<PAGE> 1
===============================================================================
- -------------------------------------------------------------------------------
FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington , D.C. 20549
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
-------------------------------------------------
Commission File Number 0-3613
SOUTHTRUST CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 63-0574085
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification NO.)
420 NORTH 20TH STREET, BIRMINGHAM, ALABAMA 35203
(Address of principal executive officers) (Zip Code)
(205) 254-5509
(Registrant's telephone number, including area code)
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 proceeding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
At September 30, 1997, 99,793,613 shares of the Registrant's Common Stock,
$2.50 par value were outstanding.
- -------------------------------------------------------------------------------
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<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement Description Page No.
- ------------------------------------------------------------------------------------------------------
<S> <C>
Consolidated Condensed Statements of Condition
September 30, 1997, December 31, 1996 and September 30, 1996 3
Consolidated Condensed Statements of Income
Three months and nine months ended September 30, 1997 and 1996 4
Consolidated Condensed Statements of Stockholders' Equity
Nine months ended September 30, 1997 and
year ended December 31, 1996 5
Consolidated Condensed Statements of Cash Flows
Nine months ended September 30, 1997 and 1996 6
</TABLE>
The Consolidated Condensed Financial Statements were prepared by the
Company without an audit, but in the opinion of management, reflect all
adjustments necessary for the fair presentation of the Company's financial
position and results of operations for the nine month periods ended September
30, 1997 and 1996. Results of operations for the interim 1997 period are not
necessarily indicative of results expected for the full year. While certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities
and Exchange Commission, the Company believes that the disclosures herein are
adequate to make the information presented not misleading. These condensed
financial statements should be read in conjunction with the Consolidated
Financial Statements and the notes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1996. The accounting
policies employed are the same as those shown in Note A to the Consolidated
Financial Statements on Form 10-K.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Management's Discussion and Analysis of the registrant is included on Pages
8-24.
2
<PAGE> 3
SOUTHTRUST CORPORATION
Consolidated Condensed Statements of Condition
(Unaudited)
<TABLE>
<CAPTION>
September 30 December 31 September 30
-------------- ------------ ------------
(Dollars in thousands) 1997 1996 1996
-------------- ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 836,684 $ 903,134 $ 833,531
Short-term investments:
Federal funds sold and securities purchased
under resale agreements 72,050 12,180 72,512
Interest-bearing deposits in other banks 19,557 4,185 14,725
Trading securities 36,331 17,850 4,775
Loans held for sale 333,724 191,309 267,849
------------- ------------ ------------
Total short-term investments 461,662 225,524 359,861
Available-for-sale securities 3,349,776 2,859,012 2,873,937
Held-to-maturity securities (1) 2,419,125 1,956,596 1,729,728
Loans 21,816,697 19,466,650 18,178,991
Less:
Unearned income 148,907 135,518 121,232
Allowance for loan losses 310,725 269,863 252,883
------------- ------------ ------------
Net loans 21,357,065 19,061,269 17,804,876
Premises and equipment, net 575,002 510,043 490,949
Due from customers on acceptances 9,255 26,599 14,110
Other assets 755,625 681,016 668,958
------------- ------------ ------------
Total assets $ 29,764,194 $ 26,223,193 $ 24,775,950
============= ============ ============
LIABILITIES
Deposits:
Interest-bearing $ 16,890,200 $ 14,725,077 $ 14,196,995
Other 2,120,715 2,580,416 2,427,664
------------- ------------ ------------
Total deposits 19,010,915 17,305,493 16,624,659
Federal funds purchased and securities sold
under agreements to repurchase 3,633,300 3,205,948 2,888,502
Other short-term borrowings 1,145,769 865,053 1,036,126
Bank acceptances outstanding 9,267 26,599 14,110
Federal Home Loan Bank advances 2,532,359 1,744,159 1,397,163
Long-term debt 981,893 983,243 783,527
Other liabilities 435,612 357,806 353,673
------------- ------------ ------------
Total liabilities 27,749,115 24,488,301 23,097,760
STOCKHOLDERS' EQUITY
Preferred Stock, par value $1.00 a share,
5,000,000 shares authorized; issued and outstanding - none 0 0 0
Common Stock, par value $2.50 a share,
300,000,000 shares authorized (2) 251,129 241,958 241,729
Capital surplus 491,986 410,642 409,091
Retained earnings 1,264,581 1,100,170 1,052,907
Unrealized gain/(loss) on available-for-sale securities 18,288 (7,520) (15,329)
Treasury stock at cost (3) (10,905) (10,358) (10,208)
------------- ------------ ------------
Total stockholders' equity 2,015,079 1,734,892 1,678,190
------------- ------------ ------------
Total liabilities and stockholders' equity $ 29,764,194 $ 26,223,193 $ 24,775,950
============= ============ ============
(1) Held-to-maturity securities-fair value $ 2,452,014 $ 1,979,094 $ 1,746,430
(2) Common shares outstanding 100,451,728 96,783,114 96,691,536
(3) Treasury shares of common stock 658,115 644,308 639,548
</TABLE>
3
<PAGE> 4
SOUTHTRUST CORPORATION
Consolidated Condensed Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- --------------------------
(In thousands, except per share data) 1997 1996 1997 1996
--------------------------- --------------------------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $470,564 $385,482 $1,348,802 $1,076,672
Interest on available-for-sale securities 56,242 46,900 161,631 134,261
Interest on held-to-maturity securities:
Taxable 36,447 25,479 103,876 72,160
Non-taxable 3,506 3,827 10,291 12,425
--------------------------- --------------------------
Total interest on held-to-maturity securities 39,953 29,306 114,167 84,585
Interest on short-term investments 7,483 5,895 18,478 16,818
--------------------------- --------------------------
Total interest income 574,242 467,583 1,643,078 1,312,336
--------------------------- --------------------------
Interest expense
Interest on deposits 194,575 163,992 547,002 473,255
Interest on short-term borrowings 67,679 52,558 203,057 144,129
Interest on Federal Home Loan Bank advances 30,450 15,724 75,446 36,284
Interest on long-term debt 15,744 9,859 45,198 28,667
--------------------------- --------------------------
Total interest expense 308,448 242,133 870,703 682,335
--------------------------- --------------------------
Net interest income 265,794 225,450 772,375 630,001
Provision for loan losses 20,002 21,905 68,879 62,830
--------------------------- --------------------------
Net interest income after
provision for loan losses 245,792 203,545 703,496 567,171
Non-interest income
