-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UNMRsYHclrWUSZYDHA6bBWvAj10e4aEUu3mt20vxyaU7wdokXbZX/ktzbA3ZDj7y CPHkL2630u/3+pOzAkutLw== 0000950144-00-003564.txt : 20000324 0000950144-00-003564.hdr.sgml : 20000324 ACCESSION NUMBER: 0000950144-00-003564 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNION PLANTERS CORP CENTRAL INDEX KEY: 0000100893 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 620859007 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-10160 FILM NUMBER: 576507 BUSINESS ADDRESS: STREET 1: UNION PLANTERS ADMINSTRATIVE CENTER STREET 2: 7130 GOODLETT FARMS PARKWAY CITY: MEMPHIS STATE: TN ZIP: 38018 BUSINESS PHONE: 9015806000 MAIL ADDRESS: STREET 1: 7130 GOODLETT FARMS PKWY STREET 2: UNION PLANTERS ADMINISTRATIVE CENTER CITY: MEMPHIS STATE: TN ZIP: 38018 10-K405 1 UNION PLANTERS CORPORATION 1 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, 1999 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 - ------------------------------- --------------------------------------- (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 29, 2000 was approximately $3,714,651,000 -------------- INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK CLASS OUTSTANDING AT FEBRUARY 29, 2000 Common Stock having a par 135,695,016 value of $5 per share ----------- DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K Documents Incorporated into which incorporated ---------------------- ----------------------- 1. Certain parts of the Annual Parts I and II, Items 1, 2, 5, Report to Shareholders for the 6, 7, 7A, and 8 year ended December 31, 1999 2. Certain parts of the Definitive Part III Proxy Statement for the Annual Shareholders Meeting to be held April 20, 2000
2 FORM 10-K CROSS-REFERENCE INDEX
Page ---- PART I Item 1. Business...........................................................................................4 Item 1a. Executive Officers of the Registrant..............................................................13 Item 2. Properties........................................................................................14 Item 3. Legal Proceedings.................................................................................14 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..........................15 Item 6. Selected Financial Data...........................................................................15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............15 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................15 Item 8. Financial Statements and Supplementary Data.......................................................15 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....................................................16 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................................16 Signatures ..................................................................................................18
* Not Applicable 2 3 RISK FACTORS A cautionary note about forward-looking statements. In its oral and written communication, Union Planters Corporation from time to time includes forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements can include statements about estimated cost savings, plans and objectives for future operations, and expectations about performance as well as 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. It is intended that 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 any 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 Corporation in its other filings from time to time when considering any forward-looking statement. 3 4 PART I ITEM 1. BUSINESS GENERAL Union Planters Corporation (Union Planters or the Company) is a $33.3 billion multi-state bank holding company whose primary business is banking. Incorporated under the laws of Tennessee on November 15, 1971, Union Planters is the largest bank holding company headquartered in Tennessee and, as of December 31, 1999, was the 27th largest bank holding company headquartered in the United States based on total assets. Union Planters Bank, National Association (Union Planters Bank or UPB), headquartered in Memphis, Tennessee, is Union Planters' largest subsidiary. The principal banking markets of Union Planters are in Alabama, Arkansas, Florida, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, Tennessee, and Texas. Union Planters' existing market areas are served by Union Planters' 868 banking offices and 1018 ATMs. The map on the inside front cover of the 1999 Annual Report to Shareholders provides information regarding the markets served by Union Planters' 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 Dallas, Texas; an asset-based lending office in Atlanta, Georgia; and its headquarters in Boca Raton, Florida. The mortgage operations of UPB operate 30 stand alone mortgage production offices in Alabama, Arizona, California, Colorado, Florida, Georgia, Iowa, Louisiana, Mississippi, Nevada, North Carolina, Ohio, Tennessee, Texas, and Washington, in addition to mortgage production offices located in its branch banking locations. As part of Union Planters' banking business, its subsidiaries offer a broad range of financial services and products. They are engaged in - - factoring operations; - the purchase of delinquent FHA/VA government- - - mortgage origination and servicing; insured/guaranteed loans from third parties and - - investment management and trust services, and GNMA pools serviced for others; mutual fund activities; - full-service and discount brokerage services; - - the issuance of debit cards, and the offering of credit cards; - commercial finance business; - - the origination, packaging, and securitization of loans, - trade-finance activities; and primarily the government-guaranteed portions of - insurance agency activities, including the sale of Small Business Administration (SBA) loans; bank-eligible insurance products and services
Information about Union Planters' business segments and nonbanking lines of business is contained under the headings "Union Planters Corporation" on pages 11 and 12, and "Noninterest Income" on pages 17 to 20 in the 1999 Annual Report to Shareholders (1999 Shareholders Report) and in Note 18 to the Consolidated Financial Statements on page 68 of that report, which information is incorporated herein by reference. Acquisitions have been an important part of Union Planters' business strategy. After completing a record number of acquisitions in 1998 (18 acquisitions in 9 states), Union Planters completed four acquisitions in 1999. Information about the banking organizations acquired since January 1, 1997, their asset size and the consideration paid, is included in the table titled "Acquisitions Completed Since January 1, 1997" on page 14 of the 1999 Shareholders Report, which is incorporated herein by reference. Management currently expects the level of acquisition activity in 2000 to be limited. Beginning in 1998, Union Planters 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 Union Planters 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 Union Planters has banking offices. 4 5 COMPETITION Union Planters 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 service providers, such as finance companies, 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 holding companies and banks, such as Union Planters and its bank subsidiaries. As a result, they may have a competitive advantage over Union Planters. The financial modernization legislation enacted by Congress in November 1999, and discussed below, is likely to have a significant impact on the competitive environment in which Union Planters conducts business when the legislation is fully phased in. By permitting combinations of banking, insurance and securities firms, it will foster the creation of a consolidated financial services industry and increase the competition among all providers of financial services. CERTAIN REGULATORY CONSIDERATIONS General As a registered bank holding company, Union Planters 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 Union Planters'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. Union Planters currently has three banking subsidiaries. Union Planters' principal subsidiary, Union Planters Bank, is a national banking association and is subject to supervision and examination by the Office of the Comptroller of the Currency (the Comptroller) and the FDIC. The state bank subsidiary of Union Planters is subject to supervision and examination by the FDIC and the state banking authority of the state in which it is organized (Tennessee). Union Planters' federal savings bank subsidiary is subject to supervision and examination by the Office of Thrift Supervision (OTS). Union Planters' 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, as well as 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 Union Planters 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 an applicable law or regulation could have a material effect on the business of Union Planters. Nonbanking subsidiaries of Union Planters are also subject to regulation by other federal and state agencies. The nonbank subsidiaries engaged in insurance activities are subject to regulation by the insurance departments in the states in which they conduct business. Union Planters' registered broker-dealer subsidiary is regulated by the Securities and Exchange Commission, among others, and is subject to the rules and regulations of the National Association of Securities Dealers, Inc., a securities industry self-regulatory organization. Acquisitions Under the BHCA, Union Planters 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 currently prohibits, with certain exceptions, Union Planters from acquiring direct or indirect ownership or control of 5% or more of any class of voting shares of any nonbanking corporation. 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 region 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 5 6 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. 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, Union Planters' subsidiary banks and savings bank have all received at least a "satisfactory" CRA rating. Impact of Recent Legislation The activities permissible to bank holding companies and their affiliates were substantially expanded by the Gramm-Leach-Bliley Act which the President signed into law on November 12, 1999. Effective March 11, 2000, the Gramm-Leach-Bliley Act removed Federal and state law barriers that prevented banking organizations, such as Union Planters, from affiliating with insurance organizations and securities firms. An eligible bank holding company may elect to be treated as a financial holding company and, as such, it may engage in financial activities (activities that are financial in nature, such as insurance and securities underwriting and dealing activities) and activities the Federal Reserve determines to be complementary to financial activities which do not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally. To be eligible to elect the status of a financial holding company, all of the depository institution subsidiaries of the bank holding company must meet the requirements of their regulators to be considered well managed and well capitalized and have a CRA rating of at least "satisfactory." Bank holding companies that do not elect the status of a financial holding company may continue to engage in and own companies conducting nonbanking activities which had been approved by Federal Reserve order or regulation prior to November 12, 1999. The Federal Reserve and Treasury Secretary will determine what activities qualify as financial in nature. A financial holding company will not be required to obtain prior Federal Reserve approval in order to engage in the financial activities identified in the Act, other than in connection with an acquisition of a thrift institution. However, a financial holding company will not be able to commence, or acquire, any new financial activities if one of its depository institution subsidiaries receives a less than satisfactory CRA rating. In addition, if any of its depository institution subsidiaries ceases being well capitalized or well managed, and compliance is not achieved within 180 days, a financial holding company may be forced, in effect, to cease conducting business as a financial holding company by divesting either its nonbanking financial activities or its banks. Subject to certain exceptions, national banks, such as Union Planters' principal subsidiary, Union Planters Bank, will also be able to engage in financial activities through separate subsidiaries. As a general rule, financial subsidiaries of national banks will not be permitted to engage as principal in underwriting insurance or issuing annuities, real estate development or investment, merchant banking (for at least 5 years) or insurance company portfolio activities in which financial holding companies may engage. Insured state banks are permitted to control or hold an interest in a financial subsidiary that engages in the same type of activities permissible for national banks. Large banks (the top 50 to 100 in the U.S.) may be required to meet certain eligible investment grade debt rating requirements in order to utilize financial subsidiaries to engage in financial activities. Conducting financial activities through a bank subsidiary can impact capital adequacy, and restrictions will apply to affiliate transactions between the bank and its financial subsidiary. The banking, securities and insurance activities of financial organizations will be functionally regulated by the banking regulators, the Securities and Exchange Commission and state securities regulators and organizations, and the state insurance regulators, respectively. Consistent with this functional approach, and after eighteen months have elapsed after the enactment of the Gramm-Leach-Bliley Act, banks will no longer be excluded from the definition of a broker or a dealer under the Federal securities laws. Limited exemptions will be retained for specific types of bank activities, including an exemption to permit banks to continue to offer on-site third party brokerage services under certain conditions. Banks advising registered investment companies will be required to register as investment advisors, and only collective investment funds (common trust funds) that are employed by banks solely as an aid to the administration of trusts, estates, or other fiduciary accounts will be able to avoid the registration requirements imposed on investment companies. The Gramm-Leach-Bliley Act also includes consumer privacy protections and CRA "sunshine" rules, "modernizes" various other banking-related statutes, permits mutual bank holding companies, and requires a number of studies and reports to Congress over the next five years. Union Planters meets the eligibility requirements imposed under the Gramm-Leach-Bliley Act, and currently intends to elect the status of a financial holding company. That status may alleviate certain restrictions applicable to the insurance agency and securities brokerage activities of Union Planters' subsidiaries. It will not, however, lessen the regulatory oversight to which Union Planters and its 6 7 subsidiaries are subject in the conduct of their business. In the future, as the Gramm-Leach-Bliley Act becomes fully phased-in, it is likely that the activities of Union Planters' banking subsidiaries, and in particular, UPB, will become subject to increased regulation, to the extent they continue to engage in investment advisory services. Interstate Banking Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the Interstate Act), Union Planters and any other bank holding company may 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. Union Planters 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. Since then, Union Planters has continued this strategy of consolidation, and management anticipates that substantially all of Union Planters' 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 a 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 anticipating or 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, 1999, Union Planters' Total Risk-Based Capital Ratio was 12.69%; its Tier 1 Risk-Based Capital Ratio (i.e., its ratio of Tier 1 Capital to risk-weighted assets) was 9.50%; and its Leverage Ratio was 6.65%. In addition, each of Union Planters' 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 Union Planters' 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, 1999, the Total and Tier 1 Risk-Based Capital and Leverage Ratios of UPB, Union Planters' largest bank subsidiary, were 11.10%, 8.49%, and 5.95%, respectively. Neither Union Planters nor any of its banking subsidiaries has been advised by any federal banking agency of any specific minimum capital ratio requirement applicable to it. 7 8 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%; or - 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%; or - 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 Union Planters is a legal entity separate and distinct from its banking, thrift and other subsidiaries. Union Planters' principal sources of cash flow (including cash flow to pay dividends to shareholders, on a parent company only basis), are dividends paid to Union Planters by its subsidiaries. The right of Union Planters, and consequently the rights of creditors and shareholders of Union Planters, 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 Union Planters in its capacity as a creditor may be recognized. 8 9 There are statutory and regulatory limitations on the payment of dividends to Union Planters by its banking subsidiaries. UPB, a national banking association, 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. Union Planters' state-chartered banking subsidiary is subject to similar restrictions on the payment of dividends by the state laws under which it is organized. The payment of dividends by savings and loan subsidiaries is subject to regulation of the Office of Thrift Supervision. 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, 2000, under dividend restrictions imposed under federal and state laws, Union Planters' banking subsidiaries could declare aggregate dividends of approximately $106.6 million without obtaining prior regulatory approval. Future dividends will depend primarily upon the level of earnings of the banking subsidiaries of Union Planters. 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, Union Planters 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, Union Planters 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 Union Planters 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 Union Planters. 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. 9 10 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 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, and to further expand or change the regulation of the powers of depository institutions, bank holding companies, and competitors of depository institutions. In addition, numerous regulations are required to be promulgated to implement the significant legislative changes made in the recently enacted Gramm-Leach-Bliley Act discussed above. It cannot be predicted whether, or in what form, any of these proposals or regulatory initiatives will be adopted, the impact they will have on the financial institutions industry or the extent to which the business or financial condition of Union Planters may be affected thereby. PERSONNEL As of February 29, 2000, Union Planters, including all subsidiaries, had 13,950 employees (including 2,248 part-time employees). 10 11 STATISTICAL DISCLOSURES The statistical information required by Item 1 may be found in the 1999 Shareholders Report (Exhibit 13 hereto) which, to the extent indicated, is hereby incorporated herein by reference, as follows:
Page in Union Planters' Guide 3 Disclosures 1999 Shareholders Report* - ------------------------------------------------------------------------ ------------------------- I. Distribution of Assets, Liabilities and Shareholders' Equity: Interest Rates and Interest Differential A. Average Balance Sheet 33 B. Net Interest Earnings Analysis 33 C. Rate/Volume Analysis 34 II. Investment Portfolio A. Book Value of Investment Securities 39, 50, and 51 B. Maturities of Investment Securities 51 C. Investment Securities Concentrations Not applicable III. Loan Portfolio A. Types of Loans 35 and 52 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 36 and 37 2. Potential Problem Loans 26 3. Foreign Outstandings Not Significant 4. Loan Concentrations 23 D. Other Interest-Bearing Assets Not Significant IV. Summary of Loan Loss Experience A. Analysis of Allowance for Loan Losses 37 B. Allocation of the Allowance for Loan Losses 36 V. Deposits A. Average Balances 33 and 35 B. Maturities of Large Denomination Certificates of Deposit Follows this table 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 54
*Unless otherwise noted 11 12 The following table presents the maturities and sensitivities of Union Planters' loans to changes in interest rates at December 31, 1999:
DUE AFTER ONE DUE WITHIN BUT WITHIN DUE AFTER ONE YEAR FIVE YEARS FIVE YEARS ----------------- ----------------- ----------------- (DOLLARS IN THOUSANDS) Commercial, Financial, and Agricultural(1).................... $ 3,132,708 $ 2,028,899 $ 272,087 Real Estate - Construction.................................... 960,175 420,825 200,164 Foreign....................................................... 367,846 6,685 283 ----------- ----------- ----------- Total............................................... $ 4,460,729 $ 2,456,409 $ 472,534 =========== =========== =========== Fixed Rate.................................................... $ 1,874,275 $ 265,754 =========== =========== Variable Rate................................................. $ 582,134 $ 206,780 =========== ===========
- -------------------- (1) Includes accounts receivable-factoring and direct lease financing. The following table presents maturities of certificates of deposit of $100,000 and over and other time deposits of $100,000 and over:
DECEMBER 31, 1999 ---------------------------------- (DOLLARS IN THOUSANDS) Under 3 Months................ $ 755,193 3 to 6 Months................. 474,669 6 to 12 Months................ 644,698 Over 12 Months................ 358,248 ------------- Total............... $ 2,232,808 =============
12 13 ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT The following lists the executive officers of Union Planters. Executive officers of Union Planters are elected annually. Information regarding the executive officers, their present positions held with Union Planters and its subsidiaries, and their ages as of March 6, 2000, and their principal occupations for the last five years are as follows:
Position of Executive Officers Name with Union Planters and UPB Age - ------------------------- ------------------------------------- ----- Benjamin W. Rawlins, Jr. Chairman and Chief Executive Officer 62 Jackson W. Moore President and Chief Operating Officer 51 Bobby L. Doxey Senior Executive Vice President and 52 Chief Financial Officer Alan W. Kennebeck Senior Executive Vice President 54 Retail Services Lloyd B. DeVaux Executive Vice President and 47 Chief Information Officer Michael B. Russell Executive Vice President and 45 Senior Lending Officer Jack W. Parker Executive Vice President 53 M. Kirk Walters Senior Vice President, Treasurer, and 59 Chief Accounting Officer
On January 1, 1998, Mr. Rawlins was reelected to the position of Chairman of UPB. Mr. Rawlins was President of Union Planters from September 1984 until he was elected Chairman. Mr. Rawlins has been Chairman of Union Planters 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 Union Planters and UPB since September 1984. Mr. Rawlins serves as an executive officer of Union Planters pursuant to an employment agreement with Union Planters, which is renewable annually each December 31. Mr. Moore has been President of Union Planters since April 1989 and was elected President of UPB January 1, 1998. In April 1994, Mr. Moore was elected Chief Operating Officer of Union Planters 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 Union Planters), located in Clanton, Alabama. He has served on the Boards of Union Planters and UPB since 1986. Mr. Moore serves as an executive officer of Union Planters pursuant to an employment agreement with Union Planters, which is renewable annually each December 31. Mr. Doxey joined Union Planters as Senior Executive Vice President and Chief Financial Officer on March 1, 2000. Prior to joining Union Planters, Mr. Doxey was a Senior Vice President and Financial Systems Project Manager and Manager of Organizational Profitability Measurement with Banc One Corporation. He was Senior Vice President and Controller for Banc One Corporation from 1996 to 1998 and was Chief Financial Officer for Banc One Texas Corporation from 1994 to 1996. Mr. Kennebeck joined Union Planters as Senior Executive Vice President for Retail Services on February 11, 2000. From 1995 until joining Union Planters, Mr. Kennebeck was President and Chief Executive Officer of AMCORE Investment Group and Chairman of AMCORE Insurance Group, Inc., AMCORE Investment Services, Inc., and Investment Management Group. He was also Executive Vice President of AMCORE Financial, Inc. 13 14 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. 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. Parker was Executive Vice President and Chief Financial Officer of Union Planters and UPB from March 1990 until March 1, 2000 when he became Executive Vice President. Mr. Parker has been an officer of Union Planters and UPB for more than twenty years. Mr. Walters was elected Senior Vice President of Union Planters in November 1990 and has been Chief Accounting Officer since February 1990. He has been Treasurer of Union Planters since 1985. He was a Vice President of Union Planters from 1975 until he was elected to his current position. Mr. Walters has been an officer of UPB for more than twenty-five years and is currently a Senior Vice President. ITEM 2. PROPERTIES Union Planters' 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 Review, and Marketing. As of March 5, 2000, Union Planters operated 22 banking offices in Alabama, 42 in Arkansas, 82 in Florida, 99 in Illinois, 78 in Indiana, 28 in Iowa, 40 in Kentucky, 23 in Louisiana, 137 in Mississippi, 94 in Missouri, 208 in Tennessee, and 15 in Texas. The majority of these locations are owned. Union Planters' subsidiaries also operate 1,018 twenty-four-hour automated teller locations. 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; Dallas, Texas; and Atlanta, Georgia. The mortgage operations of UPB operates 30 mortgage production offices in Arizona, California, Colorado, Florida, Georgia, Iowa, Louisiana, Mississippi, Nevada, North Carolina, Ohio, Tennessee, and Texas in addition to mortgage production offices located in certain of Union Planters' branch banking locations. There are no material encumbrances on any of the company-owned properties. ITEM 3. LEGAL PROCEEDINGS Union Planters and/or various subsidiaries are parties to various pending civil actions, all of which are being defended vigorously. Additionally, Union Planters 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 Union Planters' 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 Union Planters' 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 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 have been suits against various Mississippi banks (including 14 15 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. Five 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 1999 Shareholders Report on pages 40 and 41 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 1999 Shareholders Report 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 1999 Shareholders Report on pages 11 - 41, 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 1999 Shareholders Report on pages 28 and 38, 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 1999 Shareholders Report on pages 42 - 71 and in Table 14 captioned "Selected Quarterly Data" on pages 40 and 41, which pages are incorporated herein by reference. 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 "Election of Directors" on pages 2 - 6 and under the heading "Union Planters Stock Ownership by Directors and Executive Officers" on page 6 of the Definitive Proxy Statement of Union Planters to be used in soliciting proxies for the Annual Meeting of shareholders to be held on April 20, 2000 (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 "Director Compensation" on page 6 and under the heading "Executive Compensation" on pages 7 - 14 of the Proxy Statement, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 15 16 The information required by Item 12 as to certain beneficial owners and management is included under the heading "Union Planters Stock Ownership by Directors and Executive Officers" on pages 6 - 7 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 Union Planters and their associates is included under the heading "Certain Relationships and Transactions" on page 15 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 and its Subsidiaries, included in the 1999 Shareholders Report beginning on page 42, are incorporated herein by reference in response to Part II, Item 8:
Page in Annual Report ------------- Consolidated Balance Sheet - December 31, 1999 and 1998 42 Consolidated Statement of Earnings - Years ended December 31, 1999, 1998, and 1997 43 Consolidated Statement of Changes in Shareholders' Equity - Years ended December 31, 1999, 1998, and 1997 44 Consolidated Statement of Cash Flows - Years ended December 31, 1999, 1998, and 1997 45 Notes to Consolidated Financial Statements 46 Report of Management 71 Report of Independent Accountants 71 The exhibits listed in the Exhibit Index beginning on page i, 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 *.
(a)(2) Not applicable (a)(3) Exhibits: 16 17 (b) Reports on Form 8-K:
Date of Current Report Subject Reported Under Item 5 ----------------------- ------------------------------------------- October 21, 1999 Press Release announcing Third Quarter 1999 net earnings, reported under Item 5 January 20, 2000 Press Release announcing Fourth Quarter and 1999 Year-End operating results, reported under Item 5
17 18 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 6, 2000 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 6th day of March, 2000. /s/ Benjamin W. Rawlins, Jr. /s/ Bobby L. Doxey - ---------------------------------------------- --------------------------------------- Benjamin W. Rawlins, Jr. Bobby L. Doxey Chairman, Chief Executive Officer, and Senior 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 - ---------------------------------------------- --------------------------------------- Albert M. Austin C. J. Lowrance 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 - ---------------------------------------------- --------------------------------------- C. E. Heiligenstein David M. Thomas Director Director /s/ Carl G. Hogan - ---------------------------------------------- --------------------------------------- Carl G. Hogan Richard A. Trippeer, Jr. Director Director /s/ S. Lee Kling /s/ Spence L. Wilson - ---------------------------------------------- --------------------------------------- S. Lee Kling Spence L. Wilson Director Director /s/ Parnell S. Lewis, Jr. - ---------------------------------------------- Parnell S. Lewis, Jr. Director
18 19 EXHIBIT INDEX 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 Union Planters'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-A12B 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 October 21, 1999, of Union Planters Corporation (incorporated by reference to Exhibit 3(b) to Union Planters Corporation's Quarterly Report on Form 10-Q dated September 30, 1999, 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) Copy of Registrant's AGREEMENT PURSUANT TO ITEM 601(b)(4)(iii)(A) OF REGULATION S-K dated March 15, 2000 with respect to certain debt instruments (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)
i 20 10(c)* Union Planters Corporation 1983 Stock Incentive Plan as amended January 18, 1990 and approved by shareholders on April 20, 1990 (incorporated by reference to Exhibit 4(a) filed as part of Registration Statement No. 33-35928, filed July 23, 1990) 10(d)* Union Planters Corporation 1992 Stock Incentive Plan as Amended and Restated October 17, 1996 and approved by shareholders April 17, 1997, and approved by shareholders April 15, 1999, and July 15, 1999 (incorporated by reference to Exhibit 10(n) to Union Planters Corporation's Quarterly Report on Form 10-Q dated June 30, 1999 Commission File No. 1-10160) 10(e)* 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(f)* 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(g)* 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(h)* 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(i)* 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(j)* 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) 10(k)* Amended and Restated Trust Under Union Planters Corporation Supplemental Executive Retirement for Certain Executive Officers (incorporated by reference to Exhibit 10(a) to Union Planters Corporation's Quarterly Report on Form 10-Q dated September 30, 1999, Commission File No. 1-10160). 10(l)* Union Planters Corporation Supplemental Executive Retirement Agreement with Benjamin W. Rawlins, Jr. (incorporated by reference to Exhibit 10(b) to Union Planters Corporation's Quarterly Report on Form 10-Q dated September 30, 1999, Commission File No. 1-10160). 10(m)* Amendment to Union Planters Corporation Supplemental Executive Retirement Agreement with Benjamin W. Rawlins, Jr. (incorporated by reference to Exhibit 10(c) to Union Planters Corporation's Quarterly Report on Form 10-Q dated September 30, 1999, Commission File No. 1-10160). 10(n)* Amendment No. 2 to Union Planters Corporation Supplemental Executive Retirement Agreement with Benjamin W. Rawlins, Jr. (incorporated by reference to Exhibit 10(d) to Union Planters Corporation's Quarterly Report on Form 10-Q dated September 30, 1999, Commission File No. 1-10160). 10(o)* Union Planters Corporation Supplemental Executive Retirement Agreement with Jackson W. Moore (incorporated by reference to Exhibit 10(e) to Union Planters Corporation's Quarterly Report on Form 10-Q dated September 30, 1999, Commission File No. 1-10160). 10(p)* Amendment to Union Planters Corporation Supplemental Executive Retirement Agreement with Jackson W. Moore (incorporated by reference to Exhibit 10(f) to Union Planters Corporation's Quarterly Report on Form 10-Q dated September 30, 1999, Commission File No. 1-10160).
