-----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, GVYl2UISXRcD2HowHuAruhwKAEZJGA6z1peeSRfnb/N92Gk1gQ98dPXx9C0Y5LKx 9hB/M0j+pq+C3/S1GM+zXQ== 0000950144-98-002851.txt : 19980318 0000950144-98-002851.hdr.sgml : 19980318 ACCESSION NUMBER: 0000950144-98-002851 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980317 SROS: CSX SROS: NYSE SROS: PHLX 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: 98567345 BUSINESS ADDRESS: STREET 1: 7130 GOODLETT FARMS PKWY CITY: MEMPHIS STATE: TN ZIP: 38018 BUSINESS PHONE: 9015806000 MAIL ADDRESS: STREET 1: 7130 GOODLETT FARMS PKWY 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, 1997 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.) 7130 Goodlett Farms Parkway, Memphis, Tennessee 38018 ----------------------------------------------------- (Address of principal executive offices) (ZIP Code) 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 (name of each exchange (title of class) on which registered) 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 (title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by nonaffiliates of the registrant at February 28, 1998 was approximately $5,003,084,000. INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK CLASS OUSTANDING AT FEBRUARY 28, 1998 Common Stock having a par 83,459,418 value of $5 per share (title of class) 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 6, 7, and 8 for the year ended December 31, 1997 2. Certain parts of the Definitive Part III Proxy Statement for the Annual Shareholders Meeting to be held April 16, 1998
2 FORM 10-K CROSS-REFERENCE INDEX
Page ---- PART I Item 1. Business 3 Item 1a. Executive Officers of the Registrant 10 Item 2. Properties 11 Item 3. Legal Proceedings 11 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 12 Item 6. Selected Financial Data 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 8. Financial Statements and Supplementary Data 12 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure * PART III Item 10. Directors and Executive Officers of the Registrant 12 Item 11. Executive Compensation 13 Item 12. Security Ownership of Certain Beneficial Owners and Management 13 Item 13. Certain Relationships and Related Transactions 13 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 13 SIGNATURES 15
* Not Applicable 2 3 PART I ITEM 1. BUSINESS GENERAL Union Planters Corporation (the Corporation) is an $18.1-billion multi-state bank holding company whose primary business is banking. The Corporation is the largest bank holding company headquatered in Tennessee and is one of the fifty largest bank holding companies headquartered in the United States. Union Planters Bank, National Association, headquartered in Memphis, Tennessee, is the Corporation's largest subsidiary. The principal banking markets of the Corporation are in Tennessee, Mississippi, Florida, Missouri, Arkansas, Louisiana, Alabama, and Kentucky. With the completion of ten pending acquisitions, the Corporation will expand in existing markets in Missouri, Kentucky, Tennessee, Florida, and Alabama and expand into new markets in Illinois, Iowa, and Texas (see the "Acquisition" discussion). The Corporation's existing market areas are served by the Corporation's 514 banking offices and 651 ATMs. The map on the inside front cover of the 1997 Annual Report to Shareholders, Table 15, and the listing of communities served on page 39 of the 1997 Annual Report to Shareholders provide information regarding the size, locations, and markets served by the Corporation's banking subsidiaries. Capital Factors, Inc. (Capital Factors), a majority-owned subsidiary of the Corporation's Florida banking subsidiary, which was acquired December 31, 1997, provides receivable-based commercial financing and related fee-based credit collection and management information services through four regional offices located in New York, New York; Los Angeles, California; Charlotte, North Carolina; and its headquarters in South Florida (Boca Raton, Florida) and an asset-based lending office in Atlanta, Georgia. As part of the Corporation's banking services, its subsidiaries are engaged in factoring operations; mortgage origination and servicing; investment management and trust services; the issuance of credit and debit cards; the origination, packaging, and securitization of loans, primarily the government-guaranteed portions of Small Business Administration (SBA) loans; the purchase of delinquent FHA/VA government-insured/guaranteed loans from third parties and GNMA pools serviced for others; full-service and discount brokerage services; commercial finance business; trade-finance activities; and the sale of bank-eligible insurance products and services. CERTAIN REGULATORY CONSIDERATIONS GENERAL As a bank holding company, the Corporation is subject to the regulation and supervision of the Board of Governors of the Federal Reserve System (the Federal Reserve Board) under the Bank Holding Company Act of 1956 (BHCA). Each of the Corporation's banking subsidiaries, including its savings bank subsidiary, is a member of the Federal Deposit Insurance Corporation (the FDIC) and as such its deposits are insured by the FDIC to the maximum extent provided by law. The Corporation's banking subsidiaries which are national banking associations, including its principal subsidiary, Union Planters National Bank, the name of which was changed to Union Planters Bank, National Association (Union Planters Bank or UPB) effective January 1, 1998, are subject to supervision and examination by the Office of the Comptroller of the Currency (the Comptroller) and the FDIC. State bank subsidiaries of the Corporation which are members of the Federal Reserve System are subject to supervision and examination by the Federal Reserve Board and the state banking authorities of the states in which they are located. State bank subsidiaries which are not members of the Federal Reserve System are subject to supervision and examination by the FDIC and the state banking authorities of the states in which they are located. The Corporation's savings bank subsidiary is subject to supervision and examination by the Office of Thrift Supervision (OTS). The Corporation's banking subsidiaries are subject to an extensive system of banking laws and regulations that are intended primarily for the protection of their customers and depositors. These laws and regulations include requirements to maintain reserves against deposits, restrictions on the types and amounts of loans and other extensions of credit that may be granted and the interest that may be charged thereon and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of the banking subsidiaries. In addition to the impact of regulation, the banking subsidiaries are affected significantly by the actions of the Federal Reserve Board as it attempts to control the money supply and credit availability 3 4 in order to influence the economy. Set forth below are brief descriptions of selected laws and regulations applicable to the Corporation and its subsidiaries. The references are not intended to be complete and are qualified in their entirety by reference to the statutes and regulations. Changes in applicable law or regulation may have a material effect on the business of the Corporation. Under the BHCA, the Federal Reserve Board's prior approval is required where the Corporation proposes to acquire all or substantially all of the assets of any bank, acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank, or merge or consolidate with any other bank holding company. The BHCA also prohibits, with certain exceptions, the Corporation from acquiring direct or indirect ownership or control of more than 5% of any class of voting shares of any nonbanking corporation. Under the BHCA, the Corporation may not engage in any business other than managing and controlling banks or furnishing certain specified services to subsidiaries and may not acquire voting control of nonbanking corporations unless the Federal Reserve Board determines such businesses and services to be closely related to banking or a proper incident thereto. The BHCA further provides that the Federal Reserve Board may not approve any transaction that would result in a monopoly or would be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking in any section of the United States, or the effect of which may be substantially to lessen competition or to tend to create a monopoly in any section of the country, or that in any other manner would be in restraint of trade, unless the anticompetitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served. The Federal Reserve Board is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be served. Consideration of financial resources generally focuses on capital adequacy and consideration of convenience and needs issues includes the parties' performance under the Community Reinvestment Act of 1977, as amended (the CRA). INTERSTATE BANKING The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the Interstate Act) effected changes in overriding federal law so as to permit bank holding companies to acquire banks headquartered in any state notwithstanding any state law prohibiting bank acquisitions across state lines. The Interstate Act also relaxed significant limitations upon the branching of banks across state lines. Banks may now lawfully branch across state lines by merging a bank located in one state into a bank located in another, whereupon the main office and branches of the merging bank would become branches of the survivor. This procedure is not permissible for banks headquartered in Texas and Montana which effectively exercised their rights under the Interstate Act to "opt-out" of interstate branching. The Texas "opt-out" expires September 2, 1999. Since the laws of most states, including Tennessee, forbid multi-state branching, neither the de novo establishment of branches across state lines nor the acquisition from other banks of existing branches across state lines would ordinarily be lawful. Thus, the acquisition of branches operating in other states is ordinarily limited to acquisition by bank merger as now permitted by the Interstate Act which preempts inconsistent state law. However, a bank which is already operating a lawfully acquired branch in another state may ordinarily establish new branches in that state to the same extent that a bank headquartered in that state may lawfully establish branches there. The Interstate Act made it possible for the Corporation to merge 31 of its banking subsidiaries with and into UPB, its principal banking subsidiary headquartered in Memphis, Tennessee, since many of the 31 subsidiaries were headquartered in states other than Tennessee. These 31 mergers became effective January 1, 1998 and, as a result of their consummation, UPB has become a multi-state bank with offices in Tennessee, Mississipi, Missouri, Arkansas, Louisiana, Alabama, and Kentucky. Management anticipates that substantially all of the Corporation's banking subsidiaries, including any which may be acquired after January 1, 1998, would ultimately be merged with and into UPB to the extent allowed by effective law. 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 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," may consist of limited amounts of subordinated debt, 4 5 qualifying hybrid capital instruments, other preferred stock and a limited amount of loan loss reserves. 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% to 5%. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions are expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance upon intangible assets. Furthermore, the Federal Reserve Board has indicated that it will consider a "tangible Tier 1 Capital Leverage Ratio" (deducting all intangibles) and other indicia of capital strength in evaluating proposals for expansion or new activities. At December 31, 1997, the Corporation's Total Risk-Based Capital Ratio was 18.12%; its Tier 1 Risk-Based Capital Ratio (i.e., its ratio of Tier 1 Capital to risk-weighted assets) was 15.51%; and its Leverage Ratio was 10.48%. In addition, each of the Corporation's banking subsidiaries satisfied the minimum capital requirements applicable to it and had the requisite capital levels to qualify as a "well-capitalized" institution under the prompt corrective action provisions discussed below. Such 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 (i) it is either well capitalized or (ii) it is adequately capitalized and receives a waiver from the FDIC. All of the Corporation's banking subsidiaries are subject to Risk-Based and Leverage Capital Ratio requirements adopted by their respective federal regulators which are substantially similar to those adopted by the Federal Reserve Board. As of December 31, 1997, the Total and Tier 1 Risk-Based Capital and Leverage Ratios of UPB, the Corporation's largest bank subsidiary, were 16.28%, 15.02%, and 9.21%, respectively. Subsequent to the mergers of 31 of the Corporation's banking subsidiaries into UPB effective January 1, 1998, on a pro forma basis those ratios were, respectively, 14.05%, 12.89%, and 8.39%. Neither the Corporation nor any of its banking subsidiaries has been advised by any federal banking agency of any specific minimum capital ratio requirement applicable to it. 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 capital regulations, a bank is defined to be well capitalized if it maintains a Leverage Ratio of at least 5%, a Tier 1 Risk-Based Capital Ratio of at least 6% and a Total Risk-Based Capital Ratio of at least 10% and it is not subject to an order, written agreement, capital directive, or prompt corrective action directive to meet and maintain a specific level for any capital measure. A bank is defined to be adequately capitalized if the institution has a Total Risk-Based Capital Ratio of 8.0% or greater, a Tier 1 Risk-Based Capital Ratio of 4.0% or greater, and a Leverage Ratio of 4.0% or greater (or a Leverage Ratio of 3.0% or greater if the institution is rated composite 1 in its most recent report of examination, subject to appropriate Federal banking agency guidelines) and the institution does not meet the definition of a well capitalized institution. In addition, a bank will be considered "undercapitalized" if it fails to meet any minimum required measure, "significantly undercapitalized" if it is significantly below such measure, and "critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. 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. 5 6 COMMUNITY REINVESTMENT All the Corporation's banking subsidiaries are subject to the provisions of the Community Reinvestment Act (CRA) and the federal banking agencies' other implemented regulations. Under the CRA, all financial institutions have a continuing and affirmative obligation consistent with their safe and sound operation to help meet the credit needs of their entire communities, including low- to moderate- income neighborhoods. The CRA does not establish specific lending requirements or programs for products and services. The CRA requires the federal banking agencies, in connection with their examination of a depository institution, to assess the institution's record in assessing and meeting the credit needs of the community served by that institution, including low- to moderate-income neighborhoods. The regulatory agency's assessment of the institution's record is made available to the public. Further, such assessment is required of any institution which has applied to: (i) charter a national bank; (ii) obtain deposit insurance coverage for a newly chartered institution; (iii) establish a new branch office that will accept deposits; (iv) relocate an office; or (v) merge or consolidate with, or acquire the assets or assume the liabilities of, a federally regulated financial institution. When a bank holding company applies for approval to acquire a bank or bank holding company, the Federal Reserve Board will assess the records of each subsidiary depository institution of the applicant bank holding company and such records may be the basis for denying the application. Based on their most recent CRA compliance examinations, the Corporation's subsidiary banks and thrifts all received at least a "satisfactory" CRA rating. DIVIDEND RESTRICTIONS The Corporation is a legal entity separate and distinct from its banking subsidiaries and its nonbanking subsidiaries. The Corporation's revenues (on a parent company only basis) result, in significant part, from dividends paid to the Corporation by its subsidiaries. The right of the Corporation, and consequently the rights of creditors and shareholders of the Corporation, to participate in any distribution of the assets or earnings of any subsidiary through the payment of such dividends, or otherwise, is necessarily subject to the prior claims of creditors of the subsidiary (including depositors, in the case of banking subsidiaries) except to the extent that claims of the Corporation in its capacity as a creditor may be recognized. There are statutory and regulatory requirements applicable to the payment of dividends to the Corporation by its banking subsidiaries. Each national banking association subsidiary of the Corporation is required by federal law to obtain the prior approval of the Comptroller for the declaration of dividends if the total of all dividends to be declared by the board of directors of such bank in any year would exceed the total of (i) such bank's net profits (as defined and interpreted by regulation) for that year, plus (ii) the retained net profits (as defined and interpreted by regulation) for the preceding two years, less any required transfers to surplus. The Corporation's state-chartered banking subsidiaries are subject to similar restrictions on the payment of dividends by the respective state laws under which they are organized. Furthermore, all depository institutions are prohibited from paying any dividends, making other distributions, or paying any management fees if, after such payment, the depository institution would fail to satisfy its minimum capital requirements. In accordance with the specified calculations, at January 1, 1998, approximately $103 million was available for distribution to the Corporation by the banking subsidiaries without obtaining prior regulatory approval. Future dividends will depend primarily upon the level of earnings of the banking subsidiaries of the Corporation. Federal banking regulators also have the authority to prohibit banks and bank holding companies from paying a dividend if they should deem such payment to be an unsafe or unsound practice. SUPPORT OF BANKING SUBSIDIARIES Under Federal Reserve Board policy, the Corporation is expected to act as a source of financial strength to its banking subsidiaries and, where required, to commit resources to support each of such subsidiaries. Moreover, if one of its banking subsidiaries should become undercapitalized, under FDICIA the Corporation would be required to guarantee the subsidiary bank's compliance with its capital plan in order for such plan to be accepted by the federal regulatory authority. Under the "cross guarantee" provisions of the Federal Deposit Insurance Act (the FDI Act), any FDIC-insured subsidiary of the Corporation may be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of any other commonly controlled FDIC-insured subsidiary or (ii) any assistance provided by the FDIC to any commonly controlled FDIC-insured subsidiary in danger of default. Such liability could have a material adverse effect on the financial condition of any assessed bank and the Corporation. While the FDIC's claim is junior to the claims of depositors, holders of secured liabilities, 6 7 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 its bank subsidiaries. In general, these restrictions require that any such extensions of credit must be on nonpreferential terms and secured by designated amounts of specified collateral and be limited, as to any one of the holding company or the holding company's nonbank subsidiaries, to 10% of the lending bank's capital stock and surplus, and as to the holding company and all such nonbank subsidiaries in the aggregate, to 20% of such capital stock and surplus. FDIC DEPOSIT INSURANCE Currently, certain deposits of financial institutions are separately insured under two deposit-insurance funds, both administered by the FDIC. They are 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. The targeted designated reserve ratio (DRR), i.e., the ratio of the net worth of each of the two funds to the aggregate amount of deposits insured by it, is 1.25%. Significant claims made against the two funds, especially the SAIF, have been paid over recent years due to failures of banks and savings associations. Through deposit-insurance assessments made by the FDIC, the BIF's DRR was restored to 1.25% of insured deposits in 1995; however, at September 30, 1996, approximately $4.5 billion was required to restore the SAIF's DRR to that level. On that date the Deposit Insurance Funds Act of 1996 (the Funds Act) became law. The Funds Act required the FDIC to impose a one-time assessment on SAIF-assessable deposits (including 80% of those which had been acquired by banks, i.e., so-called "Oakar" Deposits) sufficient to capitalize the SAIF at its targeted DRR of 1.25%. In response, the FDIC imposed an assessment of 65.7 basis points on SAIF-assessable deposits deemed to have been held as of March 31, 1995. Since certain of its banking subsidiaries held SAIF-assessable (including "Oakar") deposits, the Corporation incurred a SAIF-assessment expense of $28.2 million at September 30, 1996. Under the Funds Act, the BIF and the SAIF would be merged on the date as of which the last savings association shall cease to exist. The SAIF was initially funded by issuance of Financing Corporation bonds (the FICO Bonds). The Funds Act provides that 20% of the interest payable on the FICO Bonds shall be assessed against BIF-assessable deposits and the remaining 80% against SAIF-assessable deposits prior to the merger of the BIF and SAIF to form the Deposit Insurance Fund (the DIF). After the merger, DIF-assessable deposits would be assessed for 100% of the FICO Bond interest, since the separate existence of the BIF and SAIF would have ceased. 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. 7 8 PROPOSED LEGISLATION Because of concerns relating to the competitiveness and the safety and soundness of the industry, Congress continues to consider a number of wide-ranging proposals for altering the structure, regulation, and competitive relationships of the nation's financial institutions. Among such bills are proposals to combine banks and thrifts into a unified charter, to alter the statutory separation of commercial and investment banking, and to further expand or change the regulation of the powers of depository institutions, bank holding companies, and competitors of depository institutions. It cannot be predicted whether, or in what form, any of these proposals will be adopted or the extent to which the business or financial condition of the Corporation may be affected thereby. PERSONNEL As of February 28, 1998, the Corporation, including all subsidiaries, had 8,400 employees (including 1,502 part-time employees). STATISTICAL DISCLOSURES The statistical information required by Item 1 may be found in the 1997 Annual Report to Shareholders (Exhibit 13 hereto) which, to the extent indicated, is hereby incorporated herein by reference, as follows:
Page in the Corporation's 1997 Annual Report to Guide 3 Disclosure Shareholders* ------------------ -------------------------- I. Distribution of Assets, Liabilities, and Shareholders' Equity; Interest Rates and Interest Differential A. Average Balance Sheet 29 B. Net Interest Earnings Analysis 29 C. Rate/Volume Analysis 30 II. Investment Portfolio A. Book Value of Investment Securities 35, 51, and 52 B. Maturities of Investment Securities 52 C. Investment Securities Concentrations Not applicable III. Loan Portfolio A. Types of Loans 31 and 53 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 32 and 33 2. Potential Problem Loans 20 3. Foreign Outstandings Not significant 4. Loan Concentrations 19 D. Other Interest-Bearing Assets Not significant IV. Summary of Loan Loss Experience A. Analysis of Allowance for Loan Losses 33 B. Allocation of the Allowance for Loan Losses 32 V. Deposits A. Average Balances 29 and 31 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 Assets 8 B. Return on Equity 8 C. Dividend Payout Ratio 8 D. Equity to Assets Ratio 8 VII. Short-Term Borrowings 55
*Unless otherwise noted 8 9 The following table presents the maturities and sensitivities of the Corporation's loans to changes in interest rates at December 31, 1997:
DUE DUE AFTER ONE DUE AFTER WITHIN BUT WITHIN FIVE ONE YEAR FIVE YEARS YEARS -------- ---------- ----- (DOLLARS IN THOUSANDS) Commercial, Financial, and Agricultural $1,792,937 $ 612,816 $ 179,132 Real Estate - Construction 422,265 153,683 63,748 Foreign 197,042 9,546 755 ---------- ---------- ---------- Total $2,412,244 $ 776,045 $ 243,635 ========== ========== ========== Fixed Rate $ 561,641 $ 138,046 ========== ========== Variable Rate $ 214,404 $ 105,589 ========== ==========
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, 1997 --------------------- (DOLLARS IN THOUSANDS) Under 3 Months $ 539,829 3 to 6 Months 324,399 6 to 12 Months 420,899 Over 12 Months 265,793 ---------- Total $1,550,920 ==========
9 10 ITEM 1a. EXECUTIVE OFFICERS OF THE REGISTRANT The following lists the executive officers of the Corporation. Information regarding the executive officers, their present positions held with the Corporation and its subsidiaries, their ages, and their principal occupations for the last five years are as follows:
Position of Executive Officers Name with the Corporation and UPB Age - --------------------------- ---------------------------------------- ----- Benjamin W. Rawlins, Jr. Chairman and Chief Executive Officer 60 of the Corporation and UPB Jackson W. Moore President and Chief Operating Officer 49 of the Corporation and UPB Jack W. Parker Executive Vice President and 51 Chief Financial Officer of the Corporation and UPB M. Kirk Walters Senior Vice President, Treasurer, and 57 Chief Accounting Officer of the Corporation and UPB James A. Gurley Executive Vice President of the 64 Corporation and UPB J. Armistead Smith Executive Vice President and 62 Senior Lending Officer of the Corporation and UPB
Mr. Rawlins has been Chairman of the Corporation since April 1989, and Chairman of UPB from January 1986 until December 1996 when he was elected Vice Chairman. He has also served as Chief Executive Officer of the Corporation and UPB since September 1984. On January 1, 1998, he was reelected to the position of Chairman of UPB. Mr. Rawlins was President of the Corporation from September 1984 until he was elected Chairman. Mr. Moore has been President of the Corporation since April 1989 and was elected President of UPB January 1, 1998. In April 1994, Mr. Moore was elected Chief Operating Officer of the Corporation and was elected to the same position with UPB January 1, 1998. He is also Chairman of PSB Bancshares, Inc., and is a Vice President and Director of its subsidiary, The Peoples Savings Bank (not an affiliate bank of the Corporation), located in Clanton, Alabama. He has served on the Boards of the Corporation and UPB since 1986. Mr. Parker has been Executive Vice President and Chief Financial Officer of the Corporation and UPB since March 1990. From 1987 until being elected to these positions with the Corporation, he was an Executive Vice President of UPB and President of the Mortgage Banking Group of UPB. Mr. Walters was elected Senior Vice President of the Corporation in November 1990 and has been Chief Accounting Officer since February 1990. He has been Treasurer of the Corporation since 1985. He was a Vice President of the Corporation from 1975 until he was elected to his current position. Mr. Walters has been an officer of UPB for more than twenty years and is currently a Senior Vice President. Mr. Gurley was elected Executive Vice President of the Corporation in November 1990. He was a Vice President of the Corporation from 1980 until he was elected Executive Vice President. He has been an officer of UPB for more than twenty years and is currently an Executive Vice President. Mr. Smith became Executive Vice President and Senior Lending Officer of the Corporation and UPB in April 1997. Prior to that, Mr. Smith was Vice Chairman of the Corporation from 1989 to 1994. In 1994 he became Chairman of the East Tennessee Region of UPB which later became Union Planters Bank of East Tennessee, N.A., headquartered in Knoxville. From 1992 to 1994, Mr. Smith was President of UPC's Community Bank Group. 10 11 ITEM 2. PROPERTIES The Corporation's corporate headquarters are located in the company-owned Union Planters Administrative Center at 7130 Goodlett Farms Parkway, Memphis, Tennessee, a three-building complex located near the center of Shelby County. In addition to being the corporate headquarters, it contains approximately 250,000 square feet of space and houses BankCards, Mortgage Servicing and Origination, Funds Management, Data Processing, Operations, Human Resources, Financial, Legal, Credit and Review, and Marketing. A 126,000-square-foot addition to the Administrative Center was completed in June 1997 to accommodate the growth related to the recent acquisitions, primarily the Leader Financial Corporation (Leader) acquisition. The total cost of this addition, including site improvements, was approximately $13.1 million. Certain space occupied previously by Leader was vacated and its occupants were moved to the new building which is expected to be more efficient than the vacated space. Savings are expected from this move but the amount thereof cannot be quantified at this time. UPB's headquarters is located in a 70,000 square-foot company-owned building at 6200 Poplar Avenue in East Memphis. In addition to its headquarters, the building also houses UPB's Commercial Group, Trust Group, and Retail Group Administration. As of March 1, 1998, the Corporation operated 195 banking offices in Tennessee, 142 in Mississippi, 28 in Florida, 51 in Missouri, 42 in Arkansas, 22 in Louisiana, 30 in Alabama, and 4 locations in Kentucky. The majority of these locations are owned. A majority-owned subsidiary, Capital Factors, Inc. has operations in leased facilities in Boca Raton and Ft. Lauderdale, Florida; Los Angeles, California; New York, New York; Charlotte, North Carolina; and Atlanta, Georgia. The subsidiaries also operate 675 twenty-four-hour automated teller locations. There are no material encumbrances on any of the company-owned properties. ITEM 3. LEGAL PROCEEDINGS The Corporation and/or various subsidiaries are parties to various pending civil actions, all of which are being defended vigorously. Additionally, the Corporation and/or its subsidiaries are parties to various legal proceedings that have arisen in the ordinary course of business. Management is of the opinion, based upon present information including evaluations of outside counsel, that neither the Corporation's financial position, results of operations, nor liquidity will be materially affected by the ultimate resolution of pending or threatened legal proceedings. The Corporation's five 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 (UPC Banks), which were merged into UPB January 1, 1998, are defendants in various suits related to the placement of collateral protection insurance(CPI) by the UPC Banks in the 1980s and early 1990s. On September 28,1995 and October 18,1995, two purported class actions were filed in the U. S. District Court for the Southern District of Mississippi. Both actions were consolidated and identified Vivian McCaskill as the representative of a class of persons who financed personal property through the UPC Banks and were force placed with Prudential Property and Casualty Insurance Company's (Prudential) collateral protection insurance. The consolidated action (Consolidated Action) names as defendants the UPC Banks, Prudential, National Underwriters of Delaware, Inc., and several Ross & Yerger entities and includes allegations that premiums were excessive and improperly calculated; coverages were improper and not disclosed; and improper payments were paid to the UPC Banks by the insurance companies, allegedly constituting violations of various state and federal laws and common law. The relief sought in the purported class actions includes actual damages, treble damages under certain statutes, other statutory damages, and unspecified punitive damages. The CPI programs appear to have been substantially similar in many respects to CPI programs of other Mississippi banks, often with the same insurance companies. Consequently, there are similar putative class actions pending against various Mississippi banks (including those against the UPC Banks), various insurance agencies, and companies based upon their CPI programs. During the fourth quarter of 1997 an agreement in principle was reached by the UPC Banks with attorneys for the putative class to settle the Consolidated Action within amounts previously established. Final agreement is subject to execution of a definitive agreement, court approval, and the UPC Banks' acceptance of the number of opt-outs from the class settlement. Eight individual actions filed in state and federal courts against the UPC Banks, with similar allegations, and seeking compensatory and punitive damages, remain pending. Other subsidiaries of the Corporation were involved in similar litigation relating to CPI on mobile home loans to Alabama borrowers. On June 8,1995, a suit was filed in 11 12 Greene County, Alabama, by Jeri Lynn Plowman and other individuals against American Bankers Insurance Company of Florida, Inc., Leader Federal Savings and Loan Association of Memphis, and seventeen other defendants requesting $200 million in punitive damages against each defendant (Plowman). On June 14, 1995, a counterclaim to a foreclosure suit was filed by the defendants in Leader Federal Bank v. Brown, et al (Brown) in the Circuit Court of Tuscaloosa County, Alabama, demanding judgment for compensatory damages and punitive damages of $10 million for alleged wrongdoing with respect to the CPI related to the defendant's loan. An agreement to settle Plowman and Brown was reached, and approval of the Circuit Court of Tuscaloosa County, Alabama, obtained (certifying as a class all Alabama residents whose mobile home loans were originated or assigned to Leader Federal and were charged for CPI from January 1, 1986 through October 1, 1996), in the fourth quarter of 1996, within amounts previously established and payments to class members were substantially completed during 1997. In January 1996, two individual suits were filed by Queen Ford (who was excepted from the class described above) in the Circuit Court of Greene County, Alabama, against Leader Federal Bank for Savings, a subsidiary, and an unrelated insurance company alleging wrongful placement of insurance on plaintiff's mobile home. One such case demanded compensatory damages of $5,000 and punitive damages of $20 million, while the other sought $10,000 in compensatory damages and $50 million in punitive damages. These suits were settled during 1997 for nominal amounts. In July 1991, UPNB was joined with nine other banks(including Leader Federal) as defendants in a civil action in the Circuit Court of Shelby County, Tennessee, which, as ultimately amended, alleged that the banks unlawfully conspired to fix the charges for checks drawn on insufficient funds and sought recovery for fees charged for deposited third-party checks which were returned uncollected. In March 1992, the state court proceeding was dismissed, which dismissal the Tennessee Court of Appeals affirmed. In 1995, the Tennessee Supreme Court reversed its earlier decision declining to review the state court action and agreed to hear plaintiffs' appeal. During the first quarter of 1997, the Tennessee Supreme Court denied plaintiffs' petition and petition to rehear, thus terminating this action. A related federal court action was terminated during the first quarter of 1996. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information required by Item 5 is included in Table 14 captioned "Selected Quarterly Data" included in the Corporation's 1997 Annual Report to Shareholders on pages 36 and 37, which information is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information required by Item 6 is included under the heading "Selected Financial Data" in the Corporation's 1997 Annual Report to Shareholders on page 8, which information is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by Item 7 is included under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Corporation's 1997 Annual Report to Shareholders on pages 9 - 39, which information is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by Item 8 is included in the Corporation's 1997 Annual Report to Shareholders on pages 40 - 71, and in Table 14 captioned "Selected Quarterly Data" on pages 36 and 37, which pages are incorporated herein by reference. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 as to the directors of the Corporation is included under the heading "Proposal I: Election of Directors" on pages 2 - 6 and under the heading "Director Compensation" on page 6 of the definitive proxy statement of the Corporation to be used in 12 13 soliciting proxies for the Annual Meeting of shareholders to be held on April 16, 1998 (Proxy Statement), which information is incorporated herein by reference. 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. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 as to compensation of directors and executive officers is included under the heading "Proposal I: Election of Directors" on pages 2 - 6 and under the heading "Certain Information as to Management" on pages 7 - 16 of the Proxy Statement, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 as to certain beneficial owners and management is included under the heading "Proposal I: Election of Directors" on pages 2 - 6 of the Proxy Statement, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 as to transactions and relationships with certain directors and executive officers of the Corporation and their associates is included under the heading "Certain Relationships and Transactions" on page 16 of the Proxy Statement, which information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) The following audited consolidated financial statements of Union Planters Corporation and Subsidiaries, included in the Corporation's 1997 Annual Report to Shareholders, are incorporated herein by reference in response to Part II, Item 8:
Page in Annual Report ------------- Report of Management 40 Report of Independent Accountants 41 Consolidated Balance Sheet - December 31, 1997 and 1996 42 Consolidated Statement of Earnings - Years ended December 31, 1997, 1996, and 1995 43 Consolidated Statement of Changes in Shareholders' Equity - Years ended December 31, 1997, 1996, and 1995 44 Consolidated Statement of Cash Flows - Years ended December 31, 1997, 1996, and 1995 45 Notes to Consolidated Financial Statements 46
(a)(2) All schedules have been omitted, since the required information is either not applicable, not deemed material, or is included in the respective consolidated financial statements or in the notes thereto. (a)(3) Exhibits: The exhibits listed in the Exhibit Index on pages i and ii, following page 18 of this Form 10-K are filed herewith or are incorporated herein by reference. 13 14 (b) Reports on Form 8-K:
Date of Current Report Subject ---------------------- ------------------------------------------- October 16, 1997 Press Release announcing Third Quarter 1997 operating results November 17, 1997 Announcement of an agreement to acquire Peoples First Corporation January 15, 1998 Press Release announcing Fourth Quarter 1997 and annual operating results February 23, 1998 Announcement of an agreement to acquire Magna Group, Inc.
