<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
---------------------
<TABLE>
<C> <S>
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED,
EFFECTIVE OCTOBER 7, 1996.]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>
COMMISSION FILE NUMBER 0-3613
SOUTHTRUST CORPORATION
(Exact name of registrant specified in its charter)
<TABLE>
<S> <C>
DELAWARE 63-574085
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
420 NORTH 20TH STREET,
BIRMINGHAM, ALABAMA 35203
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrants telephone number, including area code: (205) 254-5509
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK -- PAR VALUE $2.50 PER SHARE
(Title of Class)
Indicate by a check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant as of February 27, 1998.
Common Stock, par value $2.50 per share -- $6,357,745,038
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of February 27, 1998.
Common Stock, par value $2.50 per share -- 160,420,982 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual proxy statement for the annual meeting of
stockholders on April 15, 1998 are incorporated by reference into Part III.
================================================================================
<PAGE> 2
PART I
ITEM 1 BUSINESS
SouthTrust Corporation ("SouthTrust" or the "Company"), 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 540 banking locations in Alabama, Florida, Georgia,
Mississippi, North Carolina, South Carolina and Tennessee. As of December 31,
1997, the Company had consolidated total assets of $30.9 billion, which ranked
it as the largest bank holding company headquartered in Alabama, and one of the
twenty-six largest bank holding companies in the United States.
Effective June 2, 1997, the Company, pursuant to the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the "Interstate Banking Act"),
consolidated all of its banking subsidiaries, located in the states of Alabama,
Florida, Georgia, North Carolina, Mississippi, Tennessee and South Carolina into
its largest banking subsidiary, SouthTrust Bank of Alabama, National
Association, and changed its name to SouthTrust Bank, National Association
("SouthTrust Bank"). The bank consolidation was undertaken by the Company in
order to obtain the benefits of the Interstate Banking Act, which, subject to
certain limitations, after June 1, 1997, permits qualifying bank holding
companies to engage in interstate mergers and allows banks to maintain and
operate branches in states other than the states where they maintain their
principal place of business.
The Company employs approximately 10,300 persons and considers that its
relations with these employees are good.
BANKING SERVICES
Commercial banking is SouthTrust's predominant business and SouthTrust
Bank, its subsidiary bank, contributes substantially all of the Company's total
operating revenues and total consolidated assets.
SouthTrust Bank 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 also offers Visa and/or Master Card
multi-purpose nationally recognized credit card services.
BANK-RELATED SUBSIDIARIES
The bank-related direct or indirect subsidiaries of SouthTrust are
SouthTrust Mortgage Corporation, a mortgage banking company servicing
approximately $7.1 billion in mortgage loans for long-term investors; SouthTrust
Life Insurance Company, a credit life insurance company; SouthTrust Insurance
Agency, an insurance agency; SouthTrust Securities, Inc., an investment services
company; SouthTrust Asset Management Company of Florida, N.A., a trust company
located in Florida; SouthTrust Asset Management Company of Georgia, N.A., a
trust company located in Georgia; and SouthTrust Asset Management Company of the
Carolinas, Inc., a trust company.
BUSINESS COMBINATIONS
The Company has pursued a strategy of acquiring banks and financial
institutions throughout the major growth areas of Florida, Georgia, Mississippi,
North Carolina, South Carolina and Tennessee. The purpose of this expansion is
to give the Company business development opportunities in metropolitan markets
with favorable prospects for population and per capita income growth. As a
routine part of its business, the Company evaluates opportunities to acquire
bank holding companies, banks and other financial institutions. In
1
<PAGE> 3
addition, in the normal course of its business, the Company seeks out and
receives inquiries from financial institutions regarding the possible
acquisition of such institutions. The company routinely evaluates these
opportunities. Thus, at any point in time, the number of acquisition
opportunities that may be available to the Company, as well as the stage of
development of such activity, are subject to change. These acquisitions are used
to augment the Company's strong internal growth. All potential acquisitions must
meet specific internal criteria designed to protect and enhance shareholder
value.
During 1997, the Company completed four acquisitions, adding approximately
$1,463.3 million in total assets, $421.5 million in loans, and $1,387.5 million
in deposits.
Additional information relating to business combinations can be found in
Note B to the Consolidated Financial Statements.
SUPERVISION AND REGULATION
SouthTrust is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the "Holding Company Act"), and is registered
with the Federal Reserve Board. SouthTrust Bank is subject to restrictions under
federal law which limit the transfer of funds by a subsidiary bank to its
holding company and nonbanking subsidiaries, whether in the form of loans,
extensions of credit, investments or asset purchases. Such transfers by the
subsidiary bank to its holding company or any non-banking subsidiary are limited
in amount to 10% of the subsidiary bank's capital and surplus and, with respect
to SouthTrust and all such non-banking subsidiaries, to an aggregate of 20% of
such bank's capital and surplus. Furthermore, such loans and extensions of
credit are required to be secured in specified amounts. The Holding Company Act
also prohibits, subject to certain exceptions, a bank holding company from
engaging in or acquiring direct or indirect control of more than 5% of the
voting stock of any company engaged in non-banking activities. An exception to
this prohibition is for activities expressly found by the Federal Reserve Board
to be so closely related to banking or managing or controlling banks as to be a
proper incident thereto.
As a bank holding company, SouthTrust is required to file with the Federal
Reserve Board various reports and such additional information as the Federal
Reserve Board may require. The Federal Reserve Board may also make examinations
of SouthTrust and each of its subsidiaries.
According to Federal Reserve Board policy, a bank holding company is
expected to act as a source of financial strength to its subsidiary banks and to
commit resources to support each such subsidiary. This support may be required
at times which a bank holding company may not be able to provide such support.
The approval of the Office of the Comptroller of the Currency ("OCC") is
required for any dividend proposed to be paid by SouthTrust Bank to the Company
if the total of all dividends declared by SouthTrust Bank in any calendar year
would exceed the total of its net profits, as defined by the OCC, for that year,
combined with its retained net profits for the preceding two years, less any
required transfers to surplus or a fund for the retirement of any preferred
stock. Under the foregoing laws and regulations, at December 31, 1997,
approximately $472.5 million was available for payment of dividends to the
Company declared by the Company's subsidiaries, primarily SouthTrust Bank. The
payment of dividends by SouthTrust Bank may also be affected by other factors,
such as the maintenance of adequate capital for SouthTrust Bank. Furthermore,
the OCC has the authority to prohibit the payment of dividends by a national
bank when it determines such payment to be an unsafe and unsound banking
practice.
In addition to the foregoing restrictions, the Federal Reserve has the
power to prohibit the payment of dividends by bank holding companies if their
actions constitute unsafe or unsound practices. The Federal Reserve Board has
issued a policy statement on the payment of cash dividends by bank holding
companies, which expresses the Federal Reserve Board's view that a bank holding
company experiencing earnings weaknesses should not pay cash dividends that
exceed its net income or that could only be funded in ways that weaken the bank
holding company's financial health, such as by borrowing.
