<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 SEPTEMBER 30, 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) 254-5530
(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, 1998, 165,245,887 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 Balance Sheets
September 30, 1998, December 31, 1997,
and September 30, 1997 3
Consolidated Condensed Statements of Income
Three months ended September 30, 1998 and 1997 4
Nine months ended September 30, 1998 and 1997
Consolidated Condensed Statements of Stockholders' Equity
Nine months ended September 30, 1998 and 1997 5
Consolidated Condensed Statements of Cash Flows
Nine months ended September 30, 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 and nine month periods ended
September 30, 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
11-30.
2
<PAGE> 3
SOUTHTRUST CORPORATION
Consolidated Condensed Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
September 30 December 31 September 30
------------- ------------- -------------
(Dollars in thousands) 1998 1997 1997
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 899,010 $ 877,885 $ 836,684
Short-term investments:
Federal funds sold and securities purchased
under resale agreements 40,650 49,175 72,050
Interest-bearing deposits in other banks 698 228 19,557
Trading securities 112,820 58,750 36,331
Loans held for sale 743,840 403,837 333,724
------------- ------------- -------------
Total short-term investments 898,008 511,990 461,662
Available-for-sale securities 3,413,147 2,917,080 3,349,776
Held-to-maturity securities(1) 2,558,476 2,557,251 2,419,125
Loans 25,839,252 22,633,861 21,816,697
Less:
Unearned income 181,993 159,076 148,907
Allowance for loan losses 364,362 315,471 310,725
------------- ------------- -------------
Net loans 25,292,897 22,159,314 21,357,065
Premises and equipment, net 676,471 598,294 575,002
Due from customers on acceptances 6,637 8,561 9,255
Goodwill and core deposit intangibles 557,026 220,323 225,120
Mortgage servicing rights and related intangibles 55,386 53,638 44,435
Other assets 1,188,106 1,002,109 486,070
------------- ------------- -------------
Total assets $ 35,545,164 $ 30,906,445 $ 29,764,194
============= ============= =============
LIABILITIES
Deposits:
Interest-bearing $ 21,727,790 $ 17,297,931 $ 16,890,200
Other 2,479,967 2,288,653 2,120,715
------------- ------------- -------------
Total deposits 24,207,757 19,586,584 19,010,915
Federal funds purchased and securities sold
under agreements to repurchase 3,138,221 3,588,599 3,633,300
Other short-term borrowings 1,047,952 1,161,779 1,145,769
Bank acceptances outstanding 6,637 8,561 9,267
Federal Home Loan Bank advances 2,787,344 2,782,355 2,532,359
Long-term debt 1,154,959 1,106,443 981,893
Other liabilities 542,197 477,483 435,612
------------- ------------- -------------
Total liabilities 32,885,067 28,711,804 27,749,115
STOCKHOLDERS' EQUITY
Common Stock, par value $2.50 a share,
500,000,000 shares authorized(2) 415,650 386,626 376,694
Capital surplus 721,804 486,166 366,421
Retained earnings 1,517,666 1,321,586 1,264,581
Accumulated other non-owner changes in equity 17,002 11,176 18,288
Treasury stock at cost(3) (12,025) (10,913) (10,905)
------------- ------------- -------------
Total stockholders' equity 2,660,097 2,194,641 2,015,079
------------- ------------- -------------
Total liabilities and stockholders' equity $ 35,545,164 $ 30,906,445 $ 29,764,194
============= ============= =============
(1) Held-to-maturity securities-fair value $ 2,605,091 $ 2,593,259 $ 2,452,014
(2) Common shares authorized 500,000,000 300,000,000 300,000,000
Common shares issued 166,260,127 154,650,747 150,677,592
(3) Treasury shares of common stock 1,014,240 986,940 987,173
</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) 1998 1997 1998 1997
----------------------------- ----------------------------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $ 538,666 $ 470,564 $1,548,170 $1,348,802
Interest on available-for-sale securities 53,433 56,242 156,510 161,631
Interest on held-to-maturity securities:
Taxable 46,373 36,447 138,251 103,876
Non-taxable 2,610 3,506 7,957 10,291
----------------------------- ----------------------------
Total interest on held-to-maturity securities 48,983 39,953 146,208 114,167
Interest on short-term investments 14,963 7,483 38,563 18,478
----------------------------- ----------------------------
Total interest income 656,045 574,242 1,889,451 1,643,078
----------------------------- ----------------------------
Interest expense
Interest on deposits 244,146 194,575 656,585 547,002
Interest on short-term borrowings 59,196 67,679 204,325 203,057
Interest on Federal Home Loan Bank advances 36,745 30,450 109,925 75,446
Interest on long-term debt 19,109 15,744 58,347 45,198
----------------------------- ----------------------------
Total interest expense 359,196 308,448 1,029,182 870,703
----------------------------- ----------------------------
Net interest income 296,849 265,794 860,269 772,375
Provision for loan losses 22,040 20,002 65,376 68,879
----------------------------- ----------------------------
Net interest income after
provision for loan losses 274,809 245,792 794,893 703,496
Non-interest income
Service charges on deposit accounts 44,499 32,686 120,744 94,320
Mortgage banking operations 10,949 7,135 30,885 19,996
Bank card fees 7,394 5,535 20,370 17,142
Trust fees 6,882 6,171 20,647 17,904
Other fees 13,605 11,307 39,000 31,428
Securities gains (losses) (399) 1,053 2,811 1,451
Other 16,439 5,909 46,175 13,579
----------------------------- ----------------------------
Total non-interest income 99,369 69,796 280,632 195,820
----------------------------- ----------------------------
Non-interest expense
Salaries and employee benefits 128,237 105,202 366,326 298,065
Net occupancy 19,241 15,216 52,944 43,594
Equipment 15,519 11,785 43,832 32,978
Professional services 14,985 14,401 42,842 37,783
Communications 12,352 9,072 34,765 26,359
Business development 8,550 7,348 25,680 21,446
Supplies 7,066 5,711 21,780 16,499
Other 30,848 24,252 84,048 72,462
----------------------------- ----------------------------
Total non-interest expense 236,798 192,987 672,217 549,186
----------------------------- ----------------------------
Income before income taxes 137,380 122,601 403,308 350,130
Income tax expense 42,719 44,113 132,703 125,375
----------------------------- ----------------------------
Net income $ 94,661 $ 78,488 $ 270,605 $ 224,755
============================= ============================
Average shares outstanding - basic (in thousands) 165,016 149,663 161,548 148,564
Average shares outstanding - diluted (in thousands) 166,366 151,038 163,049 149,883
Net income per share - basic $ 0.57 $ 0.53 $ 1.68 $ 1.51
Net income per share - diluted 0.57 0.52 1.66 1.50
Dividends declared per share 0.1900 0.1667 0.5700 0.5000
</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 0 224,755 0 0 224,755 $224,755