14 15 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 16, 1998 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 16th day of March, 1998. /s/ Benjamin W. Rawlins, Jr. /s/ Jack W. Parker - ---------------------------------------- ---------------------------------- Benjamin W. Rawlins, Jr. Jack W. Parker Chairman, Chief Executive Officer, and Executive Vice President and Director Chief Financial Officer /s/ Jackson W. Moore /s/ M. Kirk Walters - ---------------------------------------- ---------------------------------- Jackson W. Moore M. Kirk Walters President, Chief Operating Officer, and Senior Vice President, Treasurer, Director and Chief Accounting Officer /s/ Albert M. Austin - ---------------------------------------- ---------------------------------- Albert M. Austin Stanley D. Overton Director Director /s/ Edgar H. Bailey /s/ Dr. V. Lane Rawlins - ---------------------------------------- ---------------------------------- Edgar H. Bailey Dr. V. Lane Rawlins Director Director /s/ Marvin E. Bruce /s/ Donald F. Schuppe - ---------------------------------------- ---------------------------------- Marvin E. Bruce Donald F. Schuppe Director Director /s/ George W. Bryan - ---------------------------------------- ---------------------------------- George W. Bryan Mike P. Sturdivant Director Director /s/ James E. Harwood /s/ David M. Thomas - ---------------------------------------- ---------------------------------- James E. Harwood David M. Thomas Director Director /s/ Parnell S. Lewis, Jr. - ---------------------------------------- ---------------------------------- Parnell S. Lewis, Jr. Richard A. Trippeer, Jr. Director Director /s/ C. J. Lowrance III /s/ Spence L. Wilson - ---------------------------------------- ---------------------------------- C. J. Lowrance III Spence L. Wilson Director Director 15 16 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 November 17, 1997, by and between 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(d) 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) 3(a) Restated Charter of Incorporation, as most recently amended on February 20, 1997, of Union Planters Corporation (incorporated by reference to Exhibit 3(a) to Union Planters Corporation's Annual Report on Form 10-K dated December 31, 1996, Commission File No. 1-10160) 3(b) Amended and Restated Bylaws, as most recently amended on February 20, 1997, of Union Planters Corporation (incorporated by reference to Exhibit 3(b) to Union Planters Corporation's Annual Report on Form 10-K dated December 31, 1996, Commission File No. 1-10160) 4(a) Rights Agreement, dated January 19, 1989 between Union Planters Corporation and Union Planters National Bank, including Form of Rights Certificate (Exhibit A), and a Form Summary of Rights (Exhibit B) (incorporated by reference to Exhibit 1 to Union Planters Corporation's Registration Statement on Form 8-A dated as of January 19, 1989 and on Form 8-K filed February 1, 1989, Commission File No. 0-6919) 4(b) Indenture dated as of October 1, 1992 between Union Planters Corporation and The First National Bank of Chicago (Trustee) for $40,250,000 of 8 1/2% Subordinated Notes due 2002 (2) 4(c) Subordinated Indenture dated as of October 15, 1993 between the Corporation and The First National Bank of Chicago as Trustee (3) 4(d) Form of Subordinated Debt Security (6.25% Subordinated Notes due 2003) (4) 4(e) Form of Subordinated Debt Security (6 3/4% Subordinated Notes due 2005) (5) 4(f) All instruments defining the rights of the holders of the "Corporation-obligated Mandatorily Redeemable Capital Pass-through Securities of Subsidiary Trust holding solely a Corporation Guaranteed Related Subordinated Note issued by Union Planters Corporation," including the Indenture dated as of December 12, 1996, the First Supplemental Indenture, the Amended and Restated Declaration of Trust, the Capital Securities Guarantee Agreement and the Global Securities representing the interests of such holders, which instruments are not being filed herewith in reliance upon Item 601(b)(4)(iii)(A) of Regulation S-K and the related AGREEMENT PURSUANT TO ITEM 601(b)(4)(iii)(A) OF REGULATION S-K dated March 16, 1998 of Union Planters Corporation filed with the Commission, a copy of which is Exhibit 4(g) hereto
i 17 4(g) Copy of Registrant's AGREEMENT PURSUANT TO ITEM 601(b)(4)(iii)(A) OF REGULATION S-K dated March 16, 1998 (filed herewith) 10(a) Amended and Restated Employment Agreement between Union Planters Corporation and Benjamin W. Rawlins, Jr., (incorporated by reference to Exhibit 10(a) to Union Planters Corporation's Quarterly Report on Form 10-Q dated March 31, 1997, Commission File No. 1-10160) 10(b) Amended and Restated Employment Agreement between Union Planters Corporation and Jackson W. Moore (incorporated by reference to Exhibit 10(b) to Union Planters Corporation's Quarterly Report on Form 10-Q dated March 31, 1997, Commission File No. 1-10160) 10(c) Employment Agreement between Union Planters Corporation and J. Armistead Smith (incorporated by reference to Exhibit 10(b) to the Annual Report on Form 10-K dated December 31, 1992) 10(d) Deferred Compensation Agreements between Union Planters Corporation and certain highly compensated officers (specimen copy) (incorporated by reference to Exhibit 10(g) to the Annual Report on Form 10-K dated December 31, 1989, filed on March 26, 1990, Commission File No. 0-6919) 10(e) Union Planters Corporation 1983 Stock Incentive Plan as amended January 18, 1990 and approved by shareholders on April 20, 1990 (1) 10(f) Union Planters Corporation 1992 Stock Incentive Plan as Amended and Restated October 17, 1996 and approved by shareholders April 17, 1997 (incorporated by reference to Exhibit 10(c) to Union Planters Corporation's Quarterly Report on Form 10-Q dated March 31, 1997 Commission File No. 1-10160) 10(g) Deferred Compensation Agreements between Union Planters Corporation and Union Planters National Bank and certain outside directors (incorporated by reference to Exhibit 10(m) to the Annual Report on Form 10-K dated December 31, 1989 filed on March 26, 1990, Commission File No. 0-6919) 10(h) Executive Deferred Compensation Agreement between Union Planters Corporation and certain highly compensated officers (incorporated by reference to Exhibit 10(n) to the Annual Report on Form 10-K dated December 31, 1989 filed on March 26, 1990, Commission File No. 0-6919) 10(i) Amendment to Union Planters Corporation Supplemental Executive Retirement Plan for Executive Officers (incorporated by reference to Exhibit 10(d) to the Quarterly Report on Form 10-Q dated March 31, 1997, Commission File No. 1-10160) 10(j) Union Planters Corporation Executive Deferred Compensation Plan for Executives as Amended (incorporated by reference to Exhibit 10 to the Quarterly Report on Form 10-Q dated September 30, 1997 Commission File No. 1-10160) 10(k) Stock Option Agreement, dated March 9, 1996, issued by Leader Financial Corporation to Union Planters Corporation (incorporated by reference to Exhibit 2.2 to Union Planters Corporation's Current Report on Form 8-K dated March 8, 1996, filed on March 13, 1996, Commission File No. 1-10160) 10(l) Amendment No. 1 to Union Planters Corporation's Deferred Compensation Plan for Executives (incorporated by reference to Exhibit 10(e) to the Quarterly Report on Form 10-Q dated March 31, 1997, Commission file No. 1-10160). 10(m) Union Planters Corporation Supplemental Executive Retirement Plan for Executive Officers (incorporated by reference to Exhibit 10 to the Quarterly Report on Form 10-Q dated March 31, 1995, Commission File No. 1-10160) 11 Computation of Per Share Earnings (incorporated by reference to Note 16 on pages 66 and 67 to the Registrant's 1997 consolidated financial statements included as Exhibit 13 herein) 13 1997 Annual Report to Security Holders (filed herewith) 21 Subsidiaries of the Registrant (filed herewith)
ii 18 23 Consent of Price Waterhouse LLP (filed herewith) 27 Financial Data Schedule (for SEC use only) (filed herewith) - -------------------- (1) Incorporated by reference to Exhibit 4(a) filed as part of Registration Statement No. 33-35928, filed July 23, 1990 (2) Incorporated by reference to Exhibit 4 filed as part of Registration Statement No. 33-52434, filed October 19, 1992 (3) Incorporated by reference to Exhibit 4(a) filed as part of Registration Statement No. 33-50655, filed October 21, 1993 (4) Incorporated by reference to Exhibit 4(b) filed as part of Registration Statement No. 33-50655, filed October 21, 1993 (5) Incorporated by reference to Exhibit 4(b) filed as part of Registration Statement No. 33-63791, filed October 27, 1995 iii EX-4.G 2 COPY OF REGISTRANT'S AGREEMENT 1 EXHIBIT 4(G) AGREEMENT PURSUANT TO ITEM 601(b)(4)(iii) OF REGULATION S-K The Registrant hereby undertakes and agrees to furnish to the Securities and Exchange Commission upon request a copy of any instrument relating to, or defining the rights of the holders of, any long-term debt of the Registrant and/or its subsidiaries, a copy of which has not been filed in reliance upon Item 601(b)(4)(iii)(A) of Regulation S-K or which, although previously filed, shall have become stale in the sense of Item 10(d) of Regulation S-K or which shall have been disposed of by the Commission pursuant to its Record Control Schedule. This Agreement and undertaking is intended to be effective with respect to Registrant's Long-term Debt instruments whether securities have been issued thereunder or are yet to be issued thereunder. Date: March 16, 1998 By: /s/ Benjamin W. Rawlins, Jr. ------------------------------------ Benjamin W. Rawlins, Jr. Chairman and Chief Executive Officer EX-13 3 1997 ANNUAL REPORT TO SECURITY HOLDERS 1 EXHIBIT 13 1997 ANNUAL REPORT UNION PLANTERS CORPORATION LOGO 2 UNION PLANTERS CORPORATION LOGO MARKET AREAS SERVED Alabama, Arkansas, Florida, Illinois, Iowa, Kentucky, Louisiana, Mississippi, Missouri, Tennessee, and Texas Figure 1 - The inside front cover of Exhibit 13 (Union Planters Corporation's Annual Report to Shareholders for 1997) contains a map of the states of Alabama, Arkansas, Florida, Illinois, Iowa, Kentucky, Louisiana, Mississippi, Missouri, Tennessee, and Texas showing the counties and parishes where Union Planters Corporation affiliates and pending acquisitions have banking locations and the headquarters for Union Planters Corporation. 3 UNION PLANTERS CORPORATION AND SUBSIDIARIES FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------- DECEMBER 31, 1997 1996 % CHANGE - -------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) FOR THE YEAR Net earnings $ 208,761 $ 171,474 21.74% PER COMMON SHARE Net earnings Basic $ 2.54 $ 2.13 19.25% Diluted 2.45 2.05 19.51 Cash dividends 1.495 1.08 38.43 Book value 20.72 19.57 5.88 AT YEAR END Total assets $18,105,079 $18,330,588 (1.23)% Earning assets 16,398,087 16,561,265 (0.99) Loans, net of unearned income 12,658,564 12,578,571 0.64 Allowance for losses on loans 225,389 189,118 19.18 Total deposits 13,440,269 13,514,144 (0.55) Shareholders' equity 1,746,866 1,618,883 7.91 Common shares outstanding (in thousands) 81,651 78,447 4.08 KEY RATIOS Return on average assets 1.16% .94% Return on average common equity 12.54 11.38 Net interest income (taxable-equivalent) as a percentage of average earning assets 4.79 4.56 Expense ratio 1.54 1.61 Efficiency ratio 54.84 56.94 Allowance for losses on loans as a percentage of loans 1.99 1.72 Nonperforming loans as a percentage of loans .92 .91 Allowance for losses on loans as a percentage of nonperforming loans 215 188 Nonperforming assets as a percentage of loans and foreclosed properties 1.13 1.21 Shareholders' equity to total assets 9.65 8.83 Leverage ratio 10.48 9.50 Tier 1 capital to risk-weighted assets 15.51 14.92 Total capital to risk-weighted assets 18.12 17.60 - --------------------------------------------------------------------------------------------------
CONTENTS
PAGE ---- Letter to Shareholders...................................... 2 Economic Overview of Markets Served......................... 4 Selected Financial Data..................................... 8 Management's Discussion and Analysis of Results of Operations and Financial Condition........................ 9 Financial Tables............................................ 26 Selected Quarterly Data..................................... 36 Banks and Communities Served................................ 39 Report of Management........................................ 40 Report of Independent Accountants........................... 41 Consolidated Financial Statements........................... 42 Notes to Consolidated Financial Statements.................. 46 Executive Officers and Board of Directors................... 72
1 4 TO OUR SHAREHOLDERS We are pleased to present this 1997 Annual Report. It was a busy and productive year for the Company. We increased our presence and market share through in-market mergers in Tennessee, Mississippi, and Louisiana, and entered the state of Florida through a very attractive franchise in Miami. Our core earnings and financial performance remain excellent. Through the first three quarters of 1997, we exceeded our long-term goal of top quartile performances in both return on assets and return on equity. These comments should be taken together with the financial statements and management's discussion and analysis on the following pages. FINANCIAL RESULTS Net earnings for the year were $208.8 million or $2.45 per diluted share compared to net earnings of $171.5 million or $2.05 per diluted share in 1996. The results reflect the acquisitions of five financial institutions during 1997 and include significant merger-related and other charges in both years. They understate both our current core and future earnings capacity given the significant charges and the fact that there was no opportunity to fully integrate the fourth quarter acquisitions. After adjusting for the fourth quarter charges, we finished the year on budget. Net interest income for the year was $770.4 million compared to $744.9 million in 1996. The increase is attributable to loan growth funded by maturities and sales of lower yielding investment securities and reductions in short-term borrowings. The net interest margin for the year was 4.79% compared to 4.56% in 1996. We were pleased with this 23 basis point improvement and with the level of our margin. The provision for losses on loans for 1997 was $113.6 million compared to $68.9 million for 1996. The increase relates primarily to the fourth quarter acquisitions and the credit card portfolio. Noninterest income for the year increased to $361.6 million versus $320.5 million in 1996. Increases were in service charges, bank cards, brokerage, annuities, mortgage loan sales, and gain on sale of branches. Mortgage loan prepayments at higher than expected levels caused a decline in mortgage servicing income. Noninterest expense for the year was $697.7 million compared to $731.8 million in 1996. Included in 1997 were $46.2 million of merger-related charges and $16.7 million of charges related to the consolidation of most of the Corporation's banking subsidiaries into our lead bank, Union Planters Bank, N.A. FRANCHISE GROWTH Growth of our banking franchise continued in 1997 with the addition of the $1.2 billion Hattiesburg, Mississippi-based Magna Bancorp, Inc. (Magna) and the $2.2 billion Miami, Florida-based Capital Bancorp and several smaller in-market acquisitions. With a very attractive deposit base and a high-yield loan product, Magna has been a very strong earnings performer. Geographically, Magna provides us a presence in Mobile, Alabama and greatly strengthens our presence throughout the southeast quadrant of Mississippi and along the Gulf Coast. Capital Bancorp gives us a presence in the fast growing Florida market, a Miami-based platform for trade finance activities, and a majority ownership in a highly profitable, fast growing commercial finance subsidiary, Capital Factors, Inc. Other mergers were all in-market last year and included the Whiteville Bank in Whiteville, Tennessee; Selmer Bank and Trust Company in Selmer, Tennessee; and Acadian Bank in Thibodaux, Louisiana. On January 1, 1998, the Corporation completed the acquisition of First Savings Bank in Mt. Vernon, Missouri. Union Planters Corporation ended the year with $18.1 billion in total assets, an increase of 19% over the originally reported year end 1996 total assets of $15.2 billion. We now serve customers in eight states with 514 banking locations and 651 automated teller machines. At year end the Corporation ranked 41st among the nation's 50 largest bank holding companies. Our breakdown of loans and deposits by state as of December 31, 1997 is as follows:
STATE LOANS DEPOSITS - --------------------- ------- --------- (DOLLARS IN MILLIONS) Tennessee............ $6,307 $6,696 Mississippi.......... 2,407 2,931 Florida.............. 1,618 1,290 Missouri............. 884 1,022 Arkansas............. 520 603 Louisiana............ 509 605 Alabama.............. 335 417 Kentucky............. 88 105
PENDING ACQUISITIONS The Corporation currently has ten pending acquisitions, the largest two being the $7.1 bil- 2 5 lion Magna Group, Inc. (MGR), headquartered in St. Louis, Missouri and the $1.5 billion Peoples First Corporation in Paducah, Kentucky. MGR will strengthen our presence in the state of Missouri where at year end we had $1 billion in deposits, and give us the third largest market share in metropolitan St. Louis. Peoples has the number one deposit market share in Paducah, Kentucky with 40%, and fits very nicely with our strong presence in northwest Tennessee and southeast Missouri. We will continue to look for acquisition opportunities to build market share in those areas where we operate. STRONG BALANCE SHEET We remain largely a core-deposit funded organization. Leverage is minimal when compared with our peer group. Credit quality remains good. On a larger loan portfolio, net charge-offs for the year were $80.6 million compared to $64.7 million in 1996. At December 31, 1997 the allowance for losses on loans was $225.4 million or 1.99% of loans and 215% of nonperforming loans. Shareholders' equity at year end was a record $1.7 billion and represented 9.7% of total assets. Tier I regulatory capital was $1.9 billion giving us a leverage ratio of 10.5%, a Tier I risk-based capital ratio of 15.5%, and a total risk-based capital ratio of 18.1%. These ratios are all substantially in excess of required regulatory minimums. S & P MID CAP INDEX In April 1997 the Corporation was promoted to the Standard & Poor's Mid Cap 400 Index. The S & P indices are widely considered key barometers of stock market activity and performance benchmarks for money managers. Our current market capitalization is approximately $5 billion and is the largest of any Tennessee-headquartered bank holding company and one of the largest in the Southeastern region. QUARTERLY DIVIDEND INCREASE Reflecting our strong capital position and confidence in core earnings, our quarterly common stock dividend was increased three times in 1997 and is currently $.50 per share, an increase of 56% from a year ago. Our dividend policy targets a 40 to 60% earnings payout ratio. DIRECTORS Following the completion of our acquisition of Magna Bancorp, Inc. in the fourth quarter, David M. Thomas, former President and Director of Magnolia Federal Bank for Savings, joined the Corporation's Board of Directors and we welcome his experience. We want to express our sincere appreciation for the service of Mike Sturdivant upon his retirement from our Board. Mr. Sturdivant joined our Board in 1987 as a result of our affiliation with the former United Southern Bank in Clarksdale, Mississippi. His maternal grandfather, Edward P. Peacock, was President of Union Planters National Bank from 1930 to 1932 during the Depression. Edgar H. Bailey is also retiring this year. Mr. Bailey joined our Board in 1996 following our affiliation with Leader Financial Corporation. Leader was headquartered in Memphis and the largest thrift institution in the state of Tennessee. We want to thank Mr. Bailey for his years of service to Leader and for his advice and counsel as we integrated our two organizations. OUTLOOK With the change in the national banking laws and following the lead of our peers, we have merged the majority of our banking subsidiaries with Union Planters Bank, N.A. This change will not affect our community banking focus and officer leadership at the community level and will allow us to achieve the operating efficiencies from combining certain back office support functions. Loans are expected to grow 5 to 8% in our markets and we have recently introduced a number of new insurance products that will allow us to leverage our convenient retail branch locations and increase noninterest income. We move into 1998 with solid core earnings, very sound loan loss reserves, and one of the strongest capital bases in the country. We welcome all our new shareholders and invite you to participate in our dividend reinvestment program. Thank you for your continued support. Yours very truly, /s/ BENJAMIN W. RAWLINS, JR. Benjamin W. Rawlins, Jr. Chairman and Chief Executive Officer 3 6 ECONOMIC OVERVIEW OF MARKETS SERVED In the world of financial services, we are all too accustomed to outside forces -- non-bank competition, interest rates, shareholder expectations, customer demands . . . the list goes on. These forces are behind the remarkable expansion that Union Planters has experienced since the mid-1980s, and continues to enjoy today -- on the edge of a new century. In responding to outside forces we become a force of our own, able to provide more opportunities for our employees, stellar service to our customers, and attractive returns for our shareholders. One of those outside forces is the economic health of our markets. Union Planters serves customers in an eight-state region across the southeastern United States. This region figures prominently in the nation's transport and shipping, manufacturing, agriculture, and food processing industries. The development and growth taking place in each of our market states continues to affect our organization in positive ways. A breakdown of each Union Planters market and that state's primary industries and other demographic data follows. Key components of the regional economy include manufacturing, wholesale and retail trade, a rapidly expanding service sector, mining and petroleum/natural gas extraction, tourism and entertainment, and diverse agricultural production. Generally, the region can be characterized as having lower than average taxes, a low to moderate cost of living, low population density, a high overall quality of life, and a mild climate. These factors, combined with competitive corporate tax structures and government initiatives, have attracted many industries to southern locations in the last decade. Manufacturing comprises a larger than average part of the economy for most states in the region. The economic components for each of the states and key performance measures are shown below: REAL GROSS STATE PRODUCT BY COMPONENT
TN MS FL MO LA AR AL KY --- --- --- --- --- --- --- --- Agriculture............................... 1% 3% 2% 2% 1% 5% 2% 3% Construction.............................. 4 4 5 4 4 4 4 4 Financial................................. 13 11 22 15 13 11 12 11 Government................................ 11 14 12 11 11 11 15 13 Manufacturing............................. 24 23 9 21 16 24 23 26 Mining.................................... -- 1 -- -- 12 1 2 4 Services.................................. 18 15 21 18 17 14 15 14 Trade..................................... 20 16 19 18 15 17 17 15 Transportation, Communication, and Utilities............................... 9 13 10 11 11 13 10 10
KEY PERFORMANCE MEASURES
GROSS STATE EMPLOYMENT RETAIL SALES STATE PRODUCT UNEMPLOYMENT ANNUAL GROWTH ANNUAL GROWTH ANNUAL GROWTH RATE AS OF 1992-1997 1992-1997 1992-1997 DECEMBER, 1997 ------------- ------------- ------------- -------------- Tennessee..................... 2.65% 7.04% 3.74% 5.0% Mississippi................... 1.80 5.41 2.82 5.0 Florida....................... 2.48 7.45 3.86 4.7 Missouri...................... 1.95 7.37 3.61 4.0 Louisiana..................... 1.29 5.27 3.29 5.7 Arkansas...................... 2.06 7.64 3.66 5.0 Alabama....................... 2.01 6.65 2.84 4.5 Kentucky...................... 2.05 6.45 3.64 4.6 UPC States.................... 2.04 6.66 3.43 4.8 All States.................... 1.82 5.66 2.98 4.7
TENNESSEE Tennessee represents the largest customer base. A population of about 5.4 million ranks Tennessee 17th in the U.S. Manufacturing employs about 19% of the 2.6 million workers in the state, the highest percentage of any business sector, but a decline from 27% just twelve years ago. Transportation equipment and machinery, metal products, and printing/publishing contribute significantly to the 4 7 manufacturing sector. Retail trade and a large service sector also measure heavily in the state's economy. Some plant layoffs took place in the industrial sector during 1997, and as a result, the remarkable growth experienced by the state for the last several years slowed in early 1997. Bright prospects in the transportation equipment manufacturing sector partially offset these events. Auto manufacturers have moved many facilities to Tennessee in response to lower costs and tax incentives. Auto body parts and components made in Tennessee are in demand for local assembly plants. Additionally, exports of automobile parts to Canada, Mexico, and Japan surged beginning in 1996. Nashville, a fast-growing manufacturing and service center, is the largest metropolitan area in Tennessee with about 1.1 million people or 21% of the state's population. The Nashville Health Care Council, founded in 1995, has helped Nashville attract many major health care players including PhyCor, Columbia Healthcare, Quorum Health Group, and Vanderbilt University Health Center. Memphis, Union Planters corporate headquarters, is the second largest metropolitan area in the state. Only slightly smaller than Nashville, Memphis is less dependent on manufacturing and services. Centralized in the Southern U.S. with a Mississippi riverport and mild year-round climate, the city has developed into an important distribution center. Federal Express, the area's largest employer, will soon finish construction of a 501,000 square foot computer development center. UPS is planning expansion of operations into an 84 acre facility here. MISSISSIPPI Mississippi ranks second in total customers deposits and loans. With a population of about 2.7 million, Mississippi ranks 31st among U.S. states. Jackson, Hattiesburg, and Biloxi/Gulfport are the states population centers along with the Memphis area in Northern Mississippi which includes the fast growing communities of Southaven and Olive Branch. Traditionally, the state has depended heavily on manufacturing and agriculture. Since approval of riverboat gambling in 1992, gaming and tourism have contributed to rapid growth of nearly 40% in the service sector. Growth in Mississippi's gaming industry will likely slow as market saturation sets in and competition from surrounding states, most notably Louisiana, lures customers away. Employment gains stimulated by the gaming sector and reinvestment of increased tax revenue in infrastructure should positively impact the state. Mississippi is still working to overcome the lowest per capita income, one of the lowest educational attainment rates and highest public assistance rates in the nation. Though not as dominant as in the past, manufacturing still comprises the largest portion of gross state product (GSP) at about 23%. Given the large agricultural and forested areas present, it is no surprise that food, food products, lumber, wood products, and furniture dominate the manufacturing base. Apparel and electrical machinery are important here as well. Migration of manufacturing abroad due to cheaper labor and falling trade barriers has become a serious concern for manufacturing here as it has elsewhere. Other industries should fare better. Food processing and wood products in particular should not experience great international competition. FLORIDA Union Planters entered the Miami, Florida market in 1997 with the acquisition of Capital Bancorp. Florida is the most populous of Union Planters' market states with 14.4 million residents (fourth among U.S. states). The population of the Miami area is about 2.1 million, making it 24th among U.S. cities and second to St. Louis in size among Union Planters metropolitan areas. Miami is an important hub of international trade, especially with Latin America and the Caribbean. Growth in trade has been remarkable, from estimated levels of about $1 billion in the 1970s to $34 billion in 1996. Indications are that strong growth continued through 1997. About 350 multinational corporations have operations in the area. Tourism is also important with over half of all tourists visiting from foreign countries, which contributes further to the city's international nature. MISSOURI Missouri is the 16th largest state with a total population of 5.4 million and ranks fourth in deposits and loans among Union Planters' states. The primary portions of the state served are the southern and eastern areas. This area is more industrial and less agricultural than the northern and western portions. Retail trade, services, and manufacturing are the largest three components of the state's economy. 5 8 While manufacturing employs a slightly larger than average percentage of the state's work force (15.6%), the service sector has accounted for over 40% of job creation in the state since 1992. Manufacturing employment was down by .11% during this same period. Overall growth for the state has been slow but steady. Since 1992, GSP has increased at a rate of 3.61% and employment grew at 1.95%, both above the national averages of 2.98% and 1.82%, respectively. One potentially growth-limiting factor is labor availability. Low unemployment and .8% five year population growth have resulted in tight labor markets. St. Louis is the largest metropolitan area in the state and has the highest population of any Union Planters' market at 2.56 million. Durable goods manufacturing, health care services, retail trade, and transportation form a large part of the area's economic base. Business developments in 1997 have been more positive than expected for the area; Ralston Purina has chosen to maintain offices here, ending a search for a new site. The Boeing/McDonnell Douglas merger approved in July is expected to boost military contract business, and Ford announced plans to shift production of the Explorer to the Aerostar plant in the suburb of Hazelwood, replacing discontinued mini-van production. Annual employment growth was .9% from 1990 to 1994 but subsequently has jumped to 2.7%. Fortune magazine recently ranked St. Louis sixth among U.S. cities in a survey of best cities in which to balance work and family life. LOUISIANA Louisiana is the 22nd most populous state at about 4.4 million people and ranks fifth in assets and deposits among Union Planters states. Baton Rouge, the state's capital, is Union Planters' main market in the state. Five year growth of GSP has been above the national rate, but employment growth has been below the national average. The petrochemical industry is important to the area but the state government, Louisiana State University, and a growing service economy buffer the industry's effect on the local economy. Additionally, dependence on the petroleum and natural gas industry has declined since the "boom" days. Mining and drilling employ about 2.8% of the states workforce and chemical manufacturing employs another 1.6%. For comparison, in 1981 mining employment alone accounted for 6.1% of payrolls. Job growth has been above the national average for the last two years due to growth in manufacturing and service economies and to significant construction projects. The Greater Baton Rouge Airport District expansion is a $100 million project. Exxon is undergoing a $184 million project and many smaller projects were announced in 1997. Increased Latin American exports should contribute to growth at the Port of Baton Rouge, already the nation's fifth largest. ARKANSAS Arkansas is Union Planters' sixth largest deposit and loan market and ranks 33rd in population among U.S. states at about 2.53 million. Manufacturing is even more dominant here than in Mississippi at 24% of GSP and 23.1% of total employment. Like Mississippi, there are concentrations in the food and food products and lumber and wood products industries. Poultry processing is the state's largest manufacturing industry with poultry giant Tyson Foods headquartered in Arkansas. Timber and wood products is the second largest manufacturing industry. Over half the state's land is forested, much of it with harvestable pine. Electrical machinery, metals, and leather goods also represent large portions of the manufacturing base. Employment growth in Arkansas has exceeded the overall U.S. for many years with state unemployment dropping from 8.77% in 1986 to 5.0% in December 1997. Weak population growth and skilled labor shortages are two variables that may limit growth in Arkansas at least for the short term. Construction and other skilled labor saw increases in the wake of severe tornadoes that swept through the state in the spring of 1997. West Memphis, part of the Memphis metropolitan area, and Jonesboro constitute the most significant population centers of Union Planters' Arkansas markets, with significant portions of the more rural part of the state balancing the bank's market there. ALABAMA Alabama ranks seventh largest in terms of deposits among Union Planters' market states and is the 23rd most populous in the U.S. with 4.3 million residents. The major Union Planters' markets in the 6 9 state are in the northern third and the southernmost regions. Manufacturing employs over 20% of the state's workers with concentrations in apparel, textiles, wood products, food products, and non-electrical machinery. Recent years have seen the emergence of the importance of transportation equipment, and both foreign and domestic manufacturers continue to move facilities here. Five year employment growth has exceeded the national average with the service economy increasing its share. Since 1994 there has been some weakness in the state's manufacturing sector and international pressures continue to threaten the textile/apparel industry. Recent months have brought good news, especially in the Mobile area with Mitsubishi Materials opening a large plant and local expansions announced by International Paper, Mobile Aerospace, and several chemical companies. Recently Mobile ranked 11th among U.S. cities in a Time Magazine feature on "hottest places" for job opportunities. KENTUCKY With 3.9 million residents, Kentucky is the 24th most populous U.S. state and eighth of Union Planters' markets when ranked by deposits and loans. Though fairly diverse, the state's economy has above average concentrations in manufacturing and agricultural employment. GSP grew at an annual rate of about 3.64% for the last five years, well above the national average. Employment growth of 2.05% for five years also compares favorably to the national average. Unlike most markets, manufacturing growth has contributed to job creation in Kentucky with five year growth of about 1.5%. Since manufacturing jobs are typically higher paying, they are likely to impact future growth more favorably. Location and government are key to the areas attractiveness; low labor costs and low business taxes along with high quality of life and low housing costs have made Kentucky attractive to companies relocating to the South. SUMMARY Overall economic performance for the market area has been slightly stronger than the U.S. for the last few years and should remain so. Manufacturing will continue to play the most important role for this region. Foreign competition is a concern for this sector, particularly the textiles and apparel industries. Fortunately, industries key to the region, including food processing, wood and wood products, and transportation equipment have more favorable outlooks than manufacturing as a whole. Factors that have made the region attractive for industries seeking to relocate are still in place and improvements in infrastructure should remove some of the previous barriers to growth. The region is in position to increase its important role as a transport and shipping center and benefit from increased commerce. Additionally, recent acquisitions have placed Union Planters in a position to benefit from international trade, especially with Latin American and Caribbean trading partners. Overall, the region should continue to provide a solid banking environment with strong growth potential. James K. Plunkett Senior Vice President Funds Management Division 7 10 UNION PLANTERS CORPORATION AND SUBSIDIARIES SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31, (1) ------------------------------------------------------------------- 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA Net interest income....................................... $ 770,385 $ 744,852 $ 669,451 $ 627,439 $ 558,036 Provision for losses on loans............................. 113,633 68,948 33,917 15,989 35,235 Investment securities gains (losses)...................... 2,104 4,099 1,433 (21,302) 6,686 Other noninterest income.................................. 359,506 316,403 292,277 237,129 228,996 Noninterest expense....................................... 697,704 731,817 607,189 634,965 550,045 ----------- ----------- ----------- ----------- ----------- Earnings before income taxes, extraordinary item, and accounting changes...................................... 320,658 264,589 322,055 192,312 208,438 Applicable income taxes................................... 111,897 93,115 110,799 63,058 66,570 ----------- ----------- ----------- ----------- ----------- Earnings before extraordinary item and accounting changes................................................. 208,761 171,474 211,256 129,254 141,868 Extraordinary item and accounting changes, net of taxes... -- -- -- -- 4,505 ----------- ----------- ----------- ----------- ----------- Net earnings.............................................. $ 208,761 $ 171,474 $ 211,256 $ 129,254 $ 146,373 =========== =========== =========== =========== =========== PER COMMON SHARE DATA(2) Basic Earnings before extraordinary item and accounting changes............................................... $ 2.54 $ 2.13 $ 2.79 $ 1.67 $ 2.19 Net earnings............................................ 2.54 2.13 2.79 1.67 2.27 Diluted Earnings before extraordinary item and accounting changes............................................... 2.45 2.05 2.66 1.63 2.13 Net earnings............................................ 2.45 2.05 2.66 1.63 2.21 Cash dividends............................................ 1.495 1.08 .98 .88 .72 Book value................................................ 20.72 19.57 18.34 15.28 14.50 BALANCE SHEET DATA (AT PERIOD END) Total assets.............................................. $18,105,079 $18,330,588 $17,182,861 $15,893,162 $14,180,524 Loans, net of unearned income............................. 12,658,564 12,578,571 10,917,307 10,074,458 8,077,152 Allowance for losses on loans............................. 225,389 189,118 179,968 174,604 172,330 Investment securities..................................... 3,247,680 3,387,217 3,970,036 4,016,506 4,124,679 Total deposits............................................ 13,440,269 13,514,144 13,047,488 12,506,212 11,732,707 Short-term borrowings..................................... 831,627 961,051 974,416 887,074 392,980 Long-term debt(3) Parent company.......................................... 373,746 373,459 214,758 114,790 114,729 Subsidiary banks........................................ 1,176,158 1,332,534 1,087,273 819,982 481,193 Total shareholders' equity................................ 1,746,866 1,618,883 1,450,546 1,202,686 1,111,158 Average assets............................................ 17,991,160 18,202,355 16,263,164 15,472,568 13,823,185 Average shareholders' equity.............................. 1,690,992 1,533,348 1,334,995 1,226,852 973,087 Average shares outstanding (in thousands)(2) Basic................................................... 80,336 77,240 72,512 71,678 56,169 Diluted................................................. 85,195 83,542 78,798 77,579 60,832 PROFITABILITY AND CAPITAL RATIOS Return on average assets.................................. 1.16% .94% 1.30% .84% 1.06% Return on average common equity........................... 12.54 11.38 16.56 10.74 15.88 Net interest income (taxable-equivalent)/average earning assets(4)............................................... 4.79 4.56 4.60 4.56 4.58 Loans/deposits............................................ 94.18 93.08 83.67 80.56 68.84 Common and preferred dividend payout ratio................ 54.96 44.57 29.25 35.03 24.42 Equity/assets (period end)................................ 9.65 8.83 8.44 7.57 7.84 Average shareholders' equity/average total assets......... 9.40 8.42 8.21 7.93 7.04 Leverage ratio............................................ 10.48 9.50 8.11 7.56 7.73 Tier 1 capital/risk-weighted assets....................... 15.51 14.92 13.28 12.58 13.65 Total capital/risk-weighted assets........................ 18.12 17.60 16.21 14.67 15.92 CREDIT QUALITY RATIOS(5) Allowance/period end loans................................ 1.99 1.72 1.82 1.87 2.27 Nonperforming loans/total loans........................... .92 .91 .85 .74 1.18 Allowance/nonperforming loans............................. 215 188 213 252 193 Nonperforming assets/loans and foreclosed properties...... 1.13 1.21 1.09 1.08 1.76 Provision/average loans................................... 1.01 .65 .35 .19 .47 Net charge-offs/average loans............................. .72 .61 .32 .27 .34