ii 21 10(q)* Amendment No. 2 to Union Planters Corporation Supplemental Executive Retirement Agreement with Jackson W. Moore (incorporated by reference to Exhibit 10(g) to Union Planters Corporation's Quarterly Report on Form 10-Q dated September 30, 1999, Commission File No. 1-10160). 10(r)* Union Planters Corporation Supplemental Executive Retirement Agreement with M. Kirk Walters (incorporated by reference to Exhibit 10(h) to Union Planters Corporation's Quarterly Report on Form 10-Q dated September 30, 1999, Commission File No. 1-10160). 10(s)* Amendment to Union Planters Corporation Supplemental Executive Retirement Agreement with M. Kirk Walters (incorporated by reference to Exhibit 10(i) to Union Planters Corporation's Quarterly Report on Form 10-Q dated September 30, 1999, Commission File No. 1-10160). 10(t)* Amendment No. 2 to Union Planters Corporation Supplemental Executive Retirement Agreement with M. Kirk Walters (incorporated by reference to Exhibit 10(j) to Union Planters Corporation's Quarterly Report on Form 10-Q dated September 30, 1999, Commission File No. 1-10160). 10(u)* Union Planters Corporation Supplemental Executive Retirement Agreement with John W. Parker (incorporated by reference to Exhibit 10(k) to Union Planters Corporation's Quarterly Report on Form 10-Q dated September 30, 1999, Commission File No. 1-10160). 10(v)* Amendment to Supplemental Executive Retirement Agreement with John W. Parker (incorporated by reference to Exhibit 10(l) to Union Planters Corporation's Quarterly Report on Form 10-Q dated September 30, 1999, Commission File No. 1-10160). 10(w)* Trust Under Union Planters Corporation Deferred Compensation Plan for Executives (incorporated by reference to Exhibit 10(m) to Union Planters Corporation's Quarterly Report on Form 10-Q dated September 30, 1999, Commission File No. 1-10160). 10(x)* Amendment to Trust Under Union Planters Corporation Deferred Compensation Plan for Executives (incorporated by reference to Exhibit 10(n) to Union Planters Corporation's Quarterly Report on Form 10-Q dated September 30, 1999, Commission File No. 1-10160). 10(y)* Employment Agreement between Union Planters Corporation and Bobby L. Doxey (filed herewith) 10(z)* Employment Agreement between Union Planters Corporation and Alan W. Kennebeck (filed herewith) 10(aa)* Employment Agreement between Union Planters Corporation and Lloyd B. DeVaux (filed herewith) 10(bb)* Amended Executive Financial Service Plan 2000 (filed herewith) 11 Computation of Per Share Earnings (incorporated by reference to Note 16 on page 66 to the Registrant's 1999 consolidated financial statements included as Exhibit 13 herein) 13 1999 Annual Report to Shareholders (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)
- -------------------- *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 iii EX-4.(B) 2 COPY OF REGISTRANT'S AGREEMENT 1 EXHIBIT 4(B) 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, 2000 -------------- By: /s/ Benjamin W. Rawlins, Jr. ---------------------------------------- Benjamin W. Rawlins, Jr. Chairman and Chief Executive Officer EX-10.(Y) 3 EMPLOYMENT AGREEMENT (BOBBY L. DOXEY) 1 EXHIBIT 10(Y) EMPLOYMENT AGREEMENT This Employment Agreement entered into and effective as of the first day of March, 2000 (the "Effective Date"), by and between Union Planters Corporation, and its wholly owned subsidiary, Union Planters Bank, N.A. (hereinafter collectively referred to as "UP"), and Bobby L. Doxey ("Executive"). WHEREAS, it is the intention and desire of the parties hereto to enter into a formal agreement whereby UP will have the benefit of the employment of Executive during the period covered by this Agreement and Executive will have the assurance of such continued employment during the period covered by this Agreement; NOW, THEREFORE, in consideration of the foregoing and of the mutual promises, covenants, representations, warranties and agreements of the parties set forth herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: 1. Employment. (a) Term. UP hereby agrees to employ Executive and Executive hereby agrees to serve UP as Senior Executive Vice President in accordance with the terms and conditions set forth herein, for a period of three (3) years (the "Initial Term"), commencing on the Effective Date of this Agreement, as set forth above; subject, however, to earlier termination as expressly provided herein. The Initial Term shall automatically be extended for one (1) additional year at the end of thereof, unless, subject to the provisions set forth below in this Paragraph 1(a), either party hereto shall terminate this Agreement at the end of the Initial Term or at the end of any successive one (1) year term thereafter by giving the other party written notice of the intent not to renew, delivered at least ninety (90) days prior to the end of such Initial Term or successive term; provided, however, that in the event UP shall elect not to renew this Agreement after the Initial Term in accordance with the provisions of this Paragraph 1(a) and shall give notice of such election not to renew as provided herein, Executive shall be entitled to the compensation set forth in Paragraph 10 hereof. In the event such notice of intent not to renew is properly delivered subject to the provisions set forth in this Paragraph 1(a), this Agreement, along with all corresponding rights, duties and covenants, shall automatically expire at the end of the Initial Term or successive term then in progress. (b) Position. UP shall employ the Executive during the term of this Agreement as Senior Executive Vice President. The Executive shall be responsible to the Chairman of the Board and Chief Executive Officer of UP (the "UP Chairman") and to the President and Chief Operating Officer of UP (the "UP President"), or to such other UP executive as either of them shall designate from time to time. The Executive may engage in charitable, civic or community activities and, with the prior approval of the UP Chairman or the UP President, may serve as a director of any other business corporation. The Executive's office for the performance of his duties under this Agreement shall be located within the greater metropolitan area of Memphis, Tennessee. (c) Cash Payment. Upon the execution hereof, Executive shall be paid the sum of Twenty Two Thousand Nine Hundred Seventeen Dollars ($22,917.00). Should Executive terminate his employment without Good Reason during the Initial Term hereof, Executive shall repay UP one-third of such Cash Payment for each year or portion thereof of the Initial Term remaining after such termination. 2. Base Salary. As compensation for services to UP, UP agrees to pay to Executive the sum of Two Hundred Seventy-five Thousand Dollars ($275,000.00) per annum payable in twenty-four (24) as equal as possible payments, one such payment being made twice each month. Such compensation shall be reviewed annually and may be increased annually following each such annual review of the Executive's performance. Such compensation, as it may be increased annually, shall not be decreased during the term of this Agreement. 2 3. Benefits. UP agrees to provide Executive the following benefits, commencing with the Effective Date hereof or as soon thereafter as practicable (all of which shall vest as of the date thereof or at such date or dates as provided in the plan documents establishing such benefits) and continuing for so long as Executive is employed under this Agreement or any extension hereof. (a) Any fringe benefit package presently offered or to be offered in the future generally to the employees of UP, such as health and dental insurance, disability insurance and participation in the ESOP and 401K Plans of UP, on the same basis as offered to other similar senior executives of UP participating therein. (b) An annual paid vacation in accordance with UP's Personnel Policy. At least two (2) weeks of such vacation shall be taken consecutively. (c) Any other benefits generally provided to similar senior executives of UP as the Board of Directors may, from time to time, approve. 4. Additional Benefits and Bonuses. In addition to those benefits set forth in Paragraph 3 above, Executive shall receive the following benefits and bonuses: (a) Reimbursement of membership dues and assessments incurred during the term of this Agreement, in the appropriate country and civic clubs as approved by the UP Chairman or UP President in accordance with normal policies regarding club dues. (b) An eligibility to participate in UP's Key Officer incentive bonus program. For the first year of service by Executive hereunder, Executive shall be guaranteed an incentive bonus of at least twenty-five percent (25%) of base salary. (c) Upon the Effective Date hereof, the Executive shall receive an initial grant of twelve thousand (12,000) restricted shares of Union Planters Corporation("UPC") Common Stock (the "Initial Stock"). (d) Upon the Effective Date hereof, the Executive shall receive an initial grant of options to purchase (at the closing market price upon date of grant) twenty-five thousand (25,000) shares of UPC Common Stock (the "Initial Options"). The Initial Stock described in paragraph 4(c) above shall vest in equal portions over ten (10) years. The Initial Options described in paragraph 4(d) shall vest in equal portions at the end of each year of the Initial Term. If at any time during the Initial Term, Executive voluntarily terminates his employment hereunder for Good Reason, as described in paragraph 10, then the unvested portion of the Initial Options shall automatically be vested. Executive shall be considered annually for the grant of additional stock options by the UP Stock Option Committee on the same basis as other senior executives of UP. (e) Executive shall be eligible to participate in UP's Executive Deferred Compensation Plan. 5. Expenses. Executive is authorized to incur necessary and customary expenses in connection with the business of UP. UP will pay or reimburse Executive for such expenses upon presentation by Executive of the appropriate records which verify such expenses in accordance with normal expense policies. Executive shall be granted an automobile allowance of $500.00 per month during the term hereof. Relocation expenses, such as moving, travel, and temporary living expenses, shall be governed by UP's policy on such expenses. 6. Termination. This Agreement shall terminate upon the first to occur of the following: (a) The expiration of the term provided for in Paragraph 1; (b) The death of the Executive; (c) The permanent disability of Executive, as defined in Paragraph 8; (d) The Termination for Cause of the employment of the Executive, as defined in Paragraph 9; 3 (e) Termination of the employment of the Executive by UP without cause or by the Executive for Good Reason, as described in Paragraph 10; and (f) Termination of employment by the Executive without Good Reason, provided that Executive shall give at least ninety (90) days prior written notice of termination. UP reserves the right to accelerate Executive's termination under this provision and pay to Executive accrued Base Salary through the date of the termination as determined by UP, and any other benefits to which the Executive is entitled upon his termination of employment with UP, in accordance with the terms of the plans and programs of UP. 7. Noncompetition. For a period of two (2) years from the date of any voluntary termination of this Agreement by the Executive without Good Reason, the Executive covenants and agrees that: (a) the Executive shall not, directly or indirectly, on his own behalf, or as an employee, representative, or agent of a third party, by ownership of any type of interest in any business enterprise or by any other means whatsoever, engage in any business or activities which are competitive with UP's business (a "Competitor's Business") within the states where UP maintains and operates banking offices or become associated with or render services to a Competitor's Business; and (b) the Executive shall not, directly or indirectly, call upon or solicit any customers of UP or any presently existing affiliate for any purpose or business that is competitive with UP's business. For the purposes of this paragraph, the term "Competitor's Business" shall apply only to such businesses or activities conducted by a competitor of UP within the states where UP maintains and operates banking offices. Nothing in this Paragraph 7 shall prohibit the Executive from being (i) a stockholder in a mutual fund or a diversified investment company or (ii) a passive owner of not more than two (2) percent of the outstanding stock of any class of a corporation, so long as the Executive has no active participation in the business of such corporation. 8. Death or Disability. (a) In the event of the termination of the employment of the Executive due to his permanent disability or death, the Executive (or in the event of his death, his executor, administrator or other personal representative) shall receive: (1) accrued Base Salary through the date of the termination of the Executive's employment; (2) any annual bonus owing but not yet paid for any fiscal year ended on or before the Executive's termination of employment; and (3) any other benefits to which the Executive is entitled upon his termination of employment with UP due to his death, in accordance with the terms of the plans and programs of UP. (b) "Disability" as used herein, means a physical or mental condition of the Executive determined by UPC in accordance with standards and procedures similar to those under UPC's employee long-term disability plan, if any. At any time that UPC does not maintain such a long-term disability plan, Disability shall mean the inability of Executive, as determined by UPC, to substantially perform Executive's regular duties and responsibilities due to a medically determinable physical or mental illness which has lasted (or can reasonably be expected to last) for a period of six (6) consecutive months. 9. Termination for Cause. As used in Paragraph 6(d), "Termination for Cause" means a termination of the Executive's employment because the Executive engages in theft, fraud, or embezzlement causing significant damage to UP. The determination of theft, fraud, or embezzlement will be made by the UP Board of Directors in good faith, but such determination does not require an actual criminal indictment or conviction prior to or after such decision. If UP terminates the Executive's employment for Cause, he shall be entitled only to: (1) accrued Base Salary through the date of the termination of his employment; and (2) any other benefits to which the Executive shall be legally entitled upon his termination of employment with UP, in accordance with the terms of the plans and programs of UP. 10. Termination by UP without Cause or by the Executive for Good Reason. As stated in Paragraph 6(e) hereof, Executive's employment may be terminated by UP without Cause. In addition, the Executive may voluntarily terminate his employment with UP for 4 Good Reason. For purposes of this Agreement, Good Reason shall mean any material breach of this Agreement by UP, including but not limited to, (1) any reduction in Executive's Base Salary or incentive opportunities, (2) any material reduction in benefits to which the Executive shall be entitled under the plans and programs of UP (unless such reduction is equally applicable to all senior executives of UP, including the Executive), (3) any material reduction in the Executive's employment responsibilities or in his office or title, or (4) the Executive's relocation from the greater metropolitan area of Memphis, Tennessee without his consent. Upon termination of the employment of the Executive by UP without Cause or the voluntary termination of such employment by the Executive for Good Reason, the Executive shall receive: (1) accrued Base Salary through the date of the termination of his employment; (2) any annual bonus owing but not yet paid for any fiscal year ended on or before the Executive's termination of employment; (3) any other benefits to which the Executive is entitled upon his termination of employment with UP, in accordance with the terms of the plans and programs of UP; and (4) a lump-sum amount equal to Executive's Base Salary for the remainder of the term of this Agreement then in effect, but not less than one year's Base Salary. 11. Termination following a Change in Control. If a Change in Control, as hereinafter defined, occurs during the term of this Agreement and within one (1) year after such Change in Control, Executive's employment shall be terminated for reasons other than Cause as described in Paragraph 9 hereof, or if following such Change in Control, the Executive terminates his employment for Good Reason, then Executive shall receive: (1) accrued Base Salary through the date of termination of his employment; (2) a lump sum equal to Executive's Base Salary due for the remainder of the term of this Agreement then in effect, but not less than one year's Base Salary; (3) any annual bonus owing but not yet paid for any fiscal year ended on or before the Executive's termination of employment; and (4) any other benefits to which the Executive is entitled upon his termination of employment with UP, in accordance with the terms of the plans and programs of UP. "Change in Control" means the occurrence of any of the following events: (1) The acquisition by any individual, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) of 25% or more of either (a) the then outstanding shares of common stock of UPC (the "Outstanding Company Common Stock") or (b) the combined voting power of the then outstanding voting securities of UPC entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (1), the following acquisitions shall not constitute a Change in Control: (w) any acquisition directly from UPC, (x) any acquisition by UPC, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by UPC or any corporation controlled by UPC, or (z) any acquisition by any Person pursuant to a transaction which complies with clauses (A), (B), and (C) of subsection (3) of this Section; or (2) Individuals who, as of the date hereof, constitute the Board of Directors of UPC (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by UPC's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or 5 (3) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of UPC (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 65% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns UPC or all or substantially all of UPC's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, and (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of UPC or such corporation resulting from such Business Combination) beneficially owns directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination. 12. Non-Disclosure. For a period of five (5) years after the date of any termination or expiration of this Agreement, Executive will not disclose any information deemed Confidential Information, except (i) to a person who is an authorized employee (as such term is defined in Paragraph 13), (ii) as required by law, regulation or order of any court or regulatory commission, department or agency or (iii) as part of a confidential communication to an attorney. If Executive shall attempt to disclose the Confidential Information or any part or parts thereof in a manner contrary to the terms of this Agreement, UP shall have the right, in addition to other remedies which may be available to it, to injunctive relief enjoining such acts or attempts, it being acknowledged that legal remedies are inadequate. This provision shall survive termination of this Agreement for the five (5) year period above provided. 13. Definition of Confidential Information and Authorized Employee. Confidential Information means any information not disseminated by UP to the general public (including identity of customers, clients, business contacts, suppliers of goods and/or services, and any transaction by or between such person or entities and UP) and which Executive used or knew of because of his employment at UP, including specific information about methods not generally employed in the industry at large and which are used or known to be contemplated for use in the future by UP for the purpose of gaining proprietary advantage over competitors; provided, however, that Confidential Information shall not include general knowledge of skills and techniques acquired or improved as a result of the employment experience at UP. Authorized employee means with respect to UP, members of the UP Board of Directors; the Chief Executive Officer; the President; Executive Vice Presidents; immediate supervisors; a fellow employee on a need-to-know basis only; and any UP employee in the course of the performance of the Executive's duties pursuant to this Agreement. Executive shall be entitled at all times to disclose Confidential Information to his personal attorney on a confidential basis and as may otherwise be required by law. 14. Assignment. The rights and obligations of UP and Executive (except Executive's obligation to perform services) under this Agreement shall inure to the benefit of and shall be binding upon their respective successors, if any. 15. Execution of Agreement. The execution of this Agreement shall be final upon signing by UP and the Executive, and shall not require the approval or ratification of any Committee or of the Board of Directors. 16. Entire Agreement. This Agreement contains the entire agreement between the parties and supersedes all prior discussions, understandings and commitments, if any, whether oral or written. This Agreement cannot be amended or modified except by subsequent written agreement signed by all of the parties. In agreeing that this Agreement may not be changed in any way except by a written and executed document, the parties knowingly waive and give up any constitutional right which they may otherwise have to amend or modify this Agreement by some means other than in writing. Finally, any agreement between UP and Executive which concerns any subject dealt 6 with by this Agreement shall be considered an amendment or modification of this Agreement and not an agreement separate from this Agreement. 17. Arbitration. Any dispute or controversy between UP and the Executive, whether arising out of or relating to this Agreement, its interpretation, its breach, or otherwise, shall be settled by arbitration in Memphis, Tennessee, administered by the American Arbitration Association, with any such dispute or controversy arising under this Agreement being so administered in accordance with its rules then in effect, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitrator shall have the authority to award any remedy or relief that a court of competent jurisdiction could order or grant, including, without limitation, the issuance of an injunction. However, either party may, without inconsistency with this arbitration provision, apply to any court having jurisdiction over such dispute or controversy and seek interim provisional, injunctive or other equitable relief until the arbitration award is rendered or the controversy is otherwise resolved. Except as necessary in court proceedings to enforce this arbitration provision or an award rendered hereunder, or to obtain interim relief, neither a party nor an arbitrator may disclose the existence, content or results of any arbitration hereunder without the prior written consent of UP and the Executive. Notwithstanding any choice of law provision included in this Agreement, the United States Federal Arbitration Act shall govern the interpretation and enforcement of this arbitration provision. 18. Controlling Law. This Agreement and the rights and obligations hereunder shall be governed by and construed in accordance with the federal law of the United States of America, and in the absence of controlling federal law, in accordance with the laws of the State of Tennessee. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. EXECUTIVE /s/ Bobby L. Doxey -------------------------------------- UNION PLANTERS BANK, N.A. By: /s/ Jackson W. Moore ----------------------------------- Jackson W. Moore President and Chief Operating Officer UNION PLANTERS CORPORATION By: /s/ Jackson W. Moore ----------------------------------- Jackson W. Moore President and Chief Operating Officer EX-10.(Z) 4 EMPLOYMENT AGREEMENT (ALAN W. KENNEBECK) 1 EXHIBIT 10(Z) EMPLOYMENT AGREEMENT This Employment Agreement made and entered into this twenty-second day of February, 2000, effective as of the eleventh day of February, 2000 (the "Effective Date"), by and between Union Planters Corporation, and its wholly owned subsidiary, Union Planters Bank, N.A.(hereinafter collectively referred to as "UP"), and Alan W. Kennebeck ("Executive"). WHEREAS, it is the intention and desire of the parties hereto to enter into a formal agreement whereby UP will have the benefit of the employment of Executive during the period covered by this Agreement and Executive will have the assurance of such continued employment during the period covered by this Agreement; NOW, THEREFORE, in consideration of the foregoing and of the mutual promises, covenants, representations, warranties and agreements of the parties set forth herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: 1. Employment. (a) Term. UP hereby agrees to employ Executive and Executive hereby agrees to serve UP as Senior Executive Vice President in accordance with the terms and conditions set forth herein, for a period of three (3) years (the "Initial Term"), commencing on the Effective Date of this Agreement, as set forth above; subject, however, to earlier termination as expressly provided herein. The Initial Term shall automatically be extended for one (1) additional year at the end of thereof, unless, subject to the provisions set forth below in this Paragraph 1(a), either party hereto shall terminate this Agreement at the end of the Initial Term or at the end of any successive one (1) year term thereafter by giving the other party written notice of the intent not to renew, delivered at least ninety (90) days prior to the end of such Initial Term or successive term; provided, however, that in the event UP shall elect not to renew this Agreement after the Initial Term in accordance with the provisions of this Paragraph 1(a) and shall give notice of such election not to renew as provided herein, Executive shall be entitled to the compensation set forth in Paragraph 10 hereof. In the event such notice of intent not to renew is properly delivered subject to the provisions set forth in this Paragraph 1(a), this Agreement, along with all corresponding rights, duties and covenants, shall automatically expire at the end of the Initial Term or successive term then in progress. (b) Position. UP shall employ the Executive during the term of this Agreement as Senior Executive Vice President. The Executive shall be responsible to the Chairman of the Board and Chief Executive Officer of UP (the "UP Chairman") and to the President and Chief Operating Officer of UP (the "UP President"), or to such other UP executive as either of them shall designate from time to time. The Executive may engage in charitable, civic or community activities and, with the prior approval of the UP Chairman or the UP President, may serve as a director of any other business corporation. The Executive's office for the performance of his duties under this Agreement shall be located within the greater metropolitan area of Memphis, Tennessee. (c) Cash Payment. Upon the execution hereof, Executive shall be paid the sum of Seventy Five Thousand Dollars ($75,000.00). Should Executive terminate his employment without Good Reason during the Initial Term hereof, Executive shall repay UP one-third of such Cash Payment for each year or portion thereof of the Initial Term remaining after such termination. 2. Base Salary. As compensation for services to UP, UP agrees to pay to Executive the sum of Two Hundred Fifty Thousand Dollars ($250,000.00) per annum payable in twenty-four (24) as equal as possible payments, one such payment being made twice each month. Such compensation shall be reviewed annually and may be increased annually following each such annual review of the Executive's performance. Such compensation, as it may be increased annually, shall not be decreased during the term of this Agreement. 2 3. Benefits. UP agrees to provide Executive the following benefits, commencing with the Effective Date hereof or as soon thereafter as practicable (all of which shall vest as of the date thereof or at such date or dates as provided in the plan documents establishing such benefits) and continuing for so long as Executive is employed under this Agreement or any extension hereof. (a) Any fringe benefit package presently offered or to be offered in the future generally to the employees of UP, such as health and dental insurance, disability insurance and participation in the ESOP and 401K Plans of UP, on the same basis as offered to other similar senior executives of UP participating therein. (b) An annual paid vacation in accordance with UP's Personnel Policy. At least two (2) weeks of such vacation shall be taken consecutively. (c) Any other benefits generally provided to similar senior executives of UP as the Board of Directors may, from time to time, approve. 4. Additional Benefits and Bonuses. In addition to those benefits set forth in Paragraph 3 above, Executive shall receive the following benefits and bonuses: (a) Reimbursement of membership dues and assessments incurred during the term of this Agreement, in the appropriate country and civic clubs as approved by the UP Chairman or UP President in accordance with normal policies regarding club dues. (b) An eligibility to participate in UP's Key Officer incentive bonus program. For the first year of service by Executive hereunder, Executive shall be guaranteed an incentive bonus of at least thirty-two percent (32%) of base salary. (c) Upon the Effective Date hereof, the Executive shall receive an initial grant of ten thousand (10,000) restricted shares of Union Planters Corporation("UPC") Common Stock (the "Initial Stock"). (d) Upon the Effective Date hereof, the Executive shall receive an initial grant of options to purchase (at the closing market price upon date of grant) twenty thousand (20,000) shares of UPC Common Stock (the "Initial Options"). The Initial Stock described in paragraph 4(c) above shall vest in equal portions over nine (9) years. The Initial Options described in paragraph 4(d) shall vest in equal portions at the end of each year of the Initial Term. If at any time during the Initial Term, Executive voluntarily terminates his employment hereunder for Good Reason, as described in paragraph 10, then the unvested portion of the Initial Options shall automatically be vested. Executive shall be considered annually for the grant of additional stock options by the UP Stock Option Committee on the same basis as other senior executives of UP. (e) Executive shall be eligible to participate in UP's Executive Deferred Compensation Plan. 5. Expenses. Executive is authorized to incur necessary and customary expenses in connection with the business of UP. UP will pay or reimburse Executive for such expenses upon presentation by Executive of the appropriate records which verify such expenses in accordance with normal expense policies. Executive shall be granted an automobile allowance of $500.00 per month during the term hereof. Relocation expenses, such as moving, travel, and temporary living expenses, shall be governed by UP's policy on such expenses. 6. Termination. This Agreement shall terminate upon the first to occur of the following: (a) The expiration of the term provided for in Paragraph 1; (b) The death of the Executive; (c) The permanent disability of Executive, as defined in Paragraph 8; (d) The Termination for Cause of the employment of the Executive, as defined in Paragraph 9; (e) Termination of the employment of the Executive by UP without cause or by the Executive for Good Reason, as described in Paragraph 10; and 3 (f) Termination of employment by the Executive without Good Reason, provided that Executive shall give at least ninety (90) days prior written notice of termination. UP reserves the right to accelerate Executive's termination under this provision and pay to Executive accrued Base Salary through the date of the termination as determined by UP, and any other benefits to which the Executive is entitled upon his termination of employment with UP, in accordance with the terms of the plans and programs of UP. 7. Noncompetition. For a period of two (2) years from the date of any voluntary termination of this Agreement by the Executive without Good Reason, the Executive covenants and agrees that: (a) the Executive shall not, directly or indirectly, on his own behalf, or as an employee, representative, or agent of a third party, by ownership of any type of interest in any business enterprise or by any other means whatsoever, engage in any business or activities which are competitive with UP's business (a "Competitor's Business") within the states where UP maintains and operates banking offices or become associated with or render services to a Competitor's Business; and (b) the Executive shall not, directly or indirectly, call upon or solicit any customers of UP or any presently existing affiliate for any purpose or business that is competitive with UP's business. For the purposes of this paragraph, the term "Competitor's Business" shall apply only to such businesses or activities conducted by a competitor of UP within the states where UP maintains and operates banking offices. Nothing in this Paragraph 7 shall prohibit the Executive from being (i) a stockholder in a mutual fund or a diversified investment company or (ii) a passive owner of not more than two (2) percent of the outstanding stock of any class of a corporation, so long as the Executive has no active participation in the business of such corporation. 8. Death or Disability. (a) In the event of the termination of the employment of the Executive due to his permanent disability or death, the Executive (or in the event of his death, his executor, administrator or other personal representative) shall receive: (1) accrued Base Salary through the date of the termination of the Executive's employment; (2) any annual bonus owing but not yet paid for any fiscal year ended on or before the Executive's termination of employment; and (3) any other benefits to which the Executive is entitled upon his termination of employment with UP due to his death, in accordance with the terms of the plans and programs of UP. (b) "Disability" as used herein, means a physical or mental condition of the Executive determined by UPC in accordance with standards and procedures similar to those under UPC's employee long-term disability plan, if any. At any time that UPC does not maintain such a long-term disability plan, Disability shall mean the inability of Executive, as determined by UPC, to substantially perform Executive's regular duties and responsibilities due to a medically determinable physical or mental illness which has lasted (or can reasonably be expected to last) for a period of six (6) consecutive months. 9. Termination for Cause. As used in Paragraph 6(d), "Termination for Cause" means a termination of the Executive's employment because the Executive engages in theft, fraud, or embezzlement causing significant damage to UP. The determination of theft, fraud, or embezzlement will be made by the UP Board of Directors in good faith, but such determination does not require an actual criminal indictment or conviction prior to or after such decision. If UP terminates the Executive's employment for Cause, he shall be entitled only to: (1) accrued Base Salary through the date of the termination of his employment; and (2) any other benefits to which the Executive shall be legally entitled upon his termination of employment with UP, in accordance with the terms of the plans and programs of UP. 10. Termination by UP without Cause or by the Executive for Good Reason. As stated in Paragraph 6(e) hereof, Executive's employment may be terminated by UP without Cause. In addition, the Executive may voluntarily terminate his employment with UP for Good Reason. For purposes of this Agreement, "Good Reason" shall mean any material breach of this Agreement by UP, including but not limited to, (1) any reduction in Executive's Base Salary or incentive opportunities, (2) any material reduction in benefits to which the Executive shall be entitled under the plans and programs of UP (unless such reduction is equally applicable to all senior executives of UP, 4 including the Executive), (3) any material reduction in the Executive's employment responsibilities or in his office or title, or (4) the Executive's relocation from the greater metropolitan area of Memphis, Tennessee, without his consent. Upon termination of the employment of the Executive by UP without Cause or the voluntary termination of such employment by the Executive for Good Reason, the Executive shall receive: (1) accrued Base Salary through the date of the termination of his employment; (2) any annual bonus owing but not yet paid for any fiscal year ended on or before the Executive's termination of employment; (3) any other benefits to which the Executive is entitled upon his termination of employment with UP, in accordance with the terms of the plans and programs of UP; and (4) a lump sum amount equal to Executive's Base Salary for the remainder of the term of this Agreement then in effect, but not less than one year's Base Salary. 11. Termination following a Change in Control. If a Change in Control, as hereinafter defined, occurs during the term of this Agreement and within one (1) year after such Change in Control, Executive's employment shall be terminated for reasons other than Cause as described in Paragraph 9 hereof, or if following such Change in Control, the Executive terminates his employment for Good Reason, then Executive shall receive: (1) accrued Base Salary through the date of termination of his employment; (2) a lump sum equal to Executive's Base Salary due for the remainder of the term of this Agreement then in effect, but not less than one year's Base Salary; (3) any annual bonus owing but not yet paid for any fiscal year ended on or before the Executive's termination of employment; and (4) any other benefits to which the Executive is entitled upon his termination of employment with UP, in accordance with the terms of the plans and programs of UP. "Change in Control" means the occurrence of any of the following events: (1) The acquisition by any individual, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) of 25% or more of either (a) the then outstanding shares of common stock of UPC (the "Outstanding Company Common Stock") or (b) the combined voting power of the then outstanding voting securities of UPC entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (1), the following acquisitions shall not constitute a Change in Control: (w) any acquisition directly from UPC, (x) any acquisition by UPC, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by UPC or any corporation controlled by UPC, or (z) any acquisition by any Person pursuant to a transaction which complies with clauses (A), (B), and (C) of subsection (3) of this Section; or (2) Individuals who, as of the date hereof, constitute the Board of Directors of UPC (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by UPC's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (3) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of UPC (a "Business Combination"), in each case, unless, following such Business Combination, 5 (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 65% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns UPC or all or substantially all of UPC's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, and (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of UPC or such corporation resulting from such Business Combination) beneficially owns directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination. 12. Non-Disclosure. For a period of five (5) years after the date of any termination or expiration of this Agreement, Executive will not disclose any information deemed Confidential Information, except (i) to a person who is an authorized employee (as such term is defined in Paragraph 13), (ii) as required by law, regulation or order of any court or regulatory commission, department or agency or (iii) as part of a confidential communication to an attorney. If Executive shall attempt to disclose the Confidential Information or any part or parts thereof in a manner contrary to the terms of this Agreement, UP shall have the right, in addition to other remedies which may be available to it, to injunctive relief enjoining such acts or attempts, it being acknowledged that legal remedies are inadequate. This provision shall survive termination of this Agreement for the five (5) year period above provided. 13. Definition of Confidential Information and Authorized Employee. Confidential Information means any information not disseminated by UP to the general public (including identity of customers, clients, business contacts, suppliers of goods and/or services, and any transaction by or between such person or entities and UP) and which Executive used or knew of because of his employment at UP, including specific information about methods not generally employed in the industry at large and which are used or known to be contemplated for use in the future by UP for the purpose of gaining proprietary advantage over competitors; provided, however, that Confidential Information shall not include general knowledge of skills and techniques acquired or improved as a result of the employment experience at UP. Authorized employee means with respect to UP, members of the UP Board of Directors; the Chief Executive Officer; the President; Executive Vice Presidents; immediate supervisors; a fellow employee on a need-to-know basis only; and any UP employee in the course of the performance of the Executive's duties pursuant to this Agreement. Executive shall be entitled at all times to disclose Confidential Information to his personal attorney on a confidential basis and as may otherwise be required by law. 14. Assignment. The rights and obligations of UP and Executive (except Executive's obligation to perform services) under this Agreement shall inure to the benefit of and shall be binding upon their respective successors, if any. 15. Execution of Agreement. The execution of this Agreement shall be final upon signing by UP and the Executive, and shall not require the approval or ratification of any Committee or of the Board of Directors. 16. Entire Agreement. This Agreement contains the entire agreement between the parties and supersedes all prior discussions, understandings and commitments, if any, whether oral or written. This Agreement cannot be amended or modified except by subsequent written agreement signed by all of the parties. In agreeing that this Agreement may not be changed in any way except by a written and executed document, the parties knowingly waive and give up any constitutional right which they may otherwise have to amend or modify this Agreement by some means other than in writing. Finally, any agreement between UP and Executive which concerns any subject dealt with by this Agreement shall be considered an amendment or modification of this Agreement and not an agreement separate from this Agreement. 6 17. Arbitration. Any dispute or controversy between UP and the Executive, whether arising out of or relating to this Agreement, its interpretation, its breach, or otherwise, shall be settled by arbitration in Memphis, Tennessee, administered by the American Arbitration Association, with any such dispute or controversy arising under this Agreement being so administered in accordance with its rules then in effect, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitrator shall have the authority to award any remedy or relief that a court of competent jurisdiction could order or grant, including, without limitation, the issuance of an injunction. However, either party may, without inconsistency with this arbitration provision, apply to any court having jurisdiction over such dispute or controversy and seek interim provisional, injunctive or other equitable relief until the arbitration award is rendered or the controversy is otherwise resolved. Except as necessary in court proceedings to enforce this arbitration provision or an award rendered hereunder, or to obtain interim relief, neither a party nor an arbitrator may disclose the existence, content or results of any arbitration hereunder without the prior written consent of UP and the Executive. Notwithstanding any choice of law provision included in this Agreement, the United States Federal Arbitration Act shall govern the interpretation and enforcement of this arbitration provision. 18. Controlling Law. This Agreement and the rights and obligations hereunder shall be governed by and construed in accordance with the federal law of the United States of America, and in the absence of controlling federal law, in accordance with the laws of the State of Tennessee. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. EXECUTIVE /s/ Alan W. Kennebeck ------------------------------------------- UNION PLANTERS BANK, N.A. By:/s/ Jackson W. Moore ---------------------------------------- Jackson W. Moore President and Chief Operating Officer UNION PLANTERS CORPORATION By: /s/ Jackson W. Moore ---------------------------------------- Jackson W. Moore President and Chief Operating Officer EX-10.(AA) 5 EMPLOYMENT AGREEMENT (LLOYD B. DEVAUX) 1 EXHIBIT 10(AA) SALARY CONTINUATION AGREEMENT AGREEMENT made as of the fifth day of May 1998, ("the Effective Date") by and between Union Planters Corporation ("UPC") and Lloyd DeVaux ("DeVaux"). WHEREAS, DeVaux and UPC entered into a Salary Continuation Agreement dated January 1, 1998, which they now desire to replace and supersede in its entirety with this Salary Continuation Agreement, and WHEREAS, UPC desires to assure continued payment of DeVaux's base salary and annual bonus and provide for other compensation and benefits under certain circumstances; and WHEREAS, DeVaux wishes to continue in the employment of UPC and receipt of his compensation; and WHEREAS, except as otherwise specifically set forth herein, the parties acknowledge that this is not a contract of employment for any fixed period of time at any agreed upon compensation, and DeVaux is an employee-at-will. NOW, THEREFORE, in consideration of the premises and mutual covenants contained in this Agreement and for other good and valuable consideration, the parties hereby agree as follows: 1. Replacement of Previous Agreement. The Salary Continuation Agreement dated January 1, 1998 between DeVaux and UPC is hereby replaced and superseded in its entirety by this Salary Continuation Agreement("Agreement"). 2. Base Salary and Bonus. Effective June 1, 1998, DeVaux's base salary shall be $200,000.00 per annum. DeVaux shall continue to be eligible for an annual cash bonus and stock options to the same extent as other UPC officers of similar position. 3. Grant of Right to Stock. There shall be a recommendation made to the Salary and Benefits Committee at its meeting next following the execution of this Agreement that there be granted to DeVaux twelve thousand (12,000) shares of restricted UPC common stock ("Restricted Stock") in accordance with UPC's standard terms and conditions regarding the granting of rights in such stock. Such recommendation shall provide that the Restricted Stock shall vest in DeVaux according to the following schedule: 1,000 shares on October 18, 1998, and 1,000 shares on October 18 of each of the next eleven years. 4. Change in Control. For the purposes of this Agreement, "Change in Control" of UPC means the acquisition of UPC by another entity, which shall be defined herein as the merger of UPC with or into an acquiring entity, with UPC not surviving the merger. 5. Entitlement Following a Change in Control. Upon a Change in Control: (a) all shares of Restricted Stock not yet vested in DeVaux shall immediately vest; and (b) UPC and DeVaux shall be deemed to have entered into a contract of employment for a period of one year, at DeVaux's then current base compensation. At any time during such one year term, should DeVaux resign, he shall receive: (i) a lump-sum payment, payable in cash within thirty (30) days of the effective date of DeVaux's resignation (less applicable federal and state taxes) equal to (A) his current base salary multiplied by two (2), plus (B) an amount equal to the highest of the preceding two years' cash bonuses paid to DeVaux multiplied by two(2); and (ii) continued medical coverage for the lesser of (A) two years or (B) until DeVaux shall be reemployed. Upon DeVaux's resignation, such contract of employment shall terminate. 6. Termination without a Change in Control. Should DeVaux be terminated without cause prior to December 31, 2001 by UPC without a Change in Control having occurred, DeVaux shall be entitled to: 2 (a) a lump sum payment, payable in cash within thirty (30) days of the effective date of DeVaux's termination (less applicable federal and state taxes) equal to(A) his current base salary multiplied by two(2) plus(B) an amount equal to the highest of the preceding two years' cash bonuses paid to DeVaux multiplied by two (2); and (b) continued medical coverage for the lesser of (A) two years or (B) until DeVaux shall be reemployed. 7. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Tennessee. 8. Modification, Waiver or Discharge. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by DeVaux and an authorized officer of UPC. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall he deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement; provided, however, that this Agreement shall not supersede or in any way limit the right, duties or obligations that DeVaux or UPC may have under any other written agreement between such parties, under any employee pension benefit plan or employee welfare benefit plan as defined under the Employee Retirement Income Security Act of 1974, as amended, and maintained by UPC, or under any established personnel practice or policy applicable to DeVaux. IN WITNESS WHEREOF, the undersigned have executed this Agreement. UNION PLANTERS CORPORATION By: /s/ Jackson W. Moore ------------------------------------- Title: President and CEO --------------------------------- /s/ Lloyd DeVaux ---------------------------------------- Lloyd DeVaux EX-10.(BB) 6 AMENDED EXECUTIVE FINANCIAL SERVICE PLAN 2000 1 EXHIBIT 10(BB) AMENDED EXECUTIVE FINANCIAL PLANNING SERVICES PLAN 2000 This nonqualified Plan allows Section 16 Executive Officers of the Corporation to receive reimbursement for payment of fees to attorney, accountant, or financial planning service for tax or estate planning services. Reimbursements are limited to $12,000 annually, grossed up for applicable taxes, and are paid as Special Pay taxable to Executive. The Executive is responsible for payment to the provider of services. Payments under this Plan are expensed as compensation to the Executive when reimbursed and charged to their respective cost center. The listing below includes Executives eligible for Plan for the current plan year. SECTION 16 EXECUTIVE OFFICERS Rawlins, Jr. Benjamin W. Chairman & CEO -- Corporation Moore Jackson W. President & COO -- Corporation DeVaux Lloyd B. Executive Vice President Parker John W. Executive Vice President Russell Michael B. Executive Vice President Walters Milt K. Senior Vice President
