<PAGE> 1
================================================================================
FORM 10-Q
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 MARCH 31, 1998
---------------------------------------------
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 March 31, 1998, 160,437,557 shares of the Registrant's Common Stock, $2.50
par value were outstanding.
================================================================================
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement Description Page No.
- -------------------------------------------------------------------------------
<S> <C>
Consolidated Condensed Statements of Condition
March 31, 1998, March 31, 1997, and December 31, 1997 3
Consolidated Condensed Statements of Income
Three months ended March 31, 1998 and 1997 4
Consolidated Condensed Statements of Stockholders' Equity
Three months ended March 31, 1998 and 1997 5
Consolidated Condensed Statements of Cash Flows
Three months ended March 31, 1998 and 1997 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 three month periods ended March 31,
1998 and 1997. Results of operations for the interim 1998 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, 1997. 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
9-26.
2
<PAGE> 3
SOUTHTRUST CORPORATION
Consolidated Condensed Statements of Condition
(Unaudited)
<TABLE>
<CAPTION>
March 31 March 31 December 31
------------- ------------- -------------
(Dollars in thousands) 1998 1997 1997
------------- ------------- -------------
ASSETS
<S> <C> <C> <C>
Cash and due from banks $ 801,532 $ 822,666 $ 877,885
Short-term investments:
Federal funds sold and securities purchased
under resale agreements 28,700 18,481 49,175
Interest-bearing deposits in other banks 246 17,505 228
Trading securities 52,661 8,550 58,750
Loans held for sale 620,399 197,750 403,837
------------- ------------- -------------
Total short-term investments 702,006 242,286 511,990
Available-for-sale securities 3,206,710 3,101,080 2,917,080
Held-to-maturity securities (1) 2,765,401 2,072,713 2,557,251
Loans 23,705,494 20,302,594 22,633,861
Less:
Unearned income 156,647 157,090 159,076
Allowance for loan losses 335,995 284,532 315,471
------------- ------------- -------------
Net loans 23,212,852 19,860,972 22,159,314
Premises and equipment, net 632,112 527,398 598,294
Due from customers on acceptances 6,988 25,954 8,561
Other assets 1,370,003 696,983 1,276,070
------------- ------------- -------------
Total assets $ 32,697,604 $ 27,350,052 $ 30,906,445
============= ============= =============
LIABILITIES
Deposits:
Interest-bearing $ 18,269,229 $ 15,089,183 $ 17,297,931
Other 2,263,687 2,504,402 2,288,653
------------- ------------- -------------
Total deposits 20,532,916 17,593,585 19,586,584
Federal funds purchased and securities sold
under agreements to repurchase 4,028,343 3,737,956 3,588,599
Other short-term borrowings 1,097,097 1,074,131 1,161,779
Bank acceptances outstanding 6,988 25,954 8,561
Federal Home Loan Bank advances 2,777,351 1,653,367 2,782,355
Long-term debt 1,205,933 982,855 1,106,443
Other liabilities 563,169 411,748 477,483
------------- ------------- -------------
Total liabilities 30,211,797 25,479,596 28,711,804
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) 403,606 376,018 386,626
Capital surplus 706,927 361,703 486,166
Retained earnings 1,377,563 1,160,560 1,321,586
Accumulated other non-owner changes in equity 9,341 (17,164) 11,176
Treasury stock at cost (3) (11,630) (10,661) (10,913)
------------- ------------- -------------
Total stockholders' equity 2,485,807 1,870,456 2,194,641
------------- ------------- -------------
Total liabilities and stockholders' equity $ 32,697,604 $ 27,350,052 $ 30,906,445
============= ============= =============
(1) Held-to-maturity securities-fair value $ 2,798,172 $ 2,075,849 $ 2,593,259
(2) Common shares outstanding 161,442,467 150,407,073 154,650,747
(3) Treasury shares of common stock 1,004,910 978,422 986,940
</TABLE>
3
<PAGE> 4
SOUTHTRUST CORPORATION
Consolidated Condensed Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------
(In thousands, except per share data) 1998 1997
----------------------
<S> <C> <C>
Interest income
Interest and fees on loans $492,715 $423,670
Interest on available-for-sale securities 48,409 48,044
Interest on held-to-maturity securities:
Taxable 43,305 30,877
Non-taxable 2,736 3,466
----------------------
Total interest on held-to-maturity securities 46,041 34,343
Interest on short-term investments 10,297 4,593
----------------------
Total interest income 597,462 510,650
----------------------
Interest expense
Interest on deposits 204,211 171,041
Interest on short-term borrowings 63,107 59,053
Interest on Federal Home Loan Bank advances 36,643 21,514
Interest on long-term debt 20,151 14,486
----------------------
Total interest expense 324,112 266,094
----------------------
Net interest income 273,350 244,556
Provision for loan losses 17,855 22,375
----------------------
Net interest income after
provision for loan losses 255,495 222,181
Non-interest income
Service charges on deposit accounts 36,522 30,704
Mortgage banking operations 8,924 6,222
Bank card fees 6,216 5,649
Trust fees 6,855 5,821
Other fees 12,239 10,314
Securities gains, net 2,152 94
Other 15,210 3,174
----------------------
Total non-interest income 88,118 61,978
----------------------
Non-interest expense
Salaries and employee benefits 116,623 94,976
Net occupancy 15,809 14,161
Equipment 13,552 10,462
Professional services 12,833 11,763
Communications 10,865 8,556
Business development 8,092 6,878
Supplies 7,141 5,008
Other 27,591 22,237
----------------------
Total non-interest expense 212,506 174,041
----------------------
Income before income taxes 131,107 110,118
Income tax expense 44,655 39,218
----------------------
Net income $ 86,452 $ 70,900
======================
Average number of shares outstanding - basic (000's) 158,374 146,522
Average number of shares outstanding - diluted (000's) 159,998 147,738
Net income per share - basic $ 0.55 $ 0.48
Net income per share - diluted 0.54 0.48
Dividends declared per share 0.19 0.1667
</TABLE>
4
<PAGE> 5
SOUTHTRUST CORPORATION
Consolidated Condensed Statements of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other Non- Non-Owner
Common Capital Retained Owner Changes Treasury Changes
(Dollars in thousands) Stock Surplus Earnings In Equity Stock Total In Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $362,936 $289,664 $1,100,170 $ (7,520) $(10,358) $ 1,734,892
Net Income 0 0 70,900 0 0 70,900 $70,900
Unrealized loss on available-for-sale
securities, net of tax of $5,504* 0 0 0 (9,644) 0 (9,644) (9,644)
-------
Comprehensive Income $61,256
=======
Dividends Declared ($.1667 per share) 0 0 (24,799) 0 0 (24,799)
