sale of the credit card
portfolio, and the impact of the annuity, brokerage and insurance operations,
total full-time equivalent employees decreased approximately 380 from June 30,
1998 to June 30, 1999. Full-time equivalent employees decreased approximately
140 and 170, respectively, from March 31, 1999 and December 31, 1998 to June 30,
1999. As discussed above, emphasis is being placed on expanding the
Corporation's mortgage operations and annuity and insurance sales efforts.
Expansion of these areas will result in increased personnel but higher revenues
are expected as was demonstrated in the second quarter of 1999.
23
<PAGE> 24
The Corporation is continuing its efforts to integrate all of its 1998 and
1999 acquisitions and to consolidate the existing operations of all of its
banks. Efforts include consolidation of individual bank data bases, centralizing
"back office" functions, centralizing credit administration functions,
centralizing call centers, standardizing procedures and processes and
standardizing products and services. Currently, 30 of the 35 mergers of "back
office" operations of existing bank locations have been completed. Additionally,
21 of 24 conversions and "back office" consolidations of acquisitions have been
completed. The last significant conversion is scheduled for August 13, 1999 and
the last internal data base merger is scheduled for September 1999. The
centralization of credit administration centers is 60% complete and is scheduled
to be completed by the end of the third quarter of 1999.
Technology improvements such as integrated customer information solutions
(for example, data warehouse, operational data store and integrated desktop
(branch and call center)), imaging, and Internet delivery are expected to be
completed by the end of 1999. Year 2000 remediation and testing are completed.
The Corporation's Internet delivery system is being developed through a
company, FundsXpress, Inc., in which the Corporation owns approximately a
one-third interest. Currently, Union Planters has approximately 16,000 customers
and is working to increase the number of customers using the system through a
marketing campaign that started the first of June. The system will support both
retail and commercial customers and will include the following services:
- Balance inquiry / transfers / transaction history / statements
- Bill payment services
- Brokerage services (currently piloting this service)
- ATM network delivery (two networks under contract and one in
production)
- Bill presentment (internet and ATM)
- Images of checks and statements
- Submission and approval of loan applications
- Other traditional and nontraditional products
Management continues to anticipate cost savings related to integration of
acquired entities and consolidation of existing operations. Some savings are
expected each quarter of 1999 but the total savings are not expected to be fully
implemented until the fourth quarter of 1999 or early in 2000. Reference is made
to the discussion under the heading "Acquisitions - Operating Philosophy" on
pages 12 and 13 of the 1998 Annual Report. The technology improvements are
expected to help the organization operate more efficiently.
24
<PAGE> 25
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED DAILY AVERAGE BALANCE SHEET AND INTEREST RATES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------------------------------------------------------------------
1999 1998
--------------------------------------- ---------------------------------------
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................................. $ 31,606 $ 450 5.71% $ 38,760 $ 519 5.37%
Federal funds sold and securities purchased
under agreements to resell................... 75,924 963 5.09 353,374 4,834 5.49
Trading account assets......................... 256,247 3,934 6.16 177,835 2,803 6.32
Investment securities(1)(2)
Taxable...................................... 7,020,196 107,518 6.14 6,103,535 95,460 6.27
Tax-exempt................................... 1,337,229 25,991 7.80 1,061,626 20,561 7.77
------------ ------------ ------------ ------------
Total investment securities............ 8,357,425 133,509 6.41 7,165,161 116,021 6.49
Loans, net of unearned income(1)(3)(4)......... 20,916,423 436,052 8.36 20,603,195 471,190 9.17
------------ ------------ ------------ ------------
TOTAL EARNING ASSETS(1)(2)(3)(4) 29,637,625 574,908 7.78 28,338,325 595,367 8.43
------------ ------------
Cash and due from banks........................ 1,081,436 957,447
Premises and equipment......................... 581,790 543,441
Allowance for losses on loans.................. (349,409) (331,259)
Goodwill and other intangibles................. 717,830 248,674
Other assets................................... 1,319,526 990,701
------------ ------------
TOTAL ASSETS........................... $ 32,988,798 $ 30,747,329
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Money market accounts.......................... $ 4,323,100 $ 29,299 2.72% $ 3,135,995 $ 30,377 3.89%
Savings deposits............................... 4,793,308 25,443 2.13 4,375,238 24,049 2.20
Certificates of deposit of $100,000 and over... 2,286,601 30,016 5.27 2,860,706 41,136 5.77
Other time deposits............................ 9,829,513 121,538 4.96 9,347,895 126,625 5.43
Short-term borrowings
Federal funds purchased and securities sold
under agreements to repurchase............. 2,056,357 22,615 4.41 1,460,259 18,590 5.11
Other........................................ 281,114 3,473 4.96 67,516 1,813 10.77
Long-term debt
Federal Home Loan Bank advances.............. 209,468 2,600 4.98 1,121,094 14,638 5.24
Subordinated capital notes................... 479,874 7,704 6.44 484,744 8,319 6.88
Medium-term bank notes....................... 105,000 1,761 6.73 135,000 2,236 6.64
Trust Preferred Securities................... 199,022 4,128 8.32 198,987 4,128 8.32
Other........................................ 255,670 5,135 8.06 339,191 7,968 9.42
------------ ------------ ------------ ------------
TOTAL INTEREST-BEARING LIABILITIES..... 24,819,027 253,712 4.10 23,526,625 279,879 4.77
Noninterest-bearing demand deposits............ 4,476,077 3,597,234
------------ ------------ ------------
TOTAL SOURCES OF FUNDS................. 29,295,104 253,712 27,123,859 279,879
------------ ------------
Other liabilities.............................. 693,587 707,255
Shareholders' equity...........................
Preferred stock............................. 22,706 30,045
Common equity.............................. 2,977,401 2,886,170
------------ ------------
Total shareholders' equity............ 3,000,107 2,916,215
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY................................ $ 32,988,798 $ 30,747,329
============ ============
NET INTEREST INCOME(1).......................... $ 321,196 $ 315,488
============ ============
INTEREST-RATE SPREAD(1)......................... 3.68% 3.66%
==== ====
NET INTEREST MARGIN(1).......................... 4.35% 4.47%
==== ====
TAXABLE-EQUIVALENT ADJUSTMENTS:
Loans........................................ $ 1,249 $ 3,090
Securities................................... 8,358 5,572
------------ ------------
TOTAL.................................. $ 9,607 $ 8,662
============ ============
</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 in both interest income and the calculation of the
yield on income.
(4) Includes loans on nonaccrual status.
25
<PAGE> 26
UNION PLANTERS CORPORATION AND SUBSIDIARIES
ANALYSIS OF VOLUME AND RATE CHANGES
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1999 VERSUS 1998
----------------------------------------------
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.... $ (100) $ 31 $ (69)
Federal funds sold and securities purchased
under agreements to resell........................... (3,543) (328) (3,871)
Trading account assets................................. 1,206 (75) 1,131
Investment securities (FTE)............................ 19,066 (1,578) 17,488
Loans, net of unearned income (FTE).................... 7,071 (42,209) (35,138)
------------ ------------ ------------
TOTAL INTEREST INCOME.......................... 23,700 (44,159) (20,459)
------------ ------------ ------------
INTEREST EXPENSE
Money market accounts.................................. 9,573 (10,651) (1,078)
Savings deposits....................................... 2,240 (846) 1,394
Certificates of deposit of $100,000 and over........... (7,754) (3,366) (11,120)
Other time deposits.................................... 6,312 (11,399) (5,087)
Short-term borrowings.................................. 9,457 (3,772) 5,685
Long-term debt......................................... (13,722) (2,239) (15,961)
------------ ------------ ------------
TOTAL INTEREST EXPENSE......................... 6,106 (32,273) (26,167)
------------ ------------ ------------
CHANGE IN NET INTEREST INCOME............................ $ 17,594 $ (11,886) $ 5,708
============ ============ ============
PERCENTAGE INCREASE IN NET INTEREST INCOME OVER
PRIOR PERIOD........................................... 1.81%
============
</TABLE>
- --------------------
(1) The increase or decrease due to the change in the balance sheet mix has
been allocated proportionately to volume and rate change.