Service charges on deposit accounts 32,686 28,738 94,320 79,518
Mortgage banking operations 7,135 8,606 19,996 30,796
Bank card fees 5,535 5,417 17,142 16,398
Trust fees 6,171 5,298 17,904 15,804
Other fees 11,307 8,554 31,428 27,020
Securities gains, net 1,053 86 1,451 142
Other 5,909 3,811 13,579 15,900
--------------------------- --------------------------
Total non-interest income 69,796 60,510 195,820 185,578
--------------------------- --------------------------
Non-interest expense
Salaries and employee benefits 105,202 81,956 298,065 241,552
Net occupancy 15,216 12,924 43,594 37,254
Equipment 11,785 9,442 32,978 26,691
Professional services 14,401 10,862 37,783 31,888
Deposit insurance 1,021 16,020 2,620 19,703
Communications 9,073 7,847 26,359 22,667
Business development 7,348 5,499 21,446 16,458
Supplies 5,711 4,247 16,499 12,118
Other 23,230 20,456 69,842 63,401
--------------------------- --------------------------
Total non-interest expense 192,987 169,253 549,186 471,732
--------------------------- --------------------------
Income before income taxes 122,601 94,802 350,130 281,017
Income tax expense 44,113 29,081 125,375 94,732
--------------------------- --------------------------
Net income $78,488 $65,721 $ 224,755 $186,285
=========================== ==========================
Average number of shares outstanding (000's) 100,692 96,673 99,874 94,066
Net income per share $0.78 $0.68 $2.25 $1.98
Dividends declared per share $0.25 $0.22 $0.75 $0.66
</TABLE>
4
<PAGE> 5
SOUTHTRUST CORPORATION
Consolidated Condensed Statements of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Common Capital Retained Gain/(Loss), Treasury
(Dollars in thousands) Stock Surplus Earnings net Stock Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $220,996 $340,608 $ 885,129 $ (9,635) $ (6,228) $ 1,430,870
Net Income 0 0 254,703 0 0 254,703
Dividends Declared ($.88 per share) 0 0 (82,546) 0 0 (82,546)
Issuance of 221,166 shares of Common Stock
for stock options exercised 553 1,870 0 0 0 2,423
Issuance of 191,319 shares of Common Stock
for dividend reinvestment and stock 478 4,946 0 0 0 5,424
purchase plan
Issuance of 33,028 shares of Common Stock
under employee discounted stock
purchase plan 83 625 0 0 0 708
Issuance of 7,627,472 shares of Common Stock
for acquisitions accounted for as pooling-of-interests 19,069 55,710 42,884 0 0 117,663
Issuance of 307,338 shares of Common Stock
for acquisitions accounted for as purchases 768 6,869 0 0 0 7,637
Issuance of 4,593 shares of Common Stock
for conversion of debentures 11 14 0 0 0 25
Unrealized loss, net, on available-for-sale securities 0 0 0 2,115 0 2,115
Purchase of 149,793 shares of treasury stock 0 0 0 0 (4,130) (4,130)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $241,958 $410,642 $ 1,100,170 $ (7,520) $(10,358) $ 1,734,892
Net Income 0 0 224,755 0 0 224,755
Dividends Declared ($.75 per share) 0 0 (74,632) 0 0 (74,632)
Issuance of 167,876 shares of Common Stock
for stock options exercised 420 1,873 0 0 0 2,293
Issuance of 121,448 shares of Common Stock
for dividend reinvestment and stock
purchase plan 304 4,368 0 0 0 4,672
Issuance of 28,594 shares of Common Stock
under employee discounted stock
purchase plan 71 865 0 0 0 936
Issuance of 1,270,031 shares of Common Stock
for acquisitions accounted for as pooling-of-interests 3,175 5,980 14,288 0 0 23,443
Issuance of 57,653 shares of Common Stock under
long-term incentive plan 144 1,271 0 0 0 1,415
Issuance of 2,023,012 shares of Common Stock in
secondary offering 5,057 66,987 0 0 0 72,044
Unrealized gain, net, on available-for-sale securities 0 0 0 25,808 0 25,808
Purchase of 13,807 shares of treasury stock 0 0 0 0 (547) (547)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30,1997 $251,129 $491,986 $ 1,264,581 $ 18,288 $(10,905) $ 2,015,079
==================================================================================================================================
</TABLE>
5
<PAGE> 6
SOUTHTRUST CORPORATION
Consolidated Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
--------------------------
(In thousands) 1997 1996
--------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 224,755 $ 186,285
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision (credit) for:
Loan losses 68,880 62,830
Depreciation of premises and equipment 28,059 23,913
Amortization of intangibles 18,814 18,311
Amortization of security premium 428 1,845
Accretion of security discount (2,607) (2,440)
Deferred income tax 2,775 10,972
Net realized and unrealized gain on assets held for sale (15,576) (14,862)
Net securities gains (1,451) (142)
Origination and purchase of loans held for sale (2,683,297) (1,551,760)
Proceeds of loans held for sale 2,548,892 1,531,401
Net (increase) decrease in trading securities (10,916) 17,379
Net (increase) decrease in other assets 29,128 (73,997)
Net increase (decrease) in other liabilities 39,914 (44,279)
----------- -----------
Net cash provided by operating activities 247,798 165,456
INVESTING ACTIVITIES
Proceeds from maturities of:
Held-to-maturity securities 437,614 778,313
Available-for-sale securities 239,637 97,556
Proceeds from sales of:
Held-to-maturity securities 0 0
Available-for-sale securities 315,516 225,208
Purchases of:
Held-to-maturity securities (884,122) (764,970)
Available-for-sale securities (983,949) (580,392)
Premises and equipment (73,930) (59,690)
Net (increase) decrease in:
Short-term investments (28,046) 61,668
Loans (1,952,274) (2,221,243)
Purchase of subsidiaries, net of cash acquired 779,859 23,584
----------- -----------
Net cash used in investing activities (2,149,695) (2,439,966)
FINANCING ACTIVITIES
Proceeds from issuance of:
Common Stock 81,360 6,805
Federal Home Loan Bank advances 2,608,750 938,259
Long-term debt 0 250,000
Payments for:
Federal Home Loan Bank advances (1,821,550) (283,004)
Long-term debt (1,350) (3,621)
Repurchase of Common Stock (547) (3,980)
Cash dividends (56,627) (61,521)
Net increase in:
Deposits 317,901 819,156
Short-term borrowings 707,510 672,291
----------- -----------
Net cash provided by financing activities 1,835,447 2,334,385
----------- -----------
INCREASE/(DECREASE) IN CASH AND DUE FROM BANKS (66,450) 59,875
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 903,134 773,656
----------- -----------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 836,684 $ 833,531
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest $ 864,952 $ 660,072
Income taxes 106,662 103,883
Noncash transactions:
Assets acquired in business combinations 1,463,289 1,524,082
Liabilities acquired in business combinations 1,391,633 1,392,932
Loans transferred to other real estate 24,735 13,390
Loans securitized into mortgage-backed securities 722,691 620,363
</TABLE>
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Statement of Financial Accounting Standards (SFAS) No.128,
Earnings per Share
In February 1997 the Financial Accounting Standards Board issued SFAS
No.128, Earnings per Share. This statement is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods; earlier adoption is not permitted. This statement will require
restatement for all prior-period earnings per share (EPS) data presented.