Issuance of 89,700 shares of Common Stock
for stock options exercised 224 579 0 0 0 803
Issuance of 48,399 shares of Common Stock
for dividend reinvestment and stock
purchase plan 121 1,006 0 0 0 1,127
Issuance of 27,759 shares of Common Stock
under employee discounted stock
purchase plan 70 489 0 0 0 559
Issuance of 1,945,546 shares
of Common Stock for acquisitions
accounted for as pooling-of-interests 4,864 4,351 14,289 0 0 23,504
Issuance of 86,480 shares of
Common Stock under long-term incentive
plan 216 1,199 0 0 0 1,415
Issuance of 3,034,518 shares
of Common Stock in secondary offering 7,587 64,415 0 0 0 72,002
Purchase of 11,959 shares of
treasury stock 0 0 0 0 (303) (303)
- ------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 376,018 $361,703 $1,160,560 $(17,164) $(10,661) $ 1,870,456
========================================================================================================================
*Disclosure of reclassification amount:
Unrealized holding losses arising
during the period $(9,550)
Less: reclassification adjustment for
gains included in net income (94)
-------
Net unrealized losses on securities $(9,644)
=======
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1998 $386,626 $486,166 $1,321,586 $ 11,176 $(10,913) $ 2,194,641
Net Income 0 0 86,452 0 0 86,452 $86,452
Unrealized loss on available-for-sale
securities net of tax of $650* 0 0 0 (1,835) 0 (1,835) (1,835)
-------
Comprehensive Income $84,617
=======
Dividends Declared ($.19 per share) 0 0 (30,475) 0 0 (30,475)
Issuance of 185,974 shares of Common Stock
for stock options exercised 465 1,774 0 0 0 2,239
Issuance of 32,459 shares of Common Stock
for dividend reinvestment and stock
purchase plan 81 1,287 0 0 0 1,368
Issuance of 25,787 shares of Common Stock
under employee discounted stock
purchase plan 65 713 0 0 0 778
Issuance of 6,547,500 shares of
Common Stock in secondary offering 16,369 216,987 0 0 0 233,356
Purchase of 17,970 shares of treasury stock 0 0 0 0 (717) (717)
- ------------------------------------------------------------------------------------------------------------------------
Balance at March 31,1998 $403,606 $706,927 $1,377,563 $ 9,341 $(11,630) $ 2,485,807
========================================================================================================================
*Disclosure of reclassification amount:
Unrealized holding losses arising
during the period $ 335
Less: reclassification adjustment for
gains included in net income (2,170)
-------
Net unrealized losses on securities $(1,835)
=======
</TABLE>
5
<PAGE> 6
SOUTHTRUST CORPORATION
Consolidated Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------------
(In thousands) 1998 1997
OPERATING ACTIVITIES ----------- -----------
<S> <C> <C>
Net income $ 86,452 $ 70,900
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision (credit) for:
Loan losses 17,855 22,375
Depreciation of premises and equipment 11,221 8,944
Amortization of intangibles 8,676 6,317
Amortization of security premium 387 163
Accretion of security discount (1,571) (669)
Deferred income tax 2,386 432
Net gain on trading securities (6,934) (2,358)
Net gain on loans held for sale (3,638) (1,230)
Net securities gains (2,152) (94)
Origination and purchase of loans held for sale (921,453) (384,684)
Proceeds of loans held for sale 711,826 379,472
Net decrease in trading securities 9,726 11,658
Net (increase) decrease in other assets 30,273 (18,899)
Net increase in other liabilities 78,019 33,111
----------- -----------
Net cash provided by operating activities 21,073 125,438
INVESTING ACTIVITIES
Proceeds from maturities of:
Held-to-maturity securities 686,739 339,236
Available-for-sale securities 43,610 109,173
Proceeds from sales of:
Held-to-maturity securities 0 0
Available-for-sale securities 27,913 3,441
Purchases of:
Held-to-maturity securities (646,487) (440,379)
Available-for-sale securities (360,610) (363,913)
Premises and equipment (27,338) (25,143)
Net (increase) decrease in:
Short-term investments 20,457 (425)
Loans (356,489) (553,750)
Purchase of subsidiaries, net of cash acquired (202,627) 5,181
----------- -----------
Net cash used in investing activities (814,832) (926,579)
FINANCING ACTIVITIES
Proceeds from issuance of:
Common Stock 237,741 75,970
Federal Home Loan Bank advances 150,000 651,750
Long-term debt 200,000 0
Payments for:
Repurchase of Common Stock (717) (302)
Federal Home Loan Bank advances (155,004) (743,542)
Long-term debt (100,510) (388)
Cash dividends (26,002) (7,163)
Net increase in:
Deposits 96,837 3,820
Short-term borrowings 315,061 740,528
----------- -----------
Net cash provided by financing activities 717,406 720,673
----------- -----------
Decrease in cash and due from banks (76,353) (80,468)
Cash and due from banks at beginning of year 877,885 903,134
----------- -----------
Cash and due from banks at end of period $ 801,532 $ 822,666
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest $ 309,519 $ 259,059
Income taxes 3,623 60
Noncash transactions:
Assets acquired in business combinations 1,067,655 311,905
Liabilities acquired in business combinations 911,117 288,380
Loans transferred to other real estate 8,786 6,949
Loans securitized into mortgage-backed securities 460,862 143,267
</TABLE>
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Recent Accounting Pronouncements
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 and accordingly, the Company adopted its provisions for the period ended
December 31, 1997. All prior-period earnings per share (EPS) data as shown on
the consolidated condensed statements of income contained herein, and in the
following Management's Discussion and Analysis have been restated to give effect
for this statement.
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.
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 is computed similarly to fully diluted
EPS pursuant to Opinion 15. 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.
SFAS No. 130, Reporting Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, Reporting of Comprehensive
Income. Comprehensive income is the total of net income and all other non-owner
changes in equity. SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general-purpose
financial statements. It requires that all items that are to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. This statement is effective for fiscal years beginning
after December 15, 1997. The Company adopted the provisions of this Statement on
January 1, 1998.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. This Statement establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. This Statement is effective for fiscal years
beginning after December 15, 1997. The Company adopted the provisions of this
Statement on January 1, 1998.
