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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________
Commission File No. 1-10160
UNION PLANTERS CORPORATION
(Exact name of registrant as specified in its charter)
Tennessee 62-0859007
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(State of incorporation) (IRS Employer Identification No.)
Union Planters Administrative Center
7130 Goodlett Farms Parkway
Memphis, Tennessee 38018
Registrant's telephone number, including area code: (901) 580-6000
--------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Common Stock having a par New York Stock Exchange
value of $5 per share and
associated Preferred Share
Purchase Rights
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
8% Cumulative, Convertible Preferred Stock,
Series E having a stated value of $25 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant at February 28, 1999 was approximately $6,303,331,000.
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE
REGISTRANT'S CLASSES OF COMMON STOCK
CLASS OUTSTANDING AT FEBRUARY 28, 1999
Common Stock having a par 142,515,058
value of $5 per share
DOCUMENTS INCORPORATED BY REFERENCE
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Part of Form 10-K
Documents Incorporated -----------------
---------------------- into which incorporated
1. Certain parts of the Annual Report to Shareholders -----------------------
for the year ended December 31, 1998 Parts I and II, Items 1, 2, 5, 6, 7, and 8
2. Certain parts of the Definitive Proxy Statement for Part III
the Annual Shareholders Meeting to be held April 15, 1999
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FORM 10-K CROSS-REFERENCE INDEX
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Page
PART I ----
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Item 1. Business.....................................................................................................4
Item 1a. Executive Officers of the Registrant........................................................................12
Item 2. Properties..................................................................................................13
Item 3. Legal Proceedings...........................................................................................13
Item 4. Submission of Matters to a Vote of Security Holders..........................................................*
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters....................................14
Item 6. Selected Financial Data.....................................................................................14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..................................................14
Item 8. Financial Statements and Supplementary Data.................................................................14
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.........................*
PART III
Item 10. Directors and Executive Officers of the Registrant..........................................................15
Item 11. Executive Compensation......................................................................................15
Item 12. Security Ownership of Certain Beneficial Owners and Management..............................................15
Item 13. Certain Relationships and Related Transactions..............................................................15
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................................15
Signatures ............................................................................................................17
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* Not Applicable
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RISK FACTORS
A cautionary note about forward-looking statements. Union Planters Corporation
from time to time makes forward-looking statements, within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward looking statements
include statements about estimated cost savings, plans and objectives for
future operations, and expectations about performance and economic and market
conditions and trends. They often can be identified by the use of words like
"expect," "may," "could," "intend," "project", "estimate," "believe" or
"anticipate." Union Planters may include forward-looking statements in filings
with the Securities and Exchange Commission, such as this Annual Report, in
other written materials, and in oral statements made by senior management to
analysts, investors, representatives of the media, and others. These
forward-looking statements speak only as of the date they are made, and Union
Planters undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which the forward looking
statement is made or to reflect the occurrence of unanticipated events.
By their nature, forward-looking statements are based on assumptions and are
subject to risks, uncertainties, and other factors. Actual results may differ
materially from those contained in the forward looking statement. The
discussion in the "Management's Discussion and Analysis of Results of
Operations and Financial Condition," including, in particular, the discussion
under the heading "Cautionary Statement About Forward-Looking Information,"
incorporated in Item 7 of this Annual Report, lists some of the factors which
could cause Union Planters' actual results to vary materially from those in the
forward-looking statements. Your attention is directed to this discussion which
can be found in Exhibit 13 to this Report. Other uncertainties which could
affect Union Planters' future performance include the effects of competition,
technological changes and regulatory developments (see the discussion under the
heading "Supervision and Regulation" in Item 1 below); changes in fiscal
monetary and tax policies; changes in business conditions and inflation;
changes in general economic conditions, either nationally or regionally,
resulting in, among other things, credit quality deterioration; and changes in
the securities markets.
Investors should consider these risks, uncertainties, and other factors in
addition to those mentioned by Union Planters in its other filings from time
to time when considering any forward-looking statement.
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PART I
ITEM 1. BUSINESS
GENERAL
Union Planters Corporation (the Corporation) is a $32 billion multi-
state bank holding company whose primary business is banking. The Corporation
is the largest bank holding company headquartered in Tennessee and, as of
December 31, 1998, was the 29th largest bank holding company headquartered in
the United States. Union Planters Bank, National Association (Union Planters
Bank, or UPB), headquartered in Memphis, Tennessee, is the Corporation's
largest subsidiary. The principal banking markets of the Corporation are in
Alabama, Arkansas, Florida, Kentucky, Illinois, Indiana, Iowa, Louisiana,
Mississippi, Missouri, Tennessee, and Texas. The Corporation's existing market
areas are served by the Corporation's 885 banking offices and 1,106 ATMs. The
map on the inside front cover of the 1998 Annual Report to Shareholders
provides information regarding the markets served by the Corporation's banking
subsidiaries. Capital Factors, Inc. (Capital Factors), a wholly owned
subsidiary of UPB, provides receivable-based commercial financing and related
fee-based credit collection and management information services through four
regional offices located in New York, New York; Los Angeles, California;
Charlotte, North Carolina; and its headquarters in South Florida (Boca Raton,
Florida) and an asset-based lending office in Atlanta, Georgia. The mortgage
operations of UPB operate 16 standalone mortgage production offices in
California, Florida, Georgia, Louisiana, Mississippi, Tennessee, and Texas in
addition to mortgage production offices located in its branch banking
locations.
As part of the Corporation's banking services, its subsidiaries are
engaged in factoring operations; mortgage origination and servicing; investment
management and trust services; the issuance of debit cards; offering of credit
cards; the origination, packaging, and securitization of loans, primarily the
government-guaranteed portions of Small Business Administration (SBA) loans;
the purchase of delinquent FHA/VA government-insured/guaranteed loans from
third parties and GNMA pools serviced for others; full-service and discount
brokerage services; commercial finance business; trade-finance activities; and
the sale of bank-eligible insurance products and services.
The Corporation considers acquisitions an important part of its
business strategy. Acquisition activity in 1998 was at a record level, with the
Corporation completing 18 acquisitions in 9 states. Information about the
banking organizations acquired since January 1, 1996, their asset size and the
consideration paid, is included in the table titled "Acquisitions Completed
Since January 1, 1996" on page 14 of the 1998 Annual Report to Shareholders,
which are incorporated herein by reference. At March 5, 1999, the Corporation
had the following acquisition pending: Republic National Bank of Miami,
Florida's 25 Miami-Dade and two Broward County banking centers and
approximately $1.6 billion in assets. (See Note 2 to the consolidated financial
statements on page 45 of the 1998 Annual Report to Shareholders). The
Corporation's acquisition strategy during 1999 will be impacted by Year 2000
considerations. The Year 2000 compliance of acquisition candidates will be
important, since it is unlikely that there would be sufficient time to convert
any acquired institutions to the Corporation's systems before Year 2000.
During 1998, the Corporation implemented a strategy of consolidating
and streamlining substantially all of its banking operations. As a part of this
strategy, local management retains broad discretion in serving their local
customer base and making customer decisions, while banking products are being
standardized, new methods of product delivery, such as internet banking, are
being developed, and operational functions, including accounting, deposit
services, item processing, mortgage servicing, and credit administration, are
being centralized on a company-wide or regional basis. The goal of this
strategy, which is ongoing, is to improve efficiency and customer service and
to enable the Corporation to realize cost savings and to benefit from the
economies of scale available as a result of its growth through acquisitions. In
the short-term, this strategy demands a significant amount of management time
and attention. In addition, there are a number of factors that could affect its
ultimate success, including customer response in the communities in which the
Corporation has banking offices.
COMPETITION
The Corporation and its subsidiaries operate in a highly competitive
environment. They compete with other bank holding companies and banks, thrift
institutions, credit unions, and money market and other mutual funds for
deposits and other sources of funds. In addition, they compete with a variety
of other financial services providers, such as finance, mortgage loan
companies, leasing companies, merchant banks, insurance companies and brokerage
firms. Many of these competitors are not subject to the same regulatory
restrictions as are bank
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holding companies and banks, such as the Corporation and its bank subsidiaries.
As a result, they may have certain competitive advantages over the Corporation.
CERTAIN REGULATORY CONSIDERATIONS
General
As a registered bank holding company, the Corporation is subject to
the regulation and supervision of the Board of Governors of the Federal Reserve
System (the Federal Reserve Board) under the Bank Holding Company Act of 1956
(BHCA). Each of the Corporation's banking subsidiaries, including its federal
savings bank subsidiary, is a member of the Federal Deposit Insurance
Corporation (the FDIC) and as such its deposits are insured by the FDIC to the
maximum extent provided by law.
The Corporation's banking subsidiaries which are national banking
associations, including its principal subsidiary, Union Planters Bank, are
subject to supervision and examination by the Office of the Comptroller of the
Currency (the Comptroller) and the FDIC. Currently, none of the state bank
subsidiaries of the Corporation are members of the Federal Reserve System. The
Corporation's state bank subsidiaries which are not members of the Federal
Reserve System are subject to supervision and examination by the FDIC and the
state banking authorities of the states in which they are located. The
Corporation's federal savings bank subsidiary is subject to supervision and
examination by the Office of Thrift Supervision (OTS). The Corporation's
banking subsidiaries are subject to an extensive system of banking laws and
regulations that are intended primarily for the protection of their customers
and depositors. These laws and regulations include requirements to maintain
reserves against deposits, restrictions on the types and amounts of loans and
other extensions of credit that may be granted and the interest that may be
charged thereon, and limitations on the types of investments that may be made,
and the types of services that may be offered. Various consumer laws and
regulations also affect the operations of the banking subsidiaries. In addition
to the impact of regulation, the banking subsidiaries are affected
significantly by the actions of the Federal Reserve Board as it attempts to
control the money supply and credit availability in order to influence the
economy. Set forth below are brief descriptions of selected laws and
regulations applicable to the Corporation and its subsidiaries. The references
are not intended to be complete and are qualified in their entirety by
reference to the statutes and regulations. Changes in applicable law or
regulation may have a material effect on the business of the Corporation.
Under the BHCA, the Corporation must obtain the prior approval of the
Federal Reserve Board before it may acquire all or substantially all of the
assets of any bank, acquire direct or indirect ownership or control of more
than 5% of the voting shares of any bank, or merge or consolidate with any
other bank holding company. The BHCA also prohibits, with certain exceptions,
the Corporation from acquiring direct or indirect ownership or control of 5% or
more of any class of voting shares of any nonbanking corporation. The BHCA
prohibits the Corporation from engaging in any business other than managing and
controlling banks or furnishing certain specified services to subsidiaries; and
prohibits the Corporation from acquiring voting control of nonbanking
corporations unless the Federal Reserve Board determines such businesses and
services to be closely related to banking or a proper incident thereto.
The BHCA further provides that the Federal Reserve Board may not
approve any transaction that would result in a monopoly or would be in
furtherance of any combination or conspiracy to monopolize or attempt to
monopolize the business of banking in any section of the United States, or the
effect of which may be substantially to lessen competition or to tend to create
a monopoly in any section of the country, or that in any other manner would be
in restraint of trade, unless the anticompetitive effects of the proposed
transaction are clearly outweighed by the public interest in meeting the
convenience and needs of the community to be served. The Federal Reserve Board
is also required to consider the financial and managerial resources and future
prospects of the bank holding companies and banks concerned and the convenience
and needs of the community to be served. Consideration of financial resources
generally focuses on capital adequacy and consideration of convenience and
needs issues includes the parties' performance under the Community Reinvestment
Act of 1977, as amended (the CRA). Under the CRA, all financial institutions
have a continuing and affirmative obligation consistent with safe and sound
operation to help meet the credit needs of their entire communities, including
low-to-moderate income neighborhoods. Based on their most recent CRA compliance
examinations, the Corporation's subsidiary banks and savings bank all received
at least a "satisfactory" CRA rating.
Another factor that has gained increasing scrutiny in the application
process is the Year 2000 readiness of the parties involved in acquisition
transactions. Banking organizations whose Year 2000 readiness is in less than
satisfactory condition are undergoing special scrutiny in connection with
acquisition transactions requiring regulatory approval, and may not be eligible
to use expedited application procedures for acquisition transactions.
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Interstate Banking
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the Interstate Act), the Corporation and any other bank holding
company may now acquire a bank located in any state, subject to certain
deposit-percentage limitations, aging requirements, and other restrictions. The
Interstate Act also generally permits a bank to conduct interstate branching
through acquisitions of banks in other states, except to the extent that a
particular state adopted legislation prior to June 1, 1997, to "opt-out" of
interstate banking. Texas, where Union Planters completed acquisitions during
1998, elected this "opt out" by legislation that was scheduled to expire
September 2, 1999. However, following litigation, the Texas Banking Department
is now permitting interstate branching by acquisition in that state. The
Corporation has taken advantage of the interstate banking provisions of the
Interstate Act to merge substantially all of its banking subsidiaries with and
into Union Planters Bank. This charter consolidation began on January 1, 1998,
with the merger of 31 banking subsidiaries into UPB, its principal banking
subsidiary headquartered in Memphis, Tennessee. Since then, the Corporation has
continued this strategy of consolidation, and management anticipates that
substantially all of the Corporation's banking subsidiaries, including any
which may be acquired in the future, would ultimately be merged with and into
UPB to the extent allowed by effective law.
The Interstate Act also permits an out-of-state bank to establish de
novo branches in another state, to the extent de novo interstate branching is
expressly permitted by the laws of that state. The Tennessee banking statutes
now permit an out-of-state bank to acquire a branch office located in Tennessee
which has been in operation for at least five (5) years, provided the laws of
the home state of the out-of-state bank permit Tennessee banks to establish and
maintain branches in that state through the acquisition of a branch under
substantially the same terms and conditions.
Capital
The Federal Reserve Board has adopted risk-based capital guidelines
for bank holding companies. The minimum guideline for the ratio (Risk-Based
Capital Ratio) of total capital (Total Capital) to risk-weighted assets
(including certain off-balance-sheet commitments such as standby letters of
credit) is 8%. At least one-half of Total Capital must be composed of Tier 1
Capital which generally consists of common shareholders' equity, minority
interests in the equity accounts of consolidated subsidiaries, noncumulative
perpetual preferred stock and a limited amount of cumulative perpetual
preferred stock, less goodwill and certain other intangible assets. The
remainder, denominated "Tier 2 Capital," generally may consist of limited
amounts of subordinated debt, qualifying hybrid capital instruments, other
preferred stock, loan loss reserves, and unrealized gains on certain equity
securities.
In addition, the Federal Reserve Board has established minimum
leverage ratio guidelines for bank holding companies. These guidelines provide
for a minimum ratio of Tier 1 Capital to average total assets less goodwill
(the Leverage Ratio) of 3% for bank holding companies that meet certain
specified criteria, including those having the highest regulatory rating. All
other bank holding companies generally are required to maintain a Leverage
Ratio of at least 4%. The guidelines also provide that bank holding companies
experiencing internal growth or making acquisitions are expected to maintain
strong capital positions substantially above the minimum supervisory levels
without significant reliance upon intangible assets. Furthermore, the Federal
Reserve Board has indicated that it will consider a "tangible Tier 1 Capital
Leverage Ratio" (deducting all intangibles) and other indicia of capital
strength in evaluating proposals for expansion or new activities.
At December 31, 1998, the Corporation's Total Risk-Based Capital Ratio
was 16.78%; its Tier 1 Risk-Based Capital Ratio (i.e., its ratio of Tier 1
Capital to risk-weighted assets) was 13.34%; and its Leverage Ratio was 8.86%.
In addition, each of the Corporation's banking subsidiaries satisfied the
minimum capital requirements applicable to it and had the capital levels
required to qualify as a "well-capitalized" institution under the prompt
corrective action provisions discussed below. A bank's capital classifications
may have an influence on a bank's business activities. For example, under
regulations adopted by the FDIC governing the receipt of brokered deposits, a
bank may not lawfully accept, roll over, or renew brokered deposits unless
either (i) it is well capitalized or (ii) it is adequately capitalized and
receives a waiver from the FDIC.
All of the Corporation's banking subsidiaries are subject to
Risk-Based and Leverage Capital Ratio requirements adopted by their respective
federal regulators which are substantially similar to those adopted by the
Federal Reserve Board. As of December 31, 1998, the Total and Tier 1 Risk-Based
Capital and Leverage Ratios of UPB, the Corporation's largest bank subsidiary,
were 14.37%, 11.45%, and 7.71%, respectively. Neither the Corporation nor any
of its banking subsidiaries has been advised by any federal banking agency of
any specific minimum capital ratio requirement applicable to it.
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Prompt Corrective Action
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) and the joint regulations thereunder adopted by the federal banking
agencies require the banking regulators to take prompt corrective action in
respect of depository institutions that do not meet their minimum capital
requirements. FDICIA establishes five capital tiers: "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized,"
and "critically undercapitalized." Under the capital regulations:
An institution is deemed to be well capitalized if it:
- has a Total Capital Ratio of 10% or greater;\
- has a Tier 1 Capital Ratio of 6.0% or greater;
- has a Leverage Ratio of 5.0% or greater; and
- is not subject to any written agreement, order,
capital directive, or prompt corrective action
directive issued by its federal banking agency.
An institution is considered to be adequately capitalized if it has:
- a Total Capital Ratio of 8.0% or greater;
- a Tier 1 Capital Ratio of 4.0% or greater; and
- a Leverage Ratio of 4.0% or greater (or, if the
institution received a composite 1 rating under the
regulator's CAMEL rating system, a Leverage Ratio of
3.0% or greater).
A depository institution is considered to be undercapitalized if it
has:
- a Total Capital Ratio of less than 8.0%;
- a Tier 1 Capital Ratio of less than 4.0%; or
- a Leverage Ratio of less than 4.0% (or, if the
institution received a composite 1 rating under the
regulator's CAMEL rating system, a Leverage Ratio of
3.0% or less).
A depository institution is considered to be significantly
undercapitalized if it has:
- a Total Capital Ratio of less than 6.0%;
- a Tier 1 Capital Ratio of less than 3.0%; or
- a Leverage Ratio of less than 3.0%.
An institution that has a tangible equity capital to assets ratio
equal to or less than 2.0% is deemed to be critically undercapitalized.
"Tangible equity" includes core capital elements counted as Tier 1 Capital for
purposes of the risk-based capital standards, plus the amount of outstanding
cumulative perpetual preferred stock (including related surplus), minus all
intangible assets, with certain exceptions.
The appropriate federal banking agency may, under certain
circumstances, reclassify a well capitalized insured depository institution as
adequately capitalized. The appropriate agency is also permitted to require an
adequately capitalized or undercapitalized institution to comply with the
supervisory provisions as if the institution were in the next lower category
(but not treat a significantly undercapitalized institution as critically
undercapitalized) based on supervisory information other than the capital
levels of the institution. The statute provides that an institution may be
reclassified if the appropriate Federal banking agency determines (after notice
and opportunity for hearing) that the institution is in an unsafe or unsound
condition or deems the institution to be engaging in an unsafe or unsound
practice.
Dividend Restrictions
The Corporation is a legal entity separate and distinct from its
banking, thrift and other subsidiaries. The Corporation's principal sources of
cash flow (including cash flow to pay dividends to shareholders, on a parent
company only basis), are dividends paid to the Corporation by its subsidiaries.
The right of the Corporation,and consequently the rights of creditors and
shareholders of the Corporation,
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to participate in any distribution of the assets or earnings of any subsidiary
through the payment of such dividends, or otherwise, is necessarily subject to
the prior claims of creditors of the subsidiary (including depositors, in the
case of banking subsidiaries) except to the extent that claims of the
Corporation in its capacity as a creditor may be recognized.
There are statutory and regulatory limitations on the payment of
dividends to the Corporation by its banking subsidiaries. Each national banking
association subsidiary of the Corporation is required by federal law to obtain
the prior approval of the Comptroller for the declaration of dividends if the
total of all dividends to be declared by the board of directors of such bank in
any year would exceed the total of (i) such bank's net profits (as defined and
interpreted by regulation) for that year, plus (ii) the retained net profits
(as defined and interpreted by regulation) for the preceding two years, less
any required transfers to surplus. The Corporation's state-chartered banking
subsidiaries are subject to similar restrictions on the payment of dividends by
the respective state laws under which they are organized. Furthermore, all
depository institutions are prohibited from paying any dividends, making other
distributions, or paying any management fees if, after such payment, the
depository institution would fail to satisfy its minimum capital requirements.
At January 1, 1999, under dividend restrictions imposed under federal and state
laws, the Corporation's banking subsidiaries could declare aggregate dividends
of approximately $193 million without obtaining prior regulatory approval.
Future dividends will depend primarily upon the level of earnings of the
banking subsidiaries of the Corporation. Federal banking regulators also have
the authority to prohibit banks and bank holding companies from paying a
dividend if they should deem such payment to be an unsafe or unsound practice.
Support of Banking Subsidiaries
Under Federal Reserve Board policy, the Corporation is expected to act
as a source of financial strength to its banking subsidiaries and, where
required, to commit resources to support each of such subsidiaries. Moreover,
if one of its banking subsidiaries should become undercapitalized, under FDICIA
the Corporation would be required to guarantee the subsidiary bank's compliance
with its capital plan in order for such plan to be accepted by the federal
regulatory authority.
Under the "cross guarantee" provisions of the Federal Deposit
Insurance Act (the FDI Act), any FDIC-insured subsidiary of the Corporation may
be held liable for any loss incurred by, or reasonably expected to be incurred
by, the FDIC in connection with (i) the "default" of any other commonly
controlled FDIC-insured subsidiary or (ii) any assistance provided by the FDIC
to any commonly controlled FDIC-insured subsidiary "in danger of default."
"Default" is defined generally as the appointment of a conservator or receiver,
and "in danger of default" is defined generally as the existence of certain
conditions indicating that a default is likely to occur in the absence of
regulatory assistance. Such liability could have a material adverse effect on
the financial condition of any assessed bank and the Corporation. While the
FDIC's claim is junior to the claims of depositors, holders of secured
liabilities, general creditors and subordinated creditors, it is superior to
the claims of shareholders and affiliates.
Transactions With Affiliates
There are various legal restrictions on the extent to which a bank
holding company or its nonbank subsidiaries may borrow or otherwise obtain
credit from or sell assets or affiliate securities to its bank subsidiaries. In
general, covered transactions with a bank subsidiary must be on nonpreferential
terms and cannot exceed, as to any one of the holding company or the holding
company's nonbank subsidiaries, 10% of the bank's capital stock and surplus,
and as to the holding company and all of its nonbank subsidiaries in the
aggregate, 20% of such capital stock and surplus. Special collateral
requirements also apply to covered extensions of credit.
FDIC Deposit Insurance
Currently, the FDIC maintains two funds for the insurance of deposits
of financial institutions - the Bank Insurance Fund (the BIF) for deposits
originated by banks and the Savings Association Insurance Fund (the SAIF) for
deposits originated by savings associations, including savings association
deposits acquired by banks. For this deposit insurance coverage, each insured
institution pays assessments to the FDIC, under a risk-based assessment system
which takes into account the institution's capital and supervisory
considerations. The FDIC sets assessments for deposits insured by the BIF or
the SAIF to maintain the targeted designated reserve ratio in that fund, i.e.,
$1.25 for each $100 of insured deposits.
The Deposit Insurance Funds Act of 1996 provided for the
recapitalization of the SAIF through a one-time special assessment in 1996 on
SAIF-insured deposits, and the sharing by banks and savings associations of
obligations under the Financing Corporation bonds which were issued to
initially fund the SAIF. That act contemplates the ultimate merger of the BIF
and the SAIF, on the date as of which the last savings association shall cease
to exist.
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Safety and Soundness Standards
The FDI Act, as amended by the FDICIA and the Riegle Community
Development and Regulatory Improvement Act of 1994, requires the federal bank
regulatory agencies to prescribe standards, by regulations or guidelines,
relating to the internal controls, information systems and internal audit
systems, loan documentation, credit underwriting, interest-rate-risk exposure,
asset growth, asset quality, earnings, stock valuation and compensation, fees
and benefits and such other operational and managerial standards as the
agencies may deem appropriate. The federal bank regulatory agencies adopted,
effective August 9, 1995, a set of guidelines prescribing safety and soundness
standards pursuant to FDICIA, as amended. In general, the guidelines require,
among other things, appropriate systems and practices to identify and manage
the risks and exposures specified in the guidelines.
Depositor Preference
Legislation enacted in 1993 establishes a nationwide
depositor-preference rule in the event of a bank failure. Under this
arrangement all deposits and certain other claims against a bank, including the
claim of the FDIC as subrogee of insured depositors, would receive payment in
full before any general creditor of the bank, including the holders of its
subordinated debt securities, would be entitled to any payment in the event of
an insolvency or liquidation of the bank.
Proposed Legislation
Because of concerns relating to the competitiveness and the safety and
soundness of the industry, the United States Congress continues to consider a
number of wide-ranging proposals for altering the structure, regulation, and
competitive relationships of the nation's financial institutions. Among such
bills are proposals to combine banks and thrifts into a unified charter, to
alter the statutory separation of commercial and investment banking, and to
further expand or change the regulation of the powers of depository
institutions, bank holding companies, and competitors of depository
institutions. During 1998, Congress considered but did not adopt comprehensive
financial services reform legislation that, if adopted, would have allowed,
among other things, affiliations between banking organizations, securities
firms and insurance companies. Similar legislation is expected to be considered
by Congress during 1999.
It cannot be predicted whether, or in what form, any of these
proposals will be adopted or the extent to which the business or financial
condition of the Corporation may be affected thereby.
PERSONNEL
As of February 28, 1999, the Corporation, including all subsidiaries,
had 13,473 employees (including 2,186 part-time employees).
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STATISTICAL DISCLOSURES
The statistical information required by Item 1 may be found in the
1998 Annual Report to Shareholders (Exhibit 13 hereto) which, to the extent
indicated, is hereby incorporated herein by reference, as follows:
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Page in the Corporation's
Guide 3 Disclosures 1998 Annual Report to Shareholders*
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I. Distribution of Assets, Liabilities and Shareholders' Equity:
Interest Rates and Interest Differential
A. Average Balance Sheet 28
B. Net Interest Earnings Analysis 28
C. Rate/Volume Analysis 29
II. Investment Portfolio
A. Book Value of Investment Securities 34, 47, 48, and 49
B. Maturities of Investment Securities 48 and 49
C. Investment Securities Concentrations Not applicable
III. Loan Portfolio
A. Types of Loans 30 and 49
B. Maturities and Sensitivity of
Loans to Changes in Interest Rates Follows this table
C. Risk Elements
1. Nonaccrual, Past Due 90 Days or More,
and Restructured Loans 31 and 32
2. Potential Problem Loans 21
3. Foreign Outstandings Not Significant
4. Loan Concentrations 18
D. Other Interest-Bearing Assets Not Significant
IV. Summary of Loan Loss Experience
A. Analysis of Allowance for Loan Losses 32
B. Allocation of the Allowance for Loan Losses 31
V. Deposits
A. Average Balances 28 and 30
B. Maturities of Large Denomination Certificates of Follows this table
Deposit
C. Foreign Deposit Liability Disclosure Not significant
VI. Return on Equity and Assets
A. Return on Average Assets 10
B. Return on Average Equity 10
C. Dividend Payout Ratio 10
D. Equity to Assets Ratio 10
VII. Short-Term Borrowings 50 and 51
</TABLE>
*Unless otherwise noted
10
<PAGE> 11
The following table presents the maturities and sensitivities of the
Corporation's loans to changes in interest rates at December 31, 1998:
<TABLE>
<CAPTION>
DUE AFTER ONE
DUE WITHIN BUT WITHIN DUE AFTER
ONE YEAR FIVE YEARS FIVE YEARS
---------- ------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Commercial, Financial, and Agricultural ........................... $2,683,340 $1,146,205 $393,953
Real Estate - Construction ........................................ 791,559 309,525 94,695
Foreign ........................................................... 177,688 18,641 791
---------- ---------- --------
Total ................................................... $3,652,587 $1,474,371 $489,439
========== ========== ========
Fixed Rate ........................................................ $ 999,511 $304,642
========== ========
Variable Rate ..................................................... $ 474,860 $184,797
========== ========
</TABLE>
The following table presents maturities of certificates of deposit of
$100,000 and over and other time deposits of $100,000 and over:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Under 3 Months.............................. $ 1,013,174
3 to 6 Months............................... 544,949
6 to 12 Months.............................. 720,526
Over 12 Months.............................. 568,608
-------------
Total............................. $ 2,847,257
=============
</TABLE>
11
<PAGE> 12
ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following lists the executive officers of the Corporation.
Executive officers of the Corporation are elected annually. Information
regarding the executive officers, their present positions held with the
Corporation and its subsidiaries, their ages, and their principal occupations
for the last five years are as follows:
<TABLE>
<CAPTION>
Position of Executive Officers
Name with the Corporation and UPB Age
- --------------------------------------------- ------------------------------------------------------------ --------
<S> <C> <C>
Benjamin W. Rawlins, Jr. Chairman and Chief Executive Officer 61
of the Corporation and UPB
Jackson W. Moore President and Chief Operating Officer 50
of the Corporation and UPB
Jack W. Parker Executive Vice President and 52
Chief Financial Officer of the
Corporation and UPB
M. Kirk Walters Senior Vice President, Treasurer, and 58
Chief Accounting Officer of the
Corporation and UPB
James A. Gurley Executive Vice President of the 65
Corporation and UPB
J. Armistead Smith* Executive Vice President and 63
President of Community Banks--Group B
Michael B. Russell Executive Vice President and 44
Senior Lending Officer of the
Corporation and UPB
Lloyd B. DeVaux Executive Vice President and 46
Chief Information Officer of the
Corporation and UPB
</TABLE>
*The position that Mr. Smith moved into on January 1, 1999 is not considered an
executive officer position.
On January 1, 1998, Mr. Rawlins was reelected to the position of
Chairman of UPB. Mr. Rawlins was President of the Corporation from September
1984 until he was elected Chairman. Mr. Rawlins has been Chairman of the
Corporation since April 1989, and Chairman of UPB from January 1986 until
December 1996 when he was elected Vice Chairman. He has also served as Chief
Executive Officer of the Corporation and UPB since September 1984. Mr. Rawlins
serves as an executive officer of the Corporation pursuant to an employment
agreement with the Corporation, which is renewable annually each December 31.
Mr. Moore has been President of the Corporation since April 1989 and
was elected President of UPB January 1, 1998. In April 1994, Mr. Moore was
elected Chief Operating Officer of the Corporation and was elected to the same
position with UPB January 1, 1998. He is also Chairman of PSB Bancshares, Inc.,
and is a Vice President and Director of its subsidiary, The Peoples Savings
Bank (not an affiliate bank of the Corporation), located in Clanton, Alabama.
He has served on the Boards of the Corporation and UPB since 1986. Mr. Moore
serves as an executive officer of the Corporation pursuant to an employment
agreement with the Corporation, which is renewable annually each December 31.
12
<PAGE> 13
Mr. Parker has been Executive Vice President and Chief Financial
Officer of the Corporation and UPB since March 1990. Mr. Parker has been an
officer of the Corporation and UPB for more than 20 years.
Mr. Walters was elected Senior Vice President of the Corporation in
November 1990 and has been Chief Accounting Officer since February 1990. He has
been Treasurer of the Corporation since 1985. He was a Vice President of the
Corporation from 1975 until he was elected to his current position. Mr. Walters
has been an officer of UPB for more than twenty years and is currently a Senior
Vice President.
Mr. Gurley was elected Executive Vice President of the Corporation in
November 1990 and became Corporate Risk Manager in April 1997. Prior to being
elected as Risk Manager, Mr. Gurley was responsible for the Credit Policy
function of the Corporation and the Bank. He was a Vice President of the
Corporation from 1980 until he was elected Executive Vice President. He has
been an officer of UPB for more than twenty years and is currently an Executive
Vice President.
In January 1999, Mr. Smith became President of Community Banks--Group
B. Prior to January 1, 1999, he served as an executive officer pursuant to an
employment agreement with the Corporation. Mr. Smith was Executive Vice
President and Senior Lending Officer of the Corporation and UPB from April 1997
to December 1998. Prior to that, Mr. Smith was Vice Chairman of the Corporation
from 1989 to 1994.
Mr. Russell became Senior Lending Officer on January 1, 1999.
Previously, he had been the Corporate Risk Analysis Manager with responsibility
for credit review, compliance, data security, and business resumption. Mr.
Russell has been an officer of UPB for more than sixteen years.
Mr. DeVaux joined Union Planters Corporation as Executive Vice
President and Chief Information Officer, and manager of Technology and
Operations in January 1995. From 1988 until 1995, prior to joining Union
Planters, Mr. DeVaux was Executive Director of Operations for Kirchman
Corporation and a Finance Industry Large Systems Specialist with IBM
Corporation.
ITEM 2. PROPERTIES
The Corporation's corporate headquarters are located in the
company-owned Union Planters Administrative Center at 7130 Goodlett Farms
Parkway, Memphis, Tennessee, a three-building complex located near the center
of Shelby County. In addition to being the corporate headquarters, it contains
approximately 376,000 square feet of space and houses Mortgage Servicing and
Origination, Funds Management, Data Processing, Operations, Human Resources,
Financial, Legal, Credit and Review, and Marketing.
As of March 5, 1999, the Corporation operated 22 banking offices in
Alabama, 47 in Arkansas, 74 in Florida, 109 in Illinois, 69 in Indiana, 30 in
Iowa, 41 in Kentucky, 23 in Louisiana, 146 in Mississippi, 96 in Missouri, 213
in Tennessee, and 15 in Texas. The majority of these locations are owned. A
wholly owned subsidiary, Capital Factors, Inc., has operations in leased
facilities in Boca Raton and Ft. Lauderdale, Florida; Los Angeles, California;
New York, New York; Charlotte, North Carolina; and Atlanta, Georgia. The
subsidiaries also operate 1,106 twenty-four-hour automated teller locations.
The mortgage operations of UPB operates 16 standalone mortgage production
offices in California, Florida, Georgia, Louisiana, Mississippi, Tennessee, and
Texas in addition to mortgage production offices located in certain of the
Corporation's branch banking locations.
There are no material encumbrances on any of the company-owned
properties.
ITEM 3. LEGAL PROCEEDINGS
The Corporation and/or various subsidiaries are parties to various
pending civil actions, all of which are being defended vigorously.
Additionally, the Corporation and/or its subsidiaries are parties to various
legal proceedings that have arisen in the ordinary course of business.
Management is of the opinion, based upon present information including
evaluations of outside counsel, that neither the Corporation's financial
position, results of operations, nor liquidity will be materially affected by
the ultimate resolution of pending or threatened legal proceedings.
UPB (as successor to the Corporation's five banks (UPC Banks) located
in Mississippi: Union Planters Bank of Mississippi, Union Planters Bank of
Southern Mississippi, Union Planters Bank of Central Mississippi, Union
Planters Bank of Northeast Mississippi, N.A., and Union Planters Bank of
Northwest Mississippi (which were merged into UPB January 1, 1998) is a
defendant
13
<PAGE> 14
in various suits related to the placement of collateral protection insurance
(CPI) by the UPC Banks in the 1980s and early 1990s. On September 28, 1995 and
October 18,1995, two purported class actions were filed in the U.S. District
Court for the Southern District of Mississippi. Both actions were consolidated
and identified Vivian McCaskill as the representative of a class of persons who
financed personal property through the UPC Banks and were force placed with
Prudential Property and Casualty Insurance Company's (Prudential) collateral
protection insurance. The consolidated action (Consolidated Action) names as
defendants the UPC Banks, Prudential, National Underwriters of Delaware, Inc.,
and several Ross & Yerger entities and includes allegations that premiums were
excessive and improperly calculated; coverages were improper and not disclosed;
and improper payments were paid to the UPC Banks by the insurance companies,
allegedly constituting violations of various state and federal laws and common
law. The relief sought in the purported class actions includes actual damages,
treble damages under certain statutes, other statutory damages, and unspecified
punitive damages. The CPI programs appear to have been substantially similar in
many respects to CPI programs of other Mississippi banks, often with the same
insurance companies. Consequently, there are suits against various Mississippi
banks (including those against the UPC Banks), various insurance agencies, and
companies based upon their CPI programs. During the fourth quarter of 1997 an
agreement in principle was reached by UPB with attorneys for the putative class
to settle the Consolidated Action within amounts previously established. Final
agreement is subject to execution of a definitive agreement, court approval,
and UPB's acceptance of the number of opt-outs from the class settlement. Eight
individual actions filed in state and federal courts against the UPC Banks,
with similar allegations, and seeking compensatory and punitive damages, remain
pending.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The information required by Item 5 is included in Table 14 captioned
"Selected Quarterly Data" included in the Corporation's 1998 Annual Report to
Shareholders on pages 35 and 36, which information is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by Item 6 is included under the heading
"Selected Financial Data" in the Corporation's 1998 Annual Report to
Shareholders on page 10, which information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by Item 7 is included under the heading
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" in the Corporation's 1998 Annual Report to Shareholders on pages 11
- - 36, which information is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by Item 7A is included under the heading
"Market Risk and Asset/Liability Management" and Table 11 in the Corporation's
1998 Annual Report to Shareholders on pages 22 and 33, respectively, which
information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is included in the Corporation's
1998 Annual Report to Shareholders on pages 37 - 67, and in Table 14 captioned
"Selected Quarterly Data" on pages 35 and 36, which pages are incorporated
herein by reference.
14
<PAGE> 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning "Executive Officers of the Registrant" is
included in Part I (Item 1a) of this Form 10-K in accordance with Instruction 3
to paragraph (b) of Item 401 of Regulation S-K, and incorporated by reference
herein.
The remaining information required by Item 10 is included under the
heading "Proposal I: Election of Directors" on pages 2 - 8 and under the
heading "Section 16(a) Beneficial Ownership Reporting Compliance" on page 24 of
the definitive proxy statement of the Corporation to be used in soliciting
proxies for the Annual Meeting of shareholders to be held on April 15, 1999
(Proxy Statement), which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 as to compensation of directors
and executive officers is included under the heading "Proposal I: Election of
Directors" on pages 2 - 8 and under the heading "Executive Compensation" on
pages 13 - 22 of the Proxy Statement, which information is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 as to certain beneficial owners
and management is included under the heading "Share Ownership by Directors and
Executive Officers" on pages 6 - 8 of the Proxy Statement, which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 as to transactions and
relationships with certain directors and executive officers of the Corporation
and their associates is included under the heading "Certain Relationships and
Transactions" on page 23 of the Proxy Statement, which information is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following audited consolidated financial statements of Union
Planters Corporation and Subsidiaries, included in the Corporation's
1998 Annual Report to Shareholders, are incorporated herein by
reference in response to Part II, Item 8:
<TABLE>
<CAPTION>
Page in
Annual Report
-------------
<S> <C>
Report of Management 37
Report of Independent Accountants 37
Consolidated Balance Sheet - December 31, 1998 and 1997 38
Consolidated Statement of Earnings -
Years ended December 31, 1998, 1997, and 1996 39
Consolidated Statement of Changes in Shareholders' Equity Years
ended December 31, 1998, 1997, and 1996 40
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C>
Consolidated Statement of Cash Flows-
Years ended December 31, 1998, 1997, and 1996 41
Notes to Consolidated Financial Statements 42
</TABLE>
(a)(2) All schedules have been omitted, since the required information is
either not applicable, not deemed material, or is included in the
respective consolidated financial statements or in the notes thereto.
(a)(3) Exhibits:
The exhibits listed in the Exhibit Index on pages i and ii, following
page 18 of this Form 10-K are filed herewith or are incorporated
herein by reference. Each management contract or compensatory plan or
arrangement required to be filed as an exhibit pursuant to Item 14(c)
of this report is identified on the Exhibit Index by an *.