Unrealized gain on available-for-sale
securities, net of tax of $(15,080)* 0 0 0 25,808 0 25,808 25,808
--------
Comprehensive Income $250,563
========
Dividends Declared ($.50 per share) 0 0 (74,632) 0 0 (74,632)
Issuance of 251,814 shares of Common Stock
for stock options exercised 630 1,663 0 0 0 2,293
Issuance of 182,172 shares of Common Stock
for dividend reinvestment and
stock purchase plan 456 4,216 0 0 0 4,672
Issuance of 42,891 shares of Common Stock
under employee discounted stock
purchase plan 107 829 0 0 0 936
Issuance of 1,905,047 shares of Common
Stock for acquisitions accounted for
as poolings-of-interest 4,763 4,392 14,288 0 0 23,443
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 7,586 64,458 0 0 0 72,044
Purchase of 20,711 shares of treasury stock 0 0 0 0 (547) (547)
- ----------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1997 $376,694 $366,421 $ 1,264,581 $ 18,288 $ (10,905) $ 2,015,079
======================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1998 $386,626 $486,166 $ 1,321,586 $ 11,176 $ (10,913) $ 2,194,641
Net Income 0 0 270,605 0 0 270,605 $270,605
Unrealized gain on available-for-sale
securities, net of tax of $(3,180)* 0 0 0 5,826 0 5,826 5,826
---------
Comprehensive Income $276,431
========
Dividends Declared ($.57 per share) 0 0 (92,722) 0 0 (92,722)
Issuance of 440,455 shares of Common Stock
for stock options exercised 1,101 4,166 0 0 0 5,267
Issuance of 113,740 shares of Common Stock
for dividend reinvestment and stock
purchase plan 284 4,489 0 0 0 4,773
Issuance of 37,413 shares of Common Stock
under employee discounted stock
purchase plan 94 1,074 0 0 0 1,168
Issuance of 62,846 shares of Common Stock
under long-term incentive plan 157 1,570 0 0 0 1,727
Issuance of 6,547,500 shares of Common
Stock in secondary offering 16,369 216,804 0 0 233,173
Issuance of 4,407,426 shares of Common
Stock for acquisitions accounted for
as poolings-of-interest 11,019 7,535 18,197 0 0 36,751
Purchase of 27,300 shares of treasury stock 0 0 0 0 (1,112) (1,112)
- ----------------------------------------------------------------------------------------------------------------------
Balance at September 30,1998 $415,650 $721,804 $ 1,517,666 $ 17,002 $ (12,025) $ 2,660,097
======================================================================================================================
</TABLE>
*See disclosure of reclassification amount in Notes to Consolidated Financial
Statements
5
<PAGE> 6
SOUTHTRUST CORPORATION
Consolidated Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-----------------------------
(In thousands) 1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 270,605 $ 224,755
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision (credit) for:
Loan losses 65,376 68,880
Depreciation of premises and equipment 36,739 28,059
Amortization of intangibles 27,123 18,814
Amortization of security premium 1,427 428
Accretion of security discount (3,904) (2,607)
Deferred income tax 6,769 2,775
Net gain on trading securities (15,090) (7,565)
Net gain on loans held for sale (12,026) (8,011)
Net securities gains (2,811) (1,451)
Origination and purchase of loans held for sale (2,643,167) (2,683,297)
Proceeds of loans held for sale 2,318,254 2,548,892
Net increase in trading securities (42,045) (10,916)
Net (increase) decrease in other assets (165,298) 29,128
Net increase in other liabilities 23,742 39,914
----------- -----------
Net cash provided by (used in) operating activities (134,306) 247,798
INVESTING ACTIVITIES
Proceeds from maturities of:
Held-to-maturity securities 1,610,912 437,614
Available-for-sale securities 682,372 239,637
Proceeds from sales of:
Held-to-maturity securities 0 0
Available-for-sale securities 309,714 315,516
Purchases of:
Held-to-maturity securities (1,350,059) (884,122)
Available-for-sale securities (1,348,307) (983,949)
Premises and equipment (59,475) (73,930)
Net (increase) decrease in:
Short-term investments 33,264 (28,046)
Loans (2,126,799) (1,952,274)
Purchase of subsidiaries, net of cash acquired 2,817,639 779,859
----------- -----------
Net cash provided by (used in) investing activities 569,261 (2,149,695)
FINANCING ACTIVITIES
Proceeds from issuance of:
Common Stock 246,108 81,360
Federal Home Loan Bank advances 300,276 2,608,750
Long-term debt 200,000 0
Payments for:
Repurchase of Common Stock (1,112) (547)
Federal Home Loan Bank advances (295,287) (1,821,550)
Long-term debt (151,484) (1,350)
Cash dividends (86,630) (56,627)
Net increase (decrease) in:
Deposits 45,267 317,901
Short-term borrowings (670,968) 707,510
----------- -----------
Net cash provided by (used in) financing activities (413,830) 1,835,447
----------- -----------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 21,125 (66,450)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 877,885 903,134
----------- -----------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 899,010 $ 836,684
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest $ 1,002,323 $ 864,952
Income taxes 131,015 106,662
Noncash transactions:
Assets acquired in business combinations 4,919,944 1,463,289
Liabilities acquired in business combinations 4,725,062 1,391,633
Loans transferred to other real estate 27,206 24,735
Loans securitized into mortgage-backed securities 1,350,439 722,691
</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 (FASB)
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 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.
Comprehensive income for the nine months ended September 30, 1998 and
1997 is reported in the Consolidated Condensed Statements of Stockholders'
Equity. Comprehensive income for the three months ended September 30, 1998 and
1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Net income $ 94,661 $ 78,488
Unrealized gain (loss) on available-for-sale
Securities, net of tax* 10,100 7,336
-------- --------
Comprehensive income $104,761 $ 85,824
======== ========
*Tax effect $ (5,844) $(13,044)
</TABLE>
In the calculation of comprehensive income, certain reclassification
adjustments are made to avoid double counting items that are displayed as part
of net income for a period that also had been displayed as part of other
comprehensive income in that period or earlier periods.
7
<PAGE> 8
The disclosure of the reclassification amount is as follows:
<TABLE>
<CAPTION>
(In thousands) Three Months Ended September 30, Nine Months Ended September 30
1998 1997 1998 1997
-------- -------- ------- ------
<S> <C> <C> <C> <C>
Unrealized holding gains
arising during the period, net of tax $ 9,853 $7,989 $7,569 $26,708
Less: reclassification adjustment for
(gains) losses included in net income,
net of tax 247 (653) (1,743) (900)
------- ------ ------ -------
Net unrealized gain on securities $10,100 $7,336 $5,826 $25,808
======= ====== ====== =======
</TABLE>
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.