2
<PAGE> 4
CAPITAL ADEQUACY
Under the Federal Reserve Board's risk-based capital guidelines applicable
to the Company, the minimum ratio of capital to risk-weighted assets (including
certain off-balance sheet items, such as standby letters of credit) is 8%. To be
considered a "well capitalized" bank under the guidelines, a bank must have a
total risk-based capital ratio in excess of 10%. Under these guidelines, at
least half of the total capital is to be comprised of common equity, retained
earnings and a limited amount of perpetual preferred stock, after subtracting
certain intangibles, and certain other adjustments ("Tier 1 capital"). The
remainder may consist of perpetual debt, mandatory convertible debt securities,
a limited amount of subordinated debt, other preferred stock not qualifying for
Tier 1 capital and a limited amount of loan loss reserves ("Tier 2 capital").
SouthTrust Bank is subject to similar capital requirements adopted by the OCC.
In addition, the Federal Reserve Board, the OCC and the Federal Deposit
Insurance Corporation ("FDIC") have adopted a minimum leverage ratio (Tier 1
capital to adjusted quarter average assets) of 3%. Generally, banking
organizations are expected to operate well above the minimum required capital
level of 3% unless they meet certain specified criteria, including that they
have the highest regulatory ratings. Most banking organizations are required to
maintain a leverage ratio of 3% plus an additional cushion of at least 1% to 2%.
The guidelines also provide that banking organizations experiencing internal
growth or making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels without significant
reliance upon intangible assets. Failure to meet capital guidelines could
subject a banking institution to a variety of enforcement remedies available to
federal regulatory authorities, including the termination of deposit insurance
by the FDIC, issuance of a capital directive, a prohibition on the taking of
brokered deposits and certain other restrictions.
On December 31, 1997 the Company exceeded the "well capitalized" threshold
per the guidelines, with a Tier 1 capital ratio of 7.72%, a total risk-based
capital ratio of 12.07% and a leverage ratio of 6.61%.
THE FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") substantially revised the depository institution regulatory and
funding provisions of the Federal Deposit Insurance Act as well as several other
federal banking statutes. Among other things, FDICIA requires the federal
banking regulators to take prompt corrective action in respect of depository
institutions that do not meet minimum capital requirements. FDICIA establishes
five capital tiers: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." A depository institution is well capitalized if it
significantly exceeds the minimum level required by regulation for each relevant
capital measure, adequately capitalized if it meets each such measure,
undercapitalized if it fails to meet any such measure and significantly
undercapitalized if it is significantly below such measure. The critically
undercapitalized level occurs where tangible equity is less than 2% of total
tangible assets or less than 65% of the minimum leverage ratio to be prescribed
by regulation (except to the extent that 2% would be higher than such 65%
level). A depository institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position if it
receives an unsatisfactory examination rating.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are also subject to
restrictions on borrowing from the Federal Reserve System. In addition,
undercapitalized depository institutions are subject to growth limitations and
are required to submit capital restoration plans. A depository institution's
holding company must guarantee the capital plan, up to an amount equal to the
lesser of 5% of the depository institution's assets at the time it becomes
undercapitalized or the amount of the capital deficiency when the institution
fails to comply with the plan. The federal banking agencies may not accept a
capital plan without determining, among other things, that the plan is based on
realistic assumptions and is likely to succeed in restoring the depository
institution's capital. If a depository institution fails to submit an acceptable
plan, it is treated as if it is significantly undercapitalized.
3
<PAGE> 5
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including ordered to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks. Critically
undercapitalized depository institutions are subject to appointment of a
receiver or conservator.
THE RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT
In September 1994, the Interstate Banking Act became law. The Interstate
Banking Act provides that as of September 29, 1995, adequately capitalized and
managed bank holding companies are permitted to acquire banks in any state.
State laws prohibiting interstate banking or discriminating against out-of-state
banks were preempted as of the effective date, although states were permitted to
require that target banks located within the state be in existence for a period
of up to five years before such banks may be subject to the Interstate Banking
Act. The Interstate Banking Act establishes deposit caps which prohibit
acquisitions that would result in the acquirer controlling 30% or more of the
deposits of insured banks and thrifts held in the state in which the acquisition
or merger is occurring or in any state in which the target maintains a branch or
10% or more of the deposits nationwide. State-level deposit caps are not
preempted as long as they do not discriminate against out-of-state acquirers,
and the federal deposit caps apply only to initial entry acquisitions.
In addition, the Interstate Banking Act provides that as of June 1, 1997,
adequately capitalized and managed banks may engage in interstate branching by
merging banks in different states and allowing banks to maintain branches in
states other than the states where they maintain their principal place of
business. Acting pursuant to this authorization, the Company, effective June 2,
1997, consolidated all of its then existing banking subsidiaries into its
largest banking subsidiary and changed the subsidiary's name to SouthTrust Bank,
National Association.
Proposals to change the laws and regulations governing the banking industry
are frequently introduced in Congress, in the state legislatures and before the
various bank regulatory agencies. The likelihood and timing of any such changes
and the impact such changes might have on the Company and its subsidiaries,
however, cannot be determined at this time.
COMPETITION
The commercial banking business is highly competitive and SouthTrust Bank
competes actively with national and state banks for deposits, loans and trust
accounts, and with savings and loan associations and credit unions for deposits
and loans. In addition, SouthTrust Bank competes with other financial
institutions, including securities brokers and dealers, personal loan companies,
insurance companies, finance companies, leasing companies and certain
governmental agencies, all of which actively engage in marketing various types
of loans, deposit accounts and other services.
At December 31, 1997, of the bank holding companies headquartered in
Alabama, SouthTrust was the largest in terms of assets, equity capital, and net
income. In other geographic areas, the company's market share is significantly
smaller than its competitor's.
DEPOSIT INSURANCE
SouthTrust Bank is subject to deposit insurance assessments from both the
FDIC and the Savings Association Insurance Fund (SAIF). On September 30, 1996,
legislation was enacted that reduced the assessment rate on SAIF insured
deposits to 6.44 basis points from the previous rate of 23 basis points. This
legislation, which became effective on October 1, 1996, also included a special
one time assessment on SAIF insured deposits that, for SouthTrust, amounted to
approximately $14.0 million, reducing after tax earnings by $8.6 million. Also,
the rate charged on Bank Insurance Fund (BIF) insured deposits will increase to
1.29 basis points through 1999 from its previous rate of zero.
4
<PAGE> 6
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER OF THE
COMPANY
NAME AND AGE POSITIONS HELD WITH THE COMPANY SINCE
- ------------ ------------------------------- --------------
<S> <C> <C>
Wallace D. Malone, Jr. (61).............. Chairman, President and Chief Executive 1972
Officer
Frederick W. Murray, Jr. (59)............ Executive Vice President 1980
James W. Rainer, Jr. (55)................ Executive Vice President 1982
Aubrey D. Barnard (61)................... Secretary, Treasurer and Controller 1968
Julian Banton (57)....................... Chairman, President and 1982
Chief Executive Officer
SouthTrust Bank, N.A.
J. Michael Battle (53)................... Executive Vice President 1992
SouthTrust Bank, N.A.
Fred C. Crum (53)........................ Executive Vice President 1986
SouthTrust Bank, N.A.
R. Glenn Eubanks (49).................... Executive Vice President 1990
SouthTrust Bank, N.A.
William C. Patterson (55)................ Executive Vice President 1979
SouthTrust Bank, N.A.
William E. Pearson (48).................. Executive Vice President 1991
SouthTrust Bank, N.A.