SFAS No.128 simplifies the standards for computing EPS previously
found in APB Opinion No.15, Earnings per Share, and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with
the presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income
available to common shareholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to Opinion 15.
EPS as calculated under Opinion 15, and as shown on the consolidated
condensed statement of income contained herein, and in the following
Management's Discussion and Analysis, for the nine-month periods ended
September 30, 1997 and September 30, 1996 was $2.25 and $1.98, respectively.
The restated basic EPS amounts for those same periods in 1997 and 1996, had
SFAS No.128 been in effect, would have been $2.27 and $1.99, respectively. The
restated diluted EPS amounts for those same periods in 1997 and 1996, had SFAS
No.128 been in effect, would have been $2.25 and $1.98, respectively.
7
<PAGE> 8
Selected Quarterly Financial Data Table 1
(Dollars in millions except per share data)
<TABLE>
<CAPTION>
Quarters Ended
-----------------------------------------------------------------
1997 1996
--------------------------------------- ------------------------
Sept 30 Jun 30 Mar 31 Dec 31 Sept 30
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Earnings Summary:
Interest income $ 574.2 $ 558.2 $ 510.7 $ 491.9 $ 467.6
Interest expense 308.4 296.2 266.1 255.9 242.1
----------- ----------- ----------- ----------- -----------
Gross interest margin 265.8 262.0 244.6 236.0 225.5
Provision for loan losses 20.0 26.5 22.4 27.2 21.9
----------- ----------- ----------- ----------- -----------
Net interest margin 245.8 235.5 222.2 208.8 203.6
Non-interest income (excluding
securities transactions) 68.7 63.8 61.9 68.0 60.4
Securities transactions 1.1 0.3 0.1 1.3 0.1
Non-interest expense 193.0 182.2 174.1 171.6 169.3
----------- ----------- ----------- ----------- -----------
Income before income taxes 122.6 117.4 110.1 106.5 94.8
Income taxes 44.1 42.0 39.2 38.1 29.1
----------- ----------- ----------- ----------- -----------
Net income $ 78.5 $ 75.4 $ 70.9 $ 68.4 $ 65.7
=========== =========== =========== =========== ===========
Per common share:
Net income $ 0.78 $ 0.75 $ 0.72 $ 0.71 $ 0.68
Cash dividends declared 0.25 0.25 0.25 0.22 0.22
Book value 20.19 19.57 18.78 18.05 17.47
Market value-high 50.94 42.00 41.63 36.13 31.75
Market value-low 39.38 35.88 34.50 30.88 26.50
Ending balances:
Assets $ 29,764.2 $ 29,192.9 $ 27,350.1 $ 26,223.2 $ 24,776.0
Deposits 19,010.9 18,679.4 17,593.6 17,305.5 16,624.7
Loans, net of unearned income 21,667.8 21,105.9 20,145.5 19,331.1 18,057.8
Long-term debt 981.9 982.3 982.8 983.2 783.5
Stockholders' equity 2,015.1 1,951.7 1,870.5 1,734.9 1,678.2
Common shares (thousands) 99,794 99,713 99,619 96,139 96,052
Average balances:
Assets $ 29,087.7 $ 28,385.6 $ 26,450.9 $ 25,176.5 $ 23,911.7
Deposits 18,636.1 17,825.7 17,102.7 16,805.5 16,140.6
Loans, net of unearned income 21,333.6 20,728.0 19,575.3 18,576.6 17,446.4
Earning assets 27,408.7 26,712.1 24,801.9 23,582.0 22,371.5
Stockholders' equity 1,975.7 1,887.6 1,800.4 1,698.9 1,644.6
Primary shares (thousands) 100,692 100,428 98,493 96,866 96,673
Selected ratios:
Return on average total assets 1.07% 1.06% 1.09% 1.08% 1.09%
Return on average stockholders' equity 15.76 16.01 15.97 16.02 15.90
Net interest margin (FTE) 3.89 3.97 4.04 4.03 4.05
Efficiency ratio 57.26 55.49 56.32 55.92 58.62
</TABLE>
8
<PAGE> 9
Average Balances, Interest Income and Expense and
Average Yields Earned and Rates Paid
(Dollars in millions; yields on taxable equivalent basis)
<TABLE>
<CAPTION>
Quarters Ended
------------------------------------------------------------------------
September 30, 1997 June 30, 1997
----------------------------------- --------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
----------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans, net of unearned
income $21,333.6 $471.1 8.76% $20,728.0 $455.2 8.81%
Available-for-sale securities 3,432.2 56.5 6.55 3,425.1 57.4 6.69
Held-to-maturity securities:
Taxable 2,039.7 36.5 7.09 2,043.5 36.6 7.17
Non-taxable 186.8 5.2 11.05 196.3 5.1 10.47
Short-term investments 416.4 7.5 7.13 319.2 6.4 8.04
---------------------------------- -------------------------------
Total interest-earning assets 27,408.7 $576.8 8.35 26,712.1 $560.7 8.41
Allowance for loan losses (307.4) (292.2)
Other assets 1,986.4 1,965.7
---------------------------------- -------------------------------
Total assets $29,087.7 $28,385.6
================================== ===============================
Liabilities
Interest-bearing deposits $16,662.9 $194.6 4.63% $15,832.9 $181.4 4.60%
Short-term borrowings 4,817.6 67.7 5.57 5,518.4 76.3 5.55
Federal Home Loan Bank advances 2,243.4 30.5 5.38 1,741.5 23.5 5.41
Long-term debt 981.6 15.7 6.36 978.7 14.9 6.13
---------------------------------- -------------------------------
Total interest-bearing liabilities 24,705.5 308.5 4.95 24,071.5 296.1 4.93
Demand deposits non-interest bearing 1,973.2 1,992.8
Other liabilities 433.3 433.7
Total liabilities 27,112.0 26,498.0
Stockholders' Equity 1,975.7 1,887.6
---------------------------------- -------------------------------
Total liabilities and stockholders' equity $29,087.7 $28,385.6
================================== ===============================
Net interest income $268.3 $264.6
================================== ===============================
Net interest margin 3.89% 3.97%
================================== ===============================
Net interest spread 3.40% 3.48%
================================== ===============================
</TABLE>
(1) Yields were calculated using the average amortized cost of the underlying
assets.
(2) All yields and rates are presented on an annualized basis.