SFAS No. 132, Employers' Disclosures about Pension and Other Postretirement
Benefits
In February 1998, the FASB issued SFAS No.132, Employers' Disclosures
about Pension and Other Postretirement Benefits, an amendment of SFAS Nos. 87,
88, and 106. This Statement revises employers' disclosures about pension and
other postretirement benefit plans, but does not change the measurement or
recognition of those plans. It standardizes the disclosure requirements to the
extent practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer as useful as
they were when Statements 87, 88, and 106 were issued. This Statement is
effective for fiscal years beginning after December 15, 1997. 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.
8
<PAGE> 9
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement establishes accounting and
reporting standards for derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This Statement is effective as of the beginning of fiscal years
ending after June 15, 1999.
Note B- Stock Split
On January 27, 1998, the Company's Board of Directors announced a three
for two stock split effected in the form of a stock dividend payable to
shareholders of record on February 13, 1998. The additional shares were
distributed on February 26, 1998. All share and per share information in this
report have been restated to give retroactive effect to this split.
Note C- Capital Securities
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.
9
<PAGE> 10
Note D- Business Combinations
During the first nine months of 1998 the Company completed the following
acquisitions:
(In millions)
<TABLE>
<CAPTION>
Date Institution Assets Loans Deposits Location
- ---- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C>
January 29 First of America - Florida, FSB $ 1,079.2 $ 732.0 $ 861.1 Tampa, Florida
June 18 American National Bank of Florida 513.3 328.6 433.5 Jacksonville, Florida
July 17 Home Savings of America 3,256.9 6.9 3,235.4 Various Florida
Locations
July 31 Gardner Mortgage Services, Inc. 0.4 0.0 0.0 San Antonio, Texas
July 31 Partners Mortgage Services, LTD 10.6 8.8 0.0 San Antonio, Texas
August 7 Marine Bank 59.5 35.9 45.9 St. Petersburg, Florida
---------- ---------- ----------
Totals $ 4,919.9 $ 1,112.2 $ 4,575.9
========== ========== ==========
</TABLE>
The acquisitions of Home Savings of America and Partners Mortgage
Services, LTD were accounted for as purchases of assets and assumptions of
liabilities. The acquisitions of all of the outstanding shares of First of
America - Florida, FSB and Gardner Mortgage Services, Inc. were accounted for as
purchases. Under purchase accounting, the results of operations, subsequent to
the acquisition date, are included in the Consolidated Condensed Financial
Statements.
The acquisitions of American National Bank of Florida and Marine Bank
were accounted for as poolings-of-interest; however, the Company's previously
reported consolidated financial results have not been restated to include the
effect of the acquisitions prior to their respective acquisition dates, since
the effect is not material.
Consideration for all acquisitions during the first nine months of 1998
aggregated approximately $455 million in cash and 4,407,426 shares of SouthTrust
Corporation common stock with a total market value at the time of issuance of
approximately $179 million.
On October 30, 1998 the Company completed its acquisition of Security
Bank in Arlington, Texas for 800,000 shares of SouthTrust Corporation Common
Stock with a total market value at the time of issuance of approximately $29
million. This acquisition added approximately $90.9 million of assets, $38.8
million of loans, and $82.2 million of deposits.
In addition, the Company has two definitive agreements with other
financial institutions. They are with Georgia National Bank in Athens, GA and
First American Bank in Vero Beach, FL. Both of these transactions will be
effected through the issuance of SouthTrust Corporation common stock. They are
expected to add assets of approximately $90 million and $44 million,
respectively, and should close by the end of 1998.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
BUSINESS
SouthTrust Corporation is a registered bank holding company
incorporated under the laws of Delaware in 1968. The Company is headquartered in
Birmingham, Alabama, engaging in a full range of banking services from 611
banking locations in Alabama, Florida, Georgia, Mississippi, North Carolina,
South Carolina and Tennessee. As of September 30, 1998, the Company had
consolidated total assets of $35.5 billion which ranked it as the largest bank
holding company headquartered in Alabama, and one of the twenty-five largest
bank holding companies in the United States.
Commercial banking is SouthTrust's predominant business and SouthTrust
Bank, N.A., its subsidiary bank, contributes substantially all of the Company's
total operating revenues and total consolidated assets.
SouthTrust Bank, N.A. offers a broad range of banking services, either
directly or through other affiliated bank related subsidiaries. Services to
business customers include providing checking and time deposit accounts, cash
management services, various types of lending and credit services, and corporate
and other trust services. Services provided to individual customers directly or
through other affiliated corporations include checking accounts, money market
investment and money market checking accounts, personal money management
accounts, passbook savings accounts and various other time deposit savings
programs, loans (including business, personal, automobile, mortgage, home
improvement and educational loans), brokerage services, investment services and
a variety of trust services. SouthTrust Bank, N.A. also offers Visa and/or
MasterCard multi-purpose nationally recognized credit card services.
11
<PAGE> 12
SELECTED QUARTERLY FINANCIAL DATA TABLE 1
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Quarters Ended
-------------------------------------------------------------------------------
1998 1997
-------------------------------------------- -----------------------------
Sept 30 Jun 30 Mar 31 Dec 31 Sept 30
----------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
EARNINGS SUMMARY:
Interest income $ 656.0 $ 635.9 $ 597.5 $ 589.2 $ 574.2
Interest expense 359.2 345.8 324.1 315.4 308.4
---------- ---------- ---------- ---------- ----------
Net interest income 296.8 290.1 273.4 273.8 265.8
Provision for loan losses 22.0 25.5 17.9 21.7 20.0
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 274.8 264.6 255.5 252.1 245.8
Non-interest income (excluding
securities transactions) 99.8 92.1 85.9 74.3 68.7
Securities transactions (0.4) 1.0 2.2 0.3 1.1
Non-interest expense 236.8 222.9 212.5 199.0 193.0
---------- ---------- ---------- ---------- ----------
Income before income taxes 137.4 134.8 131.1 127.7 122.6
