UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period to
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Commission File No. 1-10160
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UNION PLANTERS CORPORATION
(Exact name of registrant as specified in its charter)
Tennessee 62-0859007
------------------------- ---------------------------------
(State of incorporation) (IRS Employer Identification No.)
Union Planters Administrative Center
7130 Goodlett Farms Parkway
Memphis, Tennessee 38016
----------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (901) 580-6000
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at October 31, 2001
------------------------- -------------------------------
Common stock $5 par value 137,375,559
UNION PLANTERS CORPORATION AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
a) Consolidated Balance Sheet - September 30, 2001,
September 30, 2000, and December 31, 2000......................................................................3
b) Consolidated Statement of Earnings -
Three and Nine Months Ended September 30, 2001 and 2000........................................................4
c) Consolidated Statement of Changes in Shareholders' Equity -
Nine Months Ended September 30, 2001 ..........................................................................5
d) Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 2001 and 2000..................................................................6
e) Notes to Unaudited Consolidated Financial Statements...........................................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................................................16
Item 3. Quantitative and Qualitative Disclosures about Market Risk....................................................35
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................................38
Item 2. Changes in Securities.........................................................................................38
Item 3. Defaults Upon Senior Securities...............................................................................38
Item 4. Submission of Matters to a Vote of Security Holders...........................................................38
Item 5. Other Information.............................................................................................38
Item 6. Exhibits and Reports on Form 8-K..............................................................................38
Signatures..............................................................................................................39
2
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30,
--------------------------------- DECEMBER 31,
2001 2000 2000
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
ASSETS
Cash and due from banks ......................................... $ 762,923 $ 898,845 $ 1,018,318
Interest-bearing deposits at financial institutions ............. 47,293 64,381 43,525
Federal funds sold and securities purchased under agreements
to resell...................................................... 52,539 54,732 36,384
Trading account assets .......................................... 237,292 264,294 233,878
Loans held for resale ........................................... 1,226,839 377,012 457,107
Available for sale securities (Amortized cost: $4,981,800,
$7,062,938, and $6,849,457, respectively) ..................... 5,123,428 6,920,432 6,843,670
Loans ........................................................... 23,882,954 23,476,109 23,982,237
Less: Unearned income ......................................... (21,331) (26,679) (24,743)
Allowance for losses on loans ........................... (342,194) (340,453) (335,452)
----------- ----------- -----------
Net loans .................................................. 23,519,429 23,108,977 23,622,042
Premises and equipment, net ..................................... 577,608 613,633 602,218
Accrued interest receivable ..................................... 266,763 301,279 304,488
FHA/VA claims receivable ........................................ 62,281 79,838 84,015
Mortgage intangibles ............................................ 162,612 126,051 123,940
Goodwill ........................................................ 799,001 808,120 793,831
Other intangibles ............................................... 155,945 162,955 158,558
Other assets .................................................... 392,888 482,040 398,744
----------- ----------- -----------
TOTAL ASSETS ............................................ $33,386,841 $34,262,589 $34,720,718
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing .......................................... $ 4,239,866 $ 3,979,560 $ 4,064,298
Certificates of deposit of $100,000 and over ................. 1,817,284 2,575,543 2,453,621
Other interest-bearing ....................................... 17,441,908 16,528,571 16,595,464
----------- ----------- -----------
Total deposits .......................................... 23,499,058 23,083,674 23,113,383
Short-term borrowings ........................................... 3,224,990 5,993,766 6,086,896
Short- and medium-term senior notes ............................. 20,000 260,000 60,000
Federal Home Loan Bank advances ................................. 1,461,530 601,291 1,101,619
Other long-term debt ............................................ 1,275,780 793,652 777,352
Accrued interest, expenses, and taxes ........................... 281,705 363,275 308,241
Other liabilities ............................................... 412,947 369,385 353,173
----------- ----------- -----------
TOTAL LIABILITIES ....................................... 30,176,010 31,465,043 31,800,664
----------- ----------- -----------
Commitments and contingent liabilities (Note 13) ................ -- -- --
Shareholders' equity
Convertible preferred stock ................................... 16,478 19,942 19,691
Common stock, $5 par value; 300,000,000 shares authorized;
137,357,256 issued and outstanding (134,756,611 at September
30, 2000, and 134,734,841 at December 31, 2000) ............. 686,786 673,783 673,674
Additional paid-in capital .................................... 878,083 754,153 754,380
Retained earnings ............................................. 1,553,309 1,458,488 1,493,072
Unearned compensation ......................................... (13,472) (18,499) (16,922)
Accumulated other comprehensive income--unrealized gain (loss)
on available for sale securities, net ....................... 89,647 (90,321) (3,841)
----------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY .............................. 3,210,831 2,797,546 2,920,054
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............. $33,386,841 $34,262,589 $34,720,718
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
3
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INTEREST INCOME
Interest and fees on loans ............................ $ 475,446 $ 525,187 $1,507,139 $1,495,183
Interest on investment securities
Taxable ............................................. 63,511 94,746 223,478 294,928
Tax-exempt .......................................... 14,656 16,026 45,107 49,132
Interest on deposits at financial institutions ........ 409 825 1,546 1,632
Interest on federal funds sold and securities
purchased under agreements to resell ................ 853 1,511 1,856 4,118
Interest on trading account assets .................... 3,418 4,266 12,064 12,682
Interest on loans held for resale ..................... 21,773 6,493 52,006 19,111
---------- ---------- ---------- ----------
Total interest income ......................... 580,066 649,054 1,843,196 1,876,786
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits .................................. 184,837 221,519 609,196 612,081
Interest on short-term borrowings ..................... 30,025 96,860 160,542 267,937
Interest on long-term debt ............................ 42,526 26,667 123,590 66,658
---------- ---------- ---------- ----------
Total interest expense ........................ 257,388 345,046 893,328 946,676
---------- ---------- ---------- ----------
NET INTEREST INCOME ........................... 322,678 304,008 949,868 930,110
PROVISION FOR LOSSES ON LOANS ........................... 41,933 19,939 96,133 56,941
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
LOSSES ON LOANS ............................ 280,745 284,069 853,735 873,169
---------- ---------- ---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts ................... 53,694 47,451 163,401 134,149
Mortgage banking revenue .............................. 51,279 27,823 138,689 75,207
Merchant servicing income ............................. 10,430 9,320 31,392 27,133
Factoring commissions and fees ........................ 9,620 9,831 28,700 28,778
Trust service income .................................. 6,954 6,043 21,026 19,275
Profits and commissions from trading activities ....... 1,339 1,598 6,226 4,314
Investments and insurance ............................. 13,544 11,014 37,199 37,329
Investment securities gains ........................... 580 -- 8,934 77
Other income .......................................... 48,901 34,265 112,859 87,152
---------- ---------- ---------- ----------
Total noninterest income ...................... 196,341 147,345 548,426 413,414
---------- ---------- ---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits ........................ 139,062 133,775 404,575 390,073
Net occupancy expense ................................. 26,665 23,536 78,380 70,485
Equipment expense ..................................... 22,026 20,904 66,649 63,308
Goodwill amortization ................................. 12,089 11,700 36,184 34,501
Other intangibles amortization ........................ 4,240 4,451 12,968 13,359
Other expense ......................................... 103,509 84,704 307,500 254,934
---------- ---------- ---------- ----------
Total noninterest expense ..................... 307,591 279,070 906,256 826,660
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES .................. 169,495 152,344 495,905 459,923
Applicable income taxes ................................. 57,491 50,763 168,209 154,120
---------- ---------- ---------- ----------
NET EARNINGS .................................. $ 112,004 $ 101,581 $ 327,696 $ 305,803
========== ========== ========== ==========
NET EARNINGS APPLICABLE TO COMMON SHARES ...... $ 111,703 $ 101,182 $ 326,630 $ 304,590
========== ========== ========== ==========
EARNINGS PER COMMON SHARE (NOTE 10)
Basic ......................................... $ .81 $ .75 $ 2.38 $ 2.25
Diluted ....................................... .81 .75 2.37 2.24
AVERAGE COMMON SHARES OUTSTANDING (IN THOUSANDS)
Basic ......................................... 137,198 134,678 136,931 135,337
Diluted ....................................... 138,887 136,130 138,560 136,821
The accompanying notes are an integral part of these consolidated financial
statements.
4
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
UNREALIZED
GAIN (LOSS)
ON
CONVERTIBLE ADDITIONAL AVAILABLE
PREFERRED COMMON PAID-IN RETAINED UNEARNED FOR SALE
STOCK STOCK CAPITAL EARNINGS COMPENSATION SECURITIES TOTAL
----------- ------ ---------- -------- ------------ ----------- ----------
(DOLLARS IN THOUSANDS)
BALANCE, JANUARY 1, 2001 ........ $19,691 $673,674 $754,380 $1,493,072 $(16,922) $(3,841) $2,920,054
Comprehensive income
Net earnings .................. -- -- -- 327,696 -- -- 327,696
Other comprehensive income,
net of taxes:
Net change in the
unrealized gain (loss)
on available for sale
securities ............... -- -- -- -- -- 93,488 93,488
----------
Total comprehensive
income.............. 421,184
Cash dividends
Common stock, $1.50 per share . -- -- -- (204,568) -- -- (204,568)
Preferred stock, $1.50 per .... -- -- -- (1,066) -- -- (1,066)
share
Common stock issued under
employee benefit plans,
net of stock exchanged ........ -- 1,952 14,189 (3) 3,450 -- 19,588
Conversion of preferred stock ... (3,213) 803 2,410 -- -- -- --
Common stock purchased
and retired ................... -- (11,500) (14,370) (61,822) -- -- (87,692)
Issuance of stock for
acquisitions .................. -- 21,857 121,474 -- -- -- 143,331
------- -------- -------- ---------- -------- ------- ----------
BALANCE, SEPTEMBER 30, 2001 ..... $16,478 $686,786 $878,083 $1,553,309 $(13,472) $89,647 $3,210,831
======= ======== ======== ========== ======== ======= ==========
BEFORE TAX TAX NET OF TAX
AMOUNT BENEFIT AMOUNT
---------- ---------- ----------
DISCLOSURE OF RECLASSIFICATION AMOUNT:
Change in the unrealized gain (loss)
on available for sale securities
arising during the period .................................... $ 156,349 $ (57,402) $ 98,947
Less: reclassification for gains
included in net income ................................ 8,934 (3,475) 5,459
---------- ---------- ---------
Net change in the unrealized gain
(loss) on available for sale securities ....................... $ 147,415 $ (53,927) $ 93,488
========== ========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
5
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
2001 2000
-------------- --------------
(DOLLARS IN THOUSANDS)
OPERATING ACTIVITIES
Net earnings......................................................... $ 327,696 $ 305,803
Reconciliation of net earnings to net cash (used) provided by
operating activities:
Provision for losses on loans, other real estate, and FHA/VA
foreclosure claims............................................. 99,751 58,610
Depreciation and amortization of premises and equipment............ 58,582 59,546
Amortization of goodwill and other intangibles..................... 49,152 47,860
Mortgage intangible expense........................................ 30,088 14,570
Net amortization (accretion) of investment securities.............. 6,765 (1,560)
Net realized gains on sales of investment securities............... (8,934) (77)
Gain on sale of loans.............................................. (21,555) (5,457)
Gain on sale of branches........................................... (20,716) --
Deferred income tax expense........................................ 27,094 15,105
(Increase) decrease in assets
Trading account assets and loans held for resale............... (773,146) 105,118
Other assets................................................... 43,179 85,246
Increase in accrued interest, expenses, taxes, and other
liabilities..................................................... 10,100 119,752
Other, net......................................................... 3,112 11,114
---------- ----------
Net cash (used) provided by operating activities............. (168,832) 815,630
---------- ----------
INVESTING ACTIVITIES
Net decrease in short-term investments............................... 1,751 8,683
Proceeds from sales of available for sale securities................. 1,115,352 424,954
Proceeds from maturities, calls, and prepayments of available for
sale securities................................................... 1,003,418 834,586
Purchases of available for sale securities........................... (207,125) (636,909)
Net decrease (increase) in loans..................................... 56,358 (2,853,013)
Net cash received from (paid for) acquired institutions.............. 61,970 (39,620)
Proceeds from sale of loans.......................................... 1,172,601 767,711
Purchases of premises and equipment, net............................. (25,300) (34,159)
---------- ----------
Net cash provided (used) by investing activities............. 3,179,025 (1,527,767)
---------- ----------
FINANCING ACTIVITIES
Net decrease in deposits............................................. (189,480) (287,276)
Net (decrease) increase in short-term borrowings..................... (2,870,466) 771,262
Proceeds from long-term debt......................................... 1,467,415 600,000
Repayment of long-term debt.......................................... (1,190,820) (263,317)
Proceeds from issuance of common stock............................... 17,195 13,238
Purchase and retirement of common stock.............................. (87,692) (142,266)
Net cash paid for sale of branches and related assets and
liabilities........................................................ (189,908) --
Cash dividends paid.................................................. (205,677) (204,946)
---------- ----------
Net cash (used) provided by financing activities............. (3,249,433) 486,695
---------- ----------
Net decrease in cash and cash equivalents............................ (239,240) (225,442)
Cash and cash equivalents at the beginning of the period............. 1,054,702 1,179,019
---------- ----------
Cash and cash equivalents at the end of the period................... $ 815,462 $ 953,577
========== ==========
SUPPLEMENTAL DISCLOSURES
Cash paid for
Interest........................................................... $ 965,445 $ 872,800
Income taxes ...................................................... 131,540 56,124
Unrealized gain (loss) on securities available for sale.............. 141,628 (142,506)
The accompanying notes are an integral part of these consolidated financial
statements.
6
UNION PLANTERS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. PRINCIPLES OF ACCOUNTING
The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The foregoing financial statements are unaudited; however, in the opinion of
management, all adjustments, including normal recurring adjustments, necessary
for a fair presentation of the consolidated financial statements have been
included.
The accounting policies followed by Union Planters Corporation and its
subsidiaries (collectively, Union Planters or the Company) for interim financial
reporting are consistent with the accounting policies followed for annual
financial reporting except as noted below. The notes included herein should be
read in conjunction with the notes to the consolidated financial statements
included in Union Planters Corporation's 2000 Annual Report to Shareholders
(2000 Annual Report), a copy of which is Exhibit 13 to Union Planters
Corporation's Annual Report on Form 10-K for the year ended December 31, 2000
(2000 10-K). Certain prior year amounts have been reclassified to be consistent
with the 2001 financial reporting presentation.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 requires that an
entity record all derivatives in the consolidated balance sheet at their fair
value. It also requires changes in fair value to be recorded each period in
current earnings or other comprehensive income depending upon the purpose for
using the derivative and/or its qualification, designation, and effectiveness as
a hedging transaction. In June 2000, the FASB amended portions of SFAS No. 133
by issuing SFAS No. 138. The Company adopted these new standards effective
January 1, 2001. At adoption, the new accounting standards had an immaterial
impact on net income and other comprehensive income. Reference is made to the
disclosure in Note 1 to the Quarterly Report on Form 10-Q dated March 31, 2001
for additional information regarding the adoption of SFAS No. 133.