- --------------- (1) Reference is made to "Basis of Presentation" in Note 1 to the Corporation's consolidated financial statements. (2) Share and per share amounts have been retroactively restated for significant acquisitions accounted for as poolings of interests and to reflect the change in presentation of EPS as discussed in Note 16 to the consolidated financial statements. (3) Long-term debt includes Medium-Term Bank Notes, Federal Home Loan Bank (FHLB) advances, Trust Preferred Securities, variable rate asset-backed certificates, subordinated notes and debentures, obligations under capital leases, mortgage indebtedness, and notes payable with maturities greater than one year. (4) Average balances and calculations exclude the impact of the net unrealized gains or losses on available for sale securities. (5) FHA/VA government-insured/guaranteed loans have been excluded, since they represent minimal credit risk to the Corporation. See Tables 9 and 10 and the "Loans" discussion which follow. 8 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION This section of the Annual Report provides a narrative discussion and analysis of the major trends affecting the results of operations and financial condition of Union Planters Corporation (the Corporation or Union Planters). The discussion should be read with the consolidated financial statements and accompanying notes beginning on page 40 and the financial tables at the end of this discussion. THE COMPANY Union Planters is an $18.1-billion, multi-state bank holding company whose primary business is banking. The Corporation is the largest bank holding company headquartered in Tennessee and is one of the fifty largest bank holding companies headquartered in the United States. Union Planters Bank, National Association (Union Planters Bank or UPB), headquartered in Memphis, Tennessee, is the Corporation's largest subsidiary. The principal banking markets of the Corporation are in Tennessee, Mississippi, Florida, Missouri, Arkansas, Louisiana, Alabama, and Kentucky. With the completion of ten pending acquisitions, the Corporation will expand in existing markets in Missouri, Kentucky, Florida, Tennessee, and Alabama and expand into new markets in Illinois, Iowa, and Texas (see the "Acquisitions" discussion). The Corporation's existing market areas are served by 514 banking offices and 651 ATMs. The map on the inside front cover of this report, Table 15, and the listing of Communities Served on page 39 provide information regarding the size, locations, and markets served by the Corporation's banking subsidiaries. A majority-owned subsidiary of the Corporation's Florida banking subsidiary, which was acquired December 31, 1997, Capital Factors, Inc. (Capital Factors), provides receivable-based commercial financing and related fee-based credit, collection, and management information services through four regional offices located in New York, New York; Los Angeles, California; Charlotte, North Carolina; and its headquarters in South Florida (Boca Raton, Florida) and an asset-based lending office in Atlanta, Georgia. As part of the Corporation's banking services, its subsidiaries are engaged in factoring operations; mortgage origination and servicing; investment management and trust services; the issuance of credit and debit cards; the origination, packaging, and securitization of loans, primarily the government- guaranteed portions of Small Business Administration (SBA) loans; the purchase of delinquent FHA/VA government-insured/guaranteed loans from third parties and GNMA pools serviced for others; full-service and discount brokerage services; commercial finance business; trade-finance activities; and the sale of bank-eligible insurance products and services. OVERVIEW Net earnings for 1997 were $208.8 million, a $37.3 million, or 22%, increase from $171.5 million in 1996. Basic and diluted earnings per share for the year were $2.54 and $2.45, respectively, which were both increases of 19% over $2.13 and $2.05, respectively, for 1996. Return on average assets (ROA) was 1.16% in 1997 compared to .94% in 1996. Return on average common equity (ROE) increased to 12.54% in 1997 from 11.38% in 1996. Significant pretax items which adversely impacted 1997 results include the following: (i) $46.2 million of merger-related charges; (ii) $16.7 million of charges related to the consolidation of substantially all of the Corporation's banking subsidiaries into its lead bank, Union Planters Bank; and (iii) a $44.7 million increase in the provision for losses on loans related primarily to acquisitions and the credit card portfolio. These items were partially offset by gains on the sale of branches of $15.8 million and investment securities gains of $2.1 million. Reference is made to Table 1 which presents a comparison of the Corporation's results for the past five years identifying significant items impacting net earnings. Excluding the significant items impacting 1997 results, earnings would have been approximately $241.7 million. Results for 1996 were similarly impacted. The significant pretax charges included the following items: (i) $52.8 million of merger-related charges; (ii) $28.2 million related to special legislation which required financial institutions to pay a one-time assessment on deposits insured by the Savings Association Insurance Fund (SAIF); (iii) $19.8 million of provisions for losses on FHA/VA foreclosure claims of an acquired entity; and (iv) $19.4 million of write-offs of intangibles. These items were 9 12 partially offset by gains on the sale of branches and other selected assets of $7.2 million, investment securities gains of $4.1 million, and a one-time court-awarded trust fee of $1.3 million. Excluding these significant items, earnings for 1996 would have been approximately $241.8 million. A more detailed discussion and analysis of the 1997 results of operations and financial condition follows. FORWARD-LOOKING INFORMATION Certain of the information included in this discussion constitutes forward-looking statements and information that are based on management's belief as well as certain assumptions made by, and information currently available to management. Specifically, this Annual Report contains forward-looking statements with respect to the effects of projected changes in interest rates; the adequacy of the allowance for losses on loans; the effect of legal proceedings on the Corporation's financial condition, results of operations, and liquidity; estimated charges related to pending acquisitions; estimated cost savings related to the integration of completed acquisitions and the consolidation of banking subsidiaries; and Year-2000 data systems compliance issues. When used in this discussion, the words "anticipate," "project," "expect," "believe," and similar expressions are intended to identify forward-looking statements. Although management of the Corporation believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations and projections will prove to have been correct. Such forward-looking statements are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks materialize, or should such underlying assumptions prove to be incorrect, actual results may vary materially from those anticipated, estimated, projected or expected. Among key factors that may have a direct bearing on the Corporation's operating results are fluctuations in the economy; the relative strengths and weakness in the consumer and commercial credit sectors and in the real estate market; the actions taken by the Federal Reserve for the purpose of managing the economy; the Corporation's ability to realize anticipated cost savings related to both recently completed acquisitions, pending acquisitions, and the consolidation of subsidiary banks; the ability of the Corporation to achieve anticipated revenue enhancements; its success in assimilating acquired operations into the Corporation's culture, including its ability to instill the Corporation's credit culture and approach to operating efficiencies into acquired operations; the continued growth of the markets in which the Corporation operates consistent with recent historical experience; the absence of undisclosed material contingencies inherent in acquired operations including asset quality and litigation contingencies; the enactment of federal legislation impacting the operations of the Corporation; and the Corporation's ability to expand into new markets and to maintain profit margins in the face of pricing pressure. Moreover, the outcome of litigation is inherently uncertain and depends on judicial interpretations of law, the exercise of judicial discretion and the findings of judges and juries. ACQUISITIONS Acquisitions have been, and are expected to continue to be a significant part of the Corporation's growth and have enhanced the market positions of the Corporation in the various states which it serves. The Corporation has completed 41 acquisitions over the past five years adding approximately $14.5 billion in total assets. Subsequent to December 31, 1997, the Corporation completed a $373.8 million acquisition of a savings and loan holding company and as of March 3, 1998, the Corporation had ten pending acquisitions which, if consummated, would add approximately $10.4 billion in total assets (see Note 2 to the consolidated financial statements). The tables below provide a summary of the acquisitions completed over the last three years and a summary of the pending acquisitions. 10 13 UNION PLANTERS CORPORATION ACQUISITIONS COMPLETED SINCE JANUARY 1, 1995
INSTITUTION ACQUIRED DATE STATE ASSETS CONSIDERATION - --------------------------------------- ----- ------------ ---------- -------------------------------------------- (MILLIONS) First State Bancorporation, Inc. 7/95 Tennessee $ 116.2 .4 million shares of Series E preferred Planters Bank and Trust Company 9/95 Arkansas 59.0 .3 million shares of common stock Capital Bancorporation, Inc. 12/95 Missouri 1,105.1 4.1 million shares of common stock First Bancshares of Eastern Arkansas, Inc. 1/96 Arkansas 64.1 $10.9 million cash First Bancshares of N. E. Arkansas, Inc. 1/96 Arkansas 65.4 $ 9.2 million cash Leader Financial Corporation 10/96 Tennessee 3,410.9 15.3 million shares of common stock Franklin Financial Group, Inc. 10/96 Tennessee 137.1 .7 million shares of common stock Valley Federal Savings Bank 10/96 Alabama 122.1 .4 million shares of common stock BancAlabama, Inc. 10/96 Alabama 97.9 .4 million shares of common stock Financial Bancshares, Inc. 12/96 Missouri 325.9 1.2 million shares of common stock PFIC Corporation 2/97 Tennessee 4.2 .1 million shares of common stock SBT Bancshares, Inc. 10/97 Tennessee 98.8 .6 million shares of common stock Citizens of Hardeman County Financial Services, Inc. 10/97 Tennessee 62.0 .2 million shares of common stock Magna Bancorp, Inc. 11/97 Mississippi 1,190.5 7.1 million shares of common stock First Acadian Bancshares, Inc. 12/97 Louisiana 81.2 .3 million shares of common stock Capital Bancorp 12/97 Florida 2,155.6 6.5 million shares of common stock Sho-Me Financial Corp. 1/98 Missouri 373.8 1.2 million shares of common stock -------- Total assets of completed transactions $9,469.8 ======== ACCOUNTING INSTITUTION ACQUIRED METHOD - --------------------------------------- ---------- First State Bancorporation, Inc. Purchase Planters Bank and Trust Company Pooling Capital Bancorporation, Inc. Pooling First Bancshares of Eastern Arkansas, Inc. Purchase First Bancshares of N. E. Arkansas, Inc. Purchase Leader Financial Corporation Pooling Franklin Financial Group, Inc. Pooling Valley Federal Savings Bank Pooling BancAlabama, Inc. Pooling Financial Bancshares, Inc. Pooling PFIC Corporation Purchase SBT Bancshares, Inc. Pooling Citizens of Hardeman County Financial Services, Inc. Pooling Magna Bancorp, Inc. Pooling First Acadian Bancshares, Inc. Pooling Capital Bancorp Pooling Sho-Me Financial Corp. Purchase Total assets of completed trans
UNION PLANTERS CORPORATION SUMMARY OF PENDING ACQUISITIONS AS OF MARCH 3, 1998
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997 ------------------------------------------------------------ ALL OTHER TOTAL MAGNA PEOPLES FIRST PENDING PENDING GROUP, INC.(1) CORPORATION ACQUISITIONS ACQUISITIONS -------------- ------------- ------------ ------------ (DOLLARS AND SHARES IN MILLIONS) Loans........................................ $4,484 $1,104 $1,164 $ 6,752 Allowance for losses on loans................ 59 16 14 89 Investment securities........................ 1,989 316 444 2,749 Total assets................................. 7,075 1,501 1,810 10,386 Total deposits............................... 5,436 1,177 1,512 8,125 Shareholders' equity......................... 626 155 203 984 Shareholders' equity to total assets......... 8.85% 10.31% 11.22% 9.47% Net earnings................................. $ 73 $ 16 $ 22 $ 111 Approximate common shares to be issued....... 35 6 8 49
- --------------- (1) Does not include a pending acquisition in Illinois with total assets of $382 million. Management's philosophy has been to provide additional diversification of the revenue sources and earnings of the Corporation through the acquisition of well-managed financial institutions. The strategy generally targets in-market institutions, institutions in contiguous markets, institutions having significant local market share, and institutions which would enhance the Corporation's product lines. Historically and where practical, the Corporation has permitted an acquired institution to remain as a separate entity and to retain its local board of directors and officers. With the changing environment in the banking industry, particularly changes in the laws which generally permit banks headquartered in different states to merge, management made the decision in 1997 to merge substantially all of its banking subsidiaries into its lead bank, Union Planters Bank, effective January 1, 1998 (see "Charter Consolidation"). With the exception of Texas, all of the states in which the Corporation's banking subsidiaries are headquartered now permit bank mergers which result in interstate branching. Therefore, with the exception of Merchants Bancshares, Inc., a pending acquisition headquartered in Houston, Texas, it is legally permissible for the Corporation to merge banking subsidiaries into Union Planters Bank. However, under special circumstances management may deem it advisable to maintain certain acquired institutions as separate entities. 11 14 Historically, as the Corporation acquires entities, merger-related and other charges have been incurred (see Table 1). Typically, these charges include the following: (i) salaries, employee benefits, and other employment-related charges for employment contract payments, change in control agreements, early retirement and involuntary separation and related benefits, postretirement expenses, and assumed pension expenses of acquired entities; (ii) write-downs of office buildings and equipment to be sold, lease buyouts, assets determined to be obsolete or no longer of use, and equipment not compatible with the Corporation's equipment; (iii) professional fees for legal, accounting, consulting, and financial advisory services; (iv) additions to the provision for losses on loans; and (v) other expenses such as asset write-offs, charge-offs of prepaid assets, cancellation of vendor contracts, and other costs which normally arise from consolidation of operational activities. These charges totaled $46.2 million, $52.8 million, and $11.9 million in 1997, 1996, and 1995, respectively. The level of the charges is directly related to the size of the institution being acquired. Charges in the range of $150 million to $165 million (pretax basis) are expected in connection with the current pending acquisitions. This range of charges is an estimate and will change if additional entities are acquired. The Year-2000 compliance (see "Year-2000 Risk Factors" discussion) of currently pending and future acquisitions is a potential risk factor for the Corporation's acquisition program. As part of its due diligence process, the systems and application software of the target institutions are reviewed to determine if they are Year-2000 compliant or, upon conversion to the Corporation's systems, will be Year-2000 compliant prior to year end 1998. Regulatory authorities have indicated they will not approve applications for prior permission to effect acquisitions unless the applicant has provided assurance satisfactory to them that they will be Year-2000 compliant. CHARTER CONSOLIDATION During 1997, management reevaluated its philosophy with respect to the operation of institutions acquired and determined a change in philosophy was indicated in order to compete in the changing banking industry. The decision was made to merge most of the Corporation's separate banking subsidiaries into UPB. Certain subsidiaries remain as separate banks due to specific operating reasons but are expected eventually to be merged into UPB. The legal merger of the Corporation's banking subsidiaries into UPB and the name changes were made effective January 1, 1998. Integration of the "back-office" functions (e.g. accounting, deposit services, item processing, mortgage servicing, credit administration, etc.) is expected to be accomplished over the next twelve months and to result in significant operating economies by eliminating duplicate processes, advertising for multiple entities, and certain regulatory costs. Management continues to believe that it is imperative that customer decisions should be made locally as has been the past practice. In matters affecting their customers, the merging banks have been given very broad discretion in the past and that is expected to continue in the future. Maintaining its policy of close liaison with the regions, communities, and customers served, the Corporation expects to utilize resources such as community boards to enable the Corporation to continue to be sensitive to local banking requirements and customer preferences. The Corporation incurred charges in 1997 totaling approximately $16.7 million related to the decision to combine substantially all its subsidiary banks under one charter. These charges related primarily to employee severance payments, write-offs of data processing equipment, and other costs related to integrating the operations of the new organization. Operationally, all of the changes are not expected to be fully implemented until late 1998 or early 1999. Annual cost savings from consolidating the Corporation's existing banking subsidiaries are estimated to be approximately $15 million to $20 million on a pretax basis. Additional pretax revenue enhancements are expected, primarily related to additional liquidity from the new organization, but those amounts cannot be quantified at this time. A portion of the anticipated savings will be realized in 1998; however, the full amount of savings and revenue enhancements are not expected to be realized for 12 to 18 months. 12 15 EARNINGS ANALYSIS NET INTEREST INCOME Net interest income is the principal source of earnings for the Corporation. 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 restates tax-exempt income to an amount that would yield the same after-tax income had the income been subject to taxation at the federal statutory income tax rate (currently 35% for the Corporation). Reference is made to Table 4 and Table 5 which present the Corporation's average balance sheet and volume/rate analysis for each of the three years in the period ended December 31, 1997. Net interest income for 1997 was $786.9 million, a 3% increase from the $762.6 million reported in 1996. In 1996, net interest income grew 11% from the $688.3 million reported in 1995. The net interest margin (net interest income as a percentage of average earning assets) was 4.79% in 1997 compared to 4.56% and 4.60%, respectively, in 1996 and 1995. The interest-rate spread between earning assets and interest-bearing liabilities was 3.97% in 1997, an increase of 18 basis points from the 1996 spread of 3.79% and compared to 3.86% in 1995. The growth in net interest income in 1997 was attributable primarily to a reduction in short-term borrowings and other time deposits which resulted in a net reduction in interest expense of $21.8 million. The reduction in short-term borrowings related to a restructuring of the balance sheet following the acquisition of Leader Financial Corporation (Leader) in October, 1996. The decline in other time deposits relates primarily to the maturity of time deposits under $100,000 which were not reinvested and the repricing of higher rate deposits. Also contributing to the improvement in net interest income was the $782 million growth in average loans which was funded primarily by sales and maturities of investment securities and a 12-basis-point increase in the average yield on investment securities. These items were the primary reasons for the $2.5 million increase in interest income. The improvement in net interest income between 1995 and 1996 was attributable to the growth of average earning assets, primarily loans, which increased $1.8 billion. This growth was the principal reason for the $146.1 million increase in interest income. Partially offsetting the increase in interest income was a $71.8 million increase in interest expense. This increase is attributable to the increase in funding liabilities (short- and long-term borrowings and interest-bearing deposits) in response to the growth of average earning assets. A breakdown of the components of average earning assets and interest-bearing liabilities is as follows:
1997 1996 1995 ----- ----- ----- AVERAGE EARNING ASSETS (IN BILLIONS)........................ $16.4 $16.7 $15.0 Comprised of: Loans..................................................... 77% 71% 71% Investment securities..................................... 20 26 25 Other earning assets...................................... 3 3 4 Yield earned on average earning assets...................... 8.73 8.56 8.59 AVERAGE INTEREST-BEARING LIABILITIES (IN BILLIONS).......... $13.6 $14.0 $12.6 Comprised of: Deposits.................................................. 82% 81% 85% Short-term borrowings..................................... 6 9 6 FHLB advances, short- and medium-term bank notes and other long-term debt......................................... 12 10 9 Rate paid on interest-bearing liabilities................... 4.76 4.77 4.73
The mix of average earning assets changed in 1997 as average loans increased to 77% of average earning assets while average investment securities declined to 20%. The decline in the investment securities was due to the use of these assets as the primary source of funding for the loan growth. The mix of average interest-bearing liabilities has remained fairly constant over the past three years with 13 16 deposits being the primary funding source. Over the last three years there has been an increase in wholesale borrowings as a funding source due to relatively attractive interest rates. PROVISION FOR LOSSES ON LOANS The provision for losses on loans in 1997 totaled $113.6 million, an increase of $44.7 million from the $68.9 million reported in 1996, and was $79.7 million higher than the $33.9 million reported in 1995. At the same time, net charge-offs increased to $80.6 million in 1997 from $64.7 million in 1996 and $31.3 million in 1995. As a percentage of average loans, excluding FHA/VA government-insured/guaranteed loans, the provision for losses on loans was 1.01%, .65% and .35%, respectively, for 1997, 1996, and 1995. The large increase in the provision for losses on loans over the last three years related principally to the increase in net charge-offs and acquisitions. The increase in charge-offs was concentrated in the credit card and other consumer loan categories. Total credit card and other consumer loan net charge- offs were $66.4 million in 1997 compared to $44.8 million and $23.6 million in 1996 and 1995, respectively. The high level of charge-offs in this category of loans can be attributed to increases in delinquencies and a high level of personal bankruptcies. Direct marketing initiatives for credit cards beginning in 1994 and purchases of credit card portfolios in 1996 to develop new business have also contributed to the increase in charge-offs over the last three years. The credit card portfolio had higher charge-off rates than other parts of the loan portfolio during this three-year period. Also contributing to the higher provision for losses on loans in 1997 was an increase of approximately $20.3 million related to acquired entities. Management expects the amount of charge-offs to stabilize or decline slightly in 1998 (approximately $75 million to $80 million, or .65% to .70% of average loans), excluding the impact of any additional acquisitions, which should correspondingly reduce the amount of the provision for losses on loans. However, there can be no assurance this will occur. There are a number of factors that impact the level of the provision for losses on loans, some of which are beyond management's control, such as current and anticipated economic conditions and the related impact on specific borrowers, the level of personal bankruptcies, the level of nonperforming assets, and changes in the nature of the loan portfolio. NONINTEREST INCOME Noninterest income for the year increased 12.8% to $361.6 million from $320.5 million in 1996. Noninterest income for 1995 was $293.7 million. The major components of noninterest income are presented on the face of the statement of earnings and in Note 13 to the consolidated financial statements. Table 1 at the end of this discussion presents a five-year trend of the major components, including certain significant items impacting the five-year trend. There were several major items contributing to the growth in noninterest income in 1997. Gains from the sale of branches and other selected assets, primarily the sale of certain branches in upper East Tennessee, were $15.8 million in 1997, an increase of $8.6 million from $7.2 million in 1996 and compared to $1.9 million in 1995. During the third quarter of 1997, the Corporation securitized and sold approximately $300 million of fixed- and adjustable-rate single family residential mortgage loans to enhance liquidity, take advantage of low interest rates and narrow spreads on adjustable rate mortgage securities. This was the primary reason for the $8.2 million increase in the gain on sale of residential mortgages, to $14.1 million compared to $5.9 million in 1996 and $5.5 million in 1995. Additional mortgage securitizations are expected in 1998. Bank card income rose $6.3 million to $31.3 million in 1997 due primarily to a higher volume of transactions. These revenues were $25.0 million and $20.8 million, respectively, in 1996 and 1995. Service charges on deposit accounts and ATM transaction fees increased revenues $5.4 million to $120.5 million compared to $115.1 million in 1996 and $108.0 million in 1995. This growth is related to increased volume of transactions and increased fees, new fees and fewer waived fees due to an evaluation of the fee structure in 1994. Annuity sales income and insurance commissions increased $3.2 million in 1997 to $19.0 million compared to $15.8 million in 1996 and $9.5 million in 1995. The growth of this fee income source is the result of increased emphasis on non-traditional bank products. Income from other real estate, primarily related to the Magna Bancorp, Inc. (Magna) acquisition increased $2.8 million in 1997 to $5.9 million from $3.1 million in 1996. 14 17 Other major items included in noninterest income are as follows: (i) Mortgage servicing income totaled $57.3 million in 1997, a decrease of $5.7 million from $63.0 million in 1996, due primarily to lower volumes of loans serviced resulting from increased refinancing activity. Mortgage servicing income was $55.9 million in 1995. These revenues will likely decline in 1998 if interest rates remain at current levels or decline and the level of refinancing activity continues. (ii) Factoring commissions, which resulted from the primary business of Capital Factors, totaled $30.1 million in 1997 compared to $26.1 million in 1996 and $19.5 million in 1995. Capital Factors is a specialized financial services company providing related fee-based credit, collection, and management information service. Its clients are primarily small- to medium-size companies in various industries, including textiles, apparel and furniture manufacturing and, recently, entities involved in health care and temporary employment service industries. The increase in these fees is the result of increased sales volume. These fees are seasonal and subject to fluctuation. (iii) Trust service income was $9.0 million in 1997, a decline in revenues of $1.1 million from 1996 due primarily to a one-time fee recognized in 1996 and compares to $8.3 million in 1995. (iv) Profits and commissions from trading activities totaled $7.3 million in 1997 compared to $5.8 million in 1996 and $12.4 million in 1995 related primarily to the Corporation's SBA broker/dealer operations, with some revenues resulting from securities trading activity of an acquired entity. The SBA broker/dealer operation purchases, pools, and securitizes the government-guaranteed portions of SBA loans. The higher level of profits and commissions in 1995 related to favorable market conditions. Revenues in 1996 declined due to a shortage of government funding which impacted the trading operations. Revenues from this operation are volatile and future revenues cannot be predicted. Management continues to place emphasis on the growth of noninterest income to enhance the Corporation's profitability. Areas receiving increased emphasis include annuity sales, bank-eligible insurance products, mortgage servicing, and factoring revenues. These activities traditionally have higher profit margins and favorable cost structures. Also, these activities provide a hedge against decreased revenues if loan volumes decline due to the interest-rate environment or areas served by the Corporation experience an economic downturn. Other traditional revenue sources will continue to be emphasized and are expected to be enhanced by the Corporation's acquisition program. NONINTEREST EXPENSE Noninterest expense totaled $697.7 million in 1997, a decrease of $34.1 million from 1996 which totaled $731.8 million. This compares to $607.2 million in 1995. The components of noninterest expense are presented on the face of the statement of earnings and in Note 13 to the consolidated financial statements. Noninterest expenses were impacted by a number of charges over the last three years which are separately identified in Table 1. The largest items were merger-related charges which totaled $46.2 million in 1997 compared to $52.8 million and $11.9 million, respectively in 1996 and 1995. Reference is made to the "Acquisitions" section above for a discussion of the nature of these charges. In 1997, noninterest expense was also increased by certain charges totaling $16.7 million related to management's decision to combine substantially all of the Corporation's separate banking subsidiaries (see the "Charter Consolidation" discussion). Noninterest expense in 1996 included a $28.2 million, one-time Savings Association Insurance Fund (SAIF) assessment resulting from the enactment of the Deposit Insurance Fund Act of 1996 to recapitalize the SAIF. Other significant charges in 1996 included the write-off of certain intangibles which totaled $19.4 million ($2.6 million in 1997). Provisions for losses on FHA/VA foreclosure claims totaled $8.0 million in 1997 compared to $25.2 million in 1996, which included a $19.8 million additional provision related to an acquired entity, and $5.6 million in 1995. The provisions for losses on FHA/VA foreclosure claims arise from the Corporation's mortgage servicing operations. In its capacity as servicer of loans, including FHA/VA government-insured/guaranteed loans, the Corporation collects and processes payments made by borrowers; remits funds to investors, taxing authorities, and insurers; and coordinates foreclosure and disposition of collateral properties. In connection with its responsibilities, the Corporation advances funds which are repaid through foreclosure-sale proceeds and through claims made against the Federal Housing Authority and/or Veterans Administration (FHA/VA claims). Under certain circumstances, the FHA/VA claims are sometimes rejected or otherwise cannot be collected in full. The provisions for 15 18 FHA/VA foreclosure claims represent management's estimate of losses attributable to current and future FHA/VA claims inherent in the servicing portfolio at each reporting date. Excluding the significant items discussed above, noninterest expenses were $630.7 million in 1997, an increase of $19.1 million, or 3%, over $611.6 million in 1996 and an increase of $35.4 million, or 5.9% over $595.3 million in 1995. Salaries and employee benefits which represent the largest category of noninterest expense were $284.6 million in 1997, which compares to $282.7 million in 1996 and $264.7 million in 1995. At December 31, 1997, the Corporation had 7,711 full-time-equivalent employees which compares to 7,880 and 7,849, respectively, at December 31, 1996 and 1995. Growth in the number of employees as the result of acquisitions has been offset by reductions of the number of employees required due to consolidation of operations and sales of branch locations. The level of expense in this category is impacted by merit salary increases and incentive compensation. Management is expecting a net reduction of 600 to 700 employees in connection with its consolidation of banking subsidiaries (see the "Charter Consolidation" discussion) The reduction is expected to be accomplished through attrition and employee separation. Net occupancy and equipment expense totaled $88.6 million in 1997, a decrease of $3.0 million from 1996 due primarily to sales of branch locations and was $2.3 million higher than 1995 due primarily to acquisitions. Management does not expect any significant growth in this category of expenses due to the consolidation of banking subsidiaries which is expected to reduce these costs overall, principally equipment expense. Future acquisitions will impact this category of expenses. TAXES Applicable income taxes consist of provisions for federal and state income taxes totaling $111.9 million in 1997, or an effective rate of 34.9%. This compares to applicable income taxes of $93.1 million in 1996 and $110.8 million in 1995. These amounts resulted in effective tax rates of 35.2% and 34.4%, respectively, in 1996 and 1995. 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 and the effect of state income taxes. For additional information regarding the Corporation's effective tax rates for all periods, see Note 15 to the consolidated financial statements. Realization of a portion of the $94.8 million net deferred tax asset, which is included in other assets, is dependent upon the generation of future taxable income sufficient to offset future deductions. Management believes that, based upon historical earnings and anticipated future earnings, normal operations will continue to generate sufficient future taxable income to realize in full these deferred tax benefits. Therefore, no extraordinary strategies are deemed necessary by management to generate sufficient taxable income for purposes of realizing the net deferred tax asset. FINANCIAL CONDITION ANALYSIS The Corporation reported $18.1 billion of total assets at December 31, 1997 compared to $18.3 billion at December 31, 1996 ($15.2 billion prior to the restatement for its Magna and Capital-Miami acquisitions which were significant poolings of interests). The six acquisitions completed in 1997, including the Magna and Capital-Miami acquisitions, added $3.6 billion in total assets. Average assets were $18.0 billion for 1997, compared to $18.2 billion and $16.3 billion, respectively, for 1996 and 1995. Table 3, which follows this discussion, presents the balance sheet impact of acquired institutions for the last three years. INVESTMENT SECURITIES As part of its securities portfolio management strategy, the Corporation classifies all of its investment securities as available for sale securities, which are carried on the balance sheet at fair market value. This strategy gives management flexibility to actively manage the investment portfolio as market conditions and funding requirements change. The Corporation's shareholders' equity is subject to fluctuation due to changes in the fair market value of the available for sale investment portfolio. 