Application to interim statements is not required in the initial year of
adoption. Based on the Company's current operating activities, management does
not believe that adoption of this Statement will have a material impact on the
presentation of the Company's financial position or results of operations.
Note B - Stock Split
On January 27, 1998, the Company's Board of Directors announced a 3 for
2 stock split effected in the form of a stock dividend payable to stockholders
of record on February 13, 1998. The additional shares were distributed on
February 26, 1998. All share and per share information in this report has been
restated to give retroactive effect to this split.
7
<PAGE> 8
SELECTED QUARTERLY FINANCIAL DATA TABLE 1
(Dollars in millions except per share data)
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------------------------------------------
1998 1997
--------- ----------------------------------------------------------------
Mar 31 Dec 31 Sept 30 Jun 30 Mar 31
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
EARNINGS SUMMARY:
Interest income $ 597.5 $ 589.2 $ 574.2 $ 558.2 $ 510.7
Interest expense 324.1 315.4 308.4 296.2 266.1
--------- ---------- ---------- ---------- ----------
Gross interest margin 273.4 273.8 265.8 262.0 244.6
Provision for loan losses 17.9 21.7 20.0 26.5 22.4
--------- ---------- ---------- ---------- ----------
Net interest margin 255.5 252.1 245.8 235.5 222.2
Non-interest income (excluding
securities transactions) 85.9 74.3 68.7 63.8 61.9
Securities transactions 2.2 0.3 1.1 0.3 0.1
Non-interest expense 212.5 199.0 193.0 182.2 174.1
--------- ---------- ---------- ---------- ----------
Income before income taxes 131.1 127.7 122.6 117.4 110.1
Income taxes 44.6 45.7 44.1 42.0 39.2
--------- ---------- ---------- ---------- ----------
Net income $ 86.5 $ 82.0 $ 78.5 $ 75.4 $ 70.9
========= ========== ========== ========== ==========
PER COMMON SHARE:
Net income - basic $ 0.55 $ 0.54 $ 0.53 $ 0.50 $ 0.48
Net income- diluted 0.54 0.53 0.52 0.50 0.48
Cash dividends declared 0.19 0.1667 0.1667 0.1667 0.1667
Book value 15.49 14.28 13.46 13.05 12.52
Market value-high 45.125 42.833 34.458 28.250 28.500
Market value-low 35.750 30.667 25.750 23.583 22.750
ENDING BALANCES:
Assets $32,697.6 $ 30,906.4 $ 29,764.2 $ 29,192.9 $27,350.1
Deposits 20,532.9 19,586.6 19,010.9 18,679.4 17,593.6
Loans, net of unearned income 23,548.9 22,474.8 21,667.8 21,105.9 20,145.5
Long-term debt 1,205.9 1,106.4 981.9 982.3 982.8
Stockholders' equity 2,485.8 2,194.6 2,015.1 1,951.7 1,870.5
Common shares - basic (in thousands) 160,438 153,664 149,690 149,570 149,429
AVERAGE BALANCES:
Assets $31,618.9 $ 29,927.9 $ 29,087.7 $ 28,385.6 $ 26,450.9
Deposits 19,991.9 19,025.5 18,636.1 17,825.7 17,102.7
Loans, net of unearned income 23,075.8 21,927.0 21,333.6 20,728.0 19,575.3
Earning assets 29,230.3 28,115.2 27,408.7 26,712.1 24,801.9
Stockholders' equity 2,382.1 2,137.3 1,975.7 1,887.6 1,800.4
Common shares - basic (in thousands) 158,374 152,982 149,663 149,496 146,522
Common shares - diluted (in thousands) 159,998 154,541 151,038 150,642 147,738
SELECTED RATIOS:
Return on average total assets 1.11% 1.09% 1.07% 1.06% 1.09%
Return on average stockholders' equity 14.72 15.21 15.76 16.01 15.97
Net interest margin (FTE) 3.82 3.90 3.89 3.97 4.04
Efficiency ratio 58.79 56.78 57.26 55.49 56.32
</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
--------------------------------------------------------------------------
March 31, 1998 December 31, 1997
-------------------------------- --------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans, net of unearned
income $23,075.8 $493.3 8.67% $21,927.0 $482.9 8.74%
Available-for-sale securities 3,054.8 48.6 6.41 3,242.0 53.6 6.60
Held-to-maturity securities:
Taxable 2,393.7 43.3 7.34 2,294.8 40.1 6.93
Non-taxable 157.9 4.1 10.64 172.7 4.5 10.29
Short-term investments 548.1 10.3 7.62 478.7 10.4 8.65
-------------------------------- -------------------------------
Total interest-earning assets 29,230.3 $599.6 8.31 28,115.2 $591.5 8.35
Allowance for loan losses (327.7) (315.9)
Other assets 2,716.3 2,128.6
-------------------------------- -------------------------------
Total assets $31,618.9 $29,927.9
LIABILITIES
Interest-bearing deposits $17,882.1 $204.2 4.63% $16,945.5 $198.1 4.64%
Short-term borrowings 4,683.7 63.1 5.46 4,557.8 63.8 5.55
Federal Home Loan Bank advances 2,780.7 36.6 5.34 2,745.9 37.2 5.37
Long-term debt 1,259.5 20.2 6.49 1,003.6 16.3 6.44
-------------------------------- -------------------------------
Total interest-bearing liabilities 26,606.0 324.1 4.94 25,252.8 315.4 4.95
Demand deposits non-interest bearing 2,109.8 2,080.0
Other liabilities 521.0 457.8
Total liabilities 29,236.8 27,790.6
STOCKHOLDERS' EQUITY 2,382.1 2,137.3
-------------------------------- -------------------------------
Total liabilities and stockholders' equity $31,618.9 $29,927.9
================================ ===============================
Net interest income $275.5 $276.1
================================ ===============================
Net interest margin 3.82% 3.90%
================================ ===============================
Net interest spread 3.37% 3.40%
================================ ===============================
</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
--------------------------------------------------------------------------------------------------------------------------------
September 30, 1997 June 30, 1997 March 31, 1997
-------------------------------------- ------------------------------------ ----------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------------------------------------- ------------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 21,333.6 $ 471.1 8.76 % $ 20,728.0 $ 455.2 8.81 % $ 19,575.3 $ 424.3 8.79%
3,432.2 56.5 6.55 3,425.1 57.4 6.69 2,986.4 48.1 6.51
2,039.7 36.5 7.09 2,043.5 36.6 7.17 1,782.5 30.9 7.02
186.8 5.2 11.05 196.3 5.1 10.47 204.7 5.3 10.58
416.4 7.5 7.13 319.2 6.4 8.04 253.0 4.6 7.36
------------------------------------ ----------------------------------- ----------------------------------
27,408.7 $ 576.8 8.35 26,712.1 $ 560.7 8.41 24,801.9 $ 513.2 8.39
(307.4) (292.2) (276.8)
1,986.4 1,965.7 1,925.8
------------------------------------ ----------------------------------- ----------------------------------
$ 29,087.7 $ 28,385.6 $ 26,450.9
==================================== =================================== ==================================
$ 16,662.9 $ 194.6 4.63 % $ 15,832.9 $ 181.4 4.60 % $ 14,755.8 $ 171.0 4.70%
4,817.6 67.7 5.57 5,518.4 76.3 5.55 4,443.7 59.1 5.39
2,243.4 30.5 5.38 1,741.5 23.5 5.41 1,686.4 21.5 5.17
981.6 15.7 6.36 978.7 14.9 6.13 983.1 14.5 5.98
------------------------------------ ----------------------------------- ----------------------------------
24,705.5 308.5 4.95 24,071.5 296.1 4.93 21,869.0 266.1 4.93
1,973.2 1,992.8 2,346.9
433.3 433.7 434.6
27,112.0 26,498.0 24,650.5
1,975.7 1,887.6 1,800.4
------------------------------------ ----------------------------------- ----------------------------------
$ 29,087.7 $ 28,385.6 $ 26,450.9
==================================== =================================== ==================================
$ 268.3 $ 264.6 $ 247.1
==================================== =================================== ==================================
3.89 % 3.97 % 4.04%
==================================== =================================== ==================================
3.40 % 3.48 % 3.46%
==================================== =================================== ==================================
</TABLE>
10
<PAGE> 11
NET INTEREST INCOME/MARGIN.