9
<PAGE> 10
TABLE 2
<TABLE>
<CAPTION>
Quarters Ended
-----------------------------------------------------------------------------------------------------
March 31, 1997 December 31, 1996 September 30, 1996
-------------------------------- ------------------------------- --------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------------------------------- ------------------------------ --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$19,575.3 $424.3 8.79% $18,576.6 $407.7 8.73% $17,446.4 $386.2 8.81%
2,986.4 48.1 6.51 2,819.6 45.8 6.41 2,896.9 47.0 6.38
1,782.5 30.9 7.02 1,648.0 29.7 7.17 1,490.5 25.4 6.80
204.7 5.3 10.58 215.9 5.6 10.25 223.6 5.9 10.48
253.0 4.6 7.36 321.9 5.9 7.34 314.1 5.9 7.47
------------------------------- ----------------------------- ------------------------------
24,801.9 $513.2 8.39 23,582.0 $494.7 8.34 22,371.5 $470.4 8.35
(276.8) (260.5) (247.6)
1,925.8 1,855.0 1,787.8
------------------------------- ----------------------------- ------------------------------
$26,450.9 $25,176.5 $23,911.7
=============================== ============================= ==============================
$14,755.8 $171.0 4.70% $14,453.8 $171.4 4.72% $13,837.5 $164.0 4.71%
4,443.7 59.1 5.39 3,768.3 50.0 5.28 3,917.8 52.5 5.34
1,686.4 21.5 5.17 1,583.4 21.1 5.30 1,176.0 15.7 5.32
983.1 14.5 5.98 901.0 13.4 5.90 657.7 9.9 5.96
------------------------------- ----------------------------- ------------------------------
21,869.0 266.1 4.93 20,706.5 255.9 4.92 19,589.0 242.1 4.92
2,346.9 2,351.7 2,303.1
434.6 419.4 375.0
24,650.5 23,477.6 22,267.1
1,800.4 1,698.9 1,644.6
------------------------------- ----------------------------- ------------------------------
$26,450.9 $25,176.5 $23,911.7
=============================== ============================= ==============================
$247.1 $238.8 $228.3
=============================== ============================= ==============================
4.04% 4.03% 4.05%
=============================== ============================= ==============================
3.46% 3.42% 3.43%
=============================== ============================= ==============================
</TABLE>
10
<PAGE> 11
NET INTEREST INCOME / MARGIN.
The Company's net interest margin decreased 16 basis points from the
third quarter of 1996 to 3.89% for the 1997 third quarter period. This decrease
is reflective of the increase in the ratio of interest-bearing funds to earning
assets. This ratio was 90% at September 30, 1997, up from the September 30,
1996 ratio of 88%. Further, the quarter over quarter trend was affected by the
loan mix. The Company is continuing to place emphasis on growing its commercial
loan portfolio. These loans are very competitively priced in the marketplace,
generally having thinner margins than other lending opportunities. However,
these loans have shorter maturities than other loan types, reducing the
Company's exposure to interest rate, credit, and liquidity risk. See Table 2
for detailed information concerning quarterly average volumes, interest, yields
earned and rates paid.
PROVISION FOR LOAN LOSSES.
The provision for loan losses for the third quarter of 1997 was $20.0
million, reflecting a decrease of $1.9 million from the 1996 third quarter
level of $21.9 million. The slight decrease in the third quarter provision
reflects the low level of net charge-offs, and slower loan growth during the
third quarter. On a year-to-date basis the provision for loan losses was $68.9
million, reflecting an increase of $6.1 million or 9.6% from the first nine
months of 1996. Net charge-offs for the quarter were $9.9 million, bringing the
total for the year to $34.8 million. Total net charge-offs of loans on an
annualized basis amounted to .18% of average net loans for the 1997 third
quarter and .23% for the nine month period compared to .24% for the third
quarter of 1996 and .29% for the first nine months of 1996. For the year ended
December 31, 1996 net charge-offs were $47.6 million or .28% of net loans.
11
<PAGE> 12
NON-INTEREST INCOME.
Total non-interest income for the quarter ended September 30, 1997 was
$69.8 million, an increase of $9.3 million or 15.3% over the same period in
1996. For the nine month period ended September 30, 1997, non-interest income
was up 5.5% from the comparable period in 1996 to $195.8 million. Service
charges on deposit accounts, which represent the largest portion of
non-interest income, increased in the third quarter and the first nine months
of 1997 by 13.7% and 18.6%, respectively, from the comparable year-ago periods
reflecting the overall growth in the number of deposit accounts through both
internal growth and acquisitions. There were no significant non-recurring
non-interest income items recorded in 1996 or 1997.
NON-INTEREST INCOME TABLE 3
(In millions)
<TABLE>
<CAPTION>
Quarters Ended
-------------------------------------------------------------------
1997 1996
------------------------------------ ----------------------
Sept 30 Jun 30 Mar 31 Dec 31 Sept 30
------- ----- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $32.7 $30.9 $30.7 $29.7 $28.7
Mortgage banking operations 7.1 6.6 6.2 11.3 8.6
Trust fees 6.2 5.9 5.8 6.1 5.3
Securities gains 1.1 0.3 0.1 1.3 0.1
Bank card fees 5.5 6.0 5.7 6.3 5.4
Other fees 11.3 9.9 10.3 9.9 8.6
Other 5.9 4.5 3.2 4.7 3.8
----- ----- ----- ----- -----
Total $69.8 $64.1 $62.0 $69.3 $60.5
===== ===== ===== ===== =====
</TABLE>
12
<PAGE> 13
NON-INTEREST EXPENSE.
Total non-interest expense increased 14.0% and 16.4% in the third
quarter and first nine months of 1997 as compared to the same periods in 1996.
These increases are reflective of the overall growth the Company has
experienced over the past year. Salaries and employee benefits expense is the
largest component of non-interest expense, accounting for $105.2 million or 55%
of all non-interest expense for the quarter ended September 30, 1997. The
September 30, 1997 quarter over September 30, 1996 increase in salary and
employee benefits expense was $23.2 million or 28.4%, due mainly to the
increase in the number of full time equivalent employees, which increased 13.6%
over the same period to approximately 10,000. During the third quarter of 1996
the Company amended certain employee benefit arrangements which resulted in the
defeasance of liabilities and a reduction in employee benefits expense totaling
$5.1 million. On a year-to-date basis salaries and benefits expense was $298.1
million for 1997, up $56.5 million or 23.4% over the comparable period in 1996.
Occupancy and equipment expenses were also up in the 1997 third quarter. Both
of these items are affected by the number of banking offices which increased by
5% from the December 31, 1996 level to over 530 at September 30, 1997.
The efficiency ratio, a measure of non-interest expense to net
interest income plus non-interest income, was 56.36% for the nine month period
ended September 30, 1997, down from the year ago ratio of 57.21%.
On September 30, 1996, legislation was passed that required a one-time
assessment on deposits insured by the Savings Association Insurance Fund. This
assessment, which amounted to approximately $14.0 million, reduced after-tax
earnings by $8.6 million. There were no other significant non-recurring
non-interest expense items recorded in 1996 or 1997.