26
<PAGE> 27
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED DAILY AVERAGE BALANCE SHEET AND INTEREST RATES
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------------------------------------------------------------
1999 1998
------------------------------------------ -----------------------------------
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 ...... $ 75,796 $ 1,437 3.82% $ 37,394 $ 1,027 5.54%
institutions
Federal funds sold and securities
purchased under agreements to resell ...... 75,939 1,832 4.86 427,542 11,668 5.50
Trading account assets ...................... 247,577 7,529 6.13 180,499 5,823 6.51
Investment securities(1)(2)
Taxable ................................... 7,073,724 214,098 6.10 5,680,162 179,638 6.38
Tax-exempt ................................ 1,328,507 51,737 7.85 1,008,885 39,739 7.94
------------ ------------ ----------- -----------
Total investment securities ......... 8,402,231 265,835 6.38 6,689,047 219,377 6.61
Loans, net of unearned income(1)(3)(4) ...... 20,686,397 862,305 8.41 20,631,009 939,950 9.19
------------ ------------ ----------- -----------
TOTAL EARNING ASSETS(1)(2)(3)(4) 29,487,940 1,138,938 7.79 27,965,491 1,177,845 8.49
------------ -----------
Cash and due from banks ..................... 1,044,945 949,022
Premises and equipment ...................... 574,106 539,892
Allowance for losses on loans ............... (346,063) (331,360)
Goodwill and other intangibles .............. 605,277 235,042
Other assets ................................ 1,304,974 988,039
------------ -----------
TOTAL ASSETS ........................ $ 32,671,179 $30,346,126
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Money market accounts ....................... $ 3,945,773 $ 62,727 3.21% $ 3,143,079 $ 60,178 3.86%
Savings deposits ............................ 4,919,665 46,065 1.89 4,314,379 47,912 2.24
Certificates of deposit of $100,000 and over 2,389,174 63,496 5.36 2,839,027 81,991 5.82
Other time deposits ......................... 9,854,440 247,012 5.05 9,351,441 252,357 5.44
Short-term borrowings
Federal funds purchased and securities sold
under agreements to repurchase .......... 1,906,142 41,741 4.42 1,378,770 34,941 5.11
Other ..................................... 142,612 3,601 5.09 79,096 3,172 8.09
Long-term debt
Federal Home Loan Bank advances ........... 401,341 9,951 5.00 1,130,303 28,818 5.14
Subordinated capital notes ................ 480,285 15,554 6.53 358,417 12,616 7.10
Medium-term bank notes .................... 105,000 3,523 6.77 135,000 4,472 6.68
Trust Preferred Securities ................ 199,018 8,255 8.36 198,983 8,256 8.37
Other ..................................... 281,067 10,675 7.66 335,602 15,666 9.41
------------ ------------ ----------- -----------
TOTAL INTEREST-BEARING LIABILITIES .. 24,624,517 512,600 4.20 23,264,097 550,379 4.77
Noninterest-bearing demand deposits ......... 4,390,270 3,495,844
------------ ------------ ----------- -----------
TOTAL SOURCES OF FUNDS .............. 29,014,787 512,600 26,759,941 550,379
------------ -----------
Other liabilities ........................... 677,763 668,284
Shareholders' equity
Preferred stock .......................... 22,947 38,352
Common equity ............................ 2,955,682 2,859,549
------------ -----------
Total shareholders' equity .......... 2,978,629 2,897,901
------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY ........................... $ 32,671,179 $30,346,126
============ ===========
NET INTEREST INCOME(1) ........................ $ 626,338 $ 627,466
============ ===========
INTEREST-RATE SPREAD(1) ....................... 3.59% 3.72%
==== =======
NET INTEREST MARGIN(1) ........................ 4.28% 4.52%
==== =======
TAXABLE-EQUIVALENT ADJUSTMENTS:
Loans ..................................... $ 2,408 $ 6,075
Securities ................................ 16,644 10,815
------------ -----------
TOTAL ............................... $ 19,052 $ 16,890
============ ===========
</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 in both interest income and the calculation of the
yield on income.
(4) Includes loans on nonaccrual status.
27
<PAGE> 28
UNION PLANTERS CORPORATION AND SUBSIDIARIES
ANALYSIS OF VOLUME AND RATE CHANGES
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 VERSUS 1998
------------------------------------------------
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 ...... $ 804 $ (394) $ 410
Federal funds sold and securities purchased under
agreements to resell.................................... (8,620) (1,216) (9,836)
Trading account assets ................................... 2,056 (350) 1,706
Investment securities (FTE) .............................. 54,443 (7,985) 46,458
Loans, net of unearned income (FTE) ...................... 2,517 (80,162) (77,645)
-------- -------- --------
TOTAL INTEREST INCOME ............................ 51,200 (90,107) (38,907)
-------- -------- --------
INTEREST EXPENSE
Money market accounts .................................... 13,802 (11,253) 2,549
Savings deposits ......................................... 6,224 (8,071) (1,847)
Certificates of deposit of $100,000 and over ............. (12,303) (6,192) (18,495)
Other time deposits ...................................... 13,158 (18,503) (5,345)
Short-term borrowings .................................... 13,728 (6,499) 7,229
Long-term debt ........................................... (17,472) (4,398) (21,870)
-------- -------- --------
TOTAL INTEREST EXPENSE ........................... 17,137 (54,916) (37,779)
-------- -------- --------
CHANGE IN NET INTEREST INCOME (FTE) ........................ $ 34,063 $(35,191) $ (1,128)
======== ======== ========
PERCENTAGE DECREASE IN NET INTEREST INCOME OVER PRIOR PERIOD (.18)%
========
</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 $32.3 billion at June 30, 1999
compared to $31.0 billion at June 30, 1998 and $31.7 billion at December 31,
1998. Average assets were $33.0 billion for the second quarter of 1999 compared
to $30.7 billion for the second quarter of 1998. For the six months ended June
30, 1999 average assets totaled $32.7 billion compared to $30.3 billion for the
same period in 1998. Banks acquired and the Indiana and Florida Branch Purchases
were the primary reasons for the growth of total assets both at period end and
on average. See the "Acquisitions" section of this discussion and Note 2 to the
unaudited interim consolidated financial statements for additional information
regarding the impact of acquisitions.
INVESTMENT SECURITIES
The Corporation's investment securities portfolio of $7.9 billion at June
30, 1999 consisted entirely of available for sale securities, which are carried
on the balance sheet at fair value. This compares to investment securities of
$7.6 billion and $8.3 billion at June 30, 1998 and December 31, 1998,
respectively. At June 30, 1999 these securities had a net unrealized pretax loss
of $96.3 million compared to net unrealized gains of $67.5 million and $93.1
million at June 30, 1998, and December 31, 1998, respectively. The significant
change from a net unrealized gain to a net unrealized loss resulted primarily
from the significant rise in interest rates since the fall of 1998. Reference is
made to Note 5 to the unaudited interim consolidated financial statements which
provides the composition of the investment portfolio at June 30, 1999 and
December 31, 1998.
U.S. Treasury and U.S. Government agency obligations represented 59.9% of
the investment securities portfolio at June 30, 1999, 71% of which were
Collateralized Mortgage Obligations (CMOs) and mortgage-backed securities
issues. 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
28
<PAGE> 29
will be significantly impacted. Reference is made to the "Net Interest Income"
and Market Risk and Asset/Liability Management" discussions for information
regarding the market-risk in the investment securities portfolio.
The limited credit risk in the investment securities portfolio at June 30,
1999 consisted of 20.3% of investment grade CMOs, 16.9% of municipal
obligations, and 2.9% of other stocks and securities (primarily equity
securities and Federal Reserve Bank and Federal Home Loan Bank Stock).
At June 30, 1999, the Corporation had approximately $14.1 million of
structured notes, which constituted less than 1% 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.
LOANS
Loans, net of unearned income, at June 30, 1999 were $20.2 billion
compared to $20.2 billion and $20.5 billion at June 30, 1998 and March 31, 1999,
respectively. Average loans for the second quarter of 1999 were $20.9 billion
compared to $20.6 billion for the second quarter of 1998 and $20.5 billion for
the first quarter of 1999. For the six months ended June 30, 1999, average loans
were $20.7 billion compared to $20.6 billion for the same period in 1998. 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.
Excluding the FHA/VA government-insured/guaranteed loans, loans were $19.6
billion at June 30, 1999, an increase of approximately $244 million from June
30, 1998 and a decrease of $254 million from March 31, 1999. Entities acquired
since June 30, 1998 increased loans approximately $1.6 billion. Offsetting the
increases due to acquisitions are reductions in residential mortgage loans due
to the high level of refinancing activity and the sale of loans. The sale of the
Corporation's credit card portfolio reduced total loans approximately $460
million. Also, during the second quarter of 1999, the Corporation sold
approximately $296 million of ARM loans. Excluding the impact of these items,
loan growth was flat between the first and second quarter of 1999.