(b) Reports on Form 8-K:
<TABLE>
<CAPTION>
Date of Current Report Subject Reported Under Item 5
-------------------------------- -----------------------------------------------
<S> <C>
October 15, 1998 Press Release announcing Third Quarter 1998
operating results*
October 16, 1998 Announcement of sale of credit card portfolios and
appointment of MBNA Bank America, N.A. as the
exclusive issuer of the Corporation's credit
cards.
</TABLE>
*Press release filed as an exhibit under Item 7 of the report.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNION PLANTERS CORPORATION
(Registrant)
By: /s/ Benjamin W. Rawlins, Jr.
--------------------------------------------------------------
Benjamin W. Rawlins, Jr., Chairman and Chief Executive Officer
Date: March 4, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 4th day of March, 1999.
<TABLE>
<CAPTION>
<S> <C>
/s/ Benjamin W. Rawlins, Jr. /s/ Jack W. Parker
- -------------------------------------------------------- ------------------------------------------------------------
Benjamin W. Rawlins, Jr. Jack W. Parker
Chairman, Chief Executive Officer, and Executive Vice President and
Director Chief Financial Officer
/s/ Jackson W. Moore /s/ M. Kirk Walters
- -------------------------------------------------------- ------------------------------------------------------------
Jackson W. Moore M. Kirk Walters
President, Chief Operating Officer, and Senior Vice President, Treasurer, and
Director Chief Accounting Officer
/s/ Albert M. Austin /s/ C. J. Lowrance III
- -------------------------------------------------------- ------------------------------------------------------------
Albert M. Austin C. J. Lowrance III
Director Director
/s/ Marvin E. Bruce
- -------------------------------------------------------- ------------------------------------------------------------
Marvin E. Bruce Stanley D. Overton
Director Director
/s/ George W. Bryan /s/ Dr. V. Lane Rawlins
- -------------------------------------------------------- ------------------------------------------------------------
George W. Bryan Dr. V. Lane Rawlins
Director Director
/s/ James E. Harwood /s/ Donald F. Schuppe
- -------------------------------------------------------- ------------------------------------------------------------
James E. Harwood Donald F. Schuppe
Director Director
/s/ C. E. Heiligenstein /s/ David M. Thomas
- -------------------------------------------------------- ------------------------------------------------------------
C. E. Heiligenstein David M. Thomas
Director Director
/s/ Carl G. Hogan /s/ Richard A. Trippeer, Jr.
- -------------------------------------------------------- ------------------------------------------------------------
Carl G. Hogan Richard A. Trippeer, Jr.
Director Director
/s/ S. Lee Kling
- -------------------------------------------------------- ------------------------------------------------------------
S. Lee Kling Spence L. Wilson
Director Director
/s/ Parnell S. Lewis, Jr.
- --------------------------------------------------------
Parnell S. Lewis, Jr.
Director
</TABLE>
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<S> <C>
2(a) Agreement and Plan of Reorganization by and between Magna Bancorp,
Inc. and Union Planters Corporation dated as of May 8, 1997
(incorporated by reference to Exhibit 2(a) to Union Planters
Corporation's Quarterly Report on Form 10-Q dated March 31, 1997,
Commission File No. 1-10160)
2(b) Agreement and Plan of Merger, dated as of August 12, 1997, by and
between Union Planters Corporation and Capital Bancorp (incorporated
by reference to Exhibit 2.1 to Union Planters Corporation's Current
Report on Form 8-K dated August 12, 1997, Commission File No. 1-10160)
2(c) Agreement and Plan of Merger, dated as of March 8, 1996, by and
between Union Planters Corporation and Leader Financial Corporation
(incorporated by reference to Exhibit 2.1 to Union Planters
Corporation's Current Report on Form 8-K dated March 8, 1996, filed on
March 13, 1996, Commission File No. 1-10160)
2(d) Agreement and Plan of Merger, dated as of November 17, 1997, by and
between Union Planters Corporation, Union Planters Holding
Corporation, and Peoples First Corporation and joined in by Union
Planters Corporation (incorporated by reference to Exhibit 2.1 to
Union Planters Corporation's Current Report on Form 8-K dated November
17, 1997, Commission File No. 1-10160)
2(e) Agreement and Plan of Reorganization by and between Magna Bancorp,
Inc. and Union Planters Corporation dated as of May 8, 1997
(incorporated by reference to Exhibit A to Prospectus filed as part of
the Corporation's Registration Statement No. 333-30239).
2(f) Agreement and Plan of Reorganization by and between AMBANC Corp. and
Union Planters Corporation dated as of March 31, 1998 (incorporated by
reference to Exhibit 1 to the Schedule 13D dated March 31, 1998, filed
by UPC (File No. 1-10160) with respect to the common stock of AMBANC
Corp. (File No. 0-10710).
3(a) Restated Charter of Incorporation, as most recently amended on January
19, 1999, of Union Planters Corporation (incorporated by reference to
Exhibit 3 to the Form 8-A filed by Union Planters Corporation on
January 22, 1999, Commission File No. 1-10160).
3(b) Amended and Restated Bylaws, as most recently amended on February 20,
1997, of Union Planters Corporation (incorporated by reference to
Exhibit 3(b) to Union Planters Corporation's Annual Report on Form
10-K dated December 31, 1996, Commission File No. 1-10160).
4(a) Rights Agreement, dated January 19, 1999 between Union Planters
Corporation and Union Planters Bank, National Association, including
Form of Rights Certificate (incorporated by reference to Exhibit 2 to
the Form 8-A filed by Union Planters Corporation on January 22, 1999,
Commission File No. 1-10160).
4(b) Indenture dated as of October 1, 1992 between Union Planters
Corporation and The First National Bank of Chicago (Trustee) for
$40,250,000 of 8 1/2% Subordinated Notes due 2002 (2)
4(c) Subordinated Indenture dated as of October 15, 1993 between the
Corporation and The First National Bank of Chicago as Trustee (3)
4(d) Form of Subordinated Debt Security (6.25% Subordinated Notes due 2003)
(4)
4(e) Form of Subordinated Debt Security (6 3/4% Subordinated Notes due
2005) (5)
</TABLE>
i
<PAGE> 19
<TABLE>
<S> <C>
4(f) All instruments defining the rights of the holders of the
"Corporation-obligated Mandatorily Redeemable Capital Pass-through
Securities of Subsidiary Trust holding solely a Corporation Guaranteed
Related Subordinated Note issued by Union Planters Corporation,"
including the Indenture dated as of December 12, 1996, the First
Supplemental Indenture, the Amended and Restated Declaration of Trust,
the Capital Securities Guarantee Agreement and the Global Securities
representing the interests of such holders, which instruments are not
being filed herewith in reliance upon Item 601(b)(4)(iii)(A) of
Regulation S-K and the related AGREEMENT PURSUANT TO ITEM
601(b)(4)(iii)(A) OF REGULATION S-K dated March 16, 1998 of Union
Planters Corporation filed with the Commission, a copy of which is
Exhibit 4(g) hereto
4(g) Copy of Registrant's AGREEMENT PURSUANT TO ITEM 601(b)(4)(iii)(A) OF
REGULATION S-K dated March 16, 1998 (filed herewith)
10(a)* Amended and Restated Employment Agreement between Union Planters
Corporation and Benjamin W. Rawlins, Jr., (incorporated by reference
to Exhibit 10(a) to Union Planters Corporation's Quarterly Report on
Form 10-Q dated March 31, 1997, Commission File No. 1-10160)
10(b)* Amended and Restated Employment Agreement between Union Planters
Corporation and Jackson W. Moore (incorporated by reference to Exhibit
10(b) to Union Planters Corporation's Quarterly Report on Form 10-Q
dated March 31, 1997, Commission File No. 1-10160)
10(c)* Employment Agreement between Union Planters Corporation and J.
Armistead Smith (incorporated by reference to Exhibit 10(b) to the
Annual Report on Form 10-K dated December 31, 1992)
10(d)* Deferred Compensation Agreements between Union Planters Corporation
and certain highly compensated officers (specimen copy) (incorporated
by reference to Exhibit 10(g) to the Annual Report on Form 10-K dated
December 31, 1989, filed on March 26, 1990, Commission File No.
0-6919)
10(e)* Union Planters Corporation 1983 Stock Incentive Plan as amended
January 18, 1990 and approved by shareholders on April 20, 1990 (1)
10(f)* Union Planters Corporation 1992 Stock Incentive Plan as Amended and
Restated October 17, 1996 and approved by shareholders April 17, 1997
(incorporated by reference to Exhibit 10(c) to Union Planters
Corporation's Quarterly Report on Form 10-Q dated March 31, 1997
Commission File No. 1-10160)
10(g)* Deferred Compensation Agreements between Union Planters Corporation
and Union Planters National Bank and certain outside directors
(incorporated by reference to Exhibit 10(m) to the Annual Report on
Form 10-K dated December 31, 1989 filed on March 26, 1990, Commission
File No. 0-6919)
10(h)* Executive Deferred Compensation Agreement between Union Planters
Corporation and certain highly compensated officers (incorporated by
reference to Exhibit 10(n) to the Annual Report on Form 10-K dated
December 31, 1989 filed on March 26, 1990, Commission File No. 0-6919)
10(i)* Amendment to Union Planters Corporation Supplemental Executive
Retirement Plan for Executive Officers (incorporated by reference to
Exhibit 10(d) to the Quarterly Report on Form 10-Q dated March 31,
1997, Commission File No. 1-10160)
10(j)* Union Planters Corporation Executive Deferred Compensation Plan for
Executives as Amended (incorporated by reference to Exhibit 10 to the
Quarterly Report on Form 10-Q dated September 30, 1997 Commission File
No. 1-10160)
10(k) Stock Option Agreement, dated March 9, 1996, issued by Leader
Financial Corporation to Union Planters Corporation (incorporated by
reference to Exhibit 2.2 to Union Planters Corporation's Current
Report on Form 8-K dated March 8, 1996, filed on March 13, 1996,
Commission File No. 1-10160)
</TABLE>
ii
<PAGE> 20
<TABLE>
<S> <C>
10(l)* Amendment No. 1 to Union Planters Corporation's Deferred Compensation
Plan for Executives (incorporated by reference to Exhibit 10(e) to the
Quarterly Report on Form 10-Q dated March 31, 1997, Commission file
No. 1-10160).
10(m)* Union Planters Corporation Supplemental Executive Retirement Plan for
Executive Officers (incorporated by reference to Exhibit 10 to the
Quarterly Report on Form 10-Q dated March 31, 1995, Commission File
No. 1-10160)
11 Computation of Per Share Earnings (incorporated by reference to Note
16 on page 63 to the Registrant's 1998 consolidated financial
statements included as Exhibit 13 herein)
13 1998 Annual Report to Security Holders (filed herewith)
21 Subsidiaries of the Registrant (filed herewith)
23 Consent of PricewaterhouseCoopers LLP (filed herewith)
27 Financial Data Schedule (for SEC use only) (filed herewith)
</TABLE>
- --------------------
*Denotes a management contract or compensatory plan or arrangement required to
be filed as an exhibit pursuant to Item 14(c) of Form 10-K
(1) Incorporated by reference to Exhibit 4(a) filed as part of
Registration Statement No. 33-35928, filed July 23, 1990
(2) Incorporated by reference to Exhibit 4 filed as part of Registration
Statement No. 33-52434, filed October 19, 1992
(3) Incorporated by reference to Exhibit 4(a) filed as part of
Registration Statement No. 33-50655, filed October 21, 1993
(4) Incorporated by reference to Exhibit 4(b) filed as part of
Registration Statement No. 33-50655, filed October 21, 1993
(5) Incorporated by reference to Exhibit 4(b) filed as part of
Registration Statement No. 33-63791, filed October 27, 1995
iii
<PAGE> 1
Exhibit 4(g)
AGREEMENT PURSUANT TO ITEM 601(b)(4)(iii)
OF REGULATION S-K
The Registrant hereby undertakes and agrees to furnish to the
Securities and Exchange Commission upon request a copy of any instrument
relating to, or defining the rights of the holders of, any long-term debt of the
Registrant and/or its subsidiaries, a copy of which has not been filed in
reliance upon Item 601(b)(4)(iii)(A) of Regulation S-K or which, although
previously filed, shall have become stale in the sense of Item 10(d) of
Regulation S-K or which shall have been disposed of by the Commission pursuant
to its Record Control Schedule. This Agreement and undertaking is intended to be
effective with respect to Registrant's Long-term Debt instruments whether
securities have been issued thereunder or are yet to be issued thereunder.
Date: March 15, 1999
By:/s/ Benjamin W. Rawlins, Jr.
------------------------------------
Benjamin W. Rawlins, Jr.
Chairman and Chief Executive Officer
<PAGE> 1
EXHIBIT 13
1998
ANNUAL
REPORT
UNION
PLANTERS
CORPORATION
LOGO
<PAGE> 2
EXHIBIT 13
UNION PLANTERS CORPORATION LOGO
[MAP]
MARKET AREAS SERVED
ALABAMA, ARKANSAS, FLORIDA, ILLINOIS, INDIANA, IOWA, KENTUCKY,
LOUISIANA, MISSISSIPPI, MISSOURI, TENNESSEE, AND TEXAS
Figure 1 - The inside front cover of Exhibit 13 (Union Planters Corporation's
Annual Report to Shareholders for 1998) contains a map of the states of Alabama,
Arkansas, Georgia, Florida, Illinois, Iowa, Kentucky, Louisiana, Mississippi,
Missouri, Tennessee, and Texas showing the counties and parishes with Union
Planters Corporation banking locations and the headquarters for Union Planters
Corporation.
<PAGE> 3
UNION PLANTERS CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1998 1997 % CHANGE
- --------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
Net earnings $ 225,606 $ 339,835 (33.61)%
Per Common Share:
Basic 1.61 2.53 (36.36)
Diluted 1.58 2.47 (36.03)
Cash dividends 2.00 1.495 33.78
Book value 20.86 20.96 (.48)
Earnings before merger-related charges, other significant
items, and goodwill and other intangibles amortization,
net of taxes $ 351,866 $ 392,476 (10.35)%
Per Common Share:
Basic 2.52 2.93 (13.99)
Diluted 2.47 2.85 (13.33)
AT DECEMBER 31,
Assets $31,691,953 $29,974,463 5.73%
Earning assets 28,737,886 27,384,302 4.94
Loans, net of unearned income 19,576,826 20,302,969 (3.58)
Allowance for losses on loans 321,476 324,474 (.92)
Deposits 24,896,455 22,875,879 8.83
Shareholders' equity 2,984,078 2,874,473 3.81
Common shares outstanding (in thousands) 141,925 134,532 5.50
PROFITABILITY AND CAPITAL RATIOS
Net earnings
Return on average assets .73% 1.16%
Return on average common equity 7.71 12.45
Earnings before merger-related charges, other significant
items, and goodwill and other intangibles amortization,
net of taxes
Return on average assets 1.14 1.34
Return on average common equity 12.06 14.41
Net interest income (taxable-equivalent) as a percentage
of average earning assets 4.40 4.57
Expense ratio 1.58 1.59
Efficiency ratio 55.98 54.45
Shareholders' equity to total assets 9.42 9.59
Leverage ratio 8.86 9.62
Tier 1 capital to risk-weighted assets 13.34 14.32
Total capital to risk-weighted assets 16.78 16.39
CREDIT QUALITY RATIOS
Allowance for losses on loans as a percentage of loans 1.71 1.71
Nonperforming loans as a percentage of loans .83 .81
Allowance for losses on loans as a percentage of
nonperforming loans 206 210
Nonperforming assets as a percentage of loans and
foreclosed properties .97 1.01
Provision for losses on loans as a percentage of average
loans 1.04 .83
Net charge-offs as a percentage of average loans .95 .63
- --------------------------------------------------------------------------------------------------
</TABLE>
CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Letter to Shareholders...................................... 2
Economic Overview of Union Planters' Markets................ 6
Selected Financial Data..................................... 10
Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ 11
Financial Tables............................................ 26
Selected Quarterly Data..................................... 35
Report of Management........................................ 37
Report of Independent Accountants........................... 37
Consolidated Financial Statements........................... 38
Notes to Consolidated Financial Statements.................. 42
Executive Officers and Board of Directors................... 68
</TABLE>
1
<PAGE> 4
TO OUR SHAREHOLDERS
Calendar year 1998 was a year of enormous change within the banking
industry and within Union Planters. In many ways it was a watershed year for
your company. While we were disappointed at the performance of our stock price
during the year, we are positive about our growth and the changes taking place
in Union Planters, and believe they will lead to greater earnings per share and
greater value for our shareholders over the longer term.
Industry consolidation continued at a record pace including mergers of
several of the largest franchises in the United States (Wells Fargo and Norwest;
Bank One and First Chicago; and NationsBank and BankAmerica) giving rise to the
possibility of a truly national geographic franchise. Travelers and Citicorp
merged to form the largest financial services company in the United States,
testing the limits of Glass-Steagall by offering insurance, brokerage, asset
management, and traditional bank services under a single umbrella. These
combinations and numerous others in 1998 have significantly changed the banking
landscape in the United States.
Union Planters continued to be an active participant in this consolidation
activity in 1998. We closed calendar year 1997 with approximately $18 billion in
assets including the December 31, 1997 acquisition of Capital Bank in Miami. By
year-end 1998 we had completed an additional 18 acquisitions, almost doubling
assets to $32 billion, and greatly strengthening our position in a number of
markets where we already had a presence. In the process we became the 29th
largest bank holding company in the United States and in the fourth quarter were
added to the S&P 500.
The largest concentration of the Union Planters franchise is in a corridor
running roughly 150 miles either side of the Mississippi River beginning in
Baton Rouge, Louisiana and following the river north past Jackson, Mississippi,
through Memphis and on to St Louis, Missouri. Many of the acquisitions were in
this corridor and were franchises similar to the very profitable franchises we
already own and operate in the corridor. The mid-year Magna acquisition had the
additional benefit of giving Union Planters the number three market share
position in the St Louis area. In addition, we have a major presence outside of
this corridor in Tennessee, Florida, and Iowa. The Florida acquisitions
(including the recently announced acquisition of Republic) give us a significant
presence in a fast growing market and the third largest market share in Miami.
Our second largest deposit state behind Tennessee, which represents 24 percent
of our deposit base, is Florida with about 17 percent (pro forma) of our
deposits. Illinois and Missouri are next with 13 percent and 10 percent,
respectively. Sixty-seven percent of our franchise is now in metropolitan areas.
The acquisitions bring our total number of customers to more than two million.
We believe the 1998 acquisitions will be accretive to earnings per share
when fully consolidated. We originally estimated that we could save an amount
equal to roughly 25 percent to 30 percent (approximately $100 million) of the
operating costs of the acquired institutions. For reasons discussed below, and
because we did not want to disrupt the newly acquired customer base, our best
estimate is that by year-end 1998 we had achieved about 50 percent of this
amount. We remain confident that we will achieve the remainder during 1999. It
was again necessary to take charges related to the acquisition activity and our
full year ROA and ROE were reduced accordingly.
Extraordinary consolidation within the industry and exceptional growth by
Union Planters were not the only changes, however. Technology advances continued
at an astonishing pace. Just three or four years ago many of us would not have
even heard of the Internet. Today it is a tool used at home and work almost on a
daily basis. The increased power of personal computers and the software that
drives them has provided significant opportunities in our organization. Data
processing and Internet companies will become either our worst competitors or
our biggest allies. To effectively manage in this environment we must develop,
learn, adapt to, and take advantage of this new technology, or see our market
position erode and many of our payment system functions forfeited to
less-regulated competitors. Our continued growth and the rapid advances in
technology led us in the third quarter of 1997 to address a number of
organizational issues including our separate bank charters and the economies of
scale which would be made possible by the application of technology.
Union Planters' organizational structure may be logically thought of as
divided into the traditional affiliate bank group and the specialty bank group.
Traditional affiliates provide commercial and retail bank services throughout
our twelve-state franchise. They operate traditional bank branches and they
function in many ways as a community bank in a local market. They are defined by
local geographic area, and provide UPC products and services to this market. The
community bank structure has been the cultural anchor of our operating
philosophy. Each UPC traditional affiliate has a locally focused marketing
program based on its size, presence, history in the community, and knowledge of
its customers. The intent of this philosophy is to ensure that we remain good
corporate citizens within the com-
2
<PAGE> 5
munities and to foster strong relationships at the local level between our
customers and loan officers, customer service representatives and tellers.
Specialty bank activities include those business lines or functions (e.g.,
mortgage, trust, SBA, brokerage services and insurance) that require specialized
knowledge or skills that are not generally available, or would be expensive to
duplicate at each of our traditional affiliates, and those that are given to
substantial economies of scale. Our affiliate bankers have tended to view
themselves as community bankers while our specialty product bankers have tended
to view themselves as product line managers. Specialty bank products or services
are sold throughout the entire affiliate franchise, sometimes by personnel of
the specialty bank but just as often by bank personnel trained in the product.
Secondary market mortgage loans, for example, are originated by dedicated
mortgage lenders within the affiliates, or if the required skills are not
available at the local affiliate, by personnel working directly for the mortgage
company. Specialty bank customers are thus often customers of one of the
traditional affiliates.
Prior to the study undertaken in the third quarter of 1997, our traditional
affiliates maintained separate bank charters. Their performance was generally
excellent (many consistently in the top quartile of their peer group) despite
the additional expense of the separate charters and the attendant organizational
redundancy. As a result of the study, Union Planters adopted a comprehensive
charter consolidation plan. The decision to eliminate the separate charters was
recognition that our growth in assets had, or soon would, become an impediment
to continued improvement in customer service, operating efficiency, and
profitability. The plan called for the retention of one bank charter and one
thrift charter, the merger of electronic information databases, and the creation
of regional bank support centers to provide call center, back office operations,
credit administration and underwriting support functions for the entire
Corporation. The intent was more than just making an organizational structure
change and placing our affiliates on common data processing systems. They had
been on common systems for a number of years. The plan called for a complete and
common product line in all of our markets, common systems and procedures at the
local level throughout the organization, common back office support centers, and
a substantial leap forward in the application of technology to reduce costs,
better serve our customers, and to provide better information to manage the
organization. We viewed the charter consolidations and the technology issues as
interdependent. Finally, we wanted to accomplish the transition without
destroying the community bank philosophy, or the sense of responsibility and
empowerment that exists at the community level. Our intent was to provide the
local affiliate with better information for local market management and better
support of back office functions at less cost. At the same time we wanted to
provide corporate management with better management information regarding
customers, segments, channels, and product profitability.
A model bank plan was conceived, designed, and the process of development
and implementation begun. Best practices developed in or for one affiliate were
adopted in the form of model bank policies and procedures. Standard bank
staffing and quality of service models were developed and implemented and have
become an integral part of the management process throughout our affiliate
system, and in the back office support centers. Software best suited to Union
Planters' needs was chosen.
The information platform selected is a consolidated customer view (all
logically related customer information), a high-speed operational data store, a
data warehouse to retain delivery channel (branch, ATM, telephone, etc.) and
customer information, high-speed high-volume data lines, common channel
presentations, and image technology. The software support systems include all
traditional legacy systems, middleware for maintaining the consolidated customer
view and interconnecting the foundation systems to the customer and vice versa,
the information warehouse driver, a Windows(R) based common platform software,
and integrated use of image technology for check processing and loan
documentation. Significant parts of the consolidated customer view will be
available to our customers on the Internet in a secure environment including
customer account balances, statements, transaction histories, and even the image
of individual checks. Balance transfers between accounts, bill payments to the
bank and third parties, and check orders are among the self-service conveniences
being afforded the customer.
UPC closed the calendar year 1997 with 35 bank charters. On January 1,
1998, 31 of the 35 separate charters were consolidated into a single charter.
Those not eliminated were essentially those organizations that had not yet been
converted to UPC's data processing systems. With the legal boundaries between
our affiliates eliminated, we could begin to move forward to obtain the benefits
of size and technology available in a single charter environment. The entire
project was estimated to take 18 months to fully implement.
We are well along in that process. The foundation for our model bank is in
place. A common menu of products and services is offered
3
<PAGE> 6
throughout our entire affiliate network. Common account and general ledger
coding has been established. We have common data processing foundation systems
and a common platform in use throughout a substantial part of our network. We
have established a model back office credit administration and underwriting
support center. The significant number of acquisitions slowed the process of
development and implementation, and the implementation of the model bank concept
slowed the conversion of some of the new affiliates to our computer systems.
However, approximately 85 percent of our assets, including recent 1999
purchases, have now been converted to common foundation systems with back office
support operations moved to a support center. Credit administration and
underwriting support are operational for approximately 30 percent of our assets
at the present time. Most of the Internet services described above were made
available to customers in January. Without advertising support, over 5,000
customers have signed up for this service. Implementation of the common customer
view at the platform is scheduled for May and image for platform and research in
September. Our last major foundation system conversion is scheduled for August,
and the credit support centers are scheduled to be fully operational by
year-end.
Personnel savings from the charter consolidation were estimated originally
at 600 employees (approximately 10 percent of staff at the time). Savings would
be proportionally larger today because of our greater size. Although it is
difficult to differentiate between charter consolidation and merger cost savings
from the new acquisitions, we believe we have achieved only about 40 percent of
the total savings that will be made possible by this effort. Savings are only a
part of the benefit, however. Management at all levels will have more and better
information on which to base their decisions. Product profitability,
consolidated customer profitability, customer segment profitability and delivery
channel profitability will be systematically recorded and retained. Our intent
is to be able to mass customize, promote, price differentiate, and encourage
different channel usage through customer segmentation. Channel productivity and
profitability will be measured on the cost of operating the channel point, the
number of transactions, and the profitability of the customers actually using
the channel point. To a great extent, our future profitability, customer service
levels, and ability to compete will be driven by the success of these systems
and technology initiatives.
The charter consolidation and technology initiatives were necessarily an
added expense burden throughout all of 1998. The new software for the support
centers involved significant development, installation, and testing. Each
affiliate merger into the consolidated database is similar to a data processing
conversion and has roughly the same internal and third party expenses associated
with it as that of a newly acquired bank. Personnel must learn new systems
coding, procedures, etc., and there always is a period of adjustment as
personnel become both familiar and efficient with use of the new systems.
Further, it was necessary to increase personnel at the central support sites to
provide a training period for new personnel before transferring affiliate work
into the support centers. Thus, there has been overlap of staff and costs.
Despite this additional burden, core earnings among our older affiliates (those
owned prior to 12/31/97) remained excellent at an estimated 1.59 percent ROA and
15.9 percent ROE.
The banking industry perhaps more than any other industry tends to be a
mirror of the economy and the environment in which it operates. In recent years
we have benefited from a sustained period of economic stability and growth. The
economic picture began to erode for the banking industry in 1997 with a gradual
flattening of the yield curve. Many institutions have tried to address the
flattened yield curve problem with increased volume and by cutting loan rates
and terms, further increasing competition and ultimately reducing margins
further. The United States economy remained strong, so strong in fact that
during the latter part of 1997 and in the first half of 1998 there was
continuous speculation that the Federal Reserve would raise the fed funds target
and the discount rate to slow growth. Economic turmoil in the international
markets, particularly in Asia and Russia, caused a flight to quality in the
capital markets (primarily to U.S. bonds) in 1998 further flattening the yield
curve. Then, in the third and fourth quarter of 1998, hedge fund losses brought
to an end the long period of increasing earnings for the industry. Broker
financing using secondary market funding almost came to a standstill in early
October. The Federal Reserve quickly made several reductions in the fed funds
target, but secondary marketing financing has not fully recovered and the yield
curve and intense competition for loans will continue to keep pressure on
margins.
In this less favorable economic environment, 1999 industry earnings become
somewhat more problematic, and with many of the industry consolidators occupied
by already announced mergers, merger and acquisitions activity is not likely to
maintain the pace of recent years. As a result bank stocks have gone from a
period of over-weighting in many institutional investment portfolios to
under-weighting, and it appears that banks with greater dependence on net
interest margin, buyout targets, and acquirers were pun-
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ished the worst. Unfortunately we fell into all three categories.
On balance we think 1999 will be a good year for Union Planters. In the
near term our profitability will depend on the net interest margin and how
quickly we can achieve the operating expense savings from the charter
consolidations and complete the conversions of recently acquired institutions.
Achieving the savings projected from each on a timely basis will be a major
operating objective for Union Planters in 1999. We feel confident that we will
complete both efforts by the end of the third quarter, and should benefit as the
final phases of the technology initiatives are implemented and all affiliates
gain use of the credit administration and underwriting support centers. Savings
should be recognized quarter by quarter with the greater savings coming later in
the year. We are somewhat less sanguine about the net interest margin. The
margin percentage is likely to be less in 1999 than it was in 1998. In recent
years we have been able to maintain a good margin and even today have one of the
best margins among the larger bank group. Part of our 1998 margin decline was
related to the acquisitions, not just the flattening of the yield curve or
absolute rates. That can be corrected with greater pricing discipline on both
assets and liabilities. Like most banks we would benefit from slightly rising
rates and greater steepness in the Treasury yield curve.
Some thoughts on the year 2000 issue. The best place for your money on
December 31, 1999, is in a bank. Some well-meaning, but not very well-informed
parties, and some outright charlatans might say otherwise, but they are wrong
and may cause more harm than good. The industry as a group, at no small expense,
is well along in its Y2K preparedness. At Union Planters we have completed date
forward testing on all of our core banking critical systems. Where systems or
hardware were found non-compliant they have been corrected or replaced, or we
are in the process of doing so at present. We are looking forward to the year
2000.
Let me close by recognizing Marvin Bruce and Stanley Overton for their
years of service to the Board and the Corporation. Mr. Bruce joined the Board in
1989 serving as a member of the Directors' Audit and Examining Committee and
Chairman of the Directors' Salary and Benefits Committee. Mr. Overton joined the
Board in 1992 while continuing as Chairman of Union Planters Bank of Middle
Tennessee. He was a member of the Directors' Audit and Examining Committee. I
want to thank both of them and say that their guidance, wise counsel, and
support will be missed.
Thank you for your support and for being a shareholder of Union Planters.
Yours very truly,
/s/ B. W. Rawlins
Benjamin W. Rawlins, Jr.
Chairman and Chief Executive Officer
5
<PAGE> 8
ECONOMIC OVERVIEW OF UNION PLANTERS' MARKETS
The following report was prepared by Luke Jaramillo, Associate Economist,
and Dr. David Stiff, Senior Economist, Standard & Poor's DRI.
Union Planters' service territory includes 12 states located in the South
and Midwest regions of the United States. Accounting for nearly one-third of the
nation's population; this region includes Alabama, Arkansas, Florida, Illinois,
Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, Tennessee, and Texas.
As the Union Planters region expands, its market will more closely match the
economy of the United States. The Union Planters region has experienced strong
economic growth since the 1990-92 recession. Employment gains averaged 2.7%
annually from 1993 to 1998, compared with 2.5% at the national level. Real
personal income rose 5.7% annually during the same period. Tight labor markets
stemming from low population growth in the Midwest and exceptionally strong job
growth in the South, however, have started to constrain economic development and
put upward pressure on wages. In 1998, the regional unemployment rate averaged
4.4%.
Current forecasts call for milder economic growth during the next five
years, with the Southern states generally outperforming the Midwestern states.
According to these forecasts, low tax rates and incentive packages, as well as
low housing, labor, and energy costs will continue to attract new businesses and
residents to the South. The region's expansion will moderate in response to
slower national growth and the effects of global economic weakness. Consumer
spending, which accounts for two-thirds of gross domestic product, will be
bridled by slower income growth and volatile financial markets. Prolonged and
widening international turmoil will result in greater import competition and
weaker export markets. Regional employment gains will average 1.4% annually
during the next five years, compared with 1.3% annual growth at the national
level. Top-performing sectors will include services, trade, and state and local
government. On a less favorable note, manufacturers will trim payrolls by
approximately 300,000 workers, with the largest job losses in apparel,
electrical machinery, non-electrical machinery, transportation equipment, and
food processing. Despite restructuring within the industrial sector,
manufacturing will remain vital to the region's economy.
The state and regional economies located within the Union Planters region
are quite diverse. Manufacturing is key to the region's economy. Indiana is
heavily dependent on Detroit's automotive industry. Cheaper labor and aggressive
tax incentives have attracted automotive assembly and parts plants from the
Midwest and overseas to communities in Kentucky, Tennessee, Missouri and
Alabama. Much of the nation's construction and farm equipment is manufactured in
the metro areas of Iowa and Illinois. Also, one of the world's largest food
processing companies, Archer-Daniels-Midland Company, is located in Decatur,
Illinois. The aerospace industry is a significant contributor to the economies
of Alabama and Missouri. Shipbuilding is an important industry for port cities
in Alabama, Louisiana, and Mississippi. Despite the persistent relocation of
textile and apparel manufacturing to cheaper labor markets abroad, much of the
South is still dependent on these labor-intensive industries. Industry
restructuring and outsourcing has led to phenomenal gains in business services
throughout the region. The South's warm climate and countless attractions,
particularly in Florida, sustain the region's tourism industry.
The region is rich in natural resources. The fertile soil of the Midwest
has made agriculture the dominant business in the region's less populated areas.
In Iowa, Illinois, and Indiana the main crops are corn, soybeans, and hogs.
Further south in Kentucky, Tennessee, Mississippi, and Arkansas; tobacco,
soybeans, rice, and cotton drive agricultural business. In Arkansas and
Louisiana, the timber and paper industries are important. Oil and natural gas
exploration, as well as petrochemicals, fuel the economies of Texas and
Louisiana. Steel production is vital to local economies in Indiana, Missouri,
Alabama, and Arkansas. Transportation, distribution, and warehousing industries
are also important to the region's economy. The numerous ports along Lake
Michigan, the Gulf of Mexico, and the Atlantic Ocean, as well as barge services
on the Mississippi, Ohio, Missouri, and Illinois rivers facilitate the shipment
of goods to domestic and international markets.
Prolonged economic turmoil abroad has strained certain sectors of the
region's economy. Declining oil prices resulting from a global oversupply and
weak demand in Asia have hurt the region's energy industry. The agriculture
sector has suffered from recession in Asia, which has caused exports to plummet
in 1998. Good crop harvests last year exacerbated commodity surpluses, causing
prices to fall sharply. Likewise, farm and construction equipment manufacturing
has suffered. The deterioration of Brazil's economy is affecting Florida and
other Southern economies that export large volumes of merchandise to South
America. The region's manufacturers are expected to experience greater import
competition due to the prolonged and widening global economic turmoil. Surging
steel imports from recession-bound countries in Asia, South America and from
Russia have resulted in plant closures and job losses within the region.
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As indicated in the table below; employment, consumption, and gross state
product growth projections suggest that economic growth in the Union Planters'
service territory should continue to exceed that of the country in general, as
it has during the past five-year period.
KEY ECONOMIC PERFORMANCE BY UPC STATES
<TABLE>
<CAPTION>
GROSS STATE
EMPLOYMENT RETAIL SALES STATE PRODUCT UNEMPLOYMENT
ANNUAL GROWTH ANNUAL GROWTH ANNUAL GROWTH RATE AS OF
1993-1998 1998-2003 1993-1998 1998-2003 1993-1998 1998-2003 DECEMBER 1998
<S> <C> <C> <C> <C> <C> <C> <C>
Alabama 1.87% .83% 5.70% 3.40% 3.47% 1.82% 4.0%
Arkansas 2.48 1.25 5.46 3.72 3.94 2.28 5.3
Florida 3.68 2.29 6.16 4.40 4.21 3.01 4.2
Illinois 1.94 .80 4.09 3.29 3.79 1.79 4.2
Indiana 1.88 .61 5.03 2.69 3.94 1.71 3.0
Iowa 2.39 .78 4.04 2.81 4.55 1.85 2.7
Kentucky 2.48 1.02 5.24 3.48 4.33 2.00 4.0
Louisiana 2.57 .85 5.18 3.27 4.97 1.32 5.3
Mississippi 2.25 .66 6.24 3.42 3.90 1.70 5.3
Missouri 2.21 1.03 4.76 3.47 4.33 1.91 3.3
Tennessee 2.41 1.09 5.48 3.75 3.95 2.12 4.3
Texas 3.50 1.91 6.13 4.30 4.93 2.72 4.8
- ------------------------------------------------------------------------------------------------------------------------
UPC States 2.72 1.36 5.43 3.77 4.30 2.25 4.2
All States 2.58 1.31 5.09 3.70 3.81 2.19 4.3
</TABLE>
The following is a summary of DRI's forecasts for each of the states in
Union Planters' region:
ALABAMA
Alabama is the 23rd most-populous state in the nation and the
eighth-largest in Union Planters' 12-state region. Alabama's economic expansion
moderated last year. Price competition and over-capacity in its textile,
apparel, and paper industries have led to manufacturing employment losses.
However, the state's services and trade sectors have experienced rapid growth.
Surprisingly, state exports have shown strength, despite weakness in the Asian
and South American markets. In fact, during the first three-quarters of 1998,
total exports were up 3.0% over a year ago, compared with a 1.1% decline at the
national level. Declining exports to Asia and Latin America, which were down
22.4% and 10.9% respectively, were offset by a sharp increase of 29.1% in
shipments to Europe and a 9.2% rise in exports to Canada.
Alabama's economy is expected to downshift into a decidedly slower pace
during the next five years. Employment gains will average a meager 0.8% per year
from 1998 to 2003. The state will continue to lose textile and apparel jobs to
cheaper labor markets abroad. However, investments by aerospace companies and
the emergence of automotive production within the state will offset some of
these losses. Lower rates of population growth will further limit economic
development.
ARKANSAS
Arkansas is the least inhabited state in the Union Planters region; with
2.5 million residents, it ranks 33rd nationally. Job creation has slowed sharply
in response to a moderating national economy and a tight labor market. The
state's manufacturing sector, which accounts for 23% of total employment, has
suffered from job losses in apparel, leather, and lumber. However, the state's
largest manufacturing sector, food processing (anchored by Tyson Foods),
continues to expand. Rebuilding in the wake of natural disasters has provided a
temporary boost to the construction industry. The outlook for Arkansas' economy
calls for slower growth during the next five years. Employment gains will
average 0.8% per year from 1998 to 2003, matching the national pace. The
manufacturing sector will shed workers, while the nonmanufacturing sectors will
be steady job creators. Substantial investments in highways, the Port of Little
Rock, and the Northwest Arkansas Regional Airport will boost construction
employment and bolster activity in the trade and transportation sectors.
FLORIDA
Florida is the second most-populous state in the Union Planters region,
with 14.7 million residents. Florida's economy continues to surge with
broad-based growth. Nonfarm payrolls advanced 3.8% last year, matching the pace
of the last five years. However, tourism has suffered because of weak South
American economies and the wildfires of 1998. Low prices and increased import
competition resulted in the closure of several paper mills last year.
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Florida's economic expansion will experience a marked slow down beginning
this year. Decelerating national growth combined with weakness from Latin
America will limit employment to a 2.8% increase this year. During the next five
years, job gains will average 2.3% annually. The state's top performing sectors
will be services, financial services, and the combined transportation,
communications, and public utilities sector. The largest risk to the forecast is
potential fallout from deterioration of the Brazilian economy -- Florida's
largest single export market.
ILLINOIS
With 11.9 million residents, Illinois is the sixth-most-populous state in
the nation and the third largest in the Union Planters region. Chicago and its
suburbs dominate the state's economy, accounting for 65% of its population and
73% of personal income. Since the recession of 1991, Illinois' diversified
economy has tracked that of the nation, albeit at a slightly slower pace. The
state's top-performing sectors have been business services, finance, retail
trade, and "other" services. Although advances in industrial payrolls have been
moderate, the largest increases have been food processing, fabricated metals,
electrical machinery, and non-electrical machinery manufacturing. Illinois'
unemployment rate averaged 4.4% last year.