C. Perry Relfe (55)...................... Executive Vice President 1981
SouthTrust Bank, N.A.
E. Frank Schmidt (56).................... Executive Vice President 1995(1)
SouthTrust Bank, N.A.
Richard S. White, Jr. (63)............... Executive Vice President 1997(2)
SouthTrust Bank, N.A.
Thomas H. Coley (55)..................... Executive Vice President 1989
SouthTrust Bank, N.A.
</TABLE>
- ---------------
(1) Mr. Schmidt was elected to Executive Vice President effective January 1995.
Prior to that time Mr. Schmidt held the position of Chairman and Chief
Executive Officer of SouthTrust Bank of Mobile.
(2) Mr. White was elected Executive Vice President in February 1997. Prior to
that time Mr. White served as an Executive Vice President at Cole Taylor
Bank from January 1995 to February 1997. Before that time he was a Senior
Executive at Premier Bank from 1988 through 1994.
SouthTrust Corporation executive officers are re-elected annually at the
Corporate Board of Directors meeting immediately following the annual
stockholders' meeting held the third Wednesday in April of each year. SouthTrust
Bank, N.A. executive officers are re-elected annually on the second Tuesday in
January at the Bank Board of Directors meeting.
There is no family relationship between any of the above named officers.
ITEM 2 PROPERTIES
The Company's subsidiary bank and companies occupy various offices
throughout Alabama, Florida, Tennessee, Georgia, North Carolina, South Carolina,
and Mississippi. These properties are both owned and leased. Leased properties
constitute primarily land and buildings under long-term leases in which the
subsidiary bank maintains offices.
5
<PAGE> 7
ITEM 3 LEGAL PROCEEDINGS
Certain of the Company's subsidiaries are defendants in various legal
proceedings arising in the normal course of business. These claims relate
primarily 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. Some of the suits are filed as class actions.
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 at this point
in time, the potential exposure related to punitive damages in connection with
these suits, the Company, in the opinion of management, and based upon
consultation with legal counsel, believes that the ultimate resolution of these
proceedings will not have a material adverse effect on the Company's financial
statements.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER
NONE
6
<PAGE> 8
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Quarterly high and low sale prices of and cash dividends declared on
SouthTrust common stock are included in table 13, included elsewhere in this
report.
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 shareholders of
record on February 13, 1998. All share and per share information in this report
has been restated to give retroactive effect to this split.
As of February 27, 1998, the Company had approximately 15,169 shareholders
of record.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Market price range:
High.......................................... $ 42.83 $24.08 $18.17 $14.75 $14.75
Low........................................... 22.75 16.83 12.00 11.33 11.08
Market value at year end........................ 42.29 23.25 17.08 12.00 12.67
Book value per share............................ 14.28 12.03 10.85 9.29 8.83
Price earnings ratio............................ 14.56x 11.09x 9.96x 9.09x 9.91x
Cash dividends declared......................... 0.67 0.59 0.53 0.45 0.40
Dividend yield at year end...................... 1.58% 2.52% 3.12% 3.78% 3.16%
Dividend payout ratio........................... 32.47 32.41 33.74 31.45 30.70
Shares outstanding (in thousands):
Average -- basic.............................. 149,684 141,183 125,838 120,264 115,841
Average -- diluted............................ 151,008 142,154 126,687 121,157 117,027
End of the year............................... 153,665 144,209 131,856 122,139 119,102
</TABLE>
Quarterly high and low sale prices of and cash dividends declared on
SouthTrust common stock are included in table 13, included elsewhere in this
report.
7
<PAGE> 9
ITEM 6 SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Earnings Summary:
Interest income............... $ 2,232,252 $ 1,804,220 $ 1,484,623 $ 1,108,612 $ 927,551
Interest expense.............. 1,186,079 938,194 791,423 501,067 397,743
----------- ----------- ----------- ----------- -----------
Gross interest margin......... 1,046,173 866,026 693,200 607,545 529,808
Provision for loan losses..... 90,613 90,027 61,286 44,984 45,032
----------- ----------- ----------- ----------- -----------
Net interest margin........... 955,560 775,999 631,914 562,561 484,776
Non-interest income (excluding
securities transactions)... 268,768 253,400 208,471 184,448 174,099
Securities transactions....... 1,739 1,409 193 330 603
Non-interest expense.......... 748,216 643,298 536,534 485,999 434,951
----------- ----------- ----------- ----------- -----------
Income before taxes........... 477,851 387,510 304,044 261,340 224,527
Income taxes.................. 171,143 132,807 105,039 88,338 73,992
----------- ----------- ----------- ----------- -----------
Net income.................... $ 306,708 $ 254,703 $ 199,005 $ 173,002 $ 150,535
=========== =========== =========== =========== ===========
Per common share:
Net income -- basic........... $2.05 $1.80 $1.58 $1.44 $1.30
Net income -- diluted......... 2.03 1.79 1.57 1.43 1.29
Cash dividends declared....... 0.67 0.59 0.53 0.45 0.40
Ending balances:
Assets........................ $30,906,445 $26,223,193 $20,787,024 $17,632,059 $14,707,964
Deposits...................... 19,586,584 17,305,493 14,575,077 12,801,239 11,515,311
Loans, net of unearned
income..................... 22,474,785 19,331,132 14,655,162 12,121,907 9,448,319
Long-term debt................ 1,106,443 983,243 535,431 388,829 324,136
Stockholders' equity.......... 2,194,641 1,734,892 1,430,870 1,135,268 1,051,766
Common shares (thousands)..... 153,665 144,209 131,856 122,139 119,102
Average balances:
Assets........................ $28,472,372 $23,283,988 $18,983,869 $15,934,917 $13,653,047
Deposits...................... 18,152,342 15,878,025 13,612,151 11,902,013 10,772,638
Loans, net of unearned
income..................... 20,888,850 16,885,469 13,326,127 10,606,579 8,421,996
Earning assets................ 26,769,701 21,774,828 17,616,243 14,733,733 12,576,173
Stockholders' equity.......... 1,951,243 1,599,615 1,260,719 1,091,133 950,434
Basic shares (thousands)...... 149,684 141,183 125,838 120,264 115,841
Diluted shares (thousands).... 151,008 142,154 126,687 121,157 117,027
Selected ratios:
Return on average total
assets..................... 1.08% 1.09% 1.05% 1.09% 1.10%
Return on average
stockholders' equity....... 15.72 15.92 15.79 15.86 15.84
Average equity to average
assets..................... 6.85 6.87 6.64 6.85 6.96
Non-interest expense as a
percent of average total
assets..................... 2.63 2.76 2.83 3.05 3.19
Efficiency ratio.............. 56.47 56.86 58.57 60.15 60.28
</TABLE>
8
<PAGE> 10
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EARNINGS SUMMARY
THREE YEARS ENDED DECEMBER 31, 1997
SouthTrust Corporation ("SouthTrust") reported net income of $306.7 million
or $2.03 per diluted share for the year ended December 31, 1997, compared to net
income of $254.7 million or $1.79 per diluted share for the year ended December
31, 1996. Net income in 1995 was $199.0 million or $1.57 per diluted share.
The increase in net income in 1997 over 1996 was primarily attributable to
the 23% growth in average earning assets.