NON-INTEREST EXPENSE TABLE 4
(In millions)
<TABLE>
<CAPTION>
Quarters Ended
-----------------------------------------------
1997 1996
-------------------------- -----------------
Sept 30 Jun 30 Mar 31 Dec 31 Sept 30
------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $105.2 $ 97.9 $ 95.0 $ 90.0 $ 82.0
Net occupancy 15.2 14.2 14.2 12.1 12.9
Equipment 11.8 10.7 10.5 10.6 9.4
Professional services 14.4 11.6 11.8 13.7 10.9
Deposit insurance 1.0 1.0 0.6 0.8 16.0
Communications 9.1 8.7 8.6 8.1 7.8
Business development 7.3 7.2 6.9 6.7 5.5
Supplies 5.7 5.8 5.0 5.1 4.2
Other 23.3 25.1 21.5 24.4 20.6
------ ------ ------ ------ ------
Total $193.0 $182.2 $174.1 $171.5 $169.3
====== ====== ====== ====== ======
</TABLE>
13
<PAGE> 14
INCOME TAX EXPENSE.
Income tax expense for the third quarter of 1997 was $44.1 million for
an effective tax rate of 36.0% compared to $29.1 million or an effective rate
of 30.7% in the third quarter of 1996. The 1996 third quarter effective tax
rate was lower than the 1997 rate primarily due to the reversal of
approximately $4.5 million of accrued tax that will not be paid as a result of
legislation enacted during the 1996 third quarter which rescinded a previous
law requiring the recapture of certain bad debt deductions previously deducted
by Thrift institutions upon their conversion from a Thrift charter to a bank
charter. For the nine months ended September 30, 1997 income tax expense was
$125.4 million for an effective tax rate of 35.8% compared to tax expense of
$94.7 million and an effective rate of 33.7% during the first nine months of
1996. The statutory federal income tax rate was 35% in 1997 and 1996.
14
<PAGE> 15
LOANS.
Loans, net of unearned income at September 30, 1997 were $21,667.8
million, an increase of $2,336.7 million or 12.1% over the December 31, 1996
level. Of the total loan increase, $421.5 million was obtained in the
acquisitions of other financial institutions consummated during the first nine
months of 1997. Internal growth accounted for the remaining $1,915.2 million of
the increase.
Management made a strategic decision to reduce the amount of indirect
lending and to closely manage the required return expected on various loan
product types. This decision contributed to lower loan growth in the third
quarter of 1997.
The Company has participated in the loan securitization process
through both on and off balance sheet transactions. These transactions allow
the company to actively manage its loan portfolio. Specifically, the off
balance sheet securitizations provide a vehicle to originate loans and earn
fees on loans while maintaining credit concentrations at levels within the
Company's desired goals.
LOAN PORTFOLIO TABLE 5
(In millions)
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------------------------------
1997 1996
--------------------------------------- -----------------------
Sept 30 Jun 30 Mar 31 Dec 31 Sept 30
---------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 6,971.4 $ 7,179.7 $ 6,833.3 $ 6,847.5 $ 6,397.7
Real estate construction 2,539.6 2,349.0 2,123.4 1,930.6 1,772.6
Commercial real estate mortgage 3,516.3 3,397.0 3,255.1 3,008.9 2,877.8
Residential real estate mortgage 5,593.2 5,201.8 5,016.2 4,687.5 4,240.8
Loans to individuals 3,196.2 3,125.7 3,074.6 2,992.1 2,890.1
--------- --------- --------- --------- ---------
21,816.7 21,253.2 20,302.6 19,466.6 18,179.0
Unearned income (148.9) (147.3) (157.1) (135.5) (121.2)
--------- --------- --------- --------- ---------
Loans, net of unearned income 21,667.8 21,105.9 20,145.5 19,331.1 18,057.8
Allowance for loan losses (310.7) (297.7) (284.5) (269.9) (252.9)
--------- --------- --------- --------- ---------
Net loans $21,357.1 $20,808.2 $19,861.0 $19,061.2 $17,804.9
========= ========= ========= ========= =========
</TABLE>
15
<PAGE> 16
ALLOWANCE FOR LOAN LOSSES.
The Company maintains an allowance for loan losses to absorb possible
losses inherent in the loan portfolio. While deterioration of the economy or
rising interest rates could have a near-term effect on the Company's earnings,
Management has taken into consideration present and expected economic
conditions, the level of risk in the portfolio, the level of non-performing
assets, potential problem loans, and delinquencies in assessing the allowance
for loan losses and considers the allowance for loan losses to be adequate. As
asset quality and economic conditions change, the allowance for loan losses
will be increased or decreased accordingly.
The allowance for loan losses at September 30, 1997 was $310.7 million
or 1.43% of net loans compared to $269.9 million or 1.40% at December 31, 1996.
Net charge-offs during the quarter and nine months ended September 30, 1997
totaled $9.9 million and $34.8 million or 0.18% and 0.23%, respectively, of
average net loans on an annualized basis. The provision for loan losses during
these same periods added $20.0 million and $68.9 million, respectively, to the
allowance for loan losses. The allowance for loan losses at acquisition date of
acquired financial institutions totaled $6.8 million for 1997.
ALLOWANCE FOR LOAN LOSSES TABLE 6
(In thousands)
<TABLE>
<CAPTION>
Quarters Ended
-----------------------------------------------------------------
1997 1996
------------------------------------ ------------------------
Sept 30 Jun 30 Mar 31 Dec 31 Sept 30
--------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance beginning of quarter $ 297,696 $284,532 $269,863 $ 252,883 $240,405
Loans charged-off:
Commercial, financial and agricultural 2,880 5,594 4,657 6,855 4,742
Real estate construction (31) 38 7 (22) 60
Commercial real estate mortgage 460 437 180 1,573 222
Residential real estate mortgage 1,113 853 727 327 378
Loans to individuals 8,891 8,959 8,395 8,943 7,379
--------- -------- -------- --------- --------
Total charge-offs 13,313 15,881 13,966 17,676 12,781
========= ======== ======== ========= ========
Recoveries of loans previously charged-off
Commercial, financial and agricultural 1,559 1,007 564 1,235 326
Real estate construction 0 0 0 33 6
Commercial real estate mortgage 271 46 44 235 335
Residential real estate mortgage 85 57 81 32 88
Loans to individuals 1,534 1,432 1,692 3,662 1,677
--------- -------- -------- --------- --------
Total recoveries 3,449 2,542 2,381 5,197 2,432
========= ======== ======== ========= ========
Net loans charged-off 9,864 13,339 11,585 12,479 10,349
Additions to allowance charged to expense 20,002 26,502 22,375 27,196 21,905
Subsidiaries' allowance at date of purchase 2,891 1 3,879 2,263 922
--------- -------- -------- --------- --------
Balance at end of quarter $ 310,725 $297,696 $284,532 $ 269,863 $252,883
========= ======== ======== ========= ========
(In millions)
Loans outstanding at quarter end,
net of unearned income $21,667.8 $21,105.9 $20,145.5 $19,331.1 $18,057.8
Average loans outstanding,
net of unearned income $21,333.6 $20,728.0 $19,575.3 $18,576.6 $17,446.4
Ratios:
End-of-quarter allowance to net loans outstanding 1.43% 1.41% 1.41% 1.40% 1.40%
Net loans charged off to net average loans 0.18 0.26 0.24 0.27 0.24
Provision for loan losses to net charge-offs 202.76 198.68 193.14 217.93 211.66
Provision for loan losses to net average loans 0.37 0.51 0.46 0.58 0.50
</TABLE>
16
<PAGE> 17
Non-Performing Assets.