EX-13 7 1999 ANNUAL REPORT TO SHAREHOLDERS 1 UNION PLANTERS CORPORATION AND SUBSIDIARIES FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------- 1999 1998 % CHANGE - ----------------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31, Net earnings $ 409,998 $ 225,606 81.73% Cash operating earnings(1) 440,337 351,866 25.14 Per common share: Net earnings Basic 2.88 1.61 78.88 Diluted 2.85 1.58 80.38 Cash operating earnings(1) Basic 3.09 2.52 22.62 Diluted 3.06 2.47 23.89 Cash dividends 2.00 2.00 -- Book value 19.90 20.86 (4.60) AT DECEMBER 31, Assets $33,280,353 $31,691,953 5.01% Earning assets 29,789,458 28,737,886 3.66 Loans, net of unearned income 21,446,400 19,576,826 9.55 Allowance for losses on loans 342,300 321,476 6.48 Deposits 23,372,116 24,896,455 (6.12) Shareholders' equity 2,776,109 2,984,078 (6.97) Common shares outstanding (in thousands) 138,487 141,925 (2.42) PROFITABILITY AND CAPITAL RATIOS Net earnings Return on average assets 1.25% .73% Return on average common equity 13.80 7.71 Cash operating earnings(1) Return on average assets 1.34 1.14 Return on average common equity 14.83 12.06 Net interest margin 4.36 4.40 Net interest spread 3.69 3.60 Expense ratio 1.61 1.58 Efficiency ratio 57.14 55.96 Shareholders' equity to total assets 8.34 9.42 Leverage ratio 6.65 8.86 Tier 1 capital/risk-weighted assets 9.50 13.34 Total capital/risk-weighted assets 12.69 16.78 CREDIT QUALITY RATIOS Allowance for losses on loans/loans 1.64% 1.71% Nonperforming loans/loans .62 .83 Allowance for losses on loans/nonperforming loans 264 206 Nonperforming assets/loans and foreclosed properties .80 .97 Provision for losses on loans/average loans .36 1.04 Net charge-offs/average loans .47 .95
- --------------- (1) Earnings before merger-related and other significant items and goodwill and other intangibles amortization, net of income taxes (see Table 1 on page 31 of this report) - -------------------------------------------------------------------------------- CONTENTS
PAGE ---- Letter to Shareholders...................................... 2 Selected Financial Data..................................... 10 Management's Discussion and Analysis of Results of Operations and Financial Condition........................ 11 Financial Tables............................................ 31 Selected Quarterly Data..................................... 40 Consolidated Financial Statements........................... 42 Notes to Consolidated Financial Statements.................. 46 Report of Management........................................ 71 Report of Independent Accountants........................... 71 Executive Officers and Board of Directors................... 72
1 2 TO OUR SHAREHOLDERS Although 1999 was a difficult year in many respects it was a very productive one as well. While no one would suspect it from the way our share price performed, Union Planters reported record net earnings and record earnings per share in 1999. Both net earnings at $410 million and earnings per share at $2.85 were records for the Company and substantially exceeded the corresponding numbers for the prior year. Because 1998's earnings were reduced by merger-related and other significant charges, operating earnings (excludes the charges) provide a more meaningful year-to-year comparison of results and underlying operating trends. Total operating earnings and operating earnings per share were up 21 percent and 20 percent, respectively, from the prior year. Total cash operating earnings and cash operating earnings per share were up 25 percent and 24 percent, respectively. The results for 1999 represent solid year-to-year improvement in the income statement, balance sheet, and operating fundamentals. The following paragraphs provide a profile of the organization, review our recent history, and discuss the general operating environment for 1999, and how they came together to affect performance. THE ORGANIZATION AND RECENT HISTORY Founded in Memphis, Tennessee in 1869, Union Planters is one of the oldest and largest banks in Tennessee. Union Planters has a rich heritage in those areas of the Southeast, Mid-South, and Mid-West that drain the waters of the Mississippi, and has always had a strong commitment to community investment and to consumer, business, and agricultural lending in the geographic markets in which we operate. Since the mid-1980's Union Planters followed a buy and build strategy to augment loans and earnings growth and to maintain an attractive regional franchise in a consolidating industry. This strategy had been very successful. We grew from $2 billion in the early 1980's to an $18 billion multi-state regional bank by year-end 1997, and our core earnings and operating performance ratios were in the top quartile of our peer group. While much of this growth had come through acquisitions it did not change the essential character of the organization. Many, if not most, of the organizations we acquired had local franchises not dissimilar to our own in many respects. Many were seasoned organizations, with a long history of commitment and service to their communities and had significant local market share. It had been our philosophy to maintain separate bank charters within local markets, and operate the acquired banks on a decentralized basis. In response to changes in the industry the separate charter philosophy was reevaluated in the latter half of 1997 and the decision was made to move to a single charter. This decision was made because of changes in banking regulation and law, the convergence of traditional banking products and services with those of allied industries, rapid advances in technology and the Internet, and the need for scale in a rapidly consolidating industry. A single charter "model-bank" plan was conceived and developed for the organization. It promised significant benefits in terms of customer service, customer relationship management, and significant noninterest expense savings from already good numbers. Best practices developed in or for one affiliate were adopted in the form of model bank policies and procedures for the entire organization. Staffing models, service standards, and quality of service testing were incorporated in the plan. The information platform for the model bank included a data warehouse, an operational data store, a consolidated customer view, an integrated desktop, image technology, and both Intranet and Internet access. The charter consolidation and implementation of the model bank began in January of 1998 with the merger of 31 of our 35 bank charters, and was to have been an 18-month effort. Progress, and therefore cost savings, were anticipated all along the way. 2 3 We anticipated that consolidation activity in the industry would remain fairly strong but did not expect it to exceed levels of the recent past. That was not the case, however. In 1998, several of the largest banking organizations in the United States merged with each other, and a large number of smaller regional banking organizations placed themselves on the market. Many of the organizations were not dissimilar in history and character to those we had success with previously and a number were in markets where we had existing operations. Given our prior success at integrating acquired organizations, and a desire to maintain an attractive franchise and to avoid marginalization in a rapidly consolidating industry, from year-end 1997 through mid-year 1999 we essentially doubled in asset size through acquisitions. We knew that integration of the large number of 1998 acquisitions would slow the data processing conversions involved with the charter consolidation effort and that the corresponding benefits and cost savings would be delayed to some extent. We felt that this temporary loss of savings would be offset from the integration of the acquired organizations and that the much larger organization would ultimately provide much greater economies of scale. The plan was to schedule the required conversions, whether charter consolidation or new bank, whenever possible such that those with the maximum benefit would be completed at the earliest date. The conversion to a single charter operation, and the associated reduction in back office staff at the local level, was a difficult transition for many of our existing affiliates. The merger and integration of the new affiliates in the single charter organizational format in the same time period essentially doubled the effort required. The changes also represented a substantial increase in scale, scope and responsibility for our staff support departments and an immense temporary increase in workload for the period of the conversions. Despite the challenges, the decision to pursue the single charter strategy and the concurrent asset expansion remain sound for the long-term future of Union Planters. The following paragraphs review our operating and financial performance for 1999 and discuss the impact of these major organizational changes on our results. LOANS AND LOAN GROWTH IN 1999 Net interest income represents approximately 72 percent of our total revenue. Loan growth and net interest margin are therefore critical to our top line revenue growth and financial performance. Business lending, which in our definition includes general business and corporate lending, agricultural loans, and non-residential real estate loans, is focused on those geographic markets where we have full service banking operations. Our loan growth tends to mirror those markets. We buy syndicated loans or participations only when the borrower is domiciled in one of our markets and it is in support of a local relationship. We are an active lender to both large and small companies. We count many of the largest and best-known companies in our markets (in some cases the United States) among our customer base. We are also a very active small business lender. We were pleased to be ranked near the top among the nation's most "small business friendly" lenders again in 1999, as we have been for the past several years. This recognition by the Small Business Administration is based on our total outstanding loans to the small business sector. As part of our commitment to small business we are an active lender under the government-guaranteed small business program and have the SBA certified lender designation in a number of the regions in which we operate. This permits us to provide credit to companies that might not otherwise be possible. Our commitment to the small business sector, and our self-imposed internal lending limits to a single borrower, tend to keep our average loan size comparatively small for an organization our size. Our business lending and core growth 3 4 in this part of our loan portfolio in 1999, except for the agriculture sector that is discussed below, was generally in line with recent years. While agricultural loans no longer represent as large a percentage of our total loans outstanding as they once did, as you might expect from our name and roots in the Mid-South and the Mid-West, we have long supported the agricultural community. Our original commitment to trade finance was to support the export of agricultural products from our region. In 1999, we were recognized as one of the nation's most "farm-friendly" lenders, and we recently were named a Preferred Lender -- the highest status a lender can hold in the guaranteed lending program -- under the Farm Lending Program of the USDA Farm Service Agency. We believe the Preferred Lender designation will help us serve our planting and farming customers even better than in the past. With surpluses in basic commodities and prices at historically low levels, it has been a difficult operating environment for much of the agricultural sector over the past few years. While credit quality has not been a major factor, these difficulties have no doubt caused loan volumes to be less than they would have been otherwise. As with our business lending our average agricultural loan is relatively small for an organization our size. As you would expect from our history we have a strong commitment to community investment activities. In 1999, we received the prestigious President's Award for outstanding achievement from the Federal Home Loan Bank of Cincinnati for our commitment and activities related to affordable housing. Union Planters is an active consumer lender as well, and our loan portfolio is well balanced between consumer and business loans. Consumer loans include traditional consumer installment and revolving loans, home equity lines of credit, and amortizing first mortgage loans on single-family homes. Although the first mortgages we retain in our portfolio are escrowed and have monthly payments that would amortize the loans over some longer period, they generally carry a five-year term. We view the loans as (well-secured) consumer credit and they carry a higher interest rate than a secondary market mortgage. This has been a very popular loan product and has been a solid income producer for our community banks. It makes up approximately 26 percent of our total loan portfolio, and represents the largest concentration of a loan-type in the portfolio. The credit history on our consumer loans and our portfolio mortgages has been generally excellent. While the amortizing loan described above is very popular, because of the shortness of the term, our customers tend to view it as the equivalent of a variable rate mortgage. The generally declining mortgage rate environment throughout much of the latter half of the 90's caused mortgage refinancing activity to increase well above normal levels. While activity slowed somewhat in the first half of 1998, toward the end of the third quarter, in reaction to a severe economic dislocation in the international markets, and a near collapse in a major US hedge fund, there was a significant widening of spreads in the debt markets for all but the very best credits. Reversing a bias for tightening to avoid a shut down in the debt markets, the Federal funds rate was reduced three times in just a matter of weeks. Mortgages in general tend to be priced in relation to the 10-year government bond. The sharp pull back in rates set off a huge refinancing boom. Annualized prepayment speeds reached as high as 60 to 70 percent in some months during the latter half of 1998 and remained high, as the mortgage pipeline cleared, through the first quarter of 1999. This surge in refinance activity, on top of already above normal prepayment speeds, produced truly extraordinary origination and prepayment activity in mortgage loans, including our portfolio mortgages. At the same time, the very low secondary market rates created a strong preference for secondary market loans. To compound the unusually 4 5 high prepayment problem, many consumers bundled existing home equity and other personal debt into the new mortgage, creating unusual prepayment activity in those loans as well. Normal mortgage prepayments and pay downs would result in a reduction in loans of approximately $1 billion. This represents about 4.5 percent of our total loan portfolio. New loans originated are normally sufficient to cover prepayments and pay downs and grow the portfolio. Mortgage rates have been at levels over the past few years that prepayment speeds have run at double and triple historic norms. This type of loan represents such a meaningful percentage of our total loan portfolio that the greater refinance activity and the consolidation of other consumer debt into the new mortgage, combined with the preference for secondary market loans, made it very difficult to grow consumer loans in 1999. Because of the increasing need for scale, continuing high credit losses, and unfavorable profitability trends in the sector, in the latter half of 1998, like a number of other banking organizations, we made the decision to exit the credit card business on a direct basis. We sold our credit card loan portfolio to a third party provider of credit card services. This reduced our outstanding loans approximately $460 million and our year-to-year comparisons by a similar amount. As stated above, since the mid-1980's we have augmented revenue and loan growth through acquisitions. The large number of acquisitions over the past two years, and the liquidation of undesirable assets from the acquired organizations, however, impacted our consolidated loan growth in 1999 as explained below. Organizations contemplating a sale, or conversely trying to avoid a sale as the case may be, may not be as diligent in their underwriting, charge-off or reserving practices as might otherwise be the case. This may result in anything from lesser quality underwriting and minor under reserving to aggressively reaching for assets and significant under reserving. While the condition of the loan portfolio is carefully evaluated during due diligence and accounted for in the pricing, following an acquisition it is necessary to conform the loan portfolio, lending policies and practices, and the ongoing reserving methodology of the acquired organization to those of Union Planters. Even when an acquired bank's underwriting is very good and conformance requirements relatively minor, this process will almost always result in a reduction of from two to three percent in an acquired loan portfolio, and it is not unusual for the reduction to be higher. Because many of our acquisitions have been in the same or adjacent markets with Union Planters, it is not unusual to share many of the same customers. We have policy limits on the size of a loan to a single borrower. To comply with these limits, it is sometimes necessary to reduce a customer's outstanding debt. In one instance this represented a 25 percent reduction of the customer's debt in the combined companies. One acquisition had two out-of-market real estate lending joint ventures with approximately $40 million in loans outstanding. The bank was not involved in the loan underwriting. We only originate loans for our portfolio where we have full-service banking operations and our personnel are involved in the underwriting. We worked out of these two joint ventures in an orderly fashion reducing our loans outstanding accordingly. It is not unusual for an acquired organization, particularly if it is a traditional thrift institution, to have a meaningful percentage of its portfolio assets in long-term fixed- or variable-rate mortgages. We do not normally portfolio either type loan. The spreads are simply too thin and the interest rate risk too high, given the capital necessary to support this loan asset type. Over the past few years we have liquidated over $1 billion in long-term fixed-rate mortgages picked up in one acquisition, and an equal amount in both long-term fixed- and variable-rate loans acquired through other acquisitions. Given the general interest-rate environment over that 5 6 period, and the more recent back up in the mortgage market, this policy has served us well. Because we essentially doubled in size through acquisitions over the past two years, the liquidation of the non-policy loan assets from the portfolios of the acquired organizations was far more significant to loan and top-line revenue growth than is normally the case. Our year-to-year loan growth has typically been in the six to eight percent range and generally in line with the markets in which we operate. Our commitment to lending and loan production was no less in 1998 and 1999 than in previous years. For the reasons outlined in the paragraphs above, we were not able to grow loans at a normal rate in 1999. Loan volume was about equal to the prior year. The good news is that mortgage rates are moderately higher, refinance activity has markedly slowed, the portfolio mortgage is a much more popular product, and the liquidation of non-policy assets from the acquired organizations is essentially over. Loan growth should return to much more normal levels in 2000. NET INTEREST INCOME The margin environment for the past two years has been particularly difficult. After flattening and squeezing margins through much of 1998, the yield curve began to steepen during the first half of the year. The Federal funds rate was increased twice in the latter half of the year, however, at least temporarily compressing the margin again. There was unusually aggressive rate competition for deposits throughout 1999 but particularly in the latter half of the year as the millennium approached. Competition from money market and mutual funds seems to have increased. The pressure on deposits is an industry phenomenon and is expected to continue for the foreseeable future. Although loan volume was about equal to the prior year, in a difficult margin environment, net interest income increased about four percent for the year. This improvement was the result of standardization of prices on certain basic transaction accounts throughout the organization, re-pricing of some public fund deposits and promotional certificates in some of the banks acquired in 1998 and 1999, and better pricing discipline on both loans and deposits throughout the organization. These changes were not sufficient to offset the impact of the Federal funds rate increases in the latter half of the year. The margin improved in each of the first three quarters but declined in the fourth. The margin environment will remain difficult until the Federal funds rate increases are over and rates have stabilized. The higher rates can then be priced into both the liability and asset side of the balance sheet. At least one, and perhaps as many as three, more rate increases are currently anticipated. When rates stabilize we should be well positioned to grow our margin. CREDIT AND INTEREST-RATE RISK The business of banking is the management of credit and interest-rate risk. Long-term survival and profitability are dependent on it. There have been one or more major credit crises in banking in each of the last three decades. The thrift industry has all but disappeared because of its failure first to manage interest-rate and later credit risk. Union Planters has a reputation for conservative credit standards and underwriting. As previously noted, our loan portfolio is nicely balanced between business and consumer loans outstanding. We have no material industry concentrations in our business loan portfolio, and despite our legal lending limit our average loan size is relatively small for an organization our size. There were no significant unexpected credit problems in 1999. While the United States has experienced good economic growth for almost eight years, the credit cycle has not been repealed. It is almost impossible to be an active lender and totally avoid credit problems, but we believe our lending policies and practices, although 6 7 they may have reduced loan volume and outstanding loans over the past two years, will serve us well in the next economic slowdown. NONINTEREST INCOME Noninterest income represents approximately 28 percent of our total revenue. A primary objective of Union Planters is to increase noninterest-sensitive fee income. Prior to recent acquisitions, and the sale of the credit card portfolio, it represented approximately 32 percent of our total revenue. We are expanding our product set to include a broad line of insurance and investment products. Our objective is to become the "trusted advisor" to our customers for all their financial needs, whether banking, insurance, or investments. These products will be fully integrated into our existing delivery and service platforms. More than 80,000 hours were spent in training our customer service representatives on annuity, insurance, and investment products in 1999. As a result, our annuity income more than doubled from the prior year and our insurance income was up 28 percent. We recently added term life and property and casualty insurance to the product line and expect continued growth in income from this area. Despite our growth in this area we have only scratched the surface. Over time that will become a much larger percentage of total income and help reduce our sensitivity to margin compression. Our mortgage originations and our mortgage banking revenue, despite very heavy refinance activity in 1998, and declining origination volume in the latter half of 1999, was up nicely year-to-year. The secondary market origination activity increases our fee income, helps us attract a greater volume of higher yielding loan product for the portfolio, and makes it possible to grow our third party loan-servicing portfolio with our own originations. We do not retain secondary market loans in our portfolio. The spreads are simply too narrow, and the interest-rate risk too great. We sell them into the secondary market but retain the servicing and the relationship with the customer. The fee income from servicing provides a stable source of income and will tend to offset the volatility in mortgage origination activity somewhat. NONINTEREST EXPENSE The charter consolidation and implementation of the model bank, which began in January 1998, was to have been an 18-month project, providing cost savings all along the way. We created regional credit administration and check collection centers, and moved to centralized underwriting for consumer and mortgage loans. We expected to began to realize those savings nine to 12 months after the single charter project began. Original plans for creation of the check processing and credit administration centers called for a reduction in affiliate staff of approximately 900 employees and an increase in support staff of approximately 300 employees for a net staff reduction of 600 employees, or approximately 10 percent of staff at the time. While the relationship is not completely linear, the increase in asset size from $15 billion when the single charter plan was developed to over $30 billion at year end 1999 essentially doubled the staffing impact and needs for the support centers. Data processing conversions were originally scheduled throughout 1998 and for the first nine months of 1999. There were some delays in installation and conversion to the new technology both in the support centers and at the retail platform. We knew that building and training staff and the actual transfer of work to the support centers would be expensive and time consuming. As many employees as possible were transferred from the affiliates to the support centers, but as a practical matter the large majority of staffing for the support centers had to come from new hires. Building and training a staff of the size necessary in the low-unemployment economy that has existed for the past two years slowed the conversions. 7 8 We normally begin realizing cost savings on new acquisitions within a few weeks of their data processing conversions. We expected similar savings on the charter conversions. We had hoped that the savings achieved through year-end 1998 would be sufficient to offset the additional cost of training new personnel and the transfer of work to the support centers. Our last major data processing conversion was scheduled for the third quarter of 1999. At that point we expected to be approaching our original cost estimates. In 1999, it was necessary to staff a project management office for the millennium change. While this project and the century date change went smoothly, it was a very expensive undertaking, and diverted some of our best project management, data processing system testing, and conversion talent. Because of this diversion, difficulty of building staff in the support centers, and some technology delays, we fell approximately six months behind on the charter consolidation and conversions. To compound the delay, any major systems projects not completed by the end of the third quarter 1999 had to be delayed beyond February 29, 2000, because of the millennium change. As a result we did not meet our noninterest expense targets for 1999. Our affiliate banks have reduced their noninterest expenses substantially compared to what they were previously, and a number of our best performing banks have already achieved their expected reduction in expenses. Essentially all of the back office conversions have now been made and the work transferred to one of the support centers. The expenses associated with the staff training and conversions should now return to much more normal levels in the support centers, and in terms of cost, the remaining technology conversions are minor in comparison to those already completed. We expect all of our banking units to hit their targets over the next few months. SHARE PRICE After a strong 1997 and early 1998, bank stocks have significantly under performed the broader market. Bank price/earnings multiples have declined from near all time highs at year end 1997 to near all time lows today. Our share price peaked at the same time the multiple peaked, at year-end 1997. The rapid and dramatic change in valuation for the industry that began in 1998 has been caused largely by a change in the perception of earnings growth prospects for the industry. A well-known and widely followed bank stock analyst gave investors "Ten Reasons Not To Own Bank Stock." This was an extraordinarily negative piece on the future of bank earnings. Similar articles by many others have appeared as well. The overriding concern has been the perception that rising interest rates will have an adverse impact on bank earnings because a significant percentage of bank earnings come from net interest income. Net interest margins tend to be squeezed during periods of rising rates and widen during periods of declining rates. One analyst told me his philosophy is simple, buy when you think rates are going down, and sell when you think rates are going up. There are also credit concerns. If the Federal Reserve raises interest rates, the economy will slow causing loan growth to slow and problem credits to increase. Reserves in the industry have declined since the early 1990's and would likely need to be increased somewhat in the face of increasing credit problems. Slower loan growth, tighter margins, and increased credit costs lead to slower earnings growth. Momentum and growth investors seemed to begin leaving the sector in 1998 and 1999 taking down valuations. With the declining stock prices, takeover speculation began to diminish, and some investors that had stayed in the sector for the takeover play also began to leave. The pressure on share prices continued throughout 1999. Sector funds had withdrawals that forced further liquidations. While I believe bank valuations generally have reached very attractive levels, three more Federal funds rate hikes are now anticipated. After all the estimate revisions, 8 9 earnings shortfalls, and shortfall announcements last year, since year end five organizations have announced significant anticipated earnings shortfalls for this year. All of this is overhanging the sector at present. Value investors believe they can afford to wait. The Federal funds rate increases notwithstanding, I believe Union Planters is very well positioned and an extraordinary buy at current levels. SUMMARY While our earnings were not as much as we would have hoped, 1999 was a very productive year. Both net earnings and diluted earnings per share were records for the Company. Operating earnings and cash operating earnings were also records and well above 1998. The margin environment, while improving during the early part of the year, remained difficult, and loan growth was less than normal, primarily because of the mortgage environment in the early part of the year and the liquidation of non-policy loans from acquired organizations. Nevertheless, our net interest income was up over 1998 and our noninterest income increased as well. The loan loss provision came in as expected. Because of technology delays and the difficulty of building staff, we did not meet our noninterest expense targets, and along with the compression in the margin, we fell short of where we wanted to be in the fourth quarter. In the end they were in line with those of other banking organizations of similar size. We rank 27th in both total earnings for the year ($410 million) and total assets ($33.3 billion) at year end among banking organizations in the United States. In 2000, the transition to the single charter and centralized operating environment will be completed. Our support centers and our affiliate banks will reach or exceed their original targets. Prior to the beginning of the conversion to a single charter, our consolidated efficiency and expense ratios were excellent, making it possible for our overall performance to be within the top quartile of our peer group. They should be better in a single charter environment than in a multiple charter environment. We should begin to see some of the benefits in 2000. We will continue to emphasize non-interest-sensitive noninterest income. We expect continued strong growth in insurance and related products, and loan growth should return to much more normal levels. I want to recognize Rick Heiligenstein, Lee Kling, and Carl Hogan for their service to the Board and Company. Mr. Heiligenstein served as a member of our Directors' Audit Committee, Mr. Kling Chaired our Directors' Trust Committee, and Mr. Hogan was a member of the Directors' Salary and Benefits Committee. I want to thank all three for their service to the Company and say that their guidance and support during this period of transition is very much appreciated. I also want to give special recognition to C. J. Lowrance, III. Mr. Lowrance is retiring after 15 years of service on the Board of Union Planters Corporation and 30 years on the Board of Union Planters Bank of Memphis. Mr. Lowrance has served on the Directors' Loan Committee for most of this period. His father served on the bank Board from 1950 to 1969. I want to personally thank Charlie for his guidance and support, which will be missed, and to recognize the Lowrance family for its 50 years of service to Union Planters. In closing let me say that I am very disappointed about our share price performance and the delay in achieving all of the cost savings anticipated from the charter consolidations and recent acquisitions in 1999. While the margin environment is problematic in 2000, the progress made in balance sheet and internal operations in 1999 will provide long-term benefits and greater earnings for the Company in 2000 and beyond. Thank you for your support and for being a shareholder of Union Planters. Yours very truly, /s/ BENJAMIN RAWLINS, JR. Benjamin W. Rawlins, Jr. Chairman and Chief Executive Officer 9 10 UNION PLANTERS CORPORATION AND SUBSIDIARIES SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA Net interest income........................ $ 1,256,531 $ 1,207,233 $ 1,199,899 $ 1,114,989 $ 1,010,501 Provision for losses on loans.............. (74,045) (204,056) (153,100) (86,381) (50,696) Investment securities gains (losses)....... 2,128 (9,074) 4,888 4,934 2,288 Other noninterest income................... 490,559 475,195 449,573 391,054 369,047 Noninterest expense........................ (1,082,434) (991,619) (932,569) (865,409) (849,268) Merger-related and other significant items(1)................................. 26,093 (105,757) (52,842) (113,430) (10,335) ----------- ----------- ----------- ----------- ----------- Earnings before income taxes............... 618,832 371,922 515,849 445,757 471,537 Income taxes............................... (208,834) (146,316) (176,014) (153,055) (156,718) ----------- ----------- ----------- ----------- ----------- Net earnings............................... $ 409,998 $ 225,606 $ 339,835 $ 292,702 $ 314,819 =========== =========== =========== =========== =========== Cash operating earnings(2)................. $ 440,337 $ 351,866 $ 392,476 $ 381,233 $ 336,503 =========== =========== =========== =========== =========== PER COMMON SHARE DATA Net earnings Basic.................................... $ 2.88 $ 1.61 $ 2.53 $ 2.28 $ 2.55 Diluted.................................. 2.85 1.58 2.47 2.21 2.47 Cash operating earnings(2) Basic.................................... 3.09 2.52 2.93 2.98 2.73 Diluted.................................. 3.06 2.47 2.85 2.87 2.64 Cash dividends............................. 2.00 2.00 1.495 1.08 .98 Book value................................. 19.90 20.86 20.96 20.13 18.93 BALANCE SHEET DATA (AT PERIOD END) Total assets............................... $33,280,353 $31,691,953 $29,974,463 $28,108,528 $26,131,594 Loans, net of unearned income.............. 21,446,400 19,576,826 20,302,969 18,811,441 16,614,031 Allowance for losses on loans.............. 342,300 321,476 324,474 270,439 255,103 Investment securities...................... 7,472,455 8,301,703 6,414,197 6,185,699 6,425,174 Total deposits............................. 23,372,116 24,896,455 22,875,879 21,330,304 20,322,078 Short-term borrowings(3)................... 5,422,504 1,648,039 1,824,513 1,758,027 1,086,369 Long-term debt(3) Parent company........................... 379,656 378,249 373,746 373,459 214,758 Subsidiary banks......................... 738,114 1,060,483 1,365,753 1,451,712 1,219,744 Total shareholders' equity................. 2,776,109 2,984,078 2,874,473 2,557,117 2,312,892 Average assets............................. 32,902,370 30,744,326 29,188,805 27,610,263 24,812,394 Average shareholders' equity............... 2,980,664 2,931,703 2,755,209 2,417,913 2,125,796 Average shares outstanding (in thousands) Basic.................................... 141,854 139,034 132,451 125,449 119,995 Diluted.................................. 143,983 142,693 138,220 133,452 127,416 PROFITABILITY AND CAPITAL RATIOS Return on average assets................... 1.25% .73% 1.16% 1.06% 1.27% Return on average common equity............ 13.80 7.71 12.45 12.26 15.14 Net interest margin........................ 4.36 4.40 4.57 4.48 4.53 Net interest spread........................ 3.69 3.60 3.79 3.71 3.80 Loans/deposits (period end)................ 91.76 78.63 88.75 88.19 81.75 Common and preferred dividend payout ratio.................................... 69.93 113.67 48.84 40.03 30.46 Shareholders' equity/total assets (period end)..................................... 8.34 9.42 9.59 9.10 8.85 Average shareholders' equity/average total assets................................... 9.06 9.54 9.44 8.76 8.57 Leverage ratio............................. 6.65 8.86 9.62 9.40 8.54 Tier 1 capital/risk-weighted assets........ 9.50 13.34 14.32 14.49 13.46 Total capital/risk-weighted assets......... 12.69 16.78 16.39 16.66 15.75 CREDIT QUALITY RATIOS(4) Allowance for losses on loans/period end loans.................................... 1.64% 1.71% 1.71% 1.57% 1.63% Nonperforming loans/total loans............ .62 .83 .81 .79 .79 Allowance for losses on loans/nonperforming loans.................................... 264 206 210 199 207 Nonperforming assets/loans and foreclosed properties............................... .80 .97 1.01 1.03 1.03 Provision for losses on loans/average loans.................................... .36 1.04 .83 .52 .33 Net charge-offs/average loans.............. .47 .95 .63 .47 .31
- --------------- (1) Reference is made to Table 1 on page 31 for the merger-related and other significant items. (2) Cash operating earnings are net earnings before merger-related and other significant items and goodwill and other intangibles amortization, net of income taxes. (3) Reference is made to Note 9 to Union Planters' financial statements on page 54 for the components of short-term borrowings and long-term debt. (4) FHA/VA government-insured/guaranteed loans have been excluded, since they represent minimal credit risk to Union Planters. 10 11 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 (Union Planters or the Company). This discussion supplements Union Planters' financial statements and accompanying notes which begin on page 42 and should be read in conjunction with the financial statements and the related financial tables beginning on page 31. UNION PLANTERS CORPORATION Union Planters is a $33.3 billion, multi-state bank holding company whose primary business is banking. The Company is the largest bank holding company headquartered in Tennessee and as of December 31, 1999 was the 27th largest bank holding company headquartered in the United States, based on total assets. Union Planters Bank, National Association (Union Planters Bank or UPB), headquartered in Memphis, Tennessee, is Union Planters' largest subsidiary with $32.7 billion in total assets. Union Planters is managed along traditional banking and non-traditional banking lines. Union Planters' only major reportable business segment is its banking operations, which accounted for 87%, 84%, and 83%, respectively, of total revenues and 92%, 89%, and 93%, respectively, of earnings before merger-related and other significant items for the three years ended December 31, 1999. This segment consists of traditional deposit taking and lending functions, including consumer, commercial and corporate lending; retail banking; and trade-finance activities. These functions are organized and managed along geographic lines. Listed below for the banking operations is the percentage of total assets, loans, deposits, and the number of banking offices and ATMs by state as of December 31, 1999.
PERCENTAGE OF BANKING OPERATIONS NUMBER OF ------------------------- --------------- BANKING ASSETS LOANS DEPOSITS OFFICES ATMS ------ ----- -------- ------- ----- Alabama............................. 2% 2% 2% 22 20 Arkansas............................ 2 3 2 42 38 Florida............................. 16 14 16 82 73 Illinois............................ 13 11 13 99 114 Indiana............................. 8 7 8 78 79 Iowa................................ 3 4 3 28 34 Kentucky............................ 6 7 6 40 36 Louisiana........................... 3 4 3 23 19 Mississippi......................... 10 12 10 137 124 Missouri............................ 10 10 10 94 112 Tennessee........................... 25 24 25 208 348 Texas............................... 2 2 2 15 21 --- ----- Total...................... 868 1,018 === =====
The Mortgage Banking operations of Union Planters Bank originate both fixed and adjustable-rate single family first mortgage loans through 30 mortgage production offices (13 retail offices and 17 wholesale offices). These offices are located in Alabama, Arizona, California, Colorado, Florida, Georgia, Iowa, Louisiana, Mississippi, Nevada, North Carolina, Ohio, Tennessee, Texas, and Washington. In addition, mortgage loans are originated in banking offices of UPB. The types of loans originated include the following: - loans that meet the standard underwriting policies and purchase limits established by FNMA and FHLMC (conforming conventional loans) - loans in amounts greater than FNMA and FHLMC purchase limits (jumbo loans) - loans insured or guaranteed under FHA and VA programs - loans exclusively for sale to specific investors that conform to the requirements of such investors - affordable housing loans in UPB's marketplaces In addition to originating mortgage loans, Union Planters operates one of the 25 largest residential mortgage loan servicing businesses in the United States. The servicing portfolio includes GNMA, FNMA, FHLMC, and private investors' loans as well as loans owned by Union Planters. 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 Dallas, Texas; an 11 12 asset-based lending office in Atlanta, Georgia; and its headquarters in Boca Raton, Florida. In addition to Mortgage Banking and Capital Factors discussed above, the following other non-traditional banking lines are managed on a separate basis. - FINANCIAL SERVICES -- includes sales of bank-eligible insurance and investment products, including annuities, credit life and mortgage insurance products sold through Union Planters Bank's extensive platform distribution sales force, and full-service and discount brokerage services - TRUST -- investment management, personal trust services, employee benefit administration, and proprietary mutual funds - BANK CARDS (MERCHANT SERVICING) -- converts payments by bank cards to cash for merchants selling goods and services (prior to the fourth quarter of 1998, UPB's credit card portfolio was included in this unit) - FHA/VA LOANS -- the purchase of delinquent FHA/VA government-insured/guaranteed loans from GNMA pools and third parties and the securitization and sale of these loans - SBA LOAN TRADING -- purchasing, packaging, and securitizing the government-guaranteed portions of Small Business Administration (SBA) loans - PARENT COMPANY -- funding source for acquisition activities Reference is made to Note 18 to the financial statements on page 68 for additional information regarding the Union Planters' operating segments. The following table summarizes earnings before taxes for banking operations, the other operating units as a group, the parent company, and merger-related and other significant items for the past three years.