Income taxes 42.7 45.3 44.6 45.7 44.1
---------- ---------- ---------- ---------- ----------
Net income $ 94.7 $ 89.5 $ 86.5 $ 82.0 $ 78.5
========== ========== ========== ========== ==========
PER COMMON SHARE:
Net income - basic $ 0.57 $ 0.56 $ 0.55 $ 0.54 $ 0.53
Net income- diluted 0.57 0.55 0.54 0.53 0.52
Cash dividends declared 0.19 0.19 0.19 0.1667 0.16667
Book value 16.10 15.65 15.49 14.28 13.46
Market value-high 45.375 45.000 45.125 42.833 34.458
Market value-low 30.688 39.250 35.750 30.667 25.750
ENDING BALANCES:
Loans, net of unearned income $ 25,657.3 $ 24,654.1 $ 23,548.9 $ 22,474.8 $ 21,667.8
Total assets 35,545.2 34,667.9 32,697.6 30,906.4 29,764.2
Deposits 24,207.8 21,150.8 20,532.9 19,586.6 19,010.9
Federal Home Loan Bank advances 2,787.3 2,742.3 2,777.4 2,782.4 2,532.4
Long-term debt 1,155.0 1,205.4 1,205.9 1,106.4 981.9
Stockholders' equity 2,660.1 2,576.8 2,485.8 2,194.6 2,015.1
Common shares - basic (in thousands) 165,246 164,676 160,438 153,664 149,690
AVERAGE BALANCES:
Loans, net of unearned income $ 25,001.3 $ 23,972.0 $ 23,075.8 $ 21,927.0 $ 21,333.6
Earning assets 31,984.1 31,053.7 29,230.3 28,115.2 27,408.7
Total assets 34,879.0 33,493.3 31,618.9 29,927.9 29,087.7
Deposits 23,457.8 20,532.2 19,991.9 19,025.5 18,636.1
Stockholders' equity 2,606.6 2,507.7 2,382.1 2,137.3 1,975.7
Common shares - basic (in thousands) 165,016 161,180 158,374 152,982 149,663
Common shares - diluted (in thousands) 166,366 162,712 159,998 154,541 151,038
SELECTED RATIOS:
Return on average total assets 1.08% 1.07% 1.11% 1.09% 1.07%
Return on average stockholders' equity 14.41 14.31 14.72 15.21 15.76
Net interest margin (FTE) 3.71 3.78 3.82 3.90 3.89
Efficiency ratio 59.39 57.99 58.79 56.78 57.26
</TABLE>
12
<PAGE> 13
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, 1998 June 30, 1998
---------------------------------- -------------------------------------
(2) (2)
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans, net of unearned
income $25,001.3 $ 539.2 8.56% $23,972.0 $ 517.4 8.66%
Available-for-sale securities (1) 3,367.4 53.6 6.35 3,411.8 54.9 6.49
Held-to-maturity securities:
Taxable 2,654.1 46.4 6.93 2,780.5 48.6 7.01
Non-taxable 148.3 4.0 10.74 153.4 3.9 10.36
Short-term investments 813.0 15.0 7.30 736.0 13.3 7.25
---------------------------------- ----------------------------------
Total interest-earning assets (1) 31,984.1 $ 658.2 8.17 31,053.7 $ 638.1 8.25
Allowance for loan losses (359.8) (342.8)
Other assets 3,254.7 2,782.4
---------------------------------- ----------------------------------
Total assets $34,879.0 $33,493.3
================================== ==================================
LIABILITIES
Interest-bearing deposits $21,058.1 $ 244.2 4.60% $18,296.5 $ 208.2 4.56%
Short-term borrowings 4,310.1 59.2 5.45 5,950.6 82.0 5.53
Federal Home Loan Bank advances 2,748.9 36.7 5.30 2,759.7 36.5 5.31
Long-term debt 1,197.5 19.1 6.33 1,205.7 19.1 6.35
---------------------------------- ----------------------------------
Total interest-bearing liabilities 29,314.6 359.2 4.86 28,212.5 345.8 4.92
Demand deposits non-interest bearing 2,399.7 2,235.7
Other liabilities 558.1 537.4
Total liabilities 32,272.4 30,985.6
STOCKHOLDERS' EQUITY 2,606.6 2,507.7
---------------------------------- ----------------------------------
Total liabilities and stockholders' equity $34,879.0 $33,493.3
---------------------------------- ----------------------------------
Net interest income $ 299.0 $ 292.3
---------------------------------- ----------------------------------
Net interest margin (1) 3.71% 3.78%
---------------------------------- ----------------------------------
Net interest spread (1) 3.31% 3.33%
---------------------------------- ----------------------------------
</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.
13
<PAGE> 14
TABLE 2
<TABLE>
<CAPTION>
Quarters Ended
- -------------------------------------------------------------------------------------------------------------------------
March 31, 1998 December 31, 1997 September 30, 1997
- -------------------------------------- ------------------------------- ------------------------------------
(2) (2) (2)
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -------------------------------------- ------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 23,075.8 $ 493.3 8.67% $ 21,927.0 $ 482.9 8.74% $ 21,333.6 $ 471.1 8.76%
3,054.8 48.6 6.41 3,242.0 53.6 6.60 3,432.2 56.5 6.55
2,393.7 43.3 7.34 2,294.8 40.1 6.93 2,039.7 36.5 7.09
157.9 4.1 10.64 172.7 4.5 10.29 186.8 5.2 11.05
548.1 10.3 7.62 478.7 10.4 8.65 416.4 7.5 7.13
- -------------------------------------- ------------------------------- ------------------------------------
29,230.3 $ 599.6 8.31 28,115.2 $ 591.5 8.35 27,408.7 $ 576.8 8.35
(327.7) (315.9) (307.4)
2,716.3 2,128.6 1,986.4
- -------------------------------------- ------------------------------- ------------------------------------
$ 31,618.9 $ 29,927.9 $ 29,087.7
====================================== =============================== ====================================
$ 17,882.1 $ 204.2 4.63% $ 16,945.5 $ 198.1 4.64% $ 16,662.9 $ 194.6 4.63%
4,683.7 63.1 5.46 4,557.8 63.8 5.55 4,817.6 67.7 5.57
2,780.7 36.6 5.34 2,745.9 37.2 5.37 2,243.4 30.5 5.38
1,259.5 20.2 6.49 1,003.6 16.3 6.44 981.6 15.7 6.36
- -------------------------------------- ------------------------------- ------------------------------------
26,606.0 324.1 4.94 25,252.8 315.4 4.95 24,705.5 308.5 4.95
2,109.8 2,080.0 1,973.2
521.0 457.8 433.3
29,236.8 27,790.6 27,112.0
2,382.1 2,137.3 1,975.7
- -------------------------------------- ------------------------------- ------------------------------------
$ 31,618.9 $ 29,927.9 $ 29,087.7
====================================== =============================== ====================================
$ 275.5 $ 276.1 $ 268.3
====================================== =============================== ====================================
3.82% 3.90% 3.89%
====================================== =============================== ====================================
3.37% 3.40% 3.40%
====================================== =============================== ====================================
</TABLE>
14
<PAGE> 15
NET INTEREST INCOME / MARGIN.
The Company's net interest margin decreased 18 basis points from the
third quarter of 1997 to 3.71% for the 1998 third quarter period. This decrease
is reflective of the increase in the ratio of interest-bearing funds to earning
assets, which was 92% at September 30, 1998, up from the September 30, 1997
ratio of 90%.
In addition, the 1998 third 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 changes in its carrying value flow through
non-interest income. The investment in BOLI, totaling $575 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 September 30, 1998 was
a decrease of approximately $7.9 million or 10 basis points.