Net earnings in 1997 resulted in a return on average assets of 1.08%
compared to 1.09% during 1996, and a return on average stockholders' equity of
15.72% compared to 15.92% during 1996.
NET INTEREST INCOME
Net interest income is affected by changes in the volume of and rates
earned/paid on interest-earning assets and interest-bearing liabilities and is
the major component of net income of the Company. For purposes of this
discussion, income that is either exempt from federal income taxes or taxed at a
preferential rate has been adjusted to fully taxable equivalent amounts, using a
statutory federal tax rate of 35%.
Net interest income increased 20% to $1,056.2 million from $877.9 million
in 1996 and $707.5 million in 1995. The taxable equivalent net interest margins
for the three years ended December 31, 1997 were 3.94%, 4.03% and 4.01%,
respectively. The net interest spread between interest-earning assets and
interest-bearing liabilities increased 3 basis points to 3.43% in 1997 from
3.40% in 1996. The net interest spread in 1995 was 3.36%. The net interest
spread is affected by competitive pressures, Federal Reserve Bank (the "Fed")
monetary policies and the composition of interest-earning assets and
interest-bearing liabilities.
Interest income increased $426.1 million to $2,242.2 million in 1997 from
$1,816.1 million in 1996. Interest income in 1995 totaled $1,498.9 million. The
increase in interest income during 1997 was attributable to an increase in the
volume of average interest-earning assets of 23% to $26.8 billion. In addition,
the yield on average interest-earning assets increased 4 basis points to 8.37%
in 1997 from 8.33% in 1996. An increase in the volume of interest-earning assets
of 24% was also responsible for the $317.2 million increase in interest income
from 1995 to 1996. The effect of the increased earning assets was partially
offset by a decrease in the yield on those assets of 16 basis points from 8.49%
in 1995 to 8.33% in 1996.
The mix of interest-earning assets remained consistent during 1997 as
compared to 1996. Average loans were approximately 78% of average earning assets
in both 1997 and 1996. During 1997, average loans increased 24% to $20.9 billion
from $16.9 billion in 1996. The effect on interest income from this loan growth
was somewhat offset by a decrease in the average yield on loans to 8.78% during
1997 from 8.80% during 1996. Interest income on loans increased 23% to $1,833.6
million in 1997.
Total securities, including held-to-maturity and available-for-sale
securities, accounted for approximately 21% of average earning assets in 1997
and 1996. Their average yield of 6.91% in 1997 compared to 6.74% in 1996.
Interest income on securities increased $73.2 million to $379.8 million. The net
increase in securities income was primarily the result of the change in the
volume of securities which increased 21% from 1996 to $5.5 billion at December
31, 1997.
Short-term investments were approximately 1% of average earning assets in
1997 and produced an average yield of 7.58%. During 1996 short-term investments
accounted for approximately 2% of average earning assets and produced an average
yield of 6.66%. Interest income on short-term investments increased $6.1 million
to $28.9 million in 1997.
Interest expense increased $247.9 million or 26% to $1,186.1 million in
1997. This compares to an increase of $146.8 million or 19% to $938.2 million in
1996 from $791.4 million in 1995. The average rate paid on interest-bearing
liabilities remained relatively stable in 1997, increasing 1 basis point to
4.94% from 4.93%
9
<PAGE> 11
in 1996. The average rate paid on interest-bearing liabilities in 1995 was
5.13%. Additionally, the increase in interest expense was attributable to
continued growth in the average volume of interest-bearing liabilities. During
1997, the volume of average interest-bearing liabilities increased $5.0 billion
or 26% to $24.0 billion. Approximately $744.7 million of this increase was due
to acquisitions. This compared to 1996 growth in volume of $3.6 billion or 23%.
AVERAGE BALANCES AND INTEREST RATES, INTEREST YIELD/RATES
ON FULLY TAXABLE EQUIVALENT BASIS (TABLE 1)
The following table details average balances of interest-earning assets and
interest-bearing liabilities, the fully taxable equivalent amount of interest
earned/paid thereon, and the fully taxable equivalent yield/rate for the three
years ended December 31, 1997. The loan averages include loans on which the
accrual of interest has been discontinued. Income on certain non-accrual loans
is recognized on a cash basis.
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------- ------------------------------- -------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- ---------- ------ --------- ---------- ------ --------- ---------- ------
(AVERAGE IN MILLIONS; INTEREST IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans, net of unearned
income.................... $20,888.9 $1,833,552 8.78% $16,885.4 $1,486,719 8.80% $13,326.1 $1,211,927 9.09%
Held-to-maturity securities:
Taxable................... 2,037.4 143,941 7.07 1,491.8 101,862 6.83 1,558.8 100,831 6.47
Non-taxable............... 190.0 20,146 10.60 230.1 24,499 10.64 279.5 30,839 11.03
Available-for-sale
securities................ 3,272.1 215,692 6.58* 2,825.5 180,261 6.33* 2,209.4 139,813 6.22*
Short-term investments...... 381.3 28,916 7.58 342.0 22,760 6.66 242.4 15,528 6.41
--------- ---------- ----- --------- ---------- ----- --------- ---------- -----
Total
interest-earning
assets............ 26,769.7 $2,242,247 8.37* 21,774.8 1,816,101 8.33* 17,616.2 1,498,938 8.49*
Allowance for loan losses... (298.2) (239.3) (187.1)
Other assets................ 2,000.9 1,748.5 1,554.8
--------- --------- ---------
Total assets........ $28,472.4 $23,284.0 $18,983.9
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings deposits............ $ 1,265.3 $ 38,911 3.08% $ 1,015.3 $ 27,519 2.71% $ 806.9 $ 21,520 2.67%
Interest-bearing demand
deposits.................. 533.7 14,425 2.70 567.8 15,956 2.81 1,556.7 41,437 2.66
Time deposits............... 14,258.0 691,786 4.85 12,024.4 601,138 5.00 9,225.3 501,107 5.43
Short-term borrowings....... 4,834.8 266,816 5.52 3,636.7 194,159 5.34 2,995.9 174,330 5.82
Federal Home Loan Bank
advances.................. 2,107.6 112,646 5.34 1,088.3 57,387 5.27 351.1 20,511 5.84
Long-term debt.............. 986.8 61,495 6.23 696.6 42,035 6.03 486.0 32,518 6.69
--------- ---------- ----- --------- ---------- ----- --------- ---------- -----
Total
interest-bearing
liabilities....... 23,986.2 1,186,079 4.94 19,029.1 938,194 4.93 15,421.9 791,423 5.13
Demand deposits,
non-interest bearing...... 2,095.4 2,270.5 2,023.3
Other liabilities........... 439.6 384.8 277.9
--------- --------- ---------
Total liabilities... 26,521.2 21,684.4 17,723.1
Stockholders' equity........ 1,951.2 1,599.6 1,260.8
--------- --------- ---------
Total liabilities
and stockholders'
equity............ $28,472.4 $23,284.0 $18,983.9
========= ---------- ========= ---------- ========= ----------
Net interest income......... $1,056,168 $ 877,907 $ 707,515
========== ========== ==========
Net interest margin......... 3.94%* 4.03%* 4.01%*
Net interest spread......... 3.43%* 3.40%* 3.36%*
</TABLE>
- ---------------
* Yields were calculated using average amortized cost of available-for-sale
securities.