Illinois will lag the nation in economic growth during the next five years.
Job gains will continue to trail most states, averaging just 0.8% annually.
Slower national growth will force manufacturers to trim payrolls. While Canada
is the state's largest export market, continued weakness in Asia and Latin
America will limit growth with increased import competition and sagging export
markets.
INDIANA
Indiana is the fourth-largest state in the Union Planters region, with 5.9
million residents. The state's highly industrialized economy has slowed
considerably during the past few years. Tight labor markets, as well as slower
national growth, and fall out from failing economies abroad are responsible for
the sluggish performance. Surging imports are hurting the state's steel
industry. The unemployment rate averaged 2.9% in 1998, far below the national
average of 4.5%. The state's economic growth will moderate during the next five
years -- employment gains will average 0.6% annually. Demand for durables
produced in the state will drop as the nation's economy cools. Consolidation
within the automotive industry will also contribute to job losses in the state's
manufacturing sector. On a more positive note, research for more effective
medicines and the success of direct-to-consumer advertising will sustain the
state's pharmaceutical industry, which is anchored by Indianapolis-based Eli
Lilly.
IOWA
Iowa has 2.9 million residents, and is the third smallest state in the
Union Planters region. The state's economy has experienced moderate growth since
1995. Employment gains improved last year; payrolls advanced 2.6%, led by hiring
in the construction services, financial services, and combined transportation,
communications, and utilities sectors. However, employers in the
Davenport-Moline-Rock Island metro area have suffered from weakness in the
agricultural sector. Farm and construction equipment manufacturer John Deere has
cut production and laid off workers as farmers have delayed equipment purchases
in the wake of falling commodity prices. Likewise, currency devaluations in Asia
and Russia have caused farm equipment exports to tumble. The forecast calls for
moderating growth for the state's economy. Tight labor markets and anemic
population growth will curb future development within the state. In fact Iowa's
unemployment rate, which averaged 2.6% last year, will remain far below the
national average. Nonfarm payroll gains are expected to average 0.8% per year
from 1998 to 2003.
KENTUCKY
Kentucky has 3.9 million residents and is the ninth-largest state in the
Union Planters region. The state's economy has decelerated in response to slower
national growth. Employment advanced a strong 2.1% last year, with the largest
job gains in services; retail trade; transportation, communications, and public
utilities; and construction. Manufacturing has benefited from the southerly
migration of automotive assembly and parts plants. However, sluggish population
growth combined with solid job development has tightened Kentucky's labor
market. Kentucky's unemployment rate averaged 4.3% in 1998.
Kentucky's economy will slow considerably during the next five years.
Employment growth will weaken, averaging 1.0% per year from 1998 to 2003.
Construction activity, which has been an engine for growth throughout the state,
will moderate during the forecast period. Despite restructuring in the
automotive industry, recent investments by Ford and Toyota will help sustain
transportation manufacturing growth. The tobacco industry, which produces the
state's leading cash crop, will continue to downsize in response to ongoing
litigation.
LOUISIANA
With 4.4 million residents, Louisiana is the seventh-largest state in the
Union Planters region. The state has experienced strong growth during
8
<PAGE> 11
the past five years. Robust construction activity, driven by the renovation of
the Baton Rouge Metropolitan Airport, road and highway construction, and plant
expansions within the chemical industry fueled growth last year. The state's
apparel industry continues to suffer, as Fruit of the Loom completed a major
layoff within the state last year. Louisiana's economy will slow markedly this
year -- nonfarm payroll gains will average 0.9% annually from 1998 to 2003. Gas
and oil exploration, as well as chemicals manufacturing, will suffer because of
low global oil prices. Yet, the state's shipbuilding industry will benefit from
Avondale Industries procurement of a $1.5 billion contract to build amphibious
ships for the Navy during the next 10 to 14 years. High tech employment will
receive a boost during the next two years as the Navy consolidates its
information and personnel systems in New Orleans.
MISSISSIPPI
With 2.7 million residents, Mississippi is the second least-populous state
in the Union Planters region. The state's economic growth has moderated during
the past few years and will continue to do so, partially as a result of the
maturation of the gaming industry as it begins to cannibalize itself to gain
market share. Job growth averaged 1.3% last year, led by wholesale trade,
construction, services, and the combined transportation, communications, and
utilities sectors. The apparel industry continues to migrate to cheaper labor
markets south of the border. Chemicals' manufacturing was hurt by low commodity
prices. The forecast for Mississippi is weak. Employment gains are expected to
average 0.6% per year from 1998 to 2003, ranking 49th nationally.
MISSOURI
Missouri is the fifth-largest state in the Union Planter's region, with 5.4
million residents. Like most Midwestern states, Missouri experienced slower
economic growth last year. Moderating national growth and global economic
turmoil are to blame for this downturn. Weaker gains in construction, services,
and combined transportation, communications, and utilities limited state job
growth to 2.1% last year. Manufacturing employment has suffered from cuts at
Boeing, as the company responds to softer international markets and reduced
defense budgets. During the next five years, economic activity within the state
will moderate in response to slower national growth. Employment gains will
average 1.0% from 1998 to 2003, compared with the national average of 1.3% per
year. In manufacturing, Ford plans to relocate the production of the Contour
from its Kansas City plant to Mexico; the company announced that it would begin
production of its new sport utility vehicle in Kansas City by 2000. Expansion of
Lambert International Airport, at a cost of $2.7 billion, will boost
construction employment by several thousand during the next five years.
TENNESSEE
Tennessee is home to 5.4 million residents and is the sixth-largest state
in the Union Planters region. The state's economy has experienced solid growth
during the past few years. Nonfarm payrolls advanced by 1.6% last year. The
southerly migration of the automotive industry has benefited the state economy.
On the downside, the apparel, textile, and leather industries continue to be hit
hard by firms migrating to cheaper labor costs in foreign countries. In fact,
Levi Strauss closed two large plants in Knoxville in 1998. The forecast calls
for employment gains to moderate, averaging 1.1% per year from 1998 to 2003. The
state's top-performing sectors will be services, trade, and state and local
government. Increased import competition and industry restructuring will cause
manufacturers to trim payrolls by 1.3% annually during the forecast period.
Manufacturing employment will suffer from consolidation in the automotive
industry. Excess global capacity and weak Asian demand will hurt the state's
chemicals manufacturing sector. Transportation and distribution industries will
benefit as several national and international firms are investing in warehousing
operations within the state. Construction will continue to be an engine for the
state's economy, despite moderating activity.
TEXAS
Texas is the largest state in the Union Planters region, with 19.5 million
residents. The state's economy has experienced stellar performance during the
past five years. While slowing slightly in 1997, employment gains were still
exceptional at 3.3% last year. However, certain sectors of the economy were
vulnerable to international forces. Low oil prices, stemming from global
over-production and weak demand in Asia, have halted exploration activities and
resulted in layoffs. Nevertheless, Texas's economy will outpace that of the
nation over the next five years. Employment gains will average 1.9% annually
through 2003. Cut backs in the federal defense budget, however, will affect
Texas' manufacturing sector. Defense-contractor Raytheon has announced it will
cut nearly 2,000 workers in 1999. Continuing global economic and financial
turmoil is a threat to the state's export-oriented high-tech manufacturing
sector. Slumping chip prices have forced manufacturers, such as Applied
Materials and Texas Instruments, to announce layoffs for this year. On a more
positive note, Texas will benefit from trade spurred on by NAFTA.
9
<PAGE> 12
UNION PLANTERS CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, (1)
-------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net interest income........................ $ 1,207,233 $ 1,199,899 $ 1,114,989 $ 1,010,501 $ 943,608
Provision for losses on loans.............. 204,056 153,100 86,381 50,696 25,007
Investment securities gains (losses)....... (9,074) 4,888 4,934 2,288 (21,398)
Other noninterest income................... 577,833 465,863 399,833 370,972 312,662
Noninterest expense........................ 1,200,014 1,001,701 987,618 861,528 885,425
----------- ----------- ----------- ----------- -----------
Earnings before income taxes............... 371,922 515,849 445,757 471,537 324,440
Applicable income taxes.................... 146,316 176,014 153,055 156,718 103,193
----------- ----------- ----------- ----------- -----------
Net earnings............................... $ 225,606 $ 339,835 $ 292,702 $ 314,819 $ 221,247
=========== =========== =========== =========== ===========
PER COMMON SHARE DATA(2)
Earnings per share
Basic.................................... $ 1.61 $ 2.53 $ 2.28 $ 2.55 $ 1.79
Diluted.................................. 1.58 2.47 2.21 2.47 1.76
Cash dividends............................. 2.00 1.495 1.08 .98 .88
Book value................................. 20.86 20.96 20.13 18.93 15.89
BALANCE SHEET DATA (AT PERIOD END)
Total assets............................... $31,691,953 $29,974,463 $28,108,528 $26,131,594 $24,024,917
Loans, net of unearned income.............. 19,576,826 20,302,969 18,811,441 16,614,031 15,207,934
Allowance for losses on loans.............. 321,476 324,474 270,439 255,103 248,482
Investment securities...................... 8,301,703 6,414,197 6,185,699 6,425,174 6,237,106
Total deposits............................. 24,896,455 22,875,879 21,330,304 20,322,078 19,141,966
Short-term borrowings...................... 1,648,039 1,824,513 1,758,027 1,086,369 999,092
Long-term debt(3)
Parent company........................... 378,249 373,746 373,459 214,758 114,790
Subsidiary banks......................... 1,060,483 1,365,753 1,451,712 1,219,744 964,793
Total shareholders' equity................. 2,984,078 2,874,473 2,557,117 2,312,892 1,910,472
Average assets............................. 30,744,326 29,188,805 27,610,263 24,812,394 23,208,117
Average shareholders' equity............... 2,931,703 2,755,209 2,417,913 2,125,796 1,922,556
Average shares outstanding (in
thousands)(2)
Basic.................................... 139,034 132,451 125,449 119,995 117,898
Diluted.................................. 142,693 138,220 133,452 127,416 124,730
PROFITABILITY AND CAPITAL RATIOS
Return on average assets................... .73% 1.16% 1.06% 1.27% .95%
Return on average common equity............ 7.71 12.45 12.26 15.14 11.69
Net interest income
(taxable-equivalent)/average earning
assets(4)................................ 4.40 4.57 4.48 4.53 4.55
Loans/deposits (period end)................ 78.63 88.75 88.19 81.75 79.45
Common and preferred dividend payout
ratio.................................... 113.67 48.84 40.03 30.46 33.94
Shareholders' equity/total assets (period
end)..................................... 9.42 9.59 9.10 8.85 7.95
Average shareholders' equity/average total
assets................................... 9.54 9.44 8.76 8.57 8.28
Leverage ratio............................. 8.86 9.62 9.40 8.54 8.11
Tier 1 capital/risk-weighted assets........ 13.34 14.32 14.49 13.46 12.90
Total capital/risk-weighted assets......... 16.78 16.39 16.66 15.75 14.64
CREDIT QUALITY RATIOS(5)
Allowance/period end loans................. 1.71 1.71 1.57 1.63 1.72
Nonperforming loans/total loans............ .83 .81 .79 .79 .76
Allowance/nonperforming loans.............. 206 210 199 207 225
Nonperforming assets/loans and foreclosed
properties............................... .97 1.01 1.03 1.03 1.08
Provision/average loans.................... 1.04 .83 .52 .33 .19
Net charge-offs/average loans.............. .95 .63 .47 .31 .21
</TABLE>
- ---------------
(1) Reference is made to "Basis of Presentation" in Note 1 to the Corporation's
consolidated financial statements.
(2) Share and per share amounts have been restated for acquisitions accounted
for as poolings of interests.
(3) Long-term debt includes Medium-Term Bank Notes, Federal Home Loan Bank
(FHLB) advances, Trust Preferred Securities, variable rate asset-backed
certificates, subordinated notes and debentures, obligations under capital
leases, mortgage indebtedness, and notes payable with original maturities
greater than one year.
(4) Average balances and calculations exclude the impact of the net unrealized
gains or losses on available for sale securities.
(5) FHA/VA government-insured/guaranteed loans have been excluded, since they
represent minimal credit risk to the Corporation. See Tables 9 and 10 and
the "Loans" discussion which follow.
10
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following provides a narrative discussion and analysis of the major
trends affecting the results of operations and financial condition of Union
Planters Corporation (the Corporation or Union Planters). This discussion
supplements the Corporation's consolidated financial statements and accompanying
notes which begin on page 37 and should be read in conjunction with the
consolidated financial statements and the related financial tables following
this discussion.
THE COMPANY
Union Planters is a $32 billion, multi-state bank holding company whose
primary business is banking. The Corporation is the largest bank holding company
headquartered in Tennessee and as of December 31, 1998 was the 29th largest bank
holding company headquartered in the United States. Union Planters Bank,
National Association (Union Planters Bank or UPB), headquartered in Memphis,
Tennessee, is the Corporation's largest subsidiary with $27 billion in total
assets. The principal banking markets of the Corporation are in Alabama,
Arkansas, Florida, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi,
Missouri, Tennessee, and Texas. The Corporation as of March 5, 1999 had 885
banking offices and 1,106 ATMs to serve its twelve-state market. A wholly-owned
subsidiary, Capital Factors, Inc. (Capital Factors), provides receivable-based
commercial financing and related fee-based credit, collection, and management
information services. Capital Factors has four regional offices located in New
York, New York; Los Angeles, California; Charlotte, North Carolina; and its
headquarters in South Florida (Boca Raton, Florida) and an asset-based lending
office in Atlanta, Georgia. The mortgage operations of UPB operate 16 standalone
mortgage production offices in California, Florida, Georgia, Louisiana,
Mississippi, Tennessee, and Texas in addition to mortgage production offices
located in branch banking locations of UPB.
Union Planters is managed along traditional banking and non-traditional
banking lines. The Corporation's only reportable business segment is its banking
operation, which accounted for 84% and 83%, respectively, of the Corporation's
revenues and 90% and 94%, respectively, of earnings before merger-related and
other significant items for the years ended December 31, 1998 and 1997. This
segment consists of traditional deposit taking and lending functions, including
commercial and trade-finance activities. These functions are organized and
managed along geographic lines.
In addition to the banking operations, management manages non-traditional
banking lines on a separate basis, although none of these operations qualify as
separate business segments due to their relative size. The operations that are
managed separately include the following:
- Mortgage -- origination and mortgage servicing for other investors
- SBA Trading -- purchasing, packaging, and securitizing the
government-guaranteed portions of Small Business Administration (SBA)
loans
- Trust -- investment management and personal trust services, including
stock transfer and dividend disbursement services
- Financial Services -- full-service and discount brokerage services and
the sale of bank-eligible insurance products and investment products,
including annuities and mutual funds
- Capital Factors -- a subsidiary providing receivable-based commercial
financing and related fee-based credit, collections, and management
information services
- FHA/VA Loans -- the purchase of delinquent FHA/VA government-insured/
guaranteed loans from GNMA pools and third parties; securitization and
sale of these loans
- Bank Cards -- credit card portfolio which was sold in 1998 (see
"Noninterest Income" for a discussion of the sale and the resulting gain)
- Parent Company -- funding source for acquisition activities
Reference is made to Note 18 to the consolidated financial statements for
additional information regarding the Corporation's operating segments. The
following table summarizes pretax earnings for banking operations, the other
operating units as a group, the parent company and merger-related expenses and
other significant items for the past two years. Comparable information for 1996
is not available due to the number of acquisitions and internal reorganizations
of the operating units.
<TABLE>
<CAPTION>
EARNINGS (LOSS)
BEFORE TAXES
----------------------
1998 1997
------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Banking operations............ $437 $529
Other operating units......... 50 44
Parent company (1)............ -- (9)
Merger-related and other
significant items........... (115) (48)
---- ----
Consolidated pretax
earnings.................... $372 $516
==== ====
</TABLE>
- ---------------
(1) Net of the elimination of intercompany earnings and dividends.
11
<PAGE> 14
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," 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, 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 Union Planters believes that the expectations
reflected in the forward-looking statements are reasonable, actual results could
differ materially.
EARNINGS ANALYSIS
Union Planters Corporation reported net earnings of $225.6 million, or
$1.58 per diluted share, in 1998 compared to $339.8 million, or $2.47 per
diluted share, in 1997, and $292.7 million, or $2.21 per diluted share in 1996.
Included in net earnings were merger-related and other significant items which
reduced earnings. Table 1 presents a summary of these items for the last five
years. The net after-tax impact of these items was $99.0 million, or $.69 per
diluted share, in 1998, compared to $32.2 million, or $.23, in 1997, and $71.6
million, or $.54 per diluted share in 1996.
Earnings before merger-related charges, other significant items, and
goodwill and other intangibles amortization, net of taxes were $351.9 million,
or $2.47 per diluted share, in 1998 compared to $392.5 million, or $2.85 per
diluted share, in 1997 and $381.2 million, or $2.87 per diluted share, in 1996.
Earnings in 1998 were lower than the previous year primarily due to higher
provisions for losses on loans. Reference is made to "Earnings Analysis"
discussion and Table 1 for additional information regarding the items impacting
earnings.
ACQUISITIONS
The Corporation completed 18 acquisitions in 1998 as shown in the table on
page 14. The acquisitions expanded Union Planters' presence into new markets in
Illinois, Indiana, Iowa, and Texas. At the same time, other acquisitions were
made to enhance the Corporation's market share in existing markets. The map on
the inside front cover of this report highlights the markets currently served by
Union Planters. Table 3 and Note 2 to the consolidated financial statements
present additional information regarding acquisitions.
STRATEGY. Management's philosophy has been to provide additional
diversification of the revenue sources and earnings of the Corporation through
the acquisition of well-managed financial institutions. This strategy generally
targets in-market institutions, institutions in contiguous markets, and
institutions having significant local market share. Acquisitions are sought that
provide the opportunity to enhance the Corporation's product lines and provide
the opportunity for new products and services. This strategy is also designed to
enhance the Corporation's branch network, to lower overall distribution costs,
and to leverage existing banking and operational capabilities.
OPERATING PHILOSOPHY. Prior to 1997, it was Union Planters' policy to
acquire institutions and operate them as separate banks. Acquiring banks and
allowing them to retain their name and continuing to operate on a decentralized
basis was believed to provide customers the best service. This philosophy was
reevaluated in 1997 due to competitive changes occurring in the banking
industry. A decision was made to merge existing banking subsidiaries and newly
acquired institutions into the Corporation's lead bank, Union Planters Bank.
Management continues to believe it is imperative that customer decisions
should be made locally as was the past practice. Local management's primary
focus is serving its customers and broad discretion is given in achieving this
end. Operational functions including accounting, deposit services, item
processing, mortgage servicing, and credit administration are provided on a
centralized or regional basis.
12
<PAGE> 15
The centralization of operational functions related to management's new
philosophy started at the end of 1997 and is continuing. The level of
acquisition activity in 1998 slowed this process and created new opportunities
related to integrating the newly acquired institutions into Union Planters'
systems. The centralization and integration of acquired entities is now expected
to continue throughout 1999. Management expects significant cost savings to
result from the centralization of operational functions.
Original cost savings estimates from consolidation of banking subsidiaries
under one bank charter were estimated to be approximately $15 million to $20
million, on a pretax basis, with unquantified revenue enhancements expected.
Additionally, cost savings related to the 1998 acquisitions were originally
estimated in the range of 25% to 30% of the acquired institutions expenses
(approximately $100 million). Overall savings are expected to be proportionally
larger today because of the Corporation's 1998 acquisitions, although the exact
savings cannot be quantified at this time. While it is difficult to
differentiate between charter consolidation and merger cost savings from the new
acquisitions, management estimates that 40% to 50% of the total savings have
been achieved.
Management is currently evaluating the organization taking into account the
changes that occurred in 1998 and future plans. While the savings are expected,
the number of acquisitions in 1998, efforts related to Year 2000, efforts to
standardize products, and other operational changes have delayed the cost
savings. The total anticipated savings are not expected to be totally realized
until the end of 1999 or early 2000.
MERGER-RELATED COSTS. Historically, as the Corporation acquires entities,
merger-related and other charges have been incurred (see Table 1). Typically,
these charges include the following:
- salaries, employee benefits, and other employment-related charges for
employment contract payments, change in control agreements, early
retirement and involuntary separation and related benefits,
postretirement expenses, and assumed pension termination expenses of
acquired entities
- write-downs of office buildings and equipment to be sold, lease buyouts,
assets determined to be obsolete or no longer of use, and equipment not
compatible with the Corporation's equipment
- professional fees for legal, accounting, consulting, and financial
advisory services
- expenses such as asset write-offs, cancellation of vendor contracts, and
other costs which normally arise from consolidation of operational
activities
These charges totaled $165.3 million (net of a $829,000 gain on disposal of
assets), $48.1 million, and $52.8 million in 1998, 1997, and 1996, respectively.
The level of the charges is directly related to the size of the institution
being acquired. In 1999, these charges are not anticipated to be as significant,
unless a number of other acquisitions are announced. The pending, and now
completed, acquisitions as of December 31, 1998 and the recently announced
acquisition of Republic Banking Corporation in Miami, Florida, which will be
accounted for using the purchase method of accounting, are not expected to
generate merger-related charges that will significantly impact earnings.
Additional acquisition activity during 1999 is expected to be limited.
Acquisitions will only be made if the entities are Year 2000 compliant, since it
is unlikely that they could be acquired and converted to Union Planters' systems
by year end 1999.
In 1997 the Corporation incurred charges totaling approximately $16.7
million related to the decision to combine substantially all of its subsidiary
banks under one charter. In 1998 similar charges totaling approximately $17.0
million were incurred. These charges included the following:
- employee severance payments
- write-offs of data processing equipment
- costs related to combining operations, like FHLB prepayment penalties
- costs related to implementing new technology, such as imaging
- other costs related to integrating the operations of the combined
organization
In this process, technology is being upgraded and products are being
standardized. Management does not expect significant charges of this type in
1999, although operating expenses are expected to be higher than normal as the
integration process continues throughout 1999. The impact of the higher
operating costs related to the integration cannot be quantified.
RESTATEMENT OF FINANCIAL DATA. Financial data for all prior years have
been restated to reflect the acquisitions accounted for as poolings of
interests. Purchase acquisitions have been included from their respective dates
of acquisition. Reference is made to Note 2 to the consolidated financial
statements for additional information regarding the acquisitions the Corporation
has completed over the last three years.
RECENTLY COMPLETED AND PENDING ACQUISITIONS. On February 22, 1999, the
Corporation announced an agreement to acquire Republic Banking Corporation in
Miami, Florida (Republic). Additionally, three other acquisitions pending at
December 31, 1998 have been subsequently completed. The three recently completed
acquisitions consist of the purchase of 56 branches,
13
<PAGE> 16
purchase of approximately $830 million of loans, and assumption of approximately
$1.8 billion of deposits in Indiana (Indiana Branch Purchase); the acquisition
of First Mutual Bancorp, Inc. (First Mutual); and the acquisition of First &
Farmers Bancshares, Inc. (First & Farmers). Reference is made to Note 2 to the
Corporation's consolidated financial statements for additional information
regarding acquisitions completed subsequent to December 31, 1998 and the pending
acquisition of Republic. The following table provides a pro forma summary at
December 31, 1998 of the Corporation's recently completed and pending
acquisitions based on currently available information. Since these acquisitions
are being accounted for as purchases, the pro forma information will change due
to ongoing operations between December 31, 1998 and the date of acquisition and
purchase accounting adjustments at the date of acquisition.
<TABLE>
<CAPTION>
INDIANA REPUBLIC PRO
UNION BRANCH FIRST & FIRST BANKING FORMA
PLANTERS PURCHASE FARMERS MUTUAL CORP. TOTAL
-------- -------- ------- ------ -------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Loans....................................... $19,577 $ 830 $183 $290 $1,031 $21,911
Goodwill and other intangibles.............. 387 300(a) 50(a) 23(a) 250(a) 1,010
Total assets................................ 31,692 1,810 296(b) 318(b) 1,405(b) 35,521
Deposits.................................... 24,896 1,810 274 312 1,285 28,577
Purchase price.............................. NA 300 76 56 412 NA
Equity to assets............................ 9.42% -- -- -- -- 8.40%
Leverage ratio.............................. 8.86 -- -- -- -- 6.10
</TABLE>
- ---------------
NA -- Not applicable
(a) Estimated goodwill and other intangibles created by these acquisitions which
will be accounted for using the purchase method of accounting.
(b) Net of cash paid or cash used for repurchase of shares.
ACQUISITIONS COMPLETED SINCE JANUARY 1, 1996
<TABLE>
<CAPTION>
ACCOUNTING
INSTITUTION ACQUIRED DATE STATE ASSETS CONSIDERATION METHOD
- --------------------------------------- ----- ------------ ---------- --------------------------------------- ----------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
First Bancshares of Eastern Arkansas,
Inc. 1/96 Arkansas $ 64 $ 10.9 million in cash Purchase
First Bancshares of N. E. Arkansas,
Inc. 1/96 Arkansas 65 $ 9.2 million in cash Purchase
Leader Financial Corporation 10/96 Tennessee 3,411 15.3 million shares of common stock Pooling
Franklin Financial Group, Inc. 10/96 Tennessee 137 .7 million shares of common stock Pooling
Valley Federal Savings Bank 10/96 Alabama 122 .4 million shares of common stock Pooling
BancAlabama, Inc. 10/96 Alabama 98 .4 million shares of common stock Pooling
Financial Bancshares, Inc. 12/96 Missouri 326 1.2 million shares of common stock Pooling
PFIC Corporation 2/97 Tennessee 4 .1 million shares of common stock Purchase
SBT Bancshares, Inc. 10/97 Tennessee 99 .6 million shares of common stock Pooling
Citizens of Hardeman County Financial
Services, Inc. 10/97 Tennessee 62 .2 million shares of common stock Pooling
Magna Bancorp, Inc. 11/97 Mississippi 1,191 7.1 million shares of common stock Pooling
First Acadian Bancshares, Inc. 12/97 Louisiana 81 .3 million shares of common stock Pooling
Capital Bancorp 12/97 Florida 2,156 6.5 million shares of common stock Pooling
Sho-Me Financial Corp. 1/98 Missouri 374 1.2 million shares of common stock Purchase
Security Bancshares, Inc. 4/98 Arkansas 146 .5 million shares of common stock Pooling
Peoples First Corporation 7/98 Kentucky 1,427 6.0 million shares of common stock Pooling
Magna Group, Inc. 7/98 Missouri 7,683 33.4 million shares of common stock Pooling
Capital Savings Bancorp, Inc. 7/98 Missouri 207 .7 million shares of common stock Pooling
C B & T, Inc. 7/98 Tennessee 278 1.4 million shares of common stock Pooling
Merchants Bancshares, Inc. 7/98 Texas 565 2.0 million shares of common stock Pooling
First National Bancshares of Wetumpka,
Inc. 7/98 Alabama 202 .8 million shares of common stock Pooling
Alvin Bancshares, Inc. 8/98 Texas 117 .4 million shares of common stock Pooling
Duck Hill Bank 8/98 Mississippi 21 -- million shares of common stock Purchase
First Community Bancshares, Inc. 8/98 Tennessee 39 .1 million shares of common stock Pooling
Transflorida Bank 8/98 Florida 334 1.7 million shares of common stock Pooling
AMBANC Corp. 8/98 Indiana 740 3.4 million shares of common stock Pooling
Florida Branch Purchase 9/98 Florida 1,389 $110.0 million in cash Purchase
Ready State Bank 12/98 Florida 622 3.2 million shares of common stock Pooling
Southeast Bancorp, Inc. 12/98 Tennessee 324 1.2 million shares of common stock Pooling
and Kentucky
FSB, Inc. 12/98 Tennessee 145 .9 million shares of common stock Pooling
LaPlace Bancshares, Inc. 12/98 Louisiana 64 .4 million shares of common stock Pooling
First Mutual Bancorp, Inc. 1/99 Illinois 403 1.4 million shares of common stock Purchase
First & Farmers Bancshares, Inc. 2/99 Kentucky 410 $ 76.0 million in cash Purchase
Indiana Branch Purchase 3/99 Indiana 1,810 $300.0 million in cash Purchase
-------
Total assets of completed
acquisitions $25,116
=======
</TABLE>
14
<PAGE> 17
EARNINGS ANALYSIS
NET INTEREST INCOME
Net interest income is comprised of interest income and loan-related fees
less interest expense. Net interest income is affected by a number of factors
including the level, pricing, mix, and maturity of earning assets and
interest-bearing liabilities; interest rate fluctuations; and asset quality. For
purposes of this discussion, net interest income is presented on a fully-taxable
equivalent basis (FTE), which adjusts tax-exempt income to an amount that would
yield the same after-tax income had the income been subject to taxation at the
federal statutory income tax rate (currently 35% for the Corporation). Reference
is made to Tables 4 and 5 that present the Corporation's average balance sheet
and volume/ rate analysis for each of the three years in the period ended
December 31, 1998.
Net interest income (FTE) in 1998 was $1.24 billion, an increase of 1.3%
from $1.23 billion reported in 1997. In 1997, net interest income grew 7.4% from
$1.14 billion in 1996. The net interest margin (net interest income (FTE) as a
percentage of average earning assets) was 4.40% in 1998 compared to 4.57% in
1997 and 4.48% in 1996. The interest-rate spread between earning assets and
interest-bearing liabilities was 3.60%, a decrease of 19 basis points from the
1997 spread of 3.79% and compared to 3.71% in 1996.
Interest income (FTE) increased 2.5% in 1998 due primarily to the $1.4
billion growth in average earning assets, which accounted for $106.6 million
growth in interest income. Partially offsetting this increase was a decrease in
the average yield on earning assets of 22 basis points, or approximately $48.2
million.
The earning asset growth is attributable to a 15.0% increase in investment
securities and a 2.5% growth in average loans during 1998. The increase in
investment securities is attributable to the investment of funds received in
exchange for the assumption of deposit liabilities in the September 1998 Florida
Branch Purchase. Offsetting the loan growth was the sale of the credit card
portfolio at the beginning of the fourth quarter of 1998 (approximately $440
million of loans) and the securitization and sale of approximately $380 million
of FHA/VA loans in the second quarter of 1998. The decrease in the yield on
average earning assets is attributable to the lower interest rate environment in
1998.
Interest expense increased $42.6 million in 1998 to $1.11 billion. The
increase is attributable to the $1.1 billion increase in average interest-
bearing liabilities, primarily interest-bearing deposit liabilities assumed in
the Florida Branch Purchase, which accounted for $50.0 million of the increase.
Average long-term debt outstanding also increased due to the issuance of $300
million of 6.5% Putable/Callable Subordinated Notes in March 1998. Offsetting
these increases was a three basis point decrease in the average rate paid on
interest-bearing liabilities, which was approximately $7.4 million.
The increase in net interest income between 1997 and 1996 is attributable
to growth of average earning assets of $1.3 billion, primarily loans, which
accounted for $140.2 million of the increase in interest income. Partially
offsetting this increase was an increase in average interest-bearing liabilities
of $996.3 million, which accounted for $54.9 million of the increase in interest
expense. The impact of changes in yields on earning assets and rates paid for
interest-bearing liabilities was minimal.
Union Planters' net interest margin has declined steadily over the last two
years. This decline is attributable to the high level of prepayments on
mortgage-backed investment securities and single family mortgage loans,
approximately 39% of earning assets at December 31, 1998. During this period of
time, lower mortgage rates have resulted in heavy refinancing activity by
borrowers. This has forced the Corporation to reinvest funds in lower yielding
assets. Also impacting net interest income is the fact that the Corporation's
primary funding source is its deposits. The rates paid on deposits have not
decreased as fast as yields on earning assets. Management believes this downward
trend will likely continue in 1999. Management is constantly evaluating ways to
increase net interest income.
The effects of changing interest rates on corporate performance are more
fully discussed in the "Market Risk and Asset/Liability Management" discussion
beginning on page 22.
A summary of the components of average earning assets and interest-bearing
liabilities is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
AVERAGE EARNING ASSETS (IN BILLIONS)........................ $28.3 $26.9 $25.6
Comprised of:
Loans..................................................... 72% 74% 70%
Investment securities..................................... 25 23 27
Other earning assets...................................... 3 3 3
Yield earned on average earning assets...................... 8.31 8.53 8.43
AVERAGE INTEREST-BEARING LIABILITIES (IN BILLIONS).......... $23.5 $22.4 $21.4
Comprised of:
Deposits.................................................. 85% 84% 84%
Short-term borrowings..................................... 6 8 9
FHLB advances, short- and medium-term bank notes and other
long-term debt.......................................... 9 8 7
Rate paid on average interest-bearing liabilities........... 4.71 4.74 4.72
</TABLE>
15
<PAGE> 18
PROVISION FOR LOSSES ON LOANS
The provision for losses on loans (the provision) in 1998 was $204.1
million, or 1.04% of average loans, excluding FHA/VA
government-insured/guaranteed loans (FHA/VA loans). The provision in 1998 was
$51.0 million higher than the 1997 provision of $153.1 million, or .83% of
average loans, excluding FHA/VA loans. In 1996 the provision was $86.4 million,
or .52% of average loans, excluding FHA/VA loans.
The increase in the provision in 1998 is attributable primarily to banks
acquired in 1998 and the December 31, 1997 acquisitions. Upon acquisition,
management immediately implements a more aggressive policy of dealing with
problem credits. This involves setting goals for reducing the overall level of
problem credits. Loans are charged down to estimated realizable values allowing
for quicker disposal of the underlying assets pledged as collateral. This policy
resulted in higher provisions and higher levels of specific credit charge-offs
in 1998. Banks in this group accounted for approximately 57% of the 1998
provision and approximately 53% of the net charge-offs in 1998. Also impacting
the provision were provisions and charge-offs related to two asset-based credits
in Capital Factors' operations which deteriorated in the fourth quarter of 1998.
The provision and charge-offs related to these loans were $20 million and $13
million, respectively. One of the loans in the amount of $11.9 million is
considered an impaired loan and has a specific valuation reserve of $7.0
million.
The credit card portfolio, prior to its recent sale, accounted for a large
percentage of the provision and net charge-offs. In 1998, credit card provisions
and net charge-offs were approximately 16% and 25%, respectively, of the total
provision and charge-offs. This compares to 39% for both in 1997 and 47% and
37%, respectively, in 1996.
Management expects the provision to be lower in 1999, excluding the impact
of pending acquisitions, and increases are expected only in proportion to the
level of loan growth. Provisions in the range of 35 to 45 basis points on
average loans are anticipated for the existing portfolio.
NONINTEREST INCOME
Noninterest income increased 20.8% in 1998 to $568.8 million compared to
$470.8 million in 1997 and $404.8 million in 1996. The major components of
noninterest income are presented on the face of the statement of earnings and in
Note 13 to the consolidated financial statements. Table 1, which follows this
discussion, presents a five year trend of the major components, including
certain significant items that impact the five-year trend.
The previously mentioned sale of the credit card portfolio resulted in a
gross gain of $72.7 million. The remaining portion of the sale is scheduled to
settle in the first quarter of 1999 but the resulting gain will not be
significant. Other asset sales included the sale of an investment by one of the
acquired institutions totaling $5.4 million. The Corporation also recognized
gains on the sale of branches/deposits and other selected assets totaling $4.1
million in 1998 compared to $16.3 million in 1997 and $7.5 million in 1996. In
1997, the Corporation sold several upper east Tennessee branches and deposits
acquired in the acquisition of Leader Financial Corporation.
Investment securities losses totaled $9.1 million in 1998 compared to
investment securities gains of $4.9 million in both 1997 and 1996. The net loss
in 1998 was attributable to the premium write-down of certain high-coupon
mortgage-backed securities of an acquired entity resulting from the acceleration
of prepayments of the underlying loans. The loss was $22.8 million and was
partially offset by a $6.0 million gain in the fourth quarter of 1998 resulting
primarily from a gain recognized in connection with the contribution of certain
appreciated equity securities to a charitable foundation established by Union
Planters. The Corporation recognized $7.6 million of expense resulting from the
contribution (see the "Noninterest Expense" discussion below).
During the second quarter of 1998, the Corporation recognized a gain of
$19.6 million from the securitization and sale of approximately $380 million of
FHA/VA loans. The transaction involved the sale of previously past due FHA and
VA guaranteed loans serviced by UPB. Additional gains from securitizations and
sales are expected in 1999. A similar securitization and sale of approximately
$133 million of FHA/VA loans was completed in February 1999 resulting in a
pretax gain of approximately $5.4 million. Gains on the sale of originated
residential mortgages decreased $4.6 million in 1998 to $10.8 million compared
to $15.4 million in 1997 and $6.8 million in 1996. In 1997, the Corporation
securitized and sold approximately $300 million of fixed- and adjustable-rate
mortgage securities which was the primary reason for the increase in 1997 and a
similar sale did not occur in 1998.
Mortgage servicing income increased 2.6% in 1998 to $60.5 million compared
to $59.0 million and $64.7 million in 1997 and 1996, respectively. The increase
is due to the acquisition of additional servicing which was offset by the high
level of refinancing activity in 1998 due to the low interest rate environment.
Increasing in 1998 were mortgage origination fees, which increased $6.8 million
in 1998, primarily related to increased loan originations due in part to the low
interest rate environment in 1998 and the large number of refinancings.
Brokerage fee income (fees received from discount brokerage and
full-service brokerage transactions) increased $8.9 million in 1998 to $19.0
million compared to $10.1 million and $6.0 million in 1997 and 1996,
respectively. The fees are based on transaction volumes and fluctuate year to
year.
Management is continuing its emphasis on fee income as a means of
increasing profitability. Areas receiving emphasis are the sale of bank-
eligible insurance products (annuities, homeowners and automobile insurance, and
life insurance), mutual funds, mortgage servicing income, mortgage origination,
and trust services. The sale of the credit card portfolio will decrease bank
card
16
<PAGE> 19
income in 1999 but the net impact of the sale is expected to be positive to net
earnings. Most of the bank card income relates to the Corporation's merchant
business which was not sold.
NONINTEREST EXPENSE
Noninterest expense increased 19.8% in 1998 to $1.2 billion compared to
$1.0 billion and $987.6 million in 1997 and 1996, respectively. The components
of noninterest expense are presented on the face of the statement of earnings
and in Note 13 to the consolidated financial statements. Table 1, which follows
this discussion, presents a five year trend on the major components of
noninterest expense, including certain significant items impacting the five-year
trend, including merger-related charges.
The major items increasing noninterest expense over the last three years
are merger-related expenses and expenses related to consolidation of the
Corporation's separate banking subsidiaries and ongoing integration of
operations. These expenses totaled $183.1 million, $64.9 million, and $52.8
million in 1998, 1997, and 1996, respectively, the nature of which is discussed
in the "Acquisitions" discussion above.
Salaries and employee benefits, which represent the largest category of
noninterest expense, were $479.8 million in 1998, an increase of $39.3 million
from 1997. Salaries and employee benefits were $413.6 million in 1996. At
December 31, 1998, the Corporation had 12,330 full-time equivalent employees
compared to 12,304 and 11,926, respectively, at December 31, 1997 and 1996. The
increase in salaries and employee benefits expense is attributable to merit
salary increases, incentive compensation, and increases in salaries and employee
benefits expense related to acquisitions accounted for as purchase transactions.
Additionally, employee benefit expenses increased $11.1 million related to
changes in certain benefit plans.