The Company's net interest margin decreased 22 basis points from the
first quarter of 1997 to 3.82% for the 1998 first quarter period. This decrease
is reflective of the increase in the ratio of interest-bearing funds to earning
assets, which was 91% at March 31, 1998, up from the March 31, 1997 ratio of
88%.
In addition, the 1998 first quarter margin decreased due to the effect
of the Company's purchase of Bank Owned Life Insurance (BOLI), which is more
fully described in the non-interest income discussion in this report. BOLI is a
non-interest earning asset and flows through non-interest income. The investment
in BOLI, totaling $500 million, was made as an alternative to investing in
interest-earning assets. The resulting net interest margin effect of the BOLI
for the quarter ended March 31, 1998 was a decrease of approximately $6.8
million or 10 basis points. The net interest margin would have been relatively
stable, from the quarter ended December 31, 1997 to the current quarter end,
without the effect of the BOLI.
The quarter over quarter trend was also affected by the loan mix. The
Company is continuing to place emphasis on growing its commercial loan
portfolio. These loans are 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 and liquidity risk. Credit risk is also reduced, since
historical net credit losses on commercial loans have been lower than those on
loans to individuals. See Table 2 for detailed information concerning quarterly
average volumes, interest, yields earned and rates paid.
PROVISION FOR LOAN LOSSES.
The Company's provision for loan losses reflects management's
assessment of the ability of the allowance for loan losses to absorb loan losses
inherent in the loan portfolio. The provision for loan losses for the first
quarter of 1998 was $17.9 million, reflecting a decrease of $4.5 million from
the 1997 first quarter level of $22.4 million. The decrease in the first quarter
provision reflects the low level of net charge-offs, slower loan growth, and the
stability of the non-performing asset level during the quarter. Net charge-offs
for the quarter were $13.1 million, compared to $11.6 million for the first
quarter of 1997. This increase is due mainly to increased losses in loans to
individuals. The ratio of provision to net charge-offs for the first quarter of
1998 was 136.62%. Total net charge-offs of loans on an annualized basis amounted
to .23% of average net loans for the 1998 first quarter compared to .24% for the
first quarter of 1997. For the year ended December 31, 1997 net charge-offs were
$51.8 million or .25% of net loans.
11
<PAGE> 12
NON-INTEREST INCOME.
Total non-interest income for the quarter ended March 31, 1998 was
$88.1 million, an increase of $26.1 million or 42.1% over the same period in
1997. For the year ended December 31, 1997, non-interest income was up 6.2% from
the comparable period in 1996 to $270.6 million. Service charges on deposit
accounts, which represent the largest portion of non-interest income, increased
in the first quarter of 1998 by 19.0% from the comparable year-ago period,
reflecting the overall growth in the number of deposit accounts through both
internal growth and acquisitions. Mortgage banking operations income, which
includes loan origination and servicing fee income, increased $2.7 million or
43.4% from the 1997 first quarter. Mortgage interest rates have remained
favorable and loan production and related income have increased accordingly. Fee
income related to Bank Card and Trust operations have also experienced
increases, 10.0% and 17.8%, respectively, over the year-ago quarter. Both were
related to higher volume and various rate increases. Other fee income, which
includes investment, international, safe deposit, collection and miscellaneous
other fees, rose by $1.9 million or 18.7% compared to the quarter ended March
31, 1997.
Other non-interest income increased during the first quarter of 1998
due to a $500 million funding of a Bank Owned Life Insurance (BOLI) program
which covers the lives of certain of the company's officers. These officers
participate in the plan on a voluntary basis and have no direct vested interest
in the policies, either through payments for or receipt of benefits from the
plan. The Company is the sole beneficiary of the BOLI and all increases in its
cash surrender value and death proceeds are credited to non-interest income. For
the quarter ended March 31, 1998, increases in the cash surrender value of the
BOLI increased other non-interest income by approximately $6.8 million.
For the year ended December 31, 1997, $10.3 million in gains on sales
or securitizations of loans were included in non-interest income. Sales of loans
during the quarter ended March 31, 1998 resulted in gains of approximately $5.1
million. There were no other significant non-recurring non-interest income items
recorded in 1998 or 1997.
NON-INTEREST INCOME TABLE 3
(In millions)
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------------
1998 1997
------- ----------------------------------------
Mar 31 Dec 31 Sept 30 Jun 30 Mar 31
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 36.5 $ 35.6 $ 32.7 $ 30.9 $ 30.7
Mortgage banking operations 8.9 7.2 7.1 6.6 6.2
Bank card fees 6.2 5.8 5.5 6.0 5.7
Trust fees 6.9 6.6 6.2 5.9 5.8
Other fees 12.2 11.1 11.3 9.9 10.3
Securities gains 2.2 0.3 1.1 0.3 0.1
Other 15.2 8.1 5.9 4.5 3.2
------- ------- ------- ------- -------
Total $ 88.1 $ 74.7 $ 69.8 $ 64.1 $ 62.0
======= ======= ======= ======= =======
</TABLE>
12
<PAGE> 13
NON-INTEREST EXPENSE.