10
<PAGE> 12
TAXABLE EQUIVALENT ADJUSTMENT ANALYSIS
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------- ------------------------------------- ----------
TAXABLE INTEREST TAXABLE INTEREST
INTEREST EQUIVALENT INCOME INTEREST EQUIVALENT INCOME INTEREST
INCOME ADJUSTMENTS (FTE) INCOME ADJUSTMENTS (FTE) INCOME
---------- ----------- ---------- ---------- ----------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Loans................ $1,831,156 $ 2,396 $1,833,552 $1,483,706 $ 3,013 $1,486,719 $1,208,209
Held-to-maturity
securities:
Taxable............ 143,941 0 143,941 101,862 0 101,862 100,831
Non-taxable........ 13,224 6,922 20,146 15,972 8,527 24,499 20,604
Available-for-sale
securities......... 215,015 677 215,692 179,920 341 180,261 139,451
Short-term
investments........ 28,916 0 28,916 22,760 0 22,760 15,528
---------- ------- ---------- ---------- ------- ---------- ----------
Totals....... $2,232,252 $ 9,995 $2,242,247 $1,804,220 $11,881 $1,816,101 $1,484,623
========== ======= ========== ========== ======= ========== ==========
<CAPTION>
1995
------------------------
TAXABLE INTEREST
EQUIVALENT INCOME
ADJUSTMENTS (FTE)
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Loans................ $ 3,718 $1,211,927
Held-to-maturity
securities:
Taxable............ 0 100,831
Non-taxable........ 10,235 30,839
Available-for-sale
securities......... 362 139,813
Short-term
investments........ 0 15,528
------- ----------
Totals....... $14,315 $1,498,938
======= ==========
</TABLE>
VOLUME-RATE ANALYSIS (TABLE 2)
The following table shows a summary of the changes in interest income and
interest expense on a fully taxable equivalent basis resulting from changes in
volume and changes in rates for each category of interest-earning assets and
interest-bearing liabilities for 1997/1996 and 1996/1995. Changes not solely
attributable to a change in rate or volume are allocated proportionately
relative to the absolute change of rate and volume.
<TABLE>
<CAPTION>
1997 VERSUS 1996 1996 VERSUS 1995
INCREASE (DECREASE) DUE TO CHANGE IN: INCREASE (DECREASE) DUE TO CHANGE IN:
-------------------------------------- --------------------------------------
VOLUME YIELD/ VOLUME YIELD/
OUTSTANDING RATE TOTAL OUTSTANDING RATE TOTAL
------------ --------- --------- ------------ --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income on:
Loans.................................... $351,417 $ (4,584) $346,833 $314,489 $(39,696) $274,793
Held-to-maturity securities
Taxable................................ 38,434 3,645 42,079 (4,444) 5,474 1,030
Non-taxable............................ (4,253) (100) (4,353) (5,284) (1,056) (6,340)
Available-for-sale securities............ 29,271 6,160 35,431 39,299 1,149 40,448
Short-term investments................... 2,794 3,362 6,156 6,604 628 7,232
-------- -------- -------- -------- -------- --------
Total interest income.............. 417,663 8,483 426,146 350,664 (33,501) 317,163
Interest expense on:
Interest-bearing deposits................ 113,907 (13,398) 100,509 95,975 (15,426) 80,549
Short-term borrowings.................... 65,920 6,737 72,657 35,066 (15,238) 19,828
Federal Home Loan Bank advances.......... 54,467 792 55,259 39,057 (2,181) 36,876
Long-term debt........................... 18,048 1,412 19,460 12,961 (3,443) 9,518
-------- -------- -------- -------- -------- --------
Total interest expense............. 252,342 (4,457) 247,885 183,059 (36,288) 146,771
-------- -------- -------- -------- -------- --------
Net interest income................ $165,321 $ 12,940 $178,261 $167,605 $ 2,787 $170,392
======== ======== ======== ======== ======== ========
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses in 1997 was $90.6 million, compared to $90.0
million in 1996 and $61.3 million in 1995. Table 7, Allowance for Loan Losses,
summarizes information concerning the allowance for loan losses for each of the
five years in the period ended December 31, 1997.
Management considers portfolio growth and mix, the volume of non-performing
loans, potential problem loans and delinquencies, as well as current economic
conditions in determining the provision for loan losses. The provision for loans
losses increased $0.6 million from 1996 to 1997 while the ratio of the year-end
allowance to net loans outstanding remained unchanged at 1.40% at both December
31, 1997 and December 31, 1996. The increase in the provision for loan losses
was a result of increased non-performing loans and loan growth. The Company has
experienced continued low levels of net charge-offs in 1997. During 1997 net
charge-offs totaled $51.8 million, or .25% of average loans; an increase of $4.1
million from $47.7 million or .28% of average loans in 1996. Net charge-offs
during 1995 were $29.5 million or .22% of average
11
<PAGE> 13
loans. At December 31, 1997, total non-performing loans increased to $119.9
million, and consisted of loans on non-accrual status of $118.8 million and
restructured loans of $1.1 million. Total non-performing loans at December 31,
1996 and 1995 were $84.9 million and $76.0 million, respectively. For 1997,
total non-performing loans consisted of construction loans of $4.4 million, 1-4
family residential mortgage loans of $31.5 million, commercial real estate
mortgage loans of $15.5 million, commercial, financial and agricultural loans of
$61.4 million and loans to individuals of $7.1 million. Accruing loans 90 days
or more past due increased $13.6 million to $54.0 million in 1997 from $40.4
million in 1996. Accruing loans 90 days or more past due were $36.3 million in
1995. The increase in loans 90 days or more past due and accruing at December
31, 1997 includes a mixture of types of loans. Management believes that the
majority of these loans are past due for reasons that are likely curable by the
borrowers and should result in the loans returning to current status rather than
the loans being placed on non-accrual status or being restructured.
NON-INTEREST INCOME
Total non-interest income increased $15.7 million or 6% to $270.5 million
in 1997. Service charges on deposit accounts accounted for the largest portion
of the increase in non-interest income, increasing $20.7 million or 19% to
$129.9 million. This increase is attributable to an increased number of deposit
accounts and increases in certain service charge rates.
Income from mortgage banking operations, including servicing fees,
decreased $14.9 million or 35% to $27.2 million. During 1997, mortgage
origination fees were approximately $19.5 million, a 12% decrease from $22.2
million in 1996. Loan servicing income decreased $12.2 million to $7.7 million
during 1997.
Bank Card Fees increased $0.3 million to $23.0 million at December 31,
1997. Trust fees increased $2.6 million or 12% to $24.5 million. Securities
gains were $1.7 million in 1997 and $1.4 million in 1996. All other fee income
in 1997 was $42.5 million, up $5.6 million from 1996 and included investment
fees of $15.7 million, international department fees of $8.9 million and other
fee income of $17.9 million. Other non-interest income increased $1.1 million or
5% to $21.7 million. During 1997 and 1996, $10.3 million and $7.1 million,
respectively, in gains on sales of loans were included in other non-interest
income. Other than the gains on the sales of the loans in 1997 and 1996, there
were no significant non-recurring non-interest income items recorded during any
of the three years in the period ended December 31, 1997.