16 19 The investment securities portfolio was $3.2 billion at December 31, 1997 compared to $3.4 billion at December 31, 1996. Average investment securities were $3.3 billion and $4.3 billion, respectively, for these periods. The investment portfolio had a net unrealized gain of $62.7 million at year end 1997 compared to a net unrealized gain of $38.0 million at year end 1996. The decline in investment securities in 1997 was due primarily to the additional funding required to support loan growth during the year. Note 4 to the consolidated financial statements provides the composition of the portfolio at December 31, 1997 and 1996, along with a breakdown of the maturities and weighted average yields of the portfolio at December 31, 1997. U.S. Treasury and U.S. Government agency obligations represented 79.1% of the investment securities portfolio at December 31, 1997. The Corporation has some credit risk in the investment securities portfolio; however, management does not consider that risk to be significant and does not believe that cash flows will be significantly impacted. The REMIC and CMO issues held in the investment securities portfolio are 98% U.S. Government agency issues; the remaining 2% are readily marketable collateralized mortgage obligations backed by agency-pooled collateral or whole loan collateral. All nonagency issues held are currently rated "AAA" by either Standard & Poor's or Moody's. Approximately 52% of the REMIC and CMO portions of the portfolio are in floating-rate issues, the majority being indexed to LIBOR or PRIME. The Corporation's normal practice is to purchase investment securities at or near par value to reduce risk of premium write-offs resulting from unexpected prepayments. The limited credit risk in the investment securities portfolio at December 31, 1997 consisted of 15.7% municipal obligations and 5.2% other stocks and securities (primarily Federal Reserve Bank and Federal Home Loan Bank Stock). At December 31, 1997, the Corporation had approximately $95.3 million of "structured notes" (as currently defined by regulatory agencies), which constituted approximately 2.9% of its investment securities portfolio. Structured notes have uncertain cash flows which are driven by interest-rate movements and may expose a company to greater market risk than traditional medium-term notes. All of the Corporation's investments of this type are government agency issues (primarily Federal Home Loan Banks and Federal National Mortgage Association). The structured notes vary in type but primarily include step-up bonds and index-amortizing notes. These securities had an unrealized gain of $59,000 at December 31, 1997. The market risk of these securities is not considered material to the Corporation's financial position, results of operations, or liquidity. LOANS Loans are the largest component of the Corporation's average earning assets, or 77% of the total. Average loans grew 6.6% in 1997 following growth of 11.8% in 1996. Total loans were $12.7 billion at December 31, 1997 compared to $12.6 billion at December 31, 1996. Table 7 and Note 5 to the consolidated financial statements provide summary information regarding the loan portfolio. The average balance sheet, Table 4, provides the average balance and average yield on loans for the last three years. SINGLE-FAMILY RESIDENTIAL LOANS. These loans totaled $3.6 billion at December 31, 1997 and were the largest segment of the loan portfolio, constituting 28% of total loans. Single-family residential loans decreased $238 million, or 6.2%, between December 31, 1997 and 1996, due primarily to the level of refinancing activity in the real estate market and the securitization and sale of approximately $300 million of fixed- and adjustable-rate loans in the third quarter of 1997. This decline was partially offset by growth of the portfolio due to acquisitions during 1997. Single-family residential loans are expected to remain the largest portion of the loan portfolio and is expected to remain flat or continue to decline gradually if the current low interest rate environment continues in 1998. These loans historically have a lower level of charge-offs than the other portions of the portfolio. COMMERCIAL LOANS. Commercial, financial, and agricultural loans, including foreign commercial loans and direct lease financing, were $2.2 billion at December 31, 1997, constituting 17% of the loan portfolio. These loans increased 7.5% in 1997 from $2.1 billion at December 31, 1996. This segment of the portfolio experienced growth in 1997 due to the favorable economic conditions. In connection with the acquisition of Capital-Miami, additional foreign risk exposure was added to the portfolio. The 17 20 foreign portion of this segment represents only 2% of the overall loan portfolio and is not considered significant. OTHER MORTGAGE LOANS. This segment of the loan portfolio totaled $2.1 billion at December 31, 1997, an increase of $381 million, or 23%, from the 1996 year end total of $1.7 billion. The components of other mortgage loans are as follows: loans secured by nonfarm nonresidential properties (commercial real estate loans), 77%; loans secured by multifamily residential properties, 14%; and loans secured by farmland, 9%. FHA/VA GOVERNMENT-INSURED/GUARANTEED LOANS (FHA/VA LOANS). The FHA/VA loan portfolio was $1.3 billion at December 31, 1997 compared to $1.6 billion at year end 1996, a decrease of 15%. As a loan servicer, the Corporation is obligated to pass through to the holders of a GNMA mortgage-backed security, the coupon rate, whether or not the interest due on the underlying loans has been collected from the borrower. When an FHA/VA government-insured/guaranteed single-family loan which carries an above-market rate of interest has been in default for more than 90 days, it is the Corporation's current policy to buy the delinquent FHA/VA loan out of the GNMA pools serviced by the Corporation. This action eliminates the Corporation's obligation to pay the coupon rate. The Corporation thereby mitigates the loss otherwise attributable to the net interest-rate differential between the coupon rate which it would otherwise be obligated to pay to the GNMA holder and the Corporation's lower cost of funds. Furthermore, management has purchased, on a negotiated basis, additional delinquent FHA/VA government-insured/guaranteed loans from other GNMA servicers to leverage the operating costs of this operation. The volume of these loans in 1998 is expected to remain at the current levels or decrease. Management is considering the possibility of securitizing a large portion of this portfolio which would significantly reduce the amount of these loans, although the related servicing income would be retained. Since all of these loans are FHA/VA government-insured/guaranteed loans, the Corporation's investment is expected to be recoverable through claims made against the FHA or the VA. Management believes the credit risk and the risk of principal loss is minimal. For this reason, management has excluded these loans from the credit quality data and resulting ratios. Any losses incurred would not be significantly greater or less than if the Corporation had continued solely as servicer of the FHA/VA loans. The risk involving these loans arises from not complying timely with FHA/VA's foreclosure process and certain unreimbursable foreclosure costs. The Corporation, by purchasing the delinquent FHA/VA loans also assumes the interest-rate risk associated with funding a loan if timely foreclosure should not occur. Risk also exists, under certain circumstances, that claims might be rejected by the FHA or the VA or otherwise not be able to be collected in full. Provisions for these types of losses are provided through noninterest expense as provisions for losses on FHA/VA foreclosure claims (see the "Noninterest Expense" discussion) and the corresponding liability is carried in other liabilities. Provisions for losses on FHA/VA foreclosure claims totaled $8.0 million, $25.2 million, and $5.6 million, respectively, in 1997, 1996, and 1995. At December 31, 1997, the Corporation had a servicing reserve of $33.3 million as compared to $37.2 million at December 31, 1996. CONSUMER LOANS. This segment of the portfolio represented 16% of the loan portfolio at December 31, 1997, and decreased 10.5% from year end 1996. Consumer loans include loans to individuals which totaled $1.4 billion and credit card loans which totaled $559 million at December 31, 1997, decreases of 8.8% and 14.6%, respectively, from $1.6 billion and $654 million, respectively, at December 31, 1996. This segment of the portfolio has experienced a high level of charge-offs over the last three years due to the high level of personal bankruptcies. The growth of the credit card portfolio over the last several years is attributable to marketing campaigns and the purchase of credit card portfolios. REAL ESTATE CONSTRUCTION LOANS. These loans totaled $640 million at December 31, 1997, an increase of $64 million, or 11.0%, from the year end 1996 amount of $576 million. The growth of these loans resulted primarily from the favorable economic conditions in the areas served by the Corporation. ACCOUNTS RECEIVABLE -- FACTORING. This category of the portfolio totaled $579 million at December 31, 1997, an increase of $127 million from the December 31, 1996 total of $452 million. Capital Factors 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 18 21 agreements with them. Its clients primarily include manufacturers, importers, wholesalers and distributors in the apparel and textile-related industries and, to a lesser extent, in consumer goods-related industries. More recently, Capital Factors has provided services to companies in the healthcare industry. Also included in this category are asset-based loans which are collateralized primarily by receivables owned by the borrowers. LOAN OUTLOOK. The primary factors affecting the growth of the Corporation's loan portfolio are the economic conditions in the areas served and the level of its acquisition activity. Management expects moderate loan growth in 1998 as the economies in most of the areas served are growing. FHA/VA loans and certain single-family residential mortgages are under evaluation for securitization and sale, which if done, would decrease the level of loans. ALLOWANCE FOR LOSSES ON LOANS The allowance for losses on loans (the allowance) at December 31, 1997 was $225.4 million, or 1.99% of loans, compared to $189.1 million, or 1.72% of loans, at December 31, 1996. In calculating the allowance to loans, FHA/VA loans have been excluded (see "FHA/VA Government-Insured/Guaranteed Loans" discussion above). Management's policy is to maintain the allowance at a level deemed sufficient to absorb estimated losses in the loan portfolio. The allowance is reviewed quarterly in accordance with the methodology described in Note 1 to the consolidated financial statements. Tables 8 and 10 which follow this discussion provide detailed information regarding the allowance for each of the five years in the period ended December 31, 1997. Net charge-offs were $80.6 million in 1997, an increase of $15.9 million, or 24%, compared to $64.7 million in 1996. All of the increase is attributable to credit card and other consumer loans. All other categories of loans experienced a decrease in net charge-offs. Credit card net charge-offs totaled $43.4 million in 1997, an increase of $16.6 million over 1996 which totaled $26.8 million. Other consumer loan net charge-offs were $23.1 million in 1997 compared to $18.0 million in 1996. The increase in both of these categories has been impacted by the high level of personal bankruptcies over the last few years. Direct marketing initiatives for credit cards in 1994 and subsequent years and purchases of credit card portfolios to develop new business also contributed to the increase in credit card charge-offs. LOAN CONCENTRATIONS Management believes that the loan portfolio is adequately diversified. The loan portfolio is for the most part spread over eight states (Tennessee, Mississippi, Florida, Missouri, Arkansas, Louisiana, Alabama, and Kentucky) where the Corporation has banking operations. Additionally, Capital Factors has operations in New York, California, Florida, North Carolina and Georgia. Reference is made to Table 15 which discloses total loans by banking operation and by state at December 31, 1997. The Corporation has a limited amount of foreign exposure, less than 2% of the loan portfolio. At December 31, 1997, the Corporation had no concentrations of loans to a single industry constituting as much as 10% of total loans. The largest concentration of loans is in single family residential loans, comprising 28% of the loan portfolio, which historically has had low loss experience. The Corporation also holds $1.3 billion of FHA/VA loans which account for an additional 10% of the loan portfolio. These loans are also single family residential loans. Management has sought to achieve diversification between large and smaller-sized loans in an effort to reduce risk in the portfolio. At December 31, 1997, the Corporation's largest loan relationship, excluding the lending relationships of Capital Factors, was $31.9 million and there were only 25 relationships of $10 million or more, which constituted in the aggregate less than 4% of the total loan portfolio. Capital Factors has six client lending relationships greater than $10 million and nine customer credits exceeding $10 million with the largest relationship being $35 million to a national department store chain. NONPERFORMING ASSETS LOANS OTHER THAN FHA/VA LOANS. Nonperforming assets consist of nonaccrual loans, restructured loans, and foreclosed properties. Table 9 presents nonperforming assets in two categories, 19 22 FHA/VA loans and all other loans. For this discussion and for the credit quality information presented in this report, FHA/VA loans are excluded from the calculations because of their minimal exposure to principal loss. (Reference is made to the discussion of "FHA/VA Government-Insured/Guaranteed Loans" above.) At December 31, 1997, nonperforming assets totaled $128.7 million, or 1.13% of loans and foreclosed properties. This compares to $133.5 million, or 1.21% of loans and foreclosed properties at December 31, 1996. Nonaccrual loans at year end 1997 totaled $94.6 million, or .83% of total loans which compares to $89.4 million, or .81% of total loans for the same period in 1996. Restructured loans and foreclosed properties were $10.0 million and $24.1 million, respectively, at December 31, 1997. This compares to $11.3 million and $32.8 million, respectively, at December 31, 1996. Loans 90 days or more past due and not on nonaccrual status, which are not included in nonperforming assets, were $24.1 million, or .21% of loans at December 31, 1997. This compares to $23.5 million, or .21%, of loans at December 31, 1996. A breakdown of nonaccrual loans and loans 90 days or more past due and not on nonaccrual status, both excluding FHA/VA loans, follows:
LOANS 90 DAYS NONACCRUAL LOANS OR MORE PAST DUE ----------------- ----------------- DECEMBER 31, DECEMBER 31, ----------------- ----------------- LOAN TYPE 1997 1996 1997 1996 - ---------------------------------------------------------- ------- ------- ------- ------- (DOLLARS IN THOUSANDS) Secured by single family residential...................... $54,018 $53,968 $ 3,872 $ 1,727 Secured by nonfarm nonresidential......................... 9,678 9,606 962 1,716 Other real estate......................................... 16,201 4,973 1,556 1,492 Commercial, financial, and agricultural, including foreign loans and direct lease financing........................ 8,770 15,746 1,164 1,993 Credit card and related plans............................. -- 50 14,679 11,520 Other consumer............................................ 5,917 5,061 1,830 5,032 ------- ------- ------- ------- Total........................................... $94,584 $89,404 $24,063 $23,480 ======= ======= ======= =======
FHA/VA LOANS. As discussed in the "Loans" section of this report, FHA/VA loans do not, in management's opinion, have traditional credit risk similar to the rest of the loan portfolio and risk of principal loss is considered minimal. FHA/VA loans 90 days or more past due and still accruing interest totaled $516.7 million at December 31, 1997 compared to $724.4 million at December 31, 1996. The decrease in the loans past due relates to the decline in the volume of these loans. At December 31, 1997, $14.8 million 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. This policy will be followed on a prospective basis. 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, 1997, the Corporation had potential problem assets (all loans) aggregating $17.5 million, comprised of 30 loans, the largest of which was $6.7 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 $417 million in 1997 with an average yield of 6.25%. This compares to $531 million in 1996 with a 6.10% average yield and $612 million in 1995 with an average yield of 6.45%. Over the past three years these earning assets comprised three to four percent of total average earning assets. The decline in other earning assets from 1996 is attributable to a $152 million decrease in federal funds sold and securities purchased under agreements to resell. This decrease was due to utilizing these funds to meet other funding needs, primarily loans. The other significant component of this category was trading account assets which represents the government-guaranteed portions of SBA loans. Trading assets averaged $205 million in 1997, an increase of $12 million from 1996 and compared to $185 million in 1995. The average yield on these assets over the past three years has ranged from 20 23 7.20% to 7.65%. Management considers the interest-rate and credit risk related to all of these assets to be minimal. DEPOSITS The Corporation's deposit base is its primary source of liquidity and consists of deposits from the communities served by the Corporation. At December 31, 1997, the Corporation had the largest deposit base of any independent bank holding company headquartered in Tennessee. Tables 4 and 6 present the components of the Corporation's average deposits. Note 8 to the consolidated financial statements presents the maturities of interest-bearing deposits at December 31, 1997. Deposits were $13.4 billion at December 31, 1997 and averaged $13.3 billion for the year. This compares to period end and average deposits for 1996 of $13.5 billion. The decrease in average deposits in 1997 is attributable primarily to sales of deposits related to the disposition of branches and migration of deposits by customers to other investment products. Total deposits sold in connection with branch dispositions in 1997 totaled approximately $240 million. The decrease in deposits was partially offset by increases from acquisitions during the year. As shown on the consolidated statement of cash flows, total deposits, excluding acquisitions, decreased $289 million in 1997 compared to a decrease of $241 million in 1996. The composition of average deposits over the last three years was as follows:
TYPE OF DEPOSITS 1997 1996 1995 - ------------------------------------------------------------ ---- ---- ---- Noninterest-bearing deposits................................ 17% 16% 15% Money market deposits....................................... 14 15 15 Savings deposits............................................ 19 18 18 Other time deposits......................................... 40 42 43 Certificates of deposit of $100,000 and over................ 10 9 9
CAPITAL AND DIVIDENDS Shareholders' equity increased $128.0 million in 1997 to $1.7 billion, or 9.65% of total assets. This compares to shareholders' equity of $1.6 billion, or 8.83% of total assets at December 31, 1996. The primary source of growth in shareholders' equity in 1997 was earnings retention of $94.0 million, net stock transactions in connection with the dividend reinvestment plan and employee benefit plans of $34.3 million, issuance of stock in connection with acquisitions of $26.7 million, and the net change in the unrealized gains (losses) on available for sale securities of $15.1 million. Partially offsetting these increases was a decrease of $42.1 million resulting from the repurchase of shares of common stock in connection with a business combination accounted for as a purchase. The consolidated statement of changes in shareholders' equity details the changes in equity for the last three years. The Corporation and its subsidiaries must comply with the capital guidelines established by the regulatory agencies that supervise their operations. These agencies have adopted a system to monitor the capital adequacy of all insured financial institutions. The system includes ratios based on the risk-weighting of on- and off-balance-sheet transactions. If an institution's ratios should fall below certain levels, it would become subject to regulatory action. The Corporation's and its principal subsidiary's regulatory capital ratios, capital adequacy requirements, and prompt corrective action provisions are included in Note 12 to the consolidated financial statements. Also, Table 13 presents the Corporation's risk-based capital ratios for the last three years. At December 31, 1997, all of the Corporation's financial institutions met the requirements for well-capitalized institutions. The Corporation declared cash dividends on its common stock of $1.495 per share in 1997, an increase of 38% over the 1996 amount of $1.08 per share. In January 1998, the regular quarterly dividend was increased to $.50 per share ($2.00 per share annually). The Corporation also declared and paid cash dividends on its 8% Series E Convertible Preferred Stock of $2.00 per share in both 1997 and 1996. The primary sources for payment of dividends by the Corporation to its shareholders are management fees and dividends received from its subsidiaries, interest on loans to subsidiaries, and interest on its available for sale investment securities. Payment of dividends by the Corporation's 21 24 banking subsidiaries is subject to various statutory limitations which are described in Note 12 to the consolidated financial statements. Reference is made to the "Liquidity" discussion for additional information regarding the parent company's liquidity. ASSET/LIABILITY AND MARKET RISK MANAGEMENT The Corporation's assets and liabilities are principally financial in nature and the resulting earnings thereon, primarily net interest income, are subject to changes as a result of changes in market interest rates and the mix of the various assets and liabilities. Interest rates in the financial markets affect the Corporation's decisions on pricing its assets and liabilities which impacts net interest income, the Corporation's primary cash flow stream. As a result, a substantial part of the Corporation's risk-management activities are devoted to managing interest-rate risk. Currently, the Corporation does not have any significant risks related to foreign exchange, commodities or equity risk exposures. INTEREST-RATE RISK. One of the most important aspects of management's efforts to sustain long-term profitability for the Corporation is the management of interest-rate risk. Management's goal is to maximize net interest income within acceptable levels of interest-rate risk and liquidity. To achieve this goal, a proper balance must be maintained between assets and liabilities with respect to size, maturity, repricing date, rate of return, and degree of risk. Reference is made to the "Investment Securities," "Loans," and "Other Earning Assets" discussions for additional information regarding the risks related to these items. The Corporation, on a limited basis, has used off-balance-sheet financial instruments to manage interest-rate risk. At December 31, 1997 and 1996, the Corporation had no such instruments outstanding. Note 17 to the consolidated financial statements provides a reconciliation of the Corporation's interest-rate-swap information for 1996. The Corporation's Funds Management Committee oversees the conduct of global asset/liability and interest-rate risk management. The Committee reviews the asset/liability structure and interest-rate risk monthly for the lead bank and quarterly for the Corporation's other subsidiaries. The Corporation uses interest-rate sensitivity (GAP) analysis to monitor the amounts and timing of balances exposed to changes in interest rates, as shown in Table 11. The analysis presented in Table 11 has been made at a point in time and could change significantly on a daily basis. The GAP Report is not relied upon exclusively to evaluate the impact of, or predict how the Corporation is positioned to react to, changing interest rates. Other methods such as simulation analysis are also considered in evaluating the Corporation's interest-rate risk. Key assumptions in the simulation analysis include prepayment speeds on mortgage related assets, cash flows and maturities of financial instruments held for purposes other than trading, changes in volumes and pricing, deposit sensitivity, and management's financial capital plans. These assumptions are inherently uncertain and, as a result, the simulation cannot precisely estimate net interest income or precisely predict the impact of higher or lower interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes and changes in market conditions and management strategies, among others. At December 31, 1997, the GAP report indicated that the Corporation was liability sensitive with $1.1 billion more liabilities than assets repricing within one year. At 6% of total assets, this position was within the Corporation's policy limit of 10% of total assets. Balance sheet simulation analysis has been conducted at year end to determine the impact on net interest income for the coming twelve months under several interest-rate scenarios. One such scenario uses rates at December 31, 1997, and holds the rates and volumes constant for simulation. When this position is subjected to immediate and parallel shifts in interest rates ("rate shock") of 200 basis points rising and 200 basis points falling, the annual impact on the Corporation's net interest income is a positive $6.3 million and a negative $11.6 million pretax, respectively. Another simulation uses a "most likely" scenario of interest rates falling 25 basis points in the latter half of 1998 resulting in a $3.4 million pretax decrease in net interest income from the constant rate/volume projection. These scenarios are within the Corporation's policy limit of 5% of shareholders' equity. The actual impact of changing interest rates on net interest income is dependent on a number of factors such as the growth of earning assets, the mix of earning assets and interest-bearing liabilities, 22 25 the magnitude of the interest-rate changes, the timing of the repricing of assets and liabilities, interest-rate spreads, and the asset/liability strategies implemented by management. LIQUIDITY. Liquidity for the Corporation is its ability to meet cash requirements for deposit withdrawals, to make new loans and satisfy loan commitments, to take advantage of attractive investment opportunities, and to repay borrowings when they mature. As discussed previously, the Corporation's primary sources of liquidity are its deposit base, available for sale securities, and money-market investments. Liquidity is also achieved through short-term borrowings, borrowing under available lines of credit, and issuance of securities and debt instruments in the marketplace. Parent company liquidity is achieved and maintained by dividends received from subsidiaries, interest on advances to subsidiaries, interest on the available for sale investment securities portfolio, and management fees charged to subsidiaries. At December 31, 1997, the parent company had cash and cash equivalents totaling $432.9 million. The parent company's net working capital position at December 31, 1997 was $444.6 million. At January 1, 1998, the parent company could have received dividends from subsidiaries of $103 million without prior regulatory approval. The payment of additional dividends by the Corporation's subsidiaries will be dependent on the future earnings of the subsidiaries. Management believes that the parent company has adequate liquidity to meet its cash needs, including the payment of its regular dividends, servicing of its debt, and cash needed for acquisitions. FAIR VALUE OF FINANCIAL INSTRUMENTS The disclosures regarding the fair value of financial instruments are included in Note 18 to the consolidated financial statements along with a summary of the methods and assumptions used by the Corporation in determining fair value. The differences between the fair values and book values were primarily caused by differences between contractual and market interest rates at the respective year ends. Fluctuations in the fair values will occur from period to period due to changes in the composition of the balance sheet and changes in market interest rates. FOURTH QUARTER RESULTS The Corporation's net income for the fourth quarter of 1997 was $5.3 million, or $.05 for both basic and diluted earnings per share. This compares to $22.5 million, or $.27 for both basic and diluted earnings per share for the fourth quarter of 1996. Results for the fourth quarter of 1997 were impacted by the following significant pretax items: (i) $40.8 million of merger-related charges, (ii) $16.6 million of charges related to the charter consolidation, and (iii) a $17.6 million increase in the provision for losses on loans primarily related to acquisitions and the credit card portfolio. These items were offset by gains on sales of branches of $4.6 million. Results for the fourth quarter of 1996 included similar pretax charges. These charges included the following: (i) $44.9 million of merger-related charges, (ii) $13.7 million of write-offs of intangibles, and (iii) $5.2 million of provisions for losses on FHA/VA claims related to an acquired entity. The fourth quarter of 1996 charges were partially offset by $4.3 million of investment securities gains. These significant items are discussed in more detail in the "Earnings Analysis" section of this report. Net interest income on a taxable-equivalent basis was $196.6 million for the fourth quarter of 1997, $1.0 million higher than 1996's fourth quarter. The net interest margin was 4.79%, a 19-basis-point increase from 1996. The improvement relates primarily to loan growth funded by maturities and sales of lower yielding investment securities and reductions of short-term borrowings. The provision for losses on loans for the fourth quarter was $36.9 million compared to $19.3 million for the same period in 1996. The higher provision related to acquisitions and the credit card portfolio. Noninterest income for the fourth quarter of 1997 was $91.8 million, an increase of $6.7 million over 1996. Noninterest expense was $238.4 million for the fourth quarter of 1997, an increase of $16.8 million from the same period in 1996. Noninterest expenses were impacted by the items described above. 23 26 Table 14, Selected Quarterly Data, presents certain quarterly financial data for 1997 and 1996. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS REPORTING COMPREHENSIVE INCOME. In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." The Statement establishes standards for the reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in financial statements. This Statement requires that all items to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. This Statement does not require a specific format for that financial statement but requires that an enterprise display an amount representing total comprehensive income for the period in that financial statement. This Statement requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. This Statement is effective for fiscal years beginning after December 15, 1997 and will have no impact on the Corporation's financial position or results of operations. Reclassification of financial statements for earlier periods provided for comparative purposes is required. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information." This Statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. This Statement supersedes FASB Statement No. 14, "Financial Reporting for Segments of a Business Enterprise", but retains the requirement to report information about major customers. It amends FASB Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to remove the special disclosure requirements for previously unconsolidated subsidiaries. This Statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, financial information is required to be reported on the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments. This Statement is effective for financial statements for periods beginning after December 15, 1997. The Corporation's primary business is banking and it currently does not have a segment under the above standard or the previous standard. Management is continuing to examine the way it evaluates its business and if certain operating units meet the tests for segment reporting, it will be provided in future financial statements. YEAR 2000 RISK FACTORS In February 1997, the Corporation implemented its "Y2K Project" to address a potential problem with which substantially all users of automated data processing and information systems are faced. This problem arises from the use by older systems of only two digits to represent the year applicable to a transaction, e.g., "97" to represent "1997" rather than the full four digits. Computer systems so programmed may not operate properly when the last two digits of the year become "00" as will occur on January 1, 2000. In some cases inputting a date later than December 31, 1999, would cause a computer to stop operating while in other cases incorrect output may result. This potential problem could affect a wide variety of automated systems such as mainframe applications, personal computers, communications systems, and other information systems routinely used in all industries. The Corporation uses a vendor-provided system as its "core" banking application software to process data pertaining to its demand deposits, savings accounts, CDs and other deposits; certain loans; 24 27 and like items. On August 21, 1996, the provider certified the Corporation's "core" banking applications to be Year-2000 compliant and testing is expected to be completed by April 1998. Other third-party provided application software is used to process substantially all of the Corporation's other data, e.g., its mortgage servicing, credit cards, trust accounts, automated clearing house transfers, wire transfer function, electronic banking, discount securities broker operations, investment-security management operations, and others. Testing of these systems is expected to be started in March 1998 and Year-2000 compliance achieved prior to December 1998, either through installation of presently available software upgrades or through installation of, and conversion to presently available alternative systems. Each third-party-provider is contractually bound at its own expense to bring its software into Year-2000 compliance and to maintain it in compliance should problems be identified during testing. By December 1998, testing of all third-party provided software and hardware is expected to be completed. Although substantially all of the date-sensitive software and applications utilized in the Corporation's information systems is provided by outside vendors, the Corporation has itself developed some software "in-house" almost exclusively to permit its several systems and their users to communicate with one another. Pursuant to the Corporation's Y2K Project, a consulting firm specializing in Year-2000 software compliance matters has been retained to review all in-house-developed software to assess the scope of the remedial work required to bring it into Year-2000 compliance. This review commenced on December 1, 1997 and is expected to be completed in April 1998. It is currently estimated that the Corporation will spend approximately $750,000 on its Y2K Project. In summary, the Corporation's Y2K Project's goal and management's expectation is to have all software reviewed and modified or replaced as necessary to achieve Year-2000 compliance and to be tested with satisfactory results prior to year-end 1998. Based upon currently available information, management has no reason to believe that its goal and expectation will not be met and does not anticipate that the cost of effecting Year-2000 compliance will have a material impact on the Corporation's financial condition, results of operations, or liquidity. Notwithstanding the foregoing, the Corporation continues to bear some risk arising from the advent of the Year-2000 and could be adversely affected should significant customers of the Corporation fail to address the issues appropriately; or should the Corporation's providers fail to perform under their aforementioned maintenance contracts with it; or should required, qualified, system technical personnel become unavailable before Year-2000 compliance has been achieved. With a view to identifying and minimizing the risk to the Corporation's loan portfolio, the Corporation is conferring with its major borrowing customers to sensitize them to Year-2000 issues and to encourage them to implement promptly Y2K projects of their own. A senior-level management committee is addressing these issues and providing guidance to lending personnel. Presently management has no reason to believe that any customers with which it has significant banking relationships are failing to take appropriate action to effect Year-2000 compliance or that its software vendors will be unable to perform under their contracts. 25 28 TABLE 1. SUMMARY OF CONSOLIDATED RESULTS
YEARS ENDED DECEMBER 31, ------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- --------- (DOLLARS IN THOUSANDS) Interest income...................... $1,416,694 $1,412,991 $1,265,818 $1,064,944 $ 938,785 Interest expense..................... (646,309) (668,139) (596,367) (437,505) (380,749) ---------- ---------- ---------- ---------- --------- NET INTEREST INCOME........ 770,385 744,852 669,451 627,439 558,036 PROVISION FOR LOSSES ON LOANS........ (113,633) (68,948) (33,917) (15,988) (35,235) ---------- ---------- ---------- ---------- --------- NET INTEREST INCOME AFTER PROVISION FOR LOSSES ON LOANS.................... 656,752 675,904 635,534 611,451 522,801 NONINTEREST INCOME Service charges on deposit accounts........................ 107,248 107,535 102,932 83,221 73,187 Mortgage servicing income.......... 57,265 63,003 55,903 52,410 48,125 Bank card income................... 31,317 24,975 20,758 11,386 10,884 Factoring commissions.............. 30,140 26,066 19,519 17,371 15,376 Trust service income............... 9,020 8,862 8,326 8,210 7,814 Profits and commissions from trading activities.............. 7,295 5,765 12,362 5,069 15,620 Other income....................... 101,445 71,684 70,543 57,262 57,089 ---------- ---------- ---------- ---------- --------- Total noninterest income... 343,730 307,890 290,343 234,929 228,095 ---------- ---------- ---------- ---------- --------- NONINTEREST EXPENSE Salaries and employee benefits..... 284,648 282,726 264,663 264,723 245,152 Net occupancy expense.............. 44,813 47,215 44,061 44,481 39,184 Equipment expense.................. 43,812 44,418 42,251 37,224 34,758 Other expense...................... 257,391 237,216 244,303 230,301 220,820 ---------- ---------- ---------- ---------- --------- Total noninterest expense.................. 630,664 611,575 595,278 576,729 539,914 ---------- ---------- ---------- ---------- --------- EARNINGS BEFORE OTHER OPERATING ITEMS, INCOME TAXES, EXTRAORDINARY ITEM, AND ACCOUNTING CHANGES.................. 369,818 372,219 330,599 269,651 210,982 OTHER OPERATING ITEMS Investment securities gains (losses)........................ 2,104 4,099 1,433 (21,302) 6,686 Restructuring charges.............. -- -- -- (28,929) -- Merger-related expenses............ (46,188) (52,786) (11,911) (14,862) (2,113) Charter consolidation expenses..... (16,742) -- -- -- -- Consumer loan marketing program expenses........................ -- -- -- (14,446) -- Gain on sale of collateral related to a troubled debt restructuring................... -- -- -- -- 901 Gain on sales of branches and other selected assets................. 15,776 7,245 1,934 -- -- One-time trust fees related to a court award..................... -- 1,268 -- -- -- Special regulatory assessment to recapitalize the SAIF........... -- (28,249) -- -- -- Write-off of mortgage servicing rights, goodwill, and other intangibles..................... (2,610) (19,407) -- -- (3,094) Additional provisions for losses on FHA/VA foreclosure claims of acquired entity................. -- (19,800) -- -- -- Provisions for data processing systems conversions and abandonment of property......... -- -- -- -- (4,424) Litigation settlements............. (1,500) -- -- 2,200 (500) ---------- ---------- ---------- ---------- --------- EARNINGS BEFORE INCOME TAXES, EXTRAORDINARY ITEM, AND ACCOUNTING CHANGES.................. 320,658 264,589 322,055 192,312 208,438 Applicable income taxes.............. (111,897) (93,115) (110,799) (63,058) (66,570) ---------- ---------- ---------- ---------- --------- EARNINGS BEFORE EXTRAORDINARY ITEM AND ACCOUNTING CHANGES....... 208,761 171,474 211,256 129,254 141,868 Extraordinary item and accounting changes, net of taxes.............. -- -- -- -- 4,505 ---------- ---------- ---------- ---------- --------- NET EARNINGS............... $ 208,761 $ 171,474 $ 211,256 $ 129,254 $ 146,373 ========== ========== ========== ========== =========
26 29 TABLE 2. CONTRIBUTION TO DILUTED EARNINGS PER SHARE