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
which revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain disclosures.
This statement replaces SFAS No. 125, although it retains most of SFAS 125's
provisions without modification. SFAS 140 is effective for transfers occurring
after March 31, 2001. The Company adopted SFAS No. 140 on April 1, 2001. The
adoption had an immaterial impact on the Company's financial condition, results
of operations, and cash flows.
RECENT ACCOUNTING PRONOUNCEMENTS
BUSINESS COMBINATIONS. In June 2001, the FASB issued SFAS No. 141,
"Business Combinations," which addresses financial accounting and reporting for
business combinations and supersedes American Institute of Certified Public
Accountants Accounting Principles Board Opinion No. 16 (APB No. 16). This
Statement changes the accounting for business combinations in APB No. 16 in the
following significant respects:
- This Statement requires all business combinations to be accounted for
using the purchase method of accounting.
- APB No. 16 requires separate recognition of intangible assets that can
be identified and named. This Statement requires that they be
recognized as assets apart from goodwill if they meet one of two
criteria - the contractual-legal criterion or the separability
criterion.
- In addition to the current disclosures in APB No. 16, this Statement
requires disclosure of the primary reasons for business combinations
and the allocation of the purchase price paid to the assets acquired
and liabilities assumed by major balance sheet caption. If the amounts
of goodwill and other intangibles are significant in relation to the
purchase price paid, disclosure of other information about those assets
is required, such as the amount of goodwill by reportable segment and
the amount of the purchase price assigned to each major intangible
asset class.
The provisions of this Statement apply to business combinations
initiated after June 30, 2001. The adoption of this Statement will require
changes in the accounting and disclosures related to business combinations, but
it is not expected to have a material impact on the Company's financial
condition, results of operations, or cash flows.
GOODWILL AND OTHER INTANGIBLE ASSETS. In June 2001, the FASB issued
SFAS No. 142, "Goodwill and Other Intangible Assets," which addresses financial
accounting and reporting for acquired goodwill and other intangible assets and
supersedes APB Opinion No. 17, "Intangible Assets." It addresses how intangible
assets that are acquired individually or with a group of other assets (but not
those acquired
7
in a business combination) should be accounted for in financial
statements upon their acquisition. The Statement changes the accounting for
goodwill and other intangible assets in the following significant respects:
- Acquiring entities usually integrate acquired entities into their
operations, and thus the acquirers' expectations of benefits from the
resulting synergies usually are reflected in the premium that they pay
to acquire those entities. APB No. 17 treated the acquired entity as if
it remained a stand-alone entity rather than being integrated with the
acquiring entity; as a result, the portion of the premium related to
expected synergies (goodwill) was not accounted for appropriately. This
Statement adopts a more aggressive view of goodwill and bases the
accounting for goodwill on the units of the combined entity into which
the acquired entity is integrated.
- APB No. 17 presumed that goodwill and other intangible assets were
wasting assets and were amortized over an estimated life. This
Statement assumes goodwill and other intangibles assets that have
useful lives will not be amortized but rather will be tested at least
annually for impairment. Intangible assets that have finite useful
lives will continue to be amortized over their useful lives, but
without the constraint of an arbitrary ceiling.
- This Statement provides specific guidance for testing goodwill for
impairment.
- This Statement provides specific guidance on testing intangible assets
that will not be amortized for impairment and thus removes those assets
from the scope of other impairment guidance. Intangible assets that are
not amortized will be tested for impairment at least annually by
comparing the fair value of those assets with their recorded amount.
- This Statement requires disclosure about changes in the carrying amount
of goodwill from period to period (in the aggregate and by reportable
segment), the carrying amount of intangible assets by major intangible
asset class for those subject to amortization and for those not subject
to amortization, and the estimated intangible asset amortization for
the next five years.
The provisions of this Statement are required to be applied starting
with fiscal years beginning after December 15, 2001, and must be adopted as of
the beginning of a fiscal year. Retroactive application is not permitted. Union
Planters will adopt the new Standard on January 1, 2002, and is currently
evaluating the potential impact of the Standard on its financial position and
results of operation.
NOTE 2. ACQUISITIONS
CONSUMMATED ACQUISITIONS
On February 12, 2001, Union Planters acquired Jefferson Savings
Bancorp, Inc. (Jefferson Savings) of Ballwin, Missouri, the parent of Jefferson
Heritage Bank, a federal savings bank. Jefferson Savings had total assets of
$1.6 billion, total loans of $1.3 billion, and total deposits of $877 million at
acquisition. Union Planters exchanged approximately 4.4 million shares of its
common stock for all of the outstanding shares of Jefferson Savings. The
acquisition was accounted for as a purchase. Goodwill and other intangibles
resulting from the acquisition were $46.5 million. Pro forma information has
been omitted because the Jefferson Savings acquisition is not considered
significant to Union Planters.
Union Planters has announced its intent to repurchase Union Planters'
common shares up to the number of shares issued in the transaction. Through
September 30, 2001, 2.3 million shares had been purchased and retired.
On March 19, 2001, Union Planters entered into an accelerated share
repurchase agreement to purchase one million shares of the Company's common
stock. As of June 30, 2001, all of the shares had been purchased and retired at
an average cost of $38.05 per share.
8
NOTE 3. INVESTMENT SECURITIES
The amortized cost and fair value of investment securities are
summarized as follows:
SEPTEMBER 30, 2001
---------------------------------------------------------
UNREALIZED
AMORTIZED --------------------------
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
AVAILABLE FOR SALE SECURITIES
U.S. Government obligations
U.S. Treasury............................... $ 74,755 $ 2,076 $ 12 $ 76,819
U.S. Government agencies
Collateralized mortgage obligations....... 1,800,648 50,832 4 1,851,476
Mortgage-backed........................... 390,504 12,619 751 402,372
Other..................................... 392,826 12,858 73 405,611
---------- ---------- ---------- ----------
Total U.S. Government obligations... 2,658,733 78,385 840 2,736,278
Obligations of states and political subdivisions 1,126,413 42,089 441 1,168,061
Other stocks and securities................... 1,196,654 29,184 6,749 1,219,089
---------- ---------- ---------- ----------
TOTAL AVAILABLE FOR SALE SECURITIES. $4,981,800 $ 149,658 $ 8,030 $5,123,428
========== ========== ========== ==========
DECEMBER 31, 2000
---------------------------------------------------------
UNREALIZED
AMORTIZED --------------------------
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
AVAILABLE FOR SALE SECURITIES
U.S. Government obligations
U.S. Treasury............................... $ 99,396 $ 691 $ 78 $ 100,009
U.S. Government agencies
Collateralized mortgage obligations....... 2,271,674 4,561 21,157 2,255,078
Mortgage-backed........................... 484,557 5,391 2,852 487,096
Other..................................... 835,997 3,795 4,460 835,332
---------- ---------- ---------- ----------
Total U.S. Government obligations... 3,691,624 14,438 28,547 3,677,515
Obligations of states and political
subdivisions............................... 1,208,201 24,355 5,227 1,227,329
Other stocks and securities................... 1,949,632 8,792 19,598 1,938,826
---------- ---------- ---------- ----------
TOTAL AVAILABLE FOR SALE SECURITIES. $6,849,457 $ 47,585 $ 53,372 $6,843,670
========== ========== ========== ==========
Investment securities having a fair value of approximately $2.5 billion
and $3.3 billion at September 30, 2001 and December 31, 2000, respectively, were
pledged to secure public and trust funds on deposit, securities sold under
agreements to repurchase, and Federal Home Loan Bank (FHLB) advances.
Included in available for sale investment securities is $260.4 million
and $230.9 million of FHLB and Federal Reserve Bank stock at September 30, 2001
and December 31, 2000, respectively, for which there is no readily determinable
market value.
The following table presents the gross realized gains and losses on
available for sale investment securities for the three and nine months ended
September 30, 2001 and 2000.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ---------------------
2001 2000 2001 2000
------ ----- -------- --------
(DOLLARS IN THOUSANDS)
Realized gains........... $ 591 $ 1 $ 11,628 $ 1,697
Realized losses.......... 11 1 2,694 1,620
9
NOTE 4. LOANS
Loans are summarized by type as follows:
SEPTEMBER 30,
--------------------------- DECEMBER 31,
2001 2000 2000
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Commercial, financial, and agricultural.... $ 5,280,743 $ 5,055,383 $ 5,350,425
Foreign.................................... 407,733 494,441 539,181
Accounts receivable - factoring............ 711,156 807,787 677,996
Real estate - construction................. 2,346,178 1,931,138 2,012,611
Real estate - mortgage
Secured by 1-4 family residential........ 5,542,736 6,098,420 6,318,291
FHA/VA government-insured/guaranteed..... 177,182 306,421 283,543
Other mortgage........................... 5,952,000 5,194,007 5,247,206
Home equity................................ 866,709 656,308 685,567
Consumer................................... 2,492,638 2,828,704 2,756,834
Direct lease financing..................... 105,879 103,500 110,583
----------- ----------- -----------
TOTAL LOANS...................... $23,882,954 $23,476,109 $23,982,237
=========== =========== ===========
Nonperforming loans are summarized as follows:
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
(DOLLARS IN THOUSANDS)
Nonaccrual loans........................... $ 219,722 $ 133,269
Restructured loans......................... 873 1,512
---------- ----------
TOTAL NONPERFORMING LOANS........ $ 220,595 $ 134,781
========== ==========
FHA/VA GOVERNMENT-INSURED/GUARANTEED
LOANS ON NONACCRUAL STATUS............... $ 1,985 $ 3,615
========== ==========
SALE OF LOANS
During the third quarter, Union Planters sold fixed-rate residential
mortgage loans in securitization transactions and whole-loan sales. In all these
transactions, Union Planters retained servicing responsibilities. Union Planters
receives annual servicing fees at a percentage of the outstanding balance (.25%
to .375%). Union Planters also has rights to future cash flows arising after the
investors in the securitization trust have received the return for which they
contracted. The investors and the securitization trusts have no recourse to
Union Planters' other assets for failure of debtors to pay when due. Union
Planters' retained interests are subordinate to investors' interests. Their
value is subject to credit, prepayment, and interest-rate risks on the
transferred financial assets. In the third quarter, the Company recognized
pretax gains of $8.4 million and $2.2 million, respectively, on the
securitization of $329.8 million and whole-loan sales of $149.1 million of
residential mortgage loans. In the securitization transactions, Union Planters
retained an interest of approximately $24 million.
Key economic assumptions used in measuring the retained interests at
the date of securitization resulting from securitizations completed during the
quarter were as follows:
RESIDENTIAL MORTGAGE LOANS
FIXED-RATE
Prepayment speed.................................. 25.0% CPR
Weighted-average life (in years).................. 7.7
Expected credit losses............................ 0.2%
Residual cash flows discounted at................. 15.4
10
NOTE 5. ALLOWANCE FOR LOSSES ON LOANS
The changes in the allowance for losses on loans for the three and nine
months ended September 30, 2001 and 2000 are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
BEGINNING BALANCE.......................... $ 342,868 $ 345,858 $ 335,452 $ 342,300
Increase due to acquisitions............... -- -- 5,753 --
Decrease due to sale of certain loans...... (675) (1,875) (3,291) (1,875)
Provision for losses on loans.............. 41,933 19,939 96,133 56,941
Recoveries of loans previously charged off. 29,290 10,345 54,014 39,249
Loans charged off.......................... (71,222) (33,814) (145,867) (96,162)
---------- ---------- ---------- ----------
BALANCE, SEPTEMBER 30, 2001................ $ 342,194 $ 340,453 $ 342,194 $ 340,453
========== ========== ========== ==========
NOTE 6. BORROWINGS
SHORT-TERM BORROWINGS
Short-term borrowings include short-term FHLB advances, federal funds
purchased, securities sold under agreements to repurchase, and other short-term
borrowings. Short-term FHLB advances are borrowings from the FHLB, which are
collateralized by mortgage-backed securities and mortgage loans. Federal funds
purchased arise from Union Planters' market activity with its correspondent
banks and generally mature in one business day. Securities sold under agreements
to repurchase are collateralized by U.S. Government and agency securities.
Short-term borrowings are summarized as follows:
SEPTEMBER 30,
-------------------------- DECEMBER 31,
2001 2000 2000
---------- ---------- ------------
(DOLLARS IN THOUSANDS)
Period-end balances:
Short-term FHLB advances........................................ $ 400,000 $2,500,000 $2,400,000
Federal funds purchased......................................... 1,414,345 2,023,480 1,813,639
Securities sold under agreements to repurchase.................. 1,408,905 1,469,834 1,869,186
Other short-term borrowings..................................... 1,740 452 4,071
---------- ---------- ----------
Total short-term borrowings........................... $3,224,990 $5,993,766 $6,086,896
========== ========== ==========
Federal funds purchased and securities sold under agreements to
repurchase
Year-to-date daily average balance............................ $3,370,256 $2,679,909 $2,907,150
Weighted average interest rate................................ 4.43% 5.85% 5.96%
Short-term FHLB advances
Year-to-date daily average balance............................ $1,249,817 $2,805,758 $2,719,331
Weighted average interest rate................................ 5.21% 6.40% 6.48%
SHORT- AND MEDIUM-TERM SENIOR NOTES
The Company's primary banking subsidiary, Union Planters Bank, N.A.
(UPB) has a $5 billion senior and subordinated bank note program to supplement
UPB's funding sources. Under the program, UPB may from time to time issue senior
bank notes having maturities ranging from 30 days to one year from their
respective issue dates (Short-Term Senior Notes), senior bank notes having
maturities of more than one year to 30 years from their respective dates of
issue (Medium-Term Senior Notes), and subordinated bank notes with maturities
from 5 years to 30 years from their respective dates of issue (Subordinated
Notes). At September 30, 2001, September 30, 2000, and December 31, 2000, UPB
had no Subordinated Notes outstanding under this program. At September 30, 2001
and December 31, 2000, UPB had no Short-Term Senior Notes outstanding. A summary
of the Short-Term and Medium-Term Senior Notes outstanding follows:
11
SHORT-TERM
SENIOR NOTES MEDIUM-TERM SENIOR NOTES
------------------ -------------------------------------------------------------
SEPTEMBER 30, 2000 SEPTEMBER 30, 2001 SEPTEMBER 30, 2000 DECEMBER 31, 2000
------------------ ------------------ ------------------ -----------------
(DOLLARS IN THOUSANDS)
Period-end balances.......... $ 200,000 $ 20,000 $ 60,000 $ 60,000
Fixed-rate notes............. 200,000 20,000 60,000 60,000
Range of maturities.......... 10/00 10/01 8/01 - 10/01 8/01 - 10/01
FEDERAL HOME LOAN BANK ADVANCES
Certain of Union Planters' banking and thrift subsidiaries have
advances from the FHLB under Blanket Agreements for Advances and Security
Agreements (the Agreements). These advances have an original maturity of greater
than one year. The Agreements enable these subsidiaries to borrow funds from the
FHLB to fund mortgage loan programs and to satisfy certain other funding needs.