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 third
quarter of 1998 was $22.0 million, reflecting an increase of $2.0 million from
the 1997 third quarter level of $20.0 million. For the nine months ended
September 30, 1998, the provision for loan losses was $65.4 million, a decrease
of $3.5 million from the same period in 1997. The decrease in the provision
reflects the low level of net charge-offs and the reduction in the
non-performing asset level during the year. Net charge-offs for the quarter were
$12.7 million, compared to $9.9 million for the third quarter of 1997. On a
year-to-date basis, net charge-offs totaled $39.5 million in 1998 compared to
$34.8 million in 1997. The ratio of provision to net charge-offs for the third
quarter of 1998 was 173.13%. Total net charge-offs of loans on an annualized
basis amounted to 0.20% and 0.22% of average net loans for the 1998 third
quarter and nine month periods, respectively. This compares to 0.18% and 0.23%
for the third quarter and first nine months of 1997, respectively. For the year
ended December 31, 1997 net charge-offs were $51.8 million or 0.25% of net
loans.
15
<PAGE> 16
NON-INTEREST INCOME.
Total non-interest income for the quarter ended September 30, 1998 was
$99.4 million, an increase of $29.6 million or 42.4% over the same period in
1997. For the nine month period ended September 30, 1998, non-interest income
was up $84.8 million or 43.3% from the comparable period in 1997 to $280.6
million. Service charges on deposit accounts, which represent the largest
portion of non-interest income, increased in the third quarter and first nine
months of 1998 by 36.1% and 28.0%, respectively from the comparable year-ago
periods. This reflects 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 $3.8
million or 53.5% from the 1997 third quarter. On a year-to-date basis, the
increase was $10.9 million or 54.5%. Mortgage interest rates have remained
favorable and loan production and related income has increased accordingly. Fee
income related to Bank Card and Trust operations has also increased, 33.6% and
11.5%, respectively, over the year-ago quarter. For the comparable nine month
periods, the increases were 18.8% and 15.3%. 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
$2.3 million or 20.3% compared to the quarter ended September 30, 1997. For the
nine month period ended September 30, 1998, other fee income increased $7.6
million or 24.1% over the comparable year-ago period.
Other non-interest income increased during the third quarter and first
nine months of 1998 due to a $500 million funding in December 1997 and a $75
million funding in July 1998 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 September 30, 1998, increases in the cash surrender value of
the BOLI increased other non-interest income by approximately $10.1 million,
bringing the total increase for the nine months to $24.0 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 September 30, 1998 resulted in gains of approximately
$3.3 million, bringing the total gain for the first nine months of 1998 to $15.1
million. There were no other significant non-recurring non-interest income items
recorded in 1998 or 1997.
16
<PAGE> 17
NON-INTEREST INCOME TABLE 3
(In millions)
<TABLE>
<CAPTION>
Quarters Ended
-----------------------------------------------------
1998 1997
------------------------------ -------------------
Sept 30 Jun 30 Mar 31 Dec 31 Sept 30
-------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 44.5 $ 39.7 $ 36.5 $ 35.6 $ 32.7
Mortgage banking operations 11.0 11.0 8.9 7.2 7.1
Bank card fees 7.4 6.8 6.2 5.8 5.5
Trust fees 6.9 6.9 6.9 6.6 6.2
Other fees 13.6 13.2 12.2 11.1 11.3
Securities gains (losses) (0.4) 1.0 2.2 0.3 1.1
Other 16.4 14.5 15.2 8.1 5.9
------- ------- ------- ------- -------
Total $ 99.4 $ 93.1 $ 88.1 $ 74.7 $ 69.8
======= ======= ======= ======= =======
</TABLE>
17
<PAGE> 18
NON-INTEREST EXPENSE.
Total non-interest expense increased 22.7% in the third quarter of 1998
as compared to the same period in 1997. On a year-to-date basis, the increase
was 22.4% over the comparable 1997 period. 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 $128.2
million or 54% of all non-interest expense for the quarter ended September 30,
1998 and $366.3 million or 55% for the first nine months of 1998. The September
30, 1998 quarter over September 30, 1997 quarter increase in salary and employee
benefits expense was $23.0 million or 21.9%, due mainly to the increase in the
number of full time equivalent employees, which increased to approximately
12,300. Occupancy and equipment expenses were also up in the third quarter and
first nine months of 1998. Both of these items are affected by the number of
banking offices which increased by 13.4 % from the September 30, 1997 level to
611 at September 30, 1998.
The efficiency ratio, a measure of non-interest expense to net interest
income plus non-interest income, was 59.39% for the three month period ended
September 30, 1998, up from the year ago ratio of 57.26%. On a year-to-date
basis, the efficiency ratio was 58.73% in 1998, compared to 56.36% in 1997.
NON-INTEREST EXPENSE TABLE 4
(In millions)
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------------------
1998 1997
--------------------------------- ---------------------
Sept 30 Jun 30 Mar 31 Dec 31 Sept 30
--------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 128.2 $ 121.5 $ 116.6 $ 106.8 $ 105.2
Net occupancy 19.2 17.9 15.8 16.6 15.2
Equipment 15.5 14.8 13.6 12.7 11.8
Professional services 15.0 15.0 12.8 13.6 14.4
Communications 12.4 11.5 10.9 10.1 9.1
Business development 8.6 9.0 8.1 4.9 7.3
Supplies 7.1 7.6 7.1 6.7 5.7
Other 30.8 25.6 27.6 27.6 24.3
-------- -------- -------- -------- --------
Total $ 236.8 $ 222.9 $ 212.5 $ 199.0 $ 193.0
======== ======== ======== ======== ========
</TABLE>
YEAR 2000
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 the Company to modify 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 established a Year 2000 Program Office in 1996 staffed by
six full-time employees and headed by a member of senior management. In
addition, there are 20 full-time equivalent employees from within the Company
and 12 full-time equivalent employees from outside sources working on the
project. SouthTrust also has a related management committee dedicated to
18
<PAGE> 19
Year 2000 issues. The Program Office has helped to establish and actively
participates in several peer groups that work together on the Year 2000 problem
and its resolution. The Year 2000 Program Office reports on the status of year
2000 readiness to the SouthTrust Corporation and SouthTrust Bank Boards of
Directors quarterly.
SouthTrust has established a four-phase methodology for use in
assessing the project's state of readiness. The first phase is Awareness. In
this phase both upper and executive management are made aware of the issues and
executive sponsorship is obtained. The second phase is Assessment and Inventory,
where the extent of problems is assessed and inventory is taken of systems and
applications. The third phase, Remediation, includes fixing of the code and unit
testing of those fixes. The fourth phase is Certification Testing and
Implementation.
The majority of the Year 2000 issues facing the Company are information
technology ("IT") in nature. All IT systems are currently in the fourth phase
and completion of this phase is expected by December 31, 1998. Non-IT systems,
which include embedded technology such as micro controllers, are also being
considered. These systems are currently in the third phase and are expected to
have completed the fourth and final phase by the middle of next year.
SouthTrust's overall readiness testing plan calls for three complete parallels
of the century rollover. All mainframe systems will experience these three tests
before December 31, 1999.
The Company has established an extensive contingency plan for the
period of time that the Company is going through the century change and is
exposed to the year 2000 problem. This plan is designed to address the most
likely risks facing the Company during that period. Some of these risks include
application system failures, power outages, security systems, and environmental
systems. As part of the contingency plan, the Company has completed a business
impact analysis for all of its core business units and is in the process of
testing the contingency plan related to each unit. This testing is on schedule
and will be completed by December 31, 1998.