EARNINGS (LOSS) BEFORE TAXES --------------------- 1999 1998 1997 ----- ----- ----- (DOLLARS IN MILLIONS) Banking operations........... $542 $431 $522 Other operating units........ 67 56 50 Parent company(1)............ (18) -- (8) Merger-related and other significant items.......... 28 (115) (48) ---- ---- ---- Consolidated earnings before taxes...................... $619 $372 $516 ==== ==== ====
- --------------- (1) Net of the elimination of intercompany earnings and dividends. CAUTIONARY STATEMENT REGARDING 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 and the level of future provisions for losses on loans - the effect of legal proceedings on Union Planters' financial condition, results of operations, and liquidity - the effect of Internal Revenue Service (IRS) examinations on Union Planters' financial condition, results of operations, and liquidity - estimated future cost savings related to the consolidation of banking operations - business plans for the year 2000 and beyond These forward-looking statements involve significant risks and uncertainties including changes in general economic and financial market conditions and Union Planters' ability to execute its business plans. Although Union Planters believes that the expectations reflected in the forward-looking statements are reasonable, actual results could differ materially. EARNINGS OVERVIEW Union Planters reported net earnings of $410.0 million, or $2.85 per diluted share, in 1999 compared to $225.6 million, or $1.58 per diluted share, in 1998, and $339.8 million, or $2.47 per diluted share, in 1997. Net earnings in 1999 represented a return on average assets of 1.25% and a return on average common equity of 13.80%. This compares to .73% and 7.71%, respectively, in 1998 and 1.16% and 12.45%, respectively, in 1997. Net earnings in each year included merger-related and other significant items. Table 1, on page 31, presents a summary of these items for the last five years. Cash operating earnings (earnings before merger-related and other significant items and goodwill and other intangibles amortization, net of income taxes) were $440.3 million, or $3.06 per diluted share, in 1999. This compares to $351.9 million, or $2.47 per diluted share, in 1998 and $392.5 million, or $2.85 per diluted share, in 1997. On a cash operating basis, the 12 13 return on average assets was 1.34% in 1999, an increase from 1.14% in 1998 and compared to 1.34% in 1997. On the same basis, the return on average common equity was 14.83% in 1999, compared to 12.06% in 1998 and 14.41% in 1997. ACQUISITIONS In 1999, Union Planters completed four acquisitions, all of which were accounted for as purchases and are included in Union Planters' financial results from the respective dates of acquisition. The table on page 14 presents the twenty-eight acquisitions completed over the last three years. The map on the inside front cover of this report highlights the markets currently served by Union Planters. Table 3 on page 32 and Note 2 to the financial statements on page 49 present additional information regarding acquisitions. STRATEGY. Management's philosophy has been to provide additional diversification of the revenue sources and earnings of Union Planters 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 Union Planters' product lines and provide the opportunity for new products and services. This strategy is also designed to enhance Union Planters' delivery system, 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 separately chartered banks. Allowing acquired banks to retain their name and continue operating on a decentralized basis was believed to provide customers the best service. This philosophy was reevaluated in 1997 due to competitive changes and the need to take advantage of technology to reduce costs, better serve customers, and provide better management information. A decision was made to merge existing banking subsidiaries and newly acquired institutions into Union Planters Bank (charter consolidation). All but two of Union Planters' subsidiary banks have been merged into Union Planters Bank. Management continues to believe it is imperative that customer decisions be made locally. Management's primary focus at the local level is serving its customers (loans and deposits) and broad discretion is given in achieving this end. Operational functions including accounting, deposit services, item processing, mortgage servicing, trust services, and credit administration are now provided on a centralized regional basis. The centralization of selected operational functions related to management's philosophy started at the end of 1997 and was substantially completed in the fourth quarter of 1999. All the planned data processing conversions for charter consolidation and 1999 and 1998 acquisitions are now complete. Management expected pretax earnings to be increased by an estimated $115 million to $120 million from reduced expenses related to charter consolidation and the expense and revenue synergies anticipated from acquisitions, primarily Magna Group, Inc. Savings have been achieved but were partially offset by higher expense levels resulting from acquisitions in 1999 and the expansion of existing operations such as mortgage banking and financial services. MERGER-RELATED AND OTHER SIGNIFICANT CHARGES. Historically, as Union Planters acquired entities, merger-related and other charges have been incurred. Also, in 1997 and 1998, charges were incurred related to the decision to consolidate substantially all of the banking charters under Union Planters Bank. These charges included 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, post- retirement expenses, severance payments, 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 Union Planters' 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 - costs related to combining operations, such as FHLB prepayment penalties - costs related to implementing new technology, such as document imaging In 1999, there were no significant merger-related charges impacting operating results since the acquisitions completed were accounted for as purchases. Merger-related and charter consolidation charges totaled ($7.2) million, $183.1 million, and $64.9 million in 1999, 1998, and 1997, respectively. Reference is made to Table 1 on page 31 and Note 13 to the financial statements on page 61. The level of merger-related charges is directly related to the size of the institution being 13 14 acquired. Currently, Union Planters does not have any material pending acquisitions and management expects the level of acquisition activity to be limited in 2000. ACQUISITIONS COMPLETED SINCE JANUARY 1, 1997
ACCOUNTING INSTITUTION ACQUIRED DATE STATE ASSETS CONSIDERATION METHOD - --------------------------- ----- --------- --------- --------------------------------------- ---------- (DOLLARS IN MILLIONS) 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 CB & 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 411 $ 76.0 million in cash Purchase Indiana Branch Purchase 3/99 Indiana 1,903 $283.0 million in cash Purchase Republic Banking Corporation of Florida 7/99 Florida 1,792 $410.3 million in cash Purchase ------- Total assets of acquisitions $22,779 =======
14 15 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 Union Planters). Reference is made to Tables 4 and 5, on pages 33 and 34, that present Union Planters' average balance sheet and volume/rate analysis for each of the three years in the period ended December 31, 1999. Net interest income (FTE) in 1999 was $1.29 billion, an increase of 4.0% from $1.24 billion reported in 1998. In 1997 net interest income was $1.23 billion. The net interest margin (net interest income (FTE) as a percentage of average earning assets) was 4.36% in 1999, down from 4.40% in 1998 and 4.57% in 1997. The net interest spread between earning assets and interest-bearing liabilities increased to 3.69% in 1999 from 3.60% in 1998 and compared to 3.79% in 1997. In the first quarter of 1997, the Federal Reserve raised the Federal Funds rate to 5.50% where it remained for the rest of 1997. In 1998, the Federal Reserve reduced the Federal Funds rate in a series of quarter-point reductions to 4.75%. As the Federal Funds rate decreased, yields on intermediate to long-term government securities dropped significantly. The Federal Funds rate remained at the same level until the middle of 1999 when the Federal Reserve began a series of three, quarter-point increases, with the Federal Funds rate ending the year at 5.50%. In February 2000, the Federal Funds rate was increased by another quarter-point. The decline in rates in 1998 created a relatively flat yield curve thereby reducing opportunities to increase asset yields based on choice of maturity. Earning asset yields and the cost of interest-bearing liabilities both declined, with earning asset yields falling at a faster rate. In addition to the decline in market rates, heavy mortgage prepayments and loan sales in both 1998 and 1999 reduced the quantity of higher-yielding earning assets. During the latter part of 1998 and early 1999, Union Planters was also investing funds received in return for assumption of deposit liabilities in the Florida and Indiana Branch Purchases. As a result of these circumstances, the net interest spread (difference between earning asset yields and cost of interest-bearing liabilities) declined in 1998 and the first part of 1999. In the middle of 1999 as rates began to rise, Union Planters was able to reprice certain earning assets to higher yields and at the same time replace higher costing certificates of deposit with lower costing certificates of deposit or short-term borrowings and hold other interest-bearing deposits costs stable. This allowed for the net interest spread to widen and overall net interest income to increase. Net interest income also increased by approximately $115 million in 1999 due to purchase acquisitions. The Florida Branch Purchase refers to the purchase of 24 branches and assumption of $1.4 billion of deposit liabilities of California Federal Bank of Florida in September 1998. The Indiana Branch Purchase refers to the purchase in March 1999 of $850 million of loans, the acquisition of 56 branch locations, and the assumption of $1.7 billion of deposit liabilities of First Chicago NBD Corporation in Indiana. The other significant purchase acquisition in 1999 was Republic Banking Corporation of Florida and its subsidiary, Republic National Bank in Miami, Florida (Republic). Acquired in July 1999, Republic had total assets of $1.8 billion, total loans of $1.0 billion, and total deposits of $1.3 billion. Reference is made to Note 2 to the financial statements on page 49 for additional information regarding these acquisitions and the other acquisitions completed over the last three years. If interest rates continue to rise, some downward pressure is likely to continue on both the net interest margin and net interest spread. This is consistent with industry trends which is a reflection of heightened competition for traditional loan and deposit products. It also reflects Union Planters increased reliance on short-term borrowings resulting from a decline in deposits. Management is continuing to emphasize loan and deposit growth in the markets it serves to strengthen net interest income. The "Market Risk and Asset/Liability Management" discussion on page 28 presents an analysis of the projected impact of interest rate changes on Union Planters' net interest income. INTEREST INCOME Interest income (FTE) decreased $15.8 million in 1999 to $2.34 billion. The decrease was attributable to a reduction in the average yield on average earning assets from 8.31% in 1998 to 7.87% in 1999, which equated to a $122.3 million decline in interest income. This decrease was partially offset by a $1.4 billion increase in 15 16 average earning assets to $29.7 billion in 1999, which increased interest income $106.5 million. During the fourth quarter of 1998 and first quarter of 1999, the low interest rate environment produced a high level of mortgage loan refinancing. As these refinancing levels increased, mortgage-backed loans and securities yields dropped. At December 31, 1999 and 1998 approximately 36% and 39%, respectively, of Union Planters' earning assets were mortgage-backed loans and mortgage-backed investment securities. Downward pressure on earning asset yields also occurred as a result of the following: (i) sale of Union Planters' credit card portfolio (approximately $440 million in the fourth quarter of 1998 and $20 million in the first quarter of 1999) which had a weighted average yield of approximately 13%; (ii) the securitization and sale in the first quarter of 1999 of $132 million of FHA/VA loans, with a weighted average yield of 9.7%; and (iii) the sale of $296 million of ARM loans in June 1999, with a weighted average yield of 7.6%. Reference is made to "Noninterest Income" on page 17 for a discussion of the gains that resulted from these sales. As interest rates rose in the latter half of 1999, yields on mortgage loans and variable-rate commercial loans, as well as yields on other earning assets, increased. The growth of earning assets in 1999 is attributable primarily to both loans and investment securities. Average loans increased 3% due primarily to acquisitions. The growth was partially offset by the loan sales and the high level of mortgage refinancing discussed above. The investment securities growth, 12.8%, is attributable to the investment of funds received in exchange for the assumption of deposit liabilities in the Florida and Indiana Branch Purchases. Interest income (FTE) increased 2.5% in 1998. The increase is attributable to the growth of average earning assets, which increased $1.4 billion. This growth equated to a $106.8 million increase in interest income. Partially offsetting this growth was a decline in the average yield on earning assets from 8.53% in 1997 to 8.31% in 1998, or a decrease in interest income of $48.4 million. The earning asset growth in 1998 was attributable to a 15.0% growth in investment securities and a 2.5% growth in average loans. The growth of investment securities was attributable to the investment of funds received in exchange for the assumption of deposit liabilities in the Florida Branch Purchase. Loan growth in 1998 was offset by the sale of the credit card portfolio and the securitization and sale of $380 million of FHA/VA loans. The decrease in the yield on average earning assets was attributable to the lower interest rate environment and partially to the sale of higher yielding loans. INTEREST EXPENSE Interest expense decreased $65.7 million in 1999 to $1.04 billion. The decrease was due primarily to a decrease in rates paid on average interest-bearing liabilities from 4.71% in 1998 to 4.18% in 1999. The decline in the average rate paid reduced interest expense $104.1 million. This decrease was partially offset by a $1.4 billion increase in average interest-bearing liabilities, which increased interest expense $38.4 million. This growth was attributable primarily to deposit liabilities assumed in the Florida and Indiana Branch Purchases and the Republic acquisition and to an increase in short-term borrowings, primarily short-term FHLB advances. Short-term FHLB advances increased in 1999 in response to a decline in deposits (see the "Deposits" discussion on page 26) which created a need for an alternative funding source. Average long-term debt outstanding decreased as long-term FHLB advances of acquired entities merged with Union Planters Bank were paid off and long-term debt of subsidiaries matured in 1999. Interest expense increased $42.6 million in 1998 to $1.11 billion. The increase was attributable to the $1.1 billion increase in average interest- bearing liabilities, which increased interest expense $50.0 million. The increase is attributable to interest-bearing deposit liabilities assumed in the third quarter Florida Branch Purchase and other 1998 acquisitions. Average long-term debt also increased due to the issuance of $300 million of 6.5% Putable/Callable Subordinated Notes. Partially offsetting these increases was a decline in the average rate paid for interest-bearing liabilities from 4.74% in 1997 to 4.71% in 1998, or a $7.4 million decrease in interest expense. 16 17 A summary of the components of average earning assets and interest-bearing liabilities is as follows:
1999 1998 1997 ------ ----- ----- AVERAGE EARNING ASSETS (IN BILLIONS)........................ $ 29.7 $28.3 $26.9 Comprised of: Loans..................................................... 71% 72% 74% Investment securities..................................... 27 25 23 Other earning assets...................................... 2 3 3 Yield earned on average earning assets...................... 7.87 8.31 8.53 AVERAGE INTEREST-BEARING LIABILITIES (IN BILLIONS).......... $ 24.9 $23.5 $22.4 Comprised of: Deposits.................................................. 83% 85% 84% Short-term borrowings..................................... 12 6 8 FHLB advances, short- and medium-term bank notes, and other long-term debt.................................... 5 9 8 Rate paid on average interest-bearing liabilities........... 4.18 4.71 4.74
PROVISION FOR LOSSES ON LOANS The provision for losses on loans (the provision) in 1999 was $74.0 million, or .36% of average loans, excluding FHA/VA government- insured/guaranteed loans (FHA/VA loans). This compares to a provision of $204.1 million, or 1.04% of average loans, excluding FHA/VA loans, in 1998 and $153.1 million, or .83% of average loans, excluding FHA/VA loans, in 1997. The higher provision in 1998 compared to 1999 was attributable primarily to the banks acquired in 1998 and the December 31, 1997 acquisitions. Upon acquisition, management implemented a more aggressive policy of dealing with problem credits, which involved setting goals for reducing the overall level of problem credits. Loans were 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. Union Planters' credit card portfolio, prior to its sale in the fourth quarter of 1998, accounted for a large percentage of the provision and net charge-offs in 1998 and 1997. 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. 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. Management expects increases in the provision in 2000 only in proportion to the level of loan growth, excluding the impact of any acquisitions and deterioration of specific credits. Provisions in the range of 35 to 45 basis points on average loans are anticipated for the existing portfolio based on the current condition of the portfolio and assuming current economic conditions continue. NONINTEREST INCOME Noninterest income in 1999 was $512.7 million, down $56.1 million from $568.8 million in 1998 and compared to $470.8 million in 1997. The major components of noninterest income are presented on the statement of earnings on page 43 and in Note 13 to the financial statements on page 61. Table 1, which follows this discussion, on page 31 presents a five-year trend of the major components of noninterest income including certain significant items that impact the five-year trend. The significant items impacting noninterest income over the last three years, which management does not consider operating items are as follows. Certain of the items do recur periodically. - Union Planters sold its credit card portfolio in the fourth quarter of 1998, which resulted in a gain of $72.7 million. In 1999, additional gains of $3.3 million were recognized as portfolios of acquired entities were sold. - Periodically, Union Planters securitizes and sells previously past due FHA/VA guaranteed-loans serviced by Union Planters Bank. In 1998 approximately $380 million of these loans were sold and a gain of $19.6 million was recognized. In 1999, a gain of $5.3 million was recognized when $132 million of these loans were securitized and sold. Additional sales are expected depending on market conditions and qualifying loans in the portfolio. - As part of Union Planters' asset/liability management, investment securities are all classified as available for sale securities. In 1999, investment securities gains of $2.1 million were realized compared to investment securities losses of $9.1 million in 1998. In 1997 investment securities gains were $4.9 million. The loss in 1998 resulted from premium write-downs ($22.8 million) of certain high-coupon mortgage-backed securities of an acquired entity due to the acceleration of prepay- 17 18 ments of the underlying loans. The loss was partially offset by a $6.0 million gain resulting from the contribution of certain equity securities to a charitable foundation established by Union Planters. - Gains on the sale of branches and other selected assets have resulted primarily from Union Planters' acquisition program. In 1999 these gains totaled $3.9 million compared to $6.3 million and $16.3 million in 1998 and 1997, respectively. The larger gain in 1997 resulted from the sale of several upper east Tennessee branches and deposits acquired from Leader Federal Corporation. - The sale of $296 million of ARM loans in 1999 resulted in a gain of $5.0 million. - Union Planters' corporate trust business (primarily general obligation bond administration for government entities) was sold in 1999 resulting in a gain of $2.4 million. An additional gain of approximately $2.1 million may be recognized in 2001, contingent upon business retention. Certain other amounts have been deferred over the period of non-compete agreements. Excluding the items identified above, noninterest income was $490.6 million in 1999, an increase of $15.4 million from 1998 and compared to $449.6 million in 1997. A discussion of the major components of noninterest income follows. SERVICE CHARGES ON DEPOSIT ACCOUNTS. Service charges on deposit accounts are fees received for services related to retail and commercial deposit products. These fees are the largest component of noninterest income. These fees increased $13.7 million in 1999 to $170.1 million. This compares to $156.4 million and $157.3 million in 1998 and 1997, respectively. The growth in this area related to acquisitions, primarily the Florida and Indiana Branch Purchases and the Republic acquisition. Growth of these fees leveled off in the fourth quarter of 1999. Continued growth of these fees is dependent on the level of deposits and volume of customer transaction activity as well as competitive conditions in local markets. MORTGAGE BANKING REVENUES. Mortgage banking revenues are comprised of mortgage servicing income, mortgage origination fees, gains or losses on the sale of mortgage loans, capitalized mortgage servicing rights, gains on the sale of mortgage servicing rights, and other miscellaneous fees related to mortgage origination and servicing activities. These revenues increased 7.6% in 1999 to $96.8 million. This compares to $90.0 million in 1998 and $80.7 million in 1997. Mortgage banking revenues increased in 1997, 1998, and the first half of 1999 as a low interest rate environment increased mortgage originations driven by a high level of refinancing activity. These increases slowed in the last half of 1999 as interest rates increased. In order to increase its mortgage loan origination capacity, Union Planters acquired retail and wholesale loan production offices in 1999 in markets outside of its existing banking markets. In April 1999, Union Planters acquired seven retail mortgage loan production offices in Northern California which was a complement to its existing wholesale office in Irvine, California. The California retail offices are located in Benecia, Dublin, Campbell, Capitola, Saratoga, Santa Maria, and Bakersfield. In October 1999, Union Planters acquired the wholesale loan production operations of Colonial Mortgage Company, which included offices in Atlanta, Cincinnati, Dallas, Denver, Des Moines, Greensboro, Las Vegas, Montgomery, Niceville (FL), Phoenix, Seattle, and St. Petersburg. Both of these acquisitions complement existing Union Planters' mortgage production operations and provide a better balance between origination and servicing capacity. The increased origination capacity will allow the mortgage operations to replace normal run-off in its servicing portfolio and increase the number of loans serviced. Union Planters' goal is to increase mortgage servicing fee income. Mortgage loans originated are either retained for UPB's portfolio or are sold into the secondary market and the servicing rights are retained. "Conforming conventional loans" sold into the secondary market are typically pooled and exchanged for securities issued by FNMA or FHLMC, which are sold to investment banking firms. "Jumbo loans" produced are sold to private investors. FHA-insured and VA-guaranteed loans produced for sale in the secondary market are pooled to form GNMA mortgage-backed securities, which are sold to investment banking firms. Loans originated through the wholesale offices are purchased through approximately 3,000 approved mortgage brokers. A formal approval and monitoring process is in place to select all brokers, assess their performance, and evaluate the credit quality of loans they originate. Mortgage brokers demonstrating unacceptable performance or insufficient loan activity are removed from UPB's program. Loans originated and retained in Union Planters' portfolio are centrally processed, underwritten, and serviced by UPB's Portfolio Mortgage Administration Center located in Hattiesburg, Mississippi. Single family mortgage loans originated were $3.6 billion and $2.6 billion in 1999 and 1998, respectively. Of the $3.6 billion originated in 1999, $2.4 billion was sold in the secondary market and $1.2 billion was retained in Union Planters' portfolio. In 1998, $1.6 billion of the originated loans were sold in the secondary 18 19 market and the balance were retained in the portfolio. At December 31, 1999, Union Planters' single family mortgage loan servicing portfolio totaled $18.0 billion or approximately 355,000 loans, including $5.8 billion of loans serviced, or approximately 125,000 loans, for Union Planters' own account. At December 31, 1998, Union Planters' single family mortgage loan servicing portfolio totaled $17.4 billion, or approximately 357,000 loans, including $5.3 billion serviced for Union Planters. FACTORING COMMISSIONS. A separate subsidiary of Union Planters Bank, Capital Factors, provides factoring and other specialized commercial financial services to small- and medium-sized companies. Capital Factors purchases accounts receivable from its clients pursuant to factoring agreements. Capital Factors earns a commission in return for the services rendered to clients, including credit protection, collection, and management information services. Commissions earned from these activities were $29.5 million in 1999, down from $30.6 million in 1998 and compared to $30.1 million in 1997. The decline in factoring commissions in 1999 was due to a decrease of approximately $16 million in factored sales purchased. The factoring volume was $3.49 billion in 1999 compared to $3.50 billion in 1998. Additionally, factoring fees as a percentage of factored sales purchased have declined. Both decreases are attributable primarily to competitive market pressure. BANK CARD INCOME. Bank card income currently represents Union Planters' merchant processing. Income is earned by the conversion to cash of payments received by merchants from customers using credit cards, debit cards, purchase cards, and private label credit cards. Prior to 1999 bank card income also included transaction fee income from Union Planters' credit card portfolio. Bank card income was $26.9 million in 1999 compared to $38.6 million in 1998 and compared to $39.5 million in 1997. Management sees an opportunity to grow this business and achieve "back-office" efficiencies. ATM TRANSACTION FEES. These fees relate to noncustomer usage of Union Planters' ATMs. These fees are directly related to the volume of transactions. Union Planters had 1,018 ATM machines at December 31, 1999 compared to 1,034 at December 31, 1998. Union Planters' ATMs by state are shown in the "Union Planters Corporation" discussion on page 11. These fees were $25.0 million in 1999, an increase of 29.5% over 1998. These fees increased 23.0% in 1998 compared to 1997. TRUST SERVICE INCOME. Trust service income represents fees from management of estates, personal trusts and employee benefit plans, investment advisory services, and stock transfer services for a limited number of companies. Trust service income in 1999 was $23.9 million, down slightly from $24.1 million in 1998 and compared to $24.0 million in 1997. At December 31, 1999, total assets under administration were $11.3 billion, compared to $12.4 billion at year end 1998. Of that number, managed assets were $4.4 billion at December 31, 1999 compared to $3.4 billion at December 31, 1998. The decrease in trust service income and total assets under administration during 1999 is attributable primarily to the sale of Union Planters' corporate trust business in 1999. FINANCIAL SERVICES INCOME. Financial services income includes annuity sales income, insurance commissions, and brokerage fee income, which are generated by Union Planters Financial Services Group. Revenues from these areas grew by 29.4% and 22.4% in 1999 and 1998, respectively. Union Planters utilizes a platform distribution format in which Union Planters' branch office personnel generate a majority of these revenues through customer contact in branch locations. Union Planters currently has over 2,800 licensed branch office annuity and insurance agents and that number is projected to grow in 2000. Brokerage fee income is generated through a centrally located discount brokerage operation, as well as full service registered representatives handling sales of investment products primarily in the Metropolitan markets served by Union Planters. Annuity sales income is generated from commissions resulting from the sale of fixed-rate annuities. Income from annuity sales commissions were $17.5 million in 1999 compared to $7.8 million in 1998 and $10.5 million in 1997. Growth from this operation is attributable to extensive training of Union Planters platform representatives that focuses on identifying financial solutions for customers and developing relationship selling skills. Insurance commission income is generated from the sale of credit life, mortgage, property and casualty, and other bank-eligible insurance products. In 1999, insurance commissions were $17.8 million, an increase of $3.7 million over $14.1 million in 1998. These commissions were $12.9 million in 1997. Approximately 60% of the commissions in 1999 were credit life insurance commissions and 40% were other insurance commissions. Union Planters owns a captive credit life underwriter that allows Union Planters to better serve its customers' needs and participate in underwriting gains. Union Planters plans to offer additional term and single premium insurance products as well as to initiate a joint venture title insurance relationship in 2000. Brokerage fee income is generated through full-service and discount brokerage operations. Brokerage fee income in 1999 was $17.6 million, 19 20 down $1.4 million from 1998. In 1998, these fees increased $9.0 million to $19.0 million. The decline in income is primarily attributable to restructuring and integrating the brokerage operations of acquired banks into Union Planters' platform sales format. This operation currently has over 360 licensed "Series 6" platform agents and dedicated full service "Series 7" representatives. Expansion of this operation is expected in 2000, with an increase in the number of licensed agents and the completion of the program's restructuring effort. Fee income in this operation is transaction driven and fluctuates year to year. All three of these areas are cross-selling their products to Union Planters' customers as well as other financial services customers. This group has implemented a TeamsEnAction program to assist in this effort. TeamsEnAction was developed and partnered with another firm to enhance Union Planters' capabilities in identifying customer financial needs and implementing appropriate financial solutions. In 2000, Union Planters will initiate an Internet-based version of TeamsEnAction software that is designed to increase the cross-selling of all financial and bank products offered to customers and facilitate the measurement of account profitability. This software will allow Union Planters' branch personnel to proactively evaluate customers' needs for the purpose of determining the most effective manner for delivering the appropriate financial solution. The Gramm-Leach-Bailey Act passed in 1999 will increase competitive pressure as Union Planters seeks to expand this business segment and engage (and retain) talented licensed personnel. Effective March 11, 2000, this financial modernization legislation will permit eligible holding companies to offer expanded financial services as a financial holding company, and to combine with insurance and securities firms. Union Planters believes it has a successful platform sales program for its financial service activities based on relationship selling, which is expected to continue to increase revenues in 2000. OTHER INCOME AND ELECTRONIC BANKING. All other noninterest income totaled $65.5 million in 1999, which compares to $75.3 million and $68.9 million in 1998 and 1997, respectively. Other income sources include letter of credit fees, miscellaneous factoring fees, safe deposit box fees, fees for travelers checks and money orders, earnings or losses related to investments accounted for using the equity method of accounting, and other miscellaneous revenue sources. In 1998, Union Planters invested in FundsXpress, Inc., a third-party Internet delivery company, to develop Union Planters Bank's Internet delivery system. In 1999, Union Planters' losses related to FundsXpress' operations were $4.5 million, which reduced other noninterest income. Union Planters has approximately 40,000 customers (approximately 2% of its total customers) using its online banking services and expects to increase that number. The system supports both retail and commercial customers and includes the following services: - Balance inquiry/transfers/transaction history/statements - Bill payment services - ATM network delivery (two networks under contract and one in production) - Bill presentment (Internet and ATM) - Images of checks and statements - Brokerage services (currently piloting this service) - Other traditional and nontraditional products Also contributing to the decrease in other noninterest income was a decline in earnings from VSIBG, a limited partnership investment, to $1.9 million for 1999 compared to $3.8 million in 1998 and $2.3 million in 1997. VSIBG is an investment banking operation which provides fixed-income investment products to small and medium size financial institutions. Profits and commissions from SBA trading operations also decreased in 1999 to $4.3 million from $5.4 million in 1998 and $7.3 million in 1997. This operation buys, sells, and securitizes government-guaranteed SBA pools and government-guaranteed portions of SBA loans. NONINTEREST EXPENSE Noninterest expense decreased 10.3% in 1999 to $1.1 billion compared to $1.2 billion and $1.0 billion in 1998 and 1997, respectively. The components of noninterest expense are presented on the statement of earnings on page 43 and in Note 13 to the financial statements on page 61. Table 1, on page 31, presents a five-year trend on the major components of noninterest expense, including merger-related and significant charges. Merger-related, charter consolidation and other expenses related to ongoing integration of operations totaled $183.1 million in 1998 compared to $64.9 million in 1997. These expenses were not significant in 1999 since Union Planters' acquisitions were accounted for as purchases. Excluding the above-described expenses and other unusual expenses identified on Table 1, noninterest expenses were $1.1 billion in 1999, an increase of 9.2% from 1998 and compared to $932.6 million in 1997. Acquisitions, primarily the Republic acquisition, and the impact of the Indiana and Florida Branch Purchases increased expenses an estimated $76 million in 1999. This is an estimated number since their operations were merged immediately with Union Planters' operations. Goodwill and other intangibles amortization related to acquisitions increased $27.1 20 21 million in 1999 to $56.4 million. This compares to $29.3 million in 1998 and $21.4 million in 1997. Excluding the impact of acquisitions and goodwill and other intangibles amortization, expenses decreased approximately $13 million in 1999. The reduction of expenses resulted from cost savings from mergers of operations and was offset by growth in the mortgage banking and financial services operations, expenses related to conversion and integration of bank operations, and expenses related to year 2000 preparedness. Salaries and employee benefits, which represent the largest category of noninterest expense, were $502.3 million in 1999 compared to $468.7 million in 1998 and $440.5 million in 1997. At December 31, 1999, Union Planters had 13,156 full-time equivalent employees compared to 12,330 and 12,304, respectively, at December 31, 1998 and 1997. 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. The other major expense categories impacting noninterest expenses between 1999 and 1998 are as follows: - Net occupancy expense increased $12.1 million to $88.1 million in 1999. This increase relates to acquisitions (primarily the Florida and Indiana Branch Purchases and the Republic acquisition) and expansion of existing operations. - Equipment expense increased $9.0 million in 1999 to $81.7 million. This increase relates to acquisitions and to additional equipment for regional processing centers (data warehouse and check imaging systems). - Communications expense increased $8.3 million in 1999 to $34.3 million. The increase relates to acquisitions and communication systems necessary to support Union Planters' twelve-state operations. - Advertising and promotion expense increased $4.8 million in 1999 to $29.8 million. Advertising to promote Union Planters in newly entered markets, advertising in existing markets to increase loans and deposits, advertising related to "Y2K" education and readiness, and growth due to a larger organization were the primary reasons for the increase. - Taxes other than income taxes decreased $4.8 million to $6.9 million in 1999. - Other real estate expense decreased $4.4 million to $5.4 million in 1999. - All other operating expenses had a net increase of $5.1 million. Between 1998 and 1997 the other major expense categories changed as follows: - Equipment expense increased $10.0 million to $72.7 million in 1998. The increase related to Union Planters' expansion through acquisitions and equipment needs related to the charter consolidation. - Amortization of mortgage servicing rights increased $4.5 million to $22.0 million in 1998. The increase related to additional servicing acquired in 1998, which increased mortgage servicing rights approximately $62.5 million. - Communications expense increased $5.3 million to $26.0 million. The increase related to expansion of operations. - Other personnel services expense increased $4.8 million to $15.6 million in 1998. This expense category includes training, relocation, and other miscellaneous expenses related to personnel. - All other operating expenses decreased approximately $1.6 million. In addition to the items discussed above, a significant amount of management time in 1999 was again spent on the continuing consolidations of "back office" functions, integration of recently completed acquisitions, and compliance issues related to "Y2K." In some cases, expenses were duplicated while the conversions or integrations were in progress. Quantification of these expenses cannot be made but they increased overall operating expenses in 1998 and 1999. INCOME TAXES Income taxes consist of provisions for federal and state income taxes totaling $208.8 million in 1999, or an effective rate of 33.75%. This compares to applicable income taxes of $146.3 million in 1998 and $176.0 million in 1997. These amounts represent effective tax rates of 39.34% and 34.12%, respectively, in 1998 and 1997. 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 decrease in the effective tax rate in 1999, as compared to 1998, is attributable to the level of taxable income, changes in the mix of taxable and nontaxable revenues, and a decrease in nondeductible merger-related and other expenses. For additional information regarding Union Planters' effective tax rates for all periods, see Note 15 to the financial statements on page 64. Union Planters and certain of its subsidiaries are currently under routine examination by the IRS. While the ultimate results of these examinations cannot be predicted with certainty, management believes that it has sufficient reserves to 21 22 cover any resulting liability therefrom and consequently, the examinations are not expected to have a material adverse effect on Union Planters' results of operations, financial condition, or liquidity. At December 31, 1999, Union Planters' had a net deferred tax asset of $254.7 million, which is included in other assets. This compares to $160.6 million at December 31, 1998. The increase is attributable primarily to the change in the net deferred tax asset related to the unrealized gain or loss on available for sale investment securities. Reference is made to the "Investment Securities" discussion below. Realization of a portion of the $254.7 million net deferred tax asset is dependent upon 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. FINANCIAL CONDITION ANALYSIS At December 31, 1999, Union Planters reported total assets of $33.3 billion compared to $31.7 billion for December 31, 1998. Average total assets for 1999 were $32.9 billion compared to $30.7 billion for 1998. Acquisitions and branch purchases in 1999, accounted for as purchases, increased total assets approximately $4.5 billion. Reference is made to Table 3 on page 32 for the balance sheet impact of acquisitions. 