The value of the mortgage-backed securities and mortgage loans pledged under the
Agreements must be maintained at not less than 115% and 150%, respectively, of
the advances outstanding. At September 30, 2001, Union Planters' subsidiaries
had an adequate amount of mortgage-backed securities and loans to satisfy the
collateral requirements. A summary of the advances is as follows:
SEPTEMBER 30,
--------------------------------- DECEMBER 31,
2001 2000 2000
---------------- --------------- ------------
(DOLLARS IN THOUSANDS)
Balance at period end........ $ 1,461,530 $ 601,291 $ 1,101,619
Range of interest rates...... 1.75% - 6.92% 1.75% - 6.61% 1.75% - 6.72%
Range of maturities.......... 2001 - 2021 2001 - 2015 2001 - 2021
OTHER LONG-TERM DEBT
Union Planters' other long-term debt is summarized as follows.
Reference is made to Note 9 to the consolidated financial statements in the 2000
Annual Report for additional information regarding these borrowings.
SEPTEMBER 30,
----------------------------- DECEMBER 31,
2001 2000 2000
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
Corporation-Obligated Mandatorily Redeemable Capital
Pass-through Securities of Subsidiary Trust holding solely a
Corporation-Guaranteed Related Subordinated Note
(Trust Preferred Securities).................................. $ 199,106 $ 199,071 $ 199,080
Variable-rate asset-backed certificates......................... 100,000 114,939 100,000
7.75% Subordinated Notes due 2011............................... 499,153 -- --
6.75% Subordinated Notes due 2005............................... 99,758 99,699 99,714
6.25% Subordinated Notes due 2003............................... 74,391 74,339 74,352
6.50% Putable/Callable Subordinated Notes due 2018.............. 300,729 300,915 300,869
Other long-term debt............................................ 2,643 4,689 3,337
------------ ------------ ------------
TOTAL OTHER LONG-TERM DEBT............................ $ 1,275,780 $ 793,652 $ 777,352
============ ============ ============
On February 22, 2001, the Company issued $500 million of Subordinated
Notes at 99.82%. The notes bear interest at 7.75% and mature March 1, 2011. The
notes are unsecured obligations of Union Planters and qualify as Tier 2 capital
for regulatory capital purposes. Debt issuance costs of $3.5 million were
included in other assets and are being amortized over the term of the notes. The
net proceeds are being used for general corporate purposes.
12
NOTE 7. SHAREHOLDERS' EQUITY
PREFERRED STOCK
Union Planters' outstanding preferred stock, all of which is convertible
into shares of Union Planters' common stock, is summarized as follows:
SEPTEMBER 30,
---------------------------- DECEMBER 31,
2001 2000 2000
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
Preferred stock, without par value, 10,000,000 shares authorized
Series F Preferred Stock
300,000 shares authorized, none issued ................................ $ -- $ -- $ --
Series E, 8% Cumulative, Convertible,
Preferred Stock (stated at liquidation value of $25 per share), 659,104
shares issued and outstanding (797,683 at September 30, 2000
and 787,628 at December 31, 2000) .................................. 16,478 19,942 19,691
------------ ------------ ------------
TOTAL PREFERRED STOCK ........................................... $ 16,478 $ 19,942 $ 19,691
============ ============ ============
NOTE 8. OTHER NONINTEREST INCOME AND EXPENSE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
OTHER NONINTEREST INCOME
ATM transaction fees................................... $ 7,592 $ 6,780 $ 22,552 $ 21,641
Letters of credit fees................................. 2,165 2,160 6,097 5,597
Net gain on sales of branches/deposits and other assets 18,637 1,235 19,838 2,725
Gain on sale of asset-backed loans..................... -- 2,693 -- 2,693
Earnings (losses) of equity method investments......... 1,122 131 4,385 (640)
Reversion of excess assets of a pension plan of an
acquired entity...................................... -- -- -- 4,762
Other income........................................... 19,385 21,266 59,987 50,374
---------- ---------- ---------- ----------
TOTAL OTHER NONINTEREST INCOME................. $ 48,901 $ 34,265 $ 112,859 $ 87,152
========== ========== ========== ==========
OTHER NONINTEREST EXPENSE
Communications......................................... $ 8,954 $ 8,816 $ 26,357 $ 28,172
Other contracted services.............................. 8,583 8,283 26,366 25,113
Postage and carrier.................................... 7,227 6,987 23,247 21,593
Stationery and supplies................................ 5,414 6,569 17,523 19,541
Merchant servicing expenses............................ 6,781 6,682 20,199 18,962
Advertising and promotion.............................. 4,970 6,552 20,803 20,632
Mortgage intangibles expense........................... 15,653 5,275 30,088 14,570
Other personnel services............................... 3,791 3,385 10,257 10,038
Legal fees............................................. 3,248 3,098 8,751 9,220
Travel................................................. 2,531 2,905 8,254 7,976
Consultant fees........................................ 934 1,032 3,643 4,453
Federal Reserve fees................................... 1,969 1,876 6,106 5,167
Accounting and audit fees.............................. 1,659 1,302 4,514 4,765
Other real estate expense.............................. 1,462 1,344 4,564 4,132
Brokerage and clearing fees on trading activities...... 1,183 1,593 5,363 4,419
Taxes other than income................................ 1,837 1,382 5,563 4,836
FDIC insurance......................................... 1,091 1,185 3,351 3,651
Dues, subscriptions, and contributions................. 2,081 995 4,118 3,023
Insurance.............................................. 902 837 2,726 2,567
Provision for losses on FHA/VA foreclosure claims...... 45 796 2,646 1,260
Miscellaneous charge-offs.............................. 4,633 3,167 14,038 7,246
UPExcel project expense................................ 4,246 -- 12,280 --
Write-off of software and equity investment............ 3,790 -- 3,790 --
Other expense.......................................... 10,525 10,643 42,953 33,598
---------- ---------- ---------- ----------
TOTAL OTHER NONINTEREST EXPENSE................ $ 103,509 $ 84,704 $ 307,500 $ 254,934
========== ========== ========== ==========
NOTE 9. INCOME TAXES
Applicable income taxes for the three and nine months ended September 30,
2001 were $57.5 million and $168.2 million, respectively, resulting in an
effective tax rate of 33.92% for both periods. Applicable income taxes for the
same periods in 2000 were $50.8 million and $154.1 million, respectively,
resulting in effective tax rates of 33.32% and 33.51%, respectively. The
increase in the effective
13
rate in 2001, as compared to 2000, is due primarily to the change in the mix of
taxable and nontaxable revenues. The tax expense applicable to investment
securities gains for the nine months ended September 30, 2001 and 2000 was $3.3
million and $30,000, respectively.
At September 30, 2001, Union Planters had a net deferred tax asset of
$52.3 million compared to $124.5 million at December 31, 2000. The decrease is
attributable to the change in the net deferred asset (liability) related to the
unrealized gain or loss on available for sale investment securities. Management
believes that the deferred tax asset will be fully realized and, therefore, no
valuation allowance has been provided.
NOTE 10. EARNINGS PER SHARE
The following table sets forth the computation of basic net earnings per
share and diluted net earnings per share:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
BASIC
Net earnings ................................. $ 112,004 $ 101,581 $ 327,696 $ 305,803
Less preferred dividends ................... 301 399 1,066 1,213
------------ ------------ ------------ ------------
Net earnings applicable to common shares ..... $ 111,703 $ 101,182 $ 326,630 $ 304,590
============ ============ ============ ============
Average common shares outstanding ............ 137,198,351 134,678,290 136,931,023 135,337,293
============ ============ ============ ============
Net earnings per common share-- basic ........ $ .81 $ .75 $ 2.38 $ 2.25
============ ============ ============ ============
DILUTED
Net earnings ................................. $ 112,004 $ 101,581 $ 327,696 $ 305,803
============ ============ ============ ============
Average common shares outstanding ............ 137,198,351 134,678,290 136,931,023 135,337,293
Stock option adjustment ...................... 825,183 453,102 694,781 464,828
Preferred stock adjustment ................... 863,436 998,590 934,659 1,018,844
------------ ------------ ------------ ------------
Average common shares outstanding ............ 138,886,970 136,129,982 138,560,463 136,820,965
============ ============ ============ ============
Net earnings per common share-- diluted ...... $ .81 $ .75 $ 2.37 $ 2.24
============ ============ ============ ============
NOTE 11. MORTGAGE LOAN SERVICING
Union Planters was acting as servicing agent for residential mortgage
loans totaling approximately $15.2 billion at September 30, 2001 compared to
$13.7 billion at December 31, 2000. The loans serviced for others are not
included in Union Planters' consolidated balance sheet. The following table
presents a reconciliation of the changes in mortgage servicing rights for the
nine months ended September 30, 2001 and the year ended December 31, 2000.
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------ ------------
(DOLLARS IN THOUSANDS)
Beginning balance .................... $ 123,940 $ 122,110
Additions ............................ 68,760 39,314
Sales ................................ -- (17,581)
Amortization of servicing rights ..... (30,088) (19,903)
------------ ------------
Ending balance ....................... $ 162,612 $ 123,940
============ ============
The fair value of mortgage servicing rights at September 30, 2001 was
$165.5 million. Significant assumptions utilized in determining the fair value
were as follows:
Dealer consensus prepayment speeds......... 19.4% CPR
Market discount rate....................... 9.9
Both of the significant assumptions above are directly related to and move
in concert with interest rates. In the view of management, in order to
understand the hypothetical effect on the fair value of the mortgage servicing
rights as a result of unfavorable variations in the significant assumptions, it
is necessary to measure the effect that would result from a decline in interest
rates. At September 30, 2001, the reduction in the current fair value of
mortgage servicing rights resulting from an immediate 50 and 100 basis point
decline in interest rates would be approximately $36.6 million and $65.7
million, respectively.
14
NOTE 12. LINE OF BUSINESS REPORTING
THREE MONTHS ENDED SEPTEMBER 30, 2001 (2) NINE MONTHS ENDED SEPTEMBER 30, 2001 (2)
-------------------------------------------------- --------------------------------------------------
OTHER OTHER
OPERATING PARENT CONSOLIDATED OPERATING PARENT CONSOLIDATED
BANKING UNITS COMPANY TOTAL BANKING UNITS COMPANY TOTAL
------------ ----------- --------- ------------ ------------ ----------- --------- ------------
(DOLLARS IN THOUSANDS)
Net interest
income ............... $ 294,699 $ 39,076 $ (11,097) $ 322,678 $ 862,667 $ 111,683 $ (24,482) $ 949,868
Provision for
losses on loans ...... (30,666) (11,267) -- (41,933) (79,362) (16,771) -- (96,133)
Noninterest income (1) 131,011 64,696 54 195,761 348,998 190,091 403 539,492
Noninterest expense ... (230,220) (62,002) (1,733) (293,955) (706,664) (171,436) (6,486) (884,586)
Other significant
items, net ........... (11,573) -- (1,483) (13,056) (11,399) -- (1,337) (12,736)
------------ ----------- --------- ------------ ------------ ----------- --------- ------------
Earnings before
taxes (1) ............ $ 153,251 $ 30,503 $ (14,259) $ 169,495 $ 414,240 $ 113,567 $ (31,902) $ 495,905
============ =========== ========= ============ ============ =========== ========= ============
Average assets ........ $ 30,063,533 $ 3,551,800 $ 182,958 $ 33,798,291 $ 31,403,422 $ 2,951,461 $ 163,192 $ 34,518,075
============ =========== ========= ============ ============ =========== ========= ============
THREE MONTHS ENDED SEPTEMBER 30, 2000 (2) NINE MONTHS ENDED SEPTEMBER 30, 2000 (2)
-------------------------------------------------- --------------------------------------------------
OTHER OTHER
OPERATING PARENT CONSOLIDATED OPERATING PARENT CONSOLIDATED
BANKING UNITS COMPANY TOTAL BANKING UNITS COMPANY TOTAL
------------ ----------- --------- ------------ ------------ ----------- --------- ------------
(DOLLARS IN THOUSANDS)
Net interest
income ............... $ 278,690 $ 28,324 $ (3,006) $ 304,008 $ 853,693 $ 85,039 $ (8,622) $ 930,110
Provision for
losses on loans....... (15,528) (4,411) -- (19,939) (45,875) (11,066) -- (56,941)
Noninterest income (1) 89,944 51,445 499 141,888 252,425 150,540 153 403,118
Noninterest expense ... (218,530) (47,222) (1,862) (267,614) (671,487) (137,707) (6,010) (815,204)
Other significant
items, net ........... (8,692) 2,693 -- (5,999) (3,853) 2,693 -- (1,160)
------------ ----------- --------- ------------ ------------ ----------- --------- ------------
Earnings before
taxes (1) ............ $ 125,884 $ 30,829 $ (4,369) $ 152,344 $ 384,903 $ 89,499 $ (14,479) $ 459,923
============ =========== ========= ============ ============ =========== ========= ============
Average assets ........ $ 31,719,619 $ 2,347,808 $ 138,536 $ 34,205,963 $ 31,285,965 $ 2,347,406 $ 142,259 $ 33,775,630
============ =========== ========= ============ ============ =========== ========= ============
--------------------
(1) Parent company noninterest income and earnings before income taxes are net
of the intercompany dividend eliminations of $4.8 million and $67.6
million for the three months ended September 30, 2001 and 2000,
respectively, and $110.2 million and $228.0 million, respectively, for the
nine months ended September 30, 2001 and 2000.
(2) The Company implemented a new management reporting system in the first
quarter of 2001, including a transfer pricing system for funds used or
provided by the various segments. This new system had the effect of
changing the amount each segment is charged or credited for funds. Amounts
shown for 2000 have been reclassified to reflect this change.
NOTE 13. CONTINGENT LIABILITIES
Union Planters and/or its subsidiaries are parties to various legal
proceedings, including an action that was filed on February 20, 2001, which are
described in Item 3, Part I of Union Planters' 2000 10-K and in Note 20 to Union
Planters' consolidated financial statements on page 67 of the 2000 Annual
Report. Various other legal proceedings pending against Union Planters and/or
its subsidiaries have arisen in the ordinary course of business.
Based upon present information, including evaluations of certain actions
by outside counsel, management is of the opinion that neither Union Planters'
financial position, results of operations, nor liquidity will be materially
affected by the ultimate resolution of pending or threatened legal proceedings.
There were no significant developments during the third quarter of 2001 in any
of the pending or threatened legal proceedings that affected such opinion.
15
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following provides a narrative discussion and analysis of
significant changes in Union Planters' results of operations and financial
condition. This discussion should be read in conjunction with the consolidated
financial statements and related financial analysis set forth in Union Planters'
2000 Annual Report, the interim unaudited consolidated financial statements and
notes for the nine months ended September 30, 2001 included in Part I hereof,
and the supplemental financial data included in this discussion.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains certain forward-looking
statements (as defined in the Private Securities Litigation Reform Act of 1995).