NON-INTEREST INCOME (TABLE 3)
The following table presents an analysis on non-interest income for 1997,
1996 and 1995 together with the amount and percent change from the prior year
for 1997 and 1996:
<TABLE>
<CAPTION>
CHANGES FROM PRIOR YEAR
--------------------------------
YEAR ENDED DECEMBER 31, 1997 1996
------------------------ -------------- --------------
1997 1996 1995 AMOUNT % AMOUNT %
------ ------ ------ ------ ----- ------ -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts.... $129.9 $109.2 $ 93.3 $20.7 18.9% $15.9 17.1%
Mortgage banking operations............ 27.2 42.1 31.7 (14.9) (35.2) 10.4 32.8
Trust fees............................. 24.5 21.9 18.9 2.6 12.1 3.0 17.0
Securities gains....................... 1.7 1.4 0.2 0.3 23.4 1.2 628.8
Bank card fees......................... 23.0 22.7 18.7 0.3 1.1 4.0 20.0
Investment fees........................ 15.7 12.2 9.3 3.5 29.2 2.9 30.9
International fees..................... 8.9 8.5 8.2 0.4 4.6 0.3 3.2
Safe deposit fees...................... 3.9 3.6 3.6 0.3 8.6 0.0 0.8
Collection fees........................ 5.6 4.9 3.9 0.7 16.0 1.0 26.1
Business services...................... 3.7 4.2 4.7 (0.5) (13.6) (0.5) (10.4)
Other fees............................. 4.7 3.5 4.1 1.2 34.8 (0.6) (14.4)
Other.................................. 21.7 20.6 12.1 1.1 4.8 8.5 70.7
------ ------ ------ ----- ----- ----- -----
Totals..................... $270.5 $254.8 $208.7 $15.7 6.2% $46.1 22.1%
====== ====== ====== ===== ===== ===== =====
</TABLE>
12
<PAGE> 14
NON-INTEREST EXPENSE
Total non-interest expense increased $104.9 million or 16% to $748.2
million from $643.3 million in 1996. The 1997 ratio of non-interest expense to
average total assets of 2.63% compared favorably to the 1996 level of 2.76%.
This result is attributable to Management's commitment to continuously improve
the Company's overall operating efficiency. The operating efficiency ratio
improved to 56.47% in 1997 from 56.86% in 1996.
Salaries and employee benefits accounted for the largest portion of
non-interest expense and the largest portion of the increase during all three
years. During 1997, salaries and employee benefits were $404.8 million, an
increase of $73.2 million or 22% over 1996. This was primarily reflective of the
increase in the number of full-time equivalent employees by 13% to approximately
10,300 at December 31, 1997. These additional employees were added in response
to the overall growth experienced by the Company during the year, including the
acquisition of other financial institutions. Net occupancy expense increased
$10.8 million or 22% to $60.2 million as the number of branches increased 6% to
540 at December 31, 1997 from 511 at December 31, 1996. Equipment expense
increased $8.4 million or 23% to $45.7 million in 1997 as a result of the
increase of banking offices and personnel.
Deposit insurance decreased $17.0 million or 83% to $3.5 million in 1997.
During 1996, deposit insurance expense had increased $3.6 million or 21% over
the 1995 level to $20.5 million as a result of a one-time assessment by the
Savings Association Insurance Fund. This legislation, which was passed on
September 30, 1996, required the assessment to be calculated based on deposits
insured by the SAIF. The assessment amounted to approximately $14.0 million and
reduced after-tax earnings by $8.6 million. As a part of the SAIF legislation,
the deposit insurance rate on SAIF insured deposits decreased from 23 basis
points to 6.44 basis points beginning October 1, 1996. Also, the insurance rate
charged on Bank Insurance Fund insured deposits will increase to 1.29 basis
points through 1999 from its previous rate of zero.
All other non-interest expense items increased $29.5 million or 14% to
$234.0 million for 1997, primarily as a result of growth in the general level of
business throughout the Company. From 1995 to 1996, total non-interest expense
increased $106.8 million or 20% primarily as a result of increased salaries and
benefits, and other operating expenses, reflecting the growth experienced by the
Company during 1996. Other than the SAIF assessment in 1996, there were no other
significant non-recurring non-interest expense items recorded during any of the
three years in the period ended December 31, 1997.
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 conversion 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. Critical computerized
functions are expected to be Year 2000 ready by December 31, 1998.
13
<PAGE> 15
NON-INTEREST EXPENSE (TABLE 4)
The following table presents an analysis on non-interest expense for 1997,
1996 and 1995 together with the amount and percent change from the prior year
for 1997 and 1996:
<TABLE>
<CAPTION>
CHANGE FROM PRIOR YEAR
--------------------------------
YEAR ENDED DECEMBER 31, 1997 1996
------------------------ -------------- --------------
1997 1996 1995 AMOUNT % AMOUNT %
------ ------ ------ ------ ----- ------ -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits....... $404.8 $331.6 $281.5 $ 73.2 22.1% $ 50.1 17.8%
Net occupancy expense................ 60.2 49.4 43.4 10.8 21.9 6.0 13.7
Equipment expense.................... 45.7 37.3 31.0 8.4 22.5 6.3 20.7
Professional services................ 51.4 45.6 34.8 5.8 12.8 10.8 31.1
Deposit insurance.................... 3.5 20.5 16.9 (17.0) (83.0) 3.6 21.1
Communications....................... 36.5 30.8 25.2 5.7 18.4 5.6 22.4
Business development................. 26.3 23.2 21.2 3.1 13.4 2.0 9.3
Supplies............................. 23.2 17.2 12.0 6.0 34.4 5.2 43.1
Other insurance...................... 17.1 15.2 11.8 1.9 12.6 3.4 28.6
Data processing...................... 8.5 7.7 6.3 0.8 10.8 1.4 21.9
Other................................ 71.0 64.8 52.4 6.2 9.6 12.4 23.2
------ ------ ------ ------ ----- ------ -----
Totals..................... $748.2 $643.3 $536.5 $104.9 16.3% $106.8 19.9%
====== ====== ====== ====== ===== ====== =====
</TABLE>
INCOME TAXES
Income tax expense increased $38.3 million or 29% to $171.1 million for the
year ended December 31, 1997, resulting in an effective tax rate of 36% compared
to 34% and 35% in 1996 and 1995, respectively. The statutory federal tax rate
was 35% during all three years.
A reconciliation of the differences between income tax expense and income
taxes calculated by applying the applicable statutory federal tax rates is
provided in Note M of the Consolidated Financial Statements. The largest
component of this difference during 1997 and 1996 is attributable to state
income tax, net of federal tax benefit. The largest component of this difference
during 1995 is attributable to tax-exempt interest income.
BALANCE SHEET SUMMARY
Total assets at December 31, 1997, were $30.9 billion, representing an
increase of 18% over the 1996 level of $26.2 billion. Of the total asset growth
in 1997, 69% was internally generated. Average total assets increased 22% to
$28.5 billion during 1997 from $23.3 billion in 1996. As of December 31, 1997,
the five-year compound growth rate in total assets was 19%.