Non-performing assets, which include non-accrual and restructured
loans, other real estate and other repossessed assets were $175.9 million at
September 30, 1997, an increase of $36.9 million over the December 31, 1996
level. Non-performing assets obtained through acquisitions during the
nine-month period totaled $7.8 million. This increase is the result of a
largely diversified group of credits having different credit risk
characteristics, geographic distributions and underlying collateral
characteristics. As evidenced by the relatively flat levels of the quarterly
comparison of the non-performing asset to loan ratios shown below, the increase
is more closely tied to the continuing increase in size of the Company's loan
portfolio, rather than the result of trends in economic conditions that are
likely to affect overall credit quality or loan charge-offs over the
foreseeable future. The ratio of non-performing assets to total loans plus
other real estate owned was 81 basis points at September 30, 1997, while the
allowance for loan losses to non-performing loans ratio was 268.38% for the
same period.
As of September 30, 1997, the Company had loans of approximately $24.6
million for which management has serious doubts as to the ability of the
borrowers to comply with the present repayment terms, which may result in the
loans' repayment terms being restructured and/or the loans going on
non-performing status. These loans are current with respect to principal and
interest payments and are not presently on non-accrual status; however, they
are continuously reviewed by management and their classification may be changed
if conditions warrant.
NON-PERFORMING ASSETS TABLE 7
(Dollars in millions)
<TABLE>
<CAPTION>
Quarters Ended
-------------------------------------------------------
1997 1996
------------------------------- -------------------
Sept 30 Jun 30 Mar 31 Dec 31 Sept 30
--------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Non-performing loans
Commercial, financial, and agricultural $ 61.1 $ 58.8 $ 66.0 $ 46.1 $ 56.4
Real estate construction 5.6 4.9 2.9 4.3 4.7
Commercial real estate mortgage 11.4 10.0 14.1 11.5 15.0
Residential real estate mortgage 27.2 23.7 18.3 16.6 15.9
Loans to Individuals 10.5 7.0 7.3 6.4 6.7
------- ------- ------- ------- -------
Total non-performing loans 115.8 104.4 108.6 84.9 98.7
------- ------- ------- ------- -------
Other real estate owned 47.7 52.6 46.5 43.9 35.3
Other repossessed assets 12.4 12.0 10.1 10.2 9.0
------- ------- ------- ------- -------
Total non-performing assets $ 175.9 $ 169.0 $ 165.2 $ 139.0 $ 143.0
======= ======= ======= ======= =======
Accruing loans past due 90 days or more $ 50.9 $ 45.3 $ 36.9 $ 40.4 $ 44.8
Ratios:
Non-performing loans to total loans 0.53% 0.49% 0.54% 0.44% 0.55%
Non-performing assets to total loans
plus other real estate owned 0.81 0.80 0.82 0.72 0.79
Reserve to non-performing loans 268.38 285.08 261.89 317.57 256.17
</TABLE>
17
<PAGE> 18
HELD-TO-MATURITY AND AVAILABLE-FOR-SALE SECURITIES.
The investment portfolio is managed to maximize yield over an entire
interest rate cycle while providing liquidity and minimizing risk. Securities
classified as held-to-maturity are carried at amortized cost, as the Company
has the ability and positive intent to hold these securities to maturity. All
securities not considered held-to-maturity or part of the trading portfolio
have been designated as available-for-sale and are carried at fair value.
Unrealized gains and losses on securities available-for-sale are excluded from
earnings and are reported net of deferred taxes as a component of stockholder's
equity. This caption includes securities that Management intends to use as part
of its asset / liability management strategy or that may be sold in response to
changes in interest rates, changes in prepayment risk, liquidity needs, or for
other purposes.
The Company's investment in collateralized mortgage obligations
present some degree of risk that the mortgages collateralizing the securities
can repay, thereby affecting the yield of the securities and their carrying
amounts. Such an occurrence is most likely in periods of declining interest
rates when many borrowers refinance their mortgages, creating prepayments on
their existing mortgages.
The Company's investment in structured notes and other derivative
investment securities is nominal and would not have a significant effect on the
Company's net interest margin.
18
<PAGE> 19
HELD-TO-MATURITY AND AVAILABLE-FOR-SALE SECURITIES TABLE 8
<TABLE>
<CAPTION>
Held-to-maturity securities
------------------------------------------------
September 30, 1997 December 31, 1996
--------------------- ----------------------
Amortized Fair Amortized Fair
(Dollars in millions) Cost Value Cost Value
--------- -------- --------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 1.5 $ 1.5 $ 5.8 $ 5.7
U.S. Government agency securities 1,680.2 1,687.6 1,237.7 1,238.2
Collateralized mortgage obligations
and mortgage backed securities 521.7 533.6 444.3 454.3
Obligations of states and political
subdivisions 180.0 192.0 211.7 222.2
Other securities 35.7 37.3 57.1 58.7
-------- -------- -------- --------
Total $2,419.1 $2,452.0 $1,956.6 $1,979.1
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Available-for-sale securities
-----------------------------------------------
September 30, 1997 December 31, 1996
--------------------- ---------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------- ------- -------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 217.1 $ 217.8 $ 301.4 $ 301.9
U.S. Government agency securities 807.6 809.3 835.3 834.5
Collateralized mortgage obligations
and mortgage backed securities 1,977.0 2,000.7 1,538.3 1,525.1
Obligations of states and political
subdivisions 4.2 4.4 5.2 5.3
Other securities 314.9 317.6 190.8 192.2
-------- -------- -------- --------
Total $3,320.8 $3,349.8 $2,871.0 $2,859.0
======== ======== ======== ========
</TABLE>
19
<PAGE> 20
SHORT-TERM INVESTMENTS.
Short-term investments at September 30, 1997 totaled $461.7 million,
reflecting an increase of $236.2 million from the December 31, 1996 level of
$225.5 million. At September 30, 1997, short-term investments consisted of $72.1
million in federal funds sold and security repurchase agreements, $19.6 million
in time deposits with other banks, $333.7 million in mortgage loans in the
process of being securitized and sold to third party investors and $36.3 million
in securities held for trading purposes. Mortgage loans held for sale are
carried at the lower of cost or fair value. Trading account securities are
carried at fair value with unrealized gains and losses recognized in net income.
The Company's Asset/Liability Management Committee monitors current and
future expected economic conditions, as well as the Company's liquidity position
in determining desired balances of short-term investments and alternative uses
of such funds.