Such statements are based on management's expectations as well as certain
assumptions made by, and information available to, management. Specifically,
this discussion contains forward-looking statements with respect to the
following items:
- timing and effects of projected changes in interest rates
- effects of changes in general economic conditions
- the adequacy of the allowance for losses on loans and the
level of future provisions for losses on loans
- projected results of the UPExcel project
- expected trends in nonperforming assets, net charge-offs, and
the related risk of losses
- the effect of legal proceedings on Union Planters' financial
condition, results of operations, and liquidity
- business plans for the year 2001 and beyond
- anticipated recoveries under insurance policies
When used in this discussion, the words "anticipate," "project,"
"expect," "believe," "should" and similar expressions are intended to identify
forward-looking statements.
These forward-looking statements involve significant risks and
uncertainties including changes in general economic and financial market
conditions, changes in banking laws and regulations, and Union Planters' ability
to execute its business plans. Although Union Planters believes that the
expectations reflected in the forward-looking statements are reasonable, actual
results could differ materially.
16
SELECTED FINANCIAL DATA
The following table presents selected financial highlights for the three-
and nine-month periods ended September 30, 2001 and 2000:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ PERCENTAGE ------------------------ PERCENTAGE
2001 2000 CHANGE 2001 2000 CHANGE
---------- ---------- ---------- ---------- ---------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Net earnings ............................. $ 112,004 $ 101,581 10% $ 327,696 $ 305,803 7%
Per share
Basic ................................ .81 .75 8 2.38 2.25 6
Diluted .............................. .81 .75 8 2.37 2.24 6
Return on average assets ............... 1.31% 1.18% 1.27% 1.21%
Return on average common equity ........ 14.18 14.67 14.33 14.60
Cash operating earnings .................. $ 133,884 $ 116,476 15 $ 377,246 $ 344,917 9
Per share
Diluted .............................. .96 .86 12 2.72 2.52 8
Return on average assets ............... 1.57% 1.35% 1.46% 1.36%
Return on average common equity ........ 16.96 16.83 16.50 16.47
Return on average tangible assets ...... 1.62 1.39 1.50 1.40
Return on average tangible common equity 24.48 26.15 24.14 25.25
Dividends per common share ............... $ .50 $ .50 -- $ 1.50 $ 1.50 --
Net interest margin (FTE) ................ 4.27% 3.98% 4.14% 4.17%
Net interest spread (FTE) ................ 3.61 3.25 3.45 3.48
Expense ratio ............................ 1.20 1.27 1.23 1.45
Efficiency ratio ......................... 55.03 55.31 55.95 56.42
Book value per common share .............. $ 23.26 $ 20.61 13
Leverage ratio ........................... 7.23% 6.36%
Common share prices
High closing price ..................... $ 46.94 $ 33.81 $ 46.94 $ 37.25
Low closing price ...................... 38.63 28.69 34.70 25.63
Closing price at quarter-end ........... 42.90 33.06 42.90 33.06
--------------------
Cash operating earnings = Net earnings adjusted for the after-tax impact of
goodwill and other intangibles amortization and nonoperating items
Net interest margin = Net interest income (FTE) as a percentage of average
earning assets
Net interest spread = Difference in the FTE yield on average earning assets and
the rate on average interest-bearing liabilities
Expense ratio = Operating net noninterest expense [noninterest expense minus
noninterest income, excluding significant nonoperating revenues/expenses,
investment securities gains (losses) and goodwill and other intangibles
amortization] divided by average assets
Efficiency ratio = Operating noninterest expense (excluding significant
nonoperating expenses and goodwill and other intangibles amortization) divided
by net interest income (FTE) plus noninterest income, excluding significant
nonoperating revenues and investment securities gains (losses)
FTE = Fully taxable-equivalent basis
17
OPERATING RESULTS -- THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
The following table presents a summary of Union Planters' operating
results for the three and nine months ended September 30, 2001 and 2000,
identifying significant nonoperating items impacting the results for the periods
shown:
UNION PLANTERS CORPORATION
SUMMARY OF CONSOLIDATED RESULTS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Interest income ............................................. $ 580,066 $ 649,054 $1,843,196 $1,876,786
Interest expense ............................................ (257,388) (345,046) (893,328) (946,676)
---------- ---------- ---------- ----------
NET INTEREST INCOME .................................... 322,678 304,008 949,868 930,110
PROVISION FOR LOSSES ON LOANS ............................... (41,933) (19,939) (96,133) (56,941)
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOSSES ON LOANS 280,745 284,069 853,735 873,169
---------- ---------- ---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts ....................... 53,694 47,451 163,401 134,149
Mortgage banking revenue .................................. 51,279 27,823 138,689 75,207
Merchant servicing income ................................. 10,430 9,320 31,392 27,133
Factoring commissions and fees ............................ 9,620 9,831 28,700 28,778
Trust service income ...................................... 6,954 6,043 21,026 19,275
Profits and commissions from trading activities ........... 1,339 1,598 6,226 4,314
Investments and insurance ................................. 13,544 11,014 37,199 37,329
Other income .............................................. 48,901 28,808 112,859 76,933
---------- ---------- ---------- ----------
Total noninterest income ............................... 195,761 141,888 539,492 403,118
---------- ---------- ---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits ............................ 133,462 122,319 398,975 378,617
Net occupancy expense ..................................... 26,665 23,536 78,380 70,485
Equipment expense ......................................... 22,026 20,904 66,649 63,308
Goodwill amortization ..................................... 12,089 11,700 36,184 34,501
Other intangibles amortization ............................ 4,240 4,451 12,968 13,359
Other expense ............................................. 95,473 84,704 291,430 254,934
---------- ---------- ---------- ----------
Total noninterest expense .............................. 293,955 267,614 884,586 815,204
---------- ---------- ---------- ----------
EARNINGS BEFORE NONOPERATING ITEMS AND INCOME TAXES ......... 182,551 158,343 508,641 461,083
NONOPERATING ITEMS
Gain on securitization and sale of loans .................. -- 2,764 -- 2,764
Gain on sale of loans ..................................... -- 2,693 -- 2,693
Reversion of excess assets of a pension plan of an acquired -- -- -- 4,762
entity
UPExcel project expense ................................... (4,246) -- (12,280) --
Severance pay ............................................. (5,600) -- (5,600) --
Write-off of software and equity investment ............... (3,790) -- (3,790) --
Settlement of executive contractual obligations ........... -- (11,456) -- (11,456)
Investment securities gains ............................... 580 -- 8,934 77
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES ........................... 169,495 152,344 495,905 459,923
Income taxes ................................................ (57,491) (50,763) (168,209) (154,120)
---------- ---------- ---------- ----------
NET EARNINGS ........................................... $ 112,004 $ 101,581 $ 327,696 $ 305,803
========== ========== ========== ==========
NET EARNINGS ................................................ $ 112,004 $ 101,581 $ 327,696 $ 305,803
Nonoperating items, net of taxes ............................ 7,977 1,458 7,782 (1,035)
Goodwill and other intangibles amortization, net of taxes ... 13,903 13,437 41,768 40,149
---------- ---------- ---------- ----------
CASH OPERATING EARNINGS ..................................... $ 133,884 $ 116,476 $ 377,246 $ 344,917
========== ========== ========== ==========
PER COMMON SHARE DATA
Diluted earnings per share ................................ $ .81 $ .75 $ 2.37 $ 2.24
Diluted cash operating earnings per share ................. .96 .86 2.72 2.52
18
The following table presents the contributions to diluted earnings per
common share. A discussion of the operating results follows this table:
UNION PLANTERS CORPORATION
CONTRIBUTIONS TO DILUTED EARNINGS PER COMMON SHARE
NINE MONTHS ENDED
SEPTEMBER 30, EPS
----------------------------- INCREASE
2001 2000 (DECREASE)
------------ ------------ ------------
Net interest income-FTE ......................................... $ 7.04 $ 7.00 $ .04
Provision for losses on loans ................................... (.69) (.42) (.27)
------------ ------------ ------------
Net interest income after provision for losses on loans-FTE ..... 6.35 6.58 (.23)
------------ ------------ ------------
Noninterest income
Service charges on deposit accounts ........................... 1.18 .98 .20
Mortgage banking revenue ...................................... 1.00 .55 .45
Merchant servicing income ..................................... .23 .20 .03
Factoring commissions and fees ................................ .21 .21 --
Trust service income .......................................... .15 .14 .01
Profits and commissions from trading activities ............... .04 .03 .01
Investments and insurance ..................................... .27 .27 --
Investment securities gains ................................... .06 -- .06
Other income .................................................. .82 .64 .18
------------ ------------ ------------
TOTAL NONINTEREST INCOME .............................. 3.96 3.02 .94
------------ ------------ ------------
Noninterest expense
Salaries and employee benefits ................................ 2.92 2.85 (.07)
Net occupancy expense ......................................... .57 .52 (.05)
Equipment expense ............................................. .48 .46 (.02)
Goodwill amortization ......................................... .26 .25 (.01)
Other intangibles amortization ................................ .09 .10 .01
Other expense ................................................. 2.22 1.86 (.36)
------------ ------------ ------------
TOTAL NONINTEREST EXPENSE ............................. 6.54 6.04 (.50)
------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES-FTE ................................ 3.77 3.56 .21
Income taxes-FTE ................................................ 1.40 1.32 (.08)
------------ ------------ ------------
DILUTED EARNINGS PER COMMON SHARE ............................... $ 2.37 $ 2.24 $ .13
============ ============ ============
Change in net earnings applicable to diluted earnings
per share using previous year average shares outstanding ...... $ .16
Change in average shares outstanding ............................ (.03)
------------
CHANGE IN NET EARNINGS ................................ $ .13
============
AVERAGE DILUTED SHARES (IN THOUSANDS) ........................... 138,560 136,821
============ ============
--------------------
FTE = Fully taxable-equivalent basis
THIRD QUARTER EARNINGS OVERVIEW
For the third quarter of 2001, Union Planters reported cash operating
earnings, which exclude the after tax impact of nonoperating items and goodwill
and other intangibles, of $133.9 million, or $.96 per diluted common share. This
compared to cash operating earnings for the same period in 2000 of $116.5
million, or $.86 per diluted common share and $123.1 million, or $.89 per
diluted common share for the second quarter of 2001. Cash operating earnings for
the third quarter of 2001 resulted in annualized returns on average assets,
average common equity, and average tangible common equity of 1.57%, 16.96%, and
24.48%, respectively, which compares to 1.35%, 16.83%, and 26.15%, respectively,
for the same period in 2000.
Net earnings were $112.0 million, or $.81 per diluted common share, for
the third quarter of 2001, an increase from $101.6 million, or $.75 per diluted
common share, for the same period in 2000. These earnings represented annualized
returns on average assets and average common equity of 1.31% and 14.18%,
respectively, compared to 1.18% and 14.67%, respectively, for the same period in
2000.
Reference is made to the "Summary of Consolidated Results" on page 18 for
a comparison of the nonoperating items impacting results for the three and nine
months ended September 30, 2001 and 2000.
19
EARNINGS ANALYSIS
NET INTEREST INCOME
Tax-equivalent net interest income for the third quarter of 2001 was
$331.3 million, an increase of $18.5 million over the same quarter last year and
a $6.6 million increase over the second quarter of 2001. The components of this
change were continued improvement in pricing of loan products and the decline in
core funding costs during the third quarter.
The net interest margin for the third quarter of 2001 was 4.27%, which
compares to 3.98% and 4.11%, respectively, for the third quarter of 2000 and
second quarter of 2001. The interest-rate spread was 3.61% for the third quarter
of 2001, an increase from 3.25% for the third quarter of 2000 and 3.42% for the
second quarter of 2001.
Reference is made to Union Planters' average balance sheet and analysis of
volume and rate changes, which follow this discussion, for additional
information regarding the changes in net interest income.
INTEREST INCOME
The following table presents a breakdown of average earning assets:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------- -----------------------
SEPTEMBER 30, SEPTEMBER 30,
----------------------- JUNE 30, -----------------------
2001 2000 2001 2001 2000
---------- ---------- ---------- ---------- ----------
(DOLLARS IN BILLIONS)
Average earning assets............................ $ 30.8 $ 31.2 $ 31.7 $ 31.5 $ 30.7
Comprised of:
Loans......................................... 82% 76% 81% 81% 75%
Investment securities......................... 16 23 17 18 24
Other earning assets ......................... 2 1 2 1 1
--------------------
Fully taxable-equivalent yield on average earning 7.58% 8.38% 7.89% 7.93% 8.29%
assets............................................
Taxable-equivalent interest income decreased $69.1 million for the third
quarter of 2001 compared to the same period in 2000. This decline was
attributable primarily to a decrease in the average yield on earning assets from
8.38% to 7.58%, which reduced interest income by $70.0 million. The decline in
yield is attributable primarily to the decreasing interest rate trend. Compared
to the second quarter of 2001, interest income decreased $34.6 million, which
was attributable primarily to a decline in the average yield on earning assets
and a decrease of $890.7 million in earning assets.
For the first nine months of 2001, taxable-equivalent interest income
decreased $34.1 million compared to the same period last year. The decrease was
driven by a decrease in the average yield on earning assets from 8.29% to 7.93%,
which reduced interest income by $107.5 million. Partially offsetting this
decrease was a 2.8% increase in average earning assets, primarily loans, which
increased interest income $73.4 million.
The decline in interest income during the third quarter of 2001 is the
result of declining interest rates during the quarter. While the average yields
on earning assets decreased, average rates paid for interest-bearing liabilities
also decreased and the overall net interest income improved. Reference is made
to the Asset/Liability and Market Risk Management discussions for additional
information regarding changes in interest rates and how the Company is
positioned to react to the changes.
The percentage of loans to total earning assets has increased over the
past several quarters as well as over the prior year. This change in mix is
being driven by the growth of loans (see the Loan discussion) and a strategy by
management to lower the level of investment securities. During the second
quarter, the investment securities portfolio was restructured (see the
Investment Securities discussion). A portion of the proceeds from the sale of
investment securities was used to reduce short-term debt.
20
INTEREST EXPENSE
The following table presents a breakdown of average interest-bearing
liabilities:
THREE MONTHS ENDED
--------------------------------------- NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ JUNE 30, ------------------------
2001 2000 2001 2001 2000
---------- ---------- ---------- ---------- ----------
(DOLLARS IN BILLIONS)
Average interest-bearing liabilities ............ $ 25.7 $ 26.8 $ 26.8 $ 26.7 $ 26.3
Comprised of:
Deposits .................................... 76% 72% 73% 73% 73%
Short-term borrowings ....................... 13 22 17 17 22
FHLB advances and long-term debt ............ 11 6 10 10 5
---------------
Rate paid on average interest-bearing liabilities 3.97% 5.13% 4.47% 4.48% 4.81%
Interest expense decreased $87.7 million in the third quarter of 2001
compared to the same quarter last year. This decrease was driven by a decrease
in the average rate paid for interest-bearing liabilities from 5.13% to 3.97%,
which resulted from the declining interest-rate environment. This reduction in
rates paid decreased interest expense $73.9 million. Average interest-bearing
liabilities also decreased $1.1 billion, primarily short-term FHLB advances,
which decreased interest expense $13.8 million. Compared to the second quarter
of 2001, interest expense decreased $41.2 million due primarily to the decline
in interest rates. The average rate paid for interest-bearing liabilities
decreased from 4.47% to 3.97%, which reduced interest expense $22.4 million.