Net occupancy and equipment expense increased $11.2 million in 1998 to
$148.7 million compared to $137.5 million in 1997 and $135.9 million in 1996.
The increase relates primarily to the expansion of the Corporation's operations
and technology upgrades, including upgrades related to the Year 2000, within the
organization. See the "Year 2000" discussion.
Other noninterest expense increased $29.6 million in 1998 over 1997 due
primarily to the following items:
- $7.9 million increase in goodwill and other intangibles amortization
related to purchase acquisitions
- $7.0 million increase in contributions expense related primarily to the
establishment of a charitable trust
- $4.5 million increase in amortization of mortgage servicing rights
- $3.2 million related to the loss on the sale of indirect loans of an
acquired institution
In addition to the items discussed above, a significant amount of
management time is being spent on the continuing consolidations of bank "back
office" functions, integration of recently completed acquisitions, and
compliance issues related to the Year 2000. In some cases, expenses are
duplicated while the conversions or integration is in progress. While this is
difficult to quantify, management believes that once these projects are
completed, savings in noninterest expense will be realized.
The increase in noninterest expense in 1997 is related to the
merger-related and charter consolidation charges, salaries and employee benefits
expense, and occupancy and equipment expenses discussed above. Excluding these
three categories, noninterest expense decreased $26.5 million between 1996 and
1997. In 1996, noninterest expense included a one-time special FDIC insurance
assessment of $30.0 million, write-off of intangibles of $19.6 million and an
additional provision for losses on FHA/VA foreclosure claims of an acquired
entity of $19.8 million. Also, FDIC insurance assessments decreased $7.5
million. These decreases were partially offset by increases in expenses related
primarily to the growth of the Corporation.
TAXES
Applicable income taxes consist of provisions for federal and state income
taxes totaling $146.3 million in 1998, or an effective rate of 39.3%. This
compares to applicable income taxes of $176.0 million in 1997 and $153.1 million
in 1996. These amounts represent effective tax rates of 34.1% and 34.3%,
respectively, in 1997 and 1996. The variances from federal statutory rates (35%
for all three years) are attributable to the level of tax-exempt income from
investment securities and loans, nondeductible merger-related expenses, and the
effect of state income taxes. The increase in the effective tax rate in 1998 is
attributable to a high level of non-deductible merger-related and other
expenses. For additional information regarding the Corporation's effective tax
rates for all periods, see Note 15 to the consolidated financial statements.
Realization of a portion of the $160.6 million net deferred tax asset,
which is included in other assets, is dependent upon the generation of future
taxable income sufficient to offset future deductions. Management believes that,
based upon historical earnings and anticipated future earnings, normal
operations will continue to generate sufficient future taxable income to realize
in full these deferred tax benefits. Therefore, no extraordinary strategies are
deemed necessary by management to generate sufficient taxable income for
purposes of realizing the net deferred tax asset.
17
<PAGE> 20
FINANCIAL CONDITION ANALYSIS
At December 31, 1998, the Corporation reported total assets of $31.7
billion compared to $30.0 billion for December 31, 1997. The amounts for
December 31, 1997 have been restated for acquisitions accounted for as poolings
of interests. Total assets increased $13.6 billion from the originally reported
total assets at December 31, 1997 due primarily to the 18 acquisitions completed
in 1998. Average total assets for 1998 were $30.7 billion compared to $29.2
billion for 1997.
EARNING ASSETS
Earning assets are composed of loans, investment securities, trading
account assets, federal funds sold, securities purchased under resale
agreements, and interest-bearing deposits at financial institutions. These
assets are the primary revenue streams for the Corporation. At December 31,
1998, earning assets totaled $28.7 billion compared to $27.4 billion at year end
1997. Average earning assets were $28.3 billion in 1998 compared to $26.9
billion in 1997. The increase in average earning assets is attributable to loan
growth and to purchase acquisitions, primarily the Florida Branch Purchase.
INVESTMENT SECURITIES
As part of its securities portfolio management strategy, the Corporation
classifies all of its investment securities as available for sale securities,
which are carried on the balance sheet at fair value. This strategy gives
management flexibility to actively manage the investment portfolio as market
conditions and funding requirements change.
The investment securities portfolio was $8.3 billion at December 31, 1998
compared to $6.4 billion at December 31, 1997. Average investment securities
were $7.2 billion and $6.3 billion, respectively, for these periods. The
investment portfolio had a net unrealized gain of $93.1 million at year end 1998
compared to a net unrealized gain of $85.4 million at year end 1997.
The increase in investment securities in 1998 resulted primarily from the
investment of funds received in exchange for assuming $1.4 billion of deposit
liabilities in the Florida Branch Purchase. Note 4 to the consolidated financial
statements presents the composition of the portfolio at December 31, 1998 and
1997, along with a breakdown of the maturities and weighted average yields of
the portfolio at December 31, 1998.
U.S. Treasury and U.S. Government agency obligations represented 63.1% of
the investment securities portfolio at December 31, 1998, 63.7% of which are
Collateralized Mortgage Obligation (CMO) and mortgage-backed security issues.
The Corporation has some credit and market risk in the investment securities
portfolio; however, management does not consider that risk to be significant and
does not believe that cash flows will be significantly impacted. 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 December
31, 1998 consisted of 16.2% municipal obligations, 2.4% other stocks and
securities (primarily equity securities and Federal Reserve Bank and Federal
Home Loan Bank Stock), and 18.3% investment grade CMOs.
At December 31, 1998, the Corporation had approximately $45.3 million of
"structured notes" which constituted approximately .5% of its investment
securities portfolio. Structured notes have uncertain cash flows which are
driven by interest-rate movements and may expose a company to greater market
risk than traditional medium-term notes. All of the Corporation's investments of
this type are government agency issues (primarily Federal Home Loan Banks and
Federal National Mortgage Association).
LOANS
Loans are the largest group of earning assets of the Corporation and
represented approximately 70% of earning assets at December 31, 1998. Loans at
December 31, 1998 totaled $19.6 billion compared to $20.3 billion at year end
1997. Average loans were $20.5 billion in 1998, an increase of 2.5% over 1997.
During the fourth quarter of 1998, the Corporation sold substantially all of its
credit card portfolio, approximately $440 million of loans. The Corporation also
securitized and sold approximately $380 million of previously defaulted FHA and
VA loans in the second quarter of 1998. Table 7 presents a five-year summary of
the composition of the loan portfolio.
The various categories of loans are subject to varying levels of risk.
Management mitigates this risk through portfolio diversification and geographic
diversification. The Corporation's loan portfolio is spread over the twelve
states in which it has banking locations. The Corporation has a limited amount
of foreign exposure, approximately 1% of the loan portfolio. The foreign loans
are primarily U.S. dollar trade finance loans to correspondent banks in Central
and South America and there are no significant loans to foreign governments. The
largest concentration of loans is in single family residential loans, comprising
33% of the loan portfolio, which historically has had low loan loss experience.
The Corporation does not have any loans to hedge funds.
SINGLE FAMILY RESIDENTIAL LOANS. Single family residential loans totaled
$5.6 billion at December 31, 1998 compared to $5.7 billion at December 31, 1997.
The lack of growth in this sector of the portfolio reflects the high level of
prepayments from refinancing activity in the low interest rate environment
present in 1998. The overall decline was partially offset by single family loans
from acquisitions accounted for as purchases that totaled approximately $225
million during 1998.
18
<PAGE> 21
COMMERCIAL LOANS. Commercial, financial, and agricultural loans, including
foreign loans and direct lease financing, totaled $3.8 billion, or 19% of the
portfolio, at December 31, 1998 which compares to $3.7 billion at December 31,
1997. The modest growth in this segment of the portfolio reflects favorable
economic conditions in the markets served by the Corporation.
OTHER MORTGAGE LOANS. This segment of the portfolio totaled $4.4 billion,
or 22% of the portfolio at December 31, 1998. This compares to $4.2 billion at
December 31, 1997. At December 31, 1998 loans for nonfarm nonresidential
properties (commercial real estate) were $3.5 billion, or 80% of this category.
Loans secured by multifamily residential properties and loans secured by
farmland comprised 12% and 8%, respectively, of this portion of the portfolio.
REAL ESTATE CONSTRUCTION LOANS. These loans totaled $1.2 billion at
December 31, 1998 which compares to $1.1 billion at December 31, 1997. At year
end approximately 40% are single family construction loans, approximately 40%
commercial construction loans, and approximately 20% are land development loans.
FHA/VA GOVERNMENT-INSURED/GUARANTEED LOANS (FHA/VA LOANS). The FHA/VA
loans declined $572 million in 1998 to $760 million at December 31, 1998. The
decrease relates partially to the securitization and sale of approximately $380
million of previously defaulted FHA/VA loans in the second quarter of 1998, for
a gain of approximately $19.6 million. Management continues to purchase these
loans out of its servicing portfolio. The number of past due loans at above
current market rates in the servicing portfolio has significantly declined which
has reduced the opportunities to increase interest income from the purchase of
these loans. Additional securitizations and sales are expected in 1999.
As a loan servicer, the Corporation is obligated to pass through to the
holders of a GNMA mortgage-backed security, the coupon rate, whether or not the
interest due on the underlying loans has been collected from the borrower. When
an FHA/VA government-insured/guaranteed single-family loan which carries an
above-market rate of interest has been in default for more than 90 days, it is
the Corporation's policy to buy the delinquent FHA/VA loan out of the GNMA pools
serviced by the Corporation. This action eliminates the Corporation's obligation
to pay the coupon rate. The Corporation thereby earns the net interest-rate
differential between the coupon rate which it would otherwise be obligated to
pay to the GNMA holder and the Corporation's lower cost of funds. Furthermore,
management has purchased in prior years additional delinquent FHA/VA
government-insured/guaranteed loans from other GNMA servicers to leverage the
operating costs of this operation.
Since all of these loans are FHA/VA government-insured/guaranteed loans,
the Corporation's investment is expected to be recoverable through claims made
against the FHA or the VA. Management believes the credit risk and the risk of
principal loss is minimal. For this reason, management has excluded these loans
from the credit quality data and resulting ratios. Any losses incurred would not
be significantly greater or less than if the Corporation had continued solely as
servicer of the FHA/VA loans. The risk involving these loans arises from not
complying timely with FHA/VA's foreclosure process and certain non-reimbursable
foreclosure costs.
The Corporation, by purchasing the delinquent FHA/VA loans, also assumes
the interest-rate risk associated with funding a loan if timely foreclosure
should not occur. Risk also exists, under certain circumstances, that claims
might be rejected by FHA or VA or otherwise not be able to be collected in full.
FHA/VA claims receivables totaled $126.2 million at December 31, 1998 compared
to $134.1 million at December 31, 1997.
Provisions for losses related to the claims are provided through
noninterest expense as provisions for losses on FHA/VA foreclosure claims (see
the "Noninterest Expense" discussion) and the corresponding liability is carried
in other liabilities. Provisions for losses on FHA/VA foreclosure claims totaled
$4.7 million, $8.0 million, and $25.5 million, respectively, in 1998, 1997, and
1996. At December 31, 1998, the Corporation had a reserve for FHA/VA claims
losses of $27.5 million as compared to $33.3 million at December 31, 1997.
CONSUMER LOANS. This segment of the loan portfolio totaled $2.7 billion at
December 31, 1998, or 14% of the portfolio. Consumer loans to individuals
totaled $2.6 billion at year end compared to $2.7 billion at year end 1997.
Credit card and related loans (lines of credit related to checking accounts)
totaled $96 million at December 31, 1998 compared to $617 million at December
31, 1997. During the fourth quarter of 1998 the Corporation sold substantially
all of the credit card portfolio, approximately $440 million of loans. A small
portion of the sale will settle in the first quarter of 1999.
HOME EQUITY LOANS. These loans totaled $483 million at December 31, 1998
compared to $453 million at December 31, 1997. These loans are revolving,
open-ended single-family residential loans that consumers use for various
purposes.
ACCOUNTS RECEIVABLE - FACTORING. This category of the portfolio totaled
$616 million at December 31, 1998, an increase of $37 million from the December
31, 1997 total of $579 million. Capital Factors, a separate subsidiary of Union
Planters Bank, provides factoring and other specialized commercial financial
services to small- and medium-size companies. Capital Factors purchases accounts
receivable from its clients pursuant to factoring agreements with them. Its
clients primarily include manufacturers, importers, wholesalers and distributors
in the apparel and textile-related industries and, to a lesser extent, in
consumer goods-related industries. More recently, Capital Factors has provided
services to companies in the healthcare industry. Also included in this category
are asset-based
19
<PAGE> 22
loans which are collateralized primarily by receivables owned by the borrowers.
LOAN OUTLOOK. Management expects modest loan growth in 1999 as the markets
served by the Corporation generally have a good economic outlook. Reference is
made to the discussion at the beginning of this report regarding the economic
conditions in the various markets.
ALLOWANCE FOR LOSSES ON LOANS
The allowance for losses on loans (the allowance) at December 31, 1998 was
$321.5 million, or 1.71% of loans, compared to $324.5 million, or 1.71% of
loans, at December 31, 1997. In calculating the allowance to loans ratio, FHA/VA
loans have been excluded (see "FHA/VA Government-Insured/Guaranteed Loans"
discussion above). Management's policy is to maintain the allowance at a level
deemed sufficient to absorb estimated losses inherent in the loan portfolio. The
allowance is reviewed quarterly in accordance with the methodology described in
Note 1 to the consolidated financial statements. Tables 8 and 10, which follow
this discussion, provide detailed information regarding the allowance for each
of the five years in the period ended December 31, 1998.
Net charge-offs were $186.3 million in 1998 compared to $116.3 million in
1997 and $77.4 million in 1996. The $70.0 million increase in net charge-offs
relates primarily to institutions the Corporation acquired in 1998 and the
December 31, 1997 acquisitions and to one asset-based loan discussed earlier
(see the "Provision for Losses on Loans" discussion). Union Planters' policies
for charging off loans and dealing with problem credits is generally more
aggressive than the practice of the acquired entities. Approximately 53% of the
charge-offs in 1998 related to these institutions. Credit card related
charge-offs totaled $50.7 million in 1998 compared to $52.2 million in 1997.
With the sale of this portfolio, credit card charge-offs in 1999 should be
minimal.
NONPERFORMING ASSETS
LOANS OTHER THAN FHA/VA LOANS. Nonperforming assets consist of nonaccrual
loans, restructured loans, and foreclosed properties less specific valuation
allowances. Table 9 presents nonperforming assets in two categories, FHA/VA
loans and all other loans. For this discussion and for the credit quality
information presented in this annual report, FHA/VA loans are excluded from the
calculations because of their minimal exposure to principal loss. (Reference is
made to the discussion of "FHA/VA Government-Insured/Guaranteed Loans" above.)
At December 31, 1998, nonperforming assets totaled $182.6 million, or .97%
of loans and foreclosed properties. This compares to $191.1 million, or 1.01% of
loans and foreclosed properties at December 31, 1997. Nonaccrual loans at year
end 1998 totaled $150.4 million, or .80% of total loans which compares to $138.9
million, or .73% of total loans for the same period in 1997. Restructured loans
decreased $9.6 million in 1998 to $5.6 million. The decrease relates primarily
to two loans which were removed from restructured status since they had been and
are currently paying in accordance with contractual terms of the restructuring
and had effective interest rates, at the time of modification, equal to or
greater than new loans with comparable risk. Foreclosed properties were $26.6
million and $37.0 million, respectively, at December 31, 1998 and 1997. Loans
past due 90 days or more and still accruing interest, which are not included in
nonperforming assets, were $48.6 million, or .26% of loans at December 31, 1998.
This compares to $51.1 million, or .27%, of loans at December 31, 1997. A
breakdown of nonaccrual loans and loans past due 90 days or more and still
accruing interest, both excluding FHA/VA loans, follows:
<TABLE>
<CAPTION>
LOANS PAST DUE
NONACCRUAL LOANS 90 DAYS OR MORE
------------------- -----------------
DECEMBER 31, DECEMBER 31,
------------------- -----------------
LOAN TYPE 1998 1997 1998 1997
- --------------------------------------------------------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Secured by single family residential..................... $ 73,433 $ 67,747 $12,991 $15,784
Secured by nonfarm nonresidential........................ 25,242 15,415 8,193 4,458
Other secured real estate................................ 17,616 19,676 5,387 4,395
Commercial, financial, and agricultural, including
foreign loans and direct lease financing............... 26,831 27,267 15,041 4,754
Credit card and related plans............................ 58 2 2,044 15,351
Other consumer........................................... 7,198 8,789 4,970 6,386
-------- -------- ------- -------
Total........................................... $150,378 $138,896 $48,626 $51,128
======== ======== ======= =======
</TABLE>
FHA/VA LOANS. As discussed in the "Loans" section of this report, FHA/VA
loans do not, in management's opinion, have traditional credit risk similar to
the rest of the loan portfolio and risk of principal loss is considered minimal
due to the government-guarantee. FHA/VA loans past due 90 days or more and still
accruing interest totaled $355.1 million at December 31, 1998 compared to $517.1
million at December 31, 1997. The decrease in the loans past due relates to the
decline in the volume of these loans. At December 31, 1998 and 1997, $9.2
million and $14.9 million, respectively, of FHA/VA loans were placed on
nonaccrual status by management because the contractual payment of interest by
FHA/VA had stopped due to missed filing dates; however, no loss of principal is
expected from these loans.
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<PAGE> 23
POTENTIAL PROBLEM ASSETS. Potential problem assets consist of assets which
are generally secured and are not currently considered nonperforming and include
those assets where information about possible credit problems has raised serious
doubts as to the ability of the borrowers to comply with present repayment
terms. Historically, such assets have been loans which have ultimately become
nonperforming. At December 31, 1998, the Corporation had potential problem
assets (all loans) aggregating $66.8 million, comprised of 52 loans, the largest
of which was $18.9 million.
OTHER EARNING ASSETS
Other earning assets include interest-bearing deposits at financial
institutions, federal funds sold, securities purchased under agreements to
resell, and trading account assets. These assets averaged $587 million, or 3% of
average earning assets, in 1998 with an average yield of 5.93%. This compares to
$609 million in 1997 with a 6.13% average yield and $687 million in 1996 with an
average yield of 5.95%. Trading account assets, the largest category, are
comprised of government-guaranteed SBA pools and the government-guaranteed
portion of SBA loans. Management considers these assets to have minimal
interest-rate and credit risk. Trading account assets fluctuate depending on
market conditions and demand. The other categories fluctuate depending on
funding needs and investment opportunities.
DEPOSITS
The Corporation's deposit base is its primary source of liquidity and
consists of deposits from the communities served by the Corporation. The mix of
deposits has remained relatively constant with a slight decrease in the other
time deposit category, which is attributable to consumers seeking higher
yielding investment opportunities. Tables 4 and 6 present the components of the
Corporation's average deposits. Note 8 to the consolidated financial statements
presents the maturities of interest-bearing deposits at December 31, 1998.
Deposits were $24.9 billion at December 31, 1998 and averaged $23.6 billion
for the year. This compares to period end and average deposits for 1997 of $22.9
billion and $22.2 billion, respectively. The increase in deposits in 1998 was
due primarily to the Florida Branch Purchase in which the Corporation acquired
26 branches and assumed deposit liabilities of approximately $1.4 billion.
The composition of average deposits over the last three years was as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Noninterest-bearing deposits 15% 15% 14%
Money market deposits 13 13 14
Savings deposits 19 19 19
Other time deposits 41 42 43
Certificates of deposit of
$100,000 and over 12 11 10
</TABLE>
CAPITAL AND DIVIDENDS
Shareholders' equity increased 3.8% in 1998 to $3.0 billion, or 9.42% of
total assets. This compares to shareholders' equity of $2.9 billion, or 9.59% of
total assets at December 31, 1997. Union Planters has consistently maintained
regulatory capital ratios above the "well capitalized" standard. Table 13, the
consolidated statement of changes in shareholders' equity, and Note 12 to the
consolidated financial statements present further information regarding the
Corporation's capital adequacy and changes in shareholders' equity.
The Corporation and its subsidiaries must comply with the capital
guidelines established by the regulatory agencies that supervise their
operations. These agencies have adopted a system to monitor the capital adequacy
of all insured financial institutions. The system includes ratios based on the
risk-weighting of on- and off-balance-sheet transactions. At December 31, 1998
the Corporation's Tier 1 and Total risk-weighted capital ratios were 13.34% and
16.78%, respectively. The leverage ratio (Tier 1 capital divided by unweighted
average quarterly total assets) was 8.86%. These ratios decreased from December
31, 1997, due primarily to the Florida Branch Purchase which increased total
assets approximately $1.4 billion with no capital being issued. Also, the
intangibles resulting from this purchase and the other purchase acquisitions
completed in 1998 are deducted from Tier 1 capital, which in turn reduces the
ratios. This purchase, the acquisitions completed subsequent to December 31,
1998, and the pending acquisition of Republic will employ the Corporation's
excess capital, which is expected to improve overall profitability returns.
The increase in the total risk-weighted capital ratio resulted from UPB's
issuance of $300 million of 6.50% Putable/Callable Subordinated notes due 2018,
which qualified as Tier 2 capital. All of the Corporation's banking subsidiaries
met the regulatory requirements for "well capitalized" at December 31, 1998.
The Corporation declared cash dividends on its common stock of $2.00 per
share in 1998, an increase of 34% over the 1997 amount of $1.495 per share. In
January 1999, a regular quarterly dividend was declared, $.50 per share ($2.00
per share annualized). The Corporation also declared
21
<PAGE> 24
and paid cash dividends on its 8% Series E Convertible Preferred Stock of $2.00
per share in both 1998 and 1997. Management's goal is to maintain a dividend
pay-out ratio in the range of 40% to 60% of net earnings.
The primary sources for payment of dividends by the Corporation to its
shareholders are dividends received from its subsidiaries, interest on loans to
subsidiaries, and interest on its available for sale investment securities.
Payment of dividends by the Corporation's banking subsidiaries is subject to
various statutory limitations which are described in Note 12 to the consolidated
financial statements. Reference is made to the "Liquidity" discussion for
additional information regarding the parent company's liquidity.
MARKET RISK AND ASSET/LIABILITY MANAGEMENT
The Corporation's assets and liabilities are principally financial in
nature and the resulting earnings thereon, primarily net interest income, are
subject to change as a result of changes in market interest rates and the mix of
the various assets and liabilities. Interest rates in the financial markets
affect the Corporation's decisions on pricing its assets and liabilities which
impacts net interest income, the Corporation's primary cash flow stream. As a
result, a substantial part of the Corporation's risk-management activities are
devoted to managing interest-rate risk. Currently, the Corporation does not have
any significant risks related to foreign exchange, commodities or equity risk
exposures.
INTEREST-RATE RISK. One of the most important aspects of management's
efforts to sustain long-term profitability for the Corporation is the management
of interest-rate risk. Management's goal is to maximize net interest income
within acceptable levels of interest-rate risk and liquidity. To achieve this
goal, a proper balance must be maintained between assets and liabilities with
respect to size, maturity, repricing date, rate of return, and degree of risk.
Reference is made to the "Investment Securities," "Loans," and "Other Earning
Assets" discussions for additional information regarding the risks related to
these items.
The Corporation, on a limited basis, has used off-balance-sheet financial
instruments to manage interest-rate risk. At December 31, 1998 and 1997, the
Corporation had a limited number of such instruments, primarily those used in
its mortgage operations to hedge loans held for sale.
The Corporation's Funds Management Committee oversees the conduct of global
asset/liability and interest-rate risk management. The Committee reviews the
asset/liability structure and interest-rate risk reports on a quarterly basis.
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 Table 11. The analysis presented in Table 11 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 rates on mortgage related assets
- cash flow and maturities of financial instruments held for purposes other
than trading
- changes in volumes and pricing
- deposit sensitivity
- management's capital plans
The 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 December 31, 1998, the GAP analysis indicated that the Corporation was
asset sensitive with $693 million more assets than liabilities repricing within
one year. At 2% of total assets, this position is within management's policy not
to exceed 10% of total assets.
Balance sheet simulation analysis was conducted at year end to determine
the impact on net interest income for the coming twelve months under several
interest-rate scenarios. One such scenario uses rates at December 31, 1998, and
holds the rates and volumes constant for simulation. When this position is
subjected to immediate and parallel shifts in interest rates ("rate shock") of
200 basis points rising and 200 basis points falling, the annual impact on the
Corporation's net interest income is a negative $2.0 million and a negative
$24.5 million pretax, respectively. Another simulation using a "most likely"
scenario of interest rates remaining level for the next twelve months results in
a $7.9 million pretax increase in net interest income from the constant
rate/volume projection. These scenarios are within the Corporation's policy
limit of 5% of shareholders' equity.
Prior year comparative GAP analysis and rate simulation have not been
presented because management does not believe the information would be
meaningful. With the number of acquisitions completed in 1998, the prior year
data would not be comparable due to the differences in strategy
22
<PAGE> 25
employed by the institutions prior to being acquired by the Corporation. Once
acquired, the institution's asset/liability strategy is changed to be consistent
with Union Planters. Also impacting the comparability of data between 1997 and
1998 is the consolidation of a majority of the Corporation's banking
subsidiaries into one bank which changed the structure of the balance sheet.
LIQUIDITY. Liquidity for the Corporation is its ability to meet cash
requirements for deposit withdrawals, to make new loans and satisfy loan
commitments, to take advantage of attractive investment opportunities, and to
repay borrowings when they mature. As discussed previously, the Corporation's
primary sources of liquidity are its deposit base, available for sale
securities, and money-market investments. Liquidity is also achieved through
short-term borrowings, borrowing under available lines of credit, and issuance
of securities and debt instruments in the financial markets.
Note 9 to the consolidated financial statements presents information
regarding the various types of borrowings the Corporation uses to provide
liquidity. In December 1998, Union Planters Bank enhanced its existing Bank Note
Program to provide access to additional funding. The Bank Note Program was
increased from $1 billion to $5 billion and it now provides for issuance of
senior notes as well as subordinated bank notes.
Parent company liquidity is achieved and maintained by dividends received
from subsidiaries, interest on advances to subsidiaries, and interest on the
available for sale investment securities portfolio. At December 31, 1998, the
parent company had cash and cash equivalents totaling $315.6 million. The parent
company's net working capital position at December 31, 1998 was $358.2 million.
At January 1, 1999, the parent company could have received dividends from
subsidiaries of $193 million without prior regulatory approval. The payment of
additional dividends by the Corporation's subsidiaries will be dependent on the
future earnings of the subsidiaries. Management believes that the parent company
has adequate liquidity to meet its cash needs, including the payment of its
regular dividends, servicing of its debt, and cash needed for acquisitions.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The disclosures regarding the fair value of financial instruments are
included in Note 19 to the consolidated financial statements along with a
summary of the methods and assumptions used by the Corporation in determining
fair value. The differences between the fair values and book values were
primarily caused by differences between contractual and market interest rates at
the respective year ends. Fluctuations in the fair values will occur from period
to period due to changes in the composition of the balance sheet and changes in
market interest rates.
FOURTH QUARTERS RESULTS
Net earnings for the fourth quarter of 1998 were $27.6 million, or $.19 per
diluted share, compared to $40.1 million, or $.29 per diluted share in the
fourth quarter of 1997. Table 14 presents selected quarterly financial data for
1998 and 1997. The significant items impacting results for both years were
merger-related and other significant charges and the provision for losses on
loans, partially offset by gains from the sale of assets.
The significant items impacting fourth quarter results in 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
----------------------
1998 1997
------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Gross gains on sale of assets, including investment
securities gains.......................................... $ 80.0 $ .3
Merger-related charges and charges related to previously
acquired banks............................................ (61.6) (42.7)
Charter consolidation expenses and other charges related to
ongoing integration of operations......................... (8.9) (16.6)
Charges related to employee benefit plan changes............ (11.1) --
Other charges, net.......................................... (15.9) --
------ ------
Total.............................................. $(17.5) $(59.0)
====== ======
</TABLE>
Net interest income on a taxable-equivalent basis was $306.7 million for
the fourth quarter of 1998 compared to $314.2 million for the same period in
1997. The net interest margin was 4.24% in 1998 compared to 4.55% in 1997. The
decrease in net interest income related to the sale of the credit card
portfolio, to declining interest rates, and to earning assets repricing more
rapidly than interest-bearing liabilities.
The provision for losses on loans was $76.6 million for the fourth quarter
of 1998 compared to $47.0 million in 1997. Most of the increase related to two
asset-based loans that deteriorated during the quarter. Institutions acquired
during the year had higher provisions as they provided for losses related to
Union Planters more aggressive policy of dealing with problem credits. (See
23
<PAGE> 26
the "Provision for Losses on Loans" discussion above.)
Noninterest income increased $76.4 million to $197.8 million for the fourth
quarter of 1998. The increase related to the sale of Union Planters' credit card
portfolio which resulted in a gross gain of $72.7 million. Also increasing
noninterest income were investment securities gains of $6.0 million which
related to gains on equity securities contributed to a charitable foundation,
and gains on sale of branches and deposits of $1.3 million. Noninterest expenses
were impacted primarily by merger-related and other significant charges and the
changes related to employee benefit plans identified above. The other charges in
the table above included contribution expense of $7.6 million and a loss on the
sale of loans of $3.2 million.
YEAR 2000
In February 1997, Union Planters initiated the formal process of addressing
the potential problems associated with the Year 2000. The process involved
identifying and remediating date recognition problems in computer systems and
software and other equipment that could be caused by the date change from
December 31, 1999 to January 1, 2000 and beyond. The Corporation's project
reviewed both potential internal and external problems. The potential problem
could affect a wide variety of automated systems such as mainframe applications,
personal computers, communication systems, public utilities, and other
information systems routinely used in all industries.
A senior-level committee, which reports periodically to the Board of
Directors, was formed to oversee the project and a separate department was
formed to coordinate the Corporation's efforts. A respected outside consulting
firm was also engaged to provide support to the Corporation's efforts. The
Corporation's efforts are being conducted in accordance with Federal Financial
Institutions Examination Council (FFIEC) guidelines. The Federal Reserve and
OCC, which are Union Planters primary regulators, include a review of the risk
assessment and contingency plans in their quarterly examination of Union
Planters Year 2000 preparedness.
Management has completed its assessment of business processes that could be
affected by the Year 2000. The assessment involved a complete inventory of Union
Planters' information technology structure related to the main computer system
operations, interfaces, ancillary computer hardware and software, and the
involvement of third parties. The assessment covered all electronic devices used
by the Corporation that may be affected by the change in date to the Year 2000.
A summary of the critical dates for completion of various aspects of the
Corporation's process and their status as of March 10, 1999 follows:
- September 30, 1997 -- Identify mission critical applications and prepare
action plans for Year 2000 compliance (Complete)
- June 30, 1998 -- Develop written testing strategies and plans (Complete)
- September 1, 1998 -- Commence testing of internal mission critical
systems, including those programmed in-house and purchased software
(Complete)
- September 30, 1998 -- Begin development of Year 2000 Business Resumption
Plan (Complete)
- December 31, 1998 -- In-house code enhancements and revisions, hardware
upgrades, and other associated changes are substantially complete. For
mission critical applications, programming changes should be largely
complete and testing well underway (99% complete)
- March 31, 1999 -- Third-party vendor testing of mission critical systems
should be substantially complete (95% complete)
- June 30, 1999 -- Testing of mission critical systems should be complete
and implementation should be substantially complete (95% complete)
- June 30, 1999 -- Year 2000 Business Resumption Plan should be complete
(80% complete)
As of March 10, 1999, 95% of all required unit-specific testing of the
Corporation's several systems had been completed (including systems of pending
and newly acquired institutions) and each system was found to be Year 2000
compliant. All new acquisitions are scheduled for conversion to Union Planters
standard hardware and software systems, generally within six months of
acquisition. As a contingency to the conversion, the institution is required to
continue its date-forward testing and Union Planters also includes them in its
existing plans for compliance. All financial institutions are required to be
compliant by June 30, 1999, and the Corporation will not enter into an agreement
to acquire an institution if the FFIEC guidelines cannot be met as required. All
pending or newly acquired acquisitions are expected to be compliant by June 30,
1999. Integration testing of the communication links that permit the systems to
interface with one another is 75% complete.
The Corporation uses a vendor-provided system as its "core" banking
applications software to process data pertaining to its demand deposits, savings
accounts, CDs and other deposits; certain
24
<PAGE> 27
loans; and like items. This core system was certified Year 2000 compliant in
April 1998, has been successfully tested, and the Corporation is now operating
on the Year 2000 compliant system.
Notwithstanding the foregoing, the Corporation continues to bear some risk
arising from the advent of the Year 2000. There are three major risks that could
result in a material adverse impact to the Corporation. First, the inability of
the Corporation's systems to process data and information; inability to complete
transactions; failure of time locks and security systems; inability to meet
customers demands for currency; and the inability to process electronic
transactions for the Corporation and its customers. Management believes this
scenario to be unlikely. The second major risk is that one of the planned
conversions of a subsidiary bank to the Corporation's system would be incomplete
and that entity would not be Year 2000 compliant. The Corporation has, as of
March 10, 1999, 12 acquired entities operating on their own systems that are
scheduled to be converted to the Corporation's systems in 1999 (total assets of
approximately $4.3 billion). Management believes the planned conversion schedule
will be met and contingency plans have been developed, including ensuring Year
2000 compliance on the entity's existing systems. The last major risk category
deals with risks associated with external parties including a shutdown of voice
and data communication systems due to failure by systems, satellites or
telephone companies; excessive cash withdrawal activities; ATM failures; cash
courier delays or non-availability; problems with international accounts or
offices, including inaccurate or delayed information or inaccessibility to data;
and government facilities or utility companies not opening or operating.
The Corporation is developing business resumption contingency plans (80%
complete) in three broad categories. The first set of contingency plans, which
has been completed, is for all critical applications that are not currently Year
2000 compliant and tested, even though it is expected that these applications
will be compliant on schedule. The second set of contingency plans will address
any Year 2000 related failures of critical applications after they have been
fully tested and put into production. Although there is a low probability that a
fully compliant and tested application will have a Year 2000 related failure, it
is deemed prudent to have a contingency plan in place. The third and final set
of contingency plans will address other disruptions, some of which are beyond
the control of the Corporation. Some examples would be disruption of utilities
such as power, water, or telecommunications. Also included in this category
would be any major hardware failures that would require processing to be moved
to a disaster recovery alternate site. The Corporation's Business Resumption
Plan does cover most of the potential disruptions in this category, and the
appropriate sections from that plan will be incorporated into the Year 2000
contingency plan.
With a view to identifying and minimizing the Year 2000 risks related to
the Corporation's loan customers, an evaluation of the Year 2000 preparedness of
the Corporation's major customers was conducted. Credit relationships were
reviewed based on their size and were assigned a risk assessment code of low,
medium or high risk. As of December 31, 1998, 64% of the credit relationships
had been rated, with 24% being medium risk relationships and 1% identified as
high risk relationships. An additional 10% of the portfolio is scheduled to be
rated, of which 74% are relationships under $500,000, 22% are relationships of
$500,000 to $2 million and 4% are relationships over $2 million. If loan
customers are not prepared for Year 2000 and their operations are adversely
impacted, their ability to meet their obligations to the Corporation will be
impacted which could have an adverse impact on the Corporation.
The Corporation's acquisition strategy will be impacted by Year 2000. Only
institutions that are Year 2000 compliant, or expected to be compliant, will be
acquired in 1999 since it is unlikely there will be sufficient time to convert
the institutions to Union Planters' systems before Year 2000. Banking
organizations whose Year 2000 readiness is in less than satisfactory condition
are undergoing special scrutiny with acquisitions requiring regulatory approval,
and may not be eligible to use expedited application procedures for acquisition
transactions.
The total cost of the Year 2000 project is estimated to be $750,000 to
achieve Year 2000 compliance with respect to its data processing systems,
approximately 70% of which has been expended. The total cost does not include
the cost of internal personnel time working on the project since these costs are
not tracked separately. Also, the costs do not include an estimated $3.8 million
of costs of computer hardware scheduled to be replaced in the normal course of
business.