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.
29
<PAGE> 30
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
six-month periods ended June 30, 1999 and 1998 and for the year ended December
31, 1998.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED
------------------------------------ DECEMBER 31,
1999 1998 1998
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE AT THE BEGINNING OF PERIOD .............................. $ 321,476 $ 324,474 $ 324,474
LOANS CHARGED OFF
Commercial, financial, and agricultural ....................... 23,649 24,570 65,815
Foreign ....................................................... 3 -- 1,831
Real estate - construction .................................... 753 2,116 3,714
Real estate - mortgage ........................................ 15,569 12,020 28,654
Credit cards and related plans ................................ 865 31,034 50,723
Consumer ...................................................... 19,397 17,369 64,435
Direct lease financing ........................................ 291 4 125
------------ ------------ ------------
Total charge-offs ..................................... 60,527 87,113 215,297
------------ ------------ ------------
RECOVERIES ON LOANS PREVIOUSLY CHARGED OFF
Commercial, financial, and agricultural ....................... 10,301 4,650 8,931
Foreign ....................................................... 477 -- 20
Real estate - construction .................................... 261 159 310
Real estate - mortgage ........................................ 4,010 2,092 5,825
Credit cards and related plans ................................ 1,201 2,286 4,113
Consumer ...................................................... 7,820 4,737 9,812
Direct lease financing ........................................ 88 4 5
------------ ------------ ------------
Total recoveries ...................................... 24,158 13,928 29,016
------------ ------------ ------------
Net charge-offs ................................................. (36,369) (73,185) (186,281)
Provision charged to expense .................................... 34,019 76,250 204,056
Allowance related to the sale of certain loans .................. -- -- (36,693)
Increase due to acquisitions .................................... 21,460 10,063 15,920
------------ ------------ ------------
BALANCE AT END OF PERIOD .............................. $ 340,586 $ 337,602 $ 321,476
============ ============ ============
Total loans, net of unearned income, at end of period ........... $ 20,231,112 $ 20,200,707 $ 19,576,826
Less: FHA/VA government insured/guaranteed loans ................ 598,046 811,705 759,911
------------ ------------ ------------
LOANS USED TO CALCULATE RATIOS ........................ $ 19,633,066 $ 19,389,002 $ 18,816,915
============ ============ ============
Average total loans, net of unearned income, during period ...... $ 20,686,397 $ 20,631,009 $ 20,498,773
Less: Average FHA/VA government-insured/guaranteed loans ........ 648,193 1,149,590 958,921
------------ ------------ ------------
AVERAGE LOANS USED TO CALCULATE RATIOS ................ $ 20,038,204 $ 19,481,419 $ 19,539,852
============ ============ ============
RATIOS (1):
Allowance at end of period to loans, net of unearned income ... 1.73% 1.74% 1.71%
Charge-offs to average loans, net of unearned income(2) ....... .61 .90 1.10
Recoveries to average loans, net of unearned income(2) ........ .24 .14 .15
Net charge-offs to average loans, net of unearned income(2).... .37 .76 .95
Provision to average loans, net of unearned income(2).......... .34 .79 1.04
</TABLE>
- --------------------
(1) Ratio calculations exclude FHA/VA government-insured/guaranteed loans,
since they represent minimal credit risk.
(2) Amounts annualized for June 30, 1999 and 1998.
The allowance at June 30, 1999, was $340.6 million, an increase of $19.1
million from December 31, 1998, and compared to $337.6 million at June 30, 1998.
The increase from December 31, 1998 relates primarily to first quarter 1999
purchase acquisitions, which increased the allowance $21.5 million. Net
charge-offs for the second quarter of 1999 were $22.2 million compared to $46.3
million and $14.2 million for the second quarter of 1998 and the first quarter
of 1999, respectively. The sale of the Corporation's credit card portfolio
reduced net charge-offs approximately $14 million and $29 million, respectively,
for the three and six months ended June 30, 1999 compared to the same periods in
1998. The increase in charge-offs between the first and second quarters of 1999
related to the charge-off of $5.3 million related to an impaired factoring loan
and $2.0 million charge-off of a commercial real estate development loan, both
previously reserved for in prior periods.
30
<PAGE> 31
NONPERFORMING ASSETS
NONACCRUAL, RESTRUCTURED, AND PAST DUE LOANS AND FORECLOSED PROPERTIES
<TABLE>
<CAPTION>
JUNE 30,
------------------------ DECEMBER 31,
1999 1998 1998
-------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
NONACCRUAL LOANS
Domestic ................................................................. $196,749 $141,567 $150,378
Foreign .................................................................. -- 51 --
RESTRUCTURED LOANS ......................................................... 1,655 8,375 5,612
-------- -------- --------
TOTAL NONPERFORMING LOANS ........................................ 198,404 149,993 155,990
-------- -------- --------
FORECLOSED PROPERTY
Other real estate owned, net ............................................. 26,417 29,645 23,937
Other foreclosed property ................................................ 1,849 5,456 2,670
-------- -------- --------
TOTAL FORECLOSED PROPERTIES ...................................... 28,266 35,101 26,607
-------- -------- --------
TOTAL NONPERFORMING ASSETS ....................................... $226,670 $185,094 $182,597
======== ======== ========
LOANS PAST DUE 90 DAYS OR MORE AND STILL ACCRUING INTEREST
Domestic ................................................................. $ 25,858 $ 50,044 $ 48,626
Foreign .................................................................. -- -- --
-------- -------- --------
TOTAL LOANS PAST DUE 90 DAYS OR MORE AND STILL ACCRUING INTEREST.. $ 25,858 $ 50,044 $ 48,626
======== ======== ========
FHA/VA GOVERNMENT-INSURED/GUARANTEED LOANS
Loans past due 90 days or more and still accruing interest ............... $306,238 $414,276 $355,124
Nonaccrual ............................................................... 7,391 10,830 9,232
RATIOS (1):
Nonperforming loans as a percentage of loans ............................. 1.01% .77% .83%
Nonperforming assets as a percentage of loans plus foreclosed properties . 1.15 .95 .97
Allowance for losses on loans as a percentage of nonperforming loans ..... 172 225 206
Loans past due 90 days or more and still accruing interest as a
percentage of loans .................................................... .13 .26 .26
</TABLE>
- --------------------
(1) FHA/VA government-insured/guaranteed loans are excluded from loans in the
ratio calculations.
The breakdown of nonaccrual loans and loans past due 90 days or more and
still accruing interest, both excluding FHA/VA loans, is as follows:
<TABLE>
<CAPTION>
LOANS PAST DUE 90 DAYS
NONACCRUAL LOANS (1) OR MORE (1)
----------------------------- -----------------------------
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
LOAN TYPE
Secured by single family residential......... $ 75,953 $ 73,433 $ 4,534 $ 12,991
Secured by nonfarm nonresidential............ 33,730 25,242 1,938 8,193
Other secured real estate.................... 22,543 17,616 3,669 5,387
Commercial, financial, and agricultural,
including foreign loans and direct lease 59,310 26,831 11,430 15,041
financing..................................
Credit cards and related plans............... 6 58 114 2,044
Other consumer............................... 5,207 7,198 4,173 4,970
------------ ------------ ------------ ------------
TOTAL................................ $ 196,749 $ 150,378 $ 25,858 $ 48,626
============ ============ ============ ============
</TABLE>
- --------------------
(1) See the preceding table for the amount of FHA/VA government-insured
guaranteed/loans on nonaccrual and past due 90 days or more and still
accruing interest.
LOANS OTHER THAN FHA/VA LOANS. As a percentage of loans and foreclosed
properties, nonperforming assets were 1.15% at June 30, 1999 compared to .95% at
June 30, 1998 and 1.02% at March 31, 1999. The coverage of nonperforming loans
(allowance for
31
<PAGE> 32
losses on loans as a percentage of nonperforming loans) was 172% at June 30,
1999, which compares to 225% at June 30, 1998 and 197% at March 31, 1999.
Nonaccrual loans increased $26.0 million compared to March 31, 1999. The
increase related to two large loans being placed on nonaccrual status. Also, a
number of loans past due 90 days or more moved from the past due category to
nonaccrual status. Management does not believe the increase in nonperforming
loans is an overall trend in the portfolio. Two potential problem loans totaling
approximately $16 million are being monitored closely. Other than the potential
increase in nonperforming loans as a result of these loans, management does not
expect any significant increase in nonperforming loans.