Also contributing to the decrease was a $1.0 billion reduction in average
interest-bearing liabilities, which reduced interest expense $18.8 million. This
decrease resulted primarily from a reduction in short-term borrowings.
For the first nine months of 2001, interest expense decreased $53.3
million compared to the same period last year. The decrease was driven by a
decrease in the average rate paid on interest-bearing liabilities from 4.81% to
4.48%, which decreased interest expense $73.8 million. The decrease in interest
expense was partially offset by an increase in average interest-bearing
liabilities of $381.0 million, which increased interest expense $20.5 million.
The decreases in interest rates in 2001 by the Federal Reserve and an
additional decrease in the fourth quarter of 2001 are expected to lower Union
Planters' borrowing cost. The reduction in short-term borrowings during the
third quarter is expected to reduce the Company's exposure to changes in
interest rates. Additional rate reductions are not expected to have as
significant an impact because the rates paid on certain deposit products do not
react as quickly as other instruments, and certain deposit products may reach
minimum rate levels. Reference is made to the Asset/Liability and Market Risk
Management section for a discussion of the impact of declining interest rates.
These are forward-looking statements and actual results could differ due to
several factors, including those identified in this discussion and in the
discussion of Cautionary Statements Regarding Forward-Looking Information.
PROVISION FOR LOSSES ON LOANS
The provision for losses on loans for the third quarter of 2001 was $41.9
million, or .66% of average loans on an annualized basis. This compares to $28.9
million, or .45% of average loans, for the second quarter of 2001 and $19.9
million, or .34% of average loans, for the third quarter of 2000. The higher
provision for losses on loans in the second and third quarters of 2001 is
attributable to the growth of loans and the downturn in the economy and the
resulting increase in nonperforming loans. Also, a one-time net charge of $8
million related to a fraud associated with a mortgage warehouse line of credit
was recorded in the third quarter of 2001. The line of credit has been charged
off; however, the fraud is insured, and the Company has made appropriate
estimates for recovery under its insurance policy. Reference is made to the
"Allowance for Losses on Loans" and "Nonperforming Loans" discussions for
additional information regarding loan charge-offs and other items impacting the
provision for losses on loans.
NONINTEREST INCOME
Noninterest income for the third quarter of 2001 was $196.3 million, an
increase of $9.2 million, or 4.9%, from the second quarter of 2001 and an
increase of $49.0 million, or 33.3%, from the third quarter of 2000. Included in
noninterest income for the third quarter of 2001 was an investment securities
gain of $580,000. For the same period in 2000, noninterest income included $5.5
million resulting from
21
the sale of loans. Both of these items are considered nonoperating by
management. Also included in noninterest income for the third quarter of 2001
was $18.6 million in gains on the sale of branches related to the UPExcel
project.
Growth of noninterest income continues to be one of management's
priorities. Noninterest income less nonrecurring items, as a percentage of total
revenues, increased to 35.4% in the third quarter of 2001, compared to 31.8% for
the same quarter last year and 36.1% for the second quarter of 2001. The major
components of noninterest income are presented on the consolidated statement of
earnings and in Note 8 to the unaudited interim consolidated financial
statements. The strong growth in noninterest income is attributable to
successful efforts in several areas as outlined below. Additionally, the
Jefferson Savings acquisition in February 2001 and the Strategic Outsourcing,
Inc. (SOI) acquisition in April 2000 contributed to the growth year over year.
MORTGAGE BANKING REVENUES. These revenues increased $23.5 million in the
third quarter of 2001 compared to the same period in 2000 and increased $5.2
million compared to the second quarter of 2001. For the first nine months of
2001, mortgage banking revenues increased $63.5 million, or 84.4%, to $138.7
million over the same period in 2000. The lower interest-rate environment, which
increased mortgage loan production and the level of mortgage refinancing
activity, as well as the divestiture of home mortgage loans were the primary
contributors to this growth. In the third quarter of 2001, Union Planters
securitized or sold $478.9 million of mortgage loans, which resulted in a pretax
gain of $10.6 million.
SERVICE CHARGES ON DEPOSIT ACCOUNTS. These fees increased 13.2% to $53.7
million for the third quarter of 2001 compared to the same period in 2000 and
decreased $2.6 million compared to the second quarter of 2001. For the nine
months ended September 30, 2001, these fees increased $29.3 million, or 21.8%.
This increase is attributable to a more consistent administration of competitive
pricing and collections on all account relationships across the entire
franchise.
SOI NET REVENUES. SOI, which was acquired by Union Planters in April 2000,
is one of the largest providers of professional employment services in the
United States, which include workers' compensation, employee benefits
management, payroll administration, safety and risk management services, human
resource administration, and compliance administration. Clients, who are
typically small and medium-sized businesses, are provided cost-effective
approaches to the management of critical human resource responsibilities and
employer risks. Net SOI revenues were $6.2 million for the third quarter of
2001, level with the same period in 2000, and level with the second quarter of
2001. For the first nine months of 2001, net SOI revenues were $18.3 million
compared to $7.4 million for the same period in 2000.
MERCHANT SERVICING INCOME. These revenues are primarily from Union
Planters' merchant processing, which are earned by the conversion to cash of
payments received by merchants from customers using credit cards, debit cards,
purchase cards, and private label cards. Merchant servicing income increased
$1.1 million to $10.4 million for the third quarter of 2001 as compared to the
third quarter last year and decreased $873,000 from the second quarter of 2001.
For the nine months ended September 30, 2001 and 2000, these revenues were $31.4
million and $27.1 million, respectively.
INSURANCE AND INVESTMENTS. This category of noninterest income is
comprised of insurance commissions, annuity sales commissions, and brokerage fee
income. For the third quarter of 2001, these revenues were $13.5 million, an
increase of $1.6 million from the second quarter of 2001 and an increase of $2.5
million from the third quarter of 2000. For the nine months ended September 30,
2001, insurance and investments were $37.2 million compared to $37.3 million for
the same period in 2000.
OTHER NONINTEREST INCOME. Revenues from Union Planters' Small Business
Administration (SBA) trading operations are generated from buying, selling, and
securitizing government-guaranteed SBA pools and government-guaranteed portions
of SBA loans. These revenues decreased $259,000 to $1.3 million for the third
quarter of 2001 compared to the third quarter of 2000. Compared to the second
quarter of 2001, these revenues decreased $830,000. For the nine months ended
September 30, 2001, SBA trading revenues increased $1.9 million over the same
period in 2000.
Union Planters has a limited partnership investment of $10.2 million in
VSIBG, a registered broker-dealer whose principal business is the purchase and
sale of fixed income securities for institutional clients. Union Planters' share
of earnings from this investment increased $1.0 million for the third quarter of
2001 compared to the same period last year and decreased $799,000 compared to
the second quarter of 2001. For the nine months ended September 30, 2001,
earnings from this investment were $4.4 million, an increase of $4.0 million
from the same period a year ago.
22
NONINTEREST EXPENSE
Noninterest expense for the third quarter of 2001 was $307.6 million,
which compares to $279.1 million for the third quarter of 2000 and $309.0
million for the second quarter of 2001. For the nine months ended September 30,
2001, noninterest expense was $906.3 million compared to $826.7 million for the
same period in 2000. The Company's efficiency ratio for the third quarter of
2001 was 55.03%, compared to 56.52% for the second quarter of 2001 and 55.31%
for the third quarter of 2000.
The Jefferson Savings (February 2001) and SOI (April 2000) acquisitions
increased noninterest expense approximately $4.9 million and $20.9 million for
the third quarter and the nine months ended September 30, 2001, respectively,
compared to the same periods in 2000. Also, during the third quarter of 2001
mortgage production increased as interest rates decreased. The increased
production contributed to increased expenses in the mortgage operations of $10.6
million over the second quarter of 2001 and $17.8 million over the third quarter
of 2000. The major components of noninterest expense are presented on the
consolidated statement of earnings and in Note 8 to the unaudited interim
consolidated financial statements. A discussion of the significant expense
categories impacting the changes in noninterest expense follows:
SALARIES AND EMPLOYEE BENEFITS. These expenses represent the largest
category of noninterest expense and increased $5.3 million for the third quarter
of 2001 to $139.1 million when compared to the third quarter of 2000. Compared
to the second quarter of 2001, these expenses increased $5.9 million. For the
nine months ended September 30, 2001, salaries and employee benefits increased
$14.5 million over the same period last year. At September 30, 2001, Union
Planters had 12,023 full-time equivalent employees, compared to 12,767 and
12,358, respectively, at September 30, 2000 and June 30, 2001.
The increase in salaries and employee benefit expense was driven partially
by the Jefferson Savings and SOI acquisitions. Also contributing to the increase
was increased incentive compensation due to higher levels of production,
primarily in mortgage operations, as well as severance pay in connection with
the UPExcel program.
OCCUPANCY AND EQUIPMENT EXPENSE. Net occupancy and equipment expense was
$48.7 million for the third quarter of 2001, an increase of $4.3 million and
$254,000, respectively, from the third quarter of 2000 and second quarter of
2001. These expenses increased due to the Jefferson Savings and SOI acquisitions
and increased operating costs. For the nine months ended September 30, 2001,
these expenses were $145.0 million, an increase of $11.2 million over the same
period in 2000.
GOODWILL AND OTHER INTANGIBLES AMORTIZATION. The increase year over year
in the amortization of goodwill and other intangibles is attributable to the
Jefferson Savings and SOI acquisitions.
MORTGAGE INTANGIBLES EXPENSE. The lower interest-rate environment during
the third quarter of 2001 resulted in increased amortization of mortgage
servicing rights as well as a valuation allowance. For the third quarter of
2001, these expenses increased $10.4 million compared to the same period in 2000
and $11.5 million compared to the second quarter of 2001. For the nine months
ended September 30, 2001, these expenses increased $15.5 million compared to the
same period in 2000.
UPEXCEL PROJECT EXPENSE. During the first quarter of 2001, Union Planters
began a strategic initiative, UPExcel, to drive significant new business growth
and to better control costs. The UPExcel program is a comprehensive "grass
roots" self-improvement project that is designed to enhance client service,
identify opportunities for new revenue generation and expense savings, and
result in a more efficient and more profitable operation. At the end of the
second quarter, the project was entering the final planning phase, after which
implementation of the various initiatives was begun. Some of the changes
resulting from the project are already in place, including a new management
structure announced at the end of June as well as providing better customer
service. Included in noninterest expense for the third quarter of 2001 are $4.2
million of costs related to this project, which were considered a nonoperating
expense item by management. UPExcel is designed to be fully implemented over an
18-month period. These are forward-looking statements and actual results could
differ because of several factors, including those identified in this discussion
and in the discussion of Cautionary Statements Regarding Forward-Looking
Information.
OTHER MISCELLANEOUS EXPENSES. For the third quarter and the nine months
ended September 30, 2001, miscellaneous charge-offs increased $1.5 million and
$6.8 million, respectively, compared to the same periods in 2000. Compared to
the second quarter of 2001, miscellaneous charge-offs decreased $1.5 million.
Provisions for losses on FHA/VA foreclosure claims decreased $751,000 and
increased $1.4 million, respectively, for the three and nine months ended
September 30, 2001 compared to the same periods in 2000. Compared to the second
quarter of 2001, there was a decrease of $2.7 million.
23
Advertising and promotion expense for the third quarter of 2001 decreased
$1.6 million compared to the third quarter of 2000 and decreased $4.3 million
compared to the second quarter of 2001. For the nine months ended September 30,
2001, advertising and promotion expenses increased $171,000 compared to the same
period in 2000.
Credit-related expenses (expenses related to origination of loan products)
increased $5.2 million in the third quarter of 2001 to $7.8 million compared to
the third quarter of 2000. This compares to an increase of $2.0 million over the
second quarter of 2001. For the nine months ended September 30, 2001, these
expenses increased $10.3 million compared to the same period in 2000. The change
in credit-related expenses is attributable to the increase in loan production,
primarily mortgage loans.
24
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEET AND INTEREST RATES
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------------------
2001 2000
-------------------------------------- ------------------------------------
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.................................. $ 37,747 $ 409 4.30% $ 33,090 $ 825 9.92%
Federal funds sold and securities purchased
under agreements to resell................ 93,199 853 3.63 93,592 1,511 6.42
Trading account assets...................... 218,298 3,418 6.21 214,725 4,266 7.90
Investment securities (1) (2)
Taxable................................... 3,934,180 63,511 6.40 5,868,233 94,746 6.42
Tax-exempt................................ 1,128,421 21,785 7.66 1,223,732 23,339 7.59
------------ ---------- ------------ ----------
Total investment securities......... 5,062,601 85,296 6.68 7,091,965 118,085 6.62
Loans, net of unearned income (1) (3) (4)... 25,386,934 498,669 7.79 23,799,262 533,087 8.91
------------ ---------- ------------ ----------
TOTAL EARNING ASSETS (1) (2) (3) (4) 30,798,779 588,645 7.58 31,232,634 657,774 8.38
---------- ----------
Cash and due from banks..................... 731,088 867,145
Premises and equipment...................... 587,748 618,552
Allowance for losses on loans............... (337,339) (347,638)
Goodwill and other intangibles.............. 960,290 977,477
Other assets................................ 1,057,725 857,793
------------ ------------
TOTAL ASSETS........................ $ 33,798,291 $ 34,205,963
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Money market accounts....................... $ 4,855,052 $ 41,835 3.42% $ 3,795,223 $ 42,411 4.45%
Interest-bearing checking................... 3,111,517 10,540 1.34 3,143,839 11,880 1.50
Savings deposits............................ 1,347,694 4,783 1.41 1,431,130 5,165 1.44
Certificates of deposit of $100,000 and over 1,957,996 25,240 5.11 2,641,260 41,108 6.19
Other time deposits......................... 8,212,303 102,439 4.95 8,358,869 120,955 5.76
Short-term borrowings
Federal funds purchased and securities
sold under agreements to repurchase..... 2,847,994 24,469 3.41 3,032,833 47,501 6.23
Short-term senior notes................... -- -- -- 463,043 8,197 7.04
Other..................................... 599,437 5,556 3.68 2,396,097 41,162 6.83
Long-term debt
Federal Home Loan Bank advances........... 1,461,160 18,097 4.91 601,365 10,149 6.71
Subordinated capital notes................ 974,030 17,772 7.24 474,963 7,751 6.49
Medium-term senior notes.................. 41,739 713 6.78 60,000 1,025 6.80
Trust Preferred Securities................ 199,102 4,128 8.23 199,067 4,128 8.25
Other..................................... 102,727 1,816 7.01 152,875 3,614 9.40
------------ ---------- ------------ ----------
TOTAL INTEREST-BEARING LIABILITIES....... 25,710,751 257,388 3.97 26,750,564 345,046 5.13
Noninterest-bearing demand deposits......... 4,172,497 -- 3,996,811 --
------------ ---------- ------------- ----------
TOTAL SOURCES OF FUNDS................... 29,883,248 257,388 30,747,375 345,046
---------- ----------
Other liabilities........................... 772,767 694,978
Shareholders' equity
Preferred stock........................... 17,269 19,972
Common equity............................. 3,125,007 2,743,638
------------ ------------
Total shareholders' equity.............. 3,142,276 2,763,610
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY............................... $ 33,798,291 $ 34,205,963
============ ============
NET INTEREST INCOME (1)....................... $ 331,257 $ 312,728
========== ==========
INTEREST-RATE SPREAD (1)...................... 3.61% 3.25%
==== =====
NET INTEREST MARGIN (1)....................... 4.27% 3.98%
==== =====
TAXABLE-EQUIVALENT ADJUSTMENTS:
Loans..................................... $ 1,450 $ 1,407
Investment securities..................... 7,129 7,313
---------- ----------
TOTAL............................... $ 8,579 $ 8,720
========== ==========
----------------------
(1) Taxable-equivalent yields are calculated assuming a 35% federal income
tax rate.