The Company relies on several third party service providers who are
also affected by the year 2000 problem. The Company has worked closely with
these providers to monitor, to the extent possible, the progress of their year
2000 efforts. The Program Office has interviewed or conducted on-site visits
with most of its critical service providers and in many cases has obtained
written or verbal verification of their status. Although the Company has
obtained and continues to obtain these verifications, there can be no assurance
that the potential impact of a major interruption or failure in the services
provided by these companies would not have a material adverse effect on the
Company's financial condition or results of operations.
The total Year 2000 project cost is expected to total approximately $15
million, $5.8 million of which was expensed in the year ended December 31, 1997.
For the nine months ended September 30, 1998, the Company has expensed $4.5
million.
There were no other significant non-recurring non-interest expense
items recorded in 1998 or 1997.
19
<PAGE> 20
INCOME TAX EXPENSE.
Income tax expense for the third quarter of 1998 was $42.7 million for
an effective tax rate of 31.1% compared to $44.1 million or an effective rate of
36.0% in the third quarter of 1997. For the nine months ended September 30,
1998, income tax expense was $132.7 million for an effective tax rate of 32.9%
compared to tax expense of $125.4 million and an effective tax rate of 35.8%
during the first nine months of 1997. The statutory federal income tax rate was
35% in 1998 and 1997.
LOANS.
Loans, net of unearned income at September 30, 1998 were $25,657.3
million, an increase of $3,182.5 million or 14.2% over the December 31, 1997
level. Of the total loan increase, $1,112.2 million was obtained in the
acquisition of other financial institutions consummated during the first nine
months of 1998. Internal growth accounted for the remaining $2,070.3 million of
the increase.
Management has made a strategic decision to reduce the Company's amount
of indirect lending and to closely manage the required return expected on
various loan product types. This decision contributed to a change in the mix of
loans during the first nine months 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. Loans securitized and sold, consisting mainly of 1-4 family
mortgages, amounted to approximately $1,033.8 million and $1,670.6 million
during the year ended December 31, 1997 and the nine month period ended
September 30, 1998, respectively.
LOAN PORTFOLIO TABLE 5
(In millions)
<TABLE>
<CAPTION>
Quarters Ended
----------------------------------------------------------------------------
1998 1997
------------------------------------------- ---------------------------
Sept 30 Jun 30 Mar 31 Dec 31 Sept 30
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 8,656.8 $ 8,219.4 $ 7,564.2 $ 7,548.4 $ 6,846.0
Real estate construction 3,379.1 3,150.0 2,966.4 2,937.2 2,539.6
Commercial real estate mortgage 4,407.2 4,173.4 4,005.7 3,543.8 3,516.3
Residential real estate mortgage 6,116.6 5,977.2 5,769.7 5,277.1 5,593.2
Lease financing 1,011.1 930.1 855.7 869.0 809.9
Loans to individuals 2,268.5 2,374.9 2,543.8 2,458.4 2,511.7
----------- ----------- ----------- ----------- -----------
25,839.3 24,825.0 23,705.5 22,633.9 21,816.7
Unearned income (182.0) (170.9) (156.6) (159.1) (148.9)
----------- ----------- ----------- ----------- -----------
Loans, net of unearned income 25,657.3 24,654.1 23,548.9 22,474.8 21,667.8
Allowance for loan losses (364.4) (354.1) (336.0) (315.5) (310.7)
----------- ----------- ----------- ----------- -----------
Net loans $ 25,292.9 $ 24,300.0 $ 23,212.9 $ 22,159.3 $ 21,357.1
=========== =========== =========== =========== ===========
</TABLE>
20
<PAGE> 21
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 September 30, 1998 was $364.4 million
or 1.42% of net loans compared to $315.5 million or 1.40% at December 31, 1997.
Net charge-offs during the nine months ended September 30, 1998 totaled $39.5
million or 0.22% of average net loans on an annualized basis. The provision for
loan losses during this same period added $65.4 million to the allowance for
loan losses. Also, the allowance for loan losses at acquisition date of acquired
financial institutions augmented the allowance by $23.0 million in 1998.
Allowance for Loan Losses Table 6
(In thousands)
<TABLE>
<CAPTION>
Quarters Ended
-----------------------------------------------------------------
1998 1997
------------------------------------- ---------------------
Sept 30 Jun 30 Mar 31 Dec 31 Sept 30
------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Balance beginning of quarter $354,076 $ 335,995 $ 315,471 $ 310,725 $ 297,696
Loans charged-off:
Commercial, financial and agricultural 3,866 5,948 3,740 7,626 2,844
Real estate construction 0 5 0 91 (31)
Commercial real estate mortgage 49 152 22 54 460
Residential real estate mortgage 886 464 918 1,608 1,113
Lease financing 154 385 379 235 36
Loans to individuals 11,066 10,754 11,263 10,129 8,891
-------- --------- -------- -------- ---------
Total charge-offs 16,021 17,708 16,322 19,743 13,313
======== ========= ======== ======== =========
-
Recoveries of loans previously charged-off
Commercial, financial and agricultural 1,079 1,154 1,133 1,008 1,523
Real estate construction 0 34 7 0 0
Commercial real estate mortgage 15 (8) 27 152 271
Residential real estate mortgage 68 162 78 48 85
Lease financing 11 16 0 7 36
Loans to individuals 2,118 2,666 2,008 1,537 1,534
-------- --------- -------- -------- ---------
Total recoveries 3,291 4,024 3,253 2,752 3,449
======== ========= ======== ======== =========
Net loans charged-off 12,730 13,684 13,069 16,991 9,864
Additions to allowance charged to expense 22,040 25,481 17,855 21,734 20,002
Subsidiaries' allowance at date of purchase 976 6,284 15,738 3 2,891
-------- --------- -------- -------- ---------
Balance at end of quarter $364,362 $ 354,076 $335,995 $315,471 $ 310,725
======== ========= ======== ======== =========
(In millions)
Loans outstanding at quarter end,
net of unearned income $25,657.3 $24,654.1 $23,548.9 $22,474.8 $21,667.8
Average loans outstanding,
net of unearned income $25,001.3 $23,972.0 $23,075.8 $21,927.0 $21,333.6
Ratios:
End-of-quarter allowance to net loans outstanding 1.42% 1.44% 1.43% 1.40% 1.43%
Net loans charged off to net average loans 0.20 0.23 0.23 0.31 0.18
Provision for loan losses to net charge-offs 173.13 186.21 136.62 127.90 202.76
Provision for loan losses to net average loans 0.35 0.43 0.31 0.39 0.37
</TABLE>
21
<PAGE> 22
NON-PERFORMING ASSETS.