YEARS ENDED DECEMBER 31, ----------------------------------------------- 1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- Net interest income -- FTE....................... $ 9.23 $ 9.13 $ 8.73 $ 8.35 $ 8.74 Provision for losses on loans.................... (1.33) (0.83) (0.43) (0.21) (0.52) ------- ------- ------- ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOSSES ON LOANS -- FTE............... 7.90 8.30 8.30 8.14 8.22 NONINTEREST INCOME Service charges on deposit accounts............ 1.26 1.29 1.31 1.07 1.15 Mortgage servicing income...................... 0.67 0.75 0.71 0.68 0.56 Bank card income............................... 0.37 0.30 0.26 0.15 0.50 Factoring commissions.......................... 0.35 0.31 0.25 0.22 0.25 Trust service income........................... 0.11 0.12 0.11 0.11 0.13 Profits and commissions from trading activities.................................. 0.09 0.07 0.16 0.06 0.26 Investment securities gains (losses)........... 0.02 0.05 0.02 (0.27) 0.13 Other income................................... 1.38 0.95 0.91 0.76 0.87 ------- ------- ------- ------- ------- Total noninterest income............... 4.25 3.84 3.73 2.78 3.85 ------- ------- ------- ------- ------- NONINTEREST EXPENSE Salaries and employee benefits................. (3.34) (3.38) (3.36) (3.41) (3.75) Net occupancy expense.......................... (0.53) (0.57) (0.56) (0.57) (0.61) Equipment expense.............................. (0.51) (0.53) (0.54) (0.52) (0.57) Other expense.................................. (3.81) (4.28) (3.25) (3.68) (3.65) ------- ------- ------- ------- ------- Total noninterest expense.............. (8.19) (8.76) (7.71) (8.18) (8.58) ------- ------- ------- ------- ------- EARNINGS BEFORE INCOME TAXES -- FTE, EXTRAORDINARY ITEM, AND ACCOUNTING CHANGES.............................. 3.96 3.38 4.32 2.74 3.49 Applicable income taxes -- FTE................... (1.51) (1.33) (1.64) (1.07) (1.31) ------- ------- ------- ------- ------- EARNINGS BEFORE EXTRAORDINARY ITEM AND ACCOUNTING CHANGES................... 2.45 2.05 2.68 1.67 2.18 Extraordinary item and accounting changes, net of taxes.......................................... -- -- -- -- 0.08 Preferred stock dividends........................ -- -- (0.02) (0.04) (0.05) ------- ------- ------- ------- ------- NET EARNINGS........................... $ 2.45 $ 2.05 $ 2.66 $ 1.63 $ 2.21 ======= ======= ======= ======= ======= Change in net earnings applicable to diluted earnings per share using previous year average shares outstanding............................. $ 0.45 $ (0.49) $ 1.08 $ (0.13) $ 0.89 Change in average shares outstanding............. (0.05) (0.12) (0.05) (0.45) (0.41) ------- ------- ------- ------- ------- Change in net earnings................. $ 0.40 $ (0.61) $ 1.03 $ (0.58) $ 0.48 ======= ======= ======= ======= ======= AVERAGE DILUTED SHARES (IN THOUSANDS)............ 85,195 83,542 78,798 77,579 60,832 ======= ======= ======= ======= =======
- --------------- FTE -- Fully taxable-equivalent 27 30 TABLE 3. BALANCE SHEET IMPACT OF CONSUMMATED ACQUISITIONS
1997 1996 1995 -------------------------------------------------- ---------------------------------- ---------- CAPITAL-MIAMI MAGNA OTHERS TOTAL LEADER OTHERS TOTAL TOTAL ------------- ---------- -------- ---------- ---------- -------- ---------- ---------- (DOLLARS IN THOUSANDS) ASSETS Interest-bearing deposits at financial institutions........ $ 18,441 $ 23,032 $ 100 $ 41,573 $ 241 $ 2,540 $ 2,781 $ 2,367 Loans, net of unearned income.............. 1,617,896 883,404 150,279 2,651,579 2,248,213 487,274 2,735,487 923,678 Allowance for losses on loans............ (30,676) (15,983) (3,138) (49,797) (31,645) (6,479) (38,124) (19,717) ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- Net loans....... 1,587,220 867,421 147,141 2,601,782 2,216,568 480,795 2,697,363 903,961 Investment securities.......... 219,796 115,189 60,565 395,550 836,583 212,303 1,048,886 169,373 Intangible assets..... 1,477 11,051 2,746 15,274 52,985 9,356 62,341 15,608 Cash and cash equivalents......... 238,197 74,751 26,030 338,978 36,802 73,628 110,430 138,525 Other real estate, net................. 1,652 9,579 759 11,990 1,070 1,414 2,484 2,590 Premises and equipment........... 28,037 32,090 4,607 64,734 19,013 20,293 39,306 29,173 Other assets.......... 60,825 57,401 4,192 122,418 247,659 12,295 259,954 18,736 ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- TOTAL ASSETS.... $2,155,645 $1,190,514 $246,140 $3,592,299 $3,410,921 $812,624 $4,223,545 $1,280,333 ========== ========== ======== ========== ========== ======== ========== ========== LIABILITIES Deposits.............. $1,290,429 $ 887,437 $214,988 $2,392,854 $1,697,496 $710,800 $2,408,296 $1,138,644 Other interest-bearing liabilities......... 429,691 141,803 280 571,774 1,384,610 18,585 1,403,195 30,682 Other liabilities..... 290,533 33,531 3,876 327,940 72,755 9,319 82,074 16,036 ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- TOTAL LIABILITIES... $2,010,653 $1,062,771 $219,144 $3,292,568 $3,154,861 $738,704 $3,893,565 $1,185,362 ========== ========== ======== ========== ========== ======== ========== ========== PURCHASE PRICE/CAPITAL CONTRIBUTION/EQUITY... $ 144,992 $ 127,743 $ 26,996 $ 299,731 $ 256,060 $ 73,920 $ 329,980 $ 94,971 ========== ========== ======== ========== ========== ======== ========== ==========
28 31 TABLE 4. AVERAGE BALANCE SHEETS AND AVERAGE INTEREST RATES
YEARS ENDED DECEMBER 31, --------------------------------------------------------------------- 1997 1996 --------------------------------- --------------------------------- 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...... $ 52,213 $ 2,627 5.03% $ 26,403 $ 1,593 6.03% Federal funds sold and securities purchased under agreements to resell........ 160,328 9,114 5.68 312,162 16,948 5.43 Trading account assets........ 204,765 14,956 7.30 192,856 13,895 7.20 Investment securities (1)(2) Taxable securities.......... 2,813,950 187,221 6.65 3,752,983 247,716 6.60 Tax-exempt securities....... 474,864 43,365 9.13 502,140 45,461 9.05 ----------- ---------- ----------- ---------- Total investment securities............ 3,288,814 230,586 7.01 4,255,123 293,177 6.89 Loans, net of unearned income (1)(3)(4)............ 12,706,965 1,175,965 9.25 11,924,605 1,105,089 9.27 ----------- ---------- ----------- ---------- TOTAL EARNING ASSETS (1) (2)(3)(4)............. 16,413,085 1,433,248 8.73 16,711,149 1,430,702 8.56 Cash and due from banks....... 608,778 634,802 Premises and equipment........ 333,658 342,798 Allowance for losses on loans....................... (192,647) (192,172) Other assets.................. 828,286 705,778 ----------- ----------- TOTAL ASSETS............ $17,991,160 $18,202,355 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Money market accounts......... $ 1,860,230 $ 66,839 3.59% $ 1,974,092 $ 65,692 3.33% Savings deposits.............. 2,512,641 59,408 2.36 2,399,139 58,408 2.43 Certificates of deposit of $100,000 and over........... 1,396,928 78,046 5.59 1,277,645 74,071 5.80 Other time deposits........... 5,345,573 290,224 5.43 5,734,545 314,497 5.48 Short-term borrowings......... 665,134 34,307 5.16 1,089,550 59,553 5.47 Short-term bank notes......... 119,493 6,973 5.84 88,361 5,136 5.81 Long-term debt Federal Home Loan Bank advances.................. 888,206 52,190 5.88 960,213 55,641 5.79 Subordinated capital notes..................... 174,173 11,726 6.73 211,866 15,419 7.28 Medium-term bank notes...... 135,000 8,943 6.62 42,637 2,801 6.57 Trust Preferred Securities................ 198,956 16,511 8.30 10,871 872 8.02 Other....................... 270,987 21,142 7.80 214,413 16,049 7.49 ----------- ---------- ----------- ---------- TOTAL INTEREST-BEARING LIABILITIES........... 13,567,321 646,309 4.76 14,003,332 668,139 4.77 Noninterest-bearing demand deposits.................... 2,196,231 -- 2,103,059 -- ----------- ---------- ----------- ---------- TOTAL SOURCES OF FUNDS................. 15,763,552 646,309 16,106,391 668,139 Other liabilities............. 536,616 562,616 Shareholders' equity.......... 1,690,992 1,533,348 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ $17,991,160 $18,202,355 =========== =========== NET INTEREST INCOME(1).......... $ 786,939 $ 762,563 ========== ========== INTEREST RATE SPREAD(1)......... 3.97% 3.79% ==== ==== NET INTEREST MARGIN(1).......... 4.79% 4.56% ==== ==== TAXABLE-EQUIVALENT ADJUSTMENTS Loans......................... $ 2,221 $ 3,089 Investment securities......... 14,333 14,622 ---------- ---------- Total................... $ 16,554 $ 17,711 ========== ========== YEARS ENDED DECEMBER 31, --------------------------------- 1995 --------------------------------- INTEREST FTE AVERAGE INCOME/ YIELD/ BALANCE EXPENSE RATE ----------- ---------- ------ (DOLLARS IN THOUSANDS) ASSETS Interest-bearing deposits at financial institutions...... $ 81,589 $ 5,284 6.48% Federal funds sold and securities purchased under agreements to resell........ 344,798 19,965 5.79 Trading account assets........ 185,497 14,192 7.65 Investment securities (1)(2) Taxable securities.......... 3,164,086 202,889 6.41 Tax-exempt securities....... 519,195 48,081 9.26 ----------- ---------- Total investment securities............ 3,683,281 250,970 6.81 Loans, net of unearned income (1)(3)(4)............ 10,662,222 994,214 9.32 ----------- ---------- TOTAL EARNING ASSETS (1) (2)(3)(4)............. 14,957,387 1,284,625 8.59 Cash and due from banks....... 596,207 Premises and equipment........ 320,587 Allowance for losses on loans....................... (179,852) Other assets.................. 568,835 ----------- TOTAL ASSETS............ $16,263,164 =========== LIABILITIES AND SHAREHOLDERS' EQUITY Money market accounts......... $ 1,865,027 $ 50,163 2.69% Savings deposits.............. 2,311,574 59,327 2.57 Certificates of deposit of $100,000 and over........... 1,084,207 54,754 5.05 Other time deposits........... 5,480,245 314,397 5.74 Short-term borrowings......... 762,754 44,492 5.83 Short-term bank notes......... -- -- -- Long-term debt Federal Home Loan Bank advances.................. 792,827 49,004 6.18 Subordinated capital notes..................... 129,995 10,337 7.95 Medium-term bank notes...... -- -- -- Trust Preferred Securities................ -- -- -- Other....................... 177,213 13,893 7.84 ----------- ---------- TOTAL INTEREST-BEARING LIABILITIES........... 12,603,842 596,367 4.73 Noninterest-bearing demand deposits.................... 1,954,312 -- ----------- ---------- TOTAL SOURCES OF FUNDS................. 14,558,154 596,367 Other liabilities............. 370,015 Shareholders' equity.......... 1,334,995 ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ $16,263,164 =========== NET INTEREST INCOME(1).......... $ 688,258 ========== INTEREST RATE SPREAD(1)......... 3.86% ==== NET INTEREST MARGIN(1).......... 4.60% ==== TAXABLE-EQUIVALENT ADJUSTMENTS Loans......................... $ 3,126 Investment securities......... 15,681 ---------- Total................... $ 18,807 ==========
- --------------- (1) Fully taxable-equivalent yields are calculated assuming a 35% federal income tax rate. (2) Yields are calculated on historical cost and exclude the impact of the unrealized gain (loss) on available for sale securities. (3) Includes loan fees, immaterial in amount, in both interest income and the calculation of the yield on loans. (4) Includes loans on nonaccrual status. 29 32 TABLE 5. ANALYSIS OF VOLUME AND RATE CHANGES
1997 VERSUS 1996 1996 VERSUS 1995 --------------------------------- ---------------------------------- INCREASE (DECREASE) INCREASE (DECREASE) DUE TO CHANGE IN:(1) DUE TO CHANGE 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....... $ 1,337 $ (303) $ 1,034 $ (3,352) $ (339) $ (3,691) Federal funds sold and securities purchased under agreements to resell......... (8,597) 763 (7,834) (1,819) (1,198) (3,017) Trading account assets.......... 868 193 1,061 550 (847) (297) Investment securities -- FTE.... (67,666) 5,075 (62,591) 39,371 2,836 42,207 Loans, net of unearned income -- FTE.......................... 72,406 (1,530) 70,876 117,025 (6,150) 110,875 -------- ------- -------- -------- -------- -------- TOTAL INTEREST INCOME... (1,652) 4,198 2,546 151,775 (5,698) 146,077 -------- ------- -------- -------- -------- -------- INTEREST EXPENSE Money market accounts........... (3,916) 5,063 1,147 3,071 12,458 15,529 Savings deposits................ 2,714 (1,714) 1,000 2,199 (3,118) (919) Certificates of deposit of $100,000 and over............ 6,734 (2,759) 3,975 10,558 8,759 19,317 Other time deposits............. (21,146) (3,127) (24,273) 14,259 (14,159) 100 Short-term borrowings........... (20,792) (2,617) (23,409) 22,938 (2,741) 20,197 Long-term debt.................. 19,097 633 19,730 22,593 (5,045) 17,548 -------- ------- -------- -------- -------- -------- TOTAL INTEREST EXPENSE............... (17,309) (4,521) (21,830) 75,618 (3,846) 71,772 -------- ------- -------- -------- -------- -------- CHANGE IN NET INTEREST INCOME..... $ 15,657 $ 8,719 $ 24,376 $ 76,157 $ (1,852) $ 74,305 ======== ======= ======== ======== ======== ======== PERCENTAGE INCREASE IN NET INTEREST INCOME OVER PRIOR PERIOD.......................... 3.20% 10.80% ======== ========
- --------------- 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. 30 33 TABLE 6. AVERAGE DEPOSITS(1)
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------- 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Noninterest-bearing demand............................ $ 2,196,231 $ 2,103,059 $ 1,954,312 $ 1,923,194 $ 1,766,661 Money market(2)....................................... 1,860,230 1,974,092 1,865,027 2,035,496 2,309,466 Savings(3)............................................ 2,512,641 2,399,139 2,311,574 2,413,878 1,792,854 Other time(4)......................................... 5,345,573 5,734,545 5,480,245 5,114,664 4,714,238 ----------- ----------- ----------- ----------- ----------- TOTAL AVERAGE CORE DEPOSITS................... 11,914,675 12,210,835 11,611,158 11,487,232 10,583,219 Certificates of deposit of $100,000 and over.......... 1,396,928 1,277,645 1,084,207 958,325 970,869 ----------- ----------- ----------- ----------- ----------- TOTAL AVERAGE DEPOSITS........................ $13,311,603 $13,488,480 $12,695,365 $12,445,557 $11,554,088 =========== =========== =========== =========== ===========
- --------------- (1) Table 4 presents the average rate paid on the above deposit categories for the three years in the period ended December 31, 1997. (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 Club accounts. TABLE 7. COMPOSITION OF THE LOAN PORTFOLIO
DECEMBER 31, ------------------------------------------------------------------ 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ---------- (DOLLARS IN THOUSANDS) Commercial, financial, and agricultural................ $ 1,940,781 $ 1,839,722 $ 1,864,625 $ 1,842,496 $1,625,855 Foreign................................................ 207,343 145,483 127,623 115,316 84,163 Accounts receivable -- factoring....................... 579,067 452,522 319,487 247,135 221,377 Real estate -- construction............................ 639,696 576,154 492,909 425,893 321,915 Real estate -- mortgage Secured by 1-4 family residential.................... 3,603,097 3,840,952 3,564,526 3,502,235 2,728,430 FHA/VA government-insured/guaranteed................. 1,319,553 1,555,308 1,002,393 740,276 477,551 Other mortgage....................................... 2,055,420 1,674,555 1,418,021 1,376,645 1,207,826 Home equity............................................ 290,634 237,595 220,252 201,352 180,399 Consumer Credit cards and related plans....................... 558,705 653,995 446,715 309,940 141,670 Other consumer....................................... 1,427,756 1,565,159 1,425,213 1,307,652 1,093,103 Direct lease financing................................. 65,037 73,306 74,551 50,479 34,717 ----------- ----------- ----------- ----------- ---------- TOTAL LOANS.................................... 12,687,089 12,614,751 10,956,315 10,119,419 8,117,006 Less: Unearned income.................................. 28,525 36,180 39,008 44,961 39,854 ----------- ----------- ----------- ----------- ---------- TOTAL LOANS, NET OF UNEARNED INCOME............ $12,658,564 $12,578,571 $10,917,307 $10,074,458 $8,077,152 =========== =========== =========== =========== ==========
31 34 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, ------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 ---------------------- ---------------------- ---------------------- ---------------------- PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE OF LOANS TO OF LOANS TO OF LOANS TO OF LOANS TO AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS -------- ----------- -------- ----------- -------- ----------- -------- ----------- (DOLLARS IN THOUSANDS) Commercial, financial, and agricultural....... $ 46,721 22% $ 37,805 21% $ 48,698 22% $ 54,728 22% Foreign.............. 3,150 2 1,300 1 1,400 1 300 1 Real estate -- construction....... 10,512 6 7,390 5 9,026 5 7,488 5 Real estate -- mortgage........... 83,597 50 78,582 50 63,600 50 67,599 52 Consumer............. 80,487 19 63,053 22 56,053 21 43,961 19 Direct lease financing.......... 922 1 988 1 1,191 1 528 1 -------- --- -------- --- -------- --- -------- --- Total........ $225,389 100% $189,118 100% $179,968 100% $174,604 100% ======== === ======== === ======== === ======== === DECEMBER 31, ---------------------- 1993 ---------------------- PERCENTAGE OF LOANS TO AMOUNT TOTAL LOANS -------- ----------- (DOLLARS IN THOUSANDS) Commercial, financial, and agricultural....... $ 68,154 24% Foreign.............. 8,000 1 Real estate -- construction....... 4,931 4 Real estate -- mortgage........... 62,431 52 Consumer............. 28,289 19 Direct lease financing.......... 525 -- -------- --- Total........ $172,330 100% ======== ===
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. No portion of the allowance for losses on loans has been allocated to FHA/VA government-insured/guaranteed loans since they represent minimal credit risk. TABLE 9. NONACCRUAL, RESTRUCTURED, AND PAST DUE LOANS AND FORECLOSED PROPERTIES
DECEMBER 31, ---------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Nonaccrual loans: Domestic.................................................. $ 94,488 $ 89,308 $ 71,024 $ 53,683 $ 59,543 Foreign................................................... 96 96 2,072 334 7,312 Restructured loans.......................................... 10,021 11,266 11,271 15,349 22,546 -------- -------- -------- -------- -------- TOTAL NONPERFORMING LOANS........................... 104,605 100,670 84,367 69,366 89,401 -------- -------- -------- -------- -------- Foreclosed properties: Other real estate, net.................................... 22,059 31,842 23,202 30,730 44,152 Other foreclosed properties............................... 1,993 989 1,138 669 883 -------- -------- -------- -------- -------- TOTAL FORECLOSED PROPERTIES......................... 24,052 32,831 24,340 31,399 45,035 -------- -------- -------- -------- -------- TOTAL NONPERFORMING ASSETS.......................... $128,657 $133,501 $108,707 $100,765 $134,436 ======== ======== ======== ======== ======== Loans 90 days or more past due and not on nonaccrual status: Domestic.................................................. $ 24,063 $ 23,480 $ 20,711 $ 9,083 $ 13,891 Foreign................................................... -- -- -- 1,500 -- -------- -------- -------- -------- -------- TOTAL LOANS 90 DAYS OR MORE PAST DUE................ $ 24,063 $ 23,480 $ 20,711 $ 10,583 $ 13,891 ======== ======== ======== ======== ======== FHA/VA GOVERNMENT-INSURED/GUARANTEED LOANS: Loans 90 days or more past due and not on nonaccrual status.................................................. $516,692 $724,364 $557,875 $282,523 $144,892 Nonaccrual................................................ 14,794 -- -- -- --
32 35 TABLE 10. ALLOWANCE FOR LOSSES ON LOANS
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------ 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ---------- (DOLLARS IN THOUSANDS) BALANCE AT BEGINNING OF PERIOD.............. $ 189,118 $ 179,968 $ 174,604 $ 172,330 $ 141,281 LOANS CHARGED OFF Commercial, financial, and agricultural... 17,089 17,179 11,086 11,919 18,750 Foreign................................... -- 3,391 743 6,893 1,389 Real estate -- construction............... 192 367 318 312 901 Real estate -- mortgage................... 5,714 5,305 6,601 8,176 4,323 Consumer.................................. 25,971 23,682 15,303 11,016 11,390 Credit cards and related plans............ 50,070 28,835 14,192 2,911 2,817 Direct lease financing.................... 30 48 52 6 52 ----------- ----------- ----------- ----------- ---------- Total charge-offs.................. 99,066 78,807 48,295 41,233 39,622 ----------- ----------- ----------- ----------- ---------- RECOVERIES ON LOANS PREVIOUSLY CHARGED OFF Commercial, financial, and agricultural... 5,904 4,108 6,816 7,556 7,141 Foreign................................... 10 -- 1,632 1,523 28 Real estate -- construction............... 174 16 429 468 59 Real estate -- mortgage................... 2,750 2,233 2,170 2,983 932 Consumer.................................. 2,920 5,654 4,843 4,746 4,793 Credit cards and related plans............ 6,686 2,044 1,039 857 860 Direct lease financing.................... 27 4 52 133 54 ----------- ----------- ----------- ----------- ---------- Total recoveries................... 18,471 14,059 16,981 18,266 13,867 ----------- ----------- ----------- ----------- ---------- Net charge-offs............................. 80,595 64,748 31,314 22,967 25,755 Provisions charged to expense............... 113,633 68,948 33,917 15,989 35,235 Allowance related to the sale of certain loans..................................... -- (1,628) -- -- -- Increase due to acquisitions................ 3,233 6,578 2,761 9,252 21,569 ----------- ----------- ----------- ----------- ---------- BALANCE AT END OF PERIOD.................... $ 225,389 $ 189,118 $ 179,968 $ 174,604 $ 172,330 =========== =========== =========== =========== ========== Total loans, net of unearned income, at end of period................................. $12,658,564 $12,578,571 $10,917,307 $10,074,458 $8,077,152 Less: FHA/VA government-insured/guaranteed loans..................................... 1,319,553 1,555,308 1,002,393 740,276 477,551 ----------- ----------- ----------- ----------- ---------- LOANS USED TO CALCULATE RATIOS............ $11,339,011 $11,023,263 $ 9,914,914 $ 9,334,182 $7,599,601 =========== =========== =========== =========== ========== Average total loans, net of unearned income, during period............................. $12,706,965 $11,924,605 $10,662,222 $ 9,180,437 $7,925,718 Less: Average FHA/VA government- insured/guaranteed loans.................. 1,487,085 1,287,183 876,565 598,722 375,199 ----------- ----------- ----------- ----------- ---------- AVERAGE LOANS USED TO CALCULATE RATIOS.... $11,219,880 $10,637,422 $ 9,785,657 $ 8,581,715 $7,550,519 =========== =========== =========== =========== ========== CREDIT QUALITY RATIOS(1) Allowance at end of period to loans, net of unearned income...................... 1.99% 1.72% 1.82% 1.87% 2.27% Allowance at end of period to average loans, net of unearned income........... 2.01 1.78 1.84 2.03 2.28 Allowance for losses on loans as a percentage of nonperforming loans....... 215 188 213 252 193 Net charge-offs to average loans, net of unearned income......................... .72 .61 .32 .27 .34 Provision to average loans, net of unearned income......................... 1.01 .65 .35 .19 .47 Nonperforming loans as a percentage of loans................................... .92 .91 .85 .74 1.18 Nonperforming assets as a percentage of loans plus foreclosed properties........ 1.13 1.21 1.09 1.08 1.76 Loans 90 days or more past due and not on nonaccrual status as a percentage of loans................................... .21 .21 .21 .11 .18
- --------------- (1) Ratio calculations exclude FHA/VA government-insured/guaranteed loans since they represent minimal credit risk to the Corporation. See the "Loans" discussion for additional information regarding the FHA/VA government-insured/guaranteed loans and Table 9 for the detail of nonperforming assets. 33 36 TABLE 11. RATE SENSITIVITY ANALYSIS AT DECEMBER 31, 1997
INTEREST-SENSITIVE WITHIN (1)(7) ---------------------------------------------------------------------------------------- 0-30 31-90 91-180 181-365 1-2 2-5 OVER NONINTEREST- DAYS DAYS DAYS DAYS YEARS YEARS 5 YEARS BEARING TOTAL ------ ------- ------ ------- ------ ------ ------- ------------ ------- (DOLLARS IN MILLIONS) ASSETS Loans and leases(2)(3)(4).......... $3,363 $ 722 $ 833 $1,349 $1,313 $3,048 $1,954 $ 105 $12,687 Investment securities(5)(6)......... 384 172 305 407 547 717 716 -- 3,248 Other earning assets....... 366 125 1 -- -- -- -- -- 492 Other assets............... -- -- -- -- -- -- -- 1,678 1,678 ------ ------- ------ ------ ------ ------ ------ ------- ------- TOTAL ASSETS........ $4,113 $ 1,019 $1,139 $1,756 $1,860 $3,765 $2,670 $ 1,783 $18,105 ====== ======= ====== ====== ====== ====== ====== ======= ======= SOURCES OF FUNDS Money market deposits(7)(8)........... $ -- $ 683 $ -- $ 683 $ -- $ 911 $ -- $ -- $ 2,277 Other savings and time deposits................. 843 1,567 1,046 1,279 704 1,954 20 -- 7,413 Certificates of deposit of $100,000 and over........ 271 300 279 379 141 56 1 -- 1,427 Short-term borrowings...... 830 1 -- 1 -- -- -- -- 832 Short and medium-term bank notes.................... -- -- -- 30 45 60 -- -- 135 Federal Home Loan Bank advances................. 266 320 3 5 12 16 82 -- 704 Other long-term debt....... 319 1 1 2 2 13 373 -- 711 Noninterest-bearing deposits................. -- -- -- -- -- -- -- 2,323 2,323 Other liabilities.......... -- -- -- -- -- -- -- 536 536 Shareholders' equity....... -- -- -- -- -- -- -- 1,747 1,747 ------ ------- ------ ------ ------ ------ ------ ------- ------- TOTAL SOURCES OF FUNDS............. $2,529 $ 2,872 $1,329 $2,379 $ 904 $3,010 $ 476 $ 4,606 $18,105 ====== ======= ====== ====== ====== ====== ====== ======= ======= INTEREST-RATE SENSITIVITY GAP........................ $1,584 $(1,853) $ (190) $ (623) $ 956 $ 755 $2,194 $(2,823) CUMULATIVE INTEREST RATE SENSITIVITY GAP (8)........ 1,584 (269) (459) (1,082) (126) 629 2,823 -- CUMULATIVE GAP AS A PERCENTAGE OF TOTAL ASSETS (8)................. 9% (1)% (3)% (6)% (1)% 3% 16% --%
- --------------- MANAGEMENT HAS MADE THE FOLLOWING ASSUMPTIONS IN THE ABOVE ANALYSIS: (1) Assets and liabilities are generally scheduled according to their earliest repricing dates regardless of their contractual maturities. (2) Nonaccrual loans are included in the noninterest-bearing category. (3) Fixed-rate mortgage loan maturities are estimated based on the currently prevailing principal-prepayment patterns of comparable mortgage-backed securities. (4) Delinquent FHA/VA loans are scheduled based on foreclosure and repayment patterns. (5) The scheduled maturities of mortgage-backed securities and CMOs assume principal prepayment of these securities on dates estimated by management, relying primarily upon current and consensus interest-rate forecasts in conjunction with the latest three-month historical prepayment schedules. (6) Securities are generally scheduled according to their call dates when valued at a premium to par. (7) Money market deposits and savings deposits that have no contractual maturities are scheduled according to management's best estimate of their repricing in response to changes in market rates. The impact of changes in market rates would be expected to vary by product type and market. (8) If all money market, NOW and savings deposits had been included in the 0-30 Days category, the cumulative gap as a percentage of total assets would have been negative (16%), (19%), (20%), (19%), (14%), and positive 3% and 16%, respectively, for the 0-30 Days, 31-90 Days, 91-180 Days, 181-365 Days, 1-2 Years, 2-5 Years, and over 5 Years categories at December 31, 1997. 34 37 TABLE 12. INVESTMENT SECURITIES AND OTHER EARNING ASSETS
DECEMBER 31, ------------------------------------ 1997 1996 1995 ---------- ---------- ---------- (DOLLARS IN THOUSANDS) U.S. Government obligations U.S. Treasury............................................ $ 731,440 $ 915,251 $ 947,613 U.S. Government agencies................................. 1,838,178 1,790,208 2,363,066 ---------- ---------- ---------- Total U.S. Government obligations................ 2,569,618 2,705,459 3,310,679 Obligations of states and political subdivisions........... 509,142 508,271 522,344 Other investment securities................................ 168,920 173,487 137,013 ---------- ---------- ---------- Total investment securities...................... 3,247,680 3,387,217 3,970,036 Interest-bearing deposits at financial institutions........ 24,490 20,488 51,000 Federal funds sold and securities purchased under agreements to resell..................................... 109,192 205,567 521,655 Trading account assets..................................... 187,419 260,266 136,772 Loans held for resale...................................... 170,742 109,156 120,431 ---------- ---------- ---------- Total investment securities and other earning assets......................................... $3,739,523 $3,982,694 $4,799,894 ========== ========== ==========
TABLE 13. RISK-BASED CAPITAL
DECEMBER 31, --------------------------------------- 1997 1996 1995 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) TIER 1 CAPITAL Shareholders' equity.................................. $ 1,746,866 $ 1,618,883 $ 1,450,546 Trust Preferred Securities and minority interest in consolidated subsidiaries.......................... 214,460 211,637 1,088 Less: Goodwill and other intangibles................. (44,570) (53,081) (56,260) Disallowed deferred tax asset.................. (1,601) (1,867) (2,237) Unrealized gain on available for sale securities......................................... (38,729) (23,231) (31,931) ----------- ----------- ----------- TOTAL TIER 1 CAPITAL.......................... 1,876,426 1,752,341 1,361,206 TIER 2 CAPITAL Allowance for losses on loans......................... 152,177 142,856 126,200 Qualifying long-term debt............................. 174,232 174,121 174,166 ----------- ----------- ----------- TOTAL CAPITAL BEFORE DEDUCTIONS............... 2,202,835 2,069,318 1,661,572 Less investment in unconsolidated subsidiaries........ (10,628) (1,812) (214) ----------- ----------- ----------- TOTAL CAPITAL................................. $ 2,192,207 $ 2,067,506 $ 1,661,358 =========== =========== =========== RISK-WEIGHTED ASSETS.................................... $12,100,939 $11,747,824 $10,246,806 =========== =========== =========== RATIOS Equity to assets...................................... 9.65% 8.83% 8.44% Leverage ratio(1)..................................... 10.48 9.50 8.11 Tier 1 capital to risk-weighted assets(1)............. 15.51 14.92 13.28 Total capital to risk-weighted assets(1).............. 18.12 17.60 16.21
- --------------- (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, 1997, all of the Corporation's banking subsidiaries were considered "well-capitalized" for purposes of FDIC deposit insurance assessments. See Note 12 to the consolidated financial statements for a comparison of the Corporation's capital levels and ratios to the regulatory minimums for "adequately capitalized" and "well capitalized." 35 38 TABLE 14. SELECTED QUARTERLY DATA
1997 QUARTERS ENDED(1) -------------------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL ----------- ----------- ------------ ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Net interest income.......... $ 190,950 $ 194,961 $ 191,915 $ 192,559 $ 770,385 Provision for losses on loans...................... (22,004) (22,034) (32,646) (36,949) (113,633) Investment securities gains (losses)................... 173 (107) 2,385 (347) 2,104 Noninterest income........... 82,451 83,621 101,310 92,124 359,506 Noninterest expense.......... (148,646) (152,932) (157,722) (238,404) (697,704) ----------- ----------- ----------- ----------- ----------- Earnings before income taxes...................... 102,924 103,509 105,242 8,983 320,658 Applicable income taxes...... 36,479 35,251 36,489 3,678 111,897 ----------- ----------- ----------- ----------- ----------- Net earnings................. $ 66,445 $ 68,258 $ 68,753 $ 5,305 $ 208,761 =========== =========== =========== =========== =========== PER COMMON SHARE DATA Net earnings Basic................... $ .82 $ .84 $ .84 $ .05 $ 2.54 Diluted................. .79 .80 .81 .05 2.45 Dividends.................. .32 .375 .40 .40 1.495 UPC COMMON STOCK DATA(2) High trading price......... $ 47.75 $ 52.13 $ 56.50 $ 67.88 $ 67.88 Low trading price.......... 38.38 41.25 49.25 57.00 38.38 Closing price.............. 40.63 51.88 55.88 67.88 67.88 Trading volume (in thousands)(3)........... 11,211 11,449 8,310 10,001 40,971 KEY FINANCIAL DATA Return on average assets... 1.49% 1.52% 1.52% .12% 1.16% Return on average common equity.................. 17.16 16.81 16.20 .98 12.54 Expense ratio(4)........... 1.44 1.47 1.32 1.92 1.54 Efficiency ratio(5)........ 52.63 52.94 52.42 61.34 54.84 Equity/assets (period end).................... 9.21 9.55 9.75 9.65 9.65 Average earning assets..... $16,466,377 $16,515,334 $16,351,634 $16,321,265 $16,413,085 Interest income -- FTE..... 355,682 360,682 359,394 357,490 1,433,248 Yield on average earning assets -- FTE........... 8.76% 8.76% 8.72% 8.69% 8.73% Average interest-bearing liabilities............. $13,806,466 $13,670,609 $13,527,649 $13,270,884 $13,567,321 Total interest expense..... 160,539 161,717 163,190 160,863 646,309 Rate on average interest- bearing liabilities..... 4.72% 4.74% 4.79% 4.81% 4.76% Net interest income -- FTE........... $ 195,143 $ 198,965 $ 196,204 $ 196,627 $ 786,939 Net interest margin -- FTE........... 4.81% 4.83% 4.76% 4.78% 4.79%
36 39 TABLE 14. SELECTED QUARTERLY DATA (CONTINUED)
1996 QUARTERS ENDED(1) -------------------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL ----------- ----------- ------------ ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Net interest income.......... $ 181,097 $ 187,021 $ 185,187 $ 191,547 $ 744,852 Provision for losses on loans...................... (15,244) (16,014) (18,379) (19,311) (68,948) Investment securities gains (losses)................... 61 (29) (257) 4,324 4,099 Noninterest income........... 74,247 79,836 81,538 80,782 316,403 Noninterest expense.......... (156,020) (159,070) (195,075) (221,652) (731,817) ----------- ----------- ----------- ----------- ----------- Earnings before income taxes...................... 84,141 91,744 53,014 35,690 264,589 Applicable income taxes...... 27,842 32,509 19,532 13,232 93,115 ----------- ----------- ----------- ----------- ----------- Net earnings................. $ 56,299 $ 59,235 $ 33,482 $ 22,458 $ 171,474 =========== =========== =========== =========== =========== PER COMMON SHARE DATA Net earnings Basic................... $ .71 $ .75 $ .41 $ .27 $ 2.13 Diluted................. .68 .71 .40 .27 2.05 Dividends.................. .27 .27 .27 .27 1.08 UPC COMMON STOCK DATA(2) High trading price......... $ 31.75 $ 31.25 $ 36.25 $ 41.38 $ 41.38 Low trading price.......... 29.00 29.63 28.63 34.63 28.63 Closing price.............. 30.25 30.38 35.50 39.00 39.00 Trading volume (in thousands)(3)........... 5,862 5,221 9,506 7,795 28,383 KEY FINANCIAL DATA Return on average assets... 1.27% 1.32% .73% .48% .94% Return on average common equity.................. 15.76 16.26 8.60 5.52 11.38 Expense ratio(4)........... 1.70 1.61 1.55 1.59 1.61 Efficiency ratio(5)........ 57.88 56.57 57.46 55.92 56.94 Equity/assets (period end).................... 8.52 8.58 8.55 8.83 8.83 Average earning assets..... $16,403,616 $16,630,134 $16,898,805 $16,907,819 $16,711,149 Interest income -- FTE..... 350,374 356,805 358,528 364,174 1,430,702 Yield on average earning assets -- FTE........... 8.59% 8.63% 8.44% 8.57% 8.56% Average interest-bearing liabilities............. $13,693,439 $13,965,854 $14,235,981 $14,114,280 $14,003,332 Total interest expense..... 165,171 165,448 168,999 168,521 668,139 Rate on average interest- bearing liabilities..... 4.85% 4.76% 4.72% 4.75% 4.77% Net interest income -- FTE........... $ 185,203 $ 191,357 $ 189,529 $ 195,653 $ 762,563 Net interest margin -- FTE........... 4.54% 4.63% 4.46% 4.60% 4.56%
- --------------- FTE -- Fully taxable-equivalent basis (1) Quarterly amounts for 1996 and 1997 have been restated for the fourth quarter 1997 acquisitions of Magna and Capital-Miami which were accounted for using the pooling of interests method of accounting. Certain quarterly amounts for acquired entities have been restated from originally reported amounts due to certain adjustments to conform to the Corporation's policies. (2) Union Planters Corporation's common stock is listed on the New York Stock Exchange (NYSE) and is traded under the symbol UPC. All share prices represent closing prices as reported by the NYSE. There were approximately 20,000 holders of the Corporation's common stock as of December 31, 1997. (3) Trading volume represents total volume for the period shown as reported by NYSE. (4) The expense ratio equals noninterest expense minus noninterest income (excluding significant nonrecurring revenues and expenses, investment securities gains and losses, and goodwill and other intangibles amortization) divided by average assets. (5) The efficiency ratio is calculated excluding the same items as in the expense ratio calculation, dividing noninterest expense by net interest income (FTE) plus noninterest income. 37 40 TABLE 15. UNION PLANTERS CORPORATION'S BANKING SUBSIDIARIES
DECEMBER 31, 1997(1) ------------------------------------- ASSETS LOANS DEPOSITS EQUITY ------- ------ -------- ------- (DOLLARS IN MILLIONS) TENNESSEE Union Planters Bank, N.A. Memphis Bank.............................................. $ 5,407 $3,605 $2,840 $509.9 Nashville Bank............................................ 1,059 591 961 78.6 Humboldt Bank............................................. 441 291 390 37.5 Knoxville Bank............................................ 434 306 349 36.5 Jackson Bank.............................................. 326 195 297 22.1 Cookeville Bank........................................... 247 158 227 17.8 Shelbyville Bank.......................................... 201 126 171 17.3 Harriman Bank............................................. 188 122 171 13.2 Crossville Bank........................................... 183 88 163 12.9 Goodlettsville Bank....................................... 180 125 167 11.1 Chattanooga Bank.......................................... 130 71 115 13.1 Lexington Bank............................................ 112 74 103 7.1 Brownsville Bank.......................................... 92 50 74 5.2 Somerville Bank........................................... 89 55 81 6.4 Woodbury Bank............................................. 80 61 70 6.6 Hohenwald Bank............................................ 58 34 50 4.5 Erin Bank................................................. 52 31 46 5.1 Union Planters Bank of the Lakeway Area (Morristown)........ 212 151 181 15.4 Union Planters Bank of Northwest Tennessee FSB (Paris)...... 173 124 154 11.3 Selmer Bank & Trust Company................................. 95 49 86 8.0 ------- ------ ------ ------ Total Tennessee.................................... $ 9,759 $6,307 $6,696 $839.6 ======= ====== ====== ====== MISSISSIPPI Union Planters Bank, N.A. Hattiesburg Bank.......................................... $ 1,316 $1,020 $1,001 $135.8 Jackson Bank.............................................. 757 510 664 57.1 Clarksdale Bank........................................... 597 319 539 43.0 Grenada Bank.............................................. 509 363 461 44.3 New Albany Bank........................................... 296 195 266 18.8 ------- ------ ------ ------ Total Mississippi.................................. $ 3,475 $2,407 $2,931 $299.0 ======= ====== ====== ====== FLORIDA Union Planters Bank of Florida (Miami)...................... $ 2,156 $1,618 $1,290 $145.0 ======= ====== ====== ====== MISSOURI Union Planters Bank, N.A. Cape Girardeau Bank....................................... $ 670 $ 528 $ 598 $ 44.8 St. Louis Bank............................................ 197 132 175 19.4 Springfield Bank.......................................... 189 138 169 18.7 Columbia Bank............................................. 100 86 80 6.2 ------- ------ ------ ------ Total Missouri..................................... $ 1,156 $ 884 $1,022 $ 89.1 ======= ====== ====== ====== ARKANSAS Union Planters Bank, N.A. Jonesboro Bank............................................ $ 713 $ 456 $ 521 $ 57.5 Clinton Bank.............................................. 93 64 82 6.5 ------- ------ ------ ------ Total Arkansas..................................... $ 806 $ 520 $ 603 $ 64.0 ======= ====== ====== ====== LOUISIANA Union Planters Bank, N.A. Baton Rouge Bank.......................................... $ 698 $ 509 $ 605 $ 50.9 ======= ====== ====== ====== ALABAMA Union Planters Bank, N.A. Decatur Bank.............................................. $ 449 $ 335 $ 417 $ 27.5 ======= ====== ====== ====== KENTUCKY Union Planters Bank, N.A. Franklin Bank............................................. $ 115 $ 88 $ 105 $ 7.3 ======= ====== ====== ======