(2) Yields are calculated on historical cost and exclude the impact of the
unrealized gain (loss) on available for sale securities.
(3) Includes loan fees in both interest income and the calculation of the
yield on income.
(4) Includes loans on nonaccrual status.
25
UNION PLANTERS CORPORATION AND SUBSIDIARIES
ANALYSIS OF VOLUME AND RATE CHANGES
THREE MONTHS ENDED SEPTEMBER 30,
2001 VERSUS 2000
-------------------------------------------
INCREASE (DECREASE)
DUE TO CHANGE IN: (1)
-------------------------- TOTAL
AVERAGE AVERAGE INCREASE
VOLUME RATE (DECREASE)
-------- -------- --------
(DOLLARS IN THOUSANDS)
INTEREST INCOME
Interest-bearing deposits at financial institutions ........................ $ 104 $ (520) $ (416)
Federal funds sold and securities purchased under agreements to resell ..... (6) (652) (658)
Trading account assets ..................................................... 71 (919) (848)
Investment securities (FTE) ................................................ (33,868) 1,079 (32,789)
Loans, net of unearned income (FTE) ........................................ 34,614 (69,032) (34,418)
-------- -------- --------
TOTAL INTEREST INCOME (FTE) ........................................ 915 (70,044) (69,129)
-------- -------- --------
INTEREST EXPENSE
Money market accounts ...................................................... 10,438 (11,014) (576)
Interest-bearing checking .................................................. (118) (1,222) (1,340)
Savings deposits ........................................................... (287) (95) (382)
Certificates of deposit of $100,000 and over ............................... (9,487) (6,381) (15,868)
Other time deposits ........................................................ (2,056) (16,460) (18,516)
Short-term borrowings ...................................................... (31,278) (35,557) (66,835)
Long-term debt ............................................................. 18,980 (3,121) 15,859
-------- -------- --------
TOTAL INTEREST EXPENSE ............................................. (13,808) (73,850) (87,658)
-------- -------- --------
CHANGE IN NET INTEREST INCOME (FTE) .......................................... $ 14,723 $ 3,806 $ 18,529
======== ======== ========
PERCENTAGE INCREASE IN NET INTEREST INCOME (FTE) FROM PRIOR PERIOD ........... 5.92%
========
--------------------
FTE = Fully taxable-equivalent basis
(1) The change due to both rate and volume has been allocated to change due
to volume and change due to rate in proportion to the relationship of
the absolute dollar amounts of the change in each.
26
UNION PLANTERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEET AND INTEREST RATES
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------------
2001 2000
---------------------------------- ----------------------------------
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 ...................................... $ 43,979 $ 1,546 4.70% $ 31,793 $ 1,632 6.86%
Federal funds sold and securities purchased
under agreements to resell ....................... 58,701 1,856 4.23 87,129 4,118 6.31
Trading account assets .............................. 224,964 12,064 7.17 221,686 12,682 7.64
Investment securities (1)(2)
Taxable ............................................ 4,580,886 223,478 6.52 6,126,819 294,928 6.43
Tax-exempt ......................................... 1,156,343 66,876 7.73 1,248,624 71,925 7.69
----------- ----------- ----------- ----------
Total investment securities ...................... 5,737,229 290,354 6.77 7,375,443 366,853 6.64
Loans, net of unearned income (1)(3)(4) ............. 25,461,043 1,563,729 8.21 22,965,988 1,518,378 8.83
----------- ----------- ----------- ----------
TOTAL EARNING ASSETS (1)(2)(3)(4) ................ 31,525,916 1,869,549 7.93 30,682,039 1,903,663 8.29
----------- ----------
Cash and due from banks .............................. 757,958 917,522
Premises and equipment ............................... 597,606 628,066
Allowance for losses on loans ........................ (339,423) (347,965)
Goodwill and other intangibles ....................... 964,628 968,688
Other assets ......................................... 1,011,390 927,280
----------- -----------
TOTAL ASSETS ...................................... $34,518,075 $33,775,630
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Money market accounts ............................... $ 4,387,373 $ 126,730 3.86% $ 3,845,602 $ 121,513 4.22%
Interest-bearing checking ........................... 3,133,237 32,926 1.40 3,285,154 36,984 1.50
Savings deposits .................................... 1,357,941 14,758 1.45 1,500,833 16,202 1.44
Certificates of deposit of $100,000 and over ........ 2,115,872 91,255 5.77 2,284,113 98,971 5.79
Other time deposits ................................. 8,442,603 343,527 5.44 8,343,814 338,411 5.42
Short-term borrowings
Federal funds purchased and securities
sold under agreements to repurchase ............... 3,370,256 111,612 4.43 2,679,909 117,332 5.85
Short-term senior notes ............................ -- -- -- 315,328 16,213 6.87
Other ............................................. 1,252,332 48,930 5.22 2,805,758 134,392 6.40
Long-term debt
Federal Home Loan Bank advances .................... 1,395,093 55,618 5.33 347,660 17,025 6.54
Subordinated capital notes ......................... 869,818 46,563 7.16 475,197 23,264 6.54
Medium-term senior notes ........................... 53,846 2,762 6.86 60,000 3,074 6.84
Trust Preferred Securities ......................... 199,093 12,383 8.32 199,058 12,383 8.31
Other .............................................. 102,970 6,264 8.13 156,973 10,912 9.29
----------- ----------- ----------- ----------
TOTAL INTEREST-BEARING LIABILITIES ................... 26,680,434 893,328 4.48 26,299,399 946,676 4.81
Noninterest-bearing demand deposits.................. 4,047,788 -- 4,027,572 --
----------- ----------- ----------- ----------
TOTAL SOURCES OF FUNDS............................ 30,728,222 893,328 30,326,971 946,676
----------- ----------
Other liabilities .................................... 722,948 641,031
Shareholders' equity
Preferred stock ..................................... 18,693 20,377
Common equity ....................................... 3,048,212 2,787,251
----------- -----------
TOTAL SHAREHOLDERS' EQUITY ......................... 3,066,905 2,807,628
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......... $34,518,075 $33,775,630
=========== ===========
NET INTEREST INCOME (1)............................... $ 976,221 $ 956,987
=========== ==========
INTEREST-RATE SPREAD (1).............................. 3.45% 3.48%
===== =====
NET INTEREST MARGIN (1)............................... 4.14% 4.17%
===== =====
TAXABLE-EQUIVALENT ADJUSTMENTS:
Loans............................................... $ 4,584 $ 4,084
Securities.......................................... 21,769 22,793
----------- ----------
TOTAL............................................. $ 26,353 $ 26,877
=========== ==========
----------------------
(1) Taxable-equivalent yields are calculated assuming a 35% federal income
tax rate.
(2) Yields are calculated on historical cost and exclude the impact of the
unrealized gain (loss) on available for sale securities.
(3) Includes loan fees in both interest income and the calculation of the
yield on loans.
(4) Includes loans on nonaccrual status.
27
NINE MONTHS ENDED SEPTEMBER 30,
2001 VERSUS 2000
-------------------------------------------
INCREASE (DECREASE)
DUE TO CHANGE IN: (1)
-------------------------- TOTAL
AVERAGE AVERAGE INCREASE
VOLUME RATE (DECREASE)
-------- -------- --------
(DOLLARS IN THOUSANDS)
INTEREST INCOME
Interest-bearing deposits at financial institutions ........................ $ 517 $ (603) $ (86)
Federal funds sold and securities purchased under agreements to resell ..... (1,124) (1,138) (2,262)
Trading account assets ..................................................... 183 (801) (618)
Investment securities (FTE) ................................................ (83,105) 6,606 (76,499)
Loans, net of unearned income (FTE) ........................................ 156,931 (111,580) 45,351
-------- -------- --------
TOTAL INTEREST INCOME .............................................. 73,402 (107,516) (34,114)
-------- -------- --------
INTEREST EXPENSE
Money market accounts ...................................................... 16,127 (10,910) 5,217
Interest-bearing checking .................................................. (1,676) (2,382) (4,058)
Savings deposits ........................................................... (1,566) 122 (1,444)
Certificates of deposit of $100,000 and over ............................... (7,344) (372) (7,716)
Other time deposits ........................................................ 3,785 1,331 5,116
Short-term borrowings ...................................................... (48,424) (58,971) (107,395)
Long-term debt ............................................................. 59,524 (2,592) 56,932
-------- -------- --------
TOTAL INTEREST EXPENSE ............................................. 20,426 (73,774) (53,348)
-------- -------- --------
CHANGE IN NET INTEREST INCOME (FTE) .......................................... $ 52,976 $(33,742) $ 19,234
======== ======== ========
PERCENTAGE INCREASE IN NET INTEREST INCOME (FTE) FROM PRIOR PERIOD ........... 2.01%
========
--------------------
FTE = Fully taxable-equivalent basis
(1) The change due to both rate and volume has been allocated to change due
to volume and change due to rate in proportion to the relationship of
the absolute dollar amounts of the change in each.
FINANCIAL CONDITION
Union Planters' total assets were $33.4 billion at September 30, 2001,
compared to $34.3 billion at September 30, 2000 and $34.7 billion at December
31, 2000. Average assets were $33.8 billion for the third quarter of 2001
compared to $34.2 billion for the third quarter of 2000.
Earning assets at September 30, 2001 were $30.5 billion compared to
$31.6 billion at December 31, 2000 and $31.5 billion at June 30, 2001. Average
earning assets were $30.8 billion for the third quarter of 2001 which compares
to $31.2 billion for the same period last year and compared to $31.7 billion for
the second quarter of 2001.
INVESTMENT SECURITIES
Union Planters' investment securities portfolio of $5.1 billion at
September 30, 2001 consisted entirely of available for sale securities, which
are carried on the balance sheet at fair value. This compares to investment
securities of $5.3 billion and $6.8 billion at June 30, 2001 and December 31,
2000, respectively. The decrease in investment securities is consistent with
management's strategy of reducing the proportion of investment securities to
total earning assets as loan growth occurs.
At September 30, 2001, the investment securities had net unrealized
gains of $141.6 million (before income taxes). This compares to a net unrealized
gain of $86.2 million and a net unrealized loss of $5.8 million, respectively,
at June 30, 2001 and December 31, 2000. The change from an unrealized loss in
the portfolio to an unrealized gain resulted from the decreasing interest-rate
environment and the portfolio restructuring. Reference is made to Note 3 to the
unaudited interim consolidated financial statements which provides the
composition of the investment portfolio at September 30, 2001 and December 31,
2000.
U.S. Treasury and U.S. Government agency obligations represented
approximately 53.4% of the investment securities portfolio at September 30,
2001, 84.7% of which were Collateralized Mortgage Obligations (CMOs) and
mortgage-backed securities issues. Union Planters has some credit risk in the
investment portfolio; however, management does not consider that risk to be
significant and does not believe that cash flows will be significantly impacted.
Reference is made to the "Net Interest Income" and "Asset/Liability and Market
Risk Management" discussions for information regarding the market-risk in the
investment securities portfolio.
28
The limited credit risk in the investment securities portfolio at
September 30, 2001 consisted of 18.0% investment grade CMOs, 22.8% municipal
obligations, and 5.8% other stocks and securities (primarily Federal Reserve
Bank and FHLB stock).
LOANS
Loans, net of unearned income, at September 30, 2001 were $23.9 billion
compared to $23.4 billion and $24.0 billion at September 30, 2000 and December
31, 2000, respectively. Loans held for resale were $1.2 billion at September 30,
2001 compared to $377.0 million and $457.1 million, respectively, at September
30, 2000 and December 31, 2000. The growth in loans held for resale relates to
the increase in mortgage production in the current decreasing interest-rate
environment. Note 4 to the unaudited interim consolidated financial statements
included in Part I. Item 1 of this report presents the composition of the loan
portfolio.
Average loans, excluding FHA/VA loans, were $25.2 billion for the third
quarter of 2001 compared to $23.4 billion for the same quarter in 2000 and
compared to $25.5 billion for the second quarter of 2001. Net of loan
divestitures and the liquidation of the indirect loan portfolio, average loans
increased during the third quarter by 9.4% compared to the same quarter last
year. This growth included 17.2% in residential real estate loans, 19.1% in
other mortgage loans, and 7.2% in commercial loans. This growth is driven by
continued strong mortgage production, growth in the majority of other loan
categories, and the acquisition of Jefferson Savings.
The recent decline in interest rates has increased the level of
mortgage loan refinancings as well as prepayments related to mortgage-backed
loans and investments. At September 30, 2001, approximately 29.1% of Union
Planters' earning assets were mortgage-backed loans and mortgage-backed
securities. Reference is made to the Asset/Liability and Market Risk Management
section of this discussion for additional information regarding the impact of
lower interest rates on interest income.
ALLOWANCE FOR LOSSES ON LOANS
Union Planters maintains the allowance for losses on loans (the
allowance) at a level deemed sufficient to absorb estimated losses incurred in
the loan portfolio at the balance sheet date. The allowance is reviewed
quarterly to assess the risk in the portfolio. This methodology includes
assigning loss factors to loans with similar characteristics for which estimates
of incurred probable loss can be assessed. The loss factors are based on
historical experience as adjusted for current business and economic conditions,
and are applied to the respective portfolios to assist in determination of the
overall adequacy of the allowance.
A periodic review of selected loans (based on loan size) is conducted
to identify loans with heightened risk or incurred losses. The primary
responsibility for this review rests with management personnel assigned with
accountability for the credit relationship. This review is supplemented with
periodic reviews by Union Planters' credit review function and regulatory
agencies. These reviews provide information which assists in the timely
identification of problems or potential problems and provide a basis for
determination of whether the credit represents a probable loss or risk which
should be recognized.