Total non-interest expense increased 22.0% in the first quarter of 1998
as compared to the same period in 1997. This increase is reflective of the
overall growth the Company has experienced. Salaries and employee benefits
expense is the largest component of non-interest expense, accounting for $116.6
million or 55% of all non-interest expense for the quarter ended March 31, 1998.
The March 31, 1998 quarter over March 31, 1997 increase in salary and employee
benefits expense was $21.6 million or 22.8%, due mainly to the increase in the
number of full time equivalent employees, which increased to approximately
11,400. Occupancy and equipment expenses were also up in the 1998 first quarter.
Both of these items are affected by the number of banking offices which
increased by 14.6 % from the March 31, 1997 level to 589 at March 31, 1998.
There were no significant non-recurring non-interest expense items recorded in
1998 or 1997.
The efficiency ratio, a measure of non-interest expense to net interest
income plus non-interest income, was 58.79% for the three month period ended
March 31, 1998, up from the year ago ratio of 56.32%.
The Company uses a wide range of software and related technologies
throughout its business that will be affected by the date change in the year
2000. This date change will require modification of portions of its software so
that its computer systems will properly recognize dates beyond December 31,
1999. The Company believes that with the current and planned upgrades or
modifications to existing software and conversions to new software, the impact
of the Year 2000 issue can be mitigated.
The Company is using both internal and external resources to reprogram,
or replace, and test software for Year 2000 readiness. The Company has
established a Year 2000 program office staffed by five full-time employees which
is headed by a member of senior management. SouthTrust also has a related
management committee dedicated to Year 2000 issues. The total Year 2000 project
cost is estimated to be between $15 million and $20 million, $5.8 million of
which has been expensed in the year ended December 31, 1997 and $1.2 million was
expensed in the first quarter of 1998. Critical computerized functions are
expected to be Year 2000 ready by December 31, 1998.
NON-INTEREST EXPENSE TABLE 4
(In millions)
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------------
1998 1997
------- ----------------------------------------
Mar 31 Dec 31 Sept 30 Jun 30 Mar 31
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 116.6 $ 106.8 $ 105.2 $ 97.9 $ 95.0
Net occupancy 15.8 16.6 15.2 14.2 14.2
Equipment 13.6 12.7 11.8 10.7 10.5
Professional services 12.8 13.6 14.4 11.6 11.8
Communications 10.9 10.1 9.1 8.7 8.6
Business development 8.1 4.9 7.3 7.2 6.9
Supplies 7.1 6.7 5.7 5.8 5.0
Other 27.6 27.6 24.3 26.1 22.1
------- ------- ------- ------- -------
Total $ 212.5 $ 199.0 $ 193.0 $ 182.2 $ 174.1
======= ======= ======= ======= =======
</TABLE>
13
<PAGE> 14
INCOME TAX EXPENSE.
Income tax expense for the first quarter of 1998 was $44.7 million for
an effective tax rate of 34.1% compared to $39.2 million or an effective rate of
35.6% in the first quarter of 1997. The statutory federal income tax rate was
35% in 1998 and 1997.
LOANS.
Loans, net of unearned income at March 31, 1998 were $23,548.9 million,
an increase of $1,074.1 million or 4.8% over the December 31, 1997 level. Of the
total loan increase, $732.1 million was obtained in the acquisition of another
financial institution consummated during the first three months of 1998.
Internal growth accounted for the remaining $342.0 million of the increase.
Management has 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 first
quarter of 1998.
The Company has participated in loan securitizations, which allow the
Company to actively manage its loan portfolio. Specifically, securitizations
allow the Company to manage credit concentrations, while continuing to extend
credit to customers.
LOAN PORTFOLIO TABLE 5
(In millions)
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------------------------------------
1998 1997
----------- -----------------------------------------------------------
Mar 31 Dec 31 Sept 30 Jun 30 Mar 31
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 7,564.2 $ 7,548.4 $ 6,846.0 $ 7,035.9 $ 6,737.5
Real estate construction 2,966.4 2,937.2 2,539.6 2,349.0 2,123.4
Commercial real estate mortgage 4,005.7 3,543.8 3,516.3 3,397.0 3,255.1
Residential real estate mortgage 5,769.7 5,277.1 5,593.2 5,201.8 5,016.2
Lease financing 855.7 869.0 809.9 809.9 776.9
Loans to individuals 2,543.8 2,458.4 2,511.7 2,459.6 2,393.5
----------- ----------- ----------- ----------- -----------
23,705.5 22,633.9 21,816.7 21,253.2 20,302.6
Unearned income (156.6) (159.1) (148.9) (147.3) (157.1)
----------- ----------- ----------- ----------- -----------
Loans, net of unearned income 23,548.9 22,474.8 21,667.8 21,105.9 20,145.5
Allowance for loan losses (336.0) (315.5) (310.7) (297.7) (284.5)
----------- ----------- ----------- ----------- -----------
Net loans $ 23,212.9 $ 22,159.3 $ 21,357.1 $ 20,808.2 $ 19,861.0
=========== =========== =========== =========== ===========
</TABLE>
14
<PAGE> 15
ALLOWANCE FOR LOAN LOSSES.
The Company maintains an allowance for loan losses to absorb 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 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 March 31, 1998 was $336.0 million or
1.43% of net loans compared to $315.5 million or 1.40% at December 31, 1997. Net
charge-offs during the quarter ended March 31, 1998 totaled $13.1 million or
0.23% of average net loans on an annualized basis. The provision for loan losses
during this same period added $17.9 million to the allowance for loan losses.
Also, the allowance for loan losses at acquisition date of acquired financial
institutions augmented the allowance by $15.7 million for 1998.