Loans past due 90 days or more and still accruing interest totaled $25.9
million, or .13% of loans, at June 30, 1999 compared to $50.0 million, or .26%,
and $50.9 million, or .26% of loans, at June 30, 1998 and March 31, 1999,
respectively. The preceding table 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 past due 90 days or more and still accruing interest totaled $306.2
million at June 30, 1999 which compared to $414.3 million and $329.7 million at
June 30, 1998 and March 31, 1999, respectively. The decrease in past due loans
relates to a decline in the overall volume of these loans. At June 30, 1999,
June 30, 1998, and March 31, 1999, $7.4 million, $10.8 million and $8.4 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.
In its capacity as servicer of FHA/VA loans, the Corporation is
responsible for foreclosure and the related costs of foreclosure. These costs
are estimated each period based on historical loss experience and are shown as
provisions for losses on FHA/VA foreclosure claims in noninterest expense. At
June 30, 1999 and March 31, 1999, the Corporation had reserves for these losses
of $26.5 million and $26.7, respectively.
POTENTIAL PROBLEM ASSETS
Potential problem assets are 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 were loans, which became nonperforming. At June 30, 1999, the
Corporation had potential problem assets of $64.3 million, composed of 22 loans,
the largest being $12.2 million. Potential problem assets (all loans) were $68.9
million (28 loans) and $66.8 million (52 loans), respectively, at March 31, 1999
and December 31, 1998.
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
------------------------------------------- SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- MARCH 31, ----------------------------
1999 1998 1999 1999 1998
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Demand deposits........................ $ 4,476,077 $ 3,597,234 $ 4,303,509 $ 4,390,270 $ 3,495,844
Money market accounts(1)............... 4,323,100 3,135,995 3,564,252 3,945,773 3,143,079
Savings deposits(2).................... 4,793,308 4,375,238 5,047,427 4,919,665 4,314,379
Other time deposits(3)................. 9,829,513 9,347,895 9,879,643 9,854,440 9,351,441
------------ ------------ ------------ ------------ ------------
Total core deposits.......... 23,421,998 20,456,362 22,794,831 23,110,148 20,304,743
Certificates of deposit of $100,000
and over............................. 2,286,601 2,860,706 2,492,888 2,389,174 2,839,027
------------ ------------ ------------ ------------ ------------
Total average deposits ...... $ 25,708,599 $ 23,317,068 $ 25,287,719 $ 25,499,322 $ 23,143,770
============ ============ ============ ============ ============
</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.
32
<PAGE> 33
The above table presents the components of average deposits for the past
several quarters. The growth of deposits over the above periods relates to
acquisitions, primarily the Florida and Indiana Branch Purchases in the third
quarter of 1998 and first quarter of 1999, respectively (see Note 2 to the
unaudited interim consolidated financial statements), which added approximately
$4.0 billion in deposits. Excluding the impact of the acquisitions, the
Corporation has experienced a decline in time deposits as a result of not
competing as aggressively for public funds (which require pledging of the
Corporation's investment securities portfolio), the competitive market in
general, and increased competition from other investment products, including the
Corporation's annuity sales program.
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 June 30, 1999, the parent
company had cash and cash equivalents totaling $161.7 million and net working
capital of $250.3 million. At July 1, 1999, the Corporation's banking
subsidiaries could have paid dividends totaling $313 million without prior
regulatory approval. The actual amount of dividends that will be paid in the
third quarter of 1999 will be limited by management to approximately $173
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 decreased by $11.0 million
from December 31, 1998 to $2.97 billion at June 30, 1999. The net decrease
related primarily to the net change in the unrealized gain or loss on available
for sale securities. This change and the other components impacting
shareholders' equity are detailed below:
- $118.8 million decrease in the fair value of available for sale
securities, net of taxes
- $59.3 million increase due to net retained earnings (net earnings
less dividends)
- $33.1 million increase due to stock issued for acquisitions, net of
shares repurchased
- $15.4 million increase due to stock issued under employee benefit
plans and conversion of debt of an acquired entity
CAPITAL ADEQUACY
The following table presents capital adequacy information for the Corporation:
<TABLE>
<CAPTION>
JUNE 30,
------------------------ DECEMBER 31,
1999 1998 1998
----- ------ ------------
<S> <C> <C> <C>
CAPITAL ADEQUACY DATA
Total shareholders' equity/total assets (at period end) ......... 9.22% 9.69% 9.42%
Average shareholders' equity/average total assets ............... 9.12 9.55 9.54
Tier 1 capital/unweighted average assets (leverage ratio)(1)..... 7.79 9.60 8.86
</TABLE>
- ------------------------
(1) Based on period-end capital and quarterly adjusted average assets.
33
<PAGE> 34
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>
JUNE 30,
--------------------------- DECEMBER 31,
1999 1998 1998
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
TIER 1 CAPITAL
Shareholders' equity.............................................................. $ 2,973,072 $ 3,008,320 $ 2,984,078
Trust Preferred Securities and minority interest in consolidated subsidiaries..... 202,215 217,063 202,197
Less: Goodwill and other intangibles............................................. (720,604) (254,307) (381,601)
Disallowed deferred tax asset........................................... (1,029) (1,325) (1,144)
Unrealized (gain) loss on available for sale securities ............... 61,571 (42,750) (57,245)
------------ ------------ ------------
TOTAL TIER 1 CAPITAL 2,515,225 2,927,001 2,746,285
TIER 2 CAPITAL
Allowance for losses on loans .................................................... 267,714 253,591 258,173
Qualifying long-term debt......................................................... 461,067 476,097 461,110
Other adjustments................................................................. 68 -- 218
------------ ------------ -------------
TOTAL CAPITAL BEFORE DEDUCTIONS........................................... 3,244,074 3,656,689 3,465,786
Less investment in unconsolidated subsidiaries.................................... (11,822) (10,808) (10,736)
------------ ------------ ------------
TOTAL CAPITAL............................................................. $ 3,232,252 $ 3,645,881 $ 3,455,050
============ ============ ============
RISK-WEIGHTED ASSETS................................................................ $ 21,344,275 $ 20,362,163 $ 20,590,574
============ ============ ============
RATIOS AS A PERCENT OF END OF PERIOD RISK-WEIGHTED ASSETS
Tier 1 capital.................................................................... 11.78% 14.37% 13.34%
Total capital..................................................................... 15.14 17.91 16.78
</TABLE>
The Corporation's capital ratios have been impacted by acquisitions, which
utilized some of the Corporation's excess capital capacity. Regulatory capital
ratios are further impacted by goodwill and other intangibles resulting from
these acquisitions which are deducted from capital in calculating regulatory
capital. The Corporation's capital ratios still fall within the
"well-capitalized" regulatory capital category. Reference is made to
"Acquisitions Completed Subsequent to June 30, 1999" for the pro forma impact of
the Republic Banking Corp. acquisition on the Corporation's leverage ratio.
YEAR 2000 RISK FACTORS
The 1998 Annual Report contains 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. On March 26, 1999, the Corporation announced that Year 2000 testing
and certification had been successfully completed on all its "mission critical"
systems. The core processing system for UPB, which drives main bank functions
such as customer account information and loans, was successfully tested Year
2000 compliant. In addition, the variety of software used to support other
critical functions, including wire transfer, cash management, the ATM system,
direct deposit, and others, were successfully tested as of February 28, 1999.
All of the critical phases of the Corporation's plan which were listed in the
Corporation's 1998 Annual Report and Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999 have now been completed.
The primary focus of the Corporation's Year 2000 plan over the remainder
of 1999 will be planning and testing of the Corporation's Business Resumption
Plan in the event of problems related to the Year 2000. This plan includes
having back-up power and telecommunications, and sufficient resources to deal
with possible liquidity demands. Review of the various components of the plan
and outlining responsibilities will be the primary focus over the next few
months. Testing of the plan and constant updating will be ongoing. Additionally,
the Corporation is focusing on employee and customer education regarding Year
2000. This includes answering questions regarding the Corporation's preparedness
for the Year 2000, conducting Year 2000 simulations with customers, and
participating in local Year 2000 groups and community awareness efforts.
The Corporation's plans to convert acquired entities from their systems to
the Corporation's systems are on schedule and the last significant conversion is
scheduled for August 13, 1999 and the last internal merger is scheduled for
October 9, 1999. Following these conversions, management does not plan any
significant conversions or enhancements to its systems until the first quarter
of 2000.