29
The following table provides a reconciliation of the allowance at the
dates indicated and certain key ratios for the nine-month periods ended
September 30, 2001 and 2000 and for the year ended December 31, 2000:
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------------- ------------
2001 2000 2000
---------- ---------- ------------
(DOLLARS IN THOUSANDS)
BALANCE AT THE BEGINNING OF PERIOD.......................... $ 335,452 $ 342,300 $ 342,300
LOANS CHARGED OFF
Commercial, financial, and agricultural................... 45,508 31,669 42,947
Foreign................................................... 22 118 120
Accounts receivable - factoring........................... 7,993 11,604 14,644
Real estate - construction................................ 2,058 2,854 3,292
Real estate - mortgage
Secured by 1-4 family residential...................... 43,150 8,174 12,810
Other mortgage......................................... 6,895 2,121 3,247
Home equity............................................... 1,098 1,225 1,334
Consumer.................................................. 38,557 38,397 52,959
Direct lease financing.................................... 586 -- 28
---------- ---------- ----------
Total charge-offs................................. 145,867 96,162 131,381
---------- ---------- ----------
RECOVERIES ON LOANS PREVIOUSLY CHARGED OFF
Commercial, financial, and agricultural................... 11,723 11,379 13,333
Foreign................................................... 437 177 214
Accounts receivable - factoring........................... 2,160 1,500 2,724
Real estate - construction................................ 614 626 2,173
Real estate - mortgage
Secured by 1-4 family residential....................... 18,734 1,383 1,943
Other mortgage.......................................... 2,478 5,589 5,834
Home equity............................................... 290 499 561
Consumer.................................................. 17,500 18,096 22,681
Direct lease financing.................................... 78 -- --
---------- ---------- ----------
Total recoveries.................................. 54,014 39,249 49,463
---------- ---------- ----------
Net charge-offs............................................. (91,853) (56,913) (81,918)
Provision charged to expense................................ 96,133 56,941 77,062
Decrease due to loan sales.................................. (3,291) (1,875) (1,992)
Increase due to acquisitions................................ 5,753 -- --
---------- ---------- ----------
BALANCE AT END OF PERIOD.......................... $ 342,194 $ 340,453 $ 335,452
========== ========== ==========
Total loans, net of unearned income, at end of period....... $23,861,623 $23,449,430 $23,957,494
Less: FHA/VA government insured/guaranteed loans............ 177,182 306,421 283,543
----------- ----------- -----------
LOANS USED TO CALCULATE RATIOS.................... $23,684,441 $23,143,009 $23,673,951
=========== =========== ===========
Average total loans, net of unearned income, during period.. $25,461,043 $22,965,988 $23,216,203
Less: Average FHA/VA government-insured/guaranteed loans.... 258,541 446,375 334,172
----------- ----------- -----------
AVERAGE LOANS USED TO CALCULATE RATIOS............ $25,202,502 $22,519,613 $22,882,031
=========== =========== ===========
RATIOS (1):
Allowance at end of period/loans, net of unearned income.. 1.44% 1.47% 1.42%
Charge-offs/average loans, net of unearned income (2)..... .77 .57 .57
Recoveries/average loans, net of unearned income (2)...... .28 .23 .21
Net charge-offs/average loans, net of unearned income (2). .49 .34 .36
Provision/average loans, net of unearned income (2)....... .51 .34 .34
--------------------
(1) Ratio calculations exclude FHA/VA government-insured/guaranteed loans
(FHA/VA loans), since they represent minimal credit risk.
(2) Amounts annualized for September 30, 2001 and 2000.
The allowance at September 30, 2001 was $342.2 million, an increase of
$6.7 million from December 31, 2000. The allowance at September 30, 2000 was
$340.5 million. The increase in the allowance from December 31, 2000 primarily
related to a $5.8 million increase from the acquisition of Jefferson Savings and
the provision for losses on loans exceeding net charge-offs by $4.3 million for
the first nine months of 2001. These increases were somewhat offset by a $3.3
million reduction due to loan sales.
Annualized net charge-offs as a percentage of average loans were .66%
for the third quarter of 2001 (.49% for the nine months ended September 30,
2001), an increase over .40% for the third quarter of 2000 (.34% for the first
nine months of 2000) and up from .43% for
30
the second quarter of 2001. The higher levels of charge-offs were primarily
related to the slowing economy and a net one-time charge of $8 million in the
third quarter of 2001 related to a fraud associated with a mortgage warehouse
line of credit.
NONPERFORMING ASSETS
NONACCRUAL, RESTRUCTURED, AND PAST DUE LOANS AND FORECLOSED PROPERTIES
SEPTEMBER 30,
-------------------------- JUNE 30,
2001 2000 2001
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
NONACCRUAL LOANS....................................................... $ 219,722 $ 133,434 $ 223,609
RESTRUCTURED LOANS..................................................... 873 1,524 1,166
---------- ---------- ----------
TOTAL NONPERFORMING LOANS.................................... 220,595 134,958 224,775
---------- ---------- ----------
FORECLOSED PROPERTIES
Other real estate owned, net......................................... 62,247 40,149 56,168
Other foreclosed property............................................ 1,370 1,425 1,593
---------- ---------- ----------
TOTAL FORECLOSED PROPERTIES.................................. 63,617 41,574 57,761
---------- ---------- ----------
TOTAL NONPERFORMING ASSETS................................... $ 284,212 $ 176,532 $ 282,536
========== ========== ==========
LOANS PAST DUE 90 DAYS OR MORE AND STILL ACCRUING INTEREST............. $ 152,564 $ 91,511 $ 131,995
========== ========== ==========
FHA/VA GOVERNMENT-INSURED/GUARANTEED LOANS
Loans past due 90 days or more and still accruing interest........... $ 68,339 $ 145,365 $ 120,362
Nonaccrual loans..................................................... 1,985 4,212 2,296
RATIOS (1):
Nonperforming loans/loans, net of unearned income.................... .93% .58% .93%
Nonperforming assets/loans, net of unearned income
plus foreclosed properties.......................................... 1.20 .76 1.17
Allowance for losses on loans/nonperforming loans.................... 155 252 153
Loans past due 90 days or more and still accruing
interest/loans, net of unearned income............................. .64 .40 .55
--------------------
(1) FHA/VA government-insured/guaranteed loans are excluded from loans in
the ratio calculations.
The breakdown of nonaccrual loans and loans past due 90 days or more
and still accruing interest, both excluding FHA/VA loans, is as follows:
NONACCRUAL LOANS (1) LOANS PAST DUE 90 DAYS OR MORE (1)
------------------------------------- -------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
----------------------- JUNE 30, ----------------------- JUNE 30,
2001 2000 2001 2001 2000 2001
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
LOAN TYPE
Commercial, financial, and agricultural.. $ 63,070 $ 60,772 $ 76,609 $ 20,746 $ 13,530 $ 19,176
Foreign.................................. 792 -- 685 30 49 30
Real estate - construction............... 20,901 14,963 25,602 7,780 2,460 5,268
Real estate - mortgage
Secured by 1-4 family residential..... 60,141 24,912 57,150 92,633 61,518 82,718
Other mortgage........................ 68,906 29,678 59,154 22,844 7,226 18,135
Home equity.............................. 4,390 1,267 2,809 3,292 997 1,062
Consumer................................. 1,507 1,826 1,582 5,085 5,148 5,240
Direct lease financing................... 15 16 18 154 583 366
--------- --------- --------- --------- --------- ---------
TOTAL............................ $ 219,722 $ 133,434 $ 223,609 $ 152,564 $ 91,511 $ 131,995
========= ========= ========= ========= ========= =========
--------------------
(1) See the preceding table for the amount of FHA/VA government-insured
guaranteed/loans on nonaccrual and past due 90 days or more and still
accruing interest.
LOANS OTHER THAN FHA/VA LOANS. Nonperforming assets increased $107.7
million over the third quarter of 2000 and $1.7 million over June 30, 2001. The
increase in nonperforming assets in 2001 is primarily attributable to increases
in nonaccrual loans and other real estate owned. The increase over 2000 was also
attributable to increases in nonaccrual loans and other real estate owned as
well as the acquisition of Jefferson Savings (acquired February 2001), which
increased nonperforming assets approximately $15 million. Management believes
the risk of losses in nonperforming assets will be mitigated by the diversity of
the loan portfolio and the generally sound collateralization practices across
the banking franchise. These are forward-looking statements, and actual results
could differ because of
31
several factors, including those mentioned in the Cautionary Statements
Regarding Forward-Looking Information at the beginning of this discussion.
Loans past due 90 days or more and still accruing interest totaled
$152.6 million, or .64% of loans, at September 30, 2001 compared to $91.5
million, or .40%, and $132.0 million, or .55% of loans, at September 30, 2000
and June 30, 2001, respectively. The preceding table details the composition of
these loans. As discussed above, the increase in these loans related primarily
to the slowing of the economy.
FHA/VA LOANS. FHA/VA government-insured/guaranteed loans do not, in
management's opinion, have traditional credit risk inherent in the balance of
the loan portfolio and risk of principal loss is considered minimal. FHA/VA
loans past due 90 days or more and still accruing interest totaled $68.3 million
at September 30, 2001 which compares to $145.4 million and $120.4 million at
September 30, 2000 and June 30, 2001, respectively. At September 30, 2001,
September 30, 2000, and June 30, 2001, $2.0 million, $4.2 million, and $2.3
million, respectively, of these loans were placed on nonaccrual status by
management because the contractual payment of interest by FHA/VA had stopped due
to missed filing dates. No loss of principal is expected from these loans.
FHA/VA FORECLOSURE CLAIMS
Provisions for losses related to FHA/VA claims are provided through
noninterest expense as provisions for losses on FHA/VA foreclosure claims and
the corresponding liability is carried in other liabilities. The provision for
losses on FHA/VA foreclosure claims was $45,000 and $2.6 million, respectively,
for the three and nine months ended September 30, 2001. At September 30, 2001,
the Company had a reserve for FHA/VA claims losses of $5.9 million compared to
$8.3 million and $11.2 million at June 30, 2001 and December 31, 2000,
respectively.
POTENTIAL PROBLEM ASSETS
Potential problem assets are assets which are generally collateralized
and not currently considered nonperforming, but where information about possible
credit problems has caused management to have serious doubts as to the ability
of the borrowers to comply in the future with present repayment terms.
Historically, these assets were loans, which became nonperforming. At September
30, 2001, Union Planters had potential problem assets of $55.5 million, composed
of 15 loans, the largest of which is $10.5 million. This compares to $44.4
million, or 13 loans, at June 30, 2001 and $44.1 million, or 11 loans, at
December 31, 2000.
DEPOSITS
Union Planters' core deposit base is its most important and stable
funding source and consists of deposits from the communities served by Union
Planters.
AVERAGE DEPOSITS
--------------------------------------------------------------------------
THREE MONTHS ENDED
------------------------------------------ NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- JUNE 30, ---------------------------
2001 2000 2001 2001 2000
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Noninterest-bearing demand............. $ 4,172,497 $ 3,996,811 $ 4,077,740 $ 4,047,788 $ 4,027,572
Money market........................... 4,855,052 3,795,223 4,351,669 4,387,373 3,845,602
Interest-bearing checking.............. 3,111,517 3,143,839 3,139,032 3,133,237 3,285,154
Savings................................ 1,347,694 1,431,130 1,375,179 1,357,941 1,500,833
Other time............................. 8,212,303 8,358,869 8,604,022 8,442,603 8,343,814
----------- ----------- ----------- ----------- -----------
Total average core deposits.. 21,699,063 20,725,872 21,547,642 21,368,942 21,002,975
Certificates of deposit of
$100,000 and over.................... 1,957,996 2,641,260 2,129,634 2,115,872 2,284,113
----------- ----------- ----------- ----------- -----------
Total average deposits ............ $23,657,059 $23,367,132 $23,677,276 $23,484,814 $23,287,088
=========== =========== =========== =========== ===========
Average deposits were $23.7 billion for the third quarter of 2001
compared to $23.4 billion for the third quarter of 2000 and $23.7 billion for
the second quarter of 2001. Driven by deposit growth, average core deposits for
the third quarter of 2001 increased $151.4 million over the second quarter of
2001. The deposit mix is shifting to more core funding as average brokered
deposits decreased $546.8 million compared to the third quarter of 2000 and
$122.9 million compared to the second quarter of 2001. Average certificates of
deposit of $100,000 and over decreased $683.3 million and $171.6 million
compared to the third quarter of 2000 and second quarter of 2001, respectively.
32
SHORT-TERM BORROWINGS
Short-term borrowings were $3.2 billion at September 30, 2001 compared
to $6.0 billion at September 30, 2000 and $4.0 billion at June 30, 2001. Average
short-term borrowings declined to $3.4 billion for the third quarter of 2001, a
decrease of $2.4 billion and $1.1 billion, respectively, compared to the same
quarter last year and the second quarter of 2001. This decrease is attributable
primarily to a decrease in short-term FHLB advances. The reduction was part of a
strategy by management to minimize the Company's interest-rate risk, to enhance
liquidity, reduce short-term borrowings, and improve the rate of return in
earning assets. The investment portfolio was restructured during the second
quarter and approximately $1 billion of available for sale investment securities
were sold, with a portion of the proceeds being used to reduce short-term
borrowings. Reference is made to the Investment Securities, Loan, and
Asset/Liability and Market Risk Management discussion for additional
information.
SHAREHOLDERS' EQUITY
Union Planters' total shareholders' equity increased by $290.8 million
from December 31, 2000 to $3.2 billion at September 30, 2001. The major items
affecting shareholders' equity are as follows:
- $148.8 million increase due to common stock issued in the
Jefferson Savings acquisition.
- $122.1 million increase due to retained net earnings (net
earnings less dividends paid).
- $ 93.5 million increase due to the net change in the
unrealized gain or loss on available for sale investment
securities.
- $ 14.1 million increase due to common stock issued for
employee benefit plans.
- $ 87.7 million decrease due to shares purchased (2.3 million
shares purchased).
On February 17, 2000, the Board of Directors authorized the purchase
from time to time of up to 7.1 million shares. The purchases were expected to
take place over a period of 18 to 24 months (beginning February 2000) either in
the open market or privately negotiated transactions. As of September 30, 2001,
1.6 million shares had been purchased under this plan. In addition, through
September 30, 2001, the Company has repurchased 2.3 million shares of the 4.4
million issued in the Jefferson Savings acquisition.
CAPITAL ADEQUACY
The following table presents capital adequacy information for Union Planters:
SEPTEMBER 30,
-------------------- DECEMBER 31,
2001 2000 2000
------ ------ ------------
CAPITAL ADEQUACY DATA
Total shareholders' equity/total assets (at period end) .................... 9.62% 8.17% 8.41%
Average shareholders' equity/average total assets .......................... 8.88 8.31 8.29
Tier 1 capital/unweighted average assets (leverage ratio) (1) .............. 7.23 6.36 6.53
--------------------
(1) Based on period-end capital and quarterly adjusted average assets.
33
The following table presents Union Planters' risk-based capital and
capital adequacy ratios. Union Planters' regulatory capital ratios qualify Union
Planters for the "well-capitalized" regulatory classification.