- --------------- (1) State totals do not add to consolidated amounts due to eliminations. Intercompany loans have been excluded from the individual bank totals. 38 41 UNION PLANTERS CORPORATION BANKS AND COMMUNITIES SERVED
OFFICES ------- TENNESSEE UNION PLANTERS BANK, N.A. MEMPHIS BANK Bartlett, Collierville, Cordova, Germantown, and Memphis............................................. 40 NASHVILLE BANK Antioch, Brentwood, Columbia, Dickson, Donelson, Eagleville, Franklin, Gallatin, Goodlettsville, Hendersonville, Lebanon, Madison, Mt. Juliet, Murfreesboro, Nashville, and Smyrna................. 25 HUMBOLDT BANK Dyersburg, Elbridge, Gibson, Humboldt, Martin, Newbern, Obion, Ridgely, Ripley, Rutherford, Tiptonville, Trenton, Union City, and Yorkville..... 27 KNOXVILLE BANK Alcoa, Clinton, Greenback, Jefferson City, Knoxville, Maryville, Morristown, and Oak Ridge..... 16 JACKSON BANK Jackson and Milan................................... 9 COOKEVILLE BANK Alexandria, Algood, Baxter, Byrdstown, Celina, Cookeville, Dowelltown, Monterey, and Smithville.... 12 SHELBYVILLE BANK Fayetteville, Monteagle, Shelbyville, and Tracy City................................................ 7 HARRIMAN BANK Harriman, Kingston, Oliver Springs, Rockwood, Sunbright, and Wartburg............................. 6 CROSSVILLE BANK Crossville and Fairfield Glade...................... 6 GOODLETTSVILLE BANK Goodlettsville, Springfield, and White House........ 4 CHATTANOOGA BANK Chattanooga, Cleveland, and East Ridge.............. 8 LEXINGTON BANK Jackson and Lexington............................... 3 BROWNSVILLE BANK Brownsville and Stanton............................. 4 SOMERVILLE BANK Bolivar, Somerville, and Whiteville................. 3 WOODBURY BANK Auburntown and Woodbury............................. 3 HOHENWALD BANK........................................ 3 ERIN BANK Cumberland City and Erin............................ 2 UNION PLANTERS BANK OF THE LAKEWAY AREA Jefferson City, Morristown, Newport, and Talbott.... 7 UNION PLANTERS BANK OF NORTHWEST TENNESSEE FSB Camden, Huntingdon, McKenzie, Paris, and Waverly.... 6 SELMER BANK AND TRUST COMPANY Bethel Springs, Ramer, and Selmer................... 4 MISSISSIPPI UNION PLANTERS BANK, N.A. HATTIESBURG BANK Bassfield, Bay St. Louis, Biloxi, Collins, Ellisville, Gulfport, Hattiesburg, Laurel, Moss Point, Mount Olive, Ocean Springs, Pascagoula, Petal, and Prentiss................................. 38 UNION PLANTERS BANK, N.A. JACKSON BANK Brandon, Byram, Canton, Clinton, Collinsville, Crystal Springs, Decatur, Flowood, Forest, Hazlehurst, Jackson, Madison, Meridian, Newton, Pearl, Philadelphia, Ridgeland, Terry, Union, and Vicksburg........................................... 38
OFFICES ------- CLARKSDALE BANK Batesville, Charleston, Clarksdale, Cleveland, Drew, Friars Point, Greenville, Greenwood, Itta Bena, Lambert, Leland, Lula, Moorhead, Pope, Shaw, Sledge, and Sumner.......................................... 29 GRENADA BANK Ackerman, Calhoun City, Columbus, Derma, Eupora, Grenada, Houston, Kosciusko, Louisville, Water Valley, West Point, and Winona...................... 21 NEW ALBANY BANK Ashland, Baldwyn, New Albany, Oxford, Ripley, and Tupelo.............................................. 12 MEMPHIS BANK Olive Branch and Southaven.......................... 4 FLORIDA UNION PLANTERS BANK OF FLORIDA Boca Raton, Coral Gables, Coral Springs, Deerfield Beach, Delray Beach, Ft. Lauderdale, Hialeah, Miami, North Bay Village, North Miami Beach, South Miami Beach, Plantation, and West Palm Beach.............. 28 MISSOURI UNION PLANTERS BANK, N.A. CAPE GIRARDEAU BANK Advance, Benton, Cape Girardeau, Charleston, Dexter, East Prairie, Jackson, Marble Hill, Matthews, New Madrid, Oran, Perryville, Poplar Bluff, Ste. Genevieve, Scott City, and Sikeston................. 24 ST. LOUIS BANK Affton, Clayton, Rock Hill, and St. Louis........... 6 SPRINGFIELD BANK Aurora, Bolivar, Branson, El Dorado, Mt. Vernon, Ozark, Republic, Spring, and Springfield............ 17 COLUMBIA BANK Ashland and Columbia................................ 4 ARKANSAS UNION PLANTERS BANK, N.A. JONESBORO BANK Bono, Brookland, Cherokee Village, Hardy, Jonesboro, Mammoth Spring, Marmaduke, Newport, Paragould, Rector, Sidney, and Weiner.......................... 22 CLINTON BANK Bee Branch, Clinton, Fairfield Bay, Leslie, Marshall, and Mountain View......................... 6 MEMPHIS BANK Cotton Plant, Crawfordsville, Earle, Forrest City, Joiner, Luxora, Marion, Osceola, and West Memphis... 14 LOUISIANA UNION PLANTERS BANK, N.A. BATON ROUGE BANK Baton Rouge, Covington, Galliano, Larose, Mandeville, and Thibodaux........................... 22 ALABAMA UNION PLANTERS BANK, N.A. DECATUR BANK Athens, Decatur, Florence, Hartselle, Huntsville, Madison, Moulton, Muscle Shoals, Owens Cross Roads, Sheffield, and Tuscumbia............................ 17 HATTIESBURG BANK Chickasaw, Daphane, Foley, Mobile, and Saraland..... 13 KENTUCKY UNION PLANTERS BANK, N.A. FRANKLIN BANK Adairville and Franklin............................. 4 --- TOTAL BRANCH OFFICES.................................... 514 ===
39 42 REPORT OF MANAGEMENT The accompanying financial statements and related financial information in this annual report were prepared by the management of Union Planters Corporation in accordance with generally accepted accounting principles and, where appropriate, reflect management's best estimates and judgment. Management is responsible for the integrity, objectivity, consistency, and fair presentation of the financial statements and all financial information contained in this annual report. Management maintains and depends upon internal accounting systems and related internal controls. Internal controls are designed to ensure that transactions are properly authorized and recorded in the Corporation's financial records and to safeguard the Corporation's assets from material loss or misuse. The Corporation utilizes internal monitoring mechanisms and an extensive external audit to monitor compliance with, and assess the effectiveness of the internal controls. Management believes the Corporation's internal controls provide reasonable assurance that the Corporation's assets are safeguarded and that its financial records are reliable. The Audit Committee of the Board of Directors meets periodically with representatives of the Corporation's independent accountants, the corporate audit manager, and management to review accounting policies, control procedures, and audit and regulatory examination reports. The independent accountants and corporate audit manager have free access to the Committee, with and without the presence of management, to discuss the results of their audit work and their evaluation of the internal controls and the quality of financial reporting. The financial statements have been audited by Price Waterhouse LLP, independent accountants, who were engaged to express an opinion as to the fairness of presentation of such financial statements. /s/ BENJAMIN W. 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
40 43 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Union Planters Corporation In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of earnings, of changes in shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Union Planters Corporation (the Corporation) and its subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Corporation's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /S/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP Memphis, Tennessee January 15, 1998, except as to Note 2 which is as of March 3, 1998 41 44 UNION PLANTERS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- (DOLLARS IN THOUSANDS) ASSETS Cash and due from banks................................... $ 816,472 $ 789,473 Interest-bearing deposits at financial institutions....... 24,490 20,488 Federal funds sold and securities purchased under agreements to resell................................... 109,192 205,567 Trading account assets.................................... 187,419 260,266 Loans held for resale..................................... 170,742 109,156 Available for sale investment securities (amortized cost: $3,185,002 and $3,349,244, respectively)............... 3,247,680 3,387,217 Loans..................................................... 12,687,089 12,614,751 Less: Unearned income.................................. (28,525) (36,180) Allowance for losses on loans.................... (225,389) (189,118) ----------- ----------- Net loans........................................ 12,433,175 12,389,453 Premises and equipment, net............................... 330,703 334,336 Accrued interest receivable............................... 204,504 232,282 FHA/VA claims receivable.................................. 134,112 80,560 Mortgage servicing rights................................. 61,346 66,993 Goodwill and other intangibles............................ 52,655 63,537 Other assets.............................................. 332,589 391,260 ----------- ----------- TOTAL ASSETS...................................... $18,105,079 $18,330,588 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest-bearing.................................... $ 2,323,367 $ 2,223,112 Certificates of deposit of $100,000 and over........... 1,426,751 1,322,869 Other interest-bearing................................. 9,690,151 9,968,163 ----------- ----------- Total deposits.................................... 13,440,269 13,514,144 Short-term borrowings..................................... 831,627 696,051 Short-and medium-term bank notes.......................... 135,000 400,000 Federal Home Loan Bank advances........................... 703,996 985,042 Other long-term debt...................................... 710,908 585,951 Accrued interest, expenses, and taxes..................... 145,452 163,804 Other liabilities......................................... 390,961 366,713 ----------- ----------- TOTAL LIABILITIES................................. 16,358,213 16,711,705 ----------- ----------- Commitments and contingent liabilities (Notes 14, 17, 19).................................................... -- -- Shareholders' equity Convertible preferred stock (Note 10).................. 54,709 83,809 Common stock, $5 par value; 100,000,000 shares authorized; 81,650,946 issued and outstanding (78,447,057 in 1996).................................. 408,255 392,235 Additional paid-in capital............................. 193,032 149,070 Retained earnings...................................... 1,061,670 981,037 Unearned compensation.................................. (9,529) (10,499) Unrealized gain on available for sale securities, net................................................... 38,729 23,231 ----------- ----------- TOTAL SHAREHOLDERS' EQUITY........................ 1,746,866 1,618,883 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $18,105,079 $18,330,588 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 42 45 UNION PLANTERS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS
YEARS ENDED DECEMBER 31, -------------------------------------- 1997 1996 1995 ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INTEREST INCOME Interest and fees on loans........................... $1,165,925 $1,095,148 $ 986,230 Interest on investment securities Taxable........................................... 187,221 247,716 202,890 Tax-exempt........................................ 29,032 30,839 32,400 Interest on deposits at financial institutions....... 2,627 1,593 5,284 Interest on federal funds sold and securities purchased under agreements to resell.............. 9,114 16,948 19,965 Interest on trading account assets................... 14,956 13,895 14,191 Interest on loans held for resale.................... 7,819 6,852 4,858 ---------- ---------- ---------- Total interest income........................ 1,416,694 1,412,991 1,265,818 ---------- ---------- ---------- INTEREST EXPENSE Interest on deposits................................. 494,517 512,668 478,641 Interest on short-term borrowings.................... 41,280 64,689 44,492 Interest on long-term debt........................... 110,512 90,782 73,234 ---------- ---------- ---------- Total interest expense....................... 646,309 668,139 596,367 ---------- ---------- ---------- NET INTEREST INCOME.......................... 770,385 744,852 669,451 PROVISION FOR LOSSES ON LOANS.......................... 113,633 68,948 33,917 ---------- ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOSSES ON LOANS............................ 656,752 675,904 635,534 NONINTEREST INCOME Service charges on deposit accounts ................. 107,248 107,535 102,932 Mortgage servicing income............................ 57,265 63,003 55,903 Bank card income..................................... 31,317 24,975 20,758 Factoring commissions................................ 30,140 26,066 19,519 Trust service income................................. 9,020 10,130 8,326 Profits and commissions from trading activities...... 7,295 5,765 12,362 Investment securities gains.......................... 2,104 4,099 1,433 Other income......................................... 117,221 78,929 72,477 ---------- ---------- ---------- Total noninterest income..................... 361,610 320,502 293,710 ---------- ---------- ---------- NONINTEREST EXPENSE Salaries and employee benefits....................... 284,648 282,726 264,663 Net occupancy expense................................ 44,813 47,215 44,061 Equipment expense.................................... 43,812 44,418 42,251 Other expense........................................ 324,431 357,458 256,214 ---------- ---------- ---------- Total noninterest expense.................... 697,704 731,817 607,189 ---------- ---------- ---------- EARNINGS BEFORE INCOME TAXES................. 320,658 264,589 322,055 Applicable income taxes................................ 111,897 93,115 110,799 ---------- ---------- ---------- NET EARNINGS................................. $ 208,761 $ 171,474 $ 211,256 ========== ========== ========== NET EARNINGS APPLICABLE TO COMMON SHARES..... $ 203,822 $ 164,530 $ 202,644 ========== ========== ========== EARNINGS PER COMMON SHARE (NOTE 16) Basic................................................ $ 2.54 $ 2.13 $ 2.79 Diluted.............................................. 2.45 2.05 2.66 AVERAGE SHARES OUTSTANDING Basic................................................ 80,336,267 77,239,792 72,512,168 Diluted.............................................. 85,195,337 83,542,496 78,797,721
The accompanying notes are an integral part of these consolidated financial statements. 43 46 UNION PLANTERS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
UNREALIZED GAIN (LOSS) ON ADDITIONAL AVAILABLE PREFERRED COMMON PAID-IN RETAINED UNEARNED FOR SALE STOCK STOCK CAPITAL EARNINGS COMPENSATION SECURITIES TOTAL --------- -------- ---------- ---------- ------------ ----------- ---------- (DOLLARS IN THOUSANDS) BALANCE, JANUARY 1, 1995............... $101,098 $360,877 $ 66,548 $ 717,179 $ (7,614) $(35,402) $1,202,686 Net earnings......................... -- -- -- 211,256 -- -- 211,256 Cash dividends Common stock, $.98 per share....... -- -- -- (39,925) -- -- (39,925) Preferred stock.................... -- -- -- (7,251) -- -- (7,251) Pooled institutions prior to pooling.......................... -- -- -- (14,613) -- -- (14,613) Common stock issued under employee benefit plans and dividend reinvestment plan, net of stock exchanged.......................... -- 4,480 12,969 (516) 1,528 -- 18,461 Issuance of stock for acquisitions (Note 2)........................... 9,712 1,740 5,551 3,585 -- (436) 20,152 Other stock transactions of pooled institutions prior to pooling...... -- 2,028 3,783 -- -- -- 5,811 Conversion of preferred stock........ (5,200) 1,268 3,932 -- -- -- -- Redemption of preferred stock of acquired entity.................... (13,800) -- -- -- -- -- (13,800) Change in unrealized gain (loss) on available for sale securities, net of taxes........................... -- -- -- -- -- 67,769 67,769 -------- -------- -------- ---------- -------- -------- ---------- BALANCE, DECEMBER 31, 1995............. 91,810 370,393 92,783 869,715 (6,086) 31,931 1,450,546 Net earnings......................... -- -- -- 171,474 -- -- 171,474 Cash dividends Common stock, $1.08 per share...... -- -- -- (54,333) -- -- (54,333) Preferred stock.................... -- -- -- (6,944) -- -- (6,944) Pooled institutions prior to pooling.......................... -- -- -- (15,155) -- -- (15,155) Common stock issued under employee benefit plans and dividend reinvestment plan, net of stock exchanged.......................... -- 6,227 32,808 (6,539) (4,413) -- 28,083 Issuance of stock for acquisitions (Note 2)........................... -- 13,626 16,882 22,888 -- 419 53,815 Other stock transactions of pooled institutions prior to pooling...... -- (610) (3,321) (69) -- -- (4,000) Conversion of preferred stock........ (8,001) 2,599 5,402 -- -- -- -- Gain from issuance of subsidiary's common stock....................... -- -- 4,516 -- -- -- 4,516 Change in net unrealized gain on available for sale securities, net of taxes........................... -- -- -- -- -- (9,119) (9,119) -------- -------- -------- ---------- -------- -------- ---------- BALANCE, DECEMBER 31, 1996............. 83,809 392,235 149,070 981,037 (10,499) 23,231 1,618,883 Net earnings......................... -- -- -- 208,761 -- -- 208,761 Cash dividends Common stock, $1.495 per share..... -- -- -- (99,808) -- -- (99,808) Preferred stock.................... -- -- -- (4,939) -- -- (4,939) Pooled institutions prior to pooling.......................... -- -- -- (9,997) -- -- (9,997) Common stock issued under employee benefit plans and dividend reinvestment plan, net of stock exchanged.......................... -- 6,403 32,527 (5,595) 970 -- 34,305 Issuance of stock for acquisitions (Note 2)........................... -- 5,704 (2,289) 22,897 -- 424 26,736 Other stock transactions of pooled institutions prior to pooling...... -- (597) (6,543) -- -- -- (7,140) Conversion of preferred stock........ (29,100) 7,275 21,825 -- -- -- -- Common stock repurchased............. -- (2,765) (1,558) (30,686) -- -- (35,009) Change in net unrealized gain on available for sale securities, net of taxes........................... -- -- -- -- -- 15,074 15,074 -------- -------- -------- ---------- -------- -------- ---------- BALANCE, DECEMBER 31, 1997............. $ 54,709 $408,255 $193,032 $1,061,670 $ (9,529) $ 38,729 $1,746,866 ======== ======== ======== ========== ======== ======== ==========
The accompanying notes are an integral part of these consolidated financial statements. 44 47 UNION PLANTERS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, --------------------------------------- 1997 1996 1995 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) OPERATING ACTIVITIES Net earnings.............................................. $ 208,761 $ 171,474 $ 211,256 Reconciliation of net earnings to net cash provided by operating activities: Provision for losses on loans, other real estate, and FHA/VA foreclosure claims............................. 124,785 94,792 37,527 Depreciation and amortization of premises and equipment............................................. 34,796 38,073 35,499 Amortization and write-offs of intangibles ............. 30,581 50,943 32,519 Provisions for merger-related expenses.................. 30,635 36,095 10,182 Provisions for charter consolidation and other expenses.............................................. 14,196 -- -- Net accretion of investment securities.................. (7,380) (8,949) (3,038) Net realized (gains) losses on sales of investment securities............................................ (2,104) (5,100) 463 Deferred income tax benefit............................. (1,499) (36,124) (2,810) Decrease (increase) in assets Trading account assets and loans held for resale...... 11,261 (170,227) (53,432) Other assets.......................................... 40,300 (124,544) 29,965 (Decrease) increase in accrued interest, expenses, taxes, and other liabilities.......................... (33,556) 48,544 62,150 Other, net.............................................. 1,380 (5,030) (3,495) ----------- ----------- ----------- Net cash provided by operating activities............. 452,156 89,947 356,786 ----------- ----------- ----------- INVESTING ACTIVITIES Net (increase) decrease in short-term investments......... (3,902) 33,052 (11,059) Proceeds from sales of available for sale securities...... 676,662 907,694 663,652 Proceeds from maturities, calls, and prepayments of available for sale securities........................... 1,379,448 2,077,491 684,989 Purchases of available for sale securities................ (1,805,751) (1,973,489) (866,994) Proceeds from maturities, calls, and prepayments of held to maturity securities.................................. -- 130,290 262,030 Purchases of held to maturity securities.................. -- (113,053) (126,255) Net increase in loans..................................... (55,776) (1,425,853) (1,211,190) Net cash received from acquired institutions ............. 26,030 53,579 10,759 Purchases of premises and equipment, net.................. (39,500) (30,742) (31,573) ----------- ----------- ----------- Net cash provided (used) by investing activities........ 177,211 (341,031) (625,641) ----------- ----------- ----------- FINANCING ACTIVITIES Net (decrease) increase in deposits....................... (288,859) (241,007) 283,132 Net (decrease) increase in short-term borrowings.......... (128,198) (153,619) 35,291 Proceeds from long-term debt, net......................... 373,093 827,429 656,540 Repayment of long-term debt............................... (531,024) (303,178) (246,258) Redemption of preferred stock............................. -- -- (13,800) Proceeds from issuance of common stock.................... 33,543 20,300 22,737 Proceeds from public offering by an acquired institution of its subsidiary's common stock........................ -- 17,633 -- Purchases of common stock, including stock transactions of acquired entities prior to acquisition.................. (42,149) (4,000) (1,064) Cash dividends paid....................................... (115,149) (76,501) (61,715) ----------- ----------- ----------- Net cash (used) provided by financing activities........ (698,743) 87,057 674,863 ----------- ----------- ----------- Net (decrease) increase in cash and cash equivalents........ (69,376) (164,027) 406,008 Cash and cash equivalents at the beginning of the period.... 995,040 1,159,067 753,059 ----------- ----------- ----------- Cash and cash equivalents at the end of the period.......... $ 925,664 $ 995,040 $ 1,159,067 =========== =========== =========== SUPPLEMENTAL DISCLOSURES Cash paid for Interest................................................ $ 658,663 $ 714,057 $ 603,080 Taxes................................................... 131,302 138,494 99,958 Unrealized gain on available for sale securities.......... 62,678 37,973 51,794
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 48 UNION PLANTERS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS Union Planters Corporation (the Corporation) is a multi-state bank holding company headquartered in Memphis, Tennessee. The Corporation operates five banking subsidiaries with branches in Tennessee, Mississippi, Florida, Missouri, Arkansas, Louisiana, Alabama, and Kentucky and has 514 banking offices and 651 ATMs. At December 31, 1997, the Corporation had consolidated total assets of $18.1 billion, making it one of the 50 largest bank holding companies based in the United States and the largest headquartered in Tennessee. Through its subsidiaries, the Corporation provides a diversified range of financial services in the communities in which it operates including consumer, commercial, and corporate lending; retail banking; and other ancillary financial services traditionally furnished by full-service financial institutions. Additional services offered include factoring operations; mortgage origination and servicing; investment management and trust services; the issuance of credit and debit cards; the origination, packaging, and securitization of loans, primarily the government-guaranteed portion of Small Business Administration (SBA) loans; the purchase and collection of delinquent FHA/VA government-insured/guaranteed loans from third parties and from GNMA pools serviced for others; full-service and discount brokerage; and the sale of annuities and bank-eligible insurance products. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES. The accounting and reporting policies of the Corporation and its subsidiaries conform with generally accepted accounting principles and general practices within the financial services industry. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The most significant estimate relates to the adequacy of the allowance for losses on loans. Actual results could differ from those estimates. The following is a summary of the more significant accounting policies of the Corporation. BASIS OF PRESENTATION. The consolidated financial statements include the accounts of the Corporation and its subsidiaries after elimination of significant intercompany accounts and transactions. Prior period consolidated financial statements have been restated to include the accounts of significant acquisitions accounted for using the pooling of interests method of accounting. Other acquisitions accounted for as poolings of interests are included from their dates of acquisition. 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 1995 and 1996 amounts have been reclassified to conform with the 1997 financial reporting presentation. STATEMENT OF CASH FLOWS. Cash and cash equivalents include cash and due from banks and federal funds sold. Federal funds sold in the amounts of $109 million, $206 million, and $522 million at December 31, 1997, 1996, and 1995, respectively, are included in cash and cash equivalents. Noncash transfers to foreclosed properties from loans for the years ended December 31, 1997, 1996, and 1995 were $28.4 million, $25.8 million, and $22.9 million, respectively. Other noncash transactions are detailed in Notes 2 and 10. SECURITIES AND TRADING ACCOUNT ASSETS. Debt and equity securities that are bought and principally held for the purpose of selling them in the near term are classified as trading securities. These consist primarily of the government-guaranteed portion of SBA loans and SBA participation certificates. Gains and losses on sales and fair-value adjustments of trading securities are included in profits and commissions from trading activities. Debt and equity securities which the Corporation has not classified as held to maturity or trading are classified as available for sale securities and, as such, are reported at fair value, with unrealized gains and losses, net of deferred taxes, reported as a component of shareholders' equity. Gains or losses 46 49 NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) from sales of available for sale securities are computed using the specific identification method and are included in investment securities gains (losses). Debt securities that the Corporation has the positive intent and ability to hold to maturity are classified as held to maturity securities and carried at cost, adjusted for the amortization of premium and accretion of discount using the level-yield method. Generally, the held to maturity portfolios of acquired entities are reclassified to the available for sale portfolio upon acquisition. At December 31, 1997 and 1996, the Corporation had no securities classified as held to maturity. LOANS HELD FOR RESALE. Loans held for resale include mortgage and other loans and are carried at the lower of cost or fair value on an aggregate basis. LOANS. Loans are carried at the principal amount outstanding. Interest income on loans is recognized using constant yield methods except for unearned income which is recorded as income using a method which approximates the interest method. Loan origination fees and direct loan origination costs are deferred and recognized over the life of the related loans as adjustments to interest income. NONPERFORMING LOANS. Nonperforming loans consist of nonaccrual loans and restructured loans. Loans, other than installment loans, are generally placed on nonaccrual status and interest is not recorded if, in management's opinion, payment in full of principal or interest is not expected or when payment of principal or interest is more than 90 days past due, unless the loan is both well-secured and in the process of collection. FHA/VA government-insured/guaranteed loans which are 90 days or more past due are placed on nonaccrual status when interest claim reimbursements are likely to be denied due to missed filing dates in the foreclosure process. Upon the occurrence of an adverse change in the account status (e.g., filing of bankruptcy, repossession of collateral, foreclosure, or death of the borrower) and after appropriate legal compliance, installment loans (including accrued interest) are written down to the net realizable value of the underlying collateral. Such loans are reviewed periodically for further write-downs until fully liquidated. Income recognized on credit card loans is discontinued upon the occurrence of an adverse change in the financial condition of the borrower. Credit card loans are charged-off when an account becomes past due after notification of a customer's bankruptcy or death, while all other credit card loans are charged off if no payment has been received for 150 days. As of December 31, 1997 and 1996, the amounts of impaired loans and related disclosures thereto were not considered material. ALLOWANCE FOR LOSSES ON LOANS. The allowance for losses on loans represents management's best estimate of potential losses inherent in the existing loan portfolio. The allowance for losses on loans is increased by the provision for losses on loans charged to expense and reduced by loans charged off, net of recoveries. The provision for losses on loans is determined based on management's assessment of several factors: current and anticipated economic conditions and the related impact on specific borrowers and industry groups, historical loan loss experience, the level of classified and nonperforming loans, reviews and evaluations of specific loans, changes in the nature and volume of the loan portfolio, and the results of regulatory examinations. PREMISES AND EQUIPMENT. Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation expense is computed using the straight-line method and is charged to operating expense over the estimated useful lives of the assets. Depreciation expense has been computed principally using estimated lives of five to forty years for premises and three to ten years for furniture and equipment. Leasehold improvements are amortized using the straight-line method over the shorter of the initial term of the respective lease or the estimated useful life of the improvement. Costs of major additions and improvements are capitalized. Expenditures for maintenance and repairs are charged to operations as incurred. GOODWILL AND OTHER INTANGIBLES. The unamortized costs in excess of the fair value of acquired net tangible assets are included in goodwill and other intangibles. Identifiable intangibles, except for premiums on purchased deposits which are amortized on a straight-line method over 10 years, are amortized over the estimated periods benefited. The remaining costs (goodwill) are generally amortized on a straight-line basis over 15 years. For acquisitions where the fair value of net assets 47 50 NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) acquired exceeds the purchase price, the resulting negative goodwill is allocated proportionally to noncurrent, nonmonetary assets. IMPAIRMENT OF LONG-LIVED ASSETS. Effective January 1, 1996, the Corporation adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment losses to be recorded on long-lived assets used in operations and certain related identifiable intangibles when indications of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Additionally, long-lived assets and certain related identifiable intangibles to be disposed of are reported at the lower of carrying amount or fair value, less selling costs. The adoption of this statement did not have a material impact on the Corporation, since existing policies for determining impairment of long-lived assets were similar to the new standard. 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. The Corporation had adopted SFAS No. 122 as of July 1, 1995 and at that time began capitalizing originated servicing rights. The adoption did not have a material impact on financial position or results of operations. Prior to that date, capitalization had been limited to purchased servicing. The servicing rights capitalized are amortized in proportion to and over the period of estimated servicing income. Management stratifies servicing rights based on 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. The Corporation did not have a valuation allowance associated with the mortgage servicing rights portfolio as of December 31, 1997. OTHER REAL ESTATE. Properties acquired through foreclosure and unused bank premises are stated at the lower of the recorded amount of the loan or the property's estimated net realizable value, reduced by estimated selling costs. Write-downs of the assets at, or prior to, the date of foreclosure are charged to the allowance for losses on loans. Subsequent write-downs, income and expense incurred in connection with holding such assets, and gains and losses realized from the sales of such assets are included in noninterest income and expense. STOCK COMPENSATION. The Corporation has elected not to adopt the recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," which requires a fair-value-based method of accounting for stock options and similar equity awards. The Corporation elected to continue applying Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock compensation plans and, accordingly, does not recognize compensation cost, except for stock grants. See Note 14 for a summary of the pro forma effect if the accounting provisions of SFAS No. 123 had been elected. INCOME TAXES. The Corporation files a consolidated Federal income tax return which includes all of its subsidiaries except for credit life insurance companies and certain pass-through entities. Income tax expense is allocated among the parent company and its subsidiaries as if each had filed a separate return. The provision for income taxes is based on income reported for consolidated financial statement purposes and includes deferred taxes resulting from the recognition of certain revenues and expenses in different periods for tax-reporting purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be realized or settled. Recognition of certain deferred tax assets is based upon management's belief that, based upon historical earnings and anticipated future earnings, normal operations will continue to generate sufficient future taxable income to realize these benefits. A valuation allowance is established for deferred tax assets when, in the opinion of management, it is "more likely than not" that the asset will not be realized. 48 51 NOTE 2. ACQUISITIONS CONSUMMATED ACQUISITIONS POOLINGS OF INTERESTS The Corporation consummated the following acquisitions which were accounted for using the pooling of interests method of accounting. Financial information for all periods has been restated for the Capital-Miami, Magna, Leader, and Capital-Missouri acquisitions. Prior period amounts have not been restated for the remaining acquisitions which were not considered, in the aggregate, material to the consolidated financial statements.
COMMON DATE SHARES ACQUIRED ISSUED TOTAL ASSETS TOTAL EQUITY -------- ---------- ------------ ------------ (DOLLARS IN MILLIONS) 1997 ACQUISITIONS Capital Bancorp (Capital-Miami).................. 12/31/97 6,494,889 $2,155.6 $145.0 Magna Bancorp, Inc. (Magna)...................... 11/1/97 7,103,272 1,190.5 127.7 Other acquisitions (three acquisitions).......... Various 1,081,552 242.0 24.5 ---------- -------- ------ Total.................................. 14,679,713 $3,588.1 $297.2 ========== ======== ====== 1996 ACQUISITIONS Leader Financial Corporation (Leader)............ 10/1/96 15,285,575 $3,410.9 $256.1 Other acquisitions (four acquisitions)........... Various 2,779,655 683.1 53.9 ---------- -------- ------ Total.................................. 18,065,230 $4,094.0 $310.0 ========== ======== ====== 1995 ACQUISITIONS Capital Bancorporation, Inc. (Capital-Missouri)............................. 12/31/95 4,087,124 $1,105.1 $ 74.8 Planters Bank and Trust Company.................. 9/1/95 348,029 59.0 6.6 ---------- -------- ------ Total.................................. 4,435,153 $1,164.1 $ 81.4 ========== ======== ======
The following table summarizes the impact of the Capital-Miami and Magna acquisitions on the Corporation's net interest income, noninterest income, and net earnings.
NET INTEREST NONINTEREST NET INCOME INCOME EARNINGS ------------ ----------- -------- (DOLLARS IN THOUSANDS) 1996 Union Planters............................................ $605,962 $226,331 $133,738 Capital-Miami............................................. 70,303 53,158 20,204 Magna..................................................... 68,587 41,013 17,532 -------- -------- -------- Union Planters pooled............................. $744,852 $320,502 $171,474 ======== ======== ======== 1995 Union Planters............................................ $535,997 $203,423 $172,756 Capital-Miami............................................. 67,579 46,106 17,101 Magna..................................................... 65,875 44,181 21,399 -------- -------- -------- Union Planters pooled............................. $669,451 $293,710 $211,256 ======== ======== ========
PURCHASE ACQUISITIONS The Corporation acquired four institutions in the three years ended December 31, 1997 that were accounted for as purchases. Total assets of the institutions at their respective dates of acquisition were approximately $249.9 million. Consideration of $36.1 million paid for the institutions included cash and shares of the Corporation's common stock and Series E preferred stock, resulting in total intangibles of $14.9 million. Because these purchase acquisitions, in the aggregate, are insignificant to the consolidated results of the Corporation, pro forma information has been omitted. Subsequent to December 31, 1997, the Corporation consummated the acquisition of Sho-Me Financial Corporation (Sho-Me), the parent of First Savings Bank, FSB, in Mt. Vernon, Missouri. The acquisition was accounted for as a purchase. Total assets of Sho-Me at the date of acquisition were 49 52 NOTE 2. ACQUISITIONS (CONTINUED) approximately $373.8 million. The Corporation exchanged 1,153,459 shares of its common stock for all the outstanding shares of Sho-Me. PENDING ACQUISITIONS Through its acquisition program the Corporation has the following pending acquisitions which are considered probable of consummation.