Non-performing assets, which include non-accrual and restructured
loans, other real estate owned and other repossessed assets were $167.8 million
at September 30, 1998, a decrease of $12.6 million from the December 31, 1997
level. Non-performing assets obtained through acquisitions during the nine month
period totaled $2.9 million. In the second and third quarters of 1998, several
non-accrual loans became current in their payments and were placed back on
accruing status, accounting for the decrease in non-performing assets from their
December 31, 1997 level. The ratio of non-performing assets to total loans plus
other non-performing assets was 0.65 % at September 30, 1998, while the
allowance for loan losses to non-performing loans ratio was 375.05% for the same
period.
In addition to loans on non-performing status at September 30, 1998,
the Company had loans of approximately $35.7 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
potential problem 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
----------------------------------- ----------------------
Sept 30 Jun 30 Mar 31 Dec 31 Sept 30
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Non-performing loans
Commercial, financial, and agricultural $ 46.7 $ 53.5 $ 69.6 $ 61.1 $ 60.8
Real estate construction 7.2 7.1 4.9 4.4 5.6
Commercial real estate mortgage 11.4 6.0 16.4 15.5 11.4
Residential real estate mortgage 27.4 32.9 33.7 31.5 27.2
Lease financing 0.4 0.5 0.6 0.3 0.3
Loans to individuals 4.1 5.5 7.2 7.1 10.5
--------- --------- --------- --------- ---------
Total non-performing loans 97.2 105.5 132.4 119.9 115.8
--------- --------- --------- --------- ---------
Other real estate owned 47.7 44.0 41.2 43.8 47.7
Other repossessed assets 22.9 22.9 22.0 16.7 12.4
--------- --------- --------- --------- ---------
Total non-performing assets $ 167.8 $ 172.4 $ 195.6 $ 180.4 $ 175.9
========= ========= ========= ========= =========
Accruing loans past due 90 days or more $ 71.2 $ 65.4 $ 54.1 $ 54.0 $ 50.9
Ratios:
Non-performing loans to total loans 0.38% 0.43% 0.56% 0.53% 0.53%
Non-performing assets to total loans
plus other non-performing assets 0.65 0.70 0.83 0.80 0.81
Non-performing assets and accruing loans
90 days or more past due to total loans
plus other non-performing assets 0.93 0.96 1.06 1.04 1.04
Allowance for loan losses to non-performing loans 375.05 335.61 253.74 263.16 268.38
</TABLE>
22
<PAGE> 23
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 management has the 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 $497.3 million since December 31, 1997. The
increase includes $390.8 million in securities that were obtained through the
acquisition of other financial institutions during the first nine months of
1998.
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 consider this risk to be
significant. 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.
23
<PAGE> 24
HELD-TO-MATURITY AND AVAILABLE-FOR-SALE SECURITIES TABLE 8
<TABLE>
<CAPTION>
Held-to-maturity securities
------------------------------------------------------
September 30, 1998 December 31, 1997
------------------------ --------------------------
Amortized Fair Amortized Fair
(Dollars in millions) Cost Value Cost Value
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 6.4 $ 6.6 $ 0.7 $ 0.7
U.S. Government agency securities 1,983.9 2,007.3 1,895.2 1,905.8
Collateralized mortgage obligations
and mortgage backed securities 394.0 406.4 464.1 476.2
Obligations of states and political
subdivisions 139.4 148.2 161.9 173.7
Other securities 34.8 36.6 35.3 36.9
---------- ---------- ---------- ----------
Total $ 2,558.5 $ 2,605.1 $ 2,557.2 $ 2,593.3
========== ========== ========== ==========
<CAPTION>
Available-for-sale securities
------------------------------------------------------
September 30, 1998 December 31, 1997
------------------------ --------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 166.3 $ 167.6 $ 172.6 $ 173.4
U.S. Government agency securities 886.3 894.5 473.2 475.0
Collateralized mortgage obligations
and mortgage backed securities 1,899.7 1,915.9 2,044.0 2,056.5
Obligations of states and political
subdivisions 201.7 204.4 3.8 3.9
Other securities 232.2 230.7 205.6 208.3
---------- ---------- ---------- ----------
Total $ 3,386.2 $ 3,413.1 $ 2,899.2 $ 2,917.1
========== ========== ========== ==========
</TABLE>
24
<PAGE> 25
SHORT-TERM INVESTMENTS.
Short-term investments at September 30, 1998 totaled $898.0 million,
reflecting an increase of $386.0 million from the December 31, 1997 level of
$512.0 million. At September 30, 1998, short-term investments consisted of $40.7
million in federal funds sold and securities purchased under resale agreements,
$0.7 million in time deposits with other banks, $743.8 million in mortgage loans
in the process of being securitized and sold to third party investors and $112.8
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
September 30, 1998 were $24,207.8 million, up $4,621.2 million or 23.6% from the
December 31, 1997 level of $19,586.6 million. During the first nine months of
1998, acquisitions of other financial institutions added $4,575.9 million of
deposits. At September 30, 1998, total deposits included interest-bearing
deposits of $21,727.8 million and other deposits of $2,480.0 million. Core
deposits, defined as demand deposits and time deposits less than $100,000,
totaled $20,609.3 million or 85.1% of total deposits at September 30, 1998. This
compares to core deposits of $16,805.2 million or 85.8% at December 31, 1997.
Short-term borrowings at September 30, 1998 were $4,186.2 million and
included federal funds purchased of $1,689.6 million, securities sold under
agreements to repurchase of $1,448.6 million and other borrowed funds of
$1,048.0 million. At September 30, 1998, total short-term borrowings were 11.8%
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 $2,787.3 million at September 30, 1998. The
current quarter end balance is up $5.0 million from the level outstanding at
December 31, 1997. The Company uses FHLB advances as an alternative to wholesale
certificates of deposit 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 management strategy.
25
<PAGE> 26
At September 30, 1998, total long-term debt was $1,155.0 million,
representing a net increase of $48.6 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 $150.0 million
in variable rate Bank Note maturities and $1.6 million in repayments on other
debt. The $200.0 million issuance is allowable capital for risk based capital
purposes. Acquisitions completed during the first nine months of 1998 had no
effect on long-term debt outstanding.
26
<PAGE> 27
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 providing stability to the Company, resources to achieve
the Company's growth objectives, and a return to 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 adjusted quarter 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 September 30, 1998 Tier 1 and Total capital to risk weighted assets
were 6.78% and 11.06%, respectively, down from the December 31, 1997 ratios of
7.72% and 12.07%. These decreases were due to the approximate $294 million
intangible asset generated in the Company's acquisition of Home Savings of
America. Partially off setting the intangible effect was a $233.4 million
issuance of common stock and a $200 million issuance of allowable long-term debt
during the first quarter of 1998.