25
<PAGE> 28
TABLE 1. SUMMARY OF CONSOLIDATED RESULTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income........................... $ 2,314,381 $ 2,264,485 $ 2,126,230 $1,908,150 $1,597,866
Interest expense.......................... (1,107,148) (1,064,586) (1,011,241) (897,649) (654,258)
----------- ----------- ----------- ---------- ----------
NET INTEREST INCOME.............. 1,207,233 1,199,899 1,114,989 1,010,501 943,608
PROVISION FOR LOSSES ON LOANS............. (204,056) (153,100) (86,381) (50,696) (25,007)
----------- ----------- ----------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOSSES ON
LOANS.......................... 1,003,177 1,046,799 1,028,608 959,805 918,601
NONINTEREST INCOME
Service charges on deposit accounts..... 156,445 157,256 152,942 145,343 121,889
Mortgage servicing income............... 60,478 58,972 64,713 57,176 53,687
Bank card income........................ 38,562 39,497 31,866 27,234 16,611
Factoring commissions................... 30,630 30,140 26,066 19,519 17,371
Trust service income.................... 24,116 24,029 20,351 18,937 19,184
Profits and commissions from trading.... 5,402 7,323 5,768 12,364 5,073
Other income............................ 159,562 132,356 89,348 88,474 76,647
----------- ----------- ----------- ---------- ----------
Total noninterest income......... 475,195 449,573 391,054 369,047 310,462
----------- ----------- ----------- ---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits.......... 468,675 440,511 413,640 393,818 388,102
Net occupancy expense................... 75,974 74,750 75,331 71,899 68,456
Equipment expense....................... 72,718 62,736 60,531 56,620 51,609
Other expense........................... 374,252 354,572 315,907 326,931 318,737
----------- ----------- ----------- ---------- ----------
Total noninterest expense........ 991,619 932,569 865,409 849,268 826,904
----------- ----------- ----------- ---------- ----------
EARNINGS BEFORE OTHER OPERATING
ITEMS AND INCOME TAXES......... 486,753 563,803 554,253 479,584 402,159
MERGER-RELATED CHARGES AND OTHER
SIGNIFICANT ITEMS
Net gain on sale of the credit card
portfolio............................. 70,100 -- -- -- --
Gain on securitization and sale of
loans................................. 19,605 -- -- -- --
Net gain (loss) on sales of branches and
other selected assets................. 6,345 16,290 7,511 1,925 (15)
Investment securities gains (losses).... (9,074) 4,888 4,934 2,288 (21,398)
Merger-related expenses, net............ (165,263) (48,112) (52,786) (12,114) (15,123)
Charter consolidation and other charges
related to ongoing integration of
operations............................ (16,990) (16,742) -- -- --
Expenses related to employee benefit
plan changes.......................... (11,090) -- -- -- --
Contribution of equity securities to a
charitable foundation................. (7,609) -- -- -- --
Restructuring charges................... -- -- -- -- (28,929)
Consumer loan marketing program
expenses.............................. -- -- -- -- (14,446)
Special regulatory assessment to
recapitalize the SAIF................. -- -- (30,044) -- --
Write-off of mortgage servicing rights,
goodwill, and other intangibles....... (1,800) (2,778) (19,579) -- --
Additional provisions for losses on
FHA/VA foreclosure claims of acquired
entity................................ -- -- (19,800) -- --
Other, net.............................. 945 (1,500) 1,268 (146) 2,192
----------- ----------- ----------- ---------- ----------
EARNINGS BEFORE INCOME TAXES..... 371,922 515,849 445,757 471,537 324,440
Applicable income taxes................... 146,316 176,014 153,055 156,718 103,193
----------- ----------- ----------- ---------- ----------
NET EARNINGS..................... $ 225,606 $ 339,835 $ 292,702 $ 314,819 $ 221,247
=========== =========== =========== ========== ==========
Net earnings.............................. $ 225,606 $ 339,835 $ 292,702 $ 314,819 $ 221,247
Merger-related charges and other
significant items, net of taxes......... 98,971 32,241 71,607 5,311 51,295
Goodwill and other intangibles
amortization, net of taxes.............. 27,289 20,400 16,924 16,373 16,313
----------- ----------- ----------- ---------- ----------
EARNINGS BEFORE MERGER-RELATED CHARGES,
OTHER SIGNIFICANT ITEMS, AND GOODWILL
AND OTHER INTANGIBLES AMORTIZATION, NET
OF TAXES................................ $ 351,866 $ 392,476 $ 381,233 $ 336,503 $ 288,855
=========== =========== =========== ========== ==========
</TABLE>
26
<PAGE> 29
TABLE 2. CONTRIBUTION TO DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net interest income -- FTE........................... $ 8.72 $ 8.89 $ 8.58 $ 8.18 $ 7.83
Provision for losses on loans........................ (1.43) (1.11) (0.65) (0.40) (0.20)
-------- -------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR
LOSSES ON LOANS -- FTE.................... 7.29 7.78 7.93 7.78 7.63
NONINTEREST INCOME
Service charges on deposit accounts................ 1.10 1.14 1.15 1.14 0.98
Mortgage servicing income.......................... 0.42 0.43 0.48 0.45 0.43
Bank card income................................... 0.27 0.29 0.24 0.21 0.13
Factoring commissions.............................. 0.21 0.22 0.20 0.15 0.14
Trust service income............................... 0.17 0.17 0.16 0.15 0.15
Profits and commissions from trading activities.... 0.04 0.05 0.04 0.10 0.04
Investment securities gains (losses)............... (0.06) 0.04 0.04 0.02 (0.17)
Other income....................................... 1.84 1.08 0.73 0.71 0.64
-------- -------- -------- -------- --------
Total noninterest income.................... 3.99 3.42 3.04 2.93 2.34
-------- -------- -------- -------- --------
NONINTEREST EXPENSE
Salaries and employee benefits..................... 3.36 3.19 3.10 3.09 3.11
Net occupancy expense.............................. 0.53 0.54 0.56 0.56 0.55
Equipment expense.................................. 0.51 0.45 0.45 0.44 0.44
Other expense...................................... 4.01 3.07 3.28 2.67 3.00
-------- -------- -------- -------- --------
Total noninterest expense................... 8.41 7.25 7.39 6.76 7.10
-------- -------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES -- FTE......... 2.87 3.95 3.58 3.95 2.87
Applicable income taxes -- FTE....................... 1.29 1.48 1.37 1.47 1.09
-------- -------- -------- -------- --------
NET EARNINGS................................ 1.58 2.47 2.21 2.48 1.78
Less preferred stock dividends....................... -- -- -- (0.01) (0.02)
-------- -------- -------- -------- --------
DILUTED EARNINGS PER SHARE.................. $ 1.58 $ 2.47 $ 2.21 $ 2.47 $ 1.76
======== ======== ======== ======== ========
Change in net earnings applicable to diluted earnings
per share using previous year average shares
outstanding........................................ $ (0.84) $ 0.35 $ (0.14) $ 0.76 $ (0.00)
Change in average shares outstanding................. (0.05) (0.09) (0.12) (0.05) (0.32)
-------- -------- -------- -------- --------
Change in net earnings........................... $ (0.89) $ 0.26 $ (0.26) $ 0.71 $ (0.32)
======== ======== ======== ======== ========
AVERAGE DILUTED SHARES (IN THOUSANDS)................ 142,693 138,220 133,452 127,416 124,730
======== ======== ======== ======== ========
</TABLE>
- ---------------
FTE -- Fully taxable-equivalent
TABLE 3. BALANCE SHEET IMPACT OF ACQUISITIONS
<TABLE>
<CAPTION>
1998
------------------------------------------------------------- 1997 1996
MAGNA PEOPLES AMBANC OTHERS TOTAL TOTAL TOTAL
---------- ---------- -------- ---------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing
deposits at
financial
institutions....... $ 22 $ 569 $ 216 $ 7,397 $ 8,204 $ 41,573 $ 2,781
Loans, net of
unearned income.... 4,500,786 1,109,384 566,654 2,214,560 8,391,384 2,651,579 2,735,487
Allowance for losses
on loans........... (64,669) (16,265) (8,291) (42,346) (131,571) (49,797) (38,124)
---------- ---------- -------- ---------- ----------- ---------- ----------
Net loans..... 4,436,117 1,093,119 558,363 2,172,214 8,259,813 2,601,782 2,697,363
Investment
securities......... 2,544,718 249,203 100,193 772,632 3,666,746 395,550 1,048,886
Intangible assets.... 166,842 11,459 2,263 146,261 326,825 15,274 62,341
Cash and cash
equivalents........ 241,845 35,891 49,321 1,593,556 1,920,613 338,978 110,430
Other real estate,
net................ 1,641 646 702 7,151 10,140 11,990 2,484
Premises and
equipment.......... 117,339 19,818 11,657 64,377 213,191 64,734 39,306
Other assets......... 174,772 16,761 17,321 62,575 271,429 122,418 259,954
---------- ---------- -------- ---------- ----------- ---------- ----------
TOTAL
ASSETS...... $7,683,296 $1,427,466 $740,036 $4,826,163 $14,676,961 $3,592,299 $4,223,545
========== ========== ======== ========== =========== ========== ==========
LIABILITIES
Deposits............. $5,796,507 $1,193,172 $626,989 $4,226,383 $11,843,051 $2,392,854 $2,408,296
Other
interest-bearing
liabilities........ 1,186,998 71,774 26,345 172,354 1,457,471 571,774 1,403,195
Other liabilities.... 56,904 11,318 11,580 59,781 139,583 327,940 82,074
---------- ---------- -------- ---------- ----------- ---------- ----------
TOTAL
LIABILITIES.. $7,040,409 $1,276,264 $664,914 $4,458,518 $13,440,105 $3,292,568 $3,893,565
========== ========== ======== ========== =========== ========== ==========
PURCHASE PRICE/CAPITAL
CONTRIBUTION/EQUITY... $ 642,887 $ 151,202 $ 75,122 $ 367,645 $ 1,236,856 $ 299,731 $ 329,980
========== ========== ======== ========== =========== ========== ==========
</TABLE>
27
<PAGE> 30
TABLE 4. AVERAGE BALANCE SHEET AND AVERAGE INTEREST RATES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
1998 1997
---------------------------------- ----------------------------------
INTEREST FTE INTEREST FTE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
----------- ---------- ------- ----------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits at
financial institutions...... $ 36,131 $ 1,807 5.00% $ 63,671 $ 3,207 5.04%
Federal funds sold and
securities purchased under
agreements to resell........ 327,630 18,823 5.75 340,231 19,149 5.63
Trading account assets........ 223,122 14,197 6.36 204,765 14,956 7.30
Investment securities(1)(2)
Taxable securities.......... 6,102,670 373,934 6.13 5,336,847 348,247 6.53
Tax-exempt securities....... 1,114,510 90,352 8.11 937,539 76,733 8.18
----------- ---------- ----------- ----------
Total investment
securities............ 7,217,180 464,286 6.43 6,274,386 424,980 6.77
Loans, net of unearned
income(1)(3)(4)............. 20,498,773 1,852,569 9.04 19,992,626 1,830,965 9.16
----------- ---------- ----------- ----------
TOTAL EARNING
ASSETS(1)(2)(3)(4).... 28,302,836 2,351,682 8.31 26,875,679 2,293,257 8.53
Cash and due from banks....... 951,819 926,586
Premises and equipment........ 544,024 514,306
Allowance for losses on
loans....................... (334,304) (284,131)
Other assets.................. 1,279,951 1,156,365
----------- -----------
TOTAL ASSETS............ $30,744,326 $29,188,805
=========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Money market accounts......... $ 3,128,028 $ 122,081 3.90% $ 2,908,405 $ 106,066 3.65%
Savings deposits.............. 4,524,807 96,061 2.12 4,201,403 97,825 2.33
Certificates of deposit of
$100,000 and over........... 2,810,295 163,415 5.81 2,545,210 145,357 5.71
Other time deposits........... 9,525,197 514,505 5.40 9,239,875 504,673 5.46
Short-term borrowings......... 1,516,496 79,415 5.24 1,607,145 81,780 5.09
Short-term bank notes......... -- -- -- 119,493 6,973 5.84
Long-term debt
Federal Home Loan Bank
advances.................. 907,689 47,979 5.29 1,011,275 60,972 6.03
Subordinated capital
notes..................... 419,789 28,249 6.73 197,569 14,229 7.20
Medium-term bank notes...... 123,986 8,252 6.66 135,000 8,943 6.62
Trust Preferred
Securities................ 198,991 16,511 8.30 198,956 16,511 8.30
Other....................... 352,541 30,680 8.70 272,511 21,257 7.80
----------- ---------- ----------- ----------
TOTAL INTEREST-BEARING
LIABILITIES........... 23,507,819 1,107,148 4.71 22,436,842 1,064,586 4.74
Noninterest-bearing demand
deposits...................... 3,594,978 -- 3,328,821 --
----------- ---------- ----------- ----------
TOTAL SOURCES OF
FUNDS................. 27,102,797 1,107,148 25,765,663 1,064,586
Other liabilities.............. 709,826 667,933
Shareholders' equity
Preferred stock............... 32,331 66,188
Common equity................. 2,899,372 2,689,021
----------- -----------
TOTAL SHAREHOLDERS'
EQUITY................ 2,931,703 2,755,209
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS'
EQUITY................ $30,744,326 $29,188,805
=========== ===========
NET INTEREST INCOME(1)......... $1,244,534 $1,228,671
========== ==========
INTEREST RATE SPREAD(1)........ 3.60% 3.79%
==== ====
NET INTEREST MARGIN(1)......... 4.40% 4.57%
==== ====
TAXABLE-EQUIVALENT ADJUSTMENTS
Loans......................... $ 10,144 $ 5,160
Investment securities......... 27,157 23,612
---------- ----------
Total................... $ 37,301 $ 28,772
========== ==========
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996
----------------------------------
INTEREST FTE
AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE
----------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Interest-bearing deposits at
financial institutions...... $ 38,727 $ 2,278 5.88%
Federal funds sold and
securities purchased under
agreements to resell........ 455,552 24,702 5.42
Trading account assets........ 192,856 13,895 7.20
Investment securities(1)(2)
Taxable securities.......... 6,119,315 395,777 6.47
Tax-exempt securities....... 867,446 76,409 8.81
----------- ----------
Total investment
securities............ 6,986,761 472,186 6.76
Loans, net of unearned
income(1)(3)(4)............. 17,888,375 1,642,361 9.18
----------- ----------
TOTAL EARNING
ASSETS(1)(2)(3)(4).... 25,562,271 2,155,422 8.43
Cash and due from banks....... 905,925
Premises and equipment........ 488,948
Allowance for losses on
loans....................... (271,070)
Other assets.................. 924,189
-----------
TOTAL ASSETS............ $27,610,263
===========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Money market accounts......... $ 2,876,970 $ 98,507 3.42%
Savings deposits.............. 3,980,936 94,497 2.37
Certificates of deposit of
$100,000 and over........... 2,123,133 121,775 5.74
Other time deposits........... 8,977,580 495,801 5.52
Short-term borrowings......... 1,818,811 95,362 5.24
Short-term bank notes......... 88,361 5,136 5.81
Long-term debt
Federal Home Loan Bank
advances.................. 1,062,584 61,761 5.81
Subordinated capital
notes..................... 240,807 18,551 7.70
Medium-term bank notes...... 42,637 2,801 6.57
Trust Preferred
Securities................ 10,871 872 8.02
Other....................... 217,805 16,178 7.43
----------- ----------
TOTAL INTEREST-BEARING
LIABILITIES........... 21,440,495 1,011,241 4.72
Noninterest-bearing demand
deposits...................... 3,085,490 --
----------- ----------
TOTAL SOURCES OF
FUNDS................. 24,525,985 1,011,241
Other liabilities.............. 666,365
Shareholders' equity
Preferred stock............... 87,991
Common equity................. 2,329,922
-----------
TOTAL SHAREHOLDERS'
EQUITY................ 2,417,913
-----------
TOTAL LIABILITIES AND
SHAREHOLDERS'
EQUITY................ $27,610,263
===========
NET INTEREST INCOME(1)......... $1,144,181
==========
INTEREST RATE SPREAD(1)........ 3.71%
====
NET INTEREST MARGIN(1)......... 4.48%
====
TAXABLE-EQUIVALENT ADJUSTMENTS
Loans......................... $ 5,303
Investment securities......... 23,889
----------
Total................... $ 29,192
==========
</TABLE>
- ---------------
(1) Fully taxable-equivalent yields are calculated assuming a 35% Federal income
tax rate.
(2) Yields are calculated on historical cost and exclude the impact of the
unrealized gain (loss) on available for sale securities.
(3) Includes loan fees in both interest income and the calculation of the yield
on loans.
(4) Includes loans on nonaccrual status.
28
<PAGE> 31
TABLE 5. ANALYSIS OF VOLUME AND RATE CHANGE
<TABLE>
<CAPTION>
1998 VERSUS 1997 1997 VERSUS 1996
-------------------------------- ---------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGE DUE TO CHANGE
IN:(1) IN:(1)
------------------- TOTAL -------------------- TOTAL
AVERAGE AVERAGE INCREASE AVERAGE AVERAGE INCREASE
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
-------- -------- ---------- --------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits at financial
institutions........................ $ (1,377) $ (23) $(1,400) $ 1,294 $ (365) $ 929
Federal funds sold and securities
purchased under agreements to
resell.............................. (719) 393 (326) (6,460) 907 (5,553)
Trading account assets................ 1,270 (2,029) (759) 868 193 1,061
Investment securities -- FTE.......... 61,454 (22,148) 39,306 (48,249) 1,043 (47,206)
Loans, net of unearned
income -- FTE....................... 45,952 (24,348) 21,604 192,722 (4,118) 188,604
-------- -------- ------- -------- ------- --------
TOTAL INTEREST INCOME -- FTE... 106,580 (48,155) 58,425 140,175 (2,340) 137,835
-------- -------- ------- -------- ------- --------
INTEREST EXPENSE
Money market accounts................. 8,300 7,715 16,015 1,086 6,473 7,559
Savings deposits...................... 7,221 (8,985) (1,764) 5,159 (1,831) 3,328
Certificates of deposit of $100,000
and over............................ 15,373 2,685 18,058 24,107 (525) 23,582
Other time deposits................... 15,457 (5,625) 9,832 14,369 (5,497) 8,872
Short-term borrowings................. (10,978) 1,640 (9,338) (9,328) (2,417) (11,745)
Long-term debt........................ 14,655 (4,896) 9,759 19,543 2,206 21,749
-------- -------- ------- -------- ------- --------
TOTAL INTEREST EXPENSE......... 50,028 (7,466) 42,562 54,936 (1,591) 53,345
-------- -------- ------- -------- ------- --------
CHANGE IN NET INTEREST INCOME -- FTE.... $ 56,552 $(40,689) $15,863 $ 85,239 $ (749) $ 84,490
======== ======== ======= ======== ======= ========
PERCENTAGE INCREASE IN NET INTEREST
INCOME (FTE) OVER PRIOR PERIOD........ 1.29% 7.38%
======= ========
</TABLE>
- ---------------
FTE -- Fully taxable-equivalent
(1) The change due to both rate and volume has been allocated to change due to
volume and change due to rate in proportion to the relationship of the
absolute dollar amounts of the change in each.
29
<PAGE> 32
TABLE 6. AVERAGE DEPOSITS (1)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Noninterest-bearing demand.............. $ 3,594,978 $ 3,328,821 $ 3,085,490 $ 2,900,790 $ 2,814,865
Money market(2)......................... 3,128,028 2,908,405 2,876,970 2,674,304 2,929,287
Savings(3).............................. 4,524,807 4,201,403 3,980,936 3,901,681 4,081,390
Other time(4)........................... 9,525,197 9,239,875 8,977,580 8,445,621 7,626,517
----------- ----------- ----------- ----------- -----------
TOTAL AVERAGE CORE DEPOSITS.... 20,773,010 19,678,504 18,920,976 17,922,396 17,452,059
Certificates of deposit of $100,000 and
over.................................. 2,810,295 2,545,210 2,123,133 1,724,245 1,445,671
----------- ----------- ----------- ----------- -----------
TOTAL AVERAGE DEPOSITS......... $23,583,305 $22,223,714 $21,044,109 $19,646,641 $18,897,730
=========== =========== =========== =========== ===========
</TABLE>
- ---------------
(1) Table 4 presents the average rate paid on the above deposit categories for
the three years in the period ended December 31, 1998.
(2) Includes money market savings accounts and super NOW accounts.
(3) Includes regular savings accounts, NOW accounts, and premium savings
accounts.
(4) Includes certificates of deposit of less than $100,000, investment savings
deposits, IRAs, and Holiday accounts.
TABLE 7. COMPOSITION OF THE LOAN PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial, financial, and
agricultural.......................... $ 3,543,925 $ 3,397,348 $ 3,078,268 $ 2,993,409 $ 2,797,533
Foreign................................. 197,120 208,081 145,483 127,623 115,316
Accounts receivable -- factoring........ 615,952 579,067 452,522 319,487 247,135
Real estate -- construction............. 1,195,779 1,074,279 865,031 768,872 658,231
Real estate -- mortgage
Secured by 1-4 family residential..... 5,647,520 5,704,490 5,531,747 5,183,332 5,015,674
FHA/VA government-insured/guaranteed.. 759,911 1,331,993 1,569,027 1,006,397 744,891
Other mortgage........................ 4,386,182 4,226,944 3,455,693 2,938,334 2,762,206
Home equity............................. 482,665 452,870 365,945 328,961 297,158
Consumer
Credit cards and related plans........ 96,091 617,113 700,584 490,919 346,235
Other consumer........................ 2,622,402 2,685,845 2,631,352 2,452,983 2,252,080
Direct lease financing.................. 63,621 66,039 75,218 77,333 52,957
----------- ----------- ----------- ----------- -----------
TOTAL LOANS.................... 19,611,168 20,344,069 18,870,870 16,687,650 15,289,416
Less: Unearned income................... (34,342) (41,100) (59,429) (73,619) (81,482)
----------- ----------- ----------- ----------- -----------
TOTAL LOANS, NET OF UNEARNED
INCOME....................... $19,576,826 $20,302,969 $18,811,441 $16,614,031 $15,207,934
=========== =========== =========== =========== ===========
</TABLE>
30
<PAGE> 33
TABLE 8. ALLOCATION OF THE ALLOWANCE FOR LOSSES ON LOANS BY CATEGORY OF LOANS
AND THE PERCENTAGE OF LOANS BY CATEGORY TO TOTAL LOANS OUTSTANDING
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------------
1998 1997 1996 1995
---------------------- ---------------------- ---------------------- --------
PERCENTAGE PERCENTAGE PERCENTAGE
OF LOANS TO OF LOANS TO OF LOANS TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT
-------- ----------- -------- ----------- -------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial,
financial, and
agricultural....... $ 86,275 22% $ 77,618 21% $ 59,372 21% $ 69,236
Foreign.............. 3,500 1 3,150 1 1,300 1 1,400
Real estate --
construction....... 19,672 6 14,079 6 10,092 5 11,755
Real estate --
mortgage........... 160,728 54 129,573 52 119,878 52 101,750
Consumer............. 50,043 17 99,129 20 78,806 21 69,767
Direct lease
financing.......... 1,258 -- 925 -- 991 -- 1,195
-------- --- -------- --- -------- --- --------
Total.......... $321,476 100% $324,474 100% $270,439 100% $255,103
======== === ======== === ======== === ========
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1994
----------- ----------------------
PERCENTAGE PERCENTAGE
OF LOANS TO OF LOANS TO
TOTAL LOANS AMOUNT TOTAL LOANS
----------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Commercial,
financial, and
agricultural....... 21% $ 73,383 21%
Foreign.............. 1 300 1
Real estate --
construction....... 5 9,864 4
Real estate --
mortgage........... 52 108,255 54
Consumer............. 21 56,148 20
Direct lease
financing.......... -- 532 --
--- -------- ---
Total.......... 100% $248,482 100%
=== ======== ===
</TABLE>
- ---------------
The allocation of the allowance is presented based in part on evaluations of
specific loans, past history, and economic conditions within specific industries
or geographic areas. Since all of these factors are subject to change, the
current allocation of the allowance is not necessarily indicative of the
breakdown of future losses. No portion of the allowance for losses on loans has
been allocated to FHA/VA government-insured/guaranteed loans since they
represent minimal credit risk.
TABLE 9. NONACCRUAL, RESTRUCTURED, AND PAST DUE LOANS AND FORECLOSED PROPERTIES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans
Domestic.................................................. $150,378 $138,800 $118,791 $106,601 $ 89,696
Foreign................................................... -- 96 96 2,072 334
Restructured loans.......................................... 5,612 15,250 17,097 14,656 20,289
-------- -------- -------- -------- --------
TOTAL NONPERFORMING LOANS........................... 155,990 154,146 135,984 123,329 110,319
-------- -------- -------- -------- --------
Foreclosed properties
Other real estate, net.................................... 23,937 31,914 40,680 35,598 46,015
Other foreclosed properties............................... 2,670 5,062 2,167 2,823 693
-------- -------- -------- -------- --------
TOTAL FORECLOSED PROPERTIES......................... 26,607 36,976 42,847 38,421 46,708
-------- -------- -------- -------- --------
TOTAL NONPERFORMING ASSETS.......................... $182,597 $191,122 $178,831 $161,750 $157,027
======== ======== ======== ======== ========
LOANS PAST DUE 90 DAYS OR MORE AND STILL ACCRUING INTEREST
Domestic.................................................. $ 48,626 $ 51,128 $ 45,467 $ 34,540 $ 22,633
Foreign................................................... -- -- -- -- 1,500
-------- -------- -------- -------- --------
TOTAL LOANS PAST DUE 90 DAYS OR MORE................ $ 48,626 $ 51,128 $ 45,467 $ 34,540 $ 24,133
======== ======== ======== ======== ========
FHA/VA GOVERNMENT-INSURED/GUARANTEED LOANS
Loans past due 90 days or more and still accruing
interest................................................ $355,124 $517,124 $724,691 $558,038 $282,523
Nonaccrual................................................ 9,232 14,933 77 404 --
</TABLE>
31
<PAGE> 34
TABLE 10. ALLOWANCE FOR LOSSES ON LOANS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD.......... $ 324,474 $ 270,439 $ 255,103 $ 248,482 $ 239,502
LOANS CHARGED OFF
Commercial, financial, and
agricultural........................ 65,815 41,881 24,045 21,540 16,794
Foreign............................... 1,831 -- 3,391 743 6,893
Real estate -- construction........... 3,714 400 765 529 498
Real estate -- mortgage............... 28,654 10,618 10,245 12,881 13,957
Consumer.............................. 64,435 35,425 30,081 20,196 14,539
Credit cards and related plans........ 50,723 52,177 30,542 15,082 3,659
Direct lease financing................ 125 30 48 52 6
----------- ----------- ----------- ----------- -----------
Total charge-offs.............. 215,297 140,531 99,117 71,023 56,346
----------- ----------- ----------- ----------- -----------
RECOVERIES ON LOANS PREVIOUSLY CHARGED
OFF
Commercial, financial, and
agricultural........................ 8,931 8,259 8,569 9,263 13,292
Foreign............................... 20 10 -- 1,632 1,523
Real estate -- construction........... 310 546 64 557 939
Real estate -- mortgage............... 5,825 3,620 3,555 4,449 5,212
Consumer.............................. 9,812 4,916 7,350 6,374 6,290
Credit cards and related plans........ 4,113 6,903 2,209 1,122 937
Direct lease financing................ 5 27 4 52 133
----------- ----------- ----------- ----------- -----------
Total recoveries............... 29,016 24,281 21,751 23,449 28,326
----------- ----------- ----------- ----------- -----------
Net charge-offs......................... (186,281) (116,250) (77,366) (47,574) (28,020)
Provisions charged to expense........... 204,056 153,100 86,381 50,696 25,007
Allowance related to the sale of certain
loans................................. (36,693) -- (1,628) -- --
Increase due to acquisitions............ 15,920 17,185 7,949 3,499 11,993
----------- ----------- ----------- ----------- -----------
BALANCE AT END OF PERIOD................ $ 321,476 $ 324,474 $ 270,439 $ 255,103 $ 248,482
=========== =========== =========== =========== ===========
Total loans, net of unearned income, at
end of period......................... $19,576,826 $20,302,969 $18,811,441 $16,614,031 $15,207,934
Less: FHA/VA government-
insured/guaranteed loans.............. 759,911 1,331,993 1,569,027 1,006,397 744,891
----------- ----------- ----------- ----------- -----------
LOANS USED TO CALCULATE RATIOS........ $18,816,915 $18,970,976 $17,242,414 $15,607,634 $14,463,043
=========== =========== =========== =========== ===========
Average total loans, net of unearned
income, during period................. $20,498,773 $19,992,626 $17,888,375 $16,162,983 $13,956,994
Less: Average FHA/VA government-
insured/guaranteed loans.............. 958,921 1,500,120 1,300,065 881,082 603,181
----------- ----------- ----------- ----------- -----------
AVERAGE LOANS USED TO CALCULATE
RATIOS.............................. $19,539,852 $18,492,506 $16,588,310 $15,281,901 $13,353,813
=========== =========== =========== =========== ===========
CREDIT QUALITY RATIOS(1)
Allowance at end of period to loans,
net of unearned income.............. 1.71% 1.71% 1.57% 1.63% 1.72%
Allowance at end of period to average
loans, net of unearned income....... 1.65 1.75 1.63 1.67 1.86
Allowance for losses on loans as a
percentage of nonperforming loans... 206 210 199 207 225
Net charge-offs to average loans, net
of unearned income.................. .95 .63 .47 .31 .21
Provision to average loans, net of
unearned income..................... 1.04 .83 .52 .33 .19
Nonperforming loans as a percentage of
loans............................... .83 .81 .79 .79 .76
Nonperforming assets as a percentage
of loans plus foreclosed
properties.......................... .97 1.01 1.03 1.03 1.08
Loans past due 90 days or more and
still accruing interest as a
percentage of loans................. .26 .27 .26 .22 .17
</TABLE>
- ---------------
(1) Ratio calculations exclude FHA/VA government-insured/guaranteed loans since
they represent minimal credit risk to the Corporation. See the "Loans"
discussion for additional information regarding the FHA/VA
government-insured/guaranteed loans and Table 9 for the detail of
nonperforming assets.
32
<PAGE> 35
TABLE 11. RATE SENSITIVITY ANALYSIS AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTEREST-SENSITIVE WITHIN (1) (7)
-----------------------------------------------------------------------------------------
0-90 91-180 181-365 1-3 3-5 5-15 OVER NONINTEREST-
DAYS DAYS DAYS YEARS YEARS YEARS 15 YEARS BEARING TOTAL
------ ------- ------- ------ ------ ------ -------- ------------ -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans and
leases(2)(3)(4).... $7,401 $1,876 $3,155 $4,448 $1,806 $ 617 $ 17 $ 291 $19,611
Investment
securities(5)(6)... 1,454 554 1,074 2,899 1,059 890 372 -- 8,302
Other earning
assets............. 787 57 15 1 -- -- -- -- 860
Other assets......... -- -- -- -- -- -- -- 2,919 2,919
------ ------ ------ ------ ------ ------ ------ ------- -------
TOTAL
ASSETS...... $9,642 $2,487 $4,244 $7,348 $2,865 $1,507 $ 389 $ 3,210 $31,692
====== ====== ====== ====== ====== ====== ====== ======= =======
SOURCES OF FUNDS
Money market
deposits(7)(8)..... $1,189 $ -- $1,189 $1,592 $ -- $ -- $ -- $ -- $ 3,970
Other savings and
time deposits...... 4,064 2,018 2,776 3,421 296 1,538 4 -- 14,117
Certificates of
deposit of $100,000
and over........... 953 504 664 448 43 3 -- -- 2,615
Short-term
borrowings......... 1,634 3 10 1 -- -- -- -- 1,648
Short and medium-
term bank notes.... -- -- 45 60 -- -- -- -- 105
Federal Home Loan
Bank advances...... 269 -- 2 5 3 1 -- -- 280
Other long-term
debt............... 358 1 1 13 80 100 501 -- 1,054
Noninterest-bearing
deposits........... -- -- -- -- -- -- -- 4,194 4,194
Other liabilities.... -- -- -- -- -- -- -- 725 725
Shareholders'
equity............. -- -- -- -- -- -- -- 2,984 2,984
------ ------ ------ ------ ------ ------ ------ ------- -------
TOTAL SOURCES
OF FUNDS.... $8,467 $2,526 $4,687 $5,540 $ 422 $1,642 $ 505 $ 7,903 $31,692
====== ====== ====== ====== ====== ====== ====== ======= =======
INTEREST-RATE
SENSITIVITY GAP...... $1,175 $ (39) $ (443) $1,808 $2,443 $ (135) $ (116) $(4,693)
CUMULATIVE
INTEREST-RATE
SENSITIVITY GAP(8)... 1,175 1,136 693 2,501 4,944 4,809 4,693 --
CUMULATIVE GAP AS A
PERCENTAGE OF TOTAL
ASSETS(8)............ 4% 4% 2% 8% 16% 15% 15% --%
</TABLE>
- ---------------
MANAGEMENT HAS MADE THE FOLLOWING ASSUMPTIONS IN PRESENTING THE ABOVE ANALYSIS:
(1) Assets and liabilities are generally scheduled according to their earliest
repricing dates regardless of their contractual maturities.
(2) Nonaccrual loans and accounts receivable-factoring are included in the
noninterest-bearing category.
(3) Fixed-rate mortgage loan maturities are estimated based on the currently
prevailing principal prepayment patterns of comparable mortgage-backed
securities.
(4) Delinquent FHA/VA loans are scheduled based on foreclosure and repayment
patterns.
(5) The scheduled maturities of mortgage-backed securities and CMOs assume
principal prepayment of these securities on dates estimated by management,
relying primarily upon current and consensus interest-rate forecasts in
conjunction with the latest three-month historical prepayment schedules.
(6) Securities are generally scheduled according to their call dates when valued
at a premium to par.
(7) Money market deposits and savings deposits that have no contractual
maturities are scheduled according to management's best estimate of their
repricing in response to changes in market rates. The impact of changes in
market rates would be expected to vary by product type and market.
(8) If all money market, NOW, and savings deposits had been included in the 0-90
Days category, the cumulative gap as a percentage of total assets would have
been negative (14%), (15%), and (12%) for the 0-90 Days, 91-180 Days, and
181-365 Days categories and positive 3%, 11%, 15%,and 15%, respectively, for
the 1-3 Years, 3-5 Years, 5-15 Years, and over 15 Years categories at
December 31, 1998.
33
<PAGE> 36
TABLE 12. INVESTMENT SECURITIES AND OTHER EARNING ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1998 1997 1996
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S. Government obligations
U.S. Treasury............................................. $ 396,287 $1,160,451 $1,368,463
U.S. Government agencies.................................. 4,842,792 3,752,796 3,461,333
---------- ---------- ----------
Total U.S. Government obligations.................. 5,239,079 4,913,247 4,829,796
Obligations of states and political subdivisions............ 1,345,666 1,033,944 873,384
Other investment securities................................. 1,716,958 467,006 482,519
---------- ---------- ----------
Total investment securities........................ 8,301,703 6,414,197 6,185,699
Interest-bearing deposits at financial institutions......... 47,583 38,128 31,040
Federal funds sold and securities purchased under agreements
to resell................................................. 94,568 265,890 311,306
Trading account assets...................................... 275,992 187,419 260,266
Loans held for resale....................................... 441,214 175,699 113,604
---------- ---------- ----------
Total investment securities and other earning
assets........................................... $9,161,060 $7,081,333 $6,901,915
========== ========== ==========
</TABLE>
TABLE 13. RISK-BASED CAPITAL
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
TIER 1 CAPITAL
Shareholders' equity...................................... $ 2,984,078 $ 2,874,473 $ 2,557,117
Trust Preferred Securities and minority interest in
consolidated subsidiaries............................... 202,197 214,360 211,522
Less: Goodwill and other intangibles...................... (381,601) (186,894) (97,610)
Disallowed deferred tax asset........................ (1,144) (1,651) (1,896)
Unrealized gain on available for sale securities..... (57,245) (52,964) (27,131)
----------- ----------- -----------
TOTAL TIER 1 CAPITAL............................... 2,746,285 2,847,324 2,642,002
TIER 2 CAPITAL
Allowance for losses on loans............................. 258,173 247,518 222,842
Qualifying long-term debt................................. 461,110 174,232 174,121
Other adjustments......................................... 218 (71) --
----------- ----------- -----------
TOTAL CAPITAL BEFORE DEDUCTIONS.................... 3,465,786 3,269,003 3,038,965
Less investment in unconsolidated subsidiaries............ (10,736) (10,628) (1,812)
----------- ----------- -----------
TOTAL CAPITAL...................................... $ 3,455,050 $ 3,258,375 $ 3,037,153
=========== =========== ===========
RISK-WEIGHTED ASSETS........................................ $20,590,574 $19,879,568 $18,228,605
=========== =========== ===========
RATIOS
Shareholders' equity to total assets...................... 9.42% 9.59% 9.10%
Leverage ratio(1)......................................... 8.86 9.62 9.40
Tier 1 capital to risk-weighted assets(1)................. 13.34 14.32 14.49
Total capital to risk-weighted assets(1).................. 16.78 16.39 16.66
</TABLE>
- ---------------
(1) Regulatory minimums for institutions considered "well capitalized" are 5%,
6%, and 10% for the Leverage, Tier 1 capital to risk-weighted assets, and
Total capital to risk-weighted assets ratios, respectively. As of December
31, 1998, all of the Corporation's banking subsidiaries were considered
"well capitalized" for purposes of FDIC deposit insurance assessments. See
Note 12 to the consolidated financial statements for a comparison of the
Corporation's capital levels and ratios to the regulatory minimums for
"adequately capitalized" and "well capitalized."
34
<PAGE> 37
TABLE 14. SELECTED QUARTERLY DATA
<TABLE>
<CAPTION>
1998 QUARTERS ENDED(1)
-------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL
----------- ----------- ------------ ------------ -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net interest income........... $ 303,750 $ 306,826 $ 302,717 $ 293,940 $ 1,207,233
Provision for losses on
loans....................... (33,212) (43,038) (51,222) (76,584) (204,056)
Investment securities gains
(losses).................... 5,854 (22,584) 1,635 6,021 (9,074)
Noninterest income............ 120,905 142,009 123,148 191,771 577,833
Noninterest expense........... (237,002) (257,119) (343,836) (362,057) (1,200,014)
----------- ----------- ----------- ----------- -----------
Earnings before income
taxes....................... 160,295 126,094 32,442 53,091 371,922
Applicable income taxes....... 55,834 46,690 18,292 25,500 146,316
----------- ----------- ----------- ----------- -----------
Net earnings.................. $ 104,461 $ 79,404 $ 14,150 $ 27,591 $ 225,606
=========== =========== =========== =========== ===========
PER COMMON SHARE DATA
Net earnings
Basic..................... $ .76 $ .57 $ .10 $ .19 $ 1.61
Diluted................... .74 .56 .10 .19 1.58
Dividends................... .50 .50 .50 .50 2.00
UPC COMMON STOCK DATA(2)
High trading price.......... $ 67.31 $ 62.56 $ 61.94 $ 50.25 $ 67.31
Low trading price........... 58.38 53.94 40.25 43.19 40.25
Closing price............... 62.19 58.81 50.25 45.31 45.31
Trading volume (in
thousands)(3)............. 12,901 14,013 31,000 20,927 78,841
KEY FINANCIAL DATA
Return on average assets.... 1.41% 1.04% .18% .35% .73%
Return on average common
equity.................... 14.87 10.97 1.84 3.66 7.71
Expense ratio(4)............ 1.54 1.53 1.52 1.74 1.58
Efficiency ratio(5)......... 53.52 54.53 55.74 60.18 55.98
Equity/assets (period
end)...................... 9.60 9.38 9.05 9.42 9.42
Average earning assets...... $27,588,514 $28,338,325 $28,566,359 $28,703,013 $28,302,836
Interest income -- FTE...... 582,478 595,367 591,331 582,506 2,351,682
Yield on average earning
assets -- FTE............. 8.56% 8.43% 8.21% 8.05% 8.31%
Average interest-bearing
liabilities............... $22,998,653 $23,526,625 $23,678,710 $23,816,423 $23,507,819
Interest expense............ 270,500 279,879 280,975 275,794 1,107,148
Rate on average interest-
bearing liabilities....... 4.77% 4.77% 4.71% 4.59% 4.71%
Net interest
income -- FTE............. $ 311,978 $ 315,488 $ 310,356 $ 306,712 $ 1,244,534
Net interest
margin -- FTE............. 4.59% 4.47% 4.31% 4.24% 4.40%
</TABLE>
35
<PAGE> 38
TABLE 14. SELECTED QUARTERLY DATA -- (CONTINUED)
<TABLE>
<CAPTION>
1997 QUARTERS ENDED(1)
-------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL
----------- ----------- ------------ ------------ -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net interest income........... $ 290,229 $ 302,007 $ 301,124 $ 306,539 $ 1,199,899
Provision for losses on
loans....................... (39,133) (27,337) (39,597) (47,033) (153,100)
Investment securities gains... 328 623 3,574 363 4,888
Noninterest income............ 105,375 109,627 129,816 121,045 465,863
Noninterest expense........... (218,175) (229,200) (234,917) (319,409) (1,001,701)
----------- ----------- ----------- ----------- -----------
Earnings before income
taxes....................... 138,624 155,720 160,000 61,505 515,849
Applicable income taxes....... 47,343 52,639 54,647 21,385 176,014
----------- ----------- ----------- ----------- -----------
Net earnings.................. $ 91,281 $ 103,081 $ 105,353 $ 40,120 $ 339,835
=========== =========== =========== =========== ===========
PER COMMON SHARE DATA
Net earnings
Basic..................... $ .70 $ .77 $ .78 $ .29 $ 2.53
Diluted................... .67 .74 .76 .29 2.47
Dividends................... .32 .375 .40 .40 1.495
UPC COMMON STOCK DATA(2)
High trading price.......... $ 47.75 $ 52.13 $ 56.50 $ 67.88 $ 67.88
Low trading price........... 38.38 41.25 49.25 57.00 38.38
Closing price............... 40.63 51.88 55.88 67.88 67.88
Trading volume (in
thousands)(3)............. 11,211 11,449 8,310 10,001 40,971
KEY FINANCIAL DATA
Return on average assets.... 1.31% 1.42% 1.42% .53% 1.16%
Return on average common
equity.................... 14.92 16.76 13.43 5.55 12.45
Expense ratio(4)............ 1.55 1.56 1.42 1.82 1.59
Efficiency ratio(5)......... 52.95 53.21 52.70 58.80 54.45
Equity/assets (period
end)...................... 8.62 8.58 9.08 9.59 9.59
Average earning assets...... $26,167,753 $27,050,417 $26,890,326 $27,380,726 $26,875,679
Interest income -- FTE...... 550,742 576,463 579,010 587,042 2,293,257
Yield on average earning
assets -- FTE............. 8.54% 8.55% 8.54% 8.51% 8.53%
Average interest-bearing
liabilities............... $21,947,378 $22,536,092 $22,687,628 $22,566,707 $22,436,842
Interest expense -- FTE..... 252,543 266,846 272,404 272,793 1,064,586
Rate on average interest-
bearing liabilities....... 4.67% 4.75% 4.75% 4.80% 4.74%
Net interest
income -- FTE............. $ 298,199 $ 309,617 $ 306,606 $ 314,249 $ 1,228,671
Net interest
margin -- FTE............. 4.62% 4.59% 4.52% 4.55% 4.57%
</TABLE>
- ---------------
FTE -- Fully taxable-equivalent basis
(1) Quarterly amounts for 1997 and 1998 have been restated for acquisitions
using the pooling of interests method of accounting. Certain quarterly
amounts for acquired entities have been restated from originally reported
amounts due to certain adjustments to conform to the Corporation's policies.