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. The net interest income from these assets accounts for approximately 72% of Union Planters' operating revenue stream. At December 31, 1999, earning assets totaled $29.8 billion compared to $28.7 billion at year end 1998. Average earning assets were $29.7 billion in 1999 compared to $28.3 billion in 1998. The increase in average earning assets in 1999 is attributable to purchase acquisitions, primarily the Florida and Indiana Branch Purchases and the Republic acquisition. INVESTMENT SECURITIES As part of its asset/liability management strategy, Union Planters 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 $7.5 billion at December 31, 1999 compared to $8.3 billion at December 31, 1998. Average investment securities were $8.1 billion and $7.2 billion, respectively, for these periods. The investment portfolio declined between 1998 and 1999 as securities matured and were not reinvested due to other funding needs. Funds were invested in the investment portfolio in the latter part of 1998 as Union Planters received funds in return for assuming approximately $1.4 billion of deposit liabilities in the Florida Branch Purchase. The investments in late 1998 and purchase acquisitions caused investment securities on average in 1999 to be higher than in 1998. The weighted average yield on the investment portfolio decreased six basis points from 1998 to 6.43% in 1999. At December 31, 1999 the investment portfolio had a net unrealized loss of $212.6 million which compares to a net unrealized gain of $93.1 million at year end 1998. The unrealized loss resulted from increasing interest rates. Investments made in a lower interest rate environment lost value as interest rates increased. Management does not expect any losses to result from the decline in the value of the portfolio because maturities of securities and other funding sources should meet Union Planters' liquidity needs. Any losses taken will result from strategic or discretionary decisions to adjust the investment portfolio. Reference is made to Note 4 to the financial statements on page 50, which provides the composition of the investment portfolio for the last two years, along with a breakdown of the maturities and weighted average yields of the portfolio at December 31, 1999. U.S. Treasury and U.S. Government agency obligations represented 56.0% of the investment securities portfolio at December 31, 1999, 71.6% of which are Collateralized Mortgage Obligation (CMO) and mortgage-backed security issues. At December 31, 1998, 63.1% of the investment portfolio was U.S. Treasury and U.S. Government agency obligations, of which 63.7% were CMOs and mortgage-backed securities. Union Planters has some credit risk in the investment securities portfolio; however, management does 22 23 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 on pages 15 and 28, respectively, for information regarding the market-risk in the investment securities portfolio. The limited credit risk in the investment securities portfolio at December 31, 1999 consisted of 23.7% of investment grade CMOs, 17.0% municipal obligations, and 3.3% other stocks and securities (primarily equity securities and Federal Reserve Bank and Federal Home Loan Bank stock). At December 31, 1999, Union Planters had approximately $7.2 million of "structured notes" compared to $45.3 million at year end 1998. Structured notes have uncertain cash flows which are driven by interest-rate movements and may expose a company to greater market risk than traditional investments. All of Union Planters' investments of this type are government agency issues (primarily Federal Home Loan Banks and Federal National Mortgage Association). LOANS Loans are the largest classification within earning assets of Union Planters and represented approximately 71% of average earning assets for 1999 compared to 72% for 1998. Loans at December 31, 1999 totaled $21.4 billion compared to $19.6 billion at year end 1998. Average loans were $21.1 billion in 1999, an increase of $643 million (3.1%) from $20.5 billion in 1998. Excluding FHA/VA loans, average loans increased 5.1% in 1999 to $20.5 billion. Purchase acquisitions in 1999, primarily the Indiana Branch Purchase and the Republic acquisition, added approximately $2.3 billion of loans. Table 7 on page 35 presents a five-year summary of the composition of the loan portfolio. Loan volumes were impacted in the fourth quarter of 1998 and first quarter of 1999 by the sale of Union Planters' credit card portfolio, approximately $440 million of loans and approximately $20 million of loans, respectively. Union Planters also securitized and sold approximately $380 million of previously defaulted FHA and VA loans in 1998. In March 1999, a similar transaction occurred involving approximately $132 million of FHA/VA loans. Similar securitizations and sales of FHA/VA loans in the future are dependent on market conditions and the level of qualifying FHA/VA loans. A sale of ARM loans occurred in June 1999 involving approximately $296 million of loans. The various categories of loans are subject to varying levels of risk. Management mitigates this risk through portfolio diversification and geographic diversification. Union Planters' loan portfolio is spread over the twelve states in which it has banking locations and other geographic areas serviced by these locations. Reference is made to the table at the beginning of this discussion, which presents the percentage of Union Planters' loans by state for the banking operations. The largest concentration of loans is in single family residential loans, comprising 26% of the loan portfolio, which historically have low loan loss experience. Union Planters has a limited amount of foreign exposure, less than 2% 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. Union Planters' loan portfolio is also diversified by the relative size of the loans in the portfolio. Of the top 50 loan relationships in the loan portfolio, the largest outstanding was $45 million. The top fifty relationships totaled $971 million, or an average of $20 million. Union Planters has an overall internal limit, subject to exception on a case-by-case basis, for loan relationships of $50 million, with lower sub-limits established for various risk classifications. SINGLE FAMILY RESIDENTIAL LOANS. Single family residential loans totaled $5.6 billion at both December 31, 1999 and 1998. These loans were 26% of the loan portfolio at December 31, 1999 compared to 29% at year end 1998. The decrease in the percentage of these loans in the portfolio and 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 and the first half of 1999, as well as loan sales. The overall decline was partially offset by single family loans from acquisitions. The expected higher interest rate environment in 2000 is expected to slow loan prepayments and increase new volume since these loans are generally adjustable-rate and are expected to be more attractive to borrowers relative to fixed-rate loans. COMMERCIAL LOANS. Commercial, financial, and agricultural loans, including foreign loans and direct lease financing, totaled $5.3 billion, or 24% of the portfolio, at December 31, 1999. This represents a 38% increase over December 31, 1998, which was $3.8 billion. The growth in this segment is attributable primarily to the acquisitions in 1999. OTHER MORTGAGE LOANS. This segment of the portfolio totaled $4.6 billion, or 21% of the loan portfolio at December 31, 1999. This compares to $4.4 billion at December 31, 1998, or 22% of the loan portfolio. At December 31, 1999, loans for nonfarm nonresidential properties (commercial real estate) totaled $3.6 billion, or 79% of this category, which compares to $3.5 23 24 billion, or 80% of this category at year end 1998. Owner occupied commercial real estate loans represented approximately 40% of the loans in this category and typically have less risk than income producing commercial real estate loans. Loans secured by multifamily residential properties and loans secured by farmland comprised 13% and 8%, respectively, of this category of the portfolio, which compares to 12% and 8%, respectively, at year end 1998. REAL ESTATE CONSTRUCTION LOANS. These loans totaled $1.6 billion at December 31, 1999, or 7% of the loan portfolio, which compares to $1.2 billion at December 31, 1998, or 6% of the loan portfolio. At year-end approximately 32% are single family construction loans, approximately 36% commercial construction loans, and approximately 32% are land development loans. These percentages were 40%, 40%, and 20%, respectively, in 1998. FHA/VA GOVERNMENT-INSURED/GUARANTEED LOANS (FHA/VA LOANS). The FHA/VA loans (single family residential loans) declined $241 million in 1999 to $519 million at December 31, 1999, or 2% of the loan portfolio. The decrease relates partially to the securitization and sale of approximately $132 million of previously defaulted FHA/VA loans in the first quarter of 1999, for a gain of approximately $5.3 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 possible in 2000. As a loan servicer, Union Planters 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 Union Planters' policy to buy the delinquent FHA/VA loan out of the GNMA pools serviced by Union Planters. This action eliminates Union Planters' obligation to pay the coupon rate. Union Planters thereby earns the net interest-rate differential between the coupon rate which it would otherwise be obligated to pay to the GNMA holder and Union Planters' 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, Union Planters' 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 presented in this report. Any losses incurred would not be significantly greater or less than if Union Planters 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. Union Planters, 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 FHA or VA might reject claims or the claim might otherwise not be able to be collected in full. FHA/VA claims receivables totaled $108.6 million at December 31, 1999 compared to $126.2 million at December 31, 1998. Provisions for losses related to the FHA/VA claims are provided through noninterest expense as provisions for losses on FHA/VA foreclosure claims and the corresponding liability is carried in other liabilities. Provisions for losses on FHA/VA foreclosure claims totaled $1.2 million, $4.7 million, and $8.0 million, respectively, in 1999, 1998, and 1997. At December 31, 1999, the Corporation had a reserve for FHA/VA claims losses of $28.0 million compared to $27.5 million at December 31, 1998. CONSUMER LOANS. This segment of the loan portfolio totaled $2.8 billion at December 31, 1999, or 13% of the loan portfolio. This compares to consumer loans of $2.7 billion, or 14% of the loan portfolio, at year end 1998. Approximately 60% of these loans are automobile loans with the balance being loans to individual consumers for a variety of uses. HOME EQUITY LOANS. These loans totaled $585 million at December 31, 1999 compared to $483 million at December 31, 1998. 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 $555 million at December 31, 1999, a decrease of $61 million from the December 31, 1998 total of $616 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. Its clients primarily include manufacturers, importers, wholesalers and distributors in the apparel and textile- 24 25 related industries and, to a lesser extent, in consumer goods-related industries. Also included in this category are asset-based loans, which are collateralized primarily by receivables owned by the borrowers. The decrease in these receivables is due to increased competition and also to Capital Factors' withdrawal from healthcare industry factoring activities. In exiting this segment, two loans were retained totaling $9.7 million, both of which are on nonaccrual status. LOAN OUTLOOK. Management expects modest loan growth in 2000 as the markets served by Union Planters generally have a good economic outlook. Loan growth continues to be an area of emphasis in 2000 for the Union Planters' local banks. ALLOWANCE FOR LOSSES ON LOANS The allowance for losses on loans (the allowance) at December 31, 1999 was $342.3 million, or 1.64% of loans, compared to $321.5 million, or 1.71% of loans, at December 31, 1998. In calculating the allowance to loans ratios, FHA/VA loans have been excluded (see "FHA/VA Government-Insured/Guaranteed Loans" discussion above). The allowance is increased by the provision for losses on loans and recoveries and is decreased by charged-off loans. The allowance increased $43.1 million and $15.9 million in 1999 and 1998, respectively, due to acquisitions accounted for as purchases. Management's policy is to maintain the allowance at a level deemed adequate 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 financial statements on page 46. This methodology includes assigning loss factors, based on historical experience as adjusted for current business and economic conditions, to loans with similar characteristics for which estimates of inherent probable losses can be assessed. The loss factors are applied to the respective portfolios to assist in the determination of the overall adequacy of the allowance. A periodic review of selected credits (based on loan size) is conducted to identify loans with heightened risks or inherent losses. The primary responsibility for this review rests with management assigned accountability for the credit relationship. This review is supplemented with periodic reviews by Union Planters' credit review function, regulatory agencies, and the Company's independent accountants. These reviews provide information which assists in the timely identification of problems and potential problems and in deciding whether the credit represents a probable loss or risk which should be recognized. Tables 8 and 10, on pages 36 and 37, respectively, provide detailed information regarding the allowance for each of the five years in the period ended December 31, 1999. Net charge-offs were $96.3 million in 1999 compared to $186.3 million in 1998 and $116.3 million in 1997. As a percentage of average loans, net charge-offs were .47% in 1999 compared to .95% and .63% in 1998 and 1997, respectively. The $90.0 million decrease in net charge-offs in 1999 relates primarily to lower charge-offs by institutions Union Planters acquired in 1998, the December 31, 1997 acquisitions, and the credit card portfolio sale. 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 net charge-offs also decreased $44.7 million in 1999 compared to 1998 due to the sale of the credit card portfolio in 1998. 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 on page 36 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" on the previous page.) Nonperforming loans (nonaccrual loans and restructured loans) decreased $26.3 million in 1999 to $129.6 million, or .62% of loans. In the third quarter of 1999, Union Planters changed its policy related to placing single family residential mortgage loans on nonaccrual status to conform to industry practice. Previously, single family residential mortgage loans were automatically placed on nonaccrual status after they became past due 90 days or more. Prospectively, these loans are being placed on nonaccrual status if the loan is not in the process of collection or is not well secured. The impact of this change was to reduce single family residential mortgage loans on nonaccrual status approximately $50 million with loans past due 90 days or more and still accruing interest increasing by a corresponding amount. Union Planters' nonaccrual loans are primarily smaller, well-secured loans. At December 31, 1999, there were five loan relationships greater than $3 million in this category and the largest relationship was $6.9 million. Additionally, nonaccrual loans related to entities acquired in 25 26 1999 totaled approximately $11 million. As discussed previously, two loans totaling $9.7 million related to the healthcare division of Capital Factors were on nonaccrual status at year end. Capital Factors withdrew from this industry in 1999. Loans past due 90 days or more and still accruing interest, which are not included in nonperforming assets, were $92.8 million at December 31, 1999, or .44% of loans. This compares to $48.6 million, or .26% of loans at December 31, 1998. As discussed above, the increase in these loans compared to 1998 related to a change in Union Planters' policy for placing single family residential mortgage loans on nonaccrual status. A breakdown of nonaccrual loans and loans past due 90 days or more and still accruing interest, both excluding FHA/VA loans, follows:
LOANS PAST DUE NONACCRUAL LOANS 90 DAYS OR MORE ------------------------------ --------------------------- DECEMBER 31, DECEMBER 31, ------------------------------ --------------------------- LOAN TYPE 1999 1998 1997 1999 1998 1997 - ---------------------------------------------- -------- -------- -------- ------- ------- ------- (DOLLARS IN THOUSANDS) Secured by single family residential.......... $ 20,031 $ 73,433 $ 67,747 $64,515 $12,991 $15,784 Secured by nonfarm nonresidential............. 33,818 25,242 15,415 3,975 8,193 4,458 Other real estate............................. 23,453 17,616 19,676 3,480 5,387 4,395 Commercial, financial, and agricultural, including foreign loans and direct lease financing................................... 47,551 26,831 27,267 15,130 15,041 4,754 Credit card and related plans................. 3 58 2 67 2,044 15,351 Other consumer................................ 2,910 7,198 8,789 5,667 4,970 6,386 -------- -------- -------- ------- ------- ------- Total................................ $127,766 $150,378 $138,896 $92,834 $48,626 $51,128 ======== ======== ======== ======= ======= =======
FHA/VA LOANS. These 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 $240.8 million at December 31, 1999 compared to $355.1 million at December 31, 1998. The decrease in the loans past due relates to the decline in the volume of these loans. At December 31, 1999 and 1998, $6.6 million and $9.2 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. 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, 1999, Union Planters had potential problem assets (all loans) aggregating $48.1 million, comprised of twelve loans, the largest of which was $12.7 million. This compares to potential problem assets (all loans) at December 31, 1998 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 $397 million, or 2% of average earning assets, in 1999 with an average yield of 5.73%. This compares to $587 million in 1998 with a 5.93% average yield and $609 million in 1997 with an average yield of 6.13%. 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 Union Planters' deposit base is its primary source of liquidity and consists of deposits from the communities served in Union Planters' twelve-state market area. The mix of deposits has remained relatively constant as shown in the table below. Tables 4 and 6 on pages 33 and 35, respectively, present the components of Union Planters' average deposits. Note 8 to the financial statements on page 53 presents the maturities of interest-bearing deposits at December 31, 1999. 26 27 The composition of average deposits over the last three years was as follows:
1999 1998 1997 ---- ---- ---- Noninterest-bearing deposits 17% 15% 15% Money market deposits 17 13 13 Savings deposits 19 19 19 Other time deposits 38 41 42 Certificates of deposit of $100,000 and over 9 12 11
Deposits were $23.4 billion at December 31, 1999 and averaged $25.0 billion for the year. This compares to period end deposits of $24.9 billion and average deposits of $23.6 billion in 1998. Acquisitions, primarily the Indiana Branch Purchase and the Republic acquisition, increased total deposits $3.6 billion at their respective dates of acquisition. Excluding the impact of acquisitions, total deposits declined $5.2 billion from December 31, 1998 to December 31, 1999. On average, excluding the estimated impact of acquisitions, total deposits decreased approximately $2.4 billion. The decrease is attributable to not competing as aggressively for public fund deposits (which require pledging of investment securities), time deposits that matured and were not renewed, the competitive market in general, and increased competition from other investment products, including Union Planters' sale of non-traditional products, such as annuities and brokerage services. Management is developing strategies to slow this deposit decline. Further declines could increase dependency on short-term borrowings and increase Union Planters' interest rate volatility. CAPITAL AND DIVIDENDS Union Planters' shareholders' equity decreased by $208.0 million in 1999 to $2.8 billion at December 31, 1999. At that date the shareholders' equity to total assets ratio was 8.34%. Shareholders' equity at December 31, 1998 was $3.0 billion, or 9.42% of total assets. The decrease in shareholders' equity is attributable primarily to a share repurchase plan announced in August 1999. The purchase of shares under the share repurchase plan and shares purchased for the First Mutual Bancorp, Inc. acquisition (1.1 million shares) reduced shareholders' equity $250.8 million in 1999. The other item reducing shareholders' equity was the net change in the unrealized loss on available for sale securities of $191.5 million, to an unrealized loss of $134.2 million at December 31, 1999. These items were partially offset by retained net earnings of $123.3 million and common stock issued in connections with the First Mutual acquisition, employee benefit plans, and conversion of debt, which totaled $111.0 million. The share repurchase plan was authorized by the Board of Directors in August 1999 and authorized the purchase of up to 5% of Union Planters' common stock or approximately 7.1 million shares. As of February 16, 2000, the 7.1 million shares had been purchased (4.7 million shares were purchased as of December 31, 1999). On February 17, 2000, the Board of Directors authorized the purchase from time to time of up to an additional 7.1 million shares. The purchases are expected to take place over the next 18 to 24 months either in the open market or privately negotiated transactions. Union Planters has consistently maintained regulatory capital ratios above the "well capitalized" standard. Table 13 on page 39, the statement of changes in shareholders' equity on page 44, and Note 12 to the financial statements on page 59 present further information regarding Union Planters' capital adequacy and changes in shareholders' equity. Union Planters 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, 1999 Union Planters' Tier 1 and Total risk-weighted capital ratios were 9.50% and 12.69%, respectively. The leverage ratio (Tier 1 capital divided by unweighted average quarterly total assets) was 6.65%. These ratios decreased from December 31, 1998, due primarily to acquisitions which increased total assets approximately $4.5 billion with no capital being issued. Intangibles resulting from these acquisitions totaled $631.4 million, which are deducted from Tier 1 capital, which in turn reduces the ratios. The shares purchased under Union Planters' share repurchase plan also lowered the regulatory capital ratios. Union Planters declared cash dividends on its common stock of $2.00 per share in both 1999 and 1998. In January 2000, a regular quarterly dividend was declared, $.50 per share ($2.00 per share annualized). Union Planters Corporation also declared and paid cash dividends of $2.00 per share on its 8% Series E Convertible Preferred Stock in both 1999 and 1998. Management's goal is to maintain a common dividend payout ratio in the range of 40% to 60% of net earnings. Common dividends as a percentage of net earnings and cash operating earnings were 70% and 65%, respectively in 1999. Management currently intends to pay dividends at the same level in 2000 based on expected performance. The primary sources for payment of dividends by Union Planters to its shareholders and the share purchase plan are dividends received 27 28 from its lead bank, UPB, dividends from other subsidiaries, interest on loans to subsidiaries, and interest on its available for sale investment securities. Payment of dividends by UPB and other banking subsidiaries are subject to various statutory limitations that are described in Note 12 to the financial statements on page 59. Reference is made to the "Liquidity" discussion on the following page for additional information regarding the parent company's liquidity. MARKET RISK AND ASSET/LIABILITY MANAGEMENT Union Planters' assets and liabilities are principally financial in nature and the resulting earnings, primarily net interest income, are subject to changes as a result of fluctuations in market interest rates and the mix of the various assets and liabilities. Interest rates in the financial markets affect decisions on pricing assets and liabilities, which impacts net interest income which is approximately 72% of Union Planters' operating revenues. As a result, a substantial part of Union Planters' risk-management activities are devoted to managing interest-rate risk. Currently, Union Planters 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 Union Planters 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. Union Planters, on a limited basis, has used off-balance-sheet financial instruments to manage interest-rate risk. At December 31, 1999 and 1998, Union Planters had a limited number of such instruments, primarily those used in its mortgage operations to hedge loans held for resale. Union Planters' Funds Management Committee oversees the conduct of asset/liability and interest-rate risk management. The Committee meets monthly and reviews the outlook for the economy and interest rates, Union Planters' balance sheet structure, and yields on earning assets and rates on interest-bearing liabilities. Union Planters uses two methods, interest-rate sensitivity analysis and simulation analysis, to measure interest rate risk. Interest-rate sensitivity analysis (GAP analysis) is used to monitor the amounts and timing of balances exposed to changes in interest rates, as shown in Table 11 on page 38. The analysis has been made at a point in time and could change significantly on a daily basis. As a general policy guideline, management expects the GAP position at one year not to exceed 10% of Union Planters' total assets. At December 31, 1999 this position was 15% of total assets with $4.9 billion more liabilities repricing than assets. This position has essentially reversed since December 31, 1998 when 2% of total assets were mismatched at one year with repricing assets exceeding liabilities by $693 million. The change is due to the significant increase in short-term borrowings, primarily short-term FHLB advances. Even though the GAP position exceeds the policy at one year, $4.3 billion of the liabilities affecting the one year GAP are scheduled money market and savings deposits whose rates are administered by management. Total money market and savings deposits of $8.8 billion that have no contractual maturity are scheduled according to management's best estimate of their repricing in response to changes in interest rates. Even with conservative estimates of their rate sensitivity, the resulting impact on earnings at risk in simulation analysis produces results which bring interest rate risk into an acceptable range and one not implied by GAP analysis alone. Still, management is evaluating strategies to reduce the liability sensitive position at one year. Interest rate risk is evaluated by conducting balance sheet simulation to project net interest income for twelve months forward under different interest rate scenarios. Each of these scenarios is compared with a base case scenario wherein current market rates and current period balances are held constant for the simulation period. The scenarios include immediate "shocks" to current rates of 200 basis points up and down and a "most likely" scenario in which current rates are moved according to economic forecasts and management's expectations of changes in administered rates. The results of these simulations are compared to policy guidelines approved by the Funds Management Committee of Union Planters which limit the change of net interest income to 20% of net operating earnings (net earnings before merger-related and other significant items, net of income taxes) when compared with the base case (flat) scenario. The simulations have consistently fallen within the policy guidelines. At December 31, 1999, the 200 basis point immediate rise in interest rates produced a 16.5% ($65 million after-tax) decrease in net operating earnings, which compared to a .41% ($1.3 million af- 28 29 ter-tax) decrease at December 31, 1998. The 200 basis point immediate fall in interest rates produced a 12.5% ($49 million after-tax) increase in net operating earnings versus a 5% ($16 million after-tax) decrease at December 31, 1998. The "most likely" scenario (Federal Funds rate increasing 50 basis points over the first six months of 2000) at December 31, 1999 produced a 4.9% ($19 million after-tax) decrease in net operating earnings compared to a 1.6% ($5 million after-tax) increase at the end of 1998. The key assumptions used in simulation analysis include the following: - prepayment rates on mortgage related assets - cash flows and repricings of all financial instruments - changes in volumes and pricing - future shapes of the yield curve - money market spreads - credit spreads - deposit sensitivity - management's financial capital plan 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, the difference between actual experience and the characteristics assumed, and changes in market conditions and management strategies. LIQUIDITY. Liquidity for Union Planters 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, Union Planters' 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 financial statements on page 54 presents information regarding the various types of borrowings Union Planters uses to provide liquidity. 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, 1999, the parent company had cash and cash equivalents totaling $264.3 million, which compares to $315.6 million at December 31, 1998. Net working capital (total assets maturing within one year less similar liabilities) was $296.5 million compared to $358.2 million at December 31, 1998. The decline in liquidity at the parent company relates to the share purchase plan and acquisitions by the parent company in 1999. At January 1, 2000, the parent company could have received dividends from subsidiaries of $106.6 million without prior regulatory approval. The payment of dividends by Union Planters' subsidiaries will be dependent on their future earnings and capital and liquidity considerations. Management believes that the parent company has adequate liquidity to meet its cash needs, including the payment of its regular dividends and servicing of its debt. FAIR VALUE OF FINANCIAL INSTRUMENTS The disclosures regarding the fair value of financial instruments are included in Note 19 to the financial statements on page 69 along with a summary of the methods and assumptions used by management 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. EFFECTS OF INFLATION Since the majority of assets and liabilities of a financial institution are monetary in nature, a financial institution differs greatly from most commercial and industrial companies, which have significant investments in fixed assets and inventories. However, inflation does have an important impact on growth of total assets in the banking industry and the resulting need to increase equity capital at higher costs in order to maintain an appropriate shareholders' equity to total assets ratio. Inflation also affects other expenses that tend to rise during periods of general inflation. Management believes the most significant impact of inflation on financial results is Union Planters' ability to react to changes in interest rates. As discussed previously, management is attempting to maximize net interest income within acceptable levels of interest rate risk and liquidity. FOURTH QUARTER RESULTS Net earnings for the fourth quarter of 1999 were $97.4 million compared to $27.6 million for the fourth quarter of 1998. On a diluted per share basis, net earnings were $.69 compared to $.19 a year ago. Table 14 on page 40 presents 29 30 selected quarterly financial data for 1999 and 1998. Net interest income (FTE) was $330.3 million for the fourth quarter of 1999 compared to $306.7 million for the same period in 1998. The net interest margin and the interest rate spread for the fourth quarter of 1999 were 4.39% and 3.75%, respectively, compared to 4.24% and 3.46%, respectively, for the same quarter a year ago. The growth in net interest income was attributable to growth of earning assets, which increased $1.2 billion to $29.9 billion for the fourth quarter of 1999. Lower yields on earning assets were more than offset by lower rates paid on interest-bearing liabilities. The provision for losses and loans for the fourth quarter of 1999 was $19.7 million, a decrease of $56.9 million from the same quarter last year. The decrease is attributable to higher provisions by acquired institutions and to higher provisions related to two asset-based loans that deteriorated during the fourth quarter of 1998. For the fourth quarter of 1999, noninterest income was $122.7 million compared to $197.8 million in 1998. The decrease is attributable to the sale of the credit card portfolio in the fourth quarter of 1998, which resulted in a gain of $72.7 million, and investment securities gains of $6.0 million in the fourth quarter of 1998 related to gains on the sale of equity securities contributed to a charitable foundation. Excluding these items, noninterest income increased $3.3 million, with the increases relating to service charges on deposit accounts, ATM usage fees, annuity sales income, trust service income, and insurance commissions. Partially offsetting these increases was a $1.5 million loss from an equity investment in FundsXpress, Inc., the online banking provider to Union Planters. Noninterest expenses for the fourth quarter of 1999 were $277.1 million, down $84.9 million from the same quarter in 1998. The decrease relates to merger-related and charter consolidation charges totaling $71.4 million, $11.1 million related to an employee benefit change, and $7.6 million of contribution expense related to a contribution of equity securities to a charitable foundation established by Union Planters. Excluding these items, noninterest expenses increased $5.2 million. The increase relates to 1999 acquisitions, higher than normal miscellaneous charge-offs, increased advertising expense, and higher goodwill amortization expense. Partially offsetting the increase was a $7.2 million reversal of severance reserves established in prior periods related to acquisitions and charter consolidation (see the "Noninterest Expense" discussion on page 20 in this report). Y2K Union Planters Corporation did not experience any significant problems relating to the change to the year 2000. Efforts to make changes to systems and establishing contingency plans were effective. Additionally, external parties supplying services to Union Planters experienced no significant problems. As of March 6, 2000, no significant losses were incurred related to any customer as a direct result of Y2K. Union Planters intends to continue to monitor computer date sensitive issues. It is possible, although management does not consider it likely, that other dates in the year 2000 may further affect computer software and systems or that a year 2000 problem has not yet been discovered by Union Planters, or third parties with which Union Planters conducts business. 30 31 TABLE 1. SUMMARY OF CONSOLIDATED RESULTS
YEARS ENDED DECEMBER 31, -------------------------------------------------------------- 1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) Interest income.............................. $2,297,932 $2,314,381 $2,264,485 $2,126,230 $1,908,150 Interest expense............................. 1,041,401 1,107,148 1,064,586 1,011,241 897,649 ---------- ---------- ---------- ---------- ---------- NET INTEREST INCOME................. 1,256,531 1,207,233 1,199,899 1,114,989 1,010,501 PROVISION FOR LOSSES ON LOANS................ 74,045 204,056 153,100 86,381 50,696 ---------- ---------- ---------- ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOSSES ON LOANS............... 1,182,486 1,003,177 1,046,799 1,028,608 959,805 NONINTEREST INCOME Service charges on deposit accounts........ 170,052 156,445 157,256 152,942 145,343 Mortgage banking revenues.................. 96,785 89,965 80,658 72,764 65,868 Bank card income........................... 26,880 38,562 39,497 31,866 27,234 Factoring commissions...................... 29,504 30,630 30,140 26,066 19,519 Trust service income....................... 23,920 24,116 24,029 20,351 18,937 Profits and commissions from trading activities............................... 4,321 5,402 7,323 5,768 12,364 Other income............................... 139,097 130,075 110,670 81,297 79,782 ---------- ---------- ---------- ---------- ---------- Total noninterest income............ 490,559 475,195 449,573 391,054 369,047 ---------- ---------- ---------- ---------- ---------- NONINTEREST EXPENSE Salaries and employee benefits............. 502,279 468,675 440,511 413,640 393,818 Net occupancy expense...................... 88,122 75,974 74,750 75,331 71,899 Equipment expense.......................... 81,720 72,718 62,736 60,531 56,620 Goodwill and other intangibles amortization............................. 56,388 29,333 21,386 17,910 17,360 Other expense.............................. 353,925 344,919 333,186 297,997 309,571 ---------- ---------- ---------- ---------- ---------- Total noninterest expense........... 1,082,434 991,619 932,569 865,409 849,268 ---------- ---------- ---------- ---------- ---------- EARNINGS BEFORE MERGER-RELATED AND OTHER SIGNIFICANT ITEMS AND INCOME TAXES............................. 590,611 486,753 563,803 554,253 479,584 MERGER-RELATED AND OTHER SIGNIFICANT ITEMS Net gain on sale of the credit card portfolio................................ 3,335 70,100 -- -- -- Net gain on securitization and sale of FHA/VA loans............................. 5,317 19,605 -- -- -- Net gain on sale of ARM loans.............. 5,041 -- -- -- -- Net gain on sale of corporate trust business................................. 2,417 -- -- -- -- Net gain on sales of branches and other selected assets.......................... 3,913 6,345 16,290 7,511 1,925 Investment securities gains (losses)....... 2,128 (9,074) 4,888 4,934 2,288 Merger-related, charter consolidation, and other expenses related to ongoing integration of operations, net........... 7,153 (182,253) (64,854) (52,786) (12,114) Expenses related to employee benefit plan changes.................................. -- (11,090) -- -- -- Contribution of equity securities to a charitable foundation.................... -- (7,609) -- -- -- 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................................. (1,083) 945 (1,500) 1,268 (146) ---------- ---------- ---------- ---------- ---------- EARNINGS BEFORE INCOME TAXES........ 618,832 371,922 515,849 445,757 471,537 Income taxes................................. 208,834 146,316 176,014 153,055 156,718 ---------- ---------- ---------- ---------- ---------- NET EARNINGS........................ $ 409,998 $ 225,606 $ 339,835 $ 292,702 $ 314,819 ========== ========== ========== ========== ========== NET EARNINGS................................. $ 409,998 $ 225,606 $ 339,835 $ 292,702 $ 314,819 Merger-related and other significant items, net of income taxes........................ (17,243) 98,971 32,241 71,607 5,311 ---------- ---------- ---------- ---------- ---------- NET OPERATING EARNINGS....................... 392,755 324,577 372,076 364,309 320,130 Goodwill and other intangibles amortization, net of income taxes........................ 47,582 27,289 20,400 16,924 16,373 ---------- ---------- ---------- ---------- ---------- CASH OPERATING EARNINGS...................... $ 440,337 $ 351,866 $ 392,476 $ 381,233 $ 336,503 ========== ========== ========== ========== ==========
31 32 TABLE 2. CONTRIBUTION TO DILUTED EARNINGS PER SHARE
YEARS ENDED DECEMBER 31, ---------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- Net interest income -- FTE........................... $ 8.99 $ 8.72 $ 8.89 $ 8.58 $ 8.18 Provision for losses on loans........................ (0.51) (1.43) (1.11) (0.65) (0.40) -------- -------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOSSES ON LOANS -- FTE.................... 8.48 7.29 7.78 7.93 7.78 NONINTEREST INCOME Service charges on deposit accounts................ 1.18 1.10 1.14 1.15 1.14 Mortgage banking revenues.......................... 0.67 0.63 0.58 0.55 0.52 Bank card income................................... 0.19 0.27 0.29 0.24 0.21 Factoring commissions.............................. 0.20 0.21 0.22 0.20 0.15 Trust service income............................... 0.17 0.17 0.17 0.16 0.15 Profits and commissions from trading activities.... 0.03 0.04 0.05 0.04 0.10 Investment securities gains (losses)............... 0.01 (0.06) 0.04 0.04 0.02 Other income....................................... 1.11 1.63 0.93 0.66 0.64 -------- -------- -------- -------- -------- Total noninterest income.................... 3.56 3.99 3.42 3.04 2.93 -------- -------- -------- -------- -------- NONINTEREST EXPENSE Salaries and employee benefits..................... 3.49 3.36 3.19 3.10 3.09 Net occupancy expense.............................. 0.61 0.53 0.54 0.56 0.56 Equipment expense.................................. 0.57 0.51 0.45 0.45 0.44 Goodwill and other intangibles amortization........ 0.39 0.21 0.15 0.13 0.14 Other expense...................................... 2.42 3.80 2.92 3.15 2.53 -------- -------- -------- -------- -------- Total noninterest expense................... 7.48 8.41 7.25 7.39 6.76 -------- -------- -------- -------- -------- EARNINGS BEFORE INCOME TAXES -- FTE......... 4.56 2.87 3.95 3.58 3.95 Income taxes -- FTE.................................. 1.71 1.29 1.48 1.37 1.47 -------- -------- -------- -------- -------- NET EARNINGS................................ 2.85 1.58 2.47 2.21 2.48 Less preferred stock dividends....................... -- -- -- -- (0.01) -------- -------- -------- -------- -------- DILUTED EARNINGS PER SHARE.................. $ 2.85 $ 1.58 $ 2.47 $ 2.21 $ 2.47 ======== ======== ======== ======== ======== Change in net earnings applicable to diluted earnings per share using previous year average shares outstanding........................................ $ 1.29 $ (0.84) $ 0.35 $ (0.14) $ 0.76 Change in average shares outstanding................. (0.02) (0.05) (0.09) (0.12) (0.05) -------- -------- -------- -------- -------- Change in net earnings........................... $ 1.27 $ (0.89) $ 0.26 $ (0.26) $ 0.71 ======== ======== ======== ======== ======== AVERAGE DILUTED SHARES (IN THOUSANDS)................ 143,983 142,693 138,220 133,452 127,416 ======== ======== ======== ======== ========
- --------------- FTE -- Fully taxable-equivalent TABLE 3. BALANCE SHEET IMPACT OF ACQUISITIONS