CAPITAL RATIOS TABLE 9
(Dollars in millions)
<TABLE>
<CAPTION>
1998 1997
-----------------------------------------------------------------------------
Sept 30 Jun 30 Mar 31 Dec 31 Sept 30
--------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Tier 1 capital:
Stockholders' equity $ 2,660.1 $ 2,576.8 $ 2,485.8 $ 2,194.6 $ 2,015.1
Intangible assets other than
servicing rights (557.0) (268.7) (278.9) (220.3) (225.1)
Unrealized (gain)/loss on
available-for-sale securities (17.0) (6.9) (9.3) (11.2) (18.3)
--------- ------------ ------------ ------------ -----------
Total Tier 1 capital 2,086.1 2,301.2 2,197.6 1,963.1 1,771.7
--------- ------------ ------------ ------------ -----------
Tier 2 capital:
Allowable reserve for loan losses 364.4 354.1 336.0 315.5 300.4
Allowable long-term debt 955.0 990.0 990.0 790.0 665.0
--------- ------------ ------------ ------------ -----------
Total Tier 2 capital 1,319.4 1,344.1 1,326.0 1,105.5 965.4
--------- ------------ ------------ ------------ -----------
Total risk-based capital $ 3,405.5 $ 3,645.3 $ 3,523.6 $ 3,068.6 $ 2,737.1
========= ============ ============ ============ ===========
Risk-weighted assets $30,785.1 $ 29,165.4 $ 26,978.3 $ 25,418.0 $ 24,026.6
Risk-based ratios:
Tier 1 capital 6.78% 7.89% 8.15% 7.72% 7.37%
Total capital 11.06 12.50 13.06 12.07 11.39
Leverage ratio 6.08 6.93 7.01 6.61 6.14
</TABLE>
27
<PAGE> 28
COMMITMENTS.
The Company's subsidiary bank had standby letters of credit outstanding
of approximately $628.3 million at September 30, 1998 and $621.6 million at
December 31, 1997.
The Company's subsidiary bank had outstanding commitments to extend
credit of approximately $10,641.6 million at September 30, 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 $1,087.8 million at September 30, 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.
28
<PAGE> 29
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.
From time to time, the Company utilizes interest rate options to hedge
mortgage loans held for sale. During the first nine months of 1998, the effect
on net income from use of options was insignificant.
INTEREST RATE SWAPS TABLE 10
September 30, 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 $ 920.0 $ 87.5 77.2 5.73% 6.80%
Loss position -- -- -- -- --
-------- -------
Total $ 920.0 $ 87.5 77.2 5.73% 6.80%
======== =======
</TABLE>
29
<PAGE> 30
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.
30
<PAGE> 31
PART II-OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Pursuant to new amendments to Rule 14a-4(c) of the Securities Exchange
Act of 1934, as amended, if a stockholder who intends to present a proposal at
the 1999 annual meeting of stockholders does not notify the Company of such
proposal on or prior to January 25, 1999, then the Board of Directors' proxies
would be allowed to use their discretionary voting authority to vote on the
proposal when the proposal is raised at the annual meeting, even though there is
no discussion of the proposal in the 1999 proxy statement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Exhibits
<S> <C> <C>
* 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).
</TABLE>
31
<PAGE> 32
<TABLE>
<S> <C> <C>
* 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).
* 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)
</TABLE>
* Incorporated herein by reference
(b) Reports on Form 8-K
During the three months ended September 30, 1998, and through
the date of this report, the Company did not file a Form 8-K
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: November 13 , 1998 /S/ Wallace D. Malone, Jr.
------------------------------- -------------------------------
Wallace D. Malone, Jr.
Chairman and Chief
Executive Officer
Date: November 13, 1998 /S/ Alton E. Yother
------------------------------- -------------------------------
Alton E. Yother
Secretary, Treasurer and
Controller
32
<PAGE> 1
EXHIBIT 11
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended Sept 30, 1998 Three months ended Sept 30, 1997
------------------------------------- -------------------------------------------
(In thousands, except per share data) (In thousands, except per share data)
Dilutive Effect Dilutive Effect
of Options of Options
Basic Issued Diluted Basic Issued Diluted
-------- --------------- -------- -------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Income ............... $ 94,661 -- $ 94,661 $ 78,488 -- $ 78,488
Shares available to common
shareholders ........ 165,016 1,350 166,366 149,663 1,375 151,038
-------- ------- -------- -------- ------ ----------
Earnings per share ....... $ 0.57 $ 0.57 $ 0.53 $ 0.52
======== ======= ======== ======== ====== ==========
<CAPTION>
Nine months ended Sept 30, 1998 Nine months ended Sept 30, 1997
------------------------------------- -------------------------------------------
(In thousands, except per share data) (In thousands, except per share data)
Dilutive Effect Dilutive Effect
of Options of Options
Basic Issued Diluted Basic Issued Diluted
-------- --------------- -------- -------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Income ............... $270,605 -- $270,605 $224,755 -- $ 224,755
Shares available to common
shareholders ........ 161,548 1,501 163,049 148,564 1,319 149,883
-------- ------- -------- -------- ------ ---------
Earnings per share ....... $ 1.68 $ 1.66 $ 1.51 $ 1.50
======== ======= ======== ======== ====== =========
</TABLE>
33
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATMENTS OF SOUTHTRUST CORPORATION FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 899,010
<INT-BEARING-DEPOSITS> 698
<FED-FUNDS-SOLD> 40,650
<TRADING-ASSETS> 856,660
<INVESTMENTS-HELD-FOR-SALE> 3,413,147
<INVESTMENTS-CARRYING> 2,558,476
<INVESTMENTS-MARKET> 2,605,091
<LOANS> 25,657,259
<ALLOWANCE> 364,362
<TOTAL-ASSETS> 33,545,164
<DEPOSITS> 24,207,757
<SHORT-TERM> 4,186,173
<LIABILITIES-OTHER> 542,197
<LONG-TERM> 1,154,959
0
0
<COMMON> 415,650
<OTHER-SE> 2,244,447
<TOTAL-LIABILITIES-AND-EQUITY> 35,545,164
<INTEREST-LOAN> 1,548,170
<INTEREST-INVEST> 302,718
<INTEREST-OTHER> 38,563
<INTEREST-TOTAL> 1,889,451
<INTEREST-DEPOSIT> 656,585
<INTEREST-EXPENSE> 1,029,182
<INTEREST-INCOME-NET> 860,269
<LOAN-LOSSES> 65,376
<SECURITIES-GAINS> 2,811
<EXPENSE-OTHER> 672,217
<INCOME-PRETAX> 403,308
<INCOME-PRE-EXTRAORDINARY> 270,605
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 270,605
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.66
<YIELD-ACTUAL> 8.24
<LOANS-NON> 96,182
<LOANS-PAST> 71,245
<LOANS-TROUBLED> 967
<LOANS-PROBLEM> 35,746
<ALLOWANCE-OPEN> 315,471
<CHARGE-OFFS> 50,051
<RECOVERIES> 10,568
<ALLOWANCE-CLOSE> 364,362
<ALLOWANCE-DOMESTIC> 364,362
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