ANTICIPATED APPROXIMATE METHOD OF APPROXIMATE INSTITUTION CONSIDERATION ACCOUNTING TOTAL ASSETS - --------------------------------------------- --------------- ----------- ------------ (DOLLARS IN MILLIONS) Security Bancshares, Inc..................... 491,000 shares Pooling of $ 165 Des Arc, Arkansas of common stock Interests Duck Hill Bank............................... 42,000 shares Purchase 21 Duck Hill, Mississippi of common stock Peoples First Corporation.................... 6,338,000 shares Pooling of 1,501 Paducah, Kentucky of common stock Interests Capital Savings Bancorp, Inc................. 801,000 shares Pooling of 242 Jefferson City, Missouri of common stock Interests First Community Bancshares, Inc.............. 129,000 shares Pooling of 41 Middleton, Tennessee of common stock Interests First National Bancshares of Wetumpka, Inc. 836,000 shares Pooling of Wetumpka, Alabama of common stock Interests 211 C B & T, Inc................................. 1,450,000 shares Pooling of 268 McMinnville, Tennessee(1) of common stock Interests Merchants Bancshares, Inc. .................. 1,952,000 shares Pooling of 546 Houston, Texas(1) of common stock Interests Magna Group, Inc. (MGR)...................... 35,446,000 shares Pooling of 7,075 St. Louis, Missouri(1)(2) of common stock Interests Transflorida Bank............................ 1,655,000 shares Pooling of 316 Boca Raton, Florida(1) of common stock Interests ------- TOTAL.............................. $10,386 =======
- --------------- (1) Agreements signed subsequent to December 31, 1997. (2) On February 22, 1998, the Corporation entered into a definitive agreement to acquire all of the outstanding common stock of MGR at a fixed exchange ratio of .9686 shares of the Corporation's common stock for each MGR common share outstanding. MGR reported total deposits of $5.4 billion and total shareholders' equity of $626 million at December 31, 1997 and reported net income of $72.7 million for the year then ended. The consummation of the transaction is subject to certain contractual conditions, regulatory approvals, and approval by shareholders of both MGR and the Corporation and is expected to close in the third quarter of 1998. NOTE 3. RESTRICTIONS ON CASH AND DUE FROM BANKS The Corporation's banking subsidiaries are required to maintain noninterest-bearing average reserve balances with the Federal Reserve Bank. Average balances required to be maintained for such purposes during 1997 and 1996 were $94 million and $107 million, respectively. 50 53 NOTE 4. INVESTMENT SECURITIES The following is a summary of the Corporation's investment securities, all of which were classified as "available for sale."
DECEMBER 31, 1997 ------------------------------------------- UNREALIZED AMORTIZED ----------------- FAIR COST GAINS LOSSES VALUE ---------- ------- ------- ---------- (DOLLARS IN THOUSANDS) U.S. Government obligations U.S. Treasury...................................... $ 727,600 $ 4,045 $ 205 $ 731,440 U.S. Government agencies Collateralized mortgage obligations............. 101,236 1,302 100 102,438 Mortgage-backed................................. 633,184 20,260 269 653,175 Other........................................... 1,074,061 9,268 764 1,082,565 ---------- ------- ------- ---------- Total U.S. Government obligations.......... 2,536,081 34,875 1,338 2,569,618 Obligations of states and political subdivisions..... 480,702 28,871 431 509,142 Other stocks and securities.......................... 168,219 983 282 168,920 ---------- ------- ------- ---------- Total available for sale securities........ $3,185,002 $64,729 $ 2,051 $3,247,680 ========== ======= ======= ==========
DECEMBER 31, 1996 ------------------------------------------- UNREALIZED AMORTIZED ----------------- FAIR COST GAINS LOSSES VALUE ---------- ------- ------- ---------- (DOLLARS IN THOUSANDS) U.S. Government obligations U.S. Treasury...................................... $ 911,660 $ 4,603 $ 1,012 $ 915,251 U.S. Government agencies Collateralized mortgage obligations............. 133,123 635 348 133,410 Mortgage-backed securities...................... 972,545 22,472 2,724 992,293 Other........................................... 665,917 986 2,398 664,505 ---------- ------- ------- ---------- Total U.S. Government obligations.......... 2,683,245 28,696 6,482 2,705,459 Obligations of states and political subdivisions..... 489,790 20,746 2,265 508,271 Other stocks and securities.......................... 176,209 290 3,012 173,487 ---------- ------- ------- ---------- Total available for sale securities........ $3,349,244 $49,732 $11,759 $3,387,217 ========== ======= ======= ==========
The following table presents the gross realized gains and losses on available for sale investment securities for the years ended December 31, 1997, 1996, and 1995.
REALIZED GAINS REALIZED LOSSES ------------------------------ --------------------------------- 1997 1996 1995 1997 1996 1995 ------ ------ ------ ------- ------- ------- (DOLLARS IN THOUSANDS) $5,241 $8,231 $5,841 $(3,137) $(4,132) $(7,208)
Investment securities having a fair value of approximately $1.5 billion and $1.3 billion at December 31, 1997 and 1996, respectively, were pledged to secure public and trust funds on deposit, securities sold under agreements to repurchase, and Federal Home Loan Bank (FHLB) advances. 51 54 NOTE 4. INVESTMENT SECURITIES (CONTINUED) The fair values, contractual maturities, and weighted average yields of available for sale investment securities as of December 31, 1997 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................ $355,790 5.93% $ 367,418 6.20% $ 4,392 6.89% $ -- --% $ 727,600 6.07% U.S. Government agencies Collateralized mortgage obligations................ 68 6.25 8,232 6.40 6,116 6.66 86,820 6.68 101,236 6.66 Mortgage-backed............ 2,052 7.47 65,342 6.74 75,864 7.31 489,926 7.90 633,184 7.71 Other...................... 199,730 5.76 617,378 6.29 187,685 6.90 69,268 7.15 1,074,061 6.35 -------- ---------- -------- -------- ---------- Total U.S. Government obligations.......... 557,640 5.87 1,058,370 6.29 274,057 7.01 646,014 7.66 2,536,081 6.62 Obligations of states and political subdivisions....... 24,532 8.94 76,350 9.43 232,074 9.36 147,746 9.42 480,702 9.37 Other stocks and securities Federal Reserve Bank and Federal Home Loan Bank stock...................... -- -- -- -- -- -- 139,744 6.80 139,744 6.80 Bonds, notes, and debentures................. 3,037 7.68 1,988 12.33 4,079 8.11 -- -- 9,104 8.89 Collateralized mortgage obligations................ -- -- 8,243 5.14 -- -- 7,372 7.63 15,615 6.32 Other........................ -- -- -- -- -- -- 3,756 9.37 3,756 9.37 -------- ---------- -------- -------- ---------- Total other stocks and securities........... 3,037 7.68 10,231 6.54 4,079 8.11 150,872 6.90 168,219 6.92 -------- ---------- -------- -------- ---------- Total amortized cost of available for sale securities........... $585,209 6.01% $1,144,951 6.50% $510,210 8.09% $944,632 7.81% $3,185,002 7.05% ======== ========== ======== ======== ========== Total fair value....... $586,086 $1,153,368 $530,761 $977,465 $3,247,680 ======== ========== ======== ======== ==========
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 3.4 years. 52 55 NOTE 5. LOANS The composition of loans is summarized as follows:
DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- (DOLLARS IN THOUSANDS) Commercial, financial, and agricultural..................... $ 1,940,781 $ 1,839,722 Foreign..................................................... 207,343 145,483 Accounts receivable -- factoring ........................... 579,067 452,522 Real estate -- construction................................. 639,696 576,154 Real estate -- mortgage Secured by 1-4 family residential......................... 3,603,097 3,840,952 FHA/VA government-insured/guaranteed...................... 1,319,553 1,555,308 Other mortgage............................................ 2,055,420 1,674,555 Home equity................................................. 290,634 237,595 Consumer Credit cards and related plans............................ 558,705 653,995 Other consumer............................................ 1,427,756 1,565,159 Direct lease financing...................................... 65,037 73,306 ----------- ----------- Total loans....................................... $12,687,089 $12,614,751 =========== ===========
Nonperforming loans are summarized as follows:
DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- (DOLLARS IN THOUSANDS) Nonaccrual loans............................................ $ 94,584 $ 89,404 Restructured loans.......................................... 10,021 11,266 ----------- ----------- Total............................................. $ 104,605 $ 100,670 =========== ===========
The impact on net interest income of nonperforming loans was not material in 1997 or 1996. Also, there were no significant outstanding commitments to lend additional funds at December 31, 1997. Certain of the Corporation's bank subsidiaries, principally Union Planters Bank, N.A. (UPB), have granted loans to the Corporation's directors, executive officers, and their affiliates. These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than normal risks of collectability. The aggregate dollar amount of these loans was $13.7 million and $36.9 million at December 31, 1997 and 1996, respectively. During 1997, $8.0 million of new loans and advances under credit lines were made to related parties; repayments totaled approximately $17.7 million. Additionally, the balance at December 31, 1996 was reduced by $13.5 million for loans related to a former director and other loans no longer considered related-party relationships. Included in December 31, 1996 related-party loans was a $5.5 million tax-exempt loan made in 1986 to a partnership in which a director, who is also a brother-in-law of an executive officer, is a partner. At the time the loan was made, neither the borrower nor any of its partners, officers, directors, or beneficial owners was affiliated or associated with the Corporation or any of its subsidiaries. The loan was made in the ordinary course of business on substantially the same terms, including interest rate and collateral requirements, as those prevailing at the time for comparable transactions. The loan had previously performed as required; however, during 1996 because of significant depreciation in the value of the collateral, a $2.0 million charge-off was taken and the remaining $3.4 million was placed on nonaccrual status, although the loan was not in default. In 1997, the $3.4 million balance was collected, including interest due. 53 56 NOTE 6. ALLOWANCE FOR LOSSES ON LOANS The changes in the allowance for losses on loans are summarized as follows:
1997 1996 1995 -------- -------- -------- (DOLLARS IN THOUSANDS) Balance, January 1......................................... $189,118 $179,968 $174,604 Increase due to acquisitions............................. 3,233 6,578 2,761 Decrease due to the sale of certain loans................ -- (1,628) -- Provision for losses on loans............................ 113,633 68,948 33,917 Recoveries of loans previously charged off............... 18,471 14,059 16,981 Loans charged off........................................ (99,066) (78,807) (48,295) -------- -------- -------- Balance, December 31....................................... $225,389 $189,118 $179,968 ======== ======== ========
NOTE 7. PREMISES AND EQUIPMENT A summary of premises and equipment follows:
DECEMBER 31, -------------------- 1997 1996 -------- -------- (DOLLARS IN THOUSANDS) Land........................................................ $ 68,910 $ 69,953 Buildings and improvements.................................. 262,281 251,649 Leasehold improvements...................................... 22,586 31,573 Equipment................................................... 200,156 219,378 Construction in progress.................................... 7,949 17,802 -------- -------- 561,882 590,355 Less accumulated depreciation and amortization.............. 231,179 256,019 -------- -------- Total premises and equipment...................... $330,703 $334,336 ======== ========
NOTE 8. INTEREST-BEARING DEPOSITS The following table presents the maturities of interest-bearing deposits at December 31, 1997 (Dollars in millions). 1998........................................................ $ 5,309 1999........................................................ 845 2000........................................................ 292 2001........................................................ 82 2002........................................................ 113 2003 and after.............................................. 21 ------- Total time deposits.................................... 6,662 Interest-bearing deposits with no stated maturity...... 4,455 ------- Total interest-bearing deposits................... $11,117 =======
54 57 NOTE 9. BORROWINGS SHORT-TERM BORROWINGS Short-term borrowings include federal funds purchased and securities sold under agreements to repurchase, commercial paper, and other short-term borrowings having maturities of less than one year. Federal funds purchased arise primarily from the Corporation's market activity with its correspondent banks and generally mature in one business day. Securities sold under agreements to repurchase are secured by U. S. Government and agency securities. Short-term borrowings are summarized as follows:
DECEMBER 31, ------------------------------------ 1997 1996 1995 -------- ---------- ---------- (DOLLARS IN THOUSANDS) Year-end balances Federal funds purchased and securities sold under agreements to repurchase........................... $754,939 $ 518,009 $ 924,322 FHLB advances......................................... 75,060 177,716 50,000 Other short-term borrowings........................... 1,628 326 94 -------- ---------- ---------- Total short-term borrowings................... $831,627 $ 696,051 $ 974,416 ======== ========== ========== Federal funds purchased and securities sold under agreements to repurchase Daily average balance................................. $503,514 $ 974,929 $ 661,655 Weighted average interest rate........................ 4.92% 5.33% 5.72% Maximum outstanding at any month end.................. $754,939 $1,204,757 $1,187,152 Weighted average interest rate at December 31......... 5.53% 5.10% 5.46%
SHORT- AND MEDIUM-TERM BANK NOTES In 1996, the Corporation's principal subsidiary, UPB, established a $1-billion short- and medium-term bank note program to supplement UPB's funding sources. Under the program UPB may from time-to-time issue bank notes having maturities ranging from 30 days to one year from their respective issue dates (Short-Term Bank Notes) and bank notes having maturities of more than one year to 30 years from their respective dates of issue (Medium-Term Bank Notes). A summary of the bank notes follows:
DECEMBER 31, 1997 DECEMBER 31, 1996 ------------------------- --------------------------- SHORT-TERM MEDIUM-TERM SHORT-TERM MEDIUM-TERM BANK NOTES BANK NOTES BANK NOTES BANK NOTES ---------- ------------ ------------ ------------ (DOLLARS IN THOUSANDS) Balances at year end...................... $ -- $ 135,000 $ 265,000 $ 135,000 Average balance for the year.............. 119,493 135,000 88,361 42,637 Weighted average interest rate............ 5.84% 6.62% 5.81% 6.57% Weighted average interest rate at year end..................................... -- 6.59 5.69 6.59 Fixed rate notes.......................... $ -- $ 135,000 $ 265,000 $ 135,000 Range of maturities....................... -- 8/98-10/01 1/97-5/97 8/98-10/01
The principal maturities of Medium-Term Bank Notes subsequent to December 31, 1997 are $30 million in 1998, $45 million in 1999, and $60 million in 2001. FEDERAL HOME LOAN BANK ADVANCES Certain of the Corporation's banking and thrift subsidiaries had outstanding advances from the FHLB under Blanket Agreements for Advances and Security Agreements (the Agreements). The Agreements enable these subsidiaries to borrow funds from the FHLB to fund mortgage loan programs and to satisfy certain other funding needs. The value of the mortgage-backed securities and mortgage loans pledged under the Agreements must be maintained at not less than 115% and 150%, respectively, of the advances outstanding. At December 31, 1997, the Corporation had an adequate amount of 55 58 NOTE 9. BORROWINGS (CONTINUED) mortgage-backed securities and loans to satisfy the collateral requirements. A summary of the advances is as follows:
DECEMBER 31, ----------------------------- 1997 1996 ------------- ------------- (DOLLARS IN THOUSANDS) Balance at year end......................................... $ 703,996 $ 985,042 Range of interest rates..................................... 3.25% - 8.95% 3.25% - 9.00% Range of maturities......................................... 1998 - 2017 1997 - 2017
The principal maturities of FHLB advances subsequent to December 31, 1997 are $171.4 million in 1998, $184.7 million in 1999, $134.1 million in 2000, $69.1 million in 2001, $29.0 million in 2002, and $115.7 million after 2002. OTHER LONG-TERM DEBT The Corporation's other long-term debt is summarized as follows:
DECEMBER 31, -------------------- 1997 1996 -------- -------- (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)..................................... $198,973 $198,938 Variable rate asset-backed certificates..................... 275,000 175,000 6 3/4% Subordinated Notes due 2005.......................... 99,536 99,477 6.25% Subordinated Notes due 2003........................... 74,696 74,644 Other long-term debt........................................ 62,703 37,892 -------- -------- Total other long-term debt........................ $710,908 $585,951 ======== ========
The Corporation-Obligated Mandatorily Redeemable Capital Pass-through Securities of Subsidiary Trust holding solely a Corporation-Guaranteed Related Subordinated Note represents Capital Securities issued by Union Planters Capital Trust A (the UPC Trust). In 1996, the UPC Trust issued $200 million liquidation amount of 8.20% Capital Trust Pass-through Securities(SM) (Trust Preferred Securities) at 99.468% which represented an undivided beneficial interest in the assets of the UPC Trust, a statutory business trust created under the laws of the state of Delaware. The Corporation owns all of the common securities of the UPC Trust representing an undivided beneficial interest in the assets of the UPC Trust. The sole asset of the UPC Trust is $206.2 million (carrying value of $205.1 million at December 31, 1997 and 1996) of 8.20% Junior Subordinated Deferrable Interest Debentures of the Corporation issued at 99.468%, which will mature on December 15, 2026. The distributions payable on the Trust Preferred Securities are a fixed rate per annum, 8.20% of the stated liquidation amount, and are cumulative from the date of issuance. The Corporation has the right, at any time, subject to certain conditions, to defer payments of interest on the Subordinated Debentures, in which case distributions on Trust Preferred Securities would likewise be deferred. Upon electing to defer such interest payments, the Corporation will be prohibited from paying dividends on its common and preferred stock and interest on certain outstanding borrowings. The Subordinated Debt and therefore, the Trust Preferred Securities are redeemable by the Corporation at a call price, plus accrued and unpaid interest to the date of redemption, in whole or in part and from time-to-time on or after December 15, 2006, subject to certain conditions. In certain limited circumstances, primarily related to certain tax events, the Subordinated Debt and therefore, the Trust Preferred Securities are redeemable at par, plus accrued interest to date of redemption. The Trust Preferred Securities qualify as Tier 1 regulatory capital and are reported in bank regulatory reports as a minority interest in a consolidated subsidiary. In June 1994, December 1994, and July 1995, Capital Factors, Inc., a majority-owned subsidiary, through a wholly owned financing trust subsidiary, issued $100 million, $25 million, and $50 million, respectively, of Variable Rate Asset-Backed Certificates (senior certificates) with maturity dates of 56 59 NOTE 9. BORROWINGS (CONTINUED) 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, 1997 and 1996 were 7.23% and 6.86%, respectively. The senior certificates may not be redeemed prior to their stated maturity. In April 1997, a fourth series of variable rate asset-backed certificates (the Variable Funding Certificates) that mature in June 2004 were issued. Unlike the previously issued Certificates which were fixed as to principal amount, the Variable Funding Certificates provide for a monthly settlement of principal, which may increase or decrease the outstanding amount. The fourth series includes the issuance of $95.25 million of senior Variable Funding Certificates and $4.75 million of senior subordinated Variable Funding Certificates which bear interest rates of LIBOR plus 0.75% and LIBOR plus 1.50%, respectively. The interest rates on December 31, 1997 were 6.73% and 7.48%, respectively. Interest on all certificates is payable monthly. The senior certificates are collateralized by interest-earning advances to factoring clients which totaled approximately $323.8 million at December 31, 1997. 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 $2.1 million 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 $10.1 million at December 31, 1997. During November 1993, the Corporation issued in a public offering $75 million of 6.25% Subordinated Capital Notes due 2003 at 99.305%. In November 1995, the Corporation issued in another public offering $100 million of 6 3/4% Subordinated Capital Notes due 2005 at 99.408%. The Notes qualify as Tier 2 regulatory capital. Included in other long-term debt is a $50-million revolving loan payable to another financial institution which was established by Capital Factors, Inc., in 1996. At December 31, 1997 and 1996, $43.6 million and $15.9 million, respectively, was outstanding under the revolving line. Interest accrues on this line at LIBOR plus 2.15% (8.09% and 7.76% at December 31, 1997 and 1996) with interest payable monthly. The loan matures in March 1999, with an automatic one-year renewal. The revolving loan agreement has certain financial covenants and ratios, including those related to Capital Factors' debt to net worth, profitability, and net cash flows. Also included at December 31, 1997 and 1996 is a privately placed $10 million 7.95% subordinated note issued in connection with Capital Factors' securitized financing. Interest on the note is payable monthly and it matures in July 2001. At December 31, 1997 and 1996, other long-term debt also included other borrowings of $9.1 million and $12.0 million, respectively. The principal maturities of other long-term debt subsequent to December 31, 1997 are $2.9 million in 1998, $146.7 million in 1999, $27.7 million in 2000, $60.4 million in 2001, $299.0 million in 2002, and $174.3 million after 2002. The ability of the Corporation to service its long-term debt obligations is dependent upon the future profitability of its banking subsidiaries and their ability to pay dividends and management fees to the Corporation (see Note 12). NOTE 10. SHAREHOLDERS' EQUITY DIVIDENDS The payment of dividends is determined by the Board of Directors taking into account the earnings, capital levels, cash requirements, and the financial condition of the Corporation and its subsidiaries, applicable government regulations and policies, and other factors deemed relevant by the Board of Directors, including the amount of dividends payable to the Corporation by its subsidiaries. Various federal laws, regulations, and policies limit the ability of the Corporation's subsidiary banks to pay dividends. See Note 12, "Regulatory Capital and Restrictions on Dividends and Loans from Subsidiaries." 57 60 NOTE 10. SHAREHOLDERS' EQUITY (CONTINUED) CONVERTIBLE PREFERRED STOCK The Corporation's preferred stock is summarized as follows:
DECEMBER 31, ----------------------- 1997 1996 ---------- ---------- (DOLLARS IN THOUSANDS) PREFERRED STOCK, WITHOUT PAR VALUE, 10,000,000 SHARES AUTHORIZED FOR ALL ISSUES: Series A Preferred Stock.................................. $ -- $ -- Series E Preferred Stock.................................. 54,709 83,809 ------- ------- Total preferred stock............................. $54,709 $83,809 ======= =======
SERIES A PREFERRED STOCK (SHARE PURCHASE RIGHTS PLAN). In 1989, the Board of Directors of the Corporation adopted a Share Purchase Rights Plan and distributed a dividend of one Preferred Share Purchase Right (Right) for each outstanding share of the Corporation's $5 par value Common Stock and for each share to be issued thereafter. The Rights are generally designed to deter coercive takeover tactics and to encourage all persons interested in acquiring control of the Corporation to deal with each shareholder on a fair and equal basis. Each Right trades in tandem with its respective share of common stock until the occurrence of certain events, in which case it would separate from the common stock and entitle the registered holder, subject to the terms of the Rights Agreement, to purchase certain equity securities at a price below their market value. The Corporation has authorized 750,000 shares of Series A Preferred Stock for issuance under the Share Purchase Rights Plan, none of which have been issued. SERIES B PREFERRED STOCK. All 44,000 outstanding shares of a Series B Preferred Stock were converted by holders into 339,765 shares of the Corporation's common stock in 1996. SERIES E PREFERRED STOCK. At December 31, 1997 and 1996, 2,188,358 and 3,352,347 shares, respectively, of the Corporation's 8% Cumulative, Convertible, Preferred Stock, Series E (Series E Preferred Stock) were issued and outstanding. Such shares have a stated value of $25 per share on which dividends accrue at the rate of 8% per annum; dividends are cumulative and are payable quarterly. The Series E Preferred Stock is not subject to any sinking fund provisions and has no preemptive rights. Such shares have a liquidation preference of $25 per share plus unpaid dividends accrued thereon, and with the prior approval of the Federal Reserve, may be redeemed by the Corporation in whole or in part at any time 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 the Corporation's Common Stock. Holders of Series E Preferred Stock have no voting rights except for those provided by law and in certain other limited circumstances. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN The Dividend Reinvestment and Stock Purchase Plan (the Plan) authorizes the issuance of 2,000,000 shares (1,187,867 issued through December 31, 1997) 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 271,615, 241,060, and 189,921 in 1997, 1996, and 1995, respectively. 58 61 NOTE 11. UNION PLANTERS CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION CONDENSED BALANCE SHEET
DECEMBER 31, ----------------------- 1997 1996 ---------- ---------- (DOLLARS IN THOUSANDS) ASSETS Cash and cash equivalents at subsidiary banks............. $ 432,947 $ 274,622 Investment securities available for sale.................. 132,690 213,491 Advances to and receivables from subsidiaries............. 5,112 9,535 Investment in bank and bank holding company subsidiaries........................................... 1,518,492 1,489,444 Investment in nonbank subsidiaries ....................... 22,700 17,137 Other assets.............................................. 67,965 27,583 ---------- ---------- TOTAL ASSETS...................................... $2,179,906 $2,031,812 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Long-term debt (Note 9)................................... $ 379,360 $ 379,212 Loans from and payables to subsidiaries................... 5,324 8,384 Other liabilities......................................... 48,356 25,333 Shareholders' equity (Note 10)............................ 1,746,866 1,618,883 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $2,179,906 $2,031,812 ========== ==========
CONDENSED STATEMENT OF EARNINGS
YEARS ENDED DECEMBER 31, ------------------------------ 1997 1996 1995 -------- -------- -------- (DOLLARS IN THOUSANDS) INCOME Dividends from bank and bank holding company subsidiaries........................................... $233,990 $152,534 $162,810 Dividends from nonbank subsidiaries....................... 3,355 950 500 Fees and interest from subsidiaries....................... 73,919 46,326 32,219 Interest and dividends on investments, loans, and interest-bearing deposits at other financial institutions........................................... 8,265 12,888 4,611 Other income.............................................. 1,775 398 478 -------- -------- -------- Total income...................................... 321,304 213,096 200,618 -------- -------- -------- EXPENSES Interest expense.......................................... 28,776 16,351 10,400 Salaries and employee benefits............................ 34,413 22,233 16,190 Other expense............................................. 42,911 37,032 23,607 -------- -------- -------- Total expenses.................................... 106,100 75,616 50,197 -------- -------- -------- EARNINGS BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES.......... 215,204 137,480 150,421 Tax benefit................................................. (10,283) (5,701) (7,576) -------- -------- -------- EARNINGS BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES................................. 225,487 143,181 157,997 Equity in undistributed earnings of subsidiaries............ (16,726) 28,293 53,259 -------- -------- -------- NET EARNINGS...................................... $208,761 $171,474 $211,256 ======== ======== ========
59 62 NOTE 11. UNION PLANTERS CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION (CONTINUED) CONDENSED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, --------------------------------- 1997 1996 1995 --------- --------- --------- (DOLLARS IN THOUSANDS) OPERATING ACTIVITIES Net earnings.............................................. $ 208,761 $ 171,474 $ 211,256 Equity in undistributed earnings of subsidiaries.......... 16,726 (28,293) (53,259) Deferred income tax (benefit) expense .................... (8,660) (2,770) 425 Other, net................................................ (1,018) 7,472 9,409 --------- --------- --------- Net cash provided by operating activities......... 215,809 147,883 167,831 --------- --------- --------- INVESTING ACTIVITIES Net decrease (increase) in short-term investments......... -- 10,000 (10,000) Purchases of available for sale securities................ (122,802) (437,340) (389,624) Proceeds from sales of available for sale securities...... 205,029 397,931 221,532 Net increase in investment in and receivables from subsidiaries........................................... (34,259) (36,778) (55,261) Purchases of premises and equipment, net.................. (3,981) (126) (5,279) Net cash received from acquired entities.................. 18,384 -- -- --------- --------- --------- Net cash provided by (used in) investing activities...................................... 62,371 (66,313) (238,632) --------- --------- --------- FINANCING ACTIVITIES Net decrease in commercial paper.......................... -- -- (2,971) Proceeds from issuance of long-term debt, net............. 439 205,089 99,956 Repayment and defeasance of long-term debt................ (488) (40,349) (49) Net (repayments) proceeds from loans from and payables to subsidiaries........................................... (3,060) 5,133 (9,668) Proceeds from issuance of common stock, net............... 22,781 16,336 12,934 Repurchase of common stock................................ (35,009) -- -- Cash dividends paid....................................... (105,151) (61,352) (47,128) Other, net................................................ 633 -- -- --------- --------- --------- Net cash (used) provided by financing activities...................................... (119,855) 124,857 53,074 --------- --------- --------- Net increase (decrease) in cash and cash equivalents........ 158,325 206,427 (17,727) Cash and cash equivalents at the beginning of the year...... 274,622 68,195 85,922 --------- --------- --------- Cash and cash equivalents at the end of the year............ $ 432,947 $ 274,622 $ 68,195 ========= ========= =========
- --------------- NONCASH ACTIVITIES. See Note 2 and Note 10, respectively, regarding acquisitions in 1997, 1996, and 1995 and the conversions of Series B and E Preferred Stock. NOTE 12. REGULATORY CAPITAL AND RESTRICTIONS ON DIVIDENDS AND LOANS FROM SUBSIDIARIES REGULATORY CAPITAL The Corporation and its banking subsidiaries are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation or its banking subsidiaries' financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and its banking subsidiaries must meet specific capital guidelines that involve quantitative measures of the Corporation's and its banking subsidiaries' assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Corporation's and its banking subsidiaries' capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Corporation and its banking subsidiaries to maintain minimum amounts and ratios (set forth in the table below for the Corporation and its significant 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, 1997, management believes that the Corporation, UPB, and the Corporation's other banking subsidiaries met all capital adequacy requirements to which they are subject. 60 63 NOTE 12. REGULATORY CAPITAL AND RESTRICTIONS ON DIVIDENDS AND LOANS FROM SUBSIDIARIES (CONTINUED) At December 31, 1997, the most recent notification from the Office of the Comptroller of the Currency (OCC) categorized UPB as well capitalized under the regulatory framework for prompt corrective action. Additionally, all of the Corporation's other banking subsidiaries were categorized as well capitalized and the Corporation's capital levels and ratios would be considered well capitalized. To be categorized as well capitalized, an institution must maintain Tier 1 leverage, Tier 1 risk-based, and total risk-based capital ratios as set forth in the table below. Subsequent to December 31, 1997, the Corporation merged the majority of its separate banking subsidiaries into UPB. Because the merged banks' capital levels were lower than UPB's, it is expected that UPB's capital ratios will decline as a result of the merger. UPB is still expected to be considered well capitalized following this merger. There are no other conditions or events since the latest notification that management believes have changed any of the institutions' categories. The capital and ratios of the Corporation and UPB are presented in the table below. No amount was deducted from capital for interest-rate risk.