34
<PAGE> 35
The Corporation is continuing to monitor the preparedness of its major
customers. The preparedness of customers has been reviewed and the relationships
have been risk rated. As part of the Corporation's normal credit review process
any "High Risk Y2K Credits" are reviewed and if concerns are identified the
loans will be downgraded and appropriate reserves will be allocated to the
loans. All "Medium Risk Y2K Credits" of $2.0 million or more were reviewed prior
to June 30, 1999 and as a result of that review no credit downgrades were
recommended.
The Corporation's total cost of Year 2000 activities is not expected to
exceed $1.5 million (approximately $719,000 has been incurred in 1999). This
cost does not include salaries and employee benefits of employees working on the
Year 2000 project, as these costs are not separately tracked. The additional
costs the Corporation expects to incur over the remainder of 1999 are expected
to relate to customer education regarding the Year 2000 and the Corporation's
preparedness for the Year 2000. These costs are not expected to be significant.
The Corporation is continuing to test various aspects of its operating
systems to attempt to prevent any problems related to the Year 2000. These
efforts will continue throughout the rest of 1999. While management believes it
is Year 2000 compliant, there are substantial risks associated with the Year
2000, many of which are outside the Corporation's control. If major loan
customers are not prepared for the Year 2000 or if external parties have major
failures related to the Year 2000 (e.g. shutdown of communications systems,
disruption of electrical services, government services not operating properly,
etc.), any resulting problems could create situations that might have a material
adverse affect on the Corporation's financial condition, liquidity, or operating
results.
The above information constitutes Year 2000 Readiness Disclosure, pursuant
to the Year 2000 Information and Readiness Disclosure Act.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET LIABILITY AND MARKET RISK MANAGEMENT
The Corporation's assets and liabilities are principally financial in
nature and the resulting earnings thereon, primarily net interest income, are
subject to changes as a result of changes in market interest rates and the mix
of the various assets and liabilities. Interest rates in the financial markets
affect the Corporation's decisions on pricing its assets and liabilities which
impacts net interest income, the Corporation's primary cash flow stream. As a
result, a substantial part of the Corporation's risk management activities is
devoted to managing interest-rate risk. Currently, the Corporation does not have
any significant risks related to foreign exchange, commodities or equity risk
exposure.
INTEREST-RATE RISK. One of the most important aspects of management's
efforts to sustain long-term profitability for the Corporation is the management
of interest-rate risk. Management's goal is to maximize net interest income
within acceptable levels of interest-rate risk and liquidity. To achieve this
goal, a proper balance must be maintained between assets and liabilities with
respect to size, maturity, repricing date, rate of return, and degree of risk.
Reference is made to the "Investment Securities," and "Loans" discussions 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 analysis (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.
In addition to GAP analysis, the Corporation uses other methods such as
simulation analysis in evaluating interest-rate risk. The key assumptions used
in simulation analysis include the following:
- Prepayment speeds on mortgage-related assets
- Cash flows and maturities of all financial instruments
- Changes in volumes and pricing
35
<PAGE> 36
- Future shape of the yield curve
- Money market spreads
- Credit spreads
- Deposit sensitivity
- 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.
At June 30, 1999, the GAP analysis indicated that the Corporation was
liability sensitive with $1.3 billion more liabilities than assets repricing
within one year. At 4% of total assets, this position was within management's
policy limit of 10% of total assets.
Balance sheet simulation analysis has been conducted at June 30, 1999 to
determine the impact on net interest income for the coming twelve months under
several interest-rate scenarios. One such scenario uses rates at June 30, 1999,
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 negative $45 million and a positive $13
million pretax, respectively. Another simulation uses management's conclusions
as to a "most likely" scenario of interest rates rising 25 basis points over the
next three months and then falling 25 basis points at the end of the twelve
month period resulting in a $6 million pretax increase in net interest income
from the constant rate/volume projection. These scenarios are well within the
Corporation's policy of limiting the projected impact on net interest income
from changes in interest rates to less than 5% of shareholders' equity.
36
<PAGE> 37
UNION PLANTERS CORPORATION AND SUBSIDIARIES
RATE SENSITIVITY ANALYSIS AT JUNE 30, 1999
<TABLE>
<CAPTION>
INTEREST-SENSITIVE WITHIN (1) (7)
---------------------------------------------------------------------------
0-90 91-180 181-365 1-3 3-5
DAYS DAYS DAYS YEARS YEARS
------- ------- ------- ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
ASSETS
Loans and leases (2) (3) (4) ............. $ 6,884 $ 2,213 $ 3,632 $4,900 $1,879
Investment securities (5) (6) ............ 631 363 708 2,684 2,196
Other earning assets ..................... 809 33 13 1 --
Other assets ............................. -- -- -- -- --
------- ------- ------- ------ ------
Total Assets ..................... $ 8,324 $ 2,609 $ 4,353 $7,585 $4,075
======= ======= ======= ====== ======
SOURCES OF FUNDS
Money market deposits (7) (8) ............ $ 1,509 $ -- $ 1,509 $1,825 $ --
Savings deposits ......................... 1,356 -- -- 1,356 --
Certificates of deposit
less than $100,000 ..................... 2,705 2,301 2,584 1,585 278
Certificates of deposit of
$100,000 and over ...................... 821 447 508 300 42
Short-term borrowings .................... 2,591 3 2 -- --
Short- and medium-term
bank notes ............................ 30 15 -- 60 --
Federal Home Loan Bank
advances .............................. 105 -- 100 2 --
Other long-term debt ..................... -- -- 26 63 205
Noninterest-bearing deposits ............. -- -- -- -- --
Other liabilities ........................ -- -- -- -- --
Shareholders' equity ..................... -- -- -- -- --
------- ------- ------- ------ ------
Total sources of funds ........... $ 9,117 $ 2,766 $ 4,729 $5,191 $ 525
======= ======= ======= ====== ======
Interest-rate sensitivity gap .............. $ (793) $ (157) $ (376) $2,394 $3,550
Cumulative interest-rate
Sensitivity gap (8) ...................... (793) (950) (1,326) 1,068 4,618
Cumulative gap as a
percentage of total assets (8) ........... (2)% (3)% (4)% 3% 14%
<CAPTION>
INTEREST-SENSITIVE WITHIN (1) (7)
----------------------------------------------------------------
NON-
5-15 OVER 15 INTEREST-
YEARS YEARS BEARING TOTAL
------- ------- --------- --------
<S> <C> <C> <C> <C>
ASSETS
Loans and leases (2) (3) (4) ............. $ 311 $ 10 $ 434 $20,263
Investment securities (5) (6) ............ 1,187 170 -- 7,939
Other earning assets ..................... -- -- -- 856
Other assets ............................. -- -- 3,202 3,202
------- ------- ------- -------
Total Assets ..................... $ 1,498 $ 180 $ 3,636 $32,260
======= ======= ======= =======
SOURCES OF FUNDS
Money market deposits (7) (8) ............ $ -- $ -- $ -- $ 4,843
Savings deposits ......................... 1,397 -- -- 4,109
Certificates of deposit
less than $100,000 ..................... 42 3 -- 9,498
Certificates of deposit of
$100,000 and over ...................... 3 -- -- 2,121
Short-term borrowings .................... -- -- -- 2,596
Short- and medium-term
bank notes ............................ -- -- -- 105
Federal Home Loan Bank
advances .............................. 1 -- -- 208
Other long-term debt ..................... 100 501 -- 895
Noninterest-bearing deposits ............. -- -- 4,237 4,237
Other liabilities ........................ -- -- 675 675
Shareholders' equity ..................... -- -- 2,973 2,973
------- ------- ------- -------
Total sources of funds ........... $ 1,543 $ 504 $ 7,885 $32,260
======= ======= ======= =======
Interest-rate sensitivity gap .............. $ (45) $ (324) $(4,249) --
Cumulative interest-rate
Sensitivity gap (8) ...................... 4,573 4,249 -- --
Cumulative gap as a
percentage of total assets (8) ........... 14% 13% --% --%
</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 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 (21%), (22%), (18%) and (1%) for the 0-90
Days, 91-180 Days, 181-365 Days and 1-3 Years categories and positive
10%, 14% and 13%, respectively, for the 3-5 Years, 5-15 Years and over
15 Years categories at June 30, 1999.
37
<PAGE> 38
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 1998 Form 10-K , Note 19 to the Corporation's
consolidated financial statements on pages 66 and 67 of the 1998 Annual Report,
Note 12 of the Corporation's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1999, and Note 12 to the Corporation's unaudited interim
consolidated financial statements included herein under Item 1 of Part I.