FUNDING.
The Company's funding sources can be divided into four broad
categories: deposits, short-term borrowings, Federal Home Loan Bank (FHLB)
advances, and long-term debt.
Deposits are the Company's primary source of funding. Total deposits
at September 30, 1997 were $19,010.9 million up $1,705.4 million or 9.9% from
the December 31, 1996 level of $17,305.5 million. During the first nine months
of 1997, acquisitions of other financial institutions added $1,387.5 million of
deposits. At September 30, 1997, total deposits included interest-bearing
deposits of $16,890.2 million and other deposits of $2,120.7 million. Core
deposits, defined as demand deposits and time deposits less than $100,000,
totaled $16,345.1 million or 86.0% of total deposits at September 30, 1997.
This compares to core deposits of $14,954.3 million or 86.4% at December 31,
1996.
Short-term borrowings at September 30, 1997 were $4,779.1 million and
included federal funds purchased of $2,233.9 million, securities sold under
agreements to repurchase of $1,399.4 million and other borrowed funds of
$1,145.8 million. At September 30, 1997, total short-term borrowings were 16.1%
of total liabilities and stockholders' equity. This compares to total
short-term borrowings of $4,071.0 million or 15.5% of total liabilities and
stockholders' equity at December 31, 1996.
FHLB advances totaled $2,532.4 million at September 30, 1997. The
current quarter end balance is up $788.2 million or 45% from level outstanding
at December 31, 1996. The Company uses FHLB advances as an alternative to
increasing its liability in certificates of deposits or other deposit programs
with similar maturities. These advances generally offer more attractive rates
when compared to other mid-term financing options. They are also flexible,
allowing the Company to quickly obtain the necessary maturities and rates that
best suit its overall asset / liability strategy.
At September 30, 1997, total long-term debt was $981.9 million,
representing a decrease of $1.3 million, resulting from repayments, from the
December 31, 1996 level of $983.2 million. The Company issued no additional
long-term debt during the first nine months of 1997. Acquisitions completed
during the first nine months had no effect on long-term debt outstanding.
20
<PAGE> 21
CAPITAL.
The Company is subject to various regulatory capital requirements that
prescribe quantitative measures of the Company's assets, liabilities, and
certain off-balance sheet items. The Company's regulators have also imposed
qualitative guidelines for capital amounts and classifications such as risk
weighting, capital components, and other details. The quantitative measures to
ensure capital adequacy require that the Company maintain Tier 1 and Total
capital to risk-weighted assets of 4% and 8%, respectively, and Tier 1 capital
to average total assets of 4%. Failure to meet minimum capital requirements can
initiate certain actions by regulators that, if undertaken could have a direct
material effect on the Company's financial statements. As of the periods ended
below the Company meets all capital adequacy requirements imposed by its
regulators.
CAPITAL RATIOS TABLE 9
(Dollars in millions)
<TABLE>
<CAPTION>
1997 1996
------------------------------------------- --------------------------
Sept 30 Jun 30 Mar 31 Dec 31 Sept 30
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Tier 1 capital:
Shareholders' equity $ 2,015.1 $ 1,951.7 $ 1,870.5 $ 1,729.2 $ 1,673.8
Intangible assets other than
servicing rights (225.1) (228.6) (187.4) (187.4) (177.0)
Unrealized (gain)/loss on
available-for-sale securities (18.3) (10.9) 17.2 7.5 15.3
---------- ---------- ---------- ---------- ----------
Total Tier 1 capital 1,771.7 1,712.2 1,700.3 1,549.3 1,512.1
---------- ---------- ---------- ---------- ----------
Tier 2 capital:
Allowable reserve for loan losses 300.4 288.1 277.5 264.5 249.6
Allowable long-term debt 665.0 665.0 680.0 680.0 480.0
---------- ---------- ---------- ---------- ----------
Total Tier 2 capital 965.4 953.1 957.5 944.5 729.6
---------- ---------- ---------- ---------- ----------
Total risk-based capital $ 2,737.1 $ 2,665.3 $ 2,657.8 $ 2,493.8 $ 2,241.7
========== ========== ========== ========== ==========
Risk-weighted assets $ 24,025.8 $ 23,039.8 $ 22,195.0 $ 21,152.7 $ 19,966.6
Risk-based ratios:
Tier 1 capital 7.37% 7.43% 7.66% 7.33% 7.57%
Total capital 11.39 11.57 11.96 11.79 11.23
Tier 1 leverage ratio 6.14 6.08 6.47 6.21 6.37
</TABLE>
COMMITMENTS.
The Company's subsidiary bank had standby letters of credit
outstanding of approximately $605.6 million at September 30, 1997 and $595.1
million at December 31, 1996.
The Company's subsidiary bank had outstanding commitments to extend
credit of approximately $6,748.3 million at September 30, 1997 and $6,319.9
million at December 31, 1996.
The Company's policies as to collateral and assumption of credit risk
for off-balance sheet commitments are essentially the same as those for
extension of credit to its customers.
Presently the Company has no commitments for significant capital
expenditures.
21
<PAGE> 22
The Company's subsidiaries regularly originate and sell loans,
consisting primarily of mortgage loans sold to third party investors, which
contain various recourse provisions to the seller. Losses historically realized
through the repurchase or other satisfaction of these recourse provisions have
been insignificant. The total amount of loans outstanding subject to recourse
was $1,152.3 million at September 30, 1997 and $1,163.6 million at December 31,
1996. Under terms of the recourse agreements, the Company would be required to
repurchase certain loans if they become non-performing. All such loans sold had
a loan-to-collateral ratio of 80% or less, or mortgage insurance to cover
losses up to 80% of the collateral value, at the times the various loans were
originated. The underlying collateral to these mortgages are generally 1-4
family residential properties. Potential losses under these recourse agreements
are affected by the collateral value of the particular loans involved. Losses
are recognized when the mortgage is repurchased or the obligation is otherwise
satisfied.
INTEREST RATE RISK MANAGEMENT.
SouthTrust's asset/liability management strategies are designed to
optimize net interest income while minimizing fluctuations caused by changes in
the interest rate environment. To achieve this, the Company uses various
modeling techniques to simulate interest rate risks associated with different
repricing dates, yield curve changes, basis risk and option risk. Important
elements of these modeling techniques include the mix of floating versus fixed
rate assets and liabilities, and the scheduled, as well as expected, repricing
and maturing volumes and rates of the existing balance sheet.
In conjunction with the Company's asset/liability management
strategies, the Company utilizes interest rate swap agreements ("Swaps") to
hedge certain longer-term debt and deposit liabilities, converting the
effective rate paid on the hedged liabilities to a floating rate from a fixed
rate. All Swaps employed by the Company represent end-user activities designed
as hedges and, accordingly, fluctuations in the fair values of such contracts
are not included in the results of operations.