MINIMUM FOR MINIMUM TO BE WELL ACTUAL CAPITAL ADEQUACY CAPITALIZED(1) --------------- ----------------- --------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ------ ----- ------- ------ ------ ----- (DOLLARS IN MILLIONS) AS OF DECEMBER 31, 1997: LEVERAGE (TIER 1 CAPITAL TO AVERAGE ASSETS) Consolidated............................... $1,876 10.48% $714 4.00% N/A N/A UPB(2)..................................... 489 9.21 212 4.00 $265 5.00% TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS) Consolidated............................... $1,876 15.51% $484 4.00% N/A N/A UPB(2)..................................... 489 15.02 130 4.00 $195 6.00% TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS) Consolidated............................... $2,192 18.12% $968 8.00% N/A N/A UPB(2)..................................... 530 16.28 260 8.00 $326 10.00% AS OF DECEMBER 31, 1996: LEVERAGE (TIER 1 CAPITAL TO AVERAGE ASSETS) Consolidated............................... $1,752 9.50% $738 4.00% N/A N/A UPB........................................ 384 7.25 212 4.00 $265 5.00% TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS) Consolidated............................... $1,752 14.91% $470 4.00% N/A N/A UPB........................................ 384 13.92 110 4.00 $165 6.00% TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS) Consolidated............................... $2,067 17.60% $940 8.00% N/A N/A UPB........................................ 416 15.11 220 8.00 $275 10.00%
- --------------- (1) Not applicable (N/A) for bank holding companies such as the Corporation. (2) Excludes the impact of the subsequent merger of the majority of the Corporation's banking subsidiaries into UPB. RESTRICTIONS ON DIVIDENDS AND LOANS FROM SUBSIDIARIES The amount of dividends which the Corporation's subsidiaries may pay is limited by applicable laws and regulations. For the subsidiary national banks, prior regulatory approval is required if dividends to be declared in any year would exceed net earnings of the current year (as defined under the National Bank Act) plus retained net profits for the preceding two years. The payment of dividends by state-chartered bank subsidiaries is regulated by applicable state laws and the regulations of the Federal Deposit Insurance Corporation (FDIC). The payment of dividends by savings and loan subsidiaries is subject to the regulations of the Office of Thrift Supervision (OTS). At January 1, 1998, its banking subsidiaries could have paid dividends to the Corporation aggregating $103 million without prior regulatory approval. Future dividends will be dependent on the level of earnings of the subsidiary financial institutions. The Corporation's banking subsidiaries are limited by federal law in the amount of credit which they may extend to their nonbank affiliates, including the Corporation. Loans and other extensions of credit (loans) to a single nonbank affiliate may not exceed 10% nor shall loans to all nonbank affiliates exceed 20% of an individual bank's capital plus its allowance for losses on loans. Such loans must be collateralized by assets having market values of 100% to 130% of the loan amount depending on the nature of the collateral. The law imposes no restrictions upon extensions of credit between FDIC-insured banks which are 80%-owned subsidiaries of the Corporation. 61 64 NOTE 13. OTHER NONINTEREST INCOME AND EXPENSE The major components of other noninterest income and expense are summarized as follows:
YEARS ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- -------- (DOLLARS IN THOUSANDS) OTHER NONINTEREST INCOME Gain on sale of branches/deposits and other selected assets.................................................. $ 15,776 $ 7,245 $ 1,934 Gain on sale of residential mortgages..................... 14,058 5,904 5,509 Customer ATM usage fee.................................... 13,223 7,550 5,033 Insurance commissions..................................... 11,474 13,154 8,969 Annuity sales income...................................... 7,566 2,660 521 Brokerage fee income...................................... 6,490 3,453 2,545 Letter of credit fees..................................... 5,013 5,590 5,689 VSIBG partnership earnings................................ 2,332 2,890 1,992 Other income.............................................. 41,289 30,483 40,285 -------- -------- -------- Total other noninterest income..................... $117,221 $ 78,929 $ 72,477 ======== ======== ======== OTHER NONINTEREST EXPENSE Amortization and write-off of goodwill, other intangibles, and mortgage servicing rights: Amortization of mortgage servicing rights............... $ 17,409 $ 18,250 $ 19,180 Amortization of goodwill and other intangibles.......... 10,562 13,286 13,617 Write-off of mortgage servicing rights, goodwill, and other intangibles..................................... 2,610 19,407 -- Other contracted services................................. 21,849 18,620 13,412 Stationery and supplies................................... 20,163 17,552 17,111 Postage and carrier....................................... 18,907 17,774 16,249 Advertising and promotion................................. 18,390 17,923 19,032 Communications............................................ 14,767 14,920 11,856 Other personnel services.................................. 10,199 9,816 8,143 Other real estate expense................................. 10,026 4,749 4,281 Miscellaneous charge-offs................................. 9,947 6,224 5,380 Legal fees................................................ 8,731 8,814 9,316 Provision for losses on FHA/VA foreclosure claims (1)..... 8,016 25,163 5,622 Taxes other than income................................... 6,822 6,084 6,049 Travel.................................................... 6,412 5,770 5,293 Consultant fees........................................... 5,511 3,672 3,581 Merchant credit card charges.............................. 5,324 5,152 4,468 Dues, subscriptions, and contributions.................... 4,692 4,553 5,029 Brokerage and clearing fees on trading activities......... 4,339 4,207 6,233 Accounting and audit fees................................. 3,732 4,235 4,556 Insurance................................................. 3,358 4,232 4,240 FDIC insurance............................................ 3,286 10,039 18,869 One-time SAIF assessment on deposits...................... -- 28,249 -- Federal Reserve fees...................................... 2,951 2,722 2,252 Merger-related expenses (2)............................... 46,188 52,786 11,911 Charter consolidation expenses (3)........................ 16,742 -- -- Other expense............................................. 43,498 33,259 40,534 -------- -------- -------- Total other noninterest expense.................... $324,431 $357,458 $256,214 ======== ======== ========
- --------------- (1) The amount for 1996 includes $19.8 million of provisions for losses on FHA/VA foreclosure claims related to an acquired entity. (2) Includes amounts for employment contract payments, severance, postretirement benefit expenses, and pension expense of acquired entities; write-downs of office buildings and equipment including assets to be sold, lease buyouts, assets determined to be obsolete or no longer of use and equipment not compatible with the Corporation's equipment; professional fees including legal, accounting, consulting, and financial advisory services; and other expenses including write-off of assets, charge-offs of prepaid expenses, and miscellaneous merger-related expenses. The majority of these charges will be paid in cash over the next 12 months, excluding asset write-downs. (3) Effective January 1, 1998, the Corporation merged most of its separate banking subsidiaries with UPB. Charter consolidation expenses include amounts for employee severance payments, write-offs of data processing equipment, and other miscellaneous costs related to combining most of the Corporation's banking subsidiaries into UPB. The majority of these charges will be paid in cash over the next 12 to 18 months, excluding asset write-downs. 62 65 NOTE 14. EMPLOYEE BENEFIT PLANS 401(K) RETIREMENT SAVINGS PLAN. The Corporation's 401(k) Retirement Savings Plan (401(k) Plan) is available to employees having one or more years of service and who work in excess of 1,000 hours per year. Employees may voluntarily contribute 1 to 16 percent of their gross compensation on a pretax basis up to a maximum of $9,500 in 1997 and the Corporation makes a matching contribution of 50 to 100 percent of the amounts contributed by the employee (up to 6% of compensation) depending upon his or her eligible years of service. The Corporation's contributions to the 401(k) Plan for 1997, 1996, and 1995 were $4.0 million, $3.0 million, and $2.7 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 $3.5 million, $3.5 million, and $3.0 million for 1997, 1996, and 1995, respectively. At December 31, 1997, the ESOP held 1,049,235 shares of the Corporation's common stock, all of which were allocated to participants. STOCK INCENTIVE PLANS. Certain employees and directors of the Corporation and its subsidiaries are eligible to receive options or restricted stock grants under the 1992 Stock Incentive Plan. A maximum of 6,000,000 shares of the Corporation's common stock may be issued through the exercise of nonstatutory or incentive stock options and as restricted stock awards. The option price is the fair value of the Corporation's shares at the date of grant. Options granted generally become exercisable in installments of 20% to 33 1/3% each year beginning one year from date of grant. Additional options under a former plan and options assumed in connection with various acquisitions remain outstanding; however, no further options will be granted under such plans. Additional information with respect to the number of shares of the Corporation's common stock which are subject to stock options is as follows:
YEARS ENDED DECEMBER 31, ------------------------------------------------------ 1997 1996 -------------------------- ------------------------- WEIGHTED- WEIGHTED- AVERAGE PRICE NUMBER AVERAGE PRICE NUMBER ------------- ---------- ------------- --------- Options Outstanding, beginning of year............... $21.26 4,406,452 $13.07 3,436,000 Granted...................................... 55.95 1,114,594 34.36 1,833,860 Exercised.................................... 12.93 (1,022,562) 15.80 (798,969) Canceled or surrendered...................... 26.18 (33,022) 16.13 (64,439) ---------- --------- Outstanding, end of year..................... 31.80 4,465,462 21.26 4,406,452 ========== ========= Options becoming exercisable during the year... $35.35 1,488,781 $15.59 1,392,244 ====== ========== ====== ========= Options exercisable at end of year............. $25.02 2,756,626 $14.08 2,311,227 ====== ========== ====== =========
Exercise prices ranged from $1.72 to $65.1875 in 1997 and from $1.72 to $39.875 in 1996. The contractual remaining life of all options was seven years at December 31, 1997. Restricted stock grants aggregating 209,000 shares were awarded in the fourth quarter of 1997 having a fair value of $7.5 million. Restrictions on the grants lapse in annual increments over twelve years. The market value of the restricted stock grants is charged to expense as the restrictions lapse. Amounts expensed for 1997 and 1996 were $490,000 and $238,000, respectively, and the ending balance at December 31, 1997 was $6.8 million, which is included in unearned compensation in shareholders' equity. Had compensation cost for the Corporation's stock option plans been consistently determined based upon the fair value at the grant date for awards under the methodology prescribed under SFAS No. 123, the Corporation's net income and earnings per share would have been reduced as shown in the table below. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions in 1997 and 1996, respectively: expected dividend yield 2.50% and 3.16%; expected volatility of 22.79% and 25.73%; risk-free interest rate of 5.89% and 5.94%; and an expected life of 4.0 years and 4.55 years. Forfeitures are recognized as they occur. 63 66 NOTE 14. EMPLOYEE BENEFIT PLANS (CONTINUED)
YEARS ENDED DECEMBER 31, ------------------ 1997 1996 ------ ------ (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) Net earnings -- as reported................................. $208.8 $171.5 Net earnings -- pro forma................................... 202.8 169.1 Earnings per share -- as reported Basic..................................................... 2.54 2.13 Diluted................................................... 2.45 2.05 Earnings per share -- pro forma Basic..................................................... 2.46 2.10 Diluted................................................... 2.38 2.02
Due to the inclusion of option grants since January 1, 1995, the effects of applying SFAS No. 123 may not be representative of the pro forma impact in future years. RETIREE HEALTHCARE AND LIFE INSURANCE. The Corporation provides certain healthcare and life insurance benefits to retired employees who had completed 20 years of unbroken full-time service immediately prior to retirement and who have attained age 60 or more. Healthcare benefits are provided partially through an insurance company (for retirees age 65 and above) and partially through direct payment of claims. The following table reflects the Corporation's net periodic postretirement benefit costs for 1997, 1996, and 1995 which were determined assuming a discount rate of 7% for 1997 and 1996 and 8% for 1995 and an expected return on Plan assets of 5%.
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 1995 ----- ----- ------ (DOLLARS IN THOUSANDS) Service cost................................................ $ 330 $ 322 $ 203 Interest cost of accumulated postretirement benefit obligation................................................ 919 938 1,005 Amortization of unrecognized net gain....................... (164) (39) (5) Return on Plan assets....................................... (458) (534) (363) ----- ----- ------ Total............................................. $ 627 $ 687 $ 840 ===== ===== ======
The following table sets forth the Plans' funded status and the amounts reported in the Corporation's consolidated balance sheet:
YEARS ENDED DECEMBER 31, ------------------ 1997 1996 ------- ------- (DOLLARS IN THOUSANDS) Fair value of Plan assets (primarily tax-free municipal obligations).............................................. $10,968 $10,927 ------- ------- Accumulated postretirement benefit obligation (APBO): Retirees.................................................. 9,109 9,326 Fully eligible Plan participants.......................... 279 253 Other active Plan participants............................ 3,608 4,287 ------- ------- Total APBO........................................ 12,996 13,866 ------- ------- APBO in excess of Plan assets..................... $(2,028) $(2,939) ======= ======= Reconciliation of funded status to reported amounts: Accrued liability included in consolidated balance sheet, including unfunded portion of transition obligation.............. $(6,413) $(6,000) Unrecognized net gain..................................... 4,385 3,061 ------- ------- APBO in excess of Plan assets..................... $(2,028) $(2,939) ======= =======
The assumed discount rate used to measure the APBO was 7% at both December 31, 1997 and 1996. The weighted average healthcare cost trend rate in 1997 was 9%, gradually declining to an 64 67 NOTE 14. EMPLOYEE BENEFIT PLANS (CONTINUED) ultimate projected rate in 2001 of 5%. A one percent increase in the assumed healthcare cost trend rates for each future year would have increased the aggregate of the service and interest cost components of the 1997 net periodic postretirement benefit cost by $138,000 and would have increased the APBO as of December 31, 1997 by $1.0 million. ACQUIRED INSTITUTIONS. Certain of the acquired institutions have sponsored various employee benefit and retirement plans. Such plans have been or are in the process of being terminated and their employees now participate in the Corporation's benefit and retirement plans. At December 31, 1997, certain institutions acquired in 1997 had outstanding plans including defined benefit pension plans, 401(k) plans, and ESOPs. The liabilities, if any, for such terminations have been recorded as of December 31, 1997. Included in unearned compensation in shareholders' equity at December 31, 1997 and 1996, respectively, is $2.8 million and $3.2 million for a leveraged ESOP maintained by an acquired institution. At December 31, 1997, the ESOP held 420,900 unallocated shares of the Corporation's common stock which will be allocated to the appropriate participants as the related debt is paid. Effective January 1, 1998, this ESOP was merged with the Corporation's ESOP. NOTE 15. INCOME TAXES The components of income tax expense are as follows:
YEARS ENDED DECEMBER 31, ------------------------------ 1997 1996 1995 -------- -------- -------- (DOLLARS IN THOUSANDS) CURRENT TAX EXPENSE Federal................................................... $103,644 $112,545 $102,010 State..................................................... 9,752 16,694 11,599 -------- -------- -------- Total current tax expense......................... 113,396 129,239 113,609 -------- -------- -------- DEFERRED TAX (BENEFIT) EXPENSE Federal................................................... (3,524) (29,540) (4,358) State..................................................... 2,025 (6,584) 1,548 -------- -------- -------- Total deferred tax benefit............................. (1,499) (36,124) (2,810) -------- -------- -------- Total income tax.................................. $111,897 $ 93,115 $110,799 ======== ======== ========
Deferred tax assets/liabilities are comprised of the following:
DECEMBER 31, ------------------- 1997 1996 -------- -------- (DOLLARS IN THOUSANDS) DEFERRED TAX ASSETS Losses on loans and other real estate..................... $ 76,245 $ 69,405 Postretirement and postemployment benefits................ 5,273 3,454 Amortization of intangibles............................... 11,665 10,970 Deferred compensation plans............................... 12,449 6,854 Merger-related and charter consolidation expenses......... 6,340 8,088 Allowance for losses on FHA/VA foreclosure claims......... 8,895 12,325 Mortgage servicing rights................................. 5,642 7,646 Other deferred items...................................... 17,492 21,195 -------- -------- Total deferred tax assets......................... 144,001 139,937 -------- -------- DEFERRED TAX LIABILITIES Basis difference on FHLB stock............................ 12,729 8,773 Unrealized gain on available for sale securities.......... 24,199 14,772 Other deferred items...................................... 12,306 21,059 -------- -------- Total deferred tax liabilities ................... 49,234 44,604 -------- -------- Deferred tax asset, net........................... $ 94,767 $ 95,333 ======== ========
65 68 NOTE 15. INCOME TAXES (CONTINUED) The change in the net deferred tax asset during the year is a result of the addition of net deferred tax assets of acquired companies, the net change in unrealized gain on available for sale securities, and the current period deferred tax benefit. A reconciliation of income tax expense computed at the applicable statutory income tax of 35% to actual income tax expense is computed below:
YEARS ENDED DECEMBER 31, ------------------------------ 1997 1996 1995 -------- -------- -------- (DOLLARS IN THOUSANDS) Computed "expected" tax..................................... $112,230 $ 92,606 $112,719 State income taxes, net of federal tax benefit.............. 7,655 6,467 8,580 Tax-exempt interest, net.................................... (10,750) (11,619) (12,225) Other, net.................................................. 2,762 5,661 1,725 -------- -------- -------- Applicable income tax............................. $111,897 $ 93,115 $110,799 ======== ======== ========
Income tax expense (benefit) applicable to securities transactions was $819,000 for 1997, $1.6 million for 1996, and ($508,000) for 1995. NOTE 16. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share," which became effective for reporting periods ending after December 15, 1997. Under the provisions of SFAS No. 128, primary and fully diluted earnings per share were replaced with basic and diluted earnings per share in an effort to simplify the computation of these measures and align them more closely with the methodology used internationally. Basic earnings per share is arrived at by dividing net earnings available to common shareholders by the weighted-average number of common shares outstanding and does not include the impact of any potentially dilutive common stock equivalents. The diluted earnings per share calculation method is similar to, but slightly different from, the previously required fully diluted earnings per share method and is arrived at by dividing net earnings less dividends on nonconvertible preferred stock by the weighted-average number of shares outstanding, adjusted for the dilutive effect of outstanding stock options and the conversion impact of convertible equity securities. For purposes of comparability, all prior-period earnings per share data have been restated. 66 69 NOTE 16. EARNINGS PER SHARE (CONTINUED) The calculation of net earnings per share follows:
YEARS ENDED DECEMBER 31, ----------------------------------------- 1997 1996 1995 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) BASIC: Net earnings...................................... $ 208,761 $ 171,474 $ 211,256 Less preferred dividends....................... 4,939 6,944 8,612 ----------- ----------- ----------- Net earnings applicable to common shares.......... $ 203,822 $ 164,530 $ 202,644 =========== =========== =========== Average common shares outstanding................. 80,336,267 77,239,792 72,512,168 =========== =========== =========== Net earnings per common share -- basic............ $ 2.54 $ 2.13 $ 2.79 =========== =========== =========== DILUTED: Net earnings...................................... $ 208,761 $ 171,474 $ 211,256 Less dividends on nonconvertible preferred stock........................................ -- -- 1,361 ----------- ----------- ----------- Net earnings applicable to common shares.......... $ 208,761 $ 171,474 $ 209,895 =========== =========== =========== Average common shares outstanding................. 80,336,267 77,239,792 72,512,168 Stock option adjustment........................... 1,562,382 1,863,871 1,690,291 Preferred stock adjustment........................ 3,296,688 4,438,833 4,595,262 ----------- ----------- ----------- Average common shares outstanding................. 85,195,337 83,542,496 78,797,721 =========== =========== =========== Net earnings per common share -- diluted.......... $ 2.45 $ 2.05 $ 2.66 =========== =========== ===========
NOTE 17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK In the normal course of business, the Corporation becomes a party to various types of financial instruments in order to meet the financing needs of its customers and to reduce its exposure to fluctuations in interest rates. These instruments involve, to varying degrees, elements of credit and interest-rate risk and are not reflected in the accompanying consolidated financial statements. For these instruments, the exposure to credit loss is limited to the contractual amount of the instrument. The Corporation follows the same credit policies in making commitments and contractual obligations as it does for on-balance-sheet instruments. In addition, controls for these instruments related to approval, monetary limits, and monitoring procedures are established by the Corporation's Directors' Loan Committee. The following table presents the contractual amounts of these types of instruments.
CONTRACT AMOUNT DECEMBER 31, ------------------ 1997 1996 ------ ------ (DOLLARS IN MILLIONS) FINANCIAL INSTRUMENTS WHOSE CONTRACT AMOUNTS REPRESENT CREDIT RISK Commitments to extend credit (excluding credit card plans)................................................ $1,705 $1,387 Commitments to extend credit under credit card plans... 2,209 1,773 Standby, commercial, and similar letters of credit..... 190 200
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 $3.3 billion and loan commitments with a maturity over one year which are not unconditionally cancelable totaled $655 million. Letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Corporation in some 67 70 NOTE 17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED) cases holds various types of collateral to support those commitments for which collateral is deemed necessary. The outstanding letters of credit expire between 1998 and 2008. 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, ---------------------- 1997 1996 ------- ------- (DOLLARS IN MILLIONS) FINANCIAL INSTRUMENTS WHOSE NOTIONAL CONTRACT AMOUNTS EXCEED THE AMOUNTS OF ACTUAL CREDIT RISK Forward contracts...................................... $333 $ 87 When-issued securities Commitments to sell.................................. 61 142 Commitments to purchase.............................. 79 108
Forward contracts are contracts for delayed delivery of securities or money market instruments in which the seller agrees to make delivery at a specified future date of a specified instrument, at a specified price or yield. Risks arise from the possible inability of the counterparties to meet the terms of their contracts and from market movements in securities values and interest rates. The Corporation as seller utilizes short-term forward commitments to deliver mortgages to protect the Corporation against the risk of rate changes which could impact the value of mortgage originations to be securitized or otherwise sold to investors. Such commitments to deliver mortgages generally have maturities of 90 days or less. The Corporation has a policy for its use of derivative products, including interest-rate swaps, which has been approved and is monitored by the Funds Management Committee and the Board of Directors. The Corporation is not currently trading derivative products. The policy requires that individual positions for derivative products shall not exceed $100-million notional amount and that open positions in the aggregate shall not exceed 10% of consolidated total assets. Any exceptions to the policy must be approved by the Board of Directors. The policy requires open positions to be reviewed monthly by the Funds Management Committee to ensure compliance with established policies. At December 31, 1997, the Corporation had no interest-rate swap/cap agreements outstanding. The following table provides a reconciliation of interest-rate swaps/cap for 1996.
NOTIONAL AMOUNT --------------------- (DOLLARS IN MILLIONS) BALANCE AT JANUARY 1, 1996.................................. $ 530 Maturities................................................ (200) Interest-rate swaps/cap of acquired entities terminated at acquisition as the instruments were no longer effective.............................................. (330) ----- BALANCE AT DECEMBER 31, 1996................................ $ -- =====
The impact on the Corporation's net interest income of the interest-rate swaps/cap outstanding was a net reduction of approximately $1.5 million in 1996 and $2.9 million in 1995. The impact of the termination of the interest-rate swaps/cap related to an acquired entity was a $1.1 million loss which was recorded in noninterest expense in 1996. When-issued securities are commitments to either purchase or sell securities when, as, and if they are issued. The trades are contingent upon the actual issuance of the security. These transactions represent conditional commitments made by the Corporation and risk arises from the possible inability of the counterparties to meet the terms of their contracts and from market movements in securities values and interest rates. MORTGAGE LOAN SERVICING. The Corporation was acting as servicing agent for residential mortgage loans totaling approximately $13.4 billion ($10.6 billion serviced for others) at December 31, 1997 compared to $14.6 billion ($11.9 billion serviced for others) at December 31, 1996. The loans serviced 68 71 NOTE 17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED) for others are not included in the Corporation's consolidated balance sheet. The following table presents a reconciliation of the changes in mortgage servicing rights for the two years ended December 31, 1997.
YEARS ENDED DECEMBER 31, -------------------- 1997 1996 -------- -------- (DOLLARS IN THOUSANDS) Beginning balance........................................... $ 66,993 $ 67,481 Additions................................................... 11,762 22,619 Sale of servicing rights.................................... -- (841) Write-off of servicing rights............................... -- (4,016) Amortization of servicing rights............................ (17,409) (18,250) -------- -------- Ending balance.............................................. $ 61,346 $ 66,993 ======== ========
In its capacity as servicer of certain of these loans, the Corporation is responsible for foreclosure and the related costs of foreclosure. These costs are estimated each period based on historical loss experience and are shown as provisions for losses on FHA/VA foreclosure claims in noninterest expense. At December 31, 1997 and 1996, the Corporation had reserves for these losses of $33.3 million and $37.2 million, respectively. In the normal course of business, the Corporation sells mortgage loans and makes certain limited representations and warranties to the purchaser. Management does not expect any significant losses to arise from these representations and warranties. CONCENTRATIONS OF CREDIT RISK. Through its subsidiary banks' offices in Tennessee, Mississippi, Florida, Missouri, Arkansas, Louisiana, Alabama, and Kentucky, the Corporation grants commercial, agricultural, residential, and consumer loans to customers throughout those states. The amount and percentage of total loans outstanding by the state in which the subsidiaries were headquartered at December 31, 1997 were as follows: Tennessee $6.3 billion (50%); Mississippi $2.4 billion (19%); Florida $1.6 billion (13%); Missouri $884 million (7%); Arkansas $520 million (4%); Louisiana $509 million (4%); Alabama $335 million (2%); and Kentucky $88 million (1%). In connection with its acquisition of Capital-Miami, the Corporation now has exposure related to foreign lending of approximately $207 million (2%). Although the Corporation has a diversified loan portfolio, the ability of its debtors to honor their contracts is to some extent dependent upon economic conditions prevailing throughout the above and surrounding areas. 69 72 NOTE 18. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values and fair values of the Corporation's financial instruments are summarized as follows:
DECEMBER 31, 1997 DECEMBER 31, 1996 ------------------------- ------------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) FINANCIAL ASSETS Cash and short-term investments........... $ 950,154 $ 950,154 $ 1,015,528 $ 1,015,528 Trading account assets.................... 187,419 187,419 260,266 260,266 Loans held for resale..................... 170,742 170,742 109,156 109,156 Investment securities -- available for sale................................... 3,247,680 3,247,680 3,387,217 3,387,217 Net loans................................. 12,433,175 12,480,320 12,389,453 12,433,205 Mortgage servicing rights................. 61,346 111,582 66,993 105,913 FINANCIAL LIABILITIES Noninterest-bearing....................... $ 2,323,367 $ 2,323,367 $ 2,223,112 $ 2,223,112 Interest-bearing.......................... 11,116,902 11,142,252 11,291,032 11,305,361 Short-term borrowings..................... 831,627 831,627 696,051 696,051 Short- and medium-term notes.............. 135,000 136,918 400,000 400,411 Federal Home Loan Bank advances........... 703,996 702,961 985,042 987,102 Other long-term debt, excluding capital lease obligations...................... 709,762 723,268 584,342 578,116 OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS Forward contracts......................... -- (1,037) -- 19
The following methods and assumptions were used by the Corporation in estimating the fair value for financial instruments: CASH AND SHORT-TERM INVESTMENTS. The carrying amount for cash and short-term investments approximates the fair value of the assets. Included in this classification are cash and due from banks (non-earning assets), federal funds sold, securities purchased under agreements to resell, and interest- bearing deposits at financial institutions. TRADING ACCOUNT ASSETS. These instruments are carried in the consolidated balance sheet at values which approximate their fair values based on quoted market prices of similar instruments. LOANS HELD FOR RESALE. These instruments are carried in the consolidated balance sheet at the lower of cost or fair value. The fair values of these instruments are based on subsequent liquidation values of the instruments which did not result in any significant gains or losses. INVESTMENT SECURITIES. Fair values of these instruments are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on the quoted values of similar instruments. LOANS. The fair values of loans are estimated using discounted cash flow analyses and using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality and risk. MORTGAGE SERVICING RIGHTS. The fair values of mortgage servicing rights are estimated using discounted cash flow analyses. DEPOSITS. The fair values of demand deposits (i.e., checking accounts, savings accounts, money market deposit accounts, and NOW accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount). The fair values of time deposits (i.e., certificates of deposit, IRAs, investment savings, etc.) are estimated using a discounted cash flow calculation that applies interest rates currently being offered on these instruments to a schedule of aggregated expected monthly maturities on time deposits. SHORT-TERM BORROWINGS. The carrying amount of short-term borrowings (i.e., federal funds purchased, securities sold under agreements to repurchase, commercial paper, and other short-term borrowings) approximates their fair values. 70 73 NOTE 18. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) SHORT- AND MEDIUM-TERM BANK NOTES. The fair value of these notes is estimated using discounted cash flow analyses and using current LIBOR-based indices. FEDERAL HOME LOAN BANK ADVANCES. The fair value of these advances is estimated using discounted cash flow analyses and using the FHLB-quoted rates of borrowing for advances with similar terms. OTHER LONG-TERM DEBT. The fair value of long-term debt was estimated from dealer quotes. 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 19. CONTINGENT LIABILITIES The Corporation and/or various subsidiaries are parties to various pending civil actions, all of which are being defended vigorously. Additionally, the Corporation and/or its subsidiaries are parties to various legal proceedings that have arisen in the ordinary course of business. Management is of the opinion, based upon present information, including evaluations by outside counsel, that neither the Corporation's financial position, results of operations, nor liquidity will be materially affected by the ultimate resolution of pending or threatened legal proceedings. The Corporation's five banks (UPC Banks) located in Mississippi (which were merged into UPB January 1, 1998) are defendants in various related lawsuits pending in state and federal courts in Mississippi related to the placement of collateral protection insurance (CPI) by the UPC Banks in the 1980s and early 1990s. Two of the federal actions, which have been consolidated (the Consolidated Action), purport to have been brought as class actions and include allegations that premiums were excessive and improperly calculated; coverages were improper and not disclosed; and improper payments were paid to the UPC Banks by the insurance companies, allegedly constituting violations of various state and federal statutes and common law. The CPI programs appear to have been substantially similar in many respects to CPI programs of other Mississippi banks, often with the same insurance companies. Consequently, there are now similar putative class actions pending against various Mississippi banks (including those against the UPC Banks), various insurance agencies and companies based upon their CPI programs. The relief sought in the purported class actions includes actual damages, treble damages under certain statutes, other statutory damages, and unspecified punitive damages. During the fourth quarter of 1997, an agreement in principle was reached by the UPC Banks with attorneys for the putative class to settle the Consolidated Action within amounts previously established. Final settlement is subject to execution of a definitive agreement, court approval, and the UPC Banks' acceptance of the number of opt-outs from the class settlement. Other subsidiaries of the Corporation have been involved in similar litigation relating to CPI on mobile home loans. One such suit was filed as a putative class action in June 1995 against Leader Federal Bank for Savings (Leader Federal) and eighteen other unrelated defendants, requesting $200 million in punitive damages against each defendant. Another individual suit filed in June 1995 against Leader Federal as a counterclaim to a foreclosure suit demanded judgment for compensatory damages and punitive damages of $10 million. An agreement to settle these cases was reached, and court approval obtained, in the fourth quarter of 1996, within amounts previously established. Payments to class members were substantially completed during 1997. Two other CPI-related actions were filed against Leader Federal, a subsidiary, and an unrelated insurance company in January 1996. One such case demanded compensatory damages of $5,000 and punitive damages of $20 million, while the other sought $10,000 in compensatory damages and $50 million in punitive damages. These suits were settled during 1997 for nominal amounts. 71 74 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 JAMES A. GURLEY Executive Vice President Risk Management J. ARMISTEAD SMITH 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. EDGAR H. BAILEY Vice Chairman Union Planters Corporation MARVIN E. BRUCE Chairman TBC Corporation GEORGE W. BRYAN Senior Vice President Sara Lee Corporation JAMES E. HARWOOD President Sterling Equities PARNELL S. LEWIS, JR. President Anderson-Tully Company C. J. LOWRANCE III President Lowrance Brothers & Company Inc. JACKSON W. MOORE President and Chief Operating Officer Union Planters Corporation and Union Planters Bank, N.A. STANLEY D. OVERTON Chairman (Retired) Union Planters Bank of Middle Tennessee, N.A. BENJAMIN W. RAWLINS, JR. Chairman and Chief Executive Officer Union Planters Corporation and Union Planters Bank, N.A. DR. V. LANE RAWLINS President The University of Memphis DONALD F. SCHUPPE DFS Service Company MIKE P. STURDIVANT President Due West Gin Co., Inc. 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 75 [LOGO] UNION PLANTERS CORPORATION CORPORATE INFORMATION ANNUAL MEETING Thursday, April 16, 1998 at 10 a.m. Union Planters Administrative Center Assembly Room C 7130 Goodlett Farms Parkway Memphis, Tennessee 38018 CORPORATE OFFICES 7130 Goodlett Farms Parkway Memphis, Tennessee 38018 CORPORATE MAILING ADDRESS P. O. Box 387 Memphis, Tennessee 38147 INTERNET: http://www.unionplanters.com TRANSFER AGENT AND REGISTRAR Union Planters Bank, N.A. Corporate Trust Operations 6200 Poplar Avenue, Suite 300 Memphis, Tennessee 38119 (901) 580-5523 DIVIDEND PAYING AGENT Union Planters Bank, N.A. Corporate Trust Operations 6200 Poplar Avenue, Suite 300 Memphis, Tennessee 38119 (901) 580-5523 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 INDEPENDENT ACCOUNTANTS Price Waterhouse LLP FOR FINANCIAL INFORMATION, CONTACT Jack W. Parker Executive Vice President and Chief Financial Officer (901) 580-6781 FORM 10-K Copies of the Corporation's Annual Report on Form 10-K as filed with the Securities and Exchange Commission are available on request by calling the Corporate Marketing Division at (901) 580-6604. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN The Plan allows Union Planters shareholders to reinvest their dividends in Union Planters Common Stock. No brokerage commissions or service charges are paid by shareholders. The Plan also permits those participating in the Plan to buy additional shares with optional cash payments and no brokerage commissions. Full details are available by calling (901) 580-5516 or writing Union Planters Corporate Trust Operations. The Corporation's banking subsidiaries are members of the FDIC and are Equal Housing Lenders. UPC and its subsidiaries are Equal Opportunity Employers. [LOGO] 76 UNION PLANTERS CORPORATION P.O. BOX 387 MEMPHIS, TENNESSEE 38147 EX-21 4 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 Page 1 of 2 UNION PLANTERS CORPORATION, Registrant, A registered bank 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% Planters Investment Corporation, Inc. (c) Arkansas 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% Magna Insurance Company (c) Mississippi 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, P.C. (e) Mississippi 100.00% indirectly PFIC Mississippi Agency, Inc. (e) Mississippi 100.00% PFIC Michigan Agency, Inc. (e) Michigan 100.00% PFIC Wisconsin Agency, Inc. (e) Wisconsin 100.00% PFIC Louisiana Agency, Inc. (e) Louisiana 100.00% PFIC Missouri Agency, Inc. (e) Missouri 100.00% PFIC Virginia Agency, Inc. (e) Virginia 100.00% PFIC Oregon Agency, Inc. (e) Oregon 100.00% PFIC Ohio Agency, Inc. (e) Ohio 100.00% PFIC Nevada Agency, Inc. (e Nevada 100.00% PFIC New York Agency, Inc. (e) New York 100.00% PFIC Tennessee Agency, Inc. (e) Tennessee 100.00% Navigator Agency Incorporated (e) Texas 100.00% indirectly Union Planters Mortgage Finance Corporation (c) Delaware 100.00% First North Central Insurance, Inc. (c and g) Arkansas 100.00% Colonial Loan Association (c) Tennessee 100.00% Union Planters Insurance Agency, Inc. (c) Tennessee 100.00% Magna Mortgage Company (c) Mississippi 100.00% Union Planters Insurance Agency of Mississippi, Inc. (c) Mississippi 100.00% Capital Equity Corporation (c) Louisiana 100.00% First Financial Automation, Inc. (c) Missouri 100.00% First Savings Financial Corporation (c) Missouri 100.00% Millcreek Development Partnership, LP (c) Tennessee 49.50% Planters Life Insurance Company (c) Arizona 100.00% Union Planters Bank of Florida (b) Florida 100.00% Capital Finance Group, Inc. (j) Florida 100.00% Capital Insurance Group, Inc. (j) Florida 100.00% Villages at Imperial Lakes, Inc. (j) Florida 100.00% Cap Holdings, Inc. (j and g) Florida 100.00% Bay Estates, Inc. (j and g) Florida 100.00% Cap Personalty, Inc. (j) Florida 100.00% Cap Realty, Inc. (j) Florida 100.00% Cap Harbor, Inc. (j and g) Florida 100.00% Cap Temp, Inc. (j and g) Florida 100.00% Cap Properties, Inc. (j and g) Texas 100.00% Colonial Apartments LTD (j) Florida 98.00% Interdevco, Inc. (j) Florida 40.00% Capital Factors Holding, Inc. (j) Florida 81.00% Capital Factors, Inc. (k) Florida 100.00% CF Funding Corp. (l) Delaware 100.00% Capital Tempfunds, Inc. (l) North Carolina 100.00% CF One, Inc. (k) Delaware 100.00% CF Investor Corp. (k) Delaware 100.00% CF Two, LLC (m) Delaware 100.00%
2 EXHIBIT 21 Page 2 of 2 UNION PLANTERS CORPORATION, Registrant, A registered bank holding company
STATE OR PERCENTAGE JURISDICTION OF VOTING UNDER LAWS OF SECURITIES NAME OF REGISTRANT AND SUBSIDIARIES WHICH ORGANIZED OWNED - ----------------------------------- --------------- ---------- Selmer Bank and Trust Co. (a) Tennessee 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 Tennessee FSB (a) United States 100.00% Union Planters Investment Bankers Corporation (a and g) Tennessee 100.00% Union Planters Investment Bankers Group, Inc. (i and g) Tennessee 100.00% UMIC, Inc. (i and g) Tennessee 100.00% UMIC Securities Corporation (i and g) Tennessee 100.00% Southwestern Investment Company (a and g) Tennessee 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 (h) Subsidiary of Union Planters Bank of the Lakeway Area (i) Subsidiary of Union Planters Investment Bankers Corporation (j) Subsidiary of Union Planters Bank of Florida (k) Subsidiary of Capital Factors Holding, Inc. (l) Subsidiary of Capital Factors, Inc. (m) Subsidiary of CF Investor Corp. EX-23 5 CONSENT OF PRICE WATERHOUSE 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the previously filed Registration Statements on Form S-3 (Nos. 333-02377, 333-11817, and 33-27814) and Form S-8 (Nos. 333-41089, 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 15, 1998, except as to Note 2 which is as of March 3, 1998, appearing on page 41 of the Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. /s/PRICE WATERHOUSE LLP Memphis, Tennessee March 17, 1998 EX-27 6 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF UNION PLANTERS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 816,472 24,490 109,192 187,419 3,247,680 0 0 12,829,306 225,389 18,105,079 13,440,269 831,627 536,413 1,549,904 0 54,709 408,255 1,283,902 18,105,079 1,173,744 216,253 26,697 1,416,694 494,517 646,309 770,385 113,633 2,104 697,704 320,658 320,658 0 0 208,761 2.54 2.45 8.73 109,378 540,755 10,021 17,547 189,118 99,066 18,471 225,389 222,239 3,150 0
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