ITEM 2 - CHANGES IN SECURITIES
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(A) UNION PLANTERS CORPORATION ANNUAL MEETING
The Corporation's Annual Meeting of Shareholders was held on April 15,
1999. Matters submitted to, and approved by, shareholders are listed below, as
is a tabulation of voting. There were no broker nonvotes as all proposals were
deemed to be discretionary.
(1) The following persons nominated as Directors were elected:
<TABLE>
<CAPTION>
Class I For Withheld
------- --- --------
<S> <C> <C>
C. E. Heiligenstein 106,758,761 3,611,334
Carl G. Hogan 106,600,384 3,769,711
S. L. Kling 106,529,738 3,840,357
Class II For Withheld
-------- --- --------
<S> <C> <C>
Parnell S. Lewis 106,784,751 3,585,344
Jackson W. Moore 106,859,947 3,510,148
V. Lane Rawlins 106,837,826 3,532,269
David M. Thomas 106,775,309 3,594,786
Richard A. Trippeer, Jr. 106,876,563 3,493,532
</TABLE>
(2) The selection by the Board of Directors of PricewaterhouseCoopers LLP
as the Corporation's independent accountants and auditors for the year ending
December 31, 1999 was ratified by the following vote:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
108,386,040 358,071 625,983
</TABLE>
(3) The approval of amendments to the 1992 Stock Incentive Plan to
increase the shares from 6 million to 13 million:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
95,325,411 13,157,300 1,887,380
</TABLE>
ITEM 5 - OTHER INFORMATION
On August 9, 1999, the Corporation's Board of Directors authorized the
repurchase of up to 5% of the Corporation's common stock or approximately 7.1
million shares. The purchases will take place over the next 18 to 24 months
either in the open market or in privately negotiated transactions.
38
<PAGE> 39
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
10 (n) Union Planters Corporation Amended and Restated 1992 Stock
Incentive Plan
11 Computation of Per Share Earnings (incorporated by
reference to Note 10 to the Corporation's unaudited interim
consolidated financial statements included herein)
27 Financial Data Schedule (for SEC use only)
b) Reports on Form 8-K:
<TABLE>
<CAPTION>
Date of Current Report Subject
---------------------- -------
<S> <C>
1. April 15, 1999 Press release announcing first quarter 1999
net earnings, reported under Item 5
2. July 15, 1999 Press release announcing second quarter 1999
net earnings, reported under Item 5
</TABLE>
39
<PAGE> 40
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: August 10, 1999
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
40
<PAGE> 41
UNION PLANTERS CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10(n) Union Planters Corporation Amended and Restated 1992 Stock
Incentive Plan
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)
</TABLE>
<PAGE> 1
EXHIBIT 10(N)
UNION PLANTERS CORPORATION
AMENDED AND RESTATED
1992 STOCK INCENTIVE PLAN
1. DEFINITIONS. In this Plan, except where the context otherwise
indicates, the following definitions apply:
a) "Agreement" means the written agreement implementing a grant of an
Option or an Award of Restricted Stock under the Plan.
b) "Board" means the Board of Directors of the Company.
c) "Code" means the Internal Revenue Code of 1986, as amended.
d) "Committee" means the committee referred to in Section 3. Unless
otherwise determined by the Board, the Stock Option Committee of
the Board shall be the Committee.
e) "Common Stock" means the authorized but unissued common stock, par
value $5, of the Company.
f) "Company" means Union Planters Corporation.
g) "Date of Exercise" means the date on which the Company receives
notice pursuant to Section 7 of the exercise of an Option.
h) "Date of Grant" means the date on which an Option or Restricted
Stock is granted or awarded by the action of the Committee.
i) "Director" means any person who is a director of the Company or any
Subsidiary.
j) "Director-Employee" means an Employee who is also a Director.
k) "Employee" means any person determined by the Committee to be an
employee of the Company or any Subsidiary, including officers,
Directors, and Director-Employees.
l) "Fair Market Value" of a share of Common Stock means the amount
equal to the closing price for a share of Common Stock on the New
York Stock Exchange as reported in The Wall Street Journal or, if
the Common Stock is not traded on the New York Stock Exchange, then
the Fair Market Value of such Common Stock as determined by the
Committee pursuant to a reasonable method adopted in good faith for
such purpose.
m) "Incentive Stock Option" means an Option that qualifies as an
Incentive Stock Option under Section 422 of the Code.
n) "Nonstatutory Stock Option" means an Option which is not an
Incentive Stock Option.
o) "Officer" means any person who is an officer of the Company or any
Subsidiary.
p) "Option" means the right to purchase from the Company a specified
number of shares of Common Stock, which right shall be designated
as either an Incentive Stock Option or a Nonstatutory Stock Option.
q) "Optionee" means an Employee to whom an Option or Restricted Stock
has been granted or awarded.
r) "Option Period" means the period during which an Option may be
exercised.
<PAGE> 2
s) "Option Price" means the price per share at which an Option may be
exercised.
t) "Plan" means the Union Planters Corporation Amended and Restated
1992 Stock Incentive Plan.
u) "Reload Option" means an Option granted to an Optionee upon the
surrender of shares of Common Stock in payment of an Option Price
upon the exercise of an Option. The Option Price for any Reload
Option shall be the Fair Market Value at the date the Common Stock
is surrendered as payment pursuant to Section 3(d)(iv). Other
terms of the Reload Option shall be the same as contained in the
Option Agreement relating to the Option exercised.
v) "Restricted Stock" means shares of Common Stock awarded pursuant to
the provisions of Section 11.
w) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
x) "Subsidiary" means a corporation of which at least 50 percent of the
total combined voting power of all classes of stock is held by the
Company, either directly or through one or more other Subsidiaries.
2. PURPOSE. The purposes of the Plan are: (1) to encourage stock ownership by
management and other key Employees in order to closely associate their
interests with the Company's shareholders by reinforcing the relationship
between Plan participants' rewards and shareholder gains; (2) to maintain
competitive compensation levels in order to continue to attract highly
talented persons; and (3) to provide an incentive to management and other
key Employees for continuous employment with the Company or its
Subsidiaries.
3. ADMINISTRATION. The Plan shall be administered by the Committee, which
shall be appointed by the Board. The Committee shall consist of two or more
members of the Board. It is intended that the directors appointed to serve
on the Committee shall be "nonemployee directors" (within the meaning of
Rule 16b-3 under the Securities Exchange Act of 1934, as amended) and
"outside directors" (within the meaning of Section 162(m) of the Internal
Revenue Code of 1986, as amended, and the regulations thereunder). However,
the mere fact that a Committee member shall fail to qualify under either of
the foregoing requirements shall not invalidate any award made by the
Committee, which award is otherwise validly made under the Plan. The Board
shall have the power to fill vacancies on the Committee or to replace
members of the Committee with other members of the Board at any time. In
addition to any other powers granted to the Committee, it shall have the
following powers subject to the express provisions of the Plan:
a) subject to the provisions of Sections 4, 6, and 11, to determine in
its sole discretion the Employees to whom Options or Restricted Stock
shall be granted or awarded under the Plan, the number of shares which
shall be subject to each Option or Restricted Stock grant, the terms
upon which, the times at which, and the periods within which such
Options may be acquired and exercised, and the terms and conditions of
Restricted Stock awards;
b) to grant Options to, and to award Restricted Stock to, Employees
selected by the Committee in its sole discretion;
c) to determine all other terms and provisions of each Agreement, which
need not be identical;
d) without limiting the foregoing, to provide in its sole discretion in an
Agreement:
i) for an agreement by the Optionee to render services to the
Company or a Subsidiary upon such terms and conditions as are
specified in the Agreement, provided that the Committee shall not
have the power to commit the Company or any Subsidiary to employ
or otherwise retain any Optionee;
2
<PAGE> 3
ii) for restrictions on the transfer, sale, or other disposition of
Common Stock issued to the Optionee upon the exercise of an
Option or for other restrictions permitted by Section 11 with
respect to Restricted Stock;
iii) for an agreement by the Optionee to resell to the Company, under
specified conditions, Common Stock issued upon the exercise of
his Option or awarded as Restricted Stock; and
iv) for the payment of the Option Price upon the exercise of an
Option otherwise than in cash, including without limitation by
delivery (including constructive delivery) of shares of Common
Stock (other than Restricted Stock) valued at Fair Market Value
on the Date of Exercise of the Option, or by a combination of
cash and shares of Common Stock;
v) for the automatic issuance of a Reload Option for the same number
of shares delivered as payment (or partial payment) of the Option
Price as provided in Section 3(d)(iv) above and, to the extent
authorized by the Committee, for the number of shares used to
satisfy any tax withholding requirement incident to the exercise
of an Option as provided for in Section 12. The number of shares
covered by a Reload Option shall not exceed (1) the number of
shares, if any, surrendered as payment or (2) the number of
shares remaining available for granting under the Plan, whichever
shall be less. No Reload Options shall issue to an Optionee who
exercises any Option pursuant to the terms of this Plan following
termination of his employment.
e) to construe and interpret the Agreements and the Plan;
f) to require, whether or not provided for in the pertinent Agreement, of
any person acquiring or exercising an Option or acquiring Restricted
Stock, at the time of such exercise or acquisition, the making of any
representations or agreements which the Committee may deem necessary or
advisable in order to comply with the securities and tax laws of the
United States or of any state; and
g) to make all other determinations and take all other actions necessary
or advisable for the administration of the Plan.