ALLOWANCE FOR LOAN LOSSES TABLE 6
(In thousands)
<TABLE>
<CAPTION>
Quarters Ended
-----------------------------------------------------------------
1998 1997
--------- ----------------------------------------------------
Mar 31 Dec 31 Sept 30 Jun 30 Mar 31
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance beginning of quarter $ 315,471 $ 310,725 $ 297,696 $ 284,532 $ 269,863
Loans charged-off:
Commercial, financial and agricultural 3,740 7,626 2,844 5,083 4,537
Real estate construction 0 91 (31) 38 7
Commercial real estate mortgage 22 54 460 437 180
Residential real estate mortgage 918 1,608 1,113 853 727
Lease financing 379 235 36 511 120
Loans to individuals 11,263 10,129 8,891 8,959 8,395
--------- --------- --------- --------- ---------
Total charge-offs 16,322 19,743 13,313 15,881 13,966
========= ========= ========= ========= =========
Recoveries of loans previously charged-off
Commercial, financial and agricultural 1,133 1,008 1,523 1,003 555
Real estate construction 7 0 0 0 0
Commercial real estate mortgage 27 152 271 46 44
Residential real estate mortgage 78 48 85 57 81
Lease financing 0 7 36 4 9
Loans to individuals 2,008 1,537 1,534 1,432 1,692
--------- --------- --------- --------- ---------
Total recoveries 3,253 2,752 3,449 2,542 2,381
========= ========= ========= ========= =========
Net loans charged-off 13,069 16,991 9,864 13,339 11,585
Additions to allowance charged to expense 17,855 21,734 20,002 26,502 22,375
Subsidiaries' allowance at date of purchase 15,738 3 2,891 1 3,879
--------- --------- --------- --------- ---------
Balance at end of quarter $ 335,995 $ 315,471 $ 310,725 $ 297,696 $ 284,532
========= ========= ========= ========= =========
(In millions)
Loans outstanding at quarter end,
net of unearned income $23,548.9 $22,474.8 $21,667.8 $21,105.9 $20,145.5
Average loans outstanding,
net of unearned income $23,075.8 $21,927.0 $21,333.6 $20,728.0 $19,575.3
Ratios:
End-of-quarter allowance to net loans outstanding 1.43% 1.40% 1.43% 1.41% 1.41%
Net loans charged off to net average loans 0.23 0.31 0.18 0.26 0.24
Provision for loan losses to net charge-offs 136.62 127.90 202.76 198.68 193.14
Provision for loan losses to net average loans 0.31 0.39 0.37 0.51 0.46
</TABLE>
15
<PAGE> 16
NON-PERFORMING ASSETS.
Non-performing assets, which include non-accrual and restructured
loans, other real estate owned and other repossessed assets were $195.6 million
at March 31, 1998, an increase of $15.2 million over the December 31, 1997
level. Non-performing assets obtained through acquisitions during the
three-month period totaled $2.0 million. The remaining 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 83 basis points at March 31, 1998, while the allowance for loan losses
to non-performing loans ratio was 253.74% for the same period.
In addition to loans on non-performing status at March 31, 1998, the
Company had loans of approximately $9.7 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 being placed 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. At December 31, 1997,
potential problem loans totaled $23.3 million.
NON-PERFORMING ASSETS TABLE 7
(Dollars in millions)
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------------------
1998 1997
--------- ---------------------------------------------
Mar 31 Dec 31 Sept 30 Jun 30 Mar 31
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Non-performing loans
Commercial, financial, and agricultural $ 69.6 $ 61.1 $ 60.8 $ 58.3 $ 65.6
Real estate construction 4.9 4.4 5.6 4.9 2.9
Commercial real estate mortgage 16.4 15.5 11.4 10.0 14.1
Residential real estate mortgage 33.7 31.5 27.2 23.7 18.3
Lease financing 0.6 0.3 0.3 0.5 0.4
Loans to Individuals 7.2 7.1 10.5 7.0 7.3
--------- --------- --------- --------- ---------
Total non-performing loans 132.4 119.9 115.8 104.4 108.6
--------- --------- --------- --------- ---------
Other real estate owned 41.2 43.8 47.7 52.6 46.5
Other repossessed assets 22.0 16.7 12.4 12.0 10.1
--------- --------- --------- --------- ---------
Total non-performing assets $ 195.6 $ 180.4 $ 175.9 $ 169.0 $ 165.2
========= ========= ========= ========= =========
Accruing loans past due 90 days or more $ 54.1 $ 54.0 $ 50.9 $ 45.3 $ 36.9
Ratios:
Non-performing loans to total loans 0.56% 0.53% 0.53% 0.49% 0.54%
Non-performing assets to total loans
plus other real estate owned 0.83 0.80 0.81 0.80 0.82
Reserve to non-performing loans 253.74 263.16 268.38 285.08 261.89
</TABLE>
16
<PAGE> 17
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 available-for-sale securities are excluded from earnings and
are reported net of deferred taxes as a component of stockholders' 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.
Total securities, including those designated as Held-to-maturity and
Available-for-sale, have increased $497.8 million since December 31, 1997. This
increase is largely the result of the purchase of callable U.S. Government
agency securities. The yield on these agencies were more favorable, as compared
to non-callable agencies, given the current rate environment.
The Company's investment in collateralized mortgage obligations
presents some degree of risk that the mortgages collateralizing the securities
can prepay, 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 doesn't believe this risk to be significant
in the current rate environment. 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.
17
<PAGE> 18
HELD-TO-MATURITY AND AVAILABLE-FOR-SALE SECURITIES TABLE 8
<TABLE>
<CAPTION>
Held-to-maturity securities
----------------------------------------------
March 31, 1998 December 31, 1997
---------------------- ----------------------
Amortized Fair Amortized Fair
(Dollars in millions) Cost Value Cost Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 0.3 $ 0.3 $ 0.7 $ 0.7
U.S. Government agency securities 2,108.1 2,115.6 1,895.2 1,905.8
Collateralized mortgage obligations
and mortgage backed securities 467.0 479.6 464.1 476.2
Obligations of states and political
subdivisions 155.2 166.3 161.9 173.7
Other securities 34.8 36.4 35.3 36.9
---------- ---------- ---------- ----------
Total $ 2,765.4 $ 2,798.2 $ 2,557.2 $ 2,593.3
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Avaliable-for-sale securities
----------------------------------------------
March 31, 1998 December 31, 1997
---------------------- ----------------------
Amortized Fair Amortized Fair
(Dollars in millions) Cost Value Cost Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 185.9 $ 186.7 $ 172.6 $ 173.4
U.S. Government agency securities 663.2 663.8 473.2 475.0
Collateralized mortgage obligations
and mortgage backed securities 2,090.4 2,101.0 2,044.0 2,056.5
Obligations of states and political
subdivisions 31.1 31.5 3.8 3.9
Other securities 220.7 223.7 205.6 208.3
---------- ---------- ---------- ----------
Total $ 3,191.3 $ 3,206.7 $ 2,899.2 $ 2,917.1
========== ========== ========== ==========
</TABLE>
18
<PAGE> 19
SHORT-TERM INVESTMENTS.