1999 --------------------------------------------------- INDIANA BRANCH 1998 1997 REPUBLIC PURCHASE OTHERS TOTAL TOTAL TOTAL ---------- -------------- -------- ---------- ----------- ---------- (DOLLARS IN THOUSANDS) ASSETS Interest-bearing deposits at financial institutions..... $ 656 $ 745,321 $ 24,078 $ 770,055 $ 8,204 $ 41,573 Loans, net of unearned income..................... 960,672 850,463 469,934 2,281,069 8,391,384 2,651,579 Allowance for losses on loans...................... (21,244) (14,500) (6,960) (42,704) (131,571) (49,797) ---------- ---------- -------- ---------- ----------- ---------- Net loans............. 939,428 835,963 462,974 2,238,365 8,259,813 2,601,782 Investment securities........ 128,543 -- 137,978 266,521 3,666,746 395,550 Intangible assets............ 269,247 282,770 79,392 631,409 326,825 15,274 Cash and cash equivalents(1)............. (34,071) 12,565 (956) (22,462) 1,810,613 338,978 Other real estate, net....... 1,418 -- 476 1,894 10,140 11,990 Premises and equipment....... 47,888 23,047 12,492 83,427 213,191 64,734 Other assets................. 28,989 3,753 21,328 54,070 271,429 122,418 ---------- ---------- -------- ---------- ----------- ---------- TOTAL ASSETS.......... $1,382,098 $1,903,419 $737,762 $4,023,279 $14,566,961 $3,592,299 ========== ========== ======== ========== =========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits..................... $1,318,405 $1,697,690 $633,128 $3,649,223 $11,843,051 $2,392,854 Other interest-bearing liabilities................ 49,526 197,964 14,625 262,115 1,457,471 571,774 Other liabilities............ 14,167 7,765 11,629 33,561 139,583 327,940 Shareholders' equity......... -- -- 78,380 78,380 1,126,856 299,731 ---------- ---------- -------- ---------- ----------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $1,382,098 $1,903,419 $737,762 $4,023,279 $14,566,961 $3,592,299 ========== ========== ======== ========== =========== ==========
- --------------- (1) Cash paid for acquisitions has been netted with cash and cash equivalents. 32 33 TABLE 4. AVERAGE BALANCE SHEET AND AVERAGE INTEREST RATES
YEARS ENDED DECEMBER 31, --------------------------------------------------------------------- 1999 1998 --------------------------------- --------------------------------- INTEREST FTE INTEREST FTE AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ BALANCE EXPENSE RATE BALANCE EXPENSE RATE ----------- ---------- ------ ----------- ---------- ------ (DOLLARS IN THOUSANDS) ASSETS Interest-bearing deposits at financial institutions..... $ 67,831 $ 2,763 4.07% $ 36,131 $ 1,807 5.00% Federal funds sold and securities purchased under agreements to resell....... 82,098 4,014 4.89 327,630 18,823 5.75 Trading account assets....... 247,181 15,970 6.46 223,122 14,197 6.36 Investment securities(1)(2) Taxable securities......... 6,817,453 421,162 6.18 6,102,670 373,934 6.13 Tax-exempt securities...... 1,320,134 102,438 7.76 1,114,510 94,352 8.47 ----------- ---------- ----------- ---------- Total investment securities........... 8,137,587 523,600 6.43 7,217,180 468,286 6.49 Loans, net of unearned income(1)(3)(4)............ 21,141,576 1,789,563 8.46 20,498,773 1,848,569 9.02 ----------- ---------- ----------- ---------- TOTAL EARNING ASSETS(1)(2)(3)(4)... 29,676,273 2,335,910 7.87 28,302,836 2,351,682 8.31 Cash and due from banks...... 1,018,264 951,819 Premises and equipment....... 605,512 544,024 Allowance for losses on loans...................... (353,198) (334,304) Goodwill and other intangibles................ 783,709 282,733 Other assets................. 1,171,810 997,218 ----------- ----------- TOTAL ASSETS........... $32,902,370 $30,744,326 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Money market accounts........ $ 4,225,158 $ 125,182 2.96% $ 3,128,028 $ 122,081 3.90% Savings deposits............. 4,730,703 95,586 2.02 4,524,807 96,061 2.12 Certificates of deposit of $100,000 and over.......... 2,274,323 118,760 5.22 2,810,295 163,415 5.81 Other time deposits.......... 9,481,751 471,883 4.98 9,525,197 514,505 5.40 Short-term borrowings Federal funds purchased and securities sold under agreements to repurchase............... 1,980,674 91,459 4.62 1,454,025 75,191 5.17 Short-term senior notes.... -- -- -- -- -- -- Other...................... 929,335 50,477 5.43 62,471 4,224 6.76 Long-term debt Federal Home Loan Bank advances................. 301,773 15,631 5.18 907,689 47,979 5.29 Subordinated capital notes.................... 478,369 31,103 6.50 419,789 28,249 6.73 Medium-term senior notes... 91,356 6,160 6.74 123,986 8,252 6.66 Trust Preferred Securities............... 199,027 16,511 8.30 198,991 16,511 8.30 Other...................... 234,668 18,649 7.95 352,541 30,680 8.70 ----------- ---------- ----------- ---------- TOTAL INTEREST-BEARING LIABILITIES.......... 24,927,137 1,041,401 4.18 23,507,819 1,107,148 4.71 Noninterest-bearing demand deposits................... 4,315,708 -- 3,594,978 -- ----------- ---------- ----------- ---------- TOTAL SOURCES OF FUNDS................ 29,242,845 1,041,401 27,102,797 1,107,148 Other liabilities............ 678,861 709,826 Shareholders' equity Preferred stock............ 22,318 32,331 Common equity.............. 2,958,346 2,899,372 ----------- ----------- TOTAL SHAREHOLDERS' EQUITY............... 2,980,664 2,931,703 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $32,902,370 $30,744,326 =========== =========== NET INTEREST INCOME(1)....... $1,294,509 $1,244,534 ========== ========== NET INTEREST SPREAD(1)....... 3.69% 3.60% ==== ==== NET INTEREST MARGIN(1)....... 4.36% 4.40% ==== ==== TAXABLE-EQUIVALENT ADJUSTMENTS Loans...................... $ 5,078 $ 6,144 Investment securities...... 32,900 31,157 ---------- ---------- Total.................. $ 37,978 $ 37,301 ========== ========== YEARS ENDED DECEMBER 31, ----------------------------------- 1997 ----------------------------------- INTEREST FTE AVERAGE INCOME/ YIELD/ BALANCE EXPENSE RATE ----------- ---------- -------- (DOLLARS IN THOUSANDS) ASSETS Interest-bearing deposits at financial institutions..... $ 63,671 $ 3,207 5.04% Federal funds sold and securities purchased under agreements to resell....... 340,231 19,149 5.63 Trading account assets....... 204,765 14,956 7.30 Investment securities(1)(2) Taxable securities......... 5,336,847 348,247 6.53 Tax-exempt securities...... 937,539 76,733 8.18 ----------- ---------- Total investment securities........... 6,274,386 424,980 6.77 Loans, net of unearned income(1)(3)(4)............ 19,992,626 1,830,965 9.16 ----------- ---------- TOTAL EARNING ASSETS(1)(2)(3)(4)... 26,875,679 2,293,257 8.53 Cash and due from banks...... 926,586 Premises and equipment....... 514,306 Allowance for losses on loans...................... (284,131) Goodwill and other intangibles................ 183,714 Other assets................. 972,651 ----------- TOTAL ASSETS........... $29,188,805 =========== LIABILITIES AND SHAREHOLDERS' EQUITY Money market accounts........ $ 2,908,405 $ 106,066 3.65% Savings deposits............. 4,201,403 97,825 2.33 Certificates of deposit of $100,000 and over.......... 2,545,210 145,357 5.71 Other time deposits.......... 9,239,875 504,673 5.46 Short-term borrowings Federal funds purchased and securities sold under agreements to repurchase............... 1,392,670 70,517 5.06 Short-term senior notes.... 119,493 6,973 5.84 Other...................... 214,475 11,263 5.25 Long-term debt Federal Home Loan Bank advances................. 1,011,275 60,972 6.03 Subordinated capital notes.................... 197,569 14,229 7.20 Medium-term senior notes... 135,000 8,943 6.62 Trust Preferred Securities............... 198,956 16,511 8.30 Other...................... 272,511 21,257 7.80 ----------- ---------- TOTAL INTEREST-BEARING LIABILITIES.......... 22,436,842 1,064,586 4.74 Noninterest-bearing demand deposits................... 3,328,821 -- ----------- ---------- TOTAL SOURCES OF FUNDS................ 25,765,663 1,064,586 Other liabilities............ 667,933 Shareholders' equity Preferred stock............ 66,188 Common equity.............. 2,689,021 ----------- TOTAL SHAREHOLDERS' EQUITY............... 2,755,209 ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $29,188,805 =========== NET INTEREST INCOME(1)....... $1,228,671 ========== NET INTEREST SPREAD(1)....... 3.79% ==== NET INTEREST MARGIN(1)....... 4.57% ==== TAXABLE-EQUIVALENT ADJUSTMENTS Loans...................... $ 5,160 Investment securities...... 23,612 ---------- Total.................. $ 28,772 ==========
- --------------- (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 gains (losses) on available for sale securities. (3) Includes loan fees in both interest income and the calculation of the yield on income. (4) Includes loans on nonaccrual status. 33 34 TABLE 5. ANALYSIS OF VOLUME AND RATE CHANGES
1999 VERSUS 1998 1998 VERSUS 1997 --------------------------------- -------------------------------- 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) INTEREST INCOME Interest-bearing deposits at financial institutions............. $ 1,342 $ (386) $ 956 $ (1,377) $ (23) $(1,400) Federal funds sold and securities purchased under agreements to resell............................. (12,354) (2,455) (14,809) (719) 393 (326) Trading account assets............... 1,551 222 1,773 1,270 (2,029) (759) Investment securities -- FTE......... 59,253 (3,939) 55,314 61,760 (18,454) 43,306 Loans, net of unearned income -- FTE...................... 56,765 (115,771) (59,006) 45,912 (28,308) 17,604 -------- --------- -------- -------- -------- ------- TOTAL INTEREST INCOME......... 106,557 (122,329) (15,772) 106,846 (48,421) 58,425 -------- --------- -------- -------- -------- ------- INTEREST EXPENSE Money market accounts................ 36,705 (33,604) 3,101 8,300 7,715 16,015 Savings deposits..................... 4,269 (4,744) (475) 7,221 (8,985) (1,764) Certificates of deposit of $100,000 and over........................... (29,095) (15,560) (44,655) 15,373 2,685 18,058 Other time deposits.................. (2,337) (40,285) (42,622) 15,457 (5,625) 9,832 Short-term borrowings................ 68,317 (5,796) 62,521 (10,978) 1,640 (9,338) Long-term debt....................... (39,489) (4,128) (43,617) 14,655 (4,896) 9,759 -------- --------- -------- -------- -------- ------- TOTAL INTEREST EXPENSE........ 38,370 (104,117) (65,747) 50,028 (7,466) 42,562 -------- --------- -------- -------- -------- ------- CHANGE IN NET INTEREST INCOME -- FTE... $ 68,187 $ (18,212) $ 49,975 $ 56,818 $(40,955) $15,863 ======== ========= ======== ======== ======== ======= PERCENTAGE INCREASE IN NET INTEREST INCOME (FTE) OVER PRIOR PERIOD....... 4.02% 1.29% ======== =======
- --------------- 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. 34 35 TABLE 6. AVERAGE DEPOSITS (1)
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Noninterest-bearing demand.............. $ 4,315,708 $ 3,594,978 $ 3,328,821 $ 3,085,490 $ 2,900,790 Money market(2)......................... 4,225,158 3,128,028 2,908,405 2,876,970 2,674,304 Savings(3).............................. 4,730,703 4,524,807 4,201,403 3,980,936 3,901,681 Other time(4)........................... 9,481,751 9,525,197 9,239,875 8,977,580 8,445,621 ----------- ----------- ----------- ----------- ----------- TOTAL AVERAGE CORE DEPOSITS.... 22,753,320 20,773,010 19,678,504 18,920,976 17,922,396 Certificates of deposit of $100,000 and over.................................. 2,274,323 2,810,295 2,545,210 2,123,133 1,724,245 ----------- ----------- ----------- ----------- ----------- TOTAL AVERAGE DEPOSITS......... $25,027,643 $23,583,305 $22,223,714 $21,044,109 $19,646,641 =========== =========== =========== =========== ===========
- --------------- (1) Table 4 presents the average rate paid on the above deposit categories for the three years in the period ended December 31, 1999. (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
DECEMBER 31, ------------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Commercial, financial, and agricultural.......................... $ 4,799,840 $ 3,543,925 $ 3,397,348 $ 3,078,268 $ 2,993,409 Foreign................................. 374,814 197,120 208,081 145,483 127,623 Accounts receivable -- factoring........ 555,128 615,952 579,067 452,522 319,487 Real estate -- construction............. 1,581,164 1,195,779 1,074,279 865,031 768,872 Real estate -- mortgage Secured by 1-4 family residential..... 5,554,943 5,647,520 5,704,490 5,531,747 5,183,332 FHA/VA government-insured/guaranteed.. 519,213 759,911 1,331,993 1,569,027 1,006,397 Other mortgage........................ 4,591,110 4,386,182 4,226,944 3,455,693 2,938,334 Home equity............................. 584,546 482,665 452,870 365,945 328,961 Consumer Credit cards and related plans........ 82,998 96,091 617,113 700,584 490,919 Other consumer........................ 2,752,016 2,622,402 2,685,845 2,631,352 2,452,983 Direct lease financing.................. 78,726 63,621 66,039 75,218 77,333 ----------- ----------- ----------- ----------- ----------- TOTAL LOANS.................... 21,474,498 19,611,168 20,344,069 18,870,870 16,687,650 Less: Unearned income................... (28,098) (34,342) (41,100) (59,429) (73,619) ----------- ----------- ----------- ----------- ----------- TOTAL LOANS, NET OF UNEARNED INCOME....................... $21,446,400 $19,576,826 $20,302,969 $18,811,441 $16,614,031 =========== =========== =========== =========== ===========
35 36 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
DECEMBER 31, ----------------------------------------------------------------------------------- 1999 1998 1997 1996 ---------------------- ---------------------- ---------------------- -------- 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) Commercial, financial, and agricultural....... $ 97,328 26% $ 86,275 22% $ 77,618 21% $ 59,372 Foreign.............. 5,525 2 3,500 1 3,150 1 1,300 Real estate -- construction....... 36,720 8 19,672 6 14,079 6 10,092 Real estate -- mortgage........... 136,287 48 160,728 54 129,573 52 119,878 Consumer............. 64,770 16 50,043 17 99,129 20 78,806 Direct lease financing.......... 1,670 -- 1,258 -- 925 -- 991 -------- --- -------- --- -------- --- -------- Total........ $342,300 100% $321,476 100% $324,474 100% $270,439 ======== === ======== === ======== === ======== DECEMBER 31, ------------------------------------ 1996 1995 ----------- ---------------------- PERCENTAGE PERCENTAGE OF LOANS TO OF LOANS TO TOTAL LOANS AMOUNT TOTAL LOANS ----------- -------- ----------- (DOLLARS IN THOUSANDS) Commercial, financial, and agricultural....... 21% $ 69,236 21% Foreign.............. 1 1,400 1 Real estate -- construction....... 5 11,755 5 Real estate -- mortgage........... 52 101,750 52 Consumer............. 21 69,767 21 Direct lease financing.......... -- 1,195 -- --- -------- --- Total........ 100% $255,103 100% === ======== ===
- --------------- 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. FHA/VA government-insured/guaranteed loans are excluded from the loan percentage calculation. TABLE 9. NONACCRUAL, RESTRUCTURED, AND PAST DUE LOANS AND FORECLOSED PROPERTIES
DECEMBER 31, ---------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Nonaccrual loans(1) Domestic.................................................. $127,080 $150,378 $138,800 $118,791 $106,601 Foreign................................................... 686 -- 96 96 2,072 Restructured loans.......................................... 1,878 5,612 15,250 17,097 14,656 -------- -------- -------- -------- -------- TOTAL NONPERFORMING LOANS........................... 129,644 155,990 154,146 135,984 123,329 -------- -------- -------- -------- -------- Foreclosed properties Other real estate, net.................................... 35,943 23,937 31,914 40,680 35,598 Other foreclosed properties............................... 1,921 2,670 5,062 2,167 2,823 -------- -------- -------- -------- -------- TOTAL FORECLOSED PROPERTIES......................... 37,864 26,607 36,976 42,847 38,421 -------- -------- -------- -------- -------- TOTAL NONPERFORMING ASSETS.......................... $167,508 $182,597 $191,122 $178,831 $161,750 ======== ======== ======== ======== ======== LOANS PAST DUE 90 DAYS OR MORE AND STILL ACCRUING INTEREST.................................................. $ 92,834 $ 48,626 $ 51,128 $ 45,467 $ 34,540 ======== ======== ======== ======== ======== FHA/VA GOVERNMENT-INSURED/GUARANTEED LOANS Loans past due 90 days or more and still accruing interest................................................ $240,799 $355,124 $517,124 $724,691 $558,038 Nonaccrual................................................ 6,613 9,232 14,933 77 404
- --------------- (1) In the third quarter of 1999, Union Planters changed its policy related to placing single family residential mortgage loans on nonaccrual status to conform to industry practice. Previously, single family residential mortgage loans were automatically placed on nonaccrual status after they became past due 90 days or more. Prospectively, these loans are being placed on nonaccrual status if the loan is not in the process of collection or is not well secured. The impact of this change was to reduce single family residential mortgage loans on nonaccrual status approximately $50 million with loans past due 90 days or more and still accruing interest increasing by a corresponding amount. Prior period amounts do not reflect this change. 36 37 TABLE 10. ALLOWANCE FOR LOSSES ON LOANS
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) BALANCE AT BEGINNING OF PERIOD.......... $ 321,476 $ 324,474 $ 270,439 $ 255,103 $ 248,482 LOANS CHARGED OFF Commercial, financial, and agricultural........................ 67,649 65,815 41,881 24,045 21,540 Foreign............................... 459 1,831 -- 3,391 743 Real estate -- construction........... 3,330 3,714 400 765 529 Real estate -- mortgage............... 28,076 28,654 10,618 10,245 12,881 Consumer.............................. 45,089 64,435 35,425 30,081 20,196 Credit cards and related plans........ 4,158 50,723 52,177 30,542 15,082 Direct lease financing................ 396 125 30 48 52 ----------- ----------- ----------- ----------- ----------- Total charge-offs.............. 149,157 215,297 140,531 99,117 71,023 ----------- ----------- ----------- ----------- ----------- RECOVERIES ON LOANS PREVIOUSLY CHARGED OFF Commercial, financial, and agricultural........................ 23,266 8,931 8,259 8,569 9,263 Foreign............................... 77 20 10 -- 1,632 Real estate -- construction........... 670 310 546 64 557 Real estate -- mortgage............... 7,639 5,825 3,620 3,555 4,449 Consumer.............................. 18,805 9,812 4,916 7,350 6,374 Credit cards and related plans........ 2,278 4,113 6,903 2,209 1,122 Direct lease financing................ 126 5 27 4 52 ----------- ----------- ----------- ----------- ----------- Total recoveries............... 52,861 29,016 24,281 21,751 23,449 ----------- ----------- ----------- ----------- ----------- Net charge-offs......................... (96,296) (186,281) (116,250) (77,366) (47,574) Provisions charged to expense........... 74,045 204,056 153,100 86,381 50,696 Allowance related to the sale of certain loans................................. -- (36,693) -- (1,628) -- Increase due to acquisitions............ 43,075 15,920 17,185 7,949 3,499 ----------- ----------- ----------- ----------- ----------- BALANCE AT END OF PERIOD................ $ 342,300 $ 321,476 $ 324,474 $ 270,439 $ 255,103 =========== =========== =========== =========== =========== Total loans, net of unearned income, at end of period......................... $21,446,400 $19,576,826 $20,302,969 $18,811,441 $16,614,031 Less: FHA/VA government- insured/guaranteed loans.............. 519,213 759,911 1,331,993 1,569,027 1,006,397 ----------- ----------- ----------- ----------- ----------- LOANS USED TO CALCULATE RATIOS........ $20,927,187 $18,816,915 $18,970,976 $17,242,414 $15,607,634 =========== =========== =========== =========== =========== Average total loans, net of unearned income, during period................. $21,141,576 $20,498,773 $19,992,626 $17,888,375 $16,162,983 Less: Average FHA/VA government- insured/guaranteed loans.............. 597,944 958,921 1,500,120 1,300,065 881,082 ----------- ----------- ----------- ----------- ----------- AVERAGE LOANS USED TO CALCULATE RATIOS.............................. $20,543,632 $19,539,852 $18,492,506 $16,588,310 $15,281,901 =========== =========== =========== =========== =========== CREDIT QUALITY RATIOS(1) Allowance for losses on loans/loans, net of unearned income.............. 1.64% 1.71% 1.71% 1.57% 1.63% Allowance for losses on loans/average loans, net of unearned income....... 1.67 1.65 1.75 1.63 1.67 Allowance for losses on loans/nonperforming loans........... 264 206 210 199 207 Net charge-offs/average loans, net of unearned income..................... .47 .95 .63 .47 .31 Provision for losses on loans/average loans, net of unearned income....... .36 1.04 .83 .52 .33 Nonperforming loans/loans............. .62 .83 .81 .79 .79 Nonperforming assets/loans plus foreclosed properties............... .80 .97 1.01 1.03 1.03 Loans past due 90 days or more and still accruing interest/loans....... .44 .26 .27 .26 .22
- --------------- (1) Ratio calculations exclude FHA/VA government-insured/guaranteed loans since they represent minimal credit risk to Union Planters. See the "Loans" discussion on page 23 for additional information regarding the FHA/VA government-insured/guaranteed loans and Table 9 for the detail of nonperforming assets. 37 38 TABLE 11. RATE SENSITIVITY ANALYSIS AT DECEMBER 31, 1999
INTEREST-SENSITIVE WITHIN(1)(7) ------------------------------------------------------------------------------------------ 0-90 91-180 181-366 1-3 3-5 5-15 OVER NONINTEREST- DAYS DAYS DAYS YEARS YEARS YEARS 15 YEARS BEARING TOTAL ------- ------- ------- ------ ------ ------ -------- ------------ ------- (DOLLARS IN MILLIONS) ASSETS Loans and leases(2)(3)(4)........ $ 7,330 $ 1,770 $ 2,696 $5,722 $2,808 $ 671 $ 35 $ 442 $21,474 Investment securities(5)(6)....... 494 212 367 1,601 1,766 2,941 304 (213) 7,472 Other earning assets..... 791 56 21 3 -- -- -- -- 871 Other assets............. -- -- -- -- -- -- -- 3,463 3,463 ------- ------- ------- ------ ------ ------ ------ ------- ------- TOTAL ASSETS....... $ 8,615 $ 2,038 $ 3,084 $7,326 $4,574 $3,612 $ 339 $ 3,692 $33,280 ======= ======= ======= ====== ====== ====== ====== ======= ======= SOURCES OF FUNDS Money market deposits(7)(8)......... $ 1,527 $ -- $ 1,527 $1,849 $ -- $ -- $ -- $ -- $ 4,903 Savings deposits(7)(8)... 1,283 -- -- 1,283 -- 1,323 -- -- 3,889 Other time deposits...... 2,392 2,121 2,351 1,427 249 39 3 -- 8,582 Certificates of deposit of $100,000 and over... 676 437 564 247 36 3 -- -- 1,963 Short-term borrowings.... 5,419 1 2 -- -- -- -- -- 5,422 Short and medium-term bank notes............. -- -- -- 60 -- -- -- -- 60 Federal Home Loan Bank advances............... 200 -- 1 1 -- 1 -- -- 203 Other long-term debt..... 176 1 1 2 75 401 199 -- 855 Noninterest-bearing deposits............... -- -- -- -- -- -- -- 4,035 4,035 Other liabilities........ -- -- -- -- -- -- -- 592 592 Shareholders' equity..... -- -- -- -- -- -- -- 2,776 2,776 ------- ------- ------- ------ ------ ------ ------ ------- ------- TOTAL SOURCES OF FUNDS............ $11,673 $ 2,560 $ 4,446 $4,869 $ 360 $1,767 $ 202 $ 7,403 $33,280 ======= ======= ======= ====== ====== ====== ====== ======= ======= INTEREST-RATE SENSITIVITY GAP...................... $(3,058) $ (522) $(1,362) $2,457 $4,214 $1,845 $ 137 $(3,711) CUMULATIVE INTEREST RATE SENSITIVITY GAP(8)....... (3,058) (3,580) (4,942) (2,485) 1,729 3,574 3,711 -- CUMULATIVE GAP AS A PERCENTAGE OF TOTAL ASSETS(8)................ (9)% (11)% (15)% (7)% 5% 11% 11% --% POLICY GUIDELINES.......... none 15% 10% 5% >0% >0% >0%
- --------------- 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 consensus prepayment schedules. (6) Securities are generally scheduled according to their call dates when valued at a premium to par. (7) Money market deposits and savings deposits that have no contractual maturities are scheduled according to management's best estimate of their repricing in response to changes in market rates. The impact of changes in market rates would be expected to vary by product type and market. (8) If all money market and savings deposits had been included in the 0-90 Days category, the cumulative gap as a percentage of total assets would have been negative (27%), (29%), (28%) and (11%) for the 0-90 Days, 91-180 Days, 181-366 Days, and 1-3 Years categories and positive 1%, 11%, and 11%, respectively, for the 3-5 Years, 5-15 Years, and over 15 Years categories at December 31, 1999. 38 39 TABLE 12. INVESTMENT SECURITIES AND OTHER EARNING ASSETS
DECEMBER 31, ------------------------------------ 1999 1998 1997 ---------- ---------- ---------- (DOLLARS IN THOUSANDS) U.S. Government obligations U.S. Treasury............................................. $ 164,543 $ 396,287 $1,160,451 U.S. Government agencies.................................. 4,016,038 4,842,792 3,752,796 ---------- ---------- ---------- Total U.S. Government obligations.................. 4,180,581 5,239,079 4,913,247 Obligations of states and political subdivisions............ 1,273,145 1,345,666 1,033,944 Other investment securities................................. 2,018,729 1,716,958 467,006 ---------- ---------- ---------- Total investment securities........................ 7,472,455 8,301,703 6,414,197 Interest-bearing deposits at financial institutions......... 73,062 47,583 38,128 Federal funds sold and securities purchased under agreements to resell................................................. 51,117 94,568 265,890 Trading account assets...................................... 315,734 275,992 187,419 Loans held for resale....................................... 430,690 441,214 175,699 ---------- ---------- ---------- Total investment securities and other earning assets........................................... $8,343,058 $9,161,060 $7,081,333 ========== ========== ==========
TABLE 13. RISK-BASED CAPITAL
DECEMBER 31, --------------------------------------- 1999 1998 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) TIER 1 CAPITAL Shareholders' equity...................................... $ 2,776,109 $ 2,984,078 $ 2,874,473 Trust Preferred Securities and minority interest in consolidated subsidiaries............................... 202,232 202,197 214,360 Less: Goodwill and other intangibles...................... (971,770) (381,601) (186,894) Disallowed deferred tax asset........................ (1,053) (1,144) (1,651) Unrealized (gain) loss on available for sale securities........................................... 134,217 (57,245) (52,964) ----------- ----------- ----------- TOTAL TIER 1 CAPITAL............................... 2,139,735 2,746,285 2,847,324 TIER 2 CAPITAL Allowance for losses on loans............................. 282,149 258,173 247,518 Qualifying long-term debt................................. 445,590 461,110 174,232 Other adjustments......................................... -- 218 (71) ----------- ----------- ----------- TOTAL CAPITAL BEFORE DEDUCTIONS.................... 2,867,474 3,465,786 3,269,003 Less: investment in unconsolidated subsidiaries........... (10,289) (10,736) (10,628) ----------- ----------- ----------- TOTAL CAPITAL...................................... $ 2,857,185 $ 3,455,050 $ 3,258,375 =========== =========== =========== RISK-WEIGHTED ASSETS........................................ $22,511,772 $20,590,574 $19,879,568 =========== =========== =========== RATIOS Shareholders' equity/total assets......................... 8.34% 9.42% 9.59% Leverage ratio(1)......................................... 6.65 8.86 9.62 Tier 1 capital/risk-weighted assets(1).................... 9.50 13.34 14.32 Total capital/risk-weighted assets(1)..................... 12.69 16.78 16.39
- --------------- (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, 1999, all of Union Planters' banking subsidiaries were considered "well capitalized" for purposes of FDIC deposit insurance assessments. See Note 12 to the financial statements on page 59 for a comparison of Union Planters' capital levels and ratios to the regulatory minimums for "adequately capitalized" and "well capitalized." 39 40 TABLE 14. SELECTED QUARTERLY DATA
1999 QUARTERS ENDED(1) ------------------------------------------------------------------------ MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL ----------- ----------- ------------ ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Net interest income........... $ 295,697 $ 311,589 $ 328,229 $ 321,016 $ 1,256,531 Provision for losses on loans....................... (16,279) (17,740) (20,365) (19,661) (74,045) Investment securities gains (losses).............. 11 3,181 (1,224) 160 2,128 Noninterest income............ 126,243 137,535 124,306 122,498 510,582 Noninterest expense........... (258,239) (275,009) (265,999) (277,117) (1,076,364) ----------- ----------- ----------- ----------- ----------- Earnings before income taxes....................... 147,433 159,556 164,947 146,896 618,832 Income taxes.................. (50,083) (53,792) (55,413) (49,546) (208,834) ----------- ----------- ----------- ----------- ----------- Net earnings.................. $ 97,350 $ 105,764 $ 109,534 $ 97,350 $ 409,998 =========== =========== =========== =========== =========== PER COMMON SHARE DATA Net earnings................ Basic..................... $ .68 $ .74 $ .77 $ .69 $ 2.88 Diluted................... .67 .73 .76 .69 2.85 Dividends(2)................ .50 .50 .50 .50 2.00 UPC COMMON STOCK DATA(3) High trading price.......... $ 48.75 $ 45.31 $ 49.00 $ 46.06 $ 49.00 Low trading price........... 43.00 40.31 39.19 38.56 38.56 Closing price at quarter end....................... 43.94 44.69 40.75 39.44 39.44 Trading volume (in thousands)(4)............. 17,337 18,209 18,485 17,291 71,322 KEY FINANCIAL DATA Return on average assets.... 1.22% 1.29% 1.31% 1.17% 1.25% Return on average common equity.................... 13.39 14.19 14.43 13.16 13.80 Expense ratio(5)............ 1.61 1.64 1.53 1.66 1.61 Efficiency ratio(6)......... 58.13 58.46 54.36 57.63 57.14 Shareholders' equity/total assets (period end)....... 9.04 9.22 8.90 8.34 8.34 Average earning assets...... $29,336,591 $29,637,625 $29,867,142 $29,855,930 $29,676,273 Interest income -- FTE...... 564,031 574,907 597,805 599,167 2,335,910 Yield on average earning assets -- FTE............. 7.80% 7.78% 7.94% 7.96% 7.87% Average interest-bearing liabilities............... $24,427,846 $24,819,027 $25,144,226 $25,305,421 $24,927,137 Total interest expense...... 258,888 253,712 259,973 268,828 1,041,401 Rate on average interest- bearing liabilities....... 4.30% 4.10% 4.10% 4.21% 4.18% Net interest income -- FTE............. $ 305,143 $ 321,195 $ 337,832 $ 330,339 $ 1,294,509 Net interest margin -- FTE............. 4.22% 4.35% 4.49% 4.39% 4.36% Net interest spread -- FTE............. 3.50% 3.68% 3.84% 3.75% 3.69%
40 41 TABLE 14. SELECTED QUARTERLY DATA -- (CONTINUED)
1998 QUARTERS ENDED(1) ------------------------------------------------------------------------ MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL ----------- ----------- ------------ ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 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 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(2).............. .50 .50 .50 .50 2.00 UPC COMMON STOCK DATA(3) 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 at quarter end..................... 62.19 58.81 50.25 45.31 45.31 Trading volume (in thousands)(4)........... 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(5).......... 1.52 1.53 1.54 1.74 1.58 Efficiency ratio(6)....... 53.17 54.53 56.10 60.07 55.96 Shareholders' equity/total assets (period end)..... 9.60 9.38 9.59 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 Total 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% Net interest spread -- FTE........... 3.79% 3.66% 3.50% 3.46% 3.60%
- --------------- FTE -- Fully taxable-equivalent basis (1) Certain quarterly amounts have been reclassified to conform to current financial reporting presentation. (2) See Note 12 to the financial statements on page 59 for a description of dividend restrictions. (3) Union Planters 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 35,200 registered holders of Union Planters common stock as of December 31, 1999. (4) Trading volume represents total volume for the period shown as reported by NYSE. (5) 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. (6) 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. 41 42 UNION PLANTERS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
DECEMBER 31, -------------------------- 1999 1998 ----------- ----------- (DOLLARS IN THOUSANDS) ASSETS Cash and due from banks................................... $ 1,127,902 $ 1,271,614 Interest-bearing deposits at financial institutions....... 73,062 47,583 Federal funds sold and securities purchased under agreements to resell.................................... 51,117 94,568 Trading account assets.................................... 315,734 275,992 Loans held for resale..................................... 430,690 441,214 Available for sale investment securities (amortized cost: $7,685,096 and $8,208,570, respectively)................ 7,472,455 8,301,703 Loans..................................................... 21,474,498 19,611,168 Less: Unearned income................................... (28,098) (34,342) Allowance for losses on loans...................... (342,300) (321,476) ----------- ----------- Net loans.......................................... 21,104,100 19,255,350 Premises and equipment, net............................... 637,628 553,251 Accrued interest receivable............................... 287,231 293,066 FHA/VA claims receivable.................................. 108,618 126,164 Mortgage servicing rights................................. 122,110 101,466 Goodwill and other intangibles............................ 975,432 386,994 Other assets.............................................. 574,274 542,988 ----------- ----------- TOTAL ASSETS....................................... $33,280,353 $31,691,953 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest-bearing..................................... $ 4,035,189 $ 4,194,402 Certificates of deposit of $100,000 and over............ 1,963,347 2,614,694 Other interest-bearing.................................. 17,373,580 18,087,359 ----------- ----------- Total deposits..................................... 23,372,116 24,896,455 Short-term borrowings..................................... 5,422,504 1,648,039 Short-and medium-term senior notes........................ 60,000 105,000 Federal Home Loan Bank advances........................... 203,032 279,992 Other long-term debt...................................... 854,738 1,053,740 Accrued interest, expenses, and taxes..................... 202,303 278,237 Other liabilities......................................... 389,551 446,412 ----------- ----------- TOTAL LIABILITIES.................................. 30,504,244 28,707,875 ----------- ----------- Commitments and contingent liabilities (Notes 14, 17, and 20)..................................................... -- -- Shareholders' equity Convertible preferred stock............................. 20,875 23,353 Common stock, $5 par value; 300,000,000 shares authorized; 138,487,381 issued and outstanding (141,924,958 in 1998).................................. 692,437 709,625 Additional paid-in capital.............................. 755,306 691,789 Retained earnings....................................... 1,453,468 1,516,712 Unearned compensation................................... (11,760) (14,646) Accumulated other comprehensive income -- unrealized gain (loss) on available for sale securities, net...... (134,217) 57,245 ----------- ----------- TOTAL SHAREHOLDERS' EQUITY......................... 2,776,109 2,984,078 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... $33,280,353 $31,691,953 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 42 43 UNION PLANTERS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS
YEARS ENDED DECEMBER 31, ----------------------------------------------- 1999 1998 1997 ------------- ------------- ------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INTEREST INCOME Interest and fees on loans.............................. $ 1,760,250 $ 1,828,340 $ 1,817,748 Interest on investment securities Taxable............................................... 421,162 373,934 348,247 Tax-exempt............................................ 69,538 63,195 53,121 Interest on deposits at financial institutions.......... 2,763 1,807 3,207 Interest on federal funds sold and securities purchased under agreements to resell............................ 4,014 18,823 19,149 Interest on trading account securities.................. 15,970 14,197 14,956 Interest on loans held for resale....................... 24,235 14,085 8,057 ------------ ------------ ------------ Total interest income............................ 2,297,932 2,314,381 2,264,485 ------------ ------------ ------------ INTEREST EXPENSE Interest on deposits.................................... 811,411 896,062 853,921 Interest on short-term borrowings....................... 141,936 79,415 88,753 Interest on long-term debt.............................. 88,054 131,671 121,912 ------------ ------------ ------------ Total interest expense........................... 1,041,401 1,107,148 1,064,586 ------------ ------------ ------------ NET INTEREST INCOME.............................. 1,256,531 1,207,233 1,199,899 PROVISION FOR LOSSES ON LOANS............................. 74,045 204,056 153,100 ------------ ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR LOSSES ON LOANS.......................................... 1,182,486 1,003,177 1,046,799 ------------ ------------ ------------ NONINTEREST INCOME Service charges on deposit accounts..................... 170,052 156,445 157,256 Mortgage banking revenues............................... 96,785 89,965 80,658 Bank card income........................................ 26,880 38,562 39,497 Factoring commissions................................... 29,504 30,630 30,140 Trust service income.................................... 23,920 24,116 24,029 Profits and commissions from trading activities......... 4,321 5,402 7,323 Investment securities gains (losses).................... 2,128 (9,074) 4,888 Other income............................................ 159,120 232,713 126,960 ------------ ------------ ------------ Total noninterest income......................... 512,710 568,759 470,751 ------------ ------------ ------------ NONINTEREST EXPENSE Salaries and employee benefits.......................... 502,279 479,765 440,511 Net occupancy expense................................... 88,122 75,974 74,750 Equipment expense....................................... 81,720 72,718 62,736 Goodwill and other intangible amortization.............. 56,388 29,333 21,386 Other expense........................................... 347,855 542,224 402,318 ------------ ------------ ------------ Total noninterest expense........................ 1,076,364 1,200,014 1,001,701 ------------ ------------ ------------ EARNINGS BEFORE INCOME TAXES..................... 618,832 371,922 515,849 Income taxes.............................................. 208,834 146,316 176,014 ------------ ------------ ------------ NET EARNINGS..................................... $ 409,998 $ 225,606 $ 339,835 ============ ============ ============ NET EARNINGS APPLICABLE TO COMMON SHARES......... $ 408,240 $ 223,532 $ 334,893 ============ ============ ============ EARNINGS PER COMMON SHARE Basic................................................... $ 2.88 $ 1.61 $ 2.53 Diluted................................................. 2.85 1.58 2.47 AVERAGE COMMON SHARES OUTSTANDING Basic................................................... 141,854,254 139,034,412 132,451,476 Diluted................................................. 143,982,511 142,692,842 138,219,919
The accompanying notes are an integral part of these consolidated financial statements. 43 44 UNION PLANTERS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
UNREALIZED GAIN (LOSS) ADDITIONAL ON AVAILABLE PREFERRED COMMON PAID-IN RETAINED UNEARNED FOR SALE STOCK STOCK CAPITAL EARNINGS COMPENSATION SECURITIES TOTAL --------- -------- ---------- ---------- ------------ ------------ ---------- (DOLLARS IN THOUSANDS) BALANCE, JANUARY 1, 1997............ $ 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.................. -- -- -- -- -- 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.................... -- 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 purchased and retired......................... -- (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.................. -- -- -- -- -- 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.................... -- 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 purchased and retired......................... -- (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 Comprehensive income Net earnings.................... -- -- -- 409,998 -- -- 409,998 Other comprehensive income, net of taxes Net change in net unrealized gain (loss) on available for sale securities............. -- -- -- -- -- (191,462) (191,462) ---------- Total comprehensive income.................... -- -- -- -- -- -- 218,536 Cash dividends Common stock, $2.00 per share... -- -- -- (284,965) -- -- (284,965) Preferred stock................. -- -- -- (1,758) -- -- (1,758) Common stock issued under employee benefit plans and dividend reinvestment plan, net of stock exchanged....................... -- 3,014 18,100 -- 2,886 -- 24,000 Issuance of stock for acquisitions.................... -- 7,024 71,340 4,120 -- -- 82,484 Conversion of preferred stock..... (2,478) 619 1,858 -- -- -- (1) Common stock purchased and retired......................... -- (29,103) (31,063) (190,639) -- -- (250,805) Conversion of debt of acquired entity.......................... -- 1,258 3,282 -- -- -- 4,540 -------- -------- --------- ---------- -------- --------- ---------- BALANCE, DECEMBER 31, 1999.......... $ 20,875 $692,437 $ 755,306 $1,453,468 $(11,760) $(134,217) $2,776,109 ======== ======== ========= ========== ======== ========= ==========