During 1997, the Company consummated four business combinations in which
the Company acquired additional assets of $1,463.3 million, including loans of
$421.5 million and assumed deposits of $1,387.5 million. During 1996, the
Company acquired $1,744.9 million in assets, including $1,358.5 million in loans
and assumed deposits of $1,417.9 million. Note B, "Business Combinations," to
the Consolidated Financial Statements, included elsewhere in this report,
provides additional information regarding business combinations. In the normal
course of business, the Company regularly investigates acquisition and expansion
opportunities, and expects this process will continue.
Average earning assets during 1997 were $26.8 billion up $5.0 billion or
23% from 1996. Average earning assets were 94.0% and 93.5% of average total
assets in 1997 and 1996, respectively.
Average interest-bearing liabilities were $24.0 billion in 1997 and $19.0
billion in 1996, and accounted for 84.2% and 81.7% of average liabilities and
stockholders' equity in 1997 and 1996, respectively.
Table 1, Average Balances and Interest Rates, includes average balances of
assets and liabilities and stockholders' equity, and the rates earned/paid on
major categories of earning assets and interest-bearing liabilities for each of
the three years in the period ended December 31, 1997.
14
<PAGE> 16
LOANS
Loans comprise the major portion of earning assets of the Company,
accounting for 78% of average earning assets in both 1997 and 1996. At December
31, 1997, loans, net of unearned income, totaled $22,474.8 million, up 16% from
the December 31, 1996 level of $19,331.1 million. Of the total increase of
$3,143.7 million from 1996 to 1997, $421.5 million represents loans obtained in
acquisitions. The remainder of the increase, $2,722.2 million, represents an
internal growth rate for loans of 14% for 1997.
Demand for all types of loans remained strong during 1997. Commercial,
financial and agricultural loans increased $815.1 million, $16.7 million of
which were acquired, to $7,548.4 million or 33.3% of total loans at December 31,
1997.
Commercial real estate mortgage loans increased $534.9 million or 18% to
$3,543.8 million or 15.6% of total loans at December 31, 1997. Of the increase,
$59.1 million was acquired and the remaining $475.8 million was internally
generated growth. Commercial real estate mortgage loans as a group share similar
credit risk characteristics including sensitivity to economic conditions that
may affect occupancy and/or rental rates of the underlying collateral. Loan
types other than commercial real estate mortgages have widely diversified credit
risks. For this reason, the Company considers commercial real estate mortgage
loans as its largest credit concentration.
The largest portion of the increase in total loans was attributable to an
increase in real estate construction loans, which increased $1,006.6 million or
52% to $2,937.2 million or 13.0% of total loans at December 31, 1997, from
$1,930.6 million or 9.9% of total loans at December 31, 1996. This increase
included $30.4 million of acquired real estate construction loans. At December
31, 1997 construction loans included approximately $578.0 million in loans on
residential properties, loans on income producing commercial real estate
totaling $1,954.1 million, and $405.1 million of loans secured by owner occupied
real estate.
Residential real estate mortgage loans increased $589.6 million or 13% to
$5,277.1 million or 23.3% of total loans in 1997 compared to $4,687.5 million or
24.0% of loans in 1996. Approximately 43% of the total increase in these loans
during 1997 was obtained through acquisitions.
Lease financing loans were $869.0 million or 3.9% of total loans in 1997,
up $136.0 million from $733.0 million or 3.8% of total loans at December 31,
1996.
Loans to individuals at December 31, 1997 were $2,458.4 million, up $85.1
million from December 31, 1996. Loans to individuals accounted for 10.9% and
12.2% of total loans at year-end 1997 and 1996, respectively.
Unearned income at December 31, 1997 was $159.1 million, up $23.6 million
from the December 31, 1996 level of $135.5 million.
15
<PAGE> 17
LOAN PORTFOLIO (TABLE 5)
The following table presents loans by type and percent of total at the end
of each of the last five years.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------- ----------------- ----------------- ----------------- ----------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
--------- ----- --------- ----- --------- ----- --------- ----- -------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural............... $ 7,548.4 33.3% $ 6,733.3 34.6% $ 5,503.9 37.3% $ 4,755.9 38.9% $3,896.6 40.9%
Real estate construction..... 2,937.2 13.0 1,930.6 9.9 1,245.8 8.4 675.2 5.5 448.6 4.7
Commercial real estate
mortgage................... 3,543.8 15.6 3,008.9 15.5 2,264.7 15.4 1,776.1 14.6 1,314.2 13.8
Residential real estate
mortgage................... 5,277.1 23.3 4,687.5 24.0 3,221.3 21.8 2,960.0 24.2 2,322.1 24.4
Lease financing.............. 869.0 3.9 733.0 3.8 462.0 3.1 302.5 2.5 197.8 2.1
Loans to individuals......... 2,458.4 10.9 2,373.3 12.2 2,059.3 14.0 1,745.9 14.3 1,347.7 14.1
--------- ----- --------- ----- --------- ----- --------- ----- -------- -----
22,633.9 100.0% 19,466.6 100.0% 14,757.0 100.0% 12,215.6 100.0% 9,527.0 100.0%
===== ===== ===== ===== =====
Unearned income............ (159.1) (135.5) (101.9) (93.7) (78.7)
--------- --------- --------- --------- --------
Loans, net of unearned
income..................... 22,474.8 19,331.1 14,655.1 12,121.9 9,448.3
Allowance for loan
losses................... (315.5) (269.9) (206.6) (171.7) (135.2)
--------- --------- --------- --------- --------
Net Loans............ $22,159.3 $19,061.2 $14,448.5 $11,950.2 $9,313.1
========= ========= ========= ========= ========
</TABLE>
As of December 31, 1997, contractual maturities of loans in the indicated
classifications and sensitivity to changes in interest rates on certain of these
loans were as follows:
<TABLE>
<CAPTION>
LOANS MATURING AFTER
ONE YEAR
MATURITIES --------------------------
---------------------------------------------- PREDETERMINED ADJUSTABLE
ONE YEAR ONE TO OVER INTEREST INTEREST
OR LESS FIVE YEARS FIVE YEARS TOTALS RATE RATE
-------- ---------- ---------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural......... $2,569.2 $3,227.5 $1,751.7 $ 7,548.4 $ 3,690.4 $1,288.8
Real estate construction....................... 1,381.3 1,047.9 508.0 2,937.2 807.2 748.7
Commercial real estate mortgage................ 768.6 1,989.2 786.0 3,543.8 2,287.8 487.4
Residential real estate mortgage............... 985.8 443.9 3,847.4 5,277.1 2,057.8 2,233.5
Lease financing................................ 148.5 663.7 56.8 869.0 720.5 0.0
Loans to individuals........................... 582.4 1,157.8 718.2 2,458.4 1,860.7 15.3
-------- -------- -------- --------- --------- --------
Total loans............................ $6,435.8 $8,530.0 $7,668.1 $22,633.9 $11,424.4 $4,773.7
======== ======== ======== ========= ========= ========
Unearned income................................ $ (159.1)
=========
Loans net of unearned income................... $22,474.8
=========
</TABLE>
NON-PERFORMING ASSETS
Non-performing assets at December 31, 1997 were $180.4 million or .80% of
net loans, plus other real estate owned ("OREO") and repossessed assets. This
represents an increase of $41.4 million from the December 31, 1996 level of
$139.0 million or .72% of net loans, plus OREO and repossessed assets. At
December 31, 1997, total non-performing assets included $118.8 million in loans
on non-accrual status, $1.1 million in restructured loans, $43.8 million in
OREO, and $16.7 million of other repossessed assets. During 1997, the total OREO
and repossessed assets obtained through acquisitions was $3.8 million.