INTEREST RATE SWAPS TABLE 10
September 30, 1997
(Dollars in millions)
<TABLE>
<CAPTION>
Average
Maturity In Average Rate Average Rate
Notional Value Fair Value Months Paid Received
-------------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Gain position $725.0 $ 48.4 93.3 5.64% 6.92%
Loss position 220.0 (2.8) 75.3 5.58 6.31
------ ------
Total $945.0 $ 45.6 89.1 5.63 6.78
====== ======
</TABLE>
22
<PAGE> 23
CONTINGENCIES.
Certain of the Company's subsidiaries are defendants in various legal
proceedings arising in the normal course of business. These claims relate to
the lending and investment advisory services provided by the Company and
include alleged compensatory and punitive damages.
In addition, subsidiaries of the Company have been named as defendants
in suits that allege fraudulent, deceptive or collusive practices in connection
with certain financing activities. These suits are typical of complaints that
have been filed in recent years challenging financial transactions between
plaintiffs and various financial institutions. The complaints in such cases
frequently seek punitive damages in transactions involving fairly small amounts
of actual damages, and in recent years, have resulted in large punitive damage
awards to plaintiffs.
Although it is not possible to determine, with any certainty, the
potential exposure related to punitive damages in connection with these suits,
Management, based upon consultation with legal counsel, believes that the
ultimate resolutions of these proceedings will not have a material adverse
effect on the Company's financial statements.
RECENT DEVELOPMENTS.
Effective June 2, 1997, the Corporation, pursuant to the Reigle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Reigle-Neal
Act"), consolidated all of its banking subsidiaries, consisting of ten banking
subsidiaries located in the states of Alabama, Florida, Georgia, North
Carolina, Mississippi, Tennessee and South Carolina, into its largest banking
subsidiary, SouthTrust Bank of Alabama, National Association and changed the
name of the combined institution to SouthTrust Bank, N.A. The bank
consolidation was undertaken by the Corporation in order to obtain the benefits
of the Reigle-Neal Act, which, subject to certain limitations, permits, after
June 1, 1997, qualifying bank holding companies to engage in interstate mergers
and allows banks to maintain and operate branches in states other than the
states where they maintain their principal place of business.
On September 11, 1997 the Company filed with the Securities and
Exchange Commission a shelf registration statement on Form S-3 registering up
to $300,000,000 of Debt securities, Preferred stock, and/or Common Stock. The
Company's previous registration statement, which also provided for the issuance
of up to $300,000,000 of Debt securities, Preferred Stock and/or Common Stock,
expired September 12, 1997.
Pursuant to the provisions of the September 11, 1997 S-3, on October
9, 1997, the Company issued 2,500,000 shares of Common Stock at $51.00 per
share, less an underwriting discount of $1.65 per share. The Company intends to
use the net proceeds from the sale primarily for general corporate and working
capital purposes, including funding investments in, or extensions of credit to,
its banking and non-banking subsidiaries. Also, depending on market conditions,
the type of acquisition opportunities presented to the Company and other
factors, some portion of the net proceeds may be used to fund the acquisition
of other financial institutions.
The Company has completed acquisitions of four financial institutions
since January 1, 1997. These acquisitions added approximately $1,463.3 million
in assets, $421.5 million in loans, and $1,387.5 million in deposits. In the
normal course of business, the Company seeks out and receives inquiries from
financial institutions regarding the possible acquisition of such institutions.
The Company routinely evaluates these opportunities. Currently, the Company is
under two definitive agreements with other financial institutions. The first is
for the sale of the Tuskegee and Ashland,
23
<PAGE> 24
Alabama branches of the Company's subsidiary bank SouthTrust Bank, N.A., to
First National Bank of Ashland. The sale of these branches, which have total
assets of approximately $26.8 million, is scheduled to close in the fourth
quarter of 1997. The second agreement is for the purchase of First of America
Bank-Florida, FSB, a subsidiary of Barnett Banks, Inc., and is scheduled for a
first quarter 1998 closing date. This acquisition will add approximately $1.1
billion in assets to the Company.
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PART II-OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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<S> <C>
3- Composite restated certificate of incorporation which was
filed as Exhibit 3 to the registration statement on Form S-3
of SouthTrust Corporation (Registration No. 333-34947)
4(a)- Articles FOURTH, SIXTH, SEVENTH, ELEVENTH of the Restated
Certificate of Incorporation of SouthTrust Corporation
(included in Registration Statement No.333-34947 incorporated
at Exhibit 3)
* 4(b)- Certificate of Adoption of Resolutions designating Series A
Junior Participating Preferred Stock, adopted February 22,
1989, which was filed as Exhibit 1 to SouthTrust
Corporation's Registration Statement on Form 8-A (File
No.1-3613)
* 4(c)- Stockholders' Rights Agreement, dated as of February 22, 1989,
between SouthTrust Corporation and Mellon Bank, N.A., Rights
Agent, which was filed as Exhibit 1 to SouthTrust
Corporation's Registration Statement on Form 8-A (File No.
1-3613).
* 4(d)- Indenture, dated as of May 1, 1987, between SouthTrust
Corporation and National Westminster Bank USA, which was
filed as Exhibit 4(a) to SouthTrust Corporation's
Registration Statement on Form S-3 (Registration No.
33-13637).
* 4(e)- Subordinated Indenture, dated as of May 1, 1992, between
SouthTrust Corporation and Chemical Bank, which was filed as
Exhibit 4(b)(ii) to the Registration Statement on Form S-3 of
SouthTrust Corporation (Registration No. 33-52717).
* 4(f)- Composite Restated Bylaws of SouthTrust Corporation which was
filed as Exhibit 4(e) to the Registration Statement on Form
S-4 of SouthTrust Corporation (Registration No. 33-61557).
* 4(g)(i)- Form of Senior Indenture which was filed as Exhibit 4(b)(i) to
the Registration Statement on Form S-3 of SouthTrust
Corporation (Registration No. 33-44857).
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* 4(g)(ii)- Form of Subordinated Indenture which was files as Exhibit
4(b)(ii) to the Registration Statement on Form S-3 of
SouthTrust Corporation (Registration No. 33-52717).
** 11- Statement of Computation of Earnings Per Share.
** 27- Financial Data Schedule (for SEC use only)
* Incorporated herein by reference
** Previously filed
(b) Reports on Form 8-K
During the three months ended September 30, 1997, and through
the date of this report the Company filed a Form 8-K current
report dated October 10, 1997 with the Securities and
Exchange Commission.
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.
SOUTHTRUST CORPORATION
Date: December 23, 1997 /s/ Wallace D. Malone, Jr.
----------------------------- -----------------------------------
Wallace D. Malone, Jr.
Chairman and Chief
Executive Officer
Date: December 23, 1997 /s/ Aubrey D. Barnard
----------------------------- -----------------------------------
Aubrey D. Barnard
Secretary, Treasurer and
Controller
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