The accompanying notes are an integral part of these consolidated financial statements. 44 45 UNION PLANTERS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, --------------------------------------- 1999 1998 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) OPERATING ACTIVITIES Net earnings.............................................. $ 409,998 $ 225,606 $ 339,835 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............ 75,024 174,254 164,572 Depreciation and amortization of premises and equipment............................................. 69,625 63,424 56,609 Amortization and write-offs of intangibles.............. 76,182 53,772 41,276 Provisions for merger-related, charter consolidation, and other expenses.................................... -- 50,806 44,831 Net amortization (accretion) of investment securities... 6,153 5,969 (4,077) Net realized (gains) losses on sales of investment securities............................................ (2,128) 9,074 (4,888) Deferred income tax expense (benefit)................... 28,171 (33,476) (3,208) (Increase) decrease in assets Trading account assets and loans held for resale... (23,591) (354,088) 11,472 Other assets....................................... 130,967 (122,217) 15,290 Increase (decrease) in accrued interest, expenses, taxes, and other liabilities.......................... (167,926) 18,937 (38,544) Other, net.............................................. 6,872 9,631 (4,569) ----------- ----------- ----------- Net cash provided by operating activities.......... 609,347 101,692 618,599 ----------- ----------- ----------- INVESTING ACTIVITIES Net decrease in short-term investments.................... 744,576 14,989 242 Proceeds from sales of available for sale securities...... 1,171,870 1,497,976 1,423,237 Proceeds from maturities, calls, and prepayments of available for sale securities........................... 4,711,359 4,780,164 2,525,859 Purchases of available for sale securities................ (5,098,264) (7,974,518) (3,874,273) Net (increase) decrease in loans.......................... 281,349 1,418,766 (523,148) Net cash received from (paid for) acquired institutions... (45,302) 1,306,523 16,907 Purchases of premises and equipment, net.................. (67,407) (82,052) (73,558) Other, net................................................ -- -- (22,446) ----------- ----------- ----------- Net cash provided (used) by investing activities... 1,698,181 961,848 (527,180) ----------- ----------- ----------- FINANCING ACTIVITIES Net increase (decrease) in deposits....................... (5,173,562) (244,689) 324,896 Net increase (decrease) in short-term borrowings.......... 3,515,085 (189,827) (63,875) Proceeds from long-term debt, net......................... 186 671,200 484,072 Repayment of long-term debt............................... (320,301) (1,091,478) (550,753) Proceeds from issuance of common stock.................... 20,660 42,364 33,944 Purchase and retirement of common stock, including stock transactions of acquired entities prior to acquisition............................................. (250,805) (151,096) (42,814) Cash dividends paid....................................... (286,756) (256,871) (165,036) Other, net................................................ 802 -- (23,398) ----------- ----------- ----------- Net cash used by financing activities.............. (2,494,691) (1,220,397) (2,964) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents........ (187,163) (156,857) 88,455 Cash and cash equivalents at the beginning of the period.... 1,366,182 1,523,039 1,434,584 ----------- ----------- ----------- Cash and cash equivalents at the end of the period.......... $ 1,179,019 $ 1,366,182 $ 1,523,039 =========== =========== =========== SUPPLEMENTAL DISCLOSURES Cash paid for Interest................................................ $ 1,057,553 $ 1,102,454 $ 1,076,148 Taxes................................................... 169,612 183,979 194,039 Unrealized gain (loss) on available for sale securities... (212,641) 93,133 85,400
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. 45 46 UNION PLANTERS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS. Union Planters Corporation (Union Planters or the Company) is a multi-state bank holding company headquartered in Memphis, Tennessee. Union Planters operates three banking subsidiaries with 868 banking offices and 1,018 ATMs in Alabama, Arkansas, Florida, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, Tennessee, and Texas. At December 31, 1999, Union Planters had consolidated total assets of $33.3 billion, making it the 27th largest bank holding company based in the United States and the largest headquartered in Tennessee. Through its subsidiaries, Union Planters 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 Union Planters 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. Following are summaries of the more significant accounting policies of Union Planters. BASIS OF PRESENTATION. The consolidated financial statements include the accounts of Union Planters 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 1997 and 1998 amounts have been reclassified to conform with the 1999 financial reporting presentation. STATEMENT OF CASH FLOWS. Cash and cash equivalents include cash and due from banks and federal funds sold in the amounts of $51 million, $95 million, and $266 million at December 31, 1999, 1998, and 1997, respectively. Noncash transfers to foreclosed properties from loans for the years ended December 31, 1999, 1998, and 1997 were $42.7 million, $28.0 million, and $35.7 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 securities that Union Planters 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, 1999 and 1998, Union Planters had no securities classified as held to maturity. Debt and equity securities which Union Planters 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. LOANS HELD FOR RESALE. Loans held for resale include mortgage and other loans and are carried at the lower of cost or fair value on an aggregate basis. 46 47 NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 past due 90 days or more, unless the loan is both well-secured and in the process of collection. Reference is made to Note 5 for a description of a change in the application of the nonaccrual policy related to single family residential mortgages. Consumer loans are automatically charged-off when they become 120 days past due. In the interim, consumer loans are placed on nonaccrual status upon the occurrence of certain events, such as bankruptcy. FHA/VA government-insured/guaranteed loans which are past due 90 days or more are placed on nonaccrual status when interest claim reimbursements are likely to be denied due to missed filing dates in the foreclosure process. ALLOWANCE FOR LOSSES ON LOANS. The allowance for losses on loans represents management's best estimate of 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: reviews and evaluations of specific loans, changes in the nature and volume of the loan portfolio, 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, and the results of regulatory examinations. Loans are considered impaired if based on current information and events, it is probable that Union Planters will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. The measurement of impaired loans is generally based on the present value of expected future cash flows discounted at the historical effective interest rate, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral. 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 periods up to 15 years, are amortized over the estimated periods benefited. The remaining costs (goodwill) are generally amortized on a straight-line basis over periods up to 25 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. Union Planters has 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 related identifiable intangibles to be disposed of are reported at the lower of carrying amount or fair value, less selling costs. Union Planters has adopted this methodology for evaluating impairment of goodwill and other intangibles separate from any associated long-lived assets. In applying this methodology, Union Planters 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 47 48 NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) of the assets/business is also considered in evaluating the carrying value of the goodwill. MORTGAGE SERVICING RIGHTS. Mortgage servicing rights are accounted for under the provisions of SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which became effective January 1, 1997. SFAS No. 125 superseded SFAS No. 122, "Accounting for Mortgage Servicing Rights," but did not significantly change the methodology used to account for servicing rights. Union Planters had adopted SFAS No. 122 and at the time of adoption began capitalizing originated servicing rights. The adoption did not have a material impact on financial position or results of operations. Prior to that date, capitalization had been limited to purchased servicing. The servicing rights capitalized are amortized in proportion to and over the period of estimated servicing income. Management stratifies servicing rights based on origination period and interest rate and evaluates the recoverability in relation to the impact of actual and anticipated loan portfolio prepayment, foreclosure, and delinquency experience. Union Planters did not have a valuation allowance associated with the mortgage servicing rights portfolio as of December 31, 1999 or 1998. OTHER REAL ESTATE. Properties acquired through foreclosure and unused bank premises are stated at fair value, reduced by estimated selling costs. Write-downs of the foreclosed 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. Union Planters 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. Union Planters continues to apply 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. Union Planters files a consolidated Federal income tax return which includes all of its subsidiaries except for a credit life insurance company 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 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, 2001. The statement allows for early adoption but Union Planters 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 Union Planters' 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 Union Planters and the nature and purpose of the derivative instruments in use by management at that time. 48 49 NOTE 2. ACQUISITIONS POOLINGS OF INTERESTS. Union Planters consummated in the three-year period ended December 31, 1999 the following acquisitions which were accounted for as pooling of interests. The information below is as of the date of acquisition.
DATE COMMON ACQUIRED SHARES ISSUED TOTAL ASSETS TOTAL EQUITY -------- ------------- ------------ ------------ (DOLLARS IN MILLIONS) 1998 ACQUISITIONS Magna Group, Inc....................................... 7/1/98 33,398,818 $ 7,683 $ 643 Peoples First Corporation.............................. 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 Corp............................................ 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 ========== ======= ======
PURCHASE ACQUISITIONS. Union Planters consummated in the three-year period ended December 31, 1999, the following acquisitions that were accounted for as purchases.
DATE RESULTING INSTITUTION ACQUIRED CONSIDERATION TOTAL ASSETS INTANGIBLES TOTAL EQUITY ----------- -------- -------------------- ------------ ----------- ------------ (DOLLARS IN MILLIONS) First Mutual Bancorp.................. 1/31/99 1,404,816 shares of $ 403 $ 37 $ 79 common stock First & Farmers Bancshares, Inc....... 2/1/99 $76 million in cash 411 42 N/A Purchase of 56 branches, $850 million of loans, and assumption of $1.7 billion of deposits of First Chicago NBD Corporation in Indiana (Indiana Branch Purchase).................... 3/5/99 $283 million in cash 1,903 283 N/A Republic Banking Corporation of Florida............................. 7/16/99 $410 million in cash 1,792 269 N/A Sho-Me Financial Corp................. 1/1/98 1,153,459 shares of 374 29 61 common stock Duck Hill Bank........................ 8/1/98 42,396 shares of 21 1 3 common stock Purchase of 24 branches and assumption of $1.5 billion of deposits of California Federal Bank in Florida (Florida Branch Purchase)........... 9/11/98 $110 million in cash 1,389 110 N/A PFIC Corporation...................... 2/27/97 59,992 shares of 4 3 3 common stock -------- ---- ---- Total........................ $ 6,297 $774 $146 ======== ==== ====
Because all of the above purchase acquisitions, in the aggregate, are insignificant to the consolidated results of Union Planters, pro forma information has been omitted. Additionally, pro forma information for the Indiana and Florida Branch Purchases is not available due to lack of information available for operation of the branches on a historical basis. NOTE 3. RESTRICTIONS ON CASH AND DUE FROM BANKS Union Planters' 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 1999 and 1998 were $42 million and $118 million, respectively. 49 50 NOTE 4. INVESTMENT SECURITIES The following is a summary of Union Planters' investment securities, all of which were classified as "available for sale:"
DECEMBER 31, 1999 -------------------------------------------- UNREALIZED AMORTIZED ------------------ FAIR COST GAINS LOSSES VALUE ---------- ------- -------- ---------- (DOLLARS IN THOUSANDS) U.S. Government obligations U.S. Treasury............................................. $ 165,335 $ 398 $ 1,190 $ 164,543 U.S. Government agencies Collateralized mortgage obligations..................... 2,440,301 498 85,350 2,355,449 Mortgage-backed......................................... 650,125 3,507 16,870 636,762 Other................................................... 1,048,180 1,879 26,232 1,023,827 ---------- ------- -------- ---------- Total U.S. Government obligations.................. 4,303,941 6,282 129,642 4,180,581 Obligations of states and political subdivisions............ 1,303,088 13,902 43,845 1,273,145 Other stocks and securities................................. 2,078,067 3,510 62,848 2,018,729 ---------- ------- -------- ---------- Total available for sale securities................ $7,685,096 $23,694 $236,335 $7,472,455 ========== ======= ======== ==========
DECEMBER 31, 1998 -------------------------------------------- UNREALIZED AMORTIZED ------------------ FAIR COST GAINS LOSSES VALUE ---------- -------- ------- ---------- (DOLLARS IN THOUSANDS) 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 ========== ======== ======= ==========
The following table presents the gross realized gains and losses on available for sale investment securities for the years ended December 31, 1999, 1998, and 1997.
1999 1998 1997 ------- -------- ------- (DOLLARS IN THOUSANDS) Realized gains....... $ 5,785 $ 26,088 $ 9,080 Realized losses...... (3,657) (35,162) (4,192)
During the second quarter of 1998, Union Planters 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 and anticipated acceleration of prepayments of the underlying loans. OTHER COMPREHENSIVE INCOME. The following table presents a reconciliation of the net change in unrealized gains (losses) on available for sale securities:
BEFORE-TAX TAX (EXPENSE) NET OF AMOUNT BENEFIT TAX AMOUNT ---------- ------------- ---------- (DOLLARS IN THOUSANDS) 1999 Change in the unrealized losses on available for sale securities.............................................. $(303,646) $113,484 $(190,162) Less: Reclassification for gains included in net earnings................................................ 2,128 (828) 1,300 --------- -------- --------- Net change in the unrealized losses on available for sale securities.............................................. $(305,774) $114,312 $(191,462) ========= ======== ========= 1998 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 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 ========= ======== =========
50 51 NOTE 4. INVESTMENT SECURITIES (CONTINUED) Investment securities having a fair value of approximately $2.8 billion and $3.1 billion at December 31, 1999 and 1998, respectively, were pledged to secure public and trust funds on deposit, securities sold under agreements to repurchase, and Federal Home Loan Bank (FHLB) advances. The fair values, contractual maturities, and weighted average yields of available for sale investment securities as of December 31, 1999 are as follows:
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) U.S. Government obligations U.S. Treasury........... $ 81,929 6.05% $ 83,207 5.70% $ 197 6.61% $ 2 --% $ 165,335 5.88% U.S. Government agencies Collateralized mortgage obligations......... 465 7.15 2,591 6.83 451,942 6.09 1,985,303 6.10 2,440,301 6.10 Mortgage-backed....... 15,120 5.38 102,758 6.51 231,598 6.59 300,649 7.10 650,125 6.78 Other................. 153,702 6.20 659,114 5.89 102,455 6.39 132,909 7.09 1,048,180 6.14 -------- ---------- ---------- ---------- ---------- Total U.S. Government obligations..... 251,216 6.10 847,670 5.95 786,192 6.28 2,418,863 6.28 4,303,941 6.20 Obligations of states and political subdivisions............ 63,009 8.79 204,156 8.47 505,473 8.40 530,450 7.79 1,303,088 8.18 Other stocks and securities Federal Reserve Bank and Federal Home Loan Bank stock.... -- -- -- -- -- -- 203,828 7.44 203,828 7.44 Bonds, notes, and debentures............ 3,080 6.49 2,855 10.76 5,200 8.00 -- -- 11,135 8.29 Collateralized mortgage obligations........... 50,000 6.48 79,212 5.65 155,578 6.07 1,549,275 6.88 1,834,065 6.75 Other................... 1,436 1.39 4,255 7.53 1,150 6.76 22,198 5.29 29,039 5.48 -------- ---------- ---------- ---------- ---------- Total other stocks and securities.. 54,516 6.35 86,322 5.91 161,928 6.14 1,775,301 6.92 2,078,067 6.81 -------- ---------- ---------- ---------- ---------- Total amortized cost of available for sale securities. $368,741 6.60 $1,138,148 6.40 $1,453,593 7.00 $4,724,614 6.69 $7,685,096 6.70 ======== ========== ========== ========== ========== Total fair value........... $368,768 $1,123,733 $1,425,049 $4,554,905 $7,472,455 ======== ========== ========== ========== ==========
The weighted average yields are calculated by dividing the sum of the individual security yield weights (effective yield times book value) by the total book value of the securities. The weighted average yield for obligations of states and political subdivisions is adjusted to a taxable-equivalent yield, using a federal income tax rate of 35%. Expected maturities of securities will differ from contractual maturities because some borrowers have the right to call or prepay obligations without prepayment penalties. The investment securities portfolio is expected to have a principal weighted average life of approximately 5.23 years. 51 52 NOTE 5. LOANS The composition of loans is summarized as follows:
DECEMBER 31, -------------------------- 1999 1998 ----------- ----------- (DOLLARS IN THOUSANDS) Commercial, financial, and agricultural..................... $ 4,799,840 $ 3,543,925 Foreign..................................................... 374,814 197,120 Accounts receivable -- factoring............................ 555,128 615,952 Real estate -- construction................................. 1,581,164 1,195,779 Real estate -- mortgage Secured by 1-4 family residential......................... 5,554,943 5,647,520 FHA/VA government-insured/guaranteed...................... 519,213 759,911 Other mortgage............................................ 4,591,110 4,386,182 Home equity................................................. 584,546 482,665 Consumer Credit cards and related plans............................ 82,998 96,091 Other consumer............................................ 2,752,016 2,622,402 Direct lease financing...................................... 78,726 63,621 ----------- ----------- Total loans........................................ $21,474,498 $19,611,168 =========== ===========
Nonperforming loans are summarized as follows:
DECEMBER 31, ---------------------- 1999 1998 --------- --------- (DOLLARS IN THOUSANDS) Nonaccrual loans............................................ $127,766 $150,378 Restructured loans.......................................... 1,878 5,612 -------- -------- Total.............................................. $129,644 $155,990 ======== ========
At December 31, 1999 and 1998, Union Planters had $6.6 million and $9.2 million, respectively, of FHA/VA government-insured/guaranteed loans on nonaccrual status. Since these loans are government-insured/guaranteed, Union Planters 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. In the third quarter of 1999, Union Planters changed its policy related to placing single family residential mortgage loans on nonaccrual status to conform to industry practice. Previously, single family residential mortgage loans were automatically placed on nonaccrual status after they became past due 90 days or more. Prospectively, these loans are being placed on nonaccrual status if the loan is not in process of collection or is not well secured. The impact of the change was to reduce single family residential mortgage loans on nonaccrual status approximately $50 million with loans past due 90 days or more and still accruing interest increasing by a corresponding amount. The impact on net interest income of nonperforming loans was not material for the three years ended December 31, 1999. Also, there were no significant outstanding commitments to lend additional funds at December 31, 1999. Certain of Union Planters' bank subsidiaries, principally Union Planters Bank, National Association (UPB), have granted loans to Union Planters' 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 does not involve more than normal risks of collectability. The aggregate dollar amount of these loans was $19.4 million and $21.9 million at December 31, 1999 and 1998, respectively. During 1999, $14.5 million of new loans and advances under credit lines were made to related parties, including $107,000 added for a new relationship not included in the 1998 balance; repayments totaled approximately $14.3 million. Additionally, the balance at December 31, 1998 was reduced $2.7 million for loans related to former directors and other loans no longer considered related parties. In March 1999, UPB securitized and sold approximately $132 million of FHA/VA government insured-guaranteed loans, which resulted in a pretax gain of $5.3 million. In 1998, a similar sale of $380 million of FHA/VA government- insured/guaranteed loans resulted in a pretax gain of $19.6 million. A sale of $290 million of ARM loans in June 1999 resulted in a pretax gain of $5.0 million. In October 1998, Union Planters sold substantially all of its credit card portfolio, approximately $440 million of loans, to a third party, which resulted in a pretax gain of $72.7 million. An additional gain of $3.3 million was recognized in 1999 related to the sale of the remaining, approximately $20 million, credit card portfolio. 52 53 NOTE 6. ALLOWANCE FOR LOSSES ON LOANS The changes in the allowance for losses on loans are summarized as follows:
1999 1998 1997 --------- --------- --------- (DOLLARS IN THOUSANDS) Balance, January 1.......................................... $ 321,476 $ 324,474 $ 270,439 Increase due to acquisitions.............................. 43,075 15,920 17,185 Decrease due to the sale of certain loans................. -- (36,693) -- Provision for losses on loans............................. 74,045 204,056 153,100 Recoveries of loans previously charged off................ 52,861 29,016 24,281 Loans charged off......................................... (149,157) (215,297) (140,531) --------- --------- --------- Balance, December 31........................................ $ 342,300 $ 321,476 $ 324,474 ========= ========= =========
At December 31, 1998, Union Planters had an impaired loan totaling $11.9 million, which had a valuation reserve recorded in the fourth quarter of 1998 of $7 million. In 1999, this loan was substantially charged-off and no valuation reserve remains. NOTE 7. PREMISES AND EQUIPMENT A summary of premises and equipment follows:
DECEMBER 31, ---------------------- 1999 1998 ---------- --------- (DOLLARS IN THOUSANDS) Land........................................................ $ 130,146 $ 108,307 Buildings and improvements.................................. 509,728 451,633 Leasehold improvements...................................... 49,138 47,243 Equipment................................................... 419,068 368,373 Construction in progress.................................... 11,867 19,751 ---------- --------- 1,119,947 995,307 Less accumulated depreciation and amortization.............. (482,319) (442,056) ---------- --------- Total premises and equipment....................... $ 637,628 $ 553,251 ========== =========
NOTE 8. INTEREST-BEARING DEPOSITS The following table presents the maturities of interest-bearing deposits at December 31, 1999 (Dollars in thousands): 2000........................................................ $ 8,541,271 2001........................................................ 1,268,383 2002........................................................ 405,497 2003........................................................ 184,938 2004........................................................ 99,707 2005 and after.............................................. 45,071 ----------- Total time deposits................................... 10,544,867 Interest-bearing deposits with no stated maturity..... 8,792,060 ----------- Total interest-bearing deposits.................... $19,336,927 ===========
53 54 NOTE 9. BORROWINGS SHORT-TERM BORROWINGS. Short-term borrowings includes short-term FHLB advances, federal funds purchased and securities sold under agreements to repurchase, and other short-term borrowings having original maturities of one year or less. Short-term FHLB advances are generally overnight borrowings from the FHLB, which are secured by mortgage-backed securities and mortgage loans. Federal funds purchased arise primarily from Union Planters' market activity with its correspondent banks and generally mature in one business day. Securities sold under agreements to repurchase are secured by U.S. Government and agency securities. Short-term borrowings are summarized as follows:
DECEMBER 31, ------------------------ 1999 1998 ---------- ---------- (DOLLARS IN THOUSANDS) YEAR-END BALANCES Short-term FHLB advances.................................. $3,000,000 $ -- Federal funds purchased................................... 945,869 313,662 Securities sold under agreements to repurchase............ 1,476,142 1,333,587 Other short-term borrowings............................... 493 790 ---------- ---------- Total short-term borrowings........................ $5,422,504 $1,648,039 ========== ==========
DECEMBER 31, -------------------------------------- 1999 1998 1997 ---------- ---------- ---------- (DOLLARS IN THOUSANDS) FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE Daily average balance..................................... $1,980,674 $1,454,025 $1,392,670 Weighted average interest rate............................ 4.62% 5.17% 5.06% Maximum outstanding at any month end...................... $2,422,011 $1,892,426 $1,731,605 Weighted average interest rate at December 31............. 4.65% 4.58% 5.44% SHORT-TERM FHLB ADVANCES Daily average balance..................................... $ 928,493 N/A $ 284,274 Weighted average interest rate............................ 5.42% N/A 5.99% Maximum outstanding at any month end...................... $3,000,000 N/A $ 386,552 Weighted average interest rate at December 31............. 5.92% N/A 5.72%
- --------------------- N/A -- Not applicable BANK NOTES. In December 1998, UPB established 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). At December 31, 1999 and 1998, only Medium-Term Senior Notes were outstanding. A summary of these notes follows:
DECEMBER 31, --------------------------- 1999 1998 ----------- ------------ (DOLLARS IN THOUSANDS) Balances at year end........................................ $ 60,000 $ 105,000 Average balance for the year................................ 91,356 123,986 Weighted average interest rate.............................. 6.74% 6.66% Weighted average interest rate at year end.................. 6.79 6.67 Fixed rate notes............................................ $ 60,000 $ 105,000 Range of maturities......................................... 8/01-10/01 10/99-10/01
The principal maturities of Medium-Term Senior Notes subsequent to December 31, 1999 are $60 million in 2001. FEDERAL HOME LOAN BANK ADVANCES. Certain of Union Planters' banking and thrift subsidiaries have advances from the FHLB under Blanket Agreements for Advances and Security Agreements (the Agreements). These advances have an original maturity of greater than one year. 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, 1999, Union Planters' subsidiaries had an adequate amount of mortgage- 54 55 NOTE 9. BORROWINGS (CONTINUED) backed securities and loans to satisfy the collateral requirements. A summary of the advances is as follows:
DECEMBER 31, ---------------------------- 1999 1998 ------------- ----------- (DOLLARS IN THOUSANDS) Balances at year end........................................ $ 203,032 $ 279,992 Range of interest rates..................................... 1.75%-6.85% 3.25%-8.36% Range of maturities......................................... 2000-2015 1999-2015
The principal maturities of FHLB advances subsequent to December 31, 1999 are $200.2 million in 2000, $1.0 million in 2001, $.8 million in 2002, $.1 million in 2003, $.4 million in 2004, and $.5 million after 2004. OTHER LONG-TERM DEBT. Union Planters' other long-term debt is summarized as follows:
DECEMBER 31, ----------------------- 1999 1998 --------- ----------- (DOLLARS IN THOUSANDS) Corporation-Obligated Mandatorily Redeemable Capital Pass-through Securities of Subsidiary Trust holding solely a Corporation-Guaranteed Related Subordinated Note (Trust Preferred Securities)..................................... $199,044 $ 199,009 Variable rate asset-backed certificates..................... 175,000 275,000 6.75% Subordinated Notes due 2005........................... 99,655 99,595 6.25% Subordinated Notes due 2003........................... 74,800 74,748 6.50% Putable/Callable Subordinated Notes due 2018.......... 301,055 301,716 Revolving loan.............................................. -- 74,500 Subordinated notes of acquired entities due 1998 and 1999...................................................... -- 4,896 Other long-term debt........................................ 5,184 24,276 -------- ---------- Total other long-term debt......................... $854,738 $1,053,740 ======== ==========
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. Union Planters 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, 1999 and 1998) of 8.20% Junior Subordinated Deferrable Interest Debentures of Union Planters 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. Union Planters 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, Union Planters 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 Union Planters 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 Federal Reserve 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, 1999 and 1998 were 7.71% and 6.79%, respectively. The senior certificates may not be redeemed prior to their stated 55 56 NOTE 9. BORROWINGS (CONTINUED) maturity. The Certificates issued in June 1994 were repaid in September 1999 in accordance with the terms of the issue. 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, 1999 were 7.21% and 7.96%, respectively, and 6.29% and 7.04%, respectively, at December 31, 1998. Interest on all certificates is payable monthly. The senior certificates are collateralized by interest-earning advances to factoring clients which totaled approximately $252.5 million at December 31, 1999. Such advances are made on receivables before they are due or collected by Capital Factors, Inc., which services and administers these advances and related receivables under an agreement with another financial institution. The senior certificates are subject to acceleration if certain collateral requirements are not maintained. Remaining deferred issuance costs of $570,000 are being amortized over the terms of the related series. Such costs are included in other assets on the balance sheets. A cash collateral account is required pursuant to the terms of the aforementioned agreement. Such restricted cash collateral amounted to $6.4 million and $10.1 million at December 31, 1999 and 1998, respectively. During November 1993, Union Planters issued in a public offering $75 million of 6.25% Subordinated Capital Notes due 2003 at 99.305%. In November 1995, Union Planters issued in another public offering $100 million of 6.75% Subordinated Capital Notes due 2005 at 99.408%. The notes qualify as Tier 2 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 2 capital for regulatory purposes. Capital Factors had a $75 million revolving loan payable to another financial institution. At December 31, 1998, $74.50 million was outstanding under the revolving line. Interest accrued on the line at LIBOR plus 1.25% (6.88% at December 31, 1998). The loan matured in March 1999. Included in other long-term debt at December 31, 1998 was a privately placed $10.0 million 7.95% subordinated note issued in connection with Capital Factors' securitized financing. This note was repaid in 1999. The subordinated notes of acquired entities represented two issues. One of these issues matured in 1998 and one issue matured in 1999. The principal maturities of other long-term debt subsequent to December 31, 1999 are $29.5 million in 2000, $50.5 million in 2001, $.1 million in 2002, $74.8 million in 2003, $100.0 million in 2004, and $599.8 million after 2004. The ability of Union Planters to service its long-term debt obligations is dependent upon the future profitability of its banking subsidiaries and their ability to pay dividends to Union Planters (see Note 12). NOTE 10. SHAREHOLDERS' EQUITY COMMON STOCK. At Union Planters' 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 (the Board) taking into account the earnings, capital levels, cash requirements, and the financial condition of Union Planters and its subsidiaries, applicable government regulations and policies, and other factors deemed relevant by the Board, including the amount of dividends payable to Union Planters by its subsidiaries. Various federal laws, regulations, and policies limit the ability of Union Planters' subsidiary banks to pay dividends. See Note 12, "Regulatory Capital and Restrictions on Dividends and Loans from Subsidiaries." 56 57 NOTE 10. SHAREHOLDERS' EQUITY (CONTINUED) PREFERRED STOCK. Union Planters' preferred stock is summarized as follows:
DECEMBER 31, ---------------------- 1999 1998 --------- --------- (DOLLARS IN THOUSANDS) PREFERRED STOCK, WITHOUT PAR VALUE, 10,000,000 SHARES AUTHORIZED FOR ALL ISSUES: Series E Preferred Stock.................................. $20,875 $23,353 Series F Preferred Stock.................................. -- -- ------- ------- Total preferred stock.............................. $20,875 $23,353 ======= =======
SERIES A PREFERRED STOCK (SHAREHOLDER RIGHTS PLAN). In 1989, the Board of Union Planters adopted a Share Purchase Rights Plan and distributed a dividend of one Preferred Share Purchase Right for each outstanding share of Union Planters' $5 par value Common Stock and for each share to be issued thereafter. This plan expired January 19, 1999 and a new plan became effective (see Series F Preferred Stock). SERIES E PREFERRED STOCK. At December 31, 1999 and 1998, 835,006 and 934,128 shares, respectively, of Union Planters' 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 Union Planters in whole or in part at any time after March 31, 1997 at $25 per share. At any time prior to redemption, each share of Series E Preferred Stock is convertible, at the option of the holder, into 1.25 shares of Union Planters' common stock. Holders of Series E Preferred Stock have no voting rights except for those provided by law and in certain other limited circumstances. SERIES F PREFERRED STOCK (SHAREHOLDER RIGHTS PLAN). 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 plan, each share of common stock received a tax-free dividend of one Preferred Share Purchase Right (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 Union Planters' 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 Union Planters, 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 Plan will expire on January 19, 2009. Union Planters authorized 300,000 shares of Series F Preferred Stock for issuance under the Plan, none of which has been issued. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN. The Dividend Reinvestment and Stock Purchase Plan (the Plan) authorizes the issuance of 4,000,000 shares (1,959,364 issued through December 31, 1999) 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 433,693, 337,804, and 271,615 in 1999, 1998, and 1997, respectively. 57 58 NOTE 11. UNION PLANTERS CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION CONDENSED BALANCE SHEET
DECEMBER 31, ------------------------ 1999 1998 ---------- ---------- (DOLLARS IN THOUSANDS) ASSETS Cash and cash equivalents at subsidiary banks............. $ 264,283 $ 315,632 Investment securities available for sale.................. 95,490 171,999 Advances to and receivables from subsidiaries............. 2,048 2,144 Investment in bank and bank holding company subsidiaries............................................ 2,733,158 2,811,643 Investment in nonbank subsidiaries........................ 17,099 17,817 Other assets.............................................. 98,612 109,291 ---------- ---------- TOTAL ASSETS....................................... $3,210,690 $3,428,526 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Long-term debt............................................ $ 379,656 $ 384,404 Loans from and payables to subsidiaries................... 21,825 22,747 Other liabilities......................................... 33,100 37,297 Shareholders' equity...................................... 2,776,109 2,984,078 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... $3,210,690 $3,428,526 ========== ==========
CONDENSED STATEMENT OF EARNINGS
YEARS ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- (DOLLARS IN THOUSANDS) INCOME Dividends from bank and bank holding company subsidiaries............................................ $490,115 $234,632 $233,990 Dividends from nonbank subsidiaries....................... 3,965 2,459 3,355 Fees and interest from subsidiaries....................... 8,273 21,889 73,919 Interest and dividends on investments, loans, and interest-bearing deposits at other financial institutions................ 8,930 11,279 8,265 Other income.............................................. 2,096 3,590 1,775 -------- -------- -------- Total income....................................... 513,379 273,849 321,304 -------- -------- -------- EXPENSES Interest expense.......................................... 28,782 28,953 28,776 Salaries and employee benefits............................ -- -- 34,413 Other expense............................................. 7,012 24,880 42,911 -------- -------- -------- Total expenses..................................... 35,794 53,833 106,100 -------- -------- -------- EARNINGS BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS (LOSS) OF SUBSIDIARIES.................. 477,585 220,016 215,204 Tax benefit................................................. (7,299) (8,502) (10,283) -------- -------- -------- EARNINGS BEFORE EQUITY IN UNDISTRIBUTED EARNINGS (LOSS) OF SUBSIDIARIES........................... 484,884 228,518 225,487 Equity in undistributed earnings (loss) of subsidiaries..... (74,886) (2,912) 114,348 -------- -------- -------- NET EARNINGS....................................... $409,998 $225,606 $339,835 ======== ======== ========
58 59 NOTE 11. UNION PLANTERS CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION (CONTINUED) CONDENSED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, --------------------------------- 1999 1998 1997 --------- --------- --------- (DOLLARS IN THOUSANDS) OPERATING ACTIVITIES Net earnings.............................................. $ 409,998 $ 225,606 $ 339,835 Equity in undistributed (earnings) loss of subsidiaries... 74,886 2,912 (114,348) Deferred income tax benefit............................... (8,314) (6,446) (8,660) Other, net................................................ 17,276 1,865 (1,018) --------- --------- --------- Net cash provided by operating activities.......... 493,846 223,937 215,809 --------- --------- --------- INVESTING ACTIVITIES Purchases of available for sale securities................ (41,322) (288,039) (122,802) Proceeds from sales of available for sale securities...... 115,758 249,381 205,029 Net (increase) decrease in investment in and receivables from subsidiaries....................................... (102,578) 32,026 (34,259) Purchases of premises and equipment, net.................. 204 1,946 (3,981) Net cash received from acquired entities.................. -- -- 18,384 Other, net................................................ -- 951 -- --------- --------- --------- Net cash provided (used) by investing activities... (27,938) (3,735) 62,371 --------- --------- --------- FINANCING ACTIVITIES Proceeds from issuance of long-term debt, net............. -- 4,896 439 Repayment of long-term debt............................... (356) (541) (488) Net repayments of loans from and payables to subsidiaries............................................ -- (5,324) (3,060) Proceeds from issuance of common stock, net............... 20,660 34,834 22,781 Purchase and retirement of common stock................... (250,805) (151,279) (35,009) Cash dividends paid....................................... (286,756) (220,103) (105,151) Other, net................................................ -- -- 633 --------- --------- --------- Net cash used by financing activities.............. (517,257) (337,517) (119,855) --------- --------- --------- Net increase (decrease) in cash and cash equivalents...... (51,349) (117,315) 158,325 Cash and cash equivalents at the beginning of the year.... 315,632 432,947 274,622 --------- --------- --------- Cash and cash equivalents at the end of the year.......... $ 264,283 $ 315,632 $ 432,947 ========= ========= =========
- --------------- NONCASH ACTIVITIES. See Note 2 and Note 10, respectively, regarding acquisitions in 1999, 1998, and 1997 and the conversions of Series E Preferred Stock. NOTE 12. REGULATORY CAPITAL AND RESTRICTIONS ON DIVIDENDS AND LOANS FROM SUBSIDIARIES REGULATORY CAPITAL. Union Planters 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 Union Planters or its banking subsidiaries' financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Union Planters and its banking subsidiaries must meet specific capital guidelines that involve quantitative measures of Union Planters' and its banking subsidiaries' assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Union Planters' 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 Union Planters and its banking subsidiaries to maintain minimum amounts and ratios (set forth in the table below for Union Planters and its significant subsidiary, UPB) 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, 1999, management believes that Union Planters, UPB, and Union Planters' other banking subsidiaries met all capital adequacy requirements to which they are subject. At December 31, 1999, the most recent notification from the Office of the Comptroller of 59 60 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 Union Planters' other banking subsidiaries were categorized as well capitalized and Union Planters' 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 Union Planters and UPB are presented in the table below.