Any determinations or actions made or taken by the Committee pursuant
to this Section shall be binding and final.
4. ELIGIBILITY. Participants in the Plan shall be selected by the Committee
from key Employees occupying responsible managerial or professional
positions and who have the ability to make a substantial contribution to
the success of the Company. In making this selection and in determining the
form and amount of grants and awards, the Committee shall consider any
factors deemed relevant, including the individual's functions,
responsibilities, value of services to the Company or to its Subsidiaries,
and past and potential contributions to the Company's profitability and
sound growth. Members of the Committee shall not receive awards or grants
under the Plan during their tenure on the Committee unless approved by the
Board of Directors.
Options and Restricted Stock may be granted only to Employees;
provided, however, that Directors who are not also full-time employees
shall not be eligible to receive Incentive Stock Options. An Employee who
has been granted an Option or Restricted Stock may be granted additional
Options and Restricted Stock.
5. STOCK SUBJECT TO THE PLAN. There is hereby reserved for issuance upon the
exercise of Options granted under the Plan or the award of Restricted Stock
under the Plan an aggregate of 13,000,000 shares of Common Stock. If an
Option granted under the Plan expires or terminates for any reason without
having been fully exercised or if shares of Restricted Stock granted under
the Plan are forfeited, the unpurchased shares of Common Stock which had
been subject to such Option at the time of its expiration or termination or
the forfeited shares of Restricted Stock, as the case may be, shall become
available for awards by the Committee of other Options or
3
<PAGE> 4
Restricted Stock under the Plan. The total number of shares of Common Stock
available to grant to any one Optionee will not exceed 20% of the total
shares subject to grant.
6. OPTIONS.
a) Each Option grant shall be evidenced by an Agreement, which shall
indicate whether the Option is intended to be a Nonstatutory Stock
Option or an Incentive Stock Option.
b) The Option Price shall be determined by the Committee, but in no event
shall the Option Price be less than the greater of the Fair Market
Value of the Common Stock determined as of the Date of Grant or the par
value of the Common Stock.
c) The Option Period shall be determined by the Committee and specifically
set forth in the Agreement; provided, however, than an Option shall not
be exercisable after ten years from the Date of Grant.
d) To the extent that the aggregate fair market value (determined on the
date the Option is granted) of Common Stock with respect to which an
Incentive Stock Option is exercisable for the first time by any
Optionee during any calendar year exceeds $100,000, such Option shall
be treated as a Nonstatutory Stock Option.
e) All Incentive Stock Options granted under the Plan shall comply with
the provisions of the Code governing incentive stock options, and with
all other applicable rules and regulations.
f) The Committee may permit the Optionee to defer the issue or transfer of
Common Stock which would otherwise be issued or transferred to such
Optionee upon exercise of the Option. Such deferral shall be at a time,
in an amount, and in a manner that is in accordance with the terms and
conditions established by the Committee.
7. EXERCISE OF OPTIONS. An Option shall, subject to the provisions of the
Agreement under which it was granted, be exercised in whole or in part by
the delivery to the Company of written notice of the exercise, in such
form as the Committee may prescribe, accompanied by full payment for the
Common Stock with respect to which the Option is exercised.
8. NONTRANSFERABILITY. Incentive Stock Options granted under the Plan shall
not be transferable otherwise than by will or the laws of descent and
distribution. Nonstatutory Stock Options granted under the Plan shall not
be transferable otherwise than by will or the laws of descent and
distribution, except as provided by the Committee and specified in the
Agreement.
9. DEATH OF OPTIONEE. Upon the death of an Optionee, any Option exercisable
on the date of death may be exercised by the Optionee's estate or by a
person who acquires the legal right to exercise such Option by bequest or
inheritance or otherwise, provided that such exercise occurs within one
year following date of death and within the remaining Option Period. The
provisions of this Section shall apply notwithstanding the fact that the
Optionee's employment may have terminated prior to death, but only to the
extent of any Options exercisable on the date of death.
10. RETIREMENT, DISABILITY, AND OTHER TERMINATION. Notwithstanding the
designation of an Option in an Agreement as an Incentive Stock Option, the
tax treatment available pursuant to Section 422 of the Code upon the
exercise of an Incentive Stock Option is not available to an Optionee who
exercises any Incentive Option more than (i) 12 months after the date of
termination of employment due to permanent disability or (ii) three months
after the date of termination of employment due to retirement or for other
reasons.
11. RESTRICTED STOCK AWARDS. Restricted Stock awards under the Plan shall
consist of shares of Common Stock granted to an Employee that are
restricted against transfer, subject to forfeiture, and subject to other
terms and
4
<PAGE> 5
conditions intended to further the purpose of the Plan as determined by the
Committee. Restricted Stock awards shall be evidenced by Agreements
containing provisions setting forth the terms and conditions governing such
awards. Each such Agreement must contain the following:
a) prohibitions against the sale, assignment, transfer, exchange, pledge,
hypothecation, or other encumbrance of (i) the shares awarded as
Restricted Stock, (ii) the right to vote such shares, and (iii) the
right to receive dividends thereon during the restriction period
applicable to such shares; provided, however, that the Optionee shall
have all the other rights of a stockholder including, but not limited
to, the right to receive dividends and the right to vote such shares;
b) at least one term, condition, or restriction constituting a
"substantial risk of forfeitures" as defined in Section 83(c) of the
Code;
c) such other terms, conditions, and restrictions as the Committee in its
discretion chooses to apply to the stock (including, without
limitation) provisions creating additional substantial risks of
forfeiture);
d) a requirement that each certificate representing shares of Restricted
Stock shall be deposited with the Company, or its designee, and shall
bear the following legend:
This certificate and shares of stock represented hereby are subject
to the terms and conditions (including forfeiture and restrictions
against transfer) contained in the Union Planters Corporation
Amended and Restated 1992 Stock Incentive Plan and an Agreement
entered into between the registered owner and Union Planters
Corporation. Release from such terms and conditions shall be made
only in accordance with the provisions of the Plan and the
Agreement, a copy of each of which is on file in the office of the
Treasurer of Union Planters Corporation.
e) the applicable period or periods of any terms, conditions, or
restrictions applicable to the Restricted Stock; provided, however,
that the Committee in its discretion may accelerate the expiration of
the applicable restriction period with respect to any part or all of
the shares awarded to an Optionee; and
f) the terms and conditions upon which any restrictions upon shares of
Restricted Stock awarded shall lapse and new certificates free of the
foregoing legend shall be issued to the Optionee or his legal
representative.
The Committee may include in an Agreement that in the event of an
Optionee's termination of employment for any reason prior to the lapse of
restrictions, all shares of Restricted Stock shall be forfeited by such
Optionee to the Company without payment of any consideration by the
Company, and neither the Optionee nor any successors, heirs, assigns, or
personal representatives of such Optionee shall thereafter have any
further rights or interest in such shares or certificates.
12. WITHHOLDING TAXES. Whenever the Company proposes or is required to issue
or transfer shares of Common Stock under the Plan, the Company shall have
the right to require the Optionee to remit to the Company cash or Common
Stock in an amount sufficient to satisfy any federal, state and/or local
withholding tax requirements prior to the delivery of any certificate or
certificates for such shares. Alternatively, the Company may issue or
transfer such shares of Common Stock net of the number of shares
sufficient to satisfy the minimum required withholding tax requirements
(but not more than such minimum). For withholding tax purposes, the shares
of Common Stock shall be valued on the date the withholding obligation is
incurred. Subject to the foregoing restrictions, all Optionees shall have
the right under the Plan to elect to pay withholding taxes in cash, to
have shares of Common Stock withheld, or to deliver previously owned
shares to satisfy withholding tax requirements upon the exercise of an
Option granted under the Plan or upon the acquisition of Restricted Stock
free of prior restrictions.