Short-term investments at March 31, 1998 totaled $702.0 million,
reflecting an increase of $190.0 million from the December 31, 1997 level of
$512.0 million. At March 31, 1998, short-term investments consisted of $28.7
million in federal funds sold, $0.2 million in time deposits with other banks,
$620.4 million in mortgage loans in the process of being securitized and sold to
third party investors and $52.7 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 Treasury 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 overall funding level is governed by current and expected
asset demand and capital needs. Funding sources can be divided into four broad
categories: deposits, short-term borrowings, Federal Home Loan Bank (FHLB)
advances, and long-term debt. The mixture of these funding types depends upon
the Company's maturity and liquidity needs, the current rate environment, and
the availability of such funds.
The Company monitors certain ratios and liability concentrations to
ensure funding levels are maintained within established policies. These policies
include a maximum short-term liability to total asset ratio of 40% and a limit
on funding concentrations from any one source as a percent of total assets of
20%. Various maturity limits have also been established.
Deposits are the Company's primary source of funding. Total deposits at
March 31, 1998 were $20,532.9 million, up $946.3 million or 4.8% from the
December 31, 1997 level of $19,586.6 million. During the first three months of
1998, acquisitions of other financial institutions added $849.5 million of
deposits. At March 31, 1998, total deposits included interest-bearing deposits
of $18,269.2 million and other deposits of $2,263.7 million. Core deposits,
defined as demand deposits and time deposits less than $100,000, totaled
$17,451.2 million or 85.0% of total deposits at March 31, 1998. This compares to
core deposits of $16,805.2 million or 85.8% at December 31, 1997.
Short-term borrowings at March 31, 1998 were $5,125.4 million and
included federal funds purchased of $2,611.7 million, securities sold under
agreements to repurchase of $1,416.6 million and other borrowed funds of
$1,097.1 million. At March 31, 1998, total short-term borrowings were 15.7% of
total liabilities and stockholders' equity. This compares to total short-term
borrowings of $4,750.4 million or 15.4% of total liabilities and stockholders'
equity at December 31, 1997.
FHLB advances totaled $2,777.4 million at March 31, 1998. The current
quarter end balance is down $5.0 million from the level outstanding at December
31, 1997. The Company uses FHLB advances as an alternative to increasing its
liability in wholesale 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 March 31, 1998, total long-term debt was $1,205.9 million,
representing a net increase of $99.5 million from the December 31, 1997 level of
$1,106.4 million. This increase in debt was due to the issuance of $200.0
million of 6.125% subordinated capital notes due in 2028, net of, $100.0
million variable rate Bank Note maturity and $0.5 million in repayments on other
debt. The $200.0 million issuance is allowable capital for risk based capital
purposes. Acquisitions completed during the first three months of 1998 had no
effect on long-term debt outstanding.
19
<PAGE> 20
CAPITAL.
The Company continually monitors current and projected capital adequacy
positions of both the Company and its subsidiaries. Maintaining adequate capital
levels is integral to provide stability to the Company, resources to achieve the
Company's growth objectives, and a return to the stockholders in the form of
dividends.
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.
The Tier 1 and Total capital ratios increased substantially from their
December 31, 1997 totals. At March 31, 1998, Tier 1 and Total capital to risk
weighted assets were 8.15% and 13.06%, respectively, compared to 7.72% and
12.07%, respectively, at year end 1997. These increases were due mainly to a
$233.4 million issuance of common stock and a $200 million issuance of allowable
long-term debt during the quarter.
CAPITAL RATIOS TABLE 9
(Dollars in millions)
<TABLE>
<CAPTION>
1998 1997
------------ ------------------------------------------------------------
Mar 31 Dec 31 Sept 30 Jun 30 Mar 31
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Tier 1 capital:
Stockholders' equity $ 2,485.8 $ 2,194.6 $ 2,015.1 $ 1,951.7 $ 1,870.5
Intangible assets other than
servicing rights (278.9) (220.3) (225.1) (228.6) (187.4)
Unrealized (gain)/loss on
available-for-sale securities (9.3) (11.2) (18.3) (10.9) 17.2
------------ ------------ ------------ ------------ ------------
Total Tier 1 capital 2,197.6 1,963.1 1,771.7 1,712.2 1,700.3
------------ ------------ ------------ ------------ ------------
Tier 2 capital:
Allowable reserve for loan losses 336.0 315.5 300.4 288.1 277.5
Allowable long-term debt 990.0 790.0 665.0 665.0 680.0
------------ ------------ ------------ ------------ ------------
Total Tier 2 capital 1,326.0 1,105.5 965.4 953.1 957.5
------------ ------------ ------------ ------------ ------------
Total risk-based capital $ 3,523.6 $ 3,068.6 $ 2,737.1 $ 2,665.3 $ 2,657.8
============ ============ ============ ============ ============
Risk-weighted assets $ 26,978.3 $ 25,418.0 $ 24,026.6 $ 23,039.8 $ 22,195.0
Risk-based ratios:
Tier 1 capital 8.15% 7.72% 7.37% 7.43% 7.66%
Total capital 13.06 12.07 11.39 11.57 11.96
Tier 1 leverage ratio 7.01 6.61 6.14 6.08 6.47
</TABLE>
20
<PAGE> 21
COMMITMENTS.
The Company's subsidiary bank had standby letters of credit outstanding
of approximately $597.4 million at March 31, 1998 and $621.6 million at December
31, 1997.
The Company's subsidiary bank had outstanding commitments to extend
credit of approximately $7,642.2 million at March 31, 1998 and $7,107.6 million
at December 31, 1997. 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.
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 $1,114.9 million at March 31, 1998 and $1,138.4 million at December 31,
1997. 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. Estimates
of losses are recognized when the mortgages are sold and are adjusted
subsequently when estimated losses change.
21
<PAGE> 22
INTEREST RATE RISK MANAGEMENT.
The Company's primary market risk is its exposure to interest rate
changes. This risk has not changed materially since December 31, 1997. Interest
rate risk management strategies are designed to optimize net interest income
while minimizing fluctuations caused by changes in the interest rate
environment. It is through these strategies that the Company seeks to manage the
maturity and repricing characteristics of its balance sheet.
The modeling techniques used by SouthTrust simulate net interest income
and impact on fair values under various rate scenarios. Important elements of
these 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.