MINIMUM TO BE WELL ACTUAL CAPITAL ADEQUACY CAPITALIZED(1) --------------- ----------------- --------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ------ ----- ------- ------ ------ ----- (DOLLARS IN MILLIONS) AS OF DECEMBER 31, 1999: LEVERAGE (TIER 1 CAPITAL TO AVERAGE ASSETS) Union Planters............................... $2,140 6.65% $1,287 4.00% N/A N/A UPB.......................................... 1,878 5.95 1,263 4.00 $1,579 5.00% TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS) Union Planters............................... $2,140 9.50% $ 900 4.00% N/A N/A UPB.......................................... 1,878 8.49 885 4.00 $1,328 6.00% TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS) Union Planters............................... $2,857 12.69% $1,801 8.00% N/A N/A UPB.......................................... 2,456 11.10 1,770 8.00 $2,213 10.00% AS OF DECEMBER 31, 1998: LEVERAGE (TIER 1 CAPITAL TO AVERAGE ASSETS) Union Planters............................... $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) Union Planters............................... $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) Union Planters............................... $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%
- --------------- (1) Not applicable (N/A) for bank holding companies such as Union Planters. RESTRICTIONS ON DIVIDENDS AND LOANS FROM SUBSIDIARIES. The amount of dividends which Union Planters' 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, 2000, its banking subsidiaries could have paid dividends to Union Planters aggregating $106.6 million without prior regulatory approval. Future dividends will be dependent on the level of earnings and capital and liquidity considerations of the subsidiary financial institutions. Union Planters' banking subsidiaries are limited by federal law in the amount of credit which they may extend to their nonbank affiliates, including Union Planters. 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 Union Planters. At December 31, 1999 Union Planters had no such loans outstanding. 60 61 NOTE 13. OTHER NONINTEREST INCOME AND EXPENSE The major components of other noninterest income and expense are summarized as follows:
YEARS ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- (DOLLARS IN THOUSANDS) OTHER NONINTEREST INCOME ATM transaction fee....................................... $ 25,002 $ 19,312 $ 15,703 Insurance commissions..................................... 17,812 14,078 12,851 Brokerage fee income...................................... 17,606 19,009 10,056 Annuity sales income...................................... 17,544 7,818 10,500 Letter of credit fees..................................... 6,773 6,580 5,830 Gain on sale of FHA/VA loans.............................. 5,317 19,605 -- Gain on sale of ARM loans................................. 5,041 -- -- Gain on sale of branches/deposits and other selected assets.................................................. 3,914 4,123 16,290 Gain on sale of credit card portfolio..................... 3,335 72,680 -- Earnings (loss) of equity method investments.............. (2,599) 3,819 2,332 Other income.............................................. 59,375 65,689 53,398 -------- -------- -------- Total other noninterest income..................... $159,120 $232,713 $126,960 ======== ======== ======== OTHER NONINTEREST EXPENSE Communications............................................ $ 34,295 $ 25,980 $ 20,652 Other contracted services................................. 32,885 30,811 23,681 Postage and carrier....................................... 31,910 29,271 26,421 Stationery and supplies................................... 31,523 27,773 29,736 Advertising and promotion................................. 29,807 25,037 22,900 Amortization of mortgage servicing rights................. 19,794 21,963 17,506 Other personnel services.................................. 19,057 15,628 10,815 Merchant interchange fees................................. 18,055 12,987 9,329 Miscellaneous charge-offs................................. 14,727 11,698 11,602 Legal fees................................................ 13,335 12,528 13,115 Travel.................................................... 11,699 10,002 8,218 Consultant fees........................................... 8,487 11,108 10,110 Taxes other than income................................... 6,941 11,781 11,409 FDIC insurance............................................ 6,104 3,014 4,768 Federal Reserve fees...................................... 5,666 4,269 3,469 Other real estate expense................................. 5,383 9,737 10,158 Brokerage and clearing fees on trading activities......... 4,848 5,153 4,339 Dues, subscriptions, and contributions.................... 4,536 15,589 8,583 Accounting and audit fees................................. 4,498 5,501 5,729 Insurance................................................. 2,850 4,480 5,545 Provision for losses on FHA/VA foreclosure claims......... 1,177 4,700 8,016 Write-off of mortgage servicing rights, goodwill, and other intangibles....................................... -- 1,800 2,778 Merger-related, charter consolidation, and ongoing integration expenses(1)................................. (7,153) 183,082 64,854 Other expense............................................. 47,431 58,332 68,585 -------- -------- -------- Total other noninterest expense.................... $347,855 $542,224 $402,318 ======== ======== ========
- --------------- (1) 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 Union Planters' equipment; write-off of data processing 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 and charter consolidation expenses. The $7.2 million credit to expense in 1999 related to the reversal of severance reserves established in prior periods and was made upon completion of a substantial portion of the consolidation and conversion activities. The primary reason for reversal was higher than projected employee attrition and employees whose jobs were being eliminated transferred to fill new positions created by a larger organization. NOTE 14. EMPLOYEE BENEFIT PLANS 401(K) RETIREMENT SAVINGS PLAN. Union Planters' 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 1999 and Union Planters makes a matching contribution of 50 to 100 percent of the amounts contributed by the employee 61 62 NOTE 14. EMPLOYEE BENEFIT PLANS (CONTINUED) (up to 6% of compensation) depending upon his or her eligible years of service. Union Planters' contributions to the 401(k) Plan for 1999, 1998, and 1997 were $8.1 million, $5.4 million, and $4.0 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 $6.0 million, $4.5 million, and $3.5 million for 1999, 1998, and 1997, respectively. At December 31, 1999, the ESOP held 1,381,354 shares of Union Planters' common stock which were allocated to participants and 274,500 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 Union Planters' ESOP effective January 1, 1998. Included in unearned compensation in shareholders' equity at December 31, 1999 and 1998, respectively, is $1.8 million and $2.3 million, which represents the ESOP's debt to Union Planters. The $4.0 million market value of shares allocated to participants during 1999 is included in the $6.0 million ESOP contribution expense. STOCK INCENTIVE PLANS. Employees and directors of Union Planters 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 13 million shares of Union Planters' common stock to be issued through the exercise of nonstatutory or incentive stock options and as restricted stock awards to employees and directors of Union Planters. The option price is the fair value of Union Planters' 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. The 1998 Stock Incentive Plan for Officers and Employees was adopted in October 1998. The Board of Directors authorized 3.5 million shares in 1998 and 1.5 million shares in 1999 of Union Planters' common stock to be issued through the exercise of nonstatutory stock options to all officers (except executive officers) and employees of Union Planters and its subsidiaries who were employed on date of grant. The option price is the fair value of Union Planters' 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 Union Planters' common stock which are subject to stock options is as follows:
YEARS ENDED DECEMBER 31, --------------------------------------------------------------------- 1999 1998 1997 --------------------- --------------------- --------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE PRICE NUMBER PRICE NUMBER PRICE NUMBER -------- ---------- -------- ---------- -------- ---------- Options Outstanding, beginning of year....... $41.88 9,186,223 $30.32 6,139,321 $21.55 5,834,471 Granted.............................. 40.77 3,057,499 49.36 5,792,064 50.66 1,546,240 Exercised............................ 28.27 (993,516) 31.11 (2,623,439) 13.82 (1,186,000) Canceled or surrendered.............. 46.68 (800,073) 46.12 (121,723) 28.81 (55,390) ---------- ---------- ---------- Outstanding at year end.............. 42.48 10,450,133 41.88 9,186,223 30.32 6,139,321 ========== ========== ========== Options exercisable at year end........ $40.41 4,617,826 $34.37 3,685,460 $24.38 3,912,638 ========== ========== ==========
WEIGHTED NUMBER OF WEIGHTED AVERAGE OUTSTANDING AVERAGE RANGE OF SHARES REMAINING WEIGHTED AVERAGE SHARES EXERCISE EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE PRICE --------------- ----------- ---------------- ---------------- ----------- -------- $ 6.56 - $26.85......... 1,381,495 4.88 $18.46 1,344,135 $18.36 $28.08 - $41.06......... 3,728,313 8.81 $38.81 1,259,353 $36.87 $41.50 - $45.63......... 463,554 7.08 $45.03 256,982 $45.10 $45.75 - $46.94......... 3,261,018 8.74 $46.92 302,469 $46.84 $47.38 - $67.88......... 1,615,753 7.59 $61.78 1,454,687 $61.68 ---------- --------- 10,450,133 8.00 $42.48 4,617,626 $40.41 ========== =========
Restricted stock grants aggregating 327,000 shares ($16.5 million fair value) were awarded in 1998. Restrictions on the grants generally lapse in annual increments over twelve years. Certain 62 63 NOTE 14. EMPLOYEE BENEFIT PLANS (CONTINUED) 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, Union Planters 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 1999, 1998, and 1997 were $2.0 million, $11.2 million, and $490,000, respectively; and the ending balances at December 31, 1999 and 1998 were $10 million and $12 million, respectively, which are included in unearned compensation in shareholders' equity. Had compensation cost for Union Planters' 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, Union Planters' 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 1999, 1998, and 1997, respectively; expected dividend yield 4.92%, 4.12%, and 2.50%; expected volatility of 25.91%, 24.73%, and 22.79%; risk-free interest rate of 6.40%, 4.70%, and 5.89%; and an expected life of 4.7, 4.8, and 4.0 years. Forfeitures are recognized as they occur. This schedule excludes the earnings impact of options acquired and accelerated through acquisitions.
YEARS ENDED DECEMBER 31, -------------------------- 1999 1998 1997 ------ ------ ------ (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) Net earnings -- as reported................................. $410.0 $225.6 $339.8 Net earnings -- pro forma................................... 396.9 214.7 332.8 Earnings per share -- as reported Basic..................................................... 2.88 1.61 2.53 Diluted................................................... 2.85 1.58 2.47 Earnings per share -- pro forma Basic..................................................... 2.79 1.53 2.48 Diluted................................................... 2.76 1.50 2.42
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. Union Planters 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 Union Planters' net periodic postretirement benefit costs for 1999, 1998, and 1997 which were determined assuming a discount rate of 7.5% for 1999, 6.5% for 1998 and 7% for 1997 and an expected return on Plan assets of 5%.
YEARS ENDED DECEMBER 31, -------------------------- 1999 1998 1997 ------ ------ ------ (DOLLARS IN THOUSANDS) Service cost................................................ $ 425 $ 299 $ 330 Interest cost of accumulated postretirement benefit obligation................................................ 884 860 919 Expected return on plan assets.............................. (503) (511) (509) Recognized net actuarial gain............................... (229) (292) (113) ----- ----- ----- Total.............................................. $ 577 $ 356 $ 627 ===== ===== =====
63 64 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:
YEARS ENDED DECEMBER 31, ----------------------- 1999 1998 ------- ------- (DOLLARS IN THOUSANDS) Change in benefit obligation: Balance at beginning of year.............................. $14,009 $12,996 Service cost.............................................. 425 299 Interest cost............................................. 884 860 Acquisitions.............................................. 455 2,507 Actuarial gains........................................... (945) (947) Plan participants' contributions.......................... 637 573 Benefits paid............................................. (3,334) (2,279) ------- ------- Balance at year end....................................... $12,131 $14,009 ======= ======= Change in fair value of plan assets: Balance at beginning of year.............................. $10,615 $10,968 Actual return on plan assets.............................. 54 397 Employer contributions.................................... 1,463 956 Plan participants' contributions.......................... 637 573 Benefits paid............................................. (3,334) (2,279) ------- ------- Balance at year end....................................... $ 9,435 $10,615 ======= ======= Funded status............................................... $(2,696) $(3,394) Unrecognized net actuarial gain............................. (5,662) (4,927) ------- ------- Accrued benefit cost at year end............................ $(8,358) $(8,321) ======= =======
The assumed discount rate used to measure the accumulated postretirement benefit obligation (APBO) was 7.5% for 1999 and 6.5% for 1998. The weighted average healthcare cost trend rate in 1999 was 7.0%, 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 1999 service and interest cost components by $165,000 and ($135,000), respectively, and would have changed the APBO as of December 31, 1999 by $1.1 million and ($1.0 million), respectively. 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 Union Planters' benefit and retirement plans. At December 31, 1999, certain institutions acquired in 1999 had outstanding plans including defined benefit pension plans and 401(k) plans. The liabilities, if any, for such terminations have been recorded as of December 31, 1999. NOTE 15. INCOME TAXES The components of income tax expense are as follows:
YEARS ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- (DOLLARS IN THOUSANDS) CURRENT TAX EXPENSE Federal................................................... $176,970 $169,577 $166,737 State..................................................... 3,693 21,803 13,111 -------- -------- -------- Total current tax expense.......................... 180,663 191,380 179,848 -------- -------- -------- DEFERRED TAX EXPENSE (BENEFIT) Federal................................................... 17,356 (33,606) (5,930) State..................................................... 10,815 (11,458) 2,096 -------- -------- -------- Total deferred tax expense (benefit)............... 28,171 (45,064) (3,834) -------- -------- -------- Total income tax................................... $208,834 $146,316 $176,014 ======== ======== ========
64 65 NOTE 15. INCOME TAXES (CONTINUED) Deferred tax assets and liabilities are comprised of the following:
DECEMBER 31, ---------------------- 1999 1998 --------- --------- (DOLLARS IN THOUSANDS) DEFERRED TAX ASSETS Allowance for losses on loans and other real estate....... $122,181 $114,144 Employee benefit plans.................................... 19,925 25,360 Goodwill and intangibles.................................. 10,587 9,191 Deferred compensation plans............................... 13,953 13,853 Premises and equipment.................................... 4,931 15,229 Allowance for losses on FHA/VA foreclosure claims......... 10,237 9,912 Mortgage servicing rights................................. -- 3,410 Unrealized loss on available for sale securities.......... 78,424 -- Other..................................................... 24,204 44,772 -------- -------- Total deferred tax assets.......................... 284,442 235,871 -------- -------- DEFERRED TAX LIABILITIES Basis difference on FHLB stock............................ 16,804 16,227 Mortgage servicing rights................................. 4,268 -- Unrealized gain on available for sale securities.......... -- 35,896 Other..................................................... 8,634 23,134 -------- -------- Total deferred tax liabilities..................... 29,706 75,257 -------- -------- Deferred tax asset, net............................ $254,736 $160,614 ======== ========
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 (loss) on available for sale securities, and the current period deferred tax expense. A reconciliation of income tax expense computed at the applicable statutory income tax rate of 35% to actual income tax expense is computed below:
YEARS ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- (DOLLARS IN THOUSANDS) Computed "expected" tax..................................... $216,591 $130,173 $180,547 State income taxes, net of federal tax benefit.............. 9,431 6,724 10,811 Tax-exempt interest, net.................................... (24,680) (22,795) (19,779) Nondeductible merger charges................................ 292 28,526 3,283 Other, net.................................................. 7,200 3,688 1,152 -------- -------- -------- Income tax expense................................. $208,834 $146,316 $176,014 ======== ======== ========
Income tax expense (benefit) applicable to securities transactions was $828,000 for 1999, ($5,684,000) for 1998, and $1,786,000 for 1997. 65 66 NOTE 16. EARNINGS PER SHARE The following table sets forth the computation of basic net earnings per share and diluted net earnings per share.
YEARS ENDED DECEMBER 31, --------------------------------------------- 1999 1998 1997 ------------- ------------- ------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) BASIC: Net earnings.............................................. $ 409,998 $ 225,606 $ 339,835 Less preferred dividends.................................. (1,758) (2,074) (4,942) ------------ ------------ ------------ Net earnings applicable to common shares.................. $ 408,240 $ 223,532 $ 334,893 ============ ============ ============ Average common shares outstanding......................... 141,854,254 139,034,412 132,451,476 ============ ============ ============ Net earnings per common share -- basic.................... $ 2.88 $ 1.61 $ 2.53 ============ ============ ============ DILUTED: Net earnings.............................................. $ 409,998 $ 225,606 $ 339,835 Less dividends on nonconvertible preferred stock.......... -- -- (3) Elimination of interest on convertible debt............... 36 220 1,892 ------------ ------------ ------------ Net earnings applicable to common shares.................. $ 410,034 $ 225,826 $ 341,724 ============ ============ ============ Average common shares outstanding......................... 141,854,254 139,034,412 132,451,476 Stock option adjustment................................... 883,575 1,696,869 1,967,208 Preferred stock adjustment................................ 1,115,884 1,591,565 2,581,482 Effect of other dilutive securities....................... 128,798 369,996 1,219,753 ------------ ------------ ------------ Average common shares outstanding......................... 143,982,511 142,692,842 138,219,919 ============ ============ ============ Net earnings per common share -- diluted.................. $ 2.85 $ 1.58 $ 2.47 ============ ============ ============
NOTE 17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK In the normal course of business, Union Planters 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. Union Planters 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 Union Planters' Directors' Loan Committee. The following table presents the contractual amounts of these types of instruments.
CONTRACT AMOUNT DECEMBER 31, ---------------------- 1999 1998 -------- -------- (DOLLARS IN MILLIONS) FINANCIAL INSTRUMENTS WHOSE CONTRACT AMOUNTS REPRESENT CREDIT RISK Commitments to extend credit.............................. $4,355 $3,282 Standby, commercial, and similar letters of credit........ 408 402
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 $3.2 billion and loan commitments with a maturity over one year which are not unconditionally cancelable totaled $1.2 billion. Letters of credit are conditional commitments issued by Union Planters 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. Union Planters 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 2000 and 2009. 66 67 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.
NOTIONAL AMOUNT DECEMBER 31, --------------------- 1999 1998 ------ ------ (DOLLARS IN MILLIONS) FINANCIAL INSTRUMENTS WHOSE NOTIONAL CONTRACT AMOUNTS EXCEED THE AMOUNTS OF ACTUAL CREDIT RISK Forward contracts......................................... $659 $669 When-issued securities Commitments to sell..................................... 47 4 Commitments to purchase................................. 95 --
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. Union Planters as seller utilizes short-term forward commitments to deliver mortgages to protect Union Planters 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. Union Planters 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. Union Planters 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, 1999 and 1998, Union Planters 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 Union Planters 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. Union Planters was acting as servicing agent for residential mortgage loans totaling approximately $12.2 billion at December 31, 1999 compared to $12.0 billion at December 31, 1998 and $10.9 billion at December 31, 1997. The loans serviced for others are not included in Union Planters' consolidated balance sheet. The following table presents a reconciliation of the changes in mortgage servicing rights for each of the three years ended December 31, 1999.
YEARS ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 -------- -------- -------- (DOLLARS IN THOUSANDS) Beginning balance........................................... $101,466 $ 62,726 $ 67,490 Additions................................................... 40,438 62,503 12,742 Write-off of servicing rights............................... -- (1,800) -- Amortization of servicing rights............................ (19,794) (21,963) (17,506) -------- -------- -------- Ending balance.............................................. $122,110 $101,466 $ 62,726 ======== ======== ========
In its capacity as servicer of certain of these loans, Union Planters 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, 1999 and 1998, Union Planters had reserves for these losses of $28.0 million and $27.5 million, respectively. In the normal course of business, Union Planters 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. 67 68 NOTE 18. LINES OF BUSINESS REPORTING Union Planters operates only one major line of business, Banking. Other lines of business are evaluated by management, although none of the other operations qualify as a separate reportable 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 regional geographic lines. Nontraditional services such as mortgage, SBA loan trading, trust, financial services (annuities, insurance products, and brokerage services), factoring operations, bank cards, and FHA/VA operations are managed separately but do not meet the test for a business segment. The accounting policies of the Banking unit are the same as those of Union Planters described in Note 1. 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 tables present selected segment information for Banking, the Other Operating Units, and the Parent Company. The Parent Company is primarily the funding source for acquisition activities.
YEAR ENDED DECEMBER 31, 1999 --------------------------------------------------------- OTHER PARENT CONSOLIDATED BANKING OPERATING UNITS COMPANY(1) TOTAL ----------- --------------- ---------- ------------ (DOLLARS IN THOUSANDS) Net interest income.............................. $ 1,204,479 $ 61,031 $ (8,979) $ 1,256,531 Provision for losses on loans.................... (56,311) (17,734) -- (74,045) Noninterest income............................... 291,588 200,899 (1,928) 490,559 Noninterest expense.............................. (897,892) (177,530) (7,012) (1,082,434) Merger-related and other significant items, net............................................ 16,050 10,746 1,425 28,221 ----------- ---------- -------- ----------- Earnings before income taxes..................... $ 557,914 $ 77,412 $(16,494) $ 618,832 =========== ========== ======== =========== Average assets................................... $30,025,209 $2,667,352 $209,809 $32,902,370 =========== ========== ======== ===========
YEAR ENDED DECEMBER 31, 1998 --------------------------------------------------------- OTHER PARENT CONSOLIDATED BANKING OPERATING UNITS COMPANY(1) TOTAL ----------- --------------- ---------- ------------ (DOLLARS IN THOUSANDS) 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.............................. (818,726) (164,580) (8,313) (991,619) Merger-related and other significant items, net............................................ (163,157) 64,893 (16,567) (114,831) ----------- ---------- -------- ----------- Earnings before income taxes..................... $ 268,277 $ 120,720 $(17,075) $ 371,922 =========== ========== ======== =========== Average assets................................... $27,253,006 $2,939,797 $551,523 $30,744,326 =========== ========== ======== ===========
YEAR ENDED DECEMBER 31, 1997 --------------------------------------------------------- OTHER PARENT CONSOLIDATED BANKING OPERATING UNITS COMPANY(1) TOTAL ----------- --------------- ---------- ------------ (DOLLARS IN THOUSANDS) 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.............................. (775,678) (143,476) (13,415) (932,569) Merger-related and other significant items, net............................................ (34,225) -- (13,729) (47,954) ----------- ---------- -------- ----------- Earnings before income taxes..................... $ 488,147 $ 49,843 $(22,141) $ 515,849 =========== ========== ======== =========== Average assets................................... $25,322,742 $3,261,992 $604,071 $29,188,805 =========== ========== ======== ===========
- --------------- (1) Parent Company noninterest income and earnings before taxes are net of the intercompany dividend eliminations of $494 million in 1999, $237 million in 1998, and $237 million in 1997. 68 69 NOTE 19. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values and fair values of Union Planters' financial instruments are summarized as follows:
DECEMBER 31, 1999 DECEMBER 31, 1998 ------------------------- ------------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) FINANCIAL ASSETS Cash and short-term investments................... $ 1,252,081 $ 1,252,081 $ 1,413,765 $ 1,413,765 Trading account assets............................ 315,734 315,734 275,992 275,992 Loans held for resale............................. 430,690 430,690 441,214 441,214 Investment securities -- available for sale....... 7,472,455 7,472,455 8,301,703 8,301,703 Net loans......................................... 21,104,100 20,951,848 19,255,350 19,442,499 Mortgage servicing rights......................... 122,110 184,109 101,466 149,249 FINANCIAL LIABILITIES Noninterest-bearing............................... $ 4,035,189 $ 4,035,189 $ 4,194,402 $ 4,194,402 Interest-bearing.................................. 19,336,927 19,361,515 20,702,053 20,800,166 Short-term borrowings............................. 5,422,504 5,421,748 1,648,039 1,647,202 Short- and medium-term notes...................... 60,000 59,501 105,000 106,832 Federal Home Loan Bank advances................... 203,032 203,089 279,992 280,328 Other long-term debt, excluding capital lease obligations..................................... 853,947 877,638 1,052,783 1,064,985 OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS Forward contracts................................. -- 9,325 -- (584)
The following methods and assumptions were used by Union Planters 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. The fair value of nonaccrual loans and the allowance for losses on loans are approximated by their book values. 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 short-term FHLB advances, 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 SENIOR 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. 69 70 NOTE 19. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) 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 available, 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 Union Planters and/or its subsidiaries are parties to various legal proceedings that have arisen in the ordinary course of business and are parties to various pending civil actions, all of which are being defended vigorously. Certain proceedings previously outstanding have been substantially settled within previously based estimates. Management is of the opinion, based upon present information, including evaluations by outside counsel, that neither Union Planters' financial position, results of operations, nor liquidity will be materially affected by the ultimate resolution of pending or threatened legal proceedings. 70 71 REPORT OF MANAGEMENT The accompanying financial statements and related financial information were prepared by the management of Union Planters Corporation (Union Planters) 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 Union Planters' financial records and to safeguard Union Planters' assets from material loss or misuse. Union Planters utilizes internal monitoring mechanisms and an extensive external audit to monitor compliance with, and assess the effectiveness of the internal controls. Management believes Union Planters' internal controls provide reasonable assurance that Union Planters' assets are safeguarded and that its financial records are reliable. The Audit Committee of the Board of Directors meets periodically with representatives of Union Planters' independent accountants, the audit director, and management to review accounting policies, control procedures, and audit and regulatory examination reports. The independent accountants and audit director 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. Memphis, Tennessee January 20, 2000 /s/ BENJAMIN RAWLINS, JR. /s/ JACK W. PARKER Benjamin W. Rawlins, Jr. Jack W. Parker Chairman and Executive Vice President and Chief Executive Officer Chief Financial Officer
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 (Union Planters) and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of Union Planters' 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 auditing standards generally accepted in the United States, 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 20, 2000 71 72 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 Chief Information Officer MICHAEL B. RUSSELL Executive Vice President and 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. 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 Hogan Motor Leasing, Inc. S. LEE KLING Chairman Kling, Rechter & Company PARNELL S. LEWIS, JR. Member River Investments, LLC C. J. LOWRANCE, III President Lowrance Brothers & Company, Inc. JACKSON W. MOORE President and Chief Operating Officer Union Planters Corporation and Union Planters Bank BENJAMIN W. RAWLINS, JR. Chairman and Chief Executive Officer Union Planters Corporation and Union Planters Bank 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. 72 73 (Union Planters Corporation Logo) CORPORATE INFORMATION Annual Meeting Thursday, April 20, 2000 at 10 a.m. EDT Union Planters Bank Media Room, 7th Floor 2800 Ponce de Leon Boulevard Coral Gables, Florida 33134 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 Corporate Trust 7650 Magna Drive Belleville, IL 62223 (800) 900-4548 DIVIDEND PAYING AGENT Union Planters Bank Corporate Trust 7650 Magna Drive Belleville, IL 62223 (800) 900-4548 STOCK AND OPTION 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 3000 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP FOR FINANCIAL INFORMATION Jack W. Parker Executive Vice President and Chief Financial Officer (901) 580-6781 or Union Planters web site at http://www.unionplanters.com and click on Financials FORM 10-K Copies of Union Planters' 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 Bank Corporate Trust at the address shown. Union Planters' 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) EX-21 8 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 PAGE 1 OF 2 UNION PLANTERS CORPORATION, REGISTRANT A REGISTERED BANK HOLDING COMPANY AND A SAVINGS AND LOAN HOLDING COMPANY
STATE OR PERCENTAGE JURISDICTION OF VOTING UNDER LAWS OF SECURITIES NAME OF REGISTRANT AND SUBSIDIARIES WHICH ORGANIZED OWNED - ----------------------------------- --------------- ----------- 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 Wisconsin 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% Union Planters Insurance Agency, Inc.(e and g) Arkansas 100.00% Union Planters Insurance Agency, Inc. (e) Tennessee 100.00% MarTech, Inc. (v) Ohio 22.00% Union Planters Insurance Agency of Florida, Inc. (e) Florida 100.00% MGI Group, Inc. (e) Missouri 100.00% Magna Invest, Inc. (n and g) Missouri 100.00% Magna Insurance Agency, Inc. (n and g) Missouri 100.00% Inbank Group, Inc. (e) Missouri 100.00% Inbank Insurance Agency (o) Missouri 100.00% Union Planters Insurance Agency, Inc.(e) Mississippi 100.00% Magna Insurance Company (e) Mississippi 100.00% PFIC Iowa Agency, Inc. (e) Iowa 100.00%
2 EXHIBIT 21 PAGE 2 OF 2 UNION PLANTERS CORPORATION, REGISTRANT A REGISTERED BANK HOLDING COMPANY AND A SAVINGS AND LOAN HOLDING COMPANY
STATE OR PERCENTAGE JURISDICTION OF VOTING UNDER LAWS OF SECURITIES NAME OF REGISTRANT AND SUBSIDIARIES WHICH ORGANIZED OWNED - ----------------------------------- --------------- ----------- Union Planters Insurance Agency, 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% Capital Equity Corporation (c) Louisiana 100.00% Millcreek Development Partnership, LP (c) Tennessee 49.50% Colonial Apartments LTD (c) Florida 98.00% Interdevco, Inc. (c) Florida 100.00% Capital Factors Holding, Inc.(c) Florida 100.00% Capital Factors, Inc. (j) Florida 100.00% CF Funding Corp (k) Delaware 100.00% Capital Tempfunds, Inc. (k) North Carolina 100.00% CF One, Inc. (j) Delaware 100.00% CF Investor Corp (j) Delaware 100.00% CF Two, LLC (l) Delaware 100.00% TFB Properties, Inc. (c) Florida 100.00% Magna Data Services, Inc. (c) Missouri 100.00% Quatre, Corp. (c) Missouri 100.00% UPB Investments, Inc.(c) Tennessee 100.00% MICB, Inc. (p) Delaware 100.00% UPIB, Inc. (p) Delaware 100.00% Peoples First Acquisition Corp. (b) Kentucky 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% Tennessee Equity Mortgage Corporation (a and g) Tennessee 100.00% Guardian Realty Company (a and g) Alabama 100.00% Union Planters Capital Trust A (a) Delaware 100.00%
- -------------------------- (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 (j) Subsidiary of Capital Factors Holding, Inc (k) Subsidiary of Capital Factors, Inc. (l) Subsidiary of CF Investor Corp. (n) Subsidiary of MGI Group, Inc. (o) Subsidiary of Inbank Group, Inc. (p) Subsidiary of UPB Investments, Inc. (v) Subsidiary of Union Planters Insurance Agency, Inc. EX-23 9 CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-02377, 333-11817, 33-27814, 333-83025, and 333-85231) and Form S-8 (Nos. 333-74955, 333-76417, 333-89719, 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 20, 2000 relating to the consolidated financial statement which appears on page 71 of the 1999 Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. /s/PRICEWATERHOUSECOOPERS LLP Memphis, Tennessee March 22, 2000 EX-27 10 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF UNION PLANTERS CORPORATION FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 1 1,127,902 73,062 51,117 315,734 7,472,455 0 0 21,877,090 342,300 33,280,353 23,372,116 5,422,504 591,854 1,117,770 0 20,875 692,437 2,062,797 33,280,353 1,784,485 490,700 22,747 2,297,932 811,411 1,041,401 1,256,531 74,045 2,128 1,076,364 618,832 409,998 0 0 409,998 2.88 2.85 7.87 134,379 333,633 1,878 48,098 321,476 149,157 52,861 342,300 342,300 0 0
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