5
<PAGE> 6
13. CAPITAL ADJUSTMENTS. The number and class of shares subject to each
outstanding Option or Restricted Stock grant, the Option Price, and the
aggregate number and class of shares for which awards thereafter may be
made shall be subject to such adjustment, if any, as the Committee in its
discretion deems appropriate to reflect such events as stock dividends,
stock splits, recapitalizations, mergers, consolidations, or
reorganizations of or by the Company; provided, however, that any such
adjustment shall not materially increase the benefits accruing to Plan
participants.
14. TERMINATION OR AMENDMENT. The Board shall have the power to terminate the
Plan and to amend it in any respect, provided, however, that after the
Plan has been approved by the stockholders of the Company, no amendment of
the Plan shall be made by the Board without approval of the Company's
stockholders to the extent stockholder approval of such amendment is
required by applicable law or regulation or the requirements of the
principal exchange or interdealer quotation system on which the Common
Stock is then listed or quoted. Unless required by applicable law or
governmental regulations, no termination or amendment of the Plan shall
adversely affect the rights or obligations of the holder of any Option or
Restricted Stock granted under the Plan without his consent.
15. MODIFICATION, EXTENSION, RENEWAL AND SUBSTITUTION OF OPTIONS. Subject to
the terms and conditions and within the limitations of the Plan, the
Committee may modify, extend, or renew outstanding Options granted under
the Plan. Notwithstanding the foregoing, however, no modification of an
Option under the Plan shall, without the consent of the Optionee, alter or
impair any of such Optionee's rights or obligations, unless required by
applicable law or governmental regulations. Anything contained herein to
the contrary notwithstanding, Options may, at the discretion of the
Committee, be granted under this Plan in substitution for options to
purchase shares of capital stock of another corporation which is merged
into, consolidated with, or all or a substantial portion of the property
or stock of which is acquired by, the Company or a Subsidiary. The terms
and conditions of the substitute options so granted may vary from the
terms and conditions set forth in this Plan to such extent as the
Committee may deem appropriate in order to conform, in whole or in part,
to the provisions of the options in substitution for which such Options
are granted. Such Options shall not be counted toward the (20%) share
limit set forth in the last sentence in Section 5, except to the extent it
is determined by the Committee that counting such Options is required in
order for the grants of such Options hereunder to be eligible to qualify
as "performance-based compensation" within the meaning of Section 162(m)
of the Code and the rules and regulations thereunder.
16. EFFECTIVENESS OF THE PLAN. Following adoption by the Board, the Plan shall
take effect on the date approved by the stockholders of the Company.
Notwithstanding any provision to the contrary, all Options and Restricted
Stock shall be without force or effect unless the Plan shall have been
approved by the stockholders of the Company. Any Plan amendments which
require stockholder approval pursuant to Section 14 are subject to
approval by vote of the stockholders of the Company within 12 months after
their adoption by the Board. Subject to such approval, any such amendments
shall be effective on the date on which they are adopted by the Board.
Options and Restricted Stock which are dependent upon stockholder approval
of a Plan amendment may be granted prior to such approval, but shall be
subject to such approval. The date on which any Option or Restricted Stock
grant dependent upon stockholder approval of a Plan amendment is effective
shall be the Date of Grant for all purposes as if the Option or Restricted
Stock grant had not been subject to such approval; however, no Option or
Restricted Stock granted may be exercised prior to such stockholder
approval.
17. TERM OF THE PLAN. Unless sooner terminated by the Board pursuant to
Section 14, the Plan shall terminate on the date ten years after its
adoption by the Board, and no Options or Restricted Stock may be granted
after termination. The termination shall not affect the validity of any
Option or Restricted Stock outstanding on the date of termination.
18. INDEMNIFICATION OF COMMITTEE. In addition to such other rights of
indemnification as they may have as Directors or as members of the
Committee, the members of the Committee shall be indemnified by the
Company against the reasonable expenses, including attorneys' fees,
actually and reasonably incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein, to
6
<PAGE> 7
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any Option or
Restricted Stock granted or awarded hereunder, and against all amounts
reasonably paid by them in settlement thereof or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, if such
members acted in good faith and in a manner which they believed to be in,
and not opposed to, the best interests of the Company.
19. GENERAL PROVISIONS.
a) The establishment of the Plan shall not confer upon any Employee any
legal or equitable right against the Company or the Committee except as
expressly provided in the Plan.
b) The Plan does not constitute inducement or consideration for the
employment of any Employee, nor is it a contract between the Company
and any Employee. Participation in the Plan shall not give any Employee
any right to be retained in the employ of the Company. The Company
retains the right to hire and discharge any Employee at any time, with
or without cause, as if the Plan had never been adopted.
c) The interests of any Employee under the Plan are not subject to the
claims of creditors and may not in any way be assigned, alienated, or
encumbered.
d) The Plan shall be governed, construed, and administered in accordance
with the laws of the state of Tennessee and in accordance with the
intention of the Company that Incentive Stock Options granted under the
Plan qualify as such under Section 422 of the Code, and that Options
granted under the Plan to Officers and Directors who are subject to
Section 16 of the Exchange Act qualify as exempt transactions under
Exchange Act Rule 16b-3.
e) Each award under the Plan shall be subject to the requirement that, if
at any time the Committee shall determine that (i) the listing,
registration or qualification of the shares of Common Stock subject or
related thereto upon any securities exchange or under any state or
federal law, or (ii) the consent or approval of any government
regulatory body, or (iii) an agreement by the Optionee with respect to
the disposition of shares of Common Stock is necessary or desirable as
a condition of, or in connection with, the granting of such award or
the issue or purchase of shares of Common Stock thereunder, such award
may not be consummated in whole or in part unless such listing,
registration, qualification, consent, approval, or agreement shall have
been effected or obtained free of any conditions not acceptable to the
Committee.
<TABLE>
<S> <C>
ORIGINAL PLAN APPROVAL: AMENDMENT NO. 1 APPROVAL:
Board of Directors-- February 20, 1992 Board of Directors-- October 17, 1996
Shareholders-- April 23, 1992 Shareholders-- April 17, 1997
AMENDMENT NO. 2 APPROVAL:
Board of Directors -- February 18, 1999
Shareholders -- April 15, 1999
AMENDMENT NO. 3 APPROVAL:
Board of Directors -- July 15, 1999
Shareholders -- Not required
</TABLE>
All of the above amendments are included herein in this Amended and Restated
1992 Stock Incentive Plan.
7
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF UNION PLANTERS CORP. FOR THE SIX MONTHS ENDED JUNE 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,140,966
<INT-BEARING-DEPOSITS> 49,808
<FED-FUNDS-SOLD> 120,762
<TRADING-ASSETS> 282,199
<INVESTMENTS-HELD-FOR-SALE> 7,939,035
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 20,634,632
<ALLOWANCE> 340,586
<TOTAL-ASSETS> 32,260,172
<DEPOSITS> 24,807,641
<SHORT-TERM> 2,596,517
<LIABILITIES-OTHER> 674,681
<LONG-TERM> 1,208,261
0
22,134
<COMMON> 713,564
<OTHER-SE> 2,237,374
<TOTAL-LIABILITIES-AND-EQUITY> 32,260,172
<INTEREST-LOAN> 859,897
<INTEREST-INVEST> 249,191
<INTEREST-OTHER> 10,798
<INTEREST-TOTAL> 1,119,886
<INTEREST-DEPOSIT> 419,300
<INTEREST-EXPENSE> 512,600
<INTEREST-INCOME-NET> 607,286
<LOAN-LOSSES> 34,019
<SECURITIES-GAINS> 3,192
<EXPENSE-OTHER> 533,248
<INCOME-PRETAX> 306,989
<INCOME-PRE-EXTRAORDINARY> 203,114
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 203,114
<EPS-BASIC> 1.42
<EPS-DILUTED> 1.40
<YIELD-ACTUAL> 7.79
<LOANS-NON> 204,140
<LOANS-PAST> 332,096
<LOANS-TROUBLED> 1,655
<LOANS-PROBLEM> 64,253
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<CHARGE-OFFS> 60,527
<RECOVERIES> 24,158
<ALLOWANCE-CLOSE> 340,586
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<ALLOWANCE-FOREIGN> 0
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</TABLE>