UNION PLANTERS CORPORATION
RISK-BASED CAPITAL
SEPTEMBER 30,
-------------------------- DECEMBER 31,
2001 2000 2000
---------- ---------- ------------
(DOLLARS IN THOUSANDS)
TIER 1 CAPITAL
Shareholders' equity............................................. $3,210,831 $ 2,797,546 $2,920,054
Trust Preferred Securities and minority interest in
consolidated subsidiaries....................................... 203,794 202,259 202,268
Less: Goodwill and other intangibles............................ (953,380) (968,381) (949,842)
Disallowed deferred tax asset......................... (369) (1,372) (557)
Unrealized (gain) loss on available for sale securities (89,647) 90,321 3,841
Other................................................. -- -- (191)
---------- ---------- ----------
TOTAL TIER 1 CAPITAL..................................... 2,371,229 2,120,373 2,175,573
TIER 2 CAPITAL
Allowance for losses on loans ................................... 317,043 309,493 315,385
Qualifying long-term debt........................................ 909,445 445,217 410,381
Other adjustments................................................ 623 -- --
---------- ---------- ----------
TOTAL CAPITAL BEFORE DEDUCTIONS.......................... 3,598,340 2,875,083 2,901,339
Less investment in unconsolidated subsidiaries................... (10,166) (9,610) (9,617)
---------- ---------- ----------
TOTAL CAPITAL............................................ $3,588,174 $2,865,473 $2,891,722
========== ========== ==========
RISK-WEIGHTED ASSETS............................................... $25,338,252 $24,728,512 $25,210,701
=========== =========== ===========
RATIOS AS A PERCENT OF END OF PERIOD RISK-WEIGHTED ASSETS
Tier 1 capital................................................... 9.36% 8.57% 8.63%
Total capital.................................................... 14.16 11.59 11.47
UNION PLANTERS BANK, NATIONAL ASSOCIATION
RISK-BASED CAPITAL
SEPTEMBER 30,
-------------------------- DECEMBER 31,
2001 2000 2000
---------- ---------- ------------
(DOLLARS IN THOUSANDS)
TIER 1 CAPITAL..................................................... $2,290,352 $1,987,810 $2,035,611
TOTAL CAPITAL...................................................... 2,887,289 2,585,379 2,638,959
RISK-WEIGHTED ASSETS............................................... 24,479,702 24,464,143 24,947,809
RATIOS
Leverage......................................................... 7.25% 6.05% 6.19%
Tier 1 risk-based capital........................................ 9.36 8.13 8.16
Total risk-based capital......................................... 11.79 10.57 10.58
LIQUIDITY
Union Planters requires liquidity sufficient to meet cash requirements
for deposit withdrawals, to make new loans and satisfy loan commitments, to take
advantage of attractive investment opportunities, and to repay borrowings at
maturity. Deposits, available for sale securities and money market investments
are Union Planters' primary sources of liquidity. Liquidity is also achieved
through short-term borrowings, borrowings under available lines of credit, and
issuance of securities and debt instruments in the financial markets. Union
Planters believes it has adequate liquidity to meet its operating requirements.
Parent company liquidity is achieved and maintained by dividends
received from subsidiaries, interest on advances to subsidiaries, and interest
on its available for sale investment securities portfolio. At September 30,
2001, the parent company had cash and cash equivalents totaling $408.3 million,
which compares to $508.4 million and $154.6 million, respectively, at June 30,
2001 and December 31, 2000. Net working capital (total assets maturing within
one year less similar liabilities) was $393.1 million, which compares to $493.0
million and $162.8 million, respectively, at June 30, 2001 and December 31,
2000. The increase in parent company liquidity relates to the issuance of $500
million of subordinated notes in February 2001.
At October 1, 2001, the parent company could have received dividends
from subsidiaries of $336 million without prior regulatory approval. The payment
of dividends by Union Planters' subsidiaries will be dependent on the future
earnings and growth of the
34
subsidiaries. Management believes that the parent company has adequate liquidity
to meet its cash needs, including the payment of its regular dividends and
servicing of its debt.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET/LIABILITY AND MARKET RISK MANAGEMENT
Union Planters' assets and liabilities are principally financial in
nature, and the resulting earnings, primarily net interest income, are subject
to changes as a result of fluctuations in market interest rates and the mix of
the various assets and liabilities. Interest rates in the financial markets
affect decisions on pricing its assets and liabilities, which impacts net
interest income, which was approximately 63.7% of Union Planters' operating
revenues for the nine months ended September 30, 2001. As a result, a
substantial part of Union Planters' risk management activities are devoted to
managing interest-rate risk. Currently, Union Planters does not have any
significant risks related to foreign exchange, commodities or equity risk
exposure.
INTEREST-RATE RISK. One of the most important aspects of management's
efforts to sustain long-term profitability for Union Planters is the management
of interest-rate risk. Management's goal is to maximize net interest income
within acceptable levels of interest-rate risk and liquidity. To achieve this
goal, a proper balance must be maintained between assets and liabilities with
respect to size, maturity, repricing date, rate of return, and degree of risk.
The Union Planters' Asset/Liability Management Committee (the ALCO
Committee) oversees the conduct of asset/liability and interest-rate management.
The ALCO Committee meets monthly and reviews the outlook for the economy and
interest rates, Union Planters' balance sheet structure, and yields on earning
assets and rates on interest-bearing liabilities. Union Planters uses two
methods to measure interest-rate risk, interest-rate sensitivity analysis and
simulation analysis.
The following table summarizes the changes in Union Planters'
interest-rate sensitivity and volatility due to interest-rate changes over the
past three quarters:
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
2001 2001 2001 2000
------------- -------- --------- ------------
1-Year GAP.......................................... 3% (1%) (6%) 13%
1-Year simulation
200 basis points immediate increase in rates..... +0.5% -3.9% -7.6% -15.3%
200 basis points immediate decrease in rates..... -4.5 -3.0 +1.5 +7.6
"Most likely" interest rate scenario.............. -0.1 -0.2 -0.4 +2.6
Interest-rate sensitivity analysis (GAP analysis) is used to monitor
the amounts and timing of balances exposed to changes in interest rates. The
analysis has been made at a point in time and could change significantly on a
daily basis. At September 30, 2001, the interest-rate sensitivity gap within the
one-year period was 3% of Union Planters' total assets with $1.1 billion more
assets repricing than liabilities. This compares to (1)% of Union Planters'
total assets at June 30, 2001 with $474 million more liabilities repricing than
assets. This shift to an asset-sensitive position has been influenced greatly by
the acceleration of prepayments on assets and additional scheduled asset sales;
however, since December 31, 2000, the one-year cumulative GAP change has been a
planned shift to a less liability sensitive position and has occurred mostly
from the following initiatives: (i) issuance of subordinated debt, (ii) loan
sales, (iii) investment securities sale, (iv) long-term certificate of deposit
promotion, and (v) retirement of short-term borrowings. Reference is made to the
Investment Securities, Loans, and Short-Term Borrowings discussions.
Interest-rate risk is evaluated by conducting balance sheet simulation
analysis to project net interest income for twelve months forward under
different interest-rate scenarios. Each of these scenarios is compared with a
base case scenario wherein current market rates and current period balances are
held constant for the simulation period.
The scenarios include immediate and parallel "shocks" to current
interest rates of 200 basis points up and down and a "most likely" scenario in
which current rates are moved according to economic forecasts and management's
expectations of changes in administered rates.
The results of these simulations are compared to policy guidelines
approved by the ALCO Committee. The policy limits the changes in net interest
income to 20% of net earnings when compared with the base case (flat) scenario.
The simulation results have consistently been within the policy guidelines.
35
At September 30, 2001, the 200 basis point immediate rise in interest
rates produced a projected .52% ($2.3 million after-tax) increase in net
earnings, which compares to a projected 3.9% ($17.0 million after-tax) decrease
at June 30, 2001. The 200 basis point immediate fall in interest rates produced
a projected 4.5% ($19.9 million after-tax) decrease in net earnings versus a
projected 3.0% ($13 million after-tax) decrease at June 30, 2001. The "most
likely" calculated scenario at September 30, 2001 produced a projected 0.1%
($0.5 million after-tax) decrease in net earnings compared to a projected .2%
($1.0 million after-tax) decrease in net earnings at June 30, 2001. The "most
likely" scenario at September 30, 2001 assumed the Federal Funds rate decreases
50 basis points to 2.0% over the next three months and then increases to 3.75%
over the remaining nine months of the twelve-month period. The "most likely"
scenario at June 30, 2001 assumed the Federal Funds rate decreased 25 basis
points over the first three months and then remained flat over the remainder of
the twelve-month period. These are forward-looking statements, and actual
results could differ because of several factors, including those identified in
this discussion and in the discussion of Cautionary Statements Regarding
Forward-Looking Information.
The key assumptions used in simulation analysis include the following:
- prepayment rates on mortgage-related assets
- cash flows and maturities of all financial instruments
- changes in volumes and pricing
- future shapes of the yield curve
- money market spreads
- credit spreads
- deposit sensitivity
- management's financial capital plan
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, the difference between actual experience and
the characteristics assumed, and changes in market conditions and management
strategies.
36
UNION PLANTERS CORPORATION AND SUBSIDIARIES
RATE SENSITIVITY ANALYSIS AT SEPTEMBER 30, 2001
INTEREST-SENSITIVE WITHIN (1) (7)
---------------------------------------------------------------------------------------------
NON-
0-90 91-180 181-365 1-3 3-5 5-15 OVER 15 INTEREST-
DAYS DAYS DAYS YEARS YEARS YEARS YEARS BEARING TOTAL
------- ------ ------- ------ ------ ------- ------ ------- -------
(DOLLARS IN MILLIONS)
ASSETS
Loans and leases (2) (3) (4) ..... $ 9,405 $2,044 $ 3,208 $6,300 $1,861 $ 421 $ 30 $ 614 $23,883
Investment securities (5) (6) .... 539 292 420 1,751 1,038 769 172 142 5,123
Other earning assets ............. 1,564 -- -- -- -- -- -- -- 1,564
Other assets ..................... -- -- -- -- -- -- -- 2,817 2,817
------- ------ ------- ------ ------ ------- ------ ------- -------
TOTAL ASSETS ............. $11,508 $2,336 $ 3,628 $8,051 $2,899 $ 1,190 $ 202 $ 3,573 $33,387
======= ====== ======= ====== ====== ======= ====== ======= =======
SOURCES OF FUNDS
Money market deposits (7) (8) .... $ 1,762 $ -- $ 1,653 $1,704 $ -- $ -- $ -- $ -- $ 5,119
Savings and interest-bearing
checking deposits (7) (8) ...... 1,455 -- -- 1,455 -- 1,498 -- -- 4,408
Other time deposits .............. 2,214 1,765 1,706 1,877 322 28 2 -- 7,914
Certificates of deposit of
$100,000 and over .............. 658 386 354 364 54 1 -- -- 1,817
Short-term borrowings ............ 3,224 -- 1 -- -- -- -- -- 3,225
Short- and medium-term
Senior notes ................. 20 -- -- -- -- -- -- -- 20
Federal Home Loan Bank
Advances ...................... 500 -- 600 131 11 220 -- -- 1,462
Other long-term debt ............. 102 -- -- 75 100 800 199 -- 1,276
Noninterest-bearing deposits ..... -- -- -- -- -- -- -- 4,240 4,240
Other liabilities ................ -- -- -- -- -- -- -- 695 695
Shareholders' equity ............. -- -- -- -- -- -- -- 3,211 3,211
------- ------ ------- ------ ------ ------- ------ ------- -------
TOTAL SOURCES OF FUNDS ... $ 9,935 $2,151 $ 4,314 $5,606 $ 487 $ 2,547 $ 201 $ 8,146 $33,387
======= ====== ======= ====== ====== ======= ====== ======= =======
INTEREST-RATE SENSITIVITY GAP ...... $ 1,573 $ 185 $ (686) $2,445 $2,412 $(1,357) $ 1 $(4,573) $ --
CUMULATIVE INTEREST-RATE
SENSITIVITY GAP (8) .............. 1,573 1,758 1,072 3,517 5,929 4,572 4,573 -- --
CUMULATIVE GAP AS A
PERCENTAGE OF TOTAL ASSETS (8) ... 5% 5% 3% 11% 18% 14% 14% --% --%
POLICY ............................ none +/-15% +/-10% +/-5% >0% >0% >0%
--------------------
Management has made the following assumptions in presenting the above analysis:
(1) Assets and liabilities are generally scheduled according to their
earliest repricing dates regardless of their contractual maturities.
(2) Nonaccrual loans and accounts receivable-factoring are included in the
noninterest-bearing category.
(3) Fixed-rate mortgage loan maturities include estimates of principal
prepayments using industry estimates of prepayment speeds for various
coupon segments of the portfolio.
(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 calculated within a
proprietary cash flow model.
(6) Securities are generally scheduled according to their call dates when
valued at a premium to par.
(7) Money market deposits and savings deposits that have no contractual
maturities are scheduled according to management's best estimate of
their repricing in response to changes in market rates. The impact of
changes in market rates would be expected to vary by product type and
market.
(8) If all money market, NOW, and savings deposits had been included in the
0-90 Days category above, the cumulative gap as a percentage of total
assets would have been negative (14%), (14%), and (11%), respectively,
for the 0-90 Days, 91-180 Days and 181-365 Days categories and positive
6%, 13%, 14%, and 14%, respectively, for the 1-3 Years, 3-5 Years, 5-15
Years, and over 15 Years categories at September 30, 2001.
37
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
Union Planters' and/or its various subsidiaries are parties to certain
pending or threatened civil actions, including an action that was filed on
February 20, 2001, which are described in Item 3, Part I of the Union Planters'
2000 10-K, in Note 20 to Union Planters' consolidated financial statements, on
page 67 of the 2000 Annual Report, and Note 13 to Union Planters' unaudited
interim consolidated financial statements included herein under Item 1 of Part
I. Various other legal proceedings pending against Union Planters and /or its
subsidiaries have arisen in the ordinary course of business.
Based upon present information, including evaluations of certain
actions by outside counsel, management believes that neither Union Planters'
financial position, results of operations, nor liquidity will be materially
affected by the ultimate resolution of pending or threatened legal proceedings.
There were no significant developments during the third quarter of 2001 in any
of the pending or threatened actions that affected such opinion.
ITEM 2 -- CHANGES IN SECURITIES
None
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 -- OTHER INFORMATION
None
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
11 Computation of Per Share Earnings (incorporated by
reference to Note 10 to Union Planters' unaudited
interim consolidated financial statements included
herein)
b) Reports on Form 8-K:
Date of Current Report Subject
------------------------- -----------------------------------------
1. July 19, 2001 Press release announcing second quarter
2001 net earnings, reported under Item 5.
2. October 18, 2001 Press release announcing third quarter
2001 net earnings, reported under Item 5.
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNION PLANTERS CORPORATION
-------------------------------------
(Registrant)
Date: November 14, 2001
By: /s/ Jackson W. Moore
-------------------------------------
Jackson W. Moore, Chairman,
President and Chief Executive Officer
By: /s/ Bobby L. Doxey
------------------------------------
Bobby L. Doxey
Senior Executive Vice President,
Chief Financial Officer, and
Chief Accounting Officer
39
UNION PLANTERS CORPORATION
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
---------- --------------------------------------------------------------------
11 Computation of Per Share Earnings (incorporated by reference to Note
10 to Union Planters' unaudited interim consolidated financial
statements included herein)
1