(2) Union Planters Corporation's common stock is listed on the New York Stock
Exchange (NYSE) and is traded under the symbol UPC. All share prices
represent closing prices as reported by the NYSE. There were approximately
36,300 holders of the Corporation's common stock as of December 31, 1998.
(3) Trading volume represents total volume for the period shown as reported by
NYSE.
(4) The expense ratio equals noninterest expense minus noninterest income
(excluding significant nonrecurring revenues and expenses, investment
securities gains and losses, and goodwill and other intangibles
amortization) divided by average assets.
(5) The efficiency ratio is calculated excluding the same items as in the
expense ratio calculation, dividing noninterest expense by net interest
income (FTE) plus noninterest income.
36
<PAGE> 39
REPORT OF MANAGEMENT
The accompanying financial statements and related financial information
were prepared by the management of Union Planters Corporation in accordance with
generally accepted accounting principles and, where appropriate, reflect
management's best estimates and judgment. Management is responsible for the
integrity, objectivity, consistency, and fair presentation of the financial
statements and all financial information contained in this annual report.
Management maintains and depends upon internal accounting systems and
related internal controls. Internal controls are designed to ensure that
transactions are properly authorized and recorded in the Corporation's financial
records and to safeguard the Corporation's assets from material loss or misuse.
The Corporation utilizes internal monitoring mechanisms and an extensive
external audit to monitor compliance with, and assess the effectiveness of the
internal controls. Management believes the Corporation's internal controls
provide reasonable assurance that the Corporation's assets are safeguarded and
that its financial records are reliable.
The Audit Committee of the Board of Directors meets periodically with
representatives of the Corporation's independent accountants, the corporate
audit manager, and management to review accounting policies, control procedures,
and audit and regulatory examination reports. The independent accountants and
corporate audit manager have free access to the Committee, with and without the
presence of management, to discuss the results of their audit work and their
evaluation of the internal controls and the quality of financial reporting.
The financial statements have been audited by PricewaterhouseCoopers LLP,
independent accountants, who were engaged to express an opinion as to the
fairness of presentation of such financial statements.
<TABLE>
<S> <C>
/s/ B. W. Rawlins /s/ JACK W. PARKER
Benjamin W. Rawlins, Jr Jack W. Parker
Chairman and Executive Vice President and
Chief Executive Officer Chief Financial Officer
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Union Planters Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of earnings, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Union Planters Corporation (the Corporation) and its subsidiaries at December
31, 1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Corporation's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Memphis, Tennessee
January 21, 1999, except as to
Note 2 which is as of
March 5, 1999
37
<PAGE> 40
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks................................... $ 1,271,614 $ 1,257,149
Interest-bearing deposits at financial institutions....... 47,583 38,128
Federal funds sold and securities purchased under
agreements to resell.................................... 94,568 265,890
Trading account assets.................................... 275,992 187,419
Loans held for resale..................................... 441,214 175,699
Available for sale investment securities (amortized cost:
$8,208,570 and $6,328,797, respectively)................ 8,301,703 6,414,197
Loans..................................................... 19,611,168 20,344,069
Less: Unearned income................................... (34,342) (41,100)
Allowance for losses on loans...................... (321,476) (324,474)
----------- -----------
Net loans.......................................... 19,255,350 19,978,495
Premises and equipment, net............................... 553,251 528,434
Accrued interest receivable............................... 293,066 287,680
FHA/VA claims receivable.................................. 126,164 134,112
Mortgage servicing rights................................. 101,466 62,726
Goodwill and other intangibles............................ 386,994 194,622
Other assets.............................................. 542,988 449,912
----------- -----------
TOTAL ASSETS....................................... $31,691,953 $29,974,463
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing..................................... $ 4,194,402 $ 3,572,896
Certificates of deposit of $100,000 and over............ 2,614,694 2,693,780
Other interest-bearing.................................. 18,087,359 16,609,203
----------- -----------
Total deposits..................................... 24,896,455 22,875,879
Short-term borrowings..................................... 1,648,039 1,824,513
Short- and medium-term bank notes......................... 105,000 135,000
Federal Home Loan Bank advances........................... 279,992 859,744
Other long-term debt...................................... 1,053,740 744,755
Accrued interest, expenses, and taxes..................... 278,237 241,133
Other liabilities......................................... 446,412 418,966
----------- -----------
TOTAL LIABILITIES.................................. 28,707,875 27,099,990
----------- -----------
Commitments and contingent liabilities (Notes 14, 17,
20)..................................................... -- --
Shareholders' equity
Convertible preferred stock (Note 10)................... 23,353 54,709
Common stock, $5 par value; 300,000,000 shares
authorized; 141,924,958 issued and outstanding
(134,531,639 in 1997).................................. 709,625 672,658
Additional paid-in capital.............................. 691,789 562,994
Retained earnings....................................... 1,516,712 1,545,512
Unearned compensation................................... (14,646) (14,364)
Accumulated other comprehensive income -- unrealized
gain on available for sale securities, net............. 57,245 52,964
----------- -----------
TOTAL SHAREHOLDERS' EQUITY......................... 2,984,078 2,874,473
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... $31,691,953 $29,974,463
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
38
<PAGE> 41
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans.............................. $ 1,828,340 $ 1,817,748 $ 1,629,774
Interest on investment securities
Taxable............................................... 373,934 348,247 395,777
Tax-exempt............................................ 63,195 53,121 52,520
Interest on deposits at financial institutions.......... 1,807 3,207 2,278
Interest on federal funds sold and securities purchased
under agreements to resell............................ 18,823 19,149 24,702
Interest on trading account assets...................... 14,197 14,956 13,895
Interest on loans held for resale....................... 14,085 8,057 7,284
------------ ------------ ------------
Total interest income............................ 2,314,381 2,264,485 2,126,230
------------ ------------ ------------
INTEREST EXPENSE
Interest on deposits.................................... 896,062 853,921 810,580
Interest on short-term borrowings....................... 79,415 88,753 100,498
Interest on long-term debt.............................. 131,671 121,912 100,163
------------ ------------ ------------
Total interest expense........................... 1,107,148 1,064,586 1,011,241
------------ ------------ ------------
NET INTEREST INCOME.............................. 1,207,233 1,199,899 1,114,989
PROVISION FOR LOSSES ON LOANS............................. 204,056 153,100 86,381
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOSSES ON
LOANS.......................................... 1,003,177 1,046,799 1,028,608
------------ ------------ ------------
NONINTEREST INCOME
Service charges on deposit accounts..................... 156,445 157,256 152,942
Mortgage servicing income............................... 60,478 58,972 64,713
Bank card income........................................ 38,562 39,497 31,866
Factoring commissions................................... 30,630 30,140 26,066
Trust service income.................................... 24,116 24,029 21,619
Profits and commissions from trading activities......... 5,402 7,323 5,768
Investment securities gains (losses).................... (9,074) 4,888 4,934
Other income............................................ 262,200 148,646 96,859
------------ ------------ ------------
Total noninterest income......................... 568,759 470,751 404,767
------------ ------------ ------------
NONINTEREST EXPENSE
Salaries and employee benefits.......................... 479,765 440,511 413,640
Net occupancy expense................................... 75,974 74,750 75,331
Equipment expense....................................... 72,718 62,736 60,531
Other expense........................................... 571,557 423,704 438,116
------------ ------------ ------------
Total noninterest expense........................ 1,200,014 1,001,701 987,618
------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES..................... 371,922 515,849 445,757
Applicable income taxes................................... 146,316 176,014 153,055
------------ ------------ ------------
NET EARNINGS..................................... $ 225,606 $ 339,835 $ 292,702
============ ============ ============
NET EARNINGS APPLICABLE TO COMMON SHARES......... $ 223,532 $ 334,893 $ 285,755
============ ============ ============
EARNINGS PER COMMON SHARE (NOTE 16)
Basic................................................... $ 1.61 $ 2.53 $ 2.28
Diluted................................................. 1.58 2.47 2.21
AVERAGE SHARES OUTSTANDING
Basic................................................... 139,034,412 132,451,476 125,448,534
Diluted................................................. 142,692,842 138,219,919 133,451,659
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
39
<PAGE> 42
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON
ADDITIONAL AVAILABLE
PREFERRED COMMON PAID-IN RETAINED UNEARNED FOR SALE
STOCK STOCK CAPITAL EARNINGS COMPENSATION SECURITIES TOTAL
---------- -------- ---------- ---------- ------------ ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996.............. $91,810 $599,678 $294,414 $1,289,162 $ (6,086) $43,914 $2,312,892
Comprehensive income
Net earnings....................... -- -- -- 292,702 -- -- 292,702
Other comprehensive income, net of
taxes
Net change in net unrealized gain
on available for sale securities
(Note 4)......................... -- -- -- -- -- (17,202) (17,202)
----------
Total comprehensive income..... -- -- -- -- -- -- 275,500
Cash dividends
Common stock, $1.08 per share...... -- -- -- (54,333) -- -- (54,333)
Preferred stock.................... -- -- -- (6,944) -- -- (6,944)
Pooled institutions prior to
pooling.......................... -- -- -- (55,904) -- -- (55,904)
Common stock issued under employee
benefit plans and dividend
reinvestment plan, net of stock
exchanged.......................... -- 6,228 32,807 (6,539) (4,413) -- 28,083
Issuance of stock for acquisitions
(Note 2)........................... -- 13,626 16,882 22,888 -- 419 53,815
Other stock transactions of pooled
institutions prior to pooling...... -- 3,026 34,398 (37,932) -- -- (508)
Conversion of preferred stock........ (8,001) 2,599 5,402 -- -- -- --
Gain from issuance of subsidiary's
common stock....................... -- -- 4,516 -- -- -- 4,516
------- -------- -------- ---------- -------- ------- ----------
BALANCE, DECEMBER 31, 1996............ 83,809 625,157 388,419 1,443,100 (10,499) 27,131 2,557,117
Comprehensive income
Net earnings....................... -- -- -- 339,835 -- -- 339,835
Other comprehensive income, net of
taxes
Net change in net unrealized gain
on available for sale securities
(Note 4)......................... -- -- -- -- -- 25,409 25,409
----------
Total comprehensive income..... -- -- -- -- -- -- 365,244
Cash dividends
Common stock, $1.495 per share..... -- -- -- (108,003) -- -- (108,003)
Preferred stock.................... -- -- -- (4,939) -- -- (4,939)
Pooled institutions prior to
pooling.......................... -- -- -- (53,044) -- -- (53,044)
Common stock issued under employee
benefit plans and dividend
reinvestment plan, net of stock
exchanged.......................... -- 6,477 32,824 (5,595) (3,865) -- 29,841
Issuance of stock for acquisitions
(Note 2)........................... -- 5,704 (2,289) 22,897 -- 424 26,736
Other stock transactions of pooled
institutions prior to pooling...... -- 31,407 130,319 (58,053) -- -- 103,673
Conversion of preferred stock........ (29,100) 7,275 21,822 -- -- -- (3)
Common stock repurchased............. -- (3,362) (8,101) (30,686) -- -- (42,149)
------- -------- -------- ---------- -------- ------- ----------
BALANCE, DECEMBER 31, 1997............ 54,709 672,658 562,994 1,545,512 (14,364) 52,964 2,874,473
Comprehensive income
Net earnings....................... -- -- -- 225,606 -- -- 225,606
Other comprehensive income, net of
taxes
Net change in net unrealized gain
on available for sale securities
(Note 4)......................... -- -- -- -- -- 3,893 3,893
----------
Total comprehensive income..... -- -- -- -- -- -- 229,499
Cash dividends
Common stock, $2.00 per share...... -- -- -- (217,613) -- -- (217,613)
Preferred stock.................... -- -- -- (2,072) -- -- (2,072)
Pooled institutions prior to
pooling.......................... -- -- -- (36,768) -- -- (36,768)
Common stock issued under employee
benefit plans and dividend
reinvestment plan, net of stock
exchanged.......................... -- 10,869 53,210 (279) 184 -- 63,984
Issuance of stock for acquisitions
(Note 2)........................... -- 26,936 128,264 50,400 (466) 388 205,522
Other stock transactions of pooled
institutions prior to pooling...... -- -- 9,446 (10,998) -- -- (1,552)
Conversion of preferred stock........ (31,356) 7,839 23,515 -- -- -- (2)
Common stock repurchased............. -- (13,035) (100,985) (37,076) -- -- (151,096)
Conversion of debt of acquired
entity............................. -- 4,358 15,345 -- -- -- 19,703
------- -------- -------- ---------- -------- ------- ----------
BALANCE, DECEMBER 31, 1998............ $23,353 $709,625 $691,789 $1,516,712 $(14,646) $57,245 $2,984,078
======= ======== ======== ========== ======== ======= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
40
<PAGE> 43
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings.............................................. $ 225,606 $ 339,835 $ 292,702
Reconciliation of net earnings to net cash provided by
operating activities:
Provision for losses on loans, other real estate, and
FHA/VA foreclosure claims, net of decrease (Note 6)... 174,254 164,572 112,566
Depreciation and amortization of premises and
equipment............................................. 63,424 56,609 55,945
Amortization and write-offs of intangibles.............. 53,772 41,276 55,458
Provisions for merger-related expenses.................. 50,806 30,635 36,095
Provisions for charter consolidation and other
expenses.............................................. -- 14,196 --
Net amortization (accretion) of investment securities... 5,969 (4,077) (8,298)
Net (gains) loss on sales of investment securities...... 9,074 (4,888) (4,940)
Deferred income tax benefit............................. (33,476) (3,208) (35,161)
(Increase) decrease in assets
Trading account assets and loans held for resale...... (354,088) 11,472 (165,818)
Other assets.......................................... (122,217) 15,290 (113,907)
Increase (decrease) in accrued interest, expenses,
taxes, and other liabilities.......................... 18,937 (38,544) 54,223
Other, net.............................................. 9,631 (4,569) (8,901)
----------- ----------- -----------
Net cash provided by operating activities............. 101,692 618,599 269,964
----------- ----------- -----------
INVESTING ACTIVITIES
Net decrease in short-term investments.................... 14,989 242 28,698
Proceeds from sales of available for sale securities...... 1,497,976 1,423,237 1,090,403
Proceeds from maturities, calls, and prepayments of
available for sale securities........................... 4,780,164 2,525,859 3,009,315
Purchases of available for sale securities................ (7,974,518) (3,874,273) (3,328,340)
Net (increase) decrease in loans.......................... 1,418,766 (523,148) (1,889,628)
Net cash received from acquired institutions.............. 1,306,523 16,907 54,764
Purchases of premises and equipment, net.................. (82,052) (73,558) (52,296)
Other, net................................................ -- (22,446) 16,805
----------- ----------- -----------
Net cash provided (used) by investing activities........ 961,848 (527,180) (1,070,279)
----------- ----------- -----------
FINANCING ACTIVITIES
Net increase (decrease) in deposits....................... (244,689) 324,896 122,067
Net increase (decrease) in short-term borrowings.......... (189,827) (63,875) 13,985
Proceeds from long-term debt, net......................... 671,200 484,072 863,530
Repayment of long-term debt............................... (1,091,478) (550,753) (311,227)
Proceeds from issuance of common stock.................... 42,364 33,944 21,026
Purchases of common stock, including stock transactions of
acquired entities prior to acquisition.................. (151,096) (42,814) (6,566)
Cash dividends paid....................................... (256,871) (165,036) (116,184)
Other, net................................................ -- (23,398) 5,726
----------- ----------- -----------
Net cash provided (used) by financing activities........ (1,220,397) (2,964) 592,357
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents........ (156,857) 88,455 (207,958)
Cash and cash equivalents at the beginning of the period.... 1,523,039 1,434,584 1,642,542
----------- ----------- -----------
Cash and cash equivalents at the end of the period.......... $ 1,366,182 $ 1,523,039 $ 1,434,584
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES
Cash paid for
Interest................................................ $ 1,102,454 $ 1,076,148 $ 1,055,683
Taxes................................................... 183,979 194,039 199,226
Unrealized gain on available for sale securities.......... 93,133 85,400 43,182
</TABLE>
NONCASH ACTIVITIES. See Notes 1, 2, and 10, respectively, regarding other real
estate transfers, acquisitions, and conversions of preferred stock.
The accompanying notes are an integral part of these consolidated financial
statements.
41
<PAGE> 44
UNION PLANTERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
BUSINESS. Union Planters Corporation (the Corporation) is a multi-state
bank holding company headquartered in Memphis, Tennessee. The Corporation
operates 14 banking subsidiaries with branches in Tennessee, Mississippi,
Florida, Missouri, Arkansas, Louisiana, Alabama, Kentucky, Texas, Illinois,
Iowa, and Indiana and has 885 banking offices and 1,106 ATMs. At December 31,
1998, the Corporation had consolidated total assets of $31.7 billion, making it
one of the 30 largest bank holding companies based in the United States and the
largest headquartered in Tennessee. Through its subsidiaries, the Corporation
provides a diversified range of financial services in the communities in which
it operates including consumer, commercial, and corporate lending; retail
banking; and other ancillary financial services traditionally furnished by
full-service financial institutions. Additional services offered include
factoring operations; mortgage origination and servicing; investment management
and trust services; the issuance of debit cards; the offering of credit cards;
the origination, packaging, and securitization of loans, primarily the
government-guaranteed portion of Small Business Administration (SBA) loans; the
collection of delinquent FHA/VA government-insured/guaranteed loans purchased
from third parties and from GNMA pools serviced for others; full-service and
discount brokerage; and the sale of annuities and bank-eligible insurance
products.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES. The accounting and reporting policies of the Corporation
and its subsidiaries conform with generally accepted accounting principles and
general practices within the financial services industry. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. The most
significant estimate relates to the adequacy of the allowance for losses on
loans. Actual results could differ from those estimates. The following is a
summary of the more significant accounting policies of the Corporation.
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of the Corporation and its subsidiaries after elimination of
significant intercompany accounts and transactions. Prior period consolidated
financial statements have been restated to include the accounts of acquisitions
accounted for using the pooling of interests method of accounting. Business
combinations accounted for as purchases are included in the consolidated
financial statements from their respective dates of acquisition. Assets and
liabilities of financial institutions accounted for as purchases are adjusted to
their fair values as of their dates of acquisition. Certain 1996 and 1997
amounts have been reclassified to conform with the 1998 financial reporting
presentation.
STATEMENT OF CASH FLOWS. Cash and cash equivalents include cash and due
from banks and federal funds sold. Federal funds sold in the amounts of $95
million, $266 million, and $314 million at December 31, 1998, 1997, and 1996,
respectively, are included in cash and cash equivalents. Noncash transfers to
foreclosed properties from loans for the years ended December 31, 1998, 1997,
and 1996 were $28.0 million, $35.7 million, and $34.1 million, respectively.
Other noncash transactions are detailed in Notes 2 and 10.
SECURITIES AND TRADING ACCOUNT ASSETS. Debt and equity securities that are
bought and principally held for the purpose of selling them in the near term are
classified as trading securities. These consist primarily of the
government-guaranteed portion of SBA loans and SBA participation certificates.
Gains and losses on sales and fair-value adjustments of trading securities are
included in profits and commissions from trading activities.
Debt and equity securities which the Corporation has not classified as held
to maturity or trading are classified as available for sale securities and, as
such, are reported at fair value, with unrealized gains and losses, net of
deferred taxes, reported as a component of shareholders' equity. Gains or losses
from sales of available for sale securities are computed using the specific
identification method and are included in investment securities gains (losses)
together with impairment losses considered other than temporary.
Debt securities that the Corporation has the positive intent and ability to
hold to maturity are classified as held to maturity securities and carried at
cost, adjusted for the amortization of premium and accretion of discount using
the level-yield method. Generally, the held to maturity portfolios of acquired
entities are reclassified to the available for sale portfolio upon acquisition.
At December 31, 1998 and 1997, the Corporation had no securities classified as
held to maturity.
LOANS HELD FOR RESALE. Loans held for resale include mortgage and other
loans and are
42
<PAGE> 45
NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
carried at the lower of cost or fair value on an aggregate basis.
LOANS. Loans are carried at the principal amount outstanding. Interest
income on loans is recognized using constant yield methods except for unearned
income which is recorded as income using a method which approximates the
interest method. Loan origination fees and direct loan origination costs are
deferred and recognized over the life of the related loans as adjustments to
interest income.
NONPERFORMING LOANS. Nonperforming loans consist of nonaccrual loans and
restructured loans. Loans, other than consumer loans, are generally placed on
nonaccrual status and interest is not recorded if, in management's opinion,
payment in full of principal or interest is not expected or when payment of
principal or interest is more than 90 days past due, unless the loan is both
well-secured and in the process of collection. FHA/VA
government-insured/guaranteed loans which are 90 days or more past due are
placed on nonaccrual status when interest claim reimbursements are likely to be
denied due to missed filing dates in the foreclosure process. Consumer loans are
written down to realizable value and interest is discontinued upon an adverse
change (e.g. bankruptcy or foreclosure). Unsecured consumer loans are
charged-off after they become 90 days past due and secured consumer loans are
charged off after they become 120 days past due.
ALLOWANCE FOR LOSSES ON LOANS. The allowance for losses on loans
represents management's best estimate of potential losses inherent in the
existing loan portfolio. The allowance for losses on loans is increased by the
provision for losses on loans charged to expense and reduced by loans charged
off, net of recoveries. The provision for losses on loans is determined based on
management's assessment of several factors: current and anticipated economic
conditions and the related impact on specific borrowers and industry groups,
historical loan loss experience, the level of classified and nonperforming
loans, reviews and evaluations of specific loans, changes in the nature and
volume of the loan portfolio, and the results of regulatory examinations.
PREMISES AND EQUIPMENT. Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation expense is computed
using the straight-line method and is charged to operating expense over the
estimated useful lives of the assets. Depreciation expense has been computed
principally using estimated lives of five to forty years for premises and two to
ten years for furniture and equipment. Leasehold improvements are amortized
using the straight-line method over the shorter of the initial term of the
respective lease or the estimated useful life of the improvement. Costs of major
additions and improvements are capitalized. Expenditures for maintenance and
repairs are charged to operations as incurred.
GOODWILL AND OTHER INTANGIBLES. The unamortized costs in excess of the
fair value of acquired net tangible assets are included in goodwill and other
intangibles. Identifiable intangibles, except for premiums on purchased deposits
which are amortized on a straight-line method over 10 years, are amortized over
the estimated periods benefited. The remaining costs (goodwill) are generally
amortized on a straight-line basis over 15 years. For acquisitions where the
fair value of net assets acquired exceeds the purchase price, the resulting
negative goodwill is allocated proportionally to noncurrent, nonmonetary assets.
IMPAIRMENT OF CERTAIN ASSETS. Effective January 1, 1996, the Corporation
adopted the provisions of Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires impairment losses to be recorded on
long-lived assets used in operations and certain related identifiable
intangibles when indications of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Additionally, long-lived assets and certain related
identifiable intangibles to be disposed of are reported at the lower of carrying
amount or fair value, less selling costs. The Corporation has adopted this
methodology for evaluating impairment of goodwill and other intangibles separate
from any associated long-lived assets. In applying this methodology, the
Corporation evaluates the carrying value of the goodwill and other intangibles
against undiscounted after-tax cash flows from the acquired assets. If such cash
flows exceed the carrying value, no impairment adjustment is recorded. If such
cash flows are less than the carrying values, the cash flows are then discounted
and the carrying values are adjusted to the amount of the discounted cash flows.
Additionally, the fair value of the assets/business is also considered in
evaluating the carrying value of the goodwill. The adoption of this statement
did not have a material impact on the Corporation, since existing policies for
determining impairment of long-lived assets, including goodwill and other
intangibles, were similar to the new standard.
MORTGAGE SERVICING RIGHTS. Mortgage servicing rights are accounted for
under the provi-
43
<PAGE> 46
NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
sions of SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," which became effective January 1,
1997. SFAS No. 125 superseded SFAS No. 122, "Accounting for Mortgage Servicing
Rights," but did not significantly change the methodology used to account for
servicing rights. The Corporation had adopted SFAS No. 122 as of July 1, 1995
and at that time began capitalizing originated servicing rights. The adoption
did not have a material impact on financial position or results of operations.
Prior to that date, capitalization had been limited to purchased servicing. The
servicing rights capitalized are amortized in proportion to and over the period
of estimated servicing income. Management stratifies servicing rights based on
interest rate and evaluates the recoverability in relation to the impact of
actual and anticipated loan portfolio prepayment, foreclosure, and delinquency
experience. The Corporation did not have a valuation allowance associated with
the mortgage servicing rights portfolio as of December 31, 1998.
OTHER REAL ESTATE. Properties acquired through foreclosure and unused bank
premises are stated at the lower of the recorded amount of the loan or the
property's estimated net realizable value, reduced by estimated selling costs.
Write-downs of the assets at, or prior to, the date of foreclosure are charged
to the allowance for losses on loans. Subsequent write-downs, income and expense
incurred in connection with holding such assets, and gains and losses realized
from the sales of such assets are included in noninterest income and expense.
STOCK COMPENSATION. The Corporation has elected not to adopt the
recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires a fair-value-based method of accounting for stock
options and similar equity awards. The Corporation elected to continue applying
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its stock compensation
plans and, accordingly, does not recognize compensation cost, except for stock
grants. See Note 14 for a summary of the pro forma effect if the accounting
provisions of SFAS No. 123 had been elected.
INCOME TAXES. The Corporation files a consolidated Federal income tax
return which includes all of its subsidiaries except for credit life insurance
companies and certain pass-through entities. Income tax expense is allocated
among the parent company and its subsidiaries as if each had filed a separate
return. The provision for income taxes is based on income reported for
consolidated financial statement purposes and includes deferred taxes resulting
from the recognition of certain revenues and expenses in different periods for
tax-reporting purposes. Deferred tax assets and liabilities are measured using
the enacted tax rates expected to apply to taxable income in the year in which
those temporary differences are expected to be realized or settled. Recognition
of certain deferred tax assets is based upon management's belief that, based
upon historical earnings and anticipated future earnings, normal operations will
continue to generate sufficient future taxable income to realize these benefits.
A valuation allowance is established for deferred tax assets when, in the
opinion of management, it is "more likely than not" that the asset will not be
realized.
RECENT ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES. Certain provisions of SFAS No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," relating to repurchase agreements, securities lending and other
similar transactions, and pledged collateral, were deferred for one year by SFAS
No. 127, and were adopted prospectively as of January 1, 1998. SFAS No. 125
established new criteria for determining whether a transfer of financial assets
in exchange for cash or other consideration should be accounted for as a sale or
as a pledge of collateral in a secured borrowing and also established new
accounting requirements for pledged collateral. The adoption of these provisions
did not have a material impact on financial position or results of operations.
REPORTING COMPREHENSIVE INCOME. In June 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting the components of
comprehensive income and requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
included in a financial statement that is displayed with the same prominence as
other financial statements. Comprehensive income includes net income as well as
certain items that are reported directly within a separate component of
shareholders' equity and bypass net income. The Corporation adopted the
provisions of this statement in 1998. These disclosure requirements had no
impact on financial position or results of operations.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. In
June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related
44
<PAGE> 47
NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Information." The provisions of this statement require disclosure of financial
and descriptive information about an enterprise's operating segments in annual
and interim financial reports issued to shareholders. The statement defines an
operating segment as a component of an enterprise that engages in business
activities that generate revenue and incur expense, whose operating results are
reviewed by the chief operating decision maker in the determination of resource
allocation and performance, and for which discrete financial information is
available. The Corporation adopted the provisions of this statement for 1998
annual reporting. These disclosure requirements had no impact on financial
position or results of operations.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In June
1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." The provisions of this statement require that derivative
instruments be carried at fair value on the balance sheet. The statement
continues to allow derivative instruments to be used to hedge various risks and
sets forth specific criteria to be used to determine when hedge accounting can
be used. The statement also provides for offsetting changes in fair value or
cash flows of both the derivative and the hedged asset or liability to be
recognized in earnings in the same period; however, any changes in fair value or
cash flow that represent the ineffective portion of a hedge are required to be
recognized in earnings and cannot be deferred. For derivative instruments not
accounted for as hedges, changes in fair value are required to be recognized in
earnings.
The provisions of this statement become effective for quarterly and annual
reporting beginning January 1, 2000. Although the statement allows for early
adoption in any quarterly period after June 1998, the Corporation has no plans
to adopt the provisions of SFAS No. 133 prior to the effective date. The impact
of adopting the provisions of this statement on the Corporation's financial
position, results of operations and cash flow subsequent to the effective date
is not currently estimable and will depend on the financial position of the
Corporation and the nature and purpose of the derivative instruments in use by
management at that time.
NOTE 2. ACQUISITIONS
POOLINGS OF INTERESTS. The Corporation consummated the following
acquisitions which were accounted for using the pooling of interests
method of accounting. The information below is as of the date of acquisition.
<TABLE>
<CAPTION>
DATE COMMON
ACQUIRED SHARES ISSUED TOTAL ASSETS TOTAL EQUITY
-------- ------------- ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
1998 ACQUISITIONS
Magna Group, Inc. (MGR)................................ 7/1/98 33,398,818 $ 7,683 $ 643
Peoples First Corporation (Peoples).................... 7/1/98 6,031,031 1,427 151
C B & T, Inc........................................... 7/7/98 1,449,127 278 34
First National Bancshares of Wetumpka, Inc............. 7/31/98 835,709 202 23
Merchants Bancshares, Inc.............................. 7/31/98 2,018,744 565 62
Alvin Bancshares, Inc.................................. 8/1/98 423,869 117 12
AMBANC Corporation..................................... 8/31/98 3,387,548 740 75
Transflorida Bank...................................... 8/31/98 1,655,371 334 40
Southeast Bancorp, Inc................................. 12/31/98 1,203,942 324 20
FSB, Inc............................................... 12/31/98 907,177 145 17
Ready State Bank....................................... 12/31/98 3,196,954 622 50
Other acquisitions (four acquisitions)................. Various 1,773,968 456 45
---------- ------- ------
Total......................................... 56,282,258 $12,893 $1,172
========== ======= ======
1997 ACQUISITIONS
Capital Bancorp........................................ 12/31/97 6,494,889 $ 2,156 $ 145
Magna Bancorp, Inc..................................... 11/1/97 7,103,272 1,191 128
Other acquisitions (three acquisitions)................ Various 1,081,552 242 25
---------- ------- ------
Total......................................... 14,679,713 $ 3,589 $ 298
========== ======= ======
1996 ACQUISITIONS
Leader Financial Corporation........................... 10/1/96 15,285,575 $ 3,411 $ 256
Other acquisitions (four acquisitions)................. Various 2,779,655 683 54
---------- ------- ------
Total......................................... 18,065,230 $ 4,094 $ 310
========== ======= ======
</TABLE>
45
<PAGE> 48
NOTE 2. ACQUISITIONS (CONTINUED)
The following table summarizes the impact of the poolings of interests on
the Corporation's net interest income, noninterest income, and net earnings:
<TABLE>
<CAPTION>
NET INTEREST NONINTEREST NET
INCOME INCOME EARNINGS
------------ ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1997
Union Planters............................................ $ 770,385 $361,610 $208,761
MGR....................................................... 239,028 71,282 72,675
Peoples................................................... 57,891 10,548 16,187
All other poolings of interests........................... 132,595 27,311 42,212
---------- -------- --------
Union Planters pooled.............................. $1,199,899 $470,751 $339,835
========== ======== ========
1996
Union Planters............................................ $ 744,852 $320,502 $171,474
MGR....................................................... 194,087 50,358 63,139
Peoples................................................... 54,114 8,535 17,164
All other poolings of interests........................... 121,936 25,372 40,925
---------- -------- --------
Union Planters pooled.............................. $1,114,989 $404,767 $292,702
========== ======== ========
</TABLE>
PURCHASE ACQUISITIONS. The Corporation consummated three acquisitions in
1998 that were accounted for as purchases. The following table summarizes these
transactions:
<TABLE>
<CAPTION>
DATE
INSTITUTION ACQUIRED CONSIDERATION TOTAL ASSETS(3) TOTAL EQUITY
----------- -------- -------------------- --------------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Sho-Me Financial Corporation(1)............... 1/1/98 1,153,459 shares of $ 374 $61
common stock
Duck Hill Bank(1)............................. 8/1/98 42,396 shares of 21 3
common stock
Purchase of 24 branches and................... 9/11/98 $110 million 1,389 N/A
assumption of $1.5 billion of
deposits of California Federal
Bank in Florida (Florida Branch
Purchase)(2)
------ ---
Total................................ $1,784 $64
====== ===
</TABLE>
- ---------------
(1) The Corporation repurchased the majority of the shares issued in these
transactions. Goodwill and other intangibles resulting from the transactions
were approximately $29 million and $594,000, respectively.
(2) The premium paid for the deposits purchased and the resulting goodwill and
other intangibles was approximately $110 million.
(3) Includes net cash received of $1.3 billion.
The Corporation acquired three institutions in 1997 and 1996 that were
accounted for as purchases. Total assets of the institutions at their respective
dates of acquisition were approximately $133.7 million. Cash in the amount of
$22.6 million was paid for these purchases resulting in total intangibles of
$8.4 million.
Because all of 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
Florida Branch Purchase is not available due to lack of information available
for operation of the branches on a historical basis.
SUBSEQUENT EVENTS. 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, Inc. (First Mutual), the parent of First Mutual Bank, S.B. in
Decatur, Illinois, in a transaction accounted for as a purchase. The Corporation
repurchased a majority of its common stock in the open market to facilitate the
purchase. At the date of acquisition, First Mutual had total assets of
approximately $403 million. The Corporation consummated on February 1, 1999, 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. Total assets of First
& Farmers Bancshares, Inc. at the date of acquisition were approximately $410
million. On March 5, 1999, the Corporation purchased 56 branches of First
Chicago NBD Corporation in
46
<PAGE> 49
NOTE 2. ACQUISITIONS (CONTINUED)
Indiana. In the transaction, the Corporation purchased approximately $830
million of loans, acquired certain branch locations and equipment, and assumed
approximately $1.8 billion of deposit liabilities. The premium paid for the
purchase was approximately $300 million.
On February 22, 1999, the Corporation and Republic Banking Corporation
(Republic), the parent company of Republic National Bank of Miami, Florida,
entered into an agreement to merge. Union Planters Bank will acquire Republic
National Bank's 25 Miami-Dade and two Broward County banking centers and
approximately $1.6 billion in assets. The purchase price is approximately $412
million in cash and it is expected the acquisition will close in mid-third
quarter 1999. The transaction is subject to regulatory approval and approval of
Republic's shareholders.
NOTE 3. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Corporation's banking subsidiaries are required to maintain
noninterest-bearing average reserve balances with the Federal Reserve Bank.
Average balances required to be maintained for such purposes during 1998 and
1997 were $118 million and $175 million, respectively.
NOTE 4. INVESTMENT SECURITIES
The following is a summary of the Corporation's investment securities, all
of which were classified as "available for sale:"
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------
UNREALIZED
AMORTIZED ------------------ FAIR
COST GAINS LOSSES VALUE
---------- -------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------
UNREALIZED
AMORTIZED ------------------ FAIR
COST GAINS LOSSES VALUE
---------- -------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government obligations
U.S. Treasury............................................. $1,155,907 $ 5,474 $ 930 $1,160,451
U.S. Government agencies
Collateralized mortgage obligations..................... 1,323,943 5,767 4,881 1,324,829
Mortgage-backed......................................... 1,071,888 24,396 1,185 1,095,099
Other................................................... 1,325,029 10,158 2,319 1,332,868
---------- -------- ------- ----------
Total U.S. Government obligations.................. 4,876,767 45,795 9,315 4,913,247
Obligations of states and political subdivisions............ 988,762 46,062 880 1,033,944
Other stocks and securities................................. 463,268 4,704 966 467,006
---------- -------- ------- ----------
Total available for sale securities................ $6,328,797 $ 96,561 $11,161 $6,414,197
========== ======== ======= ==========
</TABLE>
The following table presents the gross realized gains and losses on
available for sale investment securities for the years ended December 31, 1998,
1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Realized gains....... $ 26,088 $ 9,080 $ 9,935
Realized losses...... (35,162) (4,192) (5,001)
</TABLE>
During the second quarter of 1998, the Corporation recorded a pretax loss
of $22.8 million which is included in realized losses above. The loss was
attributable to the premium write-down of certain high-coupon mortgage-backed
securities of an acquired entity resulting from the acceleration of prepayments
of the underlying loans.
47
<PAGE> 50
NOTE 4. INVESTMENT SECURITIES (CONTINUED)
OTHER COMPREHENSIVE INCOME. The following table presents a reconciliation
of the net change in unrealized gains (losses) on available for sale securities:
<TABLE>
<CAPTION>
BEFORE-TAX TAX (EXPENSE) NET OF
AMOUNT BENEFIT TAX AMOUNT
---------- ------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1998
Net change in the unrealized gains on available for sale
securities.............................................. $ 823 $ (320) $ 503
Less: Reclassification for losses included in net
earnings............................................ (9,074) 5,684 (3,390)
-------- -------- --------
Net change in the unrealized gains on available for sale
securities.............................................. $ 9,897 $ (6,004) $ 3,893
======== ======== ========
1997
Net change in the unrealized gains on available for sale
securities.............................................. $ 46,663 $(18,152) $ 28,511
Less: Reclassification for gains included in net
earnings............................................ 4,888 (1,786) 3,102
-------- -------- --------
Net change in the unrealized gains on available for sale
securities.............................................. $ 41,775 $(16,366) $ 25,409
======== ======== ========
1996
Net change in the unrealized gains on available for sale
securities.............................................. $(23,190) $ 9,021 $(14,169)
Less: Reclassification for gains included in net
earnings............................................ 4,934 (1,901) 3,033
-------- -------- --------
Net change in the unrealized gains on available for sale
securities.............................................. $(28,124) $ 10,922 $(17,202)
======== ======== ========
</TABLE>
Investment securities having a fair value of approximately $3.1 billion and
$3.3 billion at December 31, 1998 and 1997, respectively, were pledged to secure
public and trust funds on deposit, securities sold under agreements to
repurchase, and Federal Home Loan Bank (FHLB) advances.
The fair values, contractual maturities, and weighted average yields of
available for sale investment securities as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
MATURING
-------------------------------------------------------------------------------
WITHIN ONE AFTER ONE BUT AFTER FIVE BUT
YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS TOTAL
---------------- ------------------ ------------------ ------------------ ------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
(FULLY TAXABLE-EQUIVALENT BASIS/DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government obligations
U.S. Treasury............ $199,291 5.90% $ 190,918 5.81% $ 329 6.87% $ -- --% $ 390,538 5.86%
U.S. Government agencies
Collateralized mortgage
obligations.......... 1,782 5.70 28,462 6.33 292,659 6.53 2,258,543 6.06 2,581,446 6.11
Mortgage-backed........ 13,662 5.84 131,971 6.38 268,678 6.60 318,913 7.09 733,224 6.76
Other.................. 529,371 5.74 748,083 5.95 151,163 6.58 62,777 6.70 1,491,394 5.97
-------- ---------- ---------- ---------- ----------
Total U.S.