The Company uses derivatives in the form of interest rate swap
contracts ("Swaps") to manage interest rate risk arising from certain of the
Company's fixed-rate funding sources, such as long-term debt and certain deposit
liabilities. Swaps employed by the Company must be effective at reducing the
risk associated with the exposure being hedged. All Swaps represent end-user
activities that are designed and designated at their inception as hedges, and
therefore, changes in fair values of such derivatives are not included in the
results of operations. Interest receivable or payable from such contracts is
accrued and recognized as an adjustment to the interest expense related to the
specific liability being hedged. Upon settlement or termination, the cumulative
change in the market value of such derivatives is recorded as an adjustment to
the carrying value of the underlying liability and is recognized in net interest
income over the expected remaining life of the related liability. In instances
where the underlying instrument is sold or otherwise settled, the cumulative
change in the value of the associated derivative is recognized immediately in
the component of earnings relating to the underlying instrument.
INTEREST RATE SWAPS TABLE 10
March 31, 1998
(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 $ 820.0 $ 45.0 91.5 5.80% 6.95%
Loss position 125.0 (1.3) 40.4 5.67 5.85
-------- -------
Total $ 945.0 $ 43.7 84.8 5.79% 6.80%
======== =======
</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.
On December 18, 1997 the Company filed with the Securities and Exchange
Commission a shelf registration statement on Form S-3 registering up to
$600,000,000 of Debt securities, Preferred Stock, and/or Common Stock. The
Company's previous registration statement, which provided for the issuance of up
to $300,000,000 of Debt securities, Preferred Stock and/or Common Stock, was
replaced with the December 18, 1997 Form S-3.
Pursuant to the provisions of the December 18, 1997 Form S-3, on
January 22, 1998, the Company issued 6,547,500 shares, as effected for the three
for two stock split of February 26, 1998, of common stock at $36.50 per share,
less an underwriting discount of $0.82 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 completed the acquisition of First of America Bank-Florida,
FSB during the first quarter of 1998 for a purchase price of $160 million in
cash. This acquisition added approximately $1.1 billion of assets, $0.7 billion
of loans, and $0.8 billion of deposits. In addition, the Company has entered
into three definitive agreements with other financial institutions.
The first is an agreement to assume deposits and acquire certain assets
of Home Savings of America, FSB, a subsidiary of H.F. Ahmanson & Company, for a
premium of approximately $300 million payable in cash. The Company will assume
approximately $3.4 billion in deposits and will acquire cash of approximately
$3.3 billion, certain banking premises and a limited amount of loans associated
with the deposits. This acquisition is expected to close in the third quarter of
1998.
The other two agreements are with American National Bank (American ) in
Jacksonville and Marine Bank in St. Petersburg. Both of these purchases will be
effected through the issuance of SouthTrust Corporation common stock and are
expected to add assets of approximately $543.3 million and $59.0 million,
respectively. American is expected to close by mid-year 1998, while Marine Bank
should close in the third quarter of this year.
23
<PAGE> 24
PART II-OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
* 3(a)- 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)
* 3(b) 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(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)(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).
24
<PAGE> 25
* 4(f)(ii)- Form of Subordinated Indenture which was filed 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
(b) Reports on Form 8-K
During the three months ended March 31, 1998, and through the date of
this report the Company filed a Form 8-K current report dated January
12, 1998 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: May 15, 1998 /s/ Wallace D. Malone, Jr.
------------------ -----------------------------
Wallace D. Malone, Jr.
Chairman and Chief
Executive Officer
Date: May 15, 1998 /s/ Aubrey D. Barnard
------------------ -----------------------------
Aubrey D. Barnard
Secretary, Treasurer and
Controller
25
<PAGE> 1
EXHIBIT 11
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
March 31, 1998
-----------------------------------------
Dilutive Effect
of Options
Basic Issued Diluted
--------- --------------- ---------
(In thousands, except per share data)
<S> <C> <C> <C>
Net Income ............... $ 86,452 -- $ 86,452
Shares available to common
shareholders ........ 158,374 1,624 159,998
-------- -------- --------
Earnings per share ....... $ 0.55 $ 0.54
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1997
-----------------------------------------
Dilutive Effect
of Options
Basic Issued Diluted
--------- --------------- ---------
(In thousands, except per share data)
<S> <C> <C> <C>
Net Income ............... $ 70,900 -- $ 70,900
Shares available to common
shareholders ........ 146,522 1,216 147,738
-------- -------- --------
Earnings per share ....... $ 0.48 $ 0.48
======== ======== ========
</TABLE>
26
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SOUTHTRUST CORPORATION FOR THE THREE MONTHS ENDED MARCH
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 801,532
<INT-BEARING-DEPOSITS> 246
<FED-FUNDS-SOLD> 28,700
<TRADING-ASSETS> 673,060
<INVESTMENTS-HELD-FOR-SALE> 3,206,710
<INVESTMENTS-CARRYING> 2,765,401
<INVESTMENTS-MARKET> 2,798,172
<LOANS> 23,548,847
<ALLOWANCE> 335,995
<TOTAL-ASSETS> 32,697,604
<DEPOSITS> 20,532,916
<SHORT-TERM> 5,125,440
<LIABILITIES-OTHER> 563,169
<LONG-TERM> 1,205,933
0
0
<COMMON> 403,606
<OTHER-SE> 2,082,201
<TOTAL-LIABILITIES-AND-EQUITY> 32,697,604
<INTEREST-LOAN> 492,715
<INTEREST-INVEST> 94,450
<INTEREST-OTHER> 10,297
<INTEREST-TOTAL> 597,462
<INTEREST-DEPOSIT> 204,211
<INTEREST-EXPENSE> 324,112
<INTEREST-INCOME-NET> 273,350
<LOAN-LOSSES> 17,855
<SECURITIES-GAINS> 2,152
<EXPENSE-OTHER> 212,506
<INCOME-PRETAX> 131,107
<INCOME-PRE-EXTRAORDINARY> 86,452
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,452
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.54
<YIELD-ACTUAL> 8.31
<LOANS-NON> 131,258
<LOANS-PAST> 54,120
<LOANS-TROUBLED> 1,157
<LOANS-PROBLEM> 9,700
<ALLOWANCE-OPEN> 315,471
<CHARGE-OFFS> 16,322
<RECOVERIES> 3,253
<ALLOWANCE-CLOSE> 335,995
<ALLOWANCE-DOMESTIC> 335,995
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