Government
obligations...... 744,106 5.78 1,099,434 5.99 712,829 6.57 2,640,233 6.20 5,196,602 6.14
Obligations of states and
political subdivisions... 64,131 9.48 206,502 8.77 455,791 8.77 566,833 7.94 1,293,257 8.44
Other stocks and securities
Federal Reserve Bank and
Federal Home Loan Bank
stock.................. -- -- -- -- -- -- 154,742 7.53 154,742 7.53
Bonds, notes, and
debentures............. 11,581 6.45 5,167 6.72 436 5.91 -- -- 17,184 6.51
Collateralized mortgage
obligations............ -- 150,813 5.76 135,007 5.92 1,238,716 6.63 1,524,536 6.48
Other.................... 6 5.40 1,395 7.18 6,608 3.81 14,240 4.32 22,249 4.35
-------- ---------- ---------- ---------- ----------
Total other stocks
and securities... 11,587 6.45 157,375 5.81 142,051 5.82 1,407,698 6.70 1,718,711 6.55
-------- ---------- ---------- ---------- ----------
Total amortized
cost of available
for sale
securities....... $819,824 6.08 $1,463,311 6.36 $1,310,671 7.25 $4,614,764 6.57 $8,208,570 6.59
======== ========== ========== ========== ==========
Total fair value... $822,588 $1,485,910 $1,347,791 $4,645,414 $8,301,703
======== ========== ========== ========== ==========
</TABLE>
The weighted average yields are calculated by dividing the sum of the
individual security yield weights (effective yield times book value) by the
total book value of the securities. The weighted average yield for obligations
of states and political subdivisions is adjusted to a taxable-equivalent
48
<PAGE> 51
NOTE 4. INVESTMENT SECURITIES (CONTINUED)
yield, using a federal income tax rate of 35%. Expected maturities of securities
will differ from contractual maturities because some borrowers have the right to
call or prepay obligations without prepayment penalties. The investment
securities portfolio is expected to have a principal weighted average life of
approximately 3.8 years.
NOTE 5. LOANS
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial, financial, and agricultural..................... $ 3,543,925 $ 3,397,348
Foreign..................................................... 197,120 208,081
Accounts receivable -- factoring............................ 615,952 579,067
Real estate -- construction................................. 1,195,779 1,074,279
Real estate -- mortgage
Secured by 1-4 family residential......................... 5,647,520 5,704,490
FHA/VA government-insured/guaranteed...................... 759,911 1,331,993
Other mortgage............................................ 4,386,182 4,226,944
Home equity................................................. 482,665 452,870
Consumer
Credit cards and related plans............................ 96,091 617,113
Other consumer............................................ 2,622,402 2,685,845
Direct lease financing...................................... 63,621 66,039
----------- -----------
Total loans........................................ $19,611,168 $20,344,069
=========== ===========
</TABLE>
Nonperforming loans are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans............................................ $150,378 $138,896
Restructured loans.......................................... 5,612 15,250
-------- --------
Total.............................................. $155,990 $154,146
======== ========
</TABLE>
At December 31, 1998 and 1997, the Corporation had $9.2 million and $14.9
million, respectively, of FHA/VA government-insured/ guaranteed loans on
nonaccrual status. Since these loans are government-insured/guaranteed, the
Corporation does not expect any loss of principal. The loans were placed on
nonaccrual status because the contractual payment of interest by FHA/VA had
stopped.
The impact on net interest income of nonperforming loans was not material
for the three years ended December 31, 1998. Also, there were no significant
outstanding commitments to lend additional funds at December 31, 1998.
Certain of the Corporation's bank subsidiaries, principally Union Planters
Bank, National Association (UPB), have granted loans to the Corporation's
directors, executive officers, and their affiliates. These loans were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and do
not involve more than normal risks of collectability. The aggregate dollar
amount of these loans was $21.9 million and $115.8 million at December 31, 1998
and 1997, respectively. During 1998, $11.1 million of new loans and advances
under credit lines were made to related parties; repayments totaled
approximately $17.3 million. Additionally, the balance at December 31, 1998 was
reduced by $87.7 million for loans related to former directors and other loans
no longer considered related party relationships.
In the second quarter of 1998, UPB securitized approximately $380 million
of FHA/VA government-insured/guaranteed loans which resulted in a pretax gain of
$19.6 million. Additionally, in October 1998, the Corporation sold approximately
$440 million of its credit card portfolio to a third party which resulted in a
pretax gain of $72.7 million.
49
<PAGE> 52
NOTE 6. ALLOWANCE FOR LOSSES ON LOANS
The changes in the allowance for losses on loans are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance, January 1.......................................... $ 324,474 $ 270,439 $255,103
Increase due to acquisitions.............................. 15,920 17,185 7,949
Decrease due to the sale of certain loans................. (36,693) -- (1,628)
Provision for losses on loans............................. 204,056 153,100 86,381
Recoveries of loans previously charged off................ 29,016 24,281 21,751
Loans charged off......................................... (215,297) (140,531) (99,117)
--------- --------- --------
Balance, December 31........................................ $ 321,476 $ 324,474 $270,439
========= ========= ========
</TABLE>
At December 31, 1998, the Corporation had an impaired loan totaling $11.9
million which had a valuation reserve recorded in the fourth quarter of 1998 of
$7 million.
NOTE 7. PREMISES AND EQUIPMENT
A summary of premises and equipment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 108,307 $ 102,672
Buildings and improvements.................................. 451,633 416,428
Leasehold improvements...................................... 47,243 44,551
Equipment................................................... 368,373 309,288
Construction in progress.................................... 19,751 20,333
--------- ---------
995,307 893,272
Less accumulated depreciation and amortization.............. (442,056) (364,838)
--------- ---------
Total premises and equipment....................... $ 553,251 $ 528,434
========= =========
</TABLE>
NOTE 8. INTEREST-BEARING DEPOSITS
The following table presents the maturities of interest-bearing deposits at
December 31, 1998 (Dollars in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 9,534,849
2000........................................................ 1,894,092
2001........................................................ 525,166
2002........................................................ 177,187
2003........................................................ 161,033
2004 and after.............................................. 45,933
-----------
Total time deposits................................... 12,338,260
Interest-bearing deposits with no stated maturity..... 8,363,793
-----------
Total interest-bearing deposits.................... $20,702,053
===========
</TABLE>
NOTE 9. BORROWINGS
SHORT-TERM BORROWINGS. Short-term borrowings include federal funds
purchased and securities sold under agreements to repurchase, commercial paper,
and other short-term borrowings having original maturities of less than one
year. Federal funds purchased arise primarily from the Corporation's market
activity with its correspondent banks and generally mature in one business day.
Securities sold under agreements to repurchase are secured by U.S. Government
and agency securities.
50
<PAGE> 53
NOTE 9. BORROWINGS (CONTINUED)
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
YEAR-END BALANCES
Federal funds purchased and securities sold under
agreements to repurchase................................ $1,647,249 $1,559,952 $1,121,035
FHLB advances............................................. -- 210,860 345,616
Other short-term borrowings............................... 790 53,701 28,122
---------- ---------- ----------
Total short-term borrowings........................ $1,648,039 $1,824,513 $1,494,773
========== ========== ==========
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS
TO REPURCHASE
Daily average balance..................................... $1,454,025 $1,392,670 $1,543,054
Weighted average interest rate............................ 5.17% 5.06% 5.15%
Maximum outstanding at any month end...................... $1,892,426 $1,731,605 $1,965,725
Weighted average interest rate at December 31............. 4.58% 5.44% 5.24%
</TABLE>
BANK NOTES. In 1996, the Corporation's principal subsidiary, UPB,
established a $1-billion short- and medium-term bank note program to supplement
UPB's funding sources. In December 1998, UPB replaced its existing program with
a $5 billion senior and subordinated bank note program. Under the program UPB
may issue senior bank notes with maturities ranging from 30 days to one year
from their respective issue dates (Short-Term Senior Notes), senior bank notes
with maturities 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). A summary of the bank notes follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------------- ----------------------------
SHORT-TERM MEDIUM-TERM SHORT-TERM MEDIUM-TERM
SENIOR NOTES SENIOR NOTES SENIOR NOTES SENIOR NOTES
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balances at year end....................... $ -- $ 105,000 $ -- $ 135,000
Average balance for the year............... -- 123,986 119,493 135,000
Weighted average interest rate............. -- 6.66% 5.84% 6.62%
Weighted average interest rate at year
end...................................... -- 6.67 -- 6.59
Fixed rate notes........................... $ -- $ 105,000 $ -- $ 135,000
Range of maturities........................ -- 10/00-10/01 -- 8/98-10/01
</TABLE>
The principal maturities of Medium-Term Senior Notes subsequent to December
31, 1998 are $45 million in 2000 and $60 million in 2001.
FEDERAL HOME LOAN BANK ADVANCES. Certain of the Corporation's banking and
thrift subsidiaries had outstanding advances from the FHLB under Blanket
Agreements for Advances and Security Agreements (the Agreements). The Agreements
enable these subsidiaries to borrow funds from the FHLB to fund mortgage loan
programs and to satisfy certain other funding needs. The value of the
mortgage-backed securities and mortgage loans pledged under the Agreements must
be maintained at not less than 115% and 150%, respectively, of the advances
outstanding. At December 31, 1998, the Corporation's subsidiaries had an
adequate amount of mortgage-backed securities and loans to satisfy the
collateral requirements. A summary of the advances is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1998 1997
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at year end......................................... $ 279,992 $ 859,744
Range of interest rates..................................... 3.25%-8.36% 3.25%-8.95%
Range of maturities......................................... 1999-2015 1998-2017
</TABLE>
The principal maturities of FHLB advances subsequent to December 31, 1998
are $62.2 million in 1999, $205.2 million in 2000, $2.8 million in 2001, $6.2
million in 2002, $.8 million in 2003, and $2.8 million after 2003.
51
<PAGE> 54
NOTE 9. BORROWINGS (CONTINUED)
OTHER LONG-TERM DEBT. The Corporation's other long-term debt is summarized
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Corporation-Obligated Mandatorily Redeemable Capital
Pass-through Securities of Subsidiary Trust holding solely
a Corporation-Guaranteed Related Subordinated Note (Trust
Preferred Securities)..................................... $ 199,009 $198,973
Variable rate asset-backed certificates..................... 275,000 275,000
6 3/4% Subordinated Notes due 2005.......................... 99,595 99,536
6.25% Subordinated Notes due 2003........................... 74,748 74,696
6.50% Putable/Callable Subordinated Notes due 2018.......... 301,716 --
Revolving loan.............................................. 74,500 43,600
Subordinated notes of acquired entities due 1998 and
1999...................................................... 4,896 24,542
Other long-term debt........................................ 24,276 28,408
---------- --------
Total other long-term debt......................... $1,053,740 $744,755
========== ========
</TABLE>
The Corporation-Obligated Mandatorily Redeemable Capital Pass-through
Securities of Subsidiary Trust holding solely a Corporation-Guaranteed Related
Subordinated Note represents Capital Securities issued by Union Planters Capital
Trust A (the UPC Trust). In 1996, the UPC Trust issued $200 million liquidation
amount of 8.20% Capital Trust Pass-through Securities(SM) (Trust Preferred
Securities) at 99.468% which represented an undivided beneficial interest in the
assets of the UPC Trust, a statutory business trust created under the laws of
the state of Delaware. The Corporation owns all of the common securities of the
UPC Trust representing an undivided beneficial interest in the assets of the UPC
Trust. The sole asset of the UPC Trust is $206.2 million (carrying value of
$205.2 million at December 31, 1998 and $205.1 million at December 31, 1997) of
8.20% Junior Subordinated Deferrable Interest Debentures of the Corporation
issued at 99.468%, which will mature on December 15, 2026. The distributions
payable on the Trust Preferred Securities are a fixed rate per annum, 8.20% of
the stated liquidation amount, and are cumulative from the date of issuance.
The Corporation has the right, at any time, subject to certain conditions,
to defer payments of interest on the Subordinated Debentures, in which case
distributions on Trust Preferred Securities would likewise be deferred. Upon
electing to defer such interest payments, the Corporation will be prohibited
from paying dividends on its common and preferred stock and interest on certain
outstanding borrowings. The Subordinated Debt and therefore, the Trust Preferred
Securities are redeemable by the Corporation at a call price, plus accrued and
unpaid interest to the date of redemption, in whole or in part and from
time-to-time on or after December 15, 2006, subject to certain conditions. In
certain limited circumstances, primarily related to certain tax events, the
Subordinated Debt and therefore, the Trust Preferred Securities are redeemable
at par, plus accrued interest to date of redemption. The Trust Preferred
Securities qualify as Tier 1 regulatory capital and are reported in bank
regulatory reports as a minority interest in a consolidated subsidiary.
In June 1994, December 1994, and July 1995, Capital Factors, Inc., a wholly
owned subsidiary, through a wholly owned financing trust subsidiary, issued $100
million, $25 million, and $50 million, respectively, of Variable Rate
Asset-Backed Certificates (Certificates) with maturity dates of December 1999,
June 2000, and January 2001. The senior certificates bear an interest rate of
LIBOR plus 1.25%. The interest rates on December 31, 1998 and 1997 were 6.79%
and 7.23%, respectively. The senior certificates may not be redeemed prior to
their stated maturity. In April 1997, a fourth series of variable rate
asset-backed certificates (the Variable Funding Certificates) that mature in
June 2004 were issued. Unlike the previously issued Certificates which were
fixed as to principal amount, the Variable Funding Certificates provide for a
monthly settlement of principal, which may increase or decrease the outstanding
amount. The fourth series includes the issuance of $95.25 million of senior
Variable Funding Certificates and $4.75 million of senior subordinated Variable
Funding Certificates which bear interest rates of LIBOR plus 0.75% and LIBOR
plus 1.50%, respectively. The interest rates on December 31, 1998 were 6.29% and
7.04%, respectively, and 6.73% and 7.48%, respectively, at December 31, 1997.
Interest on all certificates is payable monthly. The senior certificates are
collateralized by interest-earning advances to factoring clients which totaled
approximately $354.1 million at December 31, 1998. Such advances are made on
receivables before they are due or collected by Capital Factors, Inc., which
services and adminis-
52
<PAGE> 55
NOTE 9. BORROWINGS (CONTINUED)
ters these advances and related receivables under an agreement with another
financial institution. The senior certificates are subject to acceleration if
certain collateral requirements are not maintained. A cash collateral account is
required pursuant to the terms of the aforementioned agreement. Such restricted
cash collateral amounted to $10.1 million at December 31, 1998 and 1997.
During November 1993, the Corporation issued in a public offering $75
million of 6.25% Subordinated Capital Notes due 2003 at 99.305%. In November
1995, the Corporation issued in another public offering $100 million of 6 3/4%
Subordinated Capital Notes due 2005 at 99.408%. The Notes qualify as Tier II
regulatory capital.
In March 1998, UPB issued $300 million of 6.50% Putable/Callable
Subordinated Notes due March 15, 2018, Putable/Callable March 15, 2008. These
notes were issued at 99.306% and interest is payable semiannually. The notes are
subject to mandatory redemption from the holders on March 15, 2008 through
either the exercise of the call option by the callholder or in the event the
callholder does not exercise the call option or for any reason fails to pay the
call price, the automatic exercise of the put option. If the callholder elects
to purchase the notes, the notes will be acquired by the callholder from the
holders on March 15, 2008 at 100% of the entire principal amount thereof. If the
callholder does not elect to purchase the notes or fails to make the payment of
the call price, UPB will be required to repurchase the entire principal amount
of the notes from the holders thereof on March 15, 2008 at 100% of the principal
amount. Except in limited circumstances, the notes are not subject to redemption
by UPB prior to March 15, 2018. The notes are unsecured debt obligations of UPB
and are subordinated to the claims of UPB's depositors and general creditors.
The notes qualify for Tier II capital for regulatory purposes.
Capital Factors has a $75-million revolving loan payable to another
financial institution. At December 31, 1998 and 1997, $74.50 million and $43.6
million, respectively, was outstanding under the revolving line. Interest
accrues on this line at LIBOR plus 1.25% (6.88% and 8.09% at December 31, 1998
and 1997) with interest payable monthly. The loan was paid off subsequent to
December 31, 1998.
Included in other long-term debt at December 31, 1998 and 1997 is a
privately placed $10 million 7.95% subordinated note issued in connection with
Capital Factors' securitized financing. Interest on the note is payable monthly
and it matures in July 2001. The balance at December 31, 1998 and 1997, included
in other long-term debt was $10.0 million and $9.1 million, respectively.
The subordinated notes of acquired entities represent two issues. One of
these issues matured in 1998 and one issue will mature in 1999.
The principal maturities of other long-term debt subsequent to December 31,
1998 are $190.6 million in 1999, $27.3 million in 2000, $60.5 million in 2001,
$.1 million in 2002, $74.8 million in 2003, and $700.4 million after 2003.
The ability of the Corporation to service its long-term debt obligations is
dependent upon the future profitability of its banking subsidiaries and their
ability to pay dividends to the Corporation (see Note 12).
NOTE 10. SHAREHOLDERS' EQUITY
COMMON STOCK. At the Corporation's 1998 annual meeting, shareholders
approved an increase in the number of authorized common shares from 100 million
to 300 million.
DIVIDENDS. The payment of dividends is determined by the Board of
Directors taking into account the earnings, capital levels, cash requirements,
and the financial condition of the Corporation and its subsidiaries, applicable
government regulations and policies, and other factors deemed relevant by the
Board of Directors, including the amount of dividends payable to the Corporation
by its subsidiaries. Various federal laws, regulations, and policies limit the
ability of the Corporation's subsidiary banks to pay dividends. See Note 12,
"Regulatory Capital and Restrictions on Dividends and Loans from Subsidiaries."
PREFERRED STOCK. The Corporation's preferred stock is summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
PREFERRED STOCK, WITHOUT PAR VALUE, 10,000,000 SHARES
AUTHORIZED FOR ALL ISSUES:
Series A Preferred Stock.................................. $ -- $ --
Series E Preferred Stock.................................. 23,353 54,709
------- -------
Total preferred stock.............................. $23,353 $54,709
======= =======
</TABLE>
53
<PAGE> 56
NOTE 10. SHAREHOLDERS' EQUITY (CONTINUED)
SERIES A PREFERRED STOCK (SHAREHOLDER RIGHTS PLAN). In 1989, the Board of
Directors of the Corporation adopted a Share Purchase Rights Plan and
distributed a dividend of one Preferred Share Purchase Right (Right) for each
outstanding share of the Corporation's $5 par value Common Stock and for each
share to be issued thereafter. The Rights are generally designed to deter
coercive takeover tactics and to encourage all persons interested in acquiring
control of the Corporation to deal with each shareholder on a fair and equal
basis. Each Right trades in tandem with its respective share of common stock
until the occurrence of certain events, in which case it would separate from the
common stock and entitle the registered holder, subject to the terms of the
Rights Agreement, to purchase certain equity securities at a price below their
market value. No shares have been issued.
The Board has adopted a new Shareholder Rights Plan, which became effective
upon the expiration of the former Shareholder Rights Plan on January 19, 1999.
Under the new Shareholder Rights Plan, each share of common stock received a
tax-free dividend of one Right. The Rights are not exercisable unless a third
party acquires 15% of the common stock, or an offer is commenced for 15% or more
of the common stock. At that time, the Rights can be exercised to purchase Units
of the Corporation's Series F Preferred Stock. Each Unit has the same voting and
dividend rights as one share of the common stock, and each Right entitles the
holder to purchase one Unit at a 50% discount from the then market value of one
share of the common stock. If a third party merges with or otherwise acquires
the Corporation, each Right can be exercised to purchase one share of common
stock of the acquiring company at a 50% discount from the then market value of
that stock. Rights held by the potential acquiring company cannot be exercised.
The Board may extend the time period before the Rights become exercisable or
redeem the Rights at $.01 per Right. These provisions give the Board the
flexibility to negotiate a transaction with a potential acquiring company in the
best interests of the shareholders. The new Shareholder Rights Plan will expire
on January 19, 2009. The Corporation authorized 300,000 shares of Series F
Preferred Stock for issuance under the Shareholder Rights Plan, none of which
has been issued.
SERIES B PREFERRED STOCK. All 44,000 outstanding shares of Series B
Preferred Stock were converted by holders into 339,765 shares of the
Corporation's common stock in 1996.
SERIES E PREFERRED STOCK. At December 31, 1998 and 1997, 934,128 and
2,188,358 shares, respectively, of the Corporation's 8% Cumulative, Convertible,
Preferred Stock, Series E (Series E Preferred Stock) were issued and
outstanding. Such shares have a stated value of $25 per share on which dividends
accrue at the rate of 8% per annum; dividends are cumulative and are payable
quarterly. The Series E Preferred Stock is not subject to any sinking fund
provisions and has no preemptive rights. Such shares have a liquidation
preference of $25 per share plus unpaid dividends accrued thereon, and with the
prior approval of the Federal Reserve, may be redeemed by the Corporation in
whole or in part at any time at $25 per share. At any time prior to redemption,
each share of Series E Preferred Stock is convertible, at the option of the
holder, into 1.25 shares of the Corporation's common stock. Holders of Series E
Preferred Stock have no voting rights except for those provided by law and in
certain other limited circumstances.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN. The Dividend Reinvestment
and Stock Purchase Plan (the Plan) authorizes the issuance of 2,000,000 shares
(1,525,671 issued through December 31, 1998) of common stock to shareholders who
choose to invest all or a portion of their cash dividends or make optional cash
purchases. On certain investment dates, shares may be purchased with reinvested
dividends and optional cash payments without brokerage commissions. Shares
issued under the Plan totaled 337,804, 271,615, and 241,060 in 1998, 1997, and
1996, respectively.
54
<PAGE> 57
NOTE 11. UNION PLANTERS CORPORATION
(PARENT COMPANY ONLY)
FINANCIAL INFORMATION
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents at subsidiary banks............. $ 315,632 $ 432,947
Investment securities available for sale.................. 171,999 132,690
Advances to and receivables from subsidiaries............. 2,144 5,112
Investment in bank and bank holding company
subsidiaries............................................ 2,811,643 2,646,099
Investment in nonbank subsidiaries........................ 17,817 22,700
Other assets.............................................. 109,291 67,965
---------- ----------
TOTAL ASSETS....................................... $3,428,526 $3,307,513
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt (Note 9)................................... $ 384,404 $ 379,360
Loans from and payables to subsidiaries................... 22,747 5,324
Other liabilities......................................... 37,297 48,356
Shareholders' equity (Note 10)............................ 2,984,078 2,874,473
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... $3,428,526 $3,307,513
========== ==========
</TABLE>
CONDENSED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INCOME
Dividends from bank and bank holding company
subsidiaries............................................ $234,632 $233,990 $152,534
Dividends from nonbank subsidiaries....................... 2,459 3,355 950
Fees and interest from subsidiaries....................... 21,889 73,919 46,326
Interest and dividends on investments, loans, and
interest-bearing deposits at other financial
institutions............................................ 11,279 8,265 12,888
Other income.............................................. 3,590 1,775 398
-------- -------- --------
Total income....................................... 273,849 321,304 213,096
-------- -------- --------
EXPENSES
Interest expense.......................................... 28,953 28,776 16,351
Salaries and employee benefits............................ -- 34,413 22,233
Other expense............................................. 24,880 42,911 37,032
-------- -------- --------
Total expenses..................................... 53,833 106,100 75,616
-------- -------- --------
EARNINGS BEFORE INCOME TAXES AND EQUITY IN
UNDISTRIBUTED EARNINGS (LOSS) OF SUBSIDIARIES.... 220,016 215,204 137,480
Tax benefit................................................. (8,502) (10,283) (5,701)
-------- -------- --------
EARNINGS BEFORE EQUITY IN UNDISTRIBUTED EARNINGS
(LOSS) OF SUBSIDIARIES........................... 228,518 225,487 143,181
Equity in undistributed earnings (loss) of subsidiaries..... (2,912) 114,348 149,521
-------- -------- --------
NET EARNINGS....................................... $225,606 $339,835 $292,702
======== ======== ========
</TABLE>
55
<PAGE> 58
NOTE 11. UNION PLANTERS CORPORATION
(PARENT COMPANY ONLY)
FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings.............................................. $ 225,606 $ 339,835 $ 292,702
Equity in undistributed earnings (loss) of subsidiaries... 2,912 (114,348) (149,521)
Deferred income tax benefit............................... (6,446) (8,660) (2,770)
Other, net................................................ 1,865 (1,018) 7,472
--------- --------- ---------
Net cash provided by operating activities.......... 223,937 215,809 147,883
--------- --------- ---------
INVESTING ACTIVITIES
Net decrease in short-term investments.................... -- -- 10,000
Purchases of available for sale securities................ (288,039) (122,802) (437,340)
Proceeds from sales of available for sale securities...... 249,381 205,029 397,931
Net increase in investment in and receivables from
subsidiaries............................................ 32,026 (34,259) (36,778)
Purchases of premises and equipment, net.................. 1,946 (3,981) (126)
Net cash received from acquired entities.................. -- 18,384 --
Other..................................................... 951 -- --
--------- --------- ---------
Net cash provided (used) by investing activities... (3,735) 62,371 (66,313)
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt, net............. 4,896 439 205,089
Repayment and defeasance of long-term debt................ (541) (488) (40,349)
Net proceeds (repayments) from loans from and payables to
subsidiaries............................................ (5,324) (3,060) 5,133
Proceeds from issuance of common stock, net............... 34,834 22,781 16,336
Repurchase of common stock................................ (151,279) (35,009) --
Cash dividends paid....................................... (220,103) (105,151) (61,352)
Other, net................................................ -- 633 --
--------- --------- ---------
Net cash provided (used) by financing activities... (337,517) (119,855) 124,857
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ (117,315) 158,325 206,427
Cash and cash equivalents at the beginning of the year...... 432,947 274,622 68,195
--------- --------- ---------
Cash and cash equivalents at the end of the year............ $ 315,632 $ 432,947 $ 274,622
========= ========= =========
</TABLE>
- ---------------
NONCASH ACTIVITIES. See Note 2 and Note 10, respectively, regarding
acquisitions in 1998, 1997, and 1996 and the conversions of Series B and E
Preferred Stock.
NOTE 12. REGULATORY CAPITAL AND RESTRICTIONS
ON DIVIDENDS AND LOANS FROM
SUBSIDIARIES
REGULATORY CAPITAL. The Corporation and its banking subsidiaries are
subject to various regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the Corporation or
its banking subsidiaries' financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Corporation and its banking subsidiaries must meet specific capital guidelines
that involve quantitative measures of the Corporation's and its banking
subsidiaries' assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Corporation's and its
banking subsidiaries' capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and its banking subsidiaries to maintain minimum amounts
and ratios (set forth in the table below for the Corporation and its significant
subsidiaries, UPB and Magna Bank) of Total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and Tier 1 capital (as
defined) to average assets (as defined). As of December 31, 1998, management
believes that the Corporation, UPB, and the Corporation's other banking
subsidiaries met all capital adequacy requirements to which they are subject.
At December 31, 1998, the most recent notification from the Office of the
Comptroller of
56
<PAGE> 59
NOTE 12. REGULATORY CAPITAL AND RESTRICTIONS
ON DIVIDENDS AND LOANS FROM
SUBSIDIARIES (CONTINUED)
the Currency (OCC) categorized UPB as well capitalized under the regulatory
framework for prompt corrective action. Additionally, all of the Corporation's
other banking subsidiaries were categorized as well capitalized and the
Corporation's capital levels and ratios would be considered well capitalized. To
be categorized as well capitalized, an institution must maintain Tier 1
leverage, Tier 1 risk-based, and Total risk-based capital ratios as set forth in
the table below. There are no conditions or events since the latest notification
that management believes have changed any of the institutions' categories. The
capital and ratios of the Corporation, UPB, and Magna Bank are presented in the
table below. No amount was deducted from capital for interest-rate risk.
<TABLE>
<CAPTION>
MINIMUM
FOR MINIMUM TO BE WELL
ACTUAL CAPITAL ADEQUACY CAPITALIZED(1)
--------------- ----------------- ---------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1998:
LEVERAGE (TIER 1 CAPITAL TO AVERAGE ASSETS)
Consolidated................................. $2,746 8.86% $1,240 4.00% N/A N/A
UPB.......................................... 2,072 7.71 1,075 4.00 $1,344 5.00%
TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS)
Consolidated................................. $2,746 13.34% $ 823 4.00% N/A N/A
UPB.......................................... 2,072 11.45 724 4.00 $1,085 6.00%
TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS)
Consolidated................................. $3,455 16.78% $1,647 8.00% N/A N/A
UPB.......................................... 2,599 14.37 1,447 8.00 $1,809 10.00%
AS OF DECEMBER 31, 1997:
LEVERAGE (TIER 1 CAPITAL TO AVERAGE ASSETS)
Consolidated................................. $2,847 9.62% $1,184 4.00% N/A N/A
UPB(2)....................................... 489 9.21 212 4.00 $ 265 5.00%
Magna Bank(3)................................ 488 7.07 276 4.00 345 5.00
TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS)
Consolidated................................. $2,847 14.32% $ 795 4.00% N/A N/A
UPB(2)....................................... 489 15.02 130 4.00 $ 195 6.00%
Magna Bank(3)................................ 488 10.86 180 4.00 269 6.00
TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS)
Consolidated................................. $3,258 16.39% $1,590 8.00% N/A N/A
UPB(2)....................................... 530 16.28 260 8.00 $ 326 10.00%
Magna Bank(3)................................ 542 12.09 359 8.00 449 10.00
</TABLE>
- ---------------
(1) Not applicable (N/A) for bank holding companies such as the Corporation.
(2) Excludes the impact of the subsequent merger of the majority of the
Corporation's banking subsidiaries into UPB.
(3) In October 1998, Magna Bank was merged with UPB.
RESTRICTIONS ON DIVIDENDS AND LOANS FROM SUBSIDIARIES. The amount of
dividends which the Corporation's subsidiaries may pay is limited by applicable
laws and regulations. For the subsidiary national banks, prior regulatory
approval is required if dividends to be declared in any year would exceed net
earnings of the current year (as defined under the National Bank Act) plus
retained net profits for the preceding two years. The payment of dividends by
state-chartered bank subsidiaries is regulated by applicable state laws and the
regulations of the Federal Deposit Insurance Corporation (FDIC). The payment of
dividends by savings and loan subsidiaries is subject to the regulations of the
Office of Thrift Supervision (OTS). At January 1, 1999, its banking subsidiaries
could have paid dividends to the Corporation aggregating $193 million without
prior regulatory approval. Future dividends will be dependent on the level of
earnings of the subsidiary financial institutions. The actual amount of
dividends planned to be paid in the first quarter of 1999 will be limited by
management to approximately $84 million due to capital and liquidity
requirements.
The Corporation's banking subsidiaries are limited by federal law in the
amount of credit which they may extend to their nonbank affiliates, including
the Corporation. Loans and other extensions of credit (loans) to a single
nonbank affiliate may not exceed 10% nor shall loans to all nonbank affiliates
exceed 20% of an individual bank's capital plus its allowance for losses on
loans. Such loans must be collateralized by assets having market values of 100%
to 130% of the loan amount depending on the nature of the collateral. The law
imposes no restrictions upon extensions of credit between FDIC-insured banks
which are 80%-owned subsidiaries of the Corporation.
57
<PAGE> 60
NOTE 13. OTHER NONINTEREST INCOME AND
EXPENSE
The major components of other noninterest
income and expense are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OTHER NONINTEREST INCOME
Gain on sale of credit card portfolio..................... $ 72,680 $ -- $ --
Gain on sale of FHA/VA loans.............................. 19,605 -- --
Customer ATM usage fee.................................... 19,312 15,703 8,337
Brokerage fee income...................................... 19,009 10,056 5,999
Insurance commissions..................................... 14,078 12,851 14,463
Gain on sale of residential mortgages..................... 10,779 15,375 6,777
Mortgage origination fees(1).............................. 10,700 3,916 --
Annuity sales income...................................... 7,818 10,500 3,920
Letter of credit fees..................................... 6,580 5,830 6,279
Gain on sale of branches/deposits and other selected
assets.................................................. 4,123 16,290 7,526
VSIBG partnership earnings................................ 3,819 2,332 2,890
Other income.............................................. 73,697 55,793 40,668
-------- -------- --------
Total other noninterest income..................... $262,200 $148,646 $ 96,859
======== ======== ========
OTHER NONINTEREST EXPENSE
Amortization of mortgage servicing rights................. $ 21,963 $ 17,506 $ 18,276
Amortization of goodwill and other intangibles............ 29,333 21,386 17,910
Write-off of mortgage servicing rights, goodwill, and
other intangibles....................................... 1,800 2,778 19,579
Other contracted services................................. 30,811 23,681 19,885
Postage and carrier....................................... 29,271 26,421 24,166
Stationery and supplies................................... 27,773 29,736 26,080
Communications............................................ 25,980 20,652 19,599
Advertising and promotion................................. 25,037 22,900 21,960
Other personnel services.................................. 15,628 10,815 10,156
Dues, subscriptions, and contributions.................... 15,589 8,583 7,101
Merchant credit card charges.............................. 12,987 9,329 9,088
Legal fees................................................ 12,528 13,115 13,321
Taxes other than income................................... 11,781 11,409 9,639
Miscellaneous charge-offs................................. 11,698 11,602 7,573
Consultant fees........................................... 11,108 10,110 7,749
Travel.................................................... 10,002 8,218 6,924
Other real estate expense................................. 9,737 10,158 4,668
Accounting and audit fees................................. 5,501 5,729 6,538
Brokerage and clearing fees on trading activities......... 5,153 4,339 4,207
Provision for losses on FHA/VA foreclosure claims(2)...... 4,700 8,016 25,492
Insurance................................................. 4,480 5,545 5,998
Federal Reserve fees...................................... 4,269 3,469 3,350
FDIC insurance............................................ 3,014 4,768 12,256
One-time SAIF assessment on deposits...................... -- -- 30,044
Merger-related expenses(3)................................ 166,092 48,112 52,786
Charter consolidation and ongoing integration
expenses(4)............................................. 16,990 16,742 --
Other expense............................................. 58,332 68,585 53,771
-------- -------- --------
Total other noninterest expense.................... $571,557 $423,704 $438,116
======== ======== ========
</TABLE>
- ---------------
(1) Fees for 1996 were not captured separately and are not available.
(2) The amount for 1996 includes $19.8 million of provisions for losses on
FHA/VA foreclosure claims related to an acquired entity.
(3) Includes amounts for employment contract payments, severance, postretirement
benefit expenses, and pension expense of acquired entities; write-downs of
office buildings and equipment including assets to be sold, lease buyouts,
assets determined to be obsolete or no longer of use and equipment not
compatible with the Corporation's equipment; professional fees including
legal, accounting, consulting, and financial advisory services; and other
expenses including write-off of assets, charge-offs of prepaid expenses, and
miscellaneous merger-related expenses. The majority of these charges are
being paid in cash over the 12 month period subsequent to the year they were
recorded, excluding asset write-downs.
(4) Effective January 1, 1998, the Corporation merged most of its separate
banking subsidiaries with UPB. Charter consolidation expenses include
amounts for employee severance payments, write-offs of data processing
equipment, and other miscellaneous costs related to combining most of the
Corporation's banking subsidiaries into UPB. The majority of these charges
are being paid in cash over the next 12 to 18 months subsequent to December
31, 1998 and 1997, excluding asset write-downs, respectively.
58
<PAGE> 61
NOTE 14. EMPLOYEE BENEFIT PLANS
401(K) RETIREMENT SAVINGS PLAN. The Corporation's 401(k) Retirement
Savings Plan (401(k) Plan) is available to employees having one or more years of
service and who work in excess of 1,000 hours per year. Employees may
voluntarily contribute 1 to 16 percent of their gross compensation on a pretax
basis up to a maximum of $10,000 in 1998 and the Corporation makes a matching
contribution of 50 to 100 percent of the amounts contributed by the employee (up
to 6% of compensation) depending upon his or her eligible years of service. The
Corporation's contributions to the 401(k) Plan for 1998, 1997, and 1996 were
$5.4 million, $4.0 million, and $3.0 million, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. The Employee Stock Ownership Plan
and Trust (ESOP) is noncontributory and covers employees having one or more
years of service and who work in excess of 1,000 hours per year. The amounts of
contributions to the ESOP are determined annually at the discretion of the Board
of Directors and were $4.5 million, $3.5 million, and $3.5 million for 1998,
1997, and 1996, respectively. At December 31, 1998, the ESOP held 1,270,013
shares of the Corporation's common stock which were allocated to participants
and 347,700 unallocated shares which will be allocated to participants as the
related debt is paid. The debt is related to the leveraged ESOP of an acquired
institution which was merged with the Corporation's ESOP effective January 1,
1998. Included in unearned compensation in shareholders' equity at December 31,
1998 and 1997, respectively, is $2.3 million and $2.8 million, which represents
the ESOP's debt to the Corporation. The $3.9 million market value of shares
allocated to participants during 1998 is included in the $4.5 million ESOP
contribution expense.
STOCK INCENTIVE PLANS. Employees and directors of the Corporation and its
subsidiaries are eligible to receive options or restricted grants under the
following plans:
The 1992 Stock Incentive Plan allows for a maximum of 6 million shares of
the Corporation's common stock to be issued through the exercise of nonstatutory
or incentive stock options and as restricted stock awards to employees and
directors of the Corporation. The option price is the fair value of the
Corporation's shares at the date of grant. Options granted generally become
exercisable immediately or in installments of 20% to 33% each year beginning one
year from the date of grant and expire ten years after the date of grant.
Subsequent to December 31, 1998, the plan was amended to increase the maximum
number of shares from 6 million to 13 million. The amendment is subject to
ratification by shareholders.
The 1998 Stock Incentive Plan for Officers and Employees was adopted in
October 1998. The Board of Directors authorized a maximum of 3.5 million shares
of the Corporation's common stock to be issued through the exercise of
nonstatutory stock options to all officers (except executive officers) and
employees of the Corporation and its subsidiaries who were employed on October
14, 1998. The option price is the fair value of the Corporation's shares at the
date of grant. Options granted become exercisable three years after the date of
grant and expire ten years after the date of grant.
Additional options under a former plan and options assumed in connection
with various acquisitions remain outstanding; however, no further options will
be granted under such plans. Additional information with respect to the number
of shares of the Corporation's common stock which are subject to stock options
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1998 1997 1996
---------------------- ---------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
PRICE NUMBER PRICE NUMBER PRICE NUMBER
--------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options
Outstanding, beginning of year...... $30.32 6,139,321 $21.55 5,834,471 $14.76 4,519,581
Granted............................. 49.36 5,792,064 50.66 1,546,240 32.96 2,291,317
Exercised........................... 28.90 (2,623,439) 13.82 (1,186,000) 15.66 (895,304)
Canceled or surrendered............. 46.12 (121,723) 28.81 (55,390) 18.15 (81,123)
---------- ---------- ---------
Outstanding at year end............. 41.88 9,186,223 30.32 6,139,321 21.55 5,834,471
========== ========== =========
Options exercisable at year end....... $34.37 3,685,460 $24.38 3,912,638 $15.13 3,134,720
========== ========== =========
</TABLE>
59
<PAGE> 62
NOTE 14. EMPLOYEE BENEFIT PLANS (CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF WEIGHTED AVERAGE OUTSTANDING AVERAGE
RANGE OF SHARES REMAINING WEIGHTED AVERAGE SHARES EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE PRICE
--------------- ----------- ---------------- ---------------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 6.56 - $35.88......... 2,877,457 6.34 $24.26 2,182,095 $21.31
$36.00 - $46.50......... 816,767 7.37 $40.40 643,838 $39.15
$46.94 - $46.94......... 3,879,854 9.79 $46.94 81,637 $46.94
$47.35 - $67.88......... 1,612,145 8.52 $61.88 777,890 $65.70
--------- ---------
9,186,223 8.27 $41.88 3,685,460 $34.37
========= =========
</TABLE>
Restricted stock grants aggregating 327,000 shares ($16.5 million fair
value) and 209,000 shares ($7.5 million fair value) were awarded in 1998 and
1996, respectively. Restrictions on the grants generally lapse in annual
increments over twelve years. Certain grants related to acquisitions lapse over
shorter periods. The market value of the restricted stock grants is charged to
expense as the restrictions lapse. During 1998 the Corporation approved the
vesting (lapse of restrictions) of the annual increments which would otherwise
not have vested until after the 62nd birthday for applicable executive officers.
Total amounts expensed for 1998, 1997, and 1996 were $11.2 million, $490,000,
and $238,000, respectively; and the ending balance at December 31, 1998 was $12
million which is included in unearned compensation in shareholders' equity.
Had compensation cost for the Corporation's stock option plans been
consistently determined based upon the fair value at the grant date for awards
under the methodology prescribed under SFAS No. 123, the Corporation's net
income and earnings per share would have been reduced as shown in the table
below. The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions in
1998, 1997, and 1996, respectively; expected dividend yield 4.12%, 2.50%, and
3.16%; expected volatility of 24.73%, 22.79%, and 25.73%; risk-free interest
rate of 4.70%, 5.89%, and 5.94%; and an expected life of 4.8, 4.0, and 4.55
years. Forfeitures are recognized as they occur. This schedule excludes the
earnings impact of options acquired and accelerated through acquisitions.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
------------------------
1998 1997 1996
------ ------ ------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net earnings -- as reported................................. $225.6 $339.8 $292.7
Net earnings -- pro forma................................... 214.7 332.8 289.8
Earnings per share -- as reported
Basic..................................................... 1.61 2.53 2.28
Diluted................................................... 1.58 2.47 2.21
Earnings per share -- pro forma
Basic..................................................... 1.53 2.48 2.25
Diluted................................................... 1.50 2.42 2.19
</TABLE>
Due to the inclusion of option grants since January 1, 1995, the effects of
applying SFAS No. 123 may not be representative of the pro forma impact in
future years.
RETIREE HEALTHCARE AND LIFE INSURANCE. The Corporation provides certain
healthcare and life insurance benefits to retired employees who had completed 20
years of unbroken full-time service immediately prior to retirement and who have
attained age 60 or more. Healthcare benefits are provided partially through an
insurance company (for retirees age 65 and above) and partially through direct
payment of claims.
The following table reflects the Corporation's net periodic postretirement
benefit costs for 1998, 1997, and 1996 which were determined assuming a discount
rate of 6.5% for 1998 and 7% for 1997 and 1996 and an expected return on Plan
assets of 5%.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
------------------------
1998 1997 1996
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost................................................ $ 299 $ 330 $ 322
Interest cost of accumulated postretirement benefit
obligation................................................ 860 919 938
Expected return on Plan assets.............................. (511) (509) (534)
Recognized net actuarial gain............................... (292) (113) (39)
------ ------ ------
Total.............................................. $ 356 $ 627 $ 687
====== ====== ======
</TABLE>
60
<PAGE> 63
NOTE 14. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table reflects the change in the benefit obligation and
change in the fair value of plan assets:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1998 1997
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation:
Balance at beginning of year.............................. $12,996 $13,866
Service cost.............................................. 299 330
Interest cost............................................. 860 919
Acquisitions.............................................. 2,507 625
Actuarial loss............................................ (1,200) (1,253)
Benefits expected......................................... (1,453) (1,491)
------- -------
Balance at year end....................................... $14,009 $12,996
======= =======
Change in fair value of plan assets:
Balance at beginning of year.............................. $10,968 $10,928
Actual return on plan assets.............................. 397 458
Employer contributions.................................... 956 809
Plan participants' contributions.......................... 573 629
Benefits paid............................................. (2,279) (1,856)
------- -------
Balance at year end....................................... $10,615 $10,968
======= =======
Funded status............................................... $(3,394) $(2,028)
Unrecognized net actuarial gain............................. (4,927) (4,385)
------- -------
Accrued benefit cost at year end............................ $(8,321) $(6,413)
======= =======
</TABLE>
The assumed discount rate used to measure the APBO was 6.5% for 1998 and 7%
for 1997. The weighted average healthcare cost trend rate in 1998 was 8%,
gradually declining to an ultimate projected rate in 2001 of 5%. A one percent
increase or decrease in the assumed healthcare cost trend rate would have
changed the total of the 1998 service and interest cost components by $123,000
and ($162,000), respectively, and would have changed the APBO as of December 31,
1998 by $1.4 million and ($1.2 million), respectively. Due to the granting of
prior credit for service to the employees of the acquisitions completed in 1998,
the APBO increased by approximately $2.5 million which was expensed in the
period of acquisition.
ACQUIRED INSTITUTIONS. Certain of the acquired institutions have sponsored
various employee benefit and retirement plans. Such plans have been or are in
the process of being terminated and their employees now participate in the
Corporation's benefit and retirement plans. At December 31, 1998, certain
institutions acquired in 1998 had outstanding plans including defined benefit
pension plans, 401(k) plans, and ESOPs. The liabilities, if any, for such
terminations have been recorded as of December 31, 1998.
NOTE 15. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CURRENT TAX EXPENSE
Federal................................................... $169,577 $166,737 $167,041
State..................................................... 21,803 13,111 20,932
-------- -------- --------
Total current tax expense.......................... 191,380 179,848 187,973
-------- -------- --------
DEFERRED TAX (BENEFIT) EXPENSE
Federal................................................... (33,606) (5,930) (28,402)
State..................................................... (11,458) 2,096 (6,516)
-------- -------- --------
Total deferred tax benefit......................... (45,064) (3,834) (34,918)
-------- -------- --------
Total income tax................................... $146,316 $176,014 $153,055
======== ======== ========
</TABLE>
61
<PAGE> 64
NOTE 15. INCOME TAXES (CONTINUED)
Deferred tax assets/liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSETS
Losses on loans and other real estate..................... $114,144 $111,574
Employee benefit plans.................................... 17,783 5,770
Amortization of intangibles............................... 7,370 11,665
Deferred compensation plans............................... 13,853 19,080
Merger-related and charter consolidation expenses......... 38,127 6,340
Allowance for losses on FHA/VA foreclosure claims......... 9,912 8,895
Mortgage servicing rights................................. 3,410 5,642
Other..................................................... 35,133 16,220
-------- --------
Total deferred tax assets.......................... 239,732 185,186
-------- --------
DEFERRED TAX LIABILITIES
Basis difference on FHLB stock............................ 16,227 14,062
Unrealized gain on available for sale securities.......... 35,896 32,073
Other..................................................... 26,995 24,623
-------- --------
Total deferred tax liabilities..................... 79,118 70,758
-------- --------
Deferred tax asset, net............................ $160,614 $114,428
======== ========
</TABLE>
The change in the net deferred tax asset during the year is a result of the
addition of net deferred tax assets of acquired companies, the net change in
unrealized gain on available for sale securities, and the current period
deferred tax benefit.
A reconciliation of income tax expense computed at the applicable statutory
income tax rate of 35% to actual income tax expense is computed below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax..................................... $130,173 $180,547 $156,015
State income taxes, net of federal tax benefit.............. 6,724 10,811 10,358
Tax-exempt interest, net.................................... (22,795) (19,779) (19,067)
Nondeductible merger charges................................ 28,526 3,283 1,947
Other, net.................................................. 3,688 1,152 3,802
-------- -------- --------
Applicable income tax.............................. $146,316 $176,014 $153,055
======== ======== ========
</TABLE>
Income tax expense (benefit) applicable to securities transactions was
($5,684,000) for 1998, $1,786,000 for 1997, and $1,901,000 for 1996.
62
<PAGE> 65
NOTE 16. EARNINGS PER SHARE
The calculation of net income per common share follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
BASIC
Net earnings.............................................. $ 225,606 $ 339,835 $ 292,702
Less preferred dividends.................................. (2,074) (4,942) (6,947)
------------ ------------ ------------
Net earnings applicable to common shares.................. $ 223,532 $ 334,893 $ 285,755
============ ============ ============
Average common shares outstanding......................... 139,034,412 132,451,476 125,448,534
============ ============ ============
Net earnings per common share -- basic.................... $ 1.61 $ 2.53 $ 2.28
============ ============ ============
DILUTED
Net earnings.............................................. $ 225,606 $ 339,835 $ 292,702
Less dividends on nonconvertible preferred stock.......... -- (3) (3)
Elimination of interest on convertible debt............... 220 1,892 2,083
------------ ------------ ------------
Net earnings applicable to common shares.................. $ 225,826 $ 341,724 $ 294,782
============ ============ ============
Average common shares outstanding......................... 139,034,412 132,451,476 125,448,534
Stock option adjustment................................... 1,696,869 1,967,208 2,072,649
Preferred stock adjustment................................ 1,591,565 2,581,482 4,438,833
Effect of other dilutive securities....................... 369,996 1,219,753 1,491,643
------------ ------------ ------------
Average common shares outstanding......................... 142,692,842 138,219,919 133,451,659
============ ============ ============
Net earnings per common share -- diluted.................. $ 1.58 $ 2.47 $ 2.21
============ ============ ============
</TABLE>
NOTE 17. FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK
In the normal course of business, the Corporation becomes a party to
various types of financial instruments in order to meet the financing needs of
its customers and to reduce its exposure to fluctuations in interest rates.
These instruments involve, to varying degrees, elements of credit and
interest-rate risk and are not reflected in the accompanying consolidated
financial statements. For these instruments, the exposure to credit loss is
limited to the contractual amount of the instrument. The Corporation follows the
same credit policies in making commitments and contractual obligations as it
does for on-balance-sheet instruments. In addition, controls for these
instruments related to approval, monetary limits, and monitoring procedures are
established by the Corporation's Directors' Loan Committee. The following table
presents the contractual amounts of these types of instruments:
<TABLE>
<CAPTION>
CONTRACT AMOUNT
DECEMBER 31,
----------------------
1998 1997
-------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
FINANCIAL INSTRUMENTS WHOSE CONTRACT AMOUNTS REPRESENT
CREDIT RISK
Commitments to extend credit (excluding credit card
plans).................................................. $3,125 $2,934
Commitments to extend credit under credit cards and
related plans........................................... 157 2,329
Standby, commercial, and similar letters of credit........ 402 279
</TABLE>
Commitments to extend credit are legally binding agreements to extend
credit to customers for specific purposes, at stipulated rates, with fixed
expiration and review dates if the conditions in the agreement are met, and may
require payment of a fee. Since many of the commitments normally expire without
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. Collateral held, if any, varies but may include
accounts receivable; inventory; property; plant and equipment; income producing
properties; or securities. Loan commitments with an original maturity of one
year or less or which are unconditionally cancelable totaled $1.9 billion and
loan commitments with a maturity over one year which are not unconditionally
cancelable totaled $459 million.
Letters of credit are conditional commitments issued by the Corporation to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The Corporation in some cases holds
various types of collateral to support those commitments for which collateral is
deemed necessary. The outstanding letters of credit expire between 1999 and
2011.
63
<PAGE> 66
NOTE 17. FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK (CONTINUED)
Other outstanding off-balance-sheet instruments are forward contracts,
interest-rate swap agreements, and commitments to purchase or sell when-issued
securities. The following table presents the notional amounts of these types of
instruments:
<TABLE>
<CAPTION>
NOTIONAL AMOUNT
DECEMBER 31,
----------------------
1998 1997
------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C>
FINANCIAL INSTRUMENTS WHOSE NOTIONAL CONTRACT AMOUNTS EXCEED
THE AMOUNTS OF ACTUAL CREDIT RISK
Forward contracts......................................... $669 $333
When-issued securities
Commitments to sell..................................... 4 61
Commitments to purchase................................. -- 79
</TABLE>
Forward contracts are contracts for delayed delivery of securities or money
market instruments in which the seller agrees to make delivery at a specified
future date of a specified instrument, at a specified price or yield. Risks
arise from the possible inability of the counterparties to meet the terms of
their contracts and from market movements in securities values and interest
rates. The Corporation as seller utilizes short-term forward commitments to
deliver mortgages to protect the Corporation against the risk of rate changes
which could impact the value of mortgage originations to be securitized or
otherwise sold to investors. Such commitments to deliver mortgages generally
have maturities of 90 days or less.
The Corporation has a policy for its use of derivative products, including
interest-rate swaps, which has been approved and is monitored by the Funds
Management Committee and the Board of Directors. The Corporation is not
currently trading derivative products. The policy requires that individual
positions for derivative products shall not exceed $100-million notional amount
and that open positions in the aggregate shall not exceed 10% of consolidated
total assets. Any exceptions to the policy must be approved by the Board of
Directors. The policy requires open positions to be reviewed monthly by the
Funds Management Committee to ensure compliance with established policies. At
December 31, 1998, the Corporation had no interest-rate swap/cap agreements
outstanding.
When-issued securities are commitments to either purchase or sell
securities when, as, and if they are issued. The trades are contingent upon the
actual issuance of the security. These transactions represent conditional
commitments made by the Corporation and risk arises from the possible inability
of the counterparties to meet the terms of their contracts and from market
movements in securities values and interest rates.
MORTGAGE LOAN SERVICING. The Corporation was acting as servicing agent for
residential mortgage loans totaling approximately $12.0 billion at December 31,
1998 compared to $10.9 billion at December 31, 1997. The loans serviced for
others are not included in the Corporation's consolidated balance sheet. The
following table presents a reconciliation of the changes in mortgage servicing
rights for the two years ended December 31, 1998:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1998 1997
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Beginning balance........................................... $ 62,726 $ 67,490
Additions................................................... 62,503 12,742
Write-off of servicing rights............................... (1,800) --
Amortization of servicing rights............................ (21,963) (17,506)
-------- --------
Ending balance.............................................. $101,466 $ 62,726
======== ========
</TABLE>
In its capacity as servicer of certain of these loans, the Corporation is
responsible for foreclosure and the related costs of foreclosure. These costs
are estimated each period based on historical loss experience and are shown as
provisions for losses on FHA/VA foreclosure claims in noninterest expense. At
December 31, 1998 and 1997, the Corporation had reserves for these losses of
$27.5 million and $33.3 million, respectively.
In the normal course of business, the Corporation sells mortgage loans and
makes certain limited representations and warranties to the purchaser.
Management does not expect any significant losses to arise from these
representations and warranties.
64
<PAGE> 67
NOTE 18. LINES OF BUSINESS REPORTING
Union Planters operates one major line of business, Banking. Other lines of
business are evaluated by management, although none of the other operations
qualifies as a separate business segment.
Banking includes the traditional deposit taking and lending functions of a
bank, including consumer, commercial and corporate lending, retail banking, and
consumer services normally furnished by a bank. The Banking unit is managed
along geographic lines. Nontraditional services such as mortgage, SBA trading,
trust, financial services (brokerage services and insurance products), factoring
operations, bank cards, and FHA/VA operations are managed separately but do not
qualify as separate business segments due to their relative size.
The accounting policies of the Banking unit are the same as those of the
Corporation described in Note 1. Expenses for centrally provided services are
allocated among the various business units. Cost of funds are allocated between
funds providers and funds users. Transactions between business units are
primarily conducted at book value. Banking and other operating units are
evaluated based on results before merger-related and other significant items.
The following table presents selected segment information for Banking, the
Other Operating Units, and the Parent Company. The Parent Company is primarily
the funding source for acquisition activities. Due to the number of acquisitions
and internal reorganizations, comparable information for 1996 is not available.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------
OTHER CONSOLIDATED
BANKING OPERATING UNITS PARENT COMPANY(1) TOTAL
----------- --------------- ----------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net interest income........................ $ 1,106,927 $ 99,910 $ 396 $ 1,207,233
Provision for losses on loans.............. (142,406) (61,650) -- (204,056)
Noninterest income......................... 285,639 182,147 7,409 475,195
Noninterest expense........................ (813,311) (169,995) (8,313) (991,619)
Merger-related and other significant items,
net...................................... (163,157) 64,893 (16,567) (114,831)
----------- ---------- -------- -----------
Earnings before taxes...................... $ 273,692 $ 115,305 $(17,075) $ 371,922
=========== ========== ======== ===========
Average assets............................. $27,253,006 $2,939,797 $551,523 $30,744,326
=========== ========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------
OTHER CONSOLIDATED
BANKING OPERATING UNITS PARENT COMPANY(1) TOTAL
----------- --------------- ----------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net interest income........................ $ 1,091,206 $ 105,444 $ 3,249 $ 1,199,899
Provision for losses on loans.............. (86,450) (66,650) -- (153,100)
Noninterest income......................... 293,294 154,525 1,754 449,573
Noninterest expense........................ (769,488) (149,666) (13,415) (932,569)
Merger-related and other significant items,
net...................................... (34,225) -- (13,729) (47,954)
----------- ---------- -------- -----------
Earnings before taxes...................... $ 494,337 $ 43,653 $(22,141) $ 515,849
=========== ========== ======== ===========
Average assets............................. $25,322,742 $3,261,992 $604,071 $29,188,805
=========== ========== ======== ===========
</TABLE>
- ---------------
(1) Parent Company noninterest income and earnings before taxes are net of the
intercompany dividend eliminations of $237 million in 1998 and $237 million
in 1997.
65
<PAGE> 68
NOTE 19. FAIR VALUE OF FINANCIAL
INSTRUMENTS
The carrying values and fair values of the Corporation's financial
instruments are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and short-term investments................... $ 1,413,765 $ 1,413,765 $ 1,561,167 $ 1,561,167
Trading account assets............................ 275,992 275,992 187,419 187,419
Loans held for resale............................. 441,214 441,214 175,699 175,730
Investment securities -- available for sale....... 8,301,703 8,301,703 6,414,197 6,414,197
Net loans......................................... 19,255,350 19,442,499 19,978,495 20,099,338
Mortgage servicing rights......................... 101,466 149,249 62,726 112,962
FINANCIAL LIABILITIES
Noninterest-bearing............................... $ 4,194,402 $ 4,194,402 $ 3,572,896 $ 3,572,896
Interest-bearing.................................. 20,702,053 20,800,166 19,302,983 19,237,448
Short-term borrowings............................. 1,648,039 1,647,202 1,824,513 1,825,761
Short- and medium-term notes...................... 105,000 106,832 135,000 136,918
Federal Home Loan Bank advances................... 279,992 280,328 859,744 859,262
Other long-term debt, excluding capital lease
obligations..................................... 1,052,783 1,064,985 743,609 742,858
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Forward contracts................................. -- (584) -- (1,037)
</TABLE>
The following methods and assumptions were used by the Corporation in
estimating the fair value for financial instruments:
CASH AND SHORT-TERM INVESTMENTS. The carrying amount for cash and
short-term investments approximates the fair value of the assets. Included in
this classification are cash and due from banks (non-earning assets), federal
funds sold, securities purchased under agreements to resell, and
interest-bearing deposits at financial institutions.
TRADING ACCOUNT ASSETS. These instruments are carried in the consolidated
balance sheet at values which approximate their fair values based on quoted
market prices of similar instruments.
LOANS HELD FOR RESALE. These instruments are carried in the consolidated
balance sheet at the lower of cost or fair value. The fair values of these
instruments are based on subsequent liquidation values of the instruments which
did not result in any significant gains or losses.
INVESTMENT SECURITIES. Fair values of these instruments are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on the quoted values of similar instruments.
LOANS. The fair values of loans are estimated using discounted cash flow
analyses and using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality and risk.
MORTGAGE SERVICING RIGHTS. The fair values of mortgage servicing rights
are estimated using discounted cash flow analyses.
DEPOSITS. The fair values of demand deposits (i.e., checking accounts,
savings accounts, money market deposit accounts, and NOW accounts) are, by
definition, equal to the amount payable on demand at the reporting date (i.e.,
their carrying amount). The fair values of time deposits (i.e., certificates of
deposit, IRAs, investment savings, etc.) are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on these
instruments to a schedule of aggregated expected monthly maturities on time
deposits.
SHORT-TERM BORROWINGS. The carrying amounts of federal funds purchased,
overnight time deposits, and other short-term borrowings approximate their fair
values. The fair value of securities sold under agreements to repurchase is
estimated using discounted cash flow analyses and using current federal funds
rates.
SHORT- AND MEDIUM-TERM BANK NOTES. The fair value of these notes is
estimated using discounted cash flow analyses and using current LIBOR-based
indices.
FEDERAL HOME LOAN BANK ADVANCES. The carrying value of variable
rate/LIBOR-based advances approximates their fair values. The fair value of
fixed-rate advances is estimated using discounted cash flow and using the FHLB
quoted rates of borrowing for advances with similar terms.
OTHER LONG-TERM DEBT. The carrying value of variable rate/LIBOR-based debt
instruments approximates their fair values. The fair value of fixed-rate
long-term debt was estimated from market quotes. If market quotes were not
availa-
66
<PAGE> 69
NOTE 19. FAIR VALUE OF FINANCIAL
INSTRUMENTS (CONTINUED)
ble, fair values were based on quoted values of similar instruments.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS. Fair values of off-balance-sheet
instruments are based on current settlement values for forward contracts. The
fair value of commitments to extend credit and letters of credit (see Note 17)
is not presented, since management believes the fair value to be insignificant.
NOTE 20. CONTINGENT LIABILITIES
The Corporation and/or various subsidiaries are parties to various pending
civil actions, all of which are being defended vigorously. Additionally, the
Corporation and/or its subsidiaries are parties to various legal proceedings
that have arisen in the ordinary course of business. Management is of the
opinion, based upon present information, including evaluations by outside
counsel, that neither the Corporation's financial position, results of
operations, nor liquidity will be materially affected by the ultimate resolution
of pending or threatened legal proceedings.
The Corporation's five banks (UPC Banks) located in Mississippi (which were
merged into UPB January 1, 1998) are defendants in various related lawsuits
pending in state and federal courts in Mississippi related to the placement of
collateral protection insurance (CPI) by the UPC Banks in the 1980s and early
1990s. Two of the federal actions, which have been consolidated (the
Consolidated Action), purport to have been brought as class actions and include
allegations that premiums were excessive and improperly calculated; coverages
were improper and not disclosed; and improper payments were paid to the UPC
Banks by the insurance companies, allegedly constituting violations of various
state and federal statutes and common law. The CPI programs appear to have been
substantially similar in many respects to CPI programs of other Mississippi
banks, often with the same insurance companies. Consequently, there are now
similar putative class actions pending against various Mississippi banks
(including those against the UPC Banks), various insurance agencies and
companies based upon their CPI programs. The relief sought in the purported
class actions includes actual damages, treble damages under certain statutes,
other statutory damages, and unspecified punitive damages. During the fourth
quarter of 1997, an agreement in principle was reached by the UPC Banks with
attorneys for the putative class to settle the Consolidated Action within
amounts previously established. Final settlement is subject to execution of a
definitive agreement, court approval, and the UPC Banks' acceptance of the
number of opt-outs from the class settlement.
67
<PAGE> 70
UNION PLANTERS CORPORATION
EXECUTIVE OFFICERS
BENJAMIN W. RAWLINS, JR.
Chairman and Chief Executive Officer
JACKSON W. MOORE
President and Chief Operating Officer
JACK W. PARKER
Executive Vice President and
Chief Financial Officer
LLOYD B. DEVAUX
Executive Vice President and
Chief Information Officer
JAMES A. GURLEY
Executive Vice President
Risk Management
MICHAEL B. RUSSELL
Executive Vice President
Senior Lending Officer
M. KIRK WALTERS
Senior Vice President, Treasurer, and
Chief Accounting Officer
BOARD OF DIRECTORS
ALBERT M. AUSTIN
Chairman
Cannon, Austin & Cannon, Inc.
MARVIN E. BRUCE
Chairman (Retired)
TBC Corporation
GEORGE W. BRYAN
Senior Vice President
Sara Lee Corporation
JAMES E. HARWOOD
President
Sterling Equities
C. E. HEILIGENSTEIN
Attorney (Retired)
Heiligenstein and Badgley
CARL G. HOGAN
Chairman and CEO
Hogan Motor Leasing
S. LEE KLING
Chairman
Kling, Rechter & Company
PARNELL S. LEWIS, JR.
President
Anderson-Tully Company
C.J. LOWRANCE III
President
Lowrance Brothers & Company Inc.
JACKSON W. MOORE
President and Chief Operating Officer
Union Planters Corporation and
Union Planters Bank, N.A.
STANLEY D. OVERTON
Chairman (Retired)
Union Planters Bank of
Middle Tennessee, N.A.
BENJAMIN W. RAWLINS, JR.
Chairman and Chief Executive Officer
Union Planters Corporation and
Union Planters Bank, N.A.
DR. V. LANE RAWLINS
President
The University of Memphis
DONALD F. SCHUPPE
Owner
DFS Service Company
DAVID M. THOMAS
President (Retired)
Magnolia Federal Bank for Savings
RICHARD A. TRIPPEER, JR.
President
R. A. Trippeer, Inc.
SPENCE L. WILSON
President
Kemmons Wilson, Inc.
68
<PAGE> 71
(UNION PLANTERS CORPORATION LOGO)
CORPORATE INFORMATION
Annual Meeting
Thursday, April 15, 1999 at 10 a.m.
Union Planters Administrative Center
Assembly Room C
7130 Goodlett Farms Parkway
Memphis, Tennessee 38018
CORPORATE OFFICES
7130 Goodlett Farms Parkway
Memphis, Tennessee 38018
CORPORATE MAILING ADDRESS
P.O. Box 387
Memphis, Tennessee 38147
INTERNET:
http://www.unionplanters.com
TRANSFER AGENT AND REGISTRAR
Union Planters Bank, N.A.
Corporate Trust
1 South Church Street
Belleville, IL 62220
(800) 900-4548
DIVIDEND PAYING AGENT
Union Planters Bank, N.A.
Corporate Trust
1 South Church Street
Belleville, IL 62220
(800) 900-4548
STOCK, OPTION, AND INDEX LISTINGS
Common
NYSE Symbol: UPC
Wall Street Journal: UnPlantr
Series E Convertible Preferred
NASDAQ NMS Symbol: UPCPO
Wall Street Journal: UnPlantr pfE
Options
Philadelphia Stock Exchange
Indexes
S&P 500
NYSE Composite
Russell 1000
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
FOR FINANCIAL INFORMATION, CONTACT
Jack W. Parker
Executive Vice President and
Chief Financial Officer
(901) 580-6781
FORM 10-K
Copies of the Corporation's
Annual Report on Form 10-K
as filed with the Securities
and Exchange Commission are
available on request by
calling the Corporate Marketing
Division at (901) 580-6604.
DIVIDEND REINVESTMENT AND
STOCK PURCHASE PLAN
The Plan allows Union Planters
shareholders to reinvest their
dividends in Union Planters
Common Stock. No brokerage
commissions or service charges
are paid by shareholders.
The Plan also permits those
participating in the Plan to
buy additional shares
with optional cash payments
and no brokerage commissions.
Full details are available
by calling (800) 900-4548 or
writing Union Planters
Corporate Trust.
The Corporation's banking
subsidiaries are members of the
FDIC and are Equal Housing
Lenders. UPC and its subsidiaries
are Equal Opportunity Employers.
(UPC LISTED NYSE THE NEW YORK STOCK EXCHANGE LOGO)
<PAGE> 1
EXHIBIT 21
PAGE 1 OF 3
UNION PLANTERS CORPORATION, Registrant,
a registered bank holding company
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OR PERCENTAGE
JURISDICTION OF VOTING
UNDER LAWS OF SECURITIES
NAME OF REGISTRANT AND SUBSIDIARIES WHICH ORGANIZED OWNED
- ---------------------------------- --------------- ------------
<S> <C> <C>
Union Planters Corporation (Registrant) Tennessee
Union Planters Holding Corporation (a) Tennessee 100.00%
Union Planters Bank, National Association (b) United States 100.00%
Leader Enterprises, Inc. (c) (g) Tennessee 100.00%
Leader Services, Inc. (c) (g) Tennessee 100.00%
Leader Federal Mortgage, Inc. (c) (g) Tennessee 100.00%
ASMI, LLC (d) Indiana 50.00%
Leader Leasing, Inc. (c) Delaware 100.00%
Leader Funding Corporation III (c) Delaware 100.00%
PFIC Corporation (c) Tennessee 100.00%
PFIC Securities Corporation (e) Tennessee 100.00%
PFIC Alabama Agency, Inc. (e) Alabama 100.00%
PFIC Georgia Agency, Inc. (e) Georgia 100.00%
PFIC Agency New Mexico, Inc. (e) New Mexico 100.00%
PFIC Corporation of Kentucky (e) Kentucky 100.00%
PFIC Agency, Inc. (e) Illinois 100.00%
PFIC Arkansas Agency, Inc. (e) Arkansas 100.00%
PFIC Mississippi Agency, Inc. (e) Mississippi 100.00%
PFIC Michigan Agency, Inc. (e) Michigan 100.00%
PFIC Wisconsin Agency, Inc. (e) Wisconsin 100.00%
PFIC Louisiana Agency, Inc. (e) Louisiana 100.00%
PFIC Missouri Agency, Inc. (e) Missouri 100.00%
PFIC Virginia Agency, Inc. (e) Virginia 100.00%
PFIC Oregon Agency, Inc. (e) Oregon 100.00%
PFIC Ohio Agency, Inc. (e) Ohio 100.00%
PFIC Nevada Agency, Inc. (e) Nevada 100.00%
PFIC New York Agency, Inc. (e) New York 100.00%
PFIC Tennessee Agency, Inc. (e) Tennessee 100.00%
PFIC Arizona Agency, Inc. (e) Arizona 100.00%
Union Planters Insurance Agency, Inc. (e) Alabama 100.00%
Navigator Agency Incorporated (e) Texas 100.00% indirectly
PFIC Indiana Agency, Inc. (e) Indiana 100.00%
PFIC Florida Agency, Inc. (e) Florida 100.00%
PFIC Pennsylvania Agency, Inc. (e) Pennsylvania 100.00%
Mega Insurance Agency, Inc. (e) (g) Missouri 100.00%
Union Planters Insurance Agency, Inc. (e) (g) Arkansas 100.00%
Union Planters Insurance Agency, Inc. (e) Tennessee 100.00%
Union Planters Insurance Agency of Florida, Inc. (e) Florida 100.00%
MGI Group, Inc. (e) Missouri 100.00%
Magna Invest, Inc. (l) Missouri 100.00%
Magna Insurance Agency, Inc. (l) Missouri 100.00%
Inbank Group, Inc. (e) Missouri 100.00%
Inbank Invest, Inc. (m) Missouri 100.00%
Inbank Insurance Agency (m) Missouri 100.00%
</TABLE>
<PAGE> 2
EXHIBIT 21
PAGE 2 OF 3
UNION PLANTERS CORPORATION, Registrant,
a registered bank holding company
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OR PERCENTAGE
JURISDICTION OF VOTING
UNDER LAWS OF SECURITIES
NAME OF REGISTRANT AND SUBSIDIARIES WHICH ORGANIZED OWNED
- ---------------------------------- --------------- ------------
<S> <C> <C>
Union Planters Insurance Agency, Inc. (e) Mississippi 100.00%
Magna Insurance Company (e) Mississippi 100.00%
PFIC Iowa Agency, Inc. (e) Iowa 100.00%
Union Planters Insurance Agency of Iowa, Inc. (e) Iowa 100.00%
Union Planters Mortgage Finance Corporation (c) Delaware 100.00%
Colonial Loan Association (c) Tennessee 100.00%
Union Planters PMAC, Inc. (c) Mississippi 100.00%
Magna Financial Services, Inc. (c) Mississippi 100.00%
Capital Equity Corporation (c) Louisiana 100.00%
First Savings Financial Corporation (c) Missouri 100.00%
Millcreek Development Partnership, LP (c) Tennessee 49.50%
Capital Savings Financial Services, Inc. (c) Missouri 100.00%
Cap Holdings, Inc. (c) (g) Florida 100.00%
Union Planters Realty, Inc. (c) Florida 100.00%
Colonial Apartments LTD (c) Florida 98.00%
Interdevco, Inc. (c) Florida 100.00%
Capital Factors Holding, Inc. (c) Florida 100.00%
Capital Factors, Inc. (i) Florida 100.00%
CF Funding Corp. (j) Delaware 100.00%
Capital Tempfunds, Inc. (j) North Carolina 100.00%
CF One, Inc. (i) Delaware 100.00%
CF Investor Corp. (i) Delaware 100.00%
CF Two, LLC (k) Delaware 100.00%
Network Financial Corp. (c) Florida 100.00%
TFB Properties, Inc. (q) Florida 100.00%
Ready Holdings, Inc. (c) Florida 100.00%
Magna Data Services, Inc. (c) Missouri 100.00%
MGR, Inc. (c) Missouri 100.00%
Quartre Corp. (c) Missouri 100.00%
UPB Investments, Inc. (c) Tennessee 100.00%
MICB, Inc. (n) Missouri 100.00%
MGR Real Estate (o) Missouri 100.00%
Funds Management Group, Inc. (b) Texas 80.00%
Alvin State Bank (b) Texas 100.00%
First National Bank of Wetumpka (b) United States 100.00%
Union Planters Bank of Kentucky, NA (b) United States 100.00%
PFC Properties, Inc. (b) (g) Tennessee 100.00%
Peoples First Acquisition Corp. (b) Kentucky 100.00%
Bank of LaPlace of St. John the Baptist Parish (b) Louisiana 100.00%
First National Bank & Trust Company (b) United States 100.00%
First Bank of East Tennessee, NA (b) United States 100.00%
First State Bank (b) Tennessee 100.00%
First Properties, Inc. (g) (r) Tennessee 100.00%
First Insurance, Inc. (g) (r) Tennessee 100.00%
</TABLE>
<PAGE> 3
EXHIBIT 21
PAGE 3 OF 3
UNION PLANTERS CORPORATION, Registrant,
a registered bank holding company
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OR PERCENTAGE
JURISDICTION OF VOTING
UNDER LAWS OF SECURITIES
NAME OF REGISTRANT AND SUBSIDIARIES WHICH ORGANIZED OWNED
- ---------------------------------- --------------- ------------
<S> <C> <C>
Charter Bank, S.B. (b) Missouri 100.00%
Sparta First Service Corp. (p) Missouri 100.00%
Landmark TCI, LTD (b) (g) British Virgin Islands 100.00%
Carboro, LTD (b) (g) British Virgin Islands 100.00%
Franklin Financial Group, Inc. (a) Tennessee 100.00%
Union Planters Bank of the Lakeway Area (f) Tennessee 100.00%
Union Planters Bank of Northwest TN FSB (a) United States 100.00%
Union Planters Investment Bankers Corporation (a) (g) Tennessee 100.00%
Union Planters Investment Bankers Group, Inc. (g) (h) Tennessee 100.00%
UMIC, Inc. (g) (h) Tennessee 100.00%
UMIC Securities Corporation (g) (h) Tennessee 100.00%
Southwestern Investment Company (a) (g) Tennessee 100.00%
Tennessee Equity Mortgage Corporation (a) (g) Tennessee 100.00%
Guardian Realty Company (a) (g) Alabama 100.00%
Union Planters Capital Trust A (a) Delaware 100.00%
AmBank Indiana, NA (b) United States 100.00%
AmBank Illinois, NA (b) United States 100.00%
American National Realty Corporation (b) Indiana 100.00%
Bank of Cumberland (b) Kentucky 100.00%
First & Farmers Bank of Somerset, Inc. (b) Kentucky 100.00%
First Mutual Bank, S.B. (b) United States 100.00%
First Mutual Corporation (s) Illinois 100.00%
</TABLE>
(a) Subsidiary of Union Planters Corporation
(b) Subsidiary of Union Planters Holding Corporation
(c) Subsidiary of Union Planters Bank, National Association
(d) Subsidiary of Leader Federal Mortgage, Inc.
(e) Subsidiary of PFIC Corporation
(f) Subsidiary of Franklin Financial Group
(g) Inactive Subsidiary
(h) Subsidiary of Union Planters Investment Bankers Corporation
(i) Subsidiary of Capital Factors Holding, Inc.
(j) Subsidiary of Capital Factors, Inc.
(k) Subsidiary of CF Investor Corp.
(l) Subsidiary of MGI Group, Inc.
(m) Subsidiary of Inbank Group, Inc.
(n) Subsidiary of UPB Investments, Inc.
(o) Subsidiary of MICB, Inc.
(p) Subsidiary of Charter Bank
(q) Subsidiary of Network Financial Corporation
(r) Subsidiary of First State Bank
(s) Subsidiary of First Mutual Bank, S.B.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the previously
filed Registration Statements on Form S-3 (Nos. 333-02377, 333-11817, and
33-27814) and Form S-8 (Nos. 333-67301, 333-59911, 333-71171, 333-67591,
333-71253, 333-41089, 333-28507, 333-17363, 333-13207, 333-13205, 333-02363,
2-87392, 33-23306, 33-35928, 33-53454, 33-55257, 33-56269, and 33-65467) of
Union Planters Corporation of our report dated January 21, 1999, except as to
Note 2 which is as of March 5, 1999, appearing on page 37 of the Annual Report
to Shareholders which is incorporated in this Annual Report on Form 10-K.
/s/PRICEWATERHOUSECOOPERS LLP
Memphis, Tennessee
March 22, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF UNION PLANTERS CORP. FOR THE YEAR ENDED DECEMBER 31 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,271,614
<INT-BEARING-DEPOSITS> 47,583
<FED-FUNDS-SOLD> 94,568
<TRADING-ASSETS> 275,992
<INVESTMENTS-HELD-FOR-SALE> 8,301,703
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 20,018,040
<ALLOWANCE> 321,476
<TOTAL-ASSETS> 31,691,953
<DEPOSITS> 24,896,455
<SHORT-TERM> 1,648,039
<LIABILITIES-OTHER> 724,649
<LONG-TERM> 1,438,732
0
23,353
<COMMON> 709,625
<OTHER-SE> 2,251,100
<TOTAL-LIABILITIES-AND-EQUITY> 31,691,953
<INTEREST-LOAN> 1,842,425
<INTEREST-INVEST> 437,129
<INTEREST-OTHER> 34,827
<INTEREST-TOTAL> 2,314,381
<INTEREST-DEPOSIT> 896,062
<INTEREST-EXPENSE> 1,107,148
<INTEREST-INCOME-NET> 1,207,233
<LOAN-LOSSES> 204,056
<SECURITIES-GAINS> (9,074)
<EXPENSE-OTHER> 1,200,014
<INCOME-PRETAX> 371,922
<INCOME-PRE-EXTRAORDINARY> 225,606
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 225,606
<EPS-PRIMARY> 1.61
<EPS-DILUTED> 1.58
<YIELD-ACTUAL> 8.31
<LOANS-NON> 159,610
<LOANS-PAST> 403,750
<LOANS-TROUBLED> 5,612
<LOANS-PROBLEM> 66,833
<ALLOWANCE-OPEN> 324,474
<CHARGE-OFFS> 215,297
<RECOVERIES> 29,016
<ALLOWANCE-CLOSE> 321,476
<ALLOWANCE-DOMESTIC> 317,976
<ALLOWANCE-FOREIGN> 3,500
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