Total non-performing loans, consisting of loans on non-accrual status and
restructured loans, included real estate construction loans of $4.4 million,
commercial real estate mortgage loans of $15.5 million, residential real estate
mortgage loans of $31.5 million, commercial, financial and agricultural loans of
$61.4 million, and loans to individuals of $7.1 million. Combined non-performing
real estate loans and properties taken in foreclosure of real estate loans
totaled $78.7 million at December 31, 1997. This represented 44% of total
non-performing assets as compared to $64.0 million or 46% at December 31, 1996.
Loans 90 days past due and accruing were $54.0 million at December 31,
1997, compared to $40.4 million at December 31, 1996.
16
<PAGE> 18
The increase in non-performing assets occurred throughout 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 non-performing asset to loan ratios shown
in table 6, the increase is more closely tied to the continuing increase in size
of the Company's loan portfolio, rather than the result of negative trends in
economic conditions that are likely to affect overall credit quality or loan
charge-offs over the foreseeable future.
In addition to loans on non-performing status at December 31, 1997, the
Company had loans of approximately $23.3 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 loan repayment terms being
restructured, and/or the loans going on non-performing status. Such loans are
continuously reviewed by Management, and their classification may be changed if
conditions warrant. At December 31, 1996, potential problem loans totaled $35.1
million.
NON-PERFORMING ASSETS (TABLE 6)
The following table summarizes the Company's non-performing assets and
accruing loans 90 days or more past due as of December 31 for the last five
years.
<TABLE>
<CAPTION>
1997 1996 1995 1994
------------------- ------------------- ------------------- -------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Non-accrual loans................... $ 118.8 $ 82.8 $ 73.1 $ 50.8
Restructured loans.................. 1.1 2.1 2.9 2.1
------- ------- ------- -------
Total non-performing
loans................... 119.9 84.9 76.0 52.9
Other real estate owned............. 43.8 43.9 39.3 46.0
Repossessed Assets.................. 16.7 10.2 6.8 3.8
------- ------- ------- -------
Total non-performing
assets.................. 180.4 139.0 122.1 102.7
Accruing loans 90 days or more past
due............................... $ 54.0 $ 40.4 $ 36.3 $ 16.6
------- ------- ------- -------
Total non-performing
assets and accruing
loans 90 days or more
past due................ $ 234.4 $ 179.4 $ 158.4 $ 119.3
======= ======= ======= =======
Provision for loan losses........... $ 90.6 $ 90.0 $ 61.3 $ 45.0
Net charge-offs..................... 51.8 47.7 29.5 19.8
Ratios:
For the Period Ended:
Net charge-offs as a % of average
net loans...................... 0.25% 0.28% 0.22% 0.19%
Provision for loan losses as a %
of net charge-offs............. 175.00 188.89 207.95 227.46
Period End:
Allowance as a % of net loans..... 1.40 1.40 1.41 1.42
Allowance as a % of non-performing
loans.......................... 263.16 317.57 271.88 324.55
Allowance as a % of non-performing
assets......................... 174.85 194.06 169.27 167.17
Allowance as a % of non-performing
assets and accruing loans 90
days or more past due.......... 134.60 150.39 130.43 143.89
Non-performing loans as a % of net
loans.......................... 0.53 0.44 0.52 0.44
Non-performing assets as a % of
loans net of unearned income
plus OREO and repossessed
assets......................... 0.80 0.72 0.83 0.84
Non-performing assets and accruing
loans 90 days or more past due
as a % of loans net of unearned
income plus OREO and
repossessed assets............. 1.04 0.93 1.08 0.98
<CAPTION>
1993
---------------
<S> <C>
Non-accrual loans................... $ 58.6
Restructured loans.................. 8.8
-------
Total non-performing
loans................... 67.4
Other real estate owned............. 41.6
Repossessed Assets.................. 4.1
-------
Total non-performing
assets.................. 113.1
Accruing loans 90 days or more past
due............................... $ 13.2
-------
Total non-performing
assets and accruing
loans 90 days or more
past due................ $ 126.3
=======
Provision for loan losses........... $ 45.0
Net charge-offs..................... 24.6
Ratios:
For the Period Ended:
Net charge-offs as a % of average
net loans...................... 0.29%
Provision for loan losses as a %
of net charge-offs............. 182.95
Period End:
Allowance as a % of net loans..... 1.43
Allowance as a % of non-performing
loans.......................... 200.70
Allowance as a % of non-performing
assets......................... 119.59
Allowance as a % of non-performing
assets and accruing loans 90
days or more past due.......... 107.06
Non-performing loans as a % of net
loans.......................... 0.71
Non-performing assets as a % of
loans net of unearned income
plus OREO and repossessed
assets......................... 1.19
Non-performing assets and accruing
loans 90 days or more past due
as a % of loans net of unearned
income plus OREO and
repossessed assets............. 1.33
</TABLE>
17
<PAGE> 19
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses increased $45.6 million to $315.5 million at
December 31, 1997 primarily due to the increase in non-performing loans and loan
growth. As a percentage of net loans, the Company maintained the allowance for
loan losses at 1.40%, consistent with the previous year allowance of $269.9
million or 1.40% of net loans. At year-end 1997, the allowance for loan losses
was 263% of total non-performing loans compared to 318% at the end of 1996.
During 1997, the provision for loan losses added $90.6 million to the allowance
for loan losses and net charge-offs reduced the allowance for loan losses by
$51.8 million. Existing allowances for loan losses of acquired institutions
totaled $6.8 million and also augmented the total allowance. The allowance for
loan losses is established to cover losses inherent in the portfolio. As asset
quality and economic conditions change, the allowance for loan losses will be
increased or decreased accordingly.
Net charge-offs during 1997 totaled $51.8 million or .25% of average net
loans, an increase of $4.1 million from $47.7 million or .28% of net loans
during 1996. During 1997, total loans charged-off were $62.9 million and total
recoveries of previously charged-off loans were $11.1 million. Net charge-offs
by major category during 1997 were commercial, financial and agricultural loans
of $16.0 million, real estate construction loans of $0.1 million, commercial
real estate mortgage loans of $0.6 million, residential real estate mortgage
loans of $4.0 million, lease financing of $0.9 million and loans to individuals
of $30.2 million. In maintaining the allowance level, Management has taken into
consideration present economic trends and conditions, portfolio growth, the
level of risk in the portfolio, the level of potential problem loans, and
delinquencies. Management considers the allowance for loan losses to be
adequate.
18
<PAGE> 20
ALLOWANCE FOR LOAN LOSSES (TABLE 7)
The following table summarizes information concerning the allowance for
loan losses:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Loans outstanding at year end, net of
unearned income...................... $22,474.8 $19,331.1 $14,655.1 $12,121.9 $9,448.3
========= ========= ========= ========= ========
Average loans outstanding, net of
unearned income...................... $20,888.9 $16,885.4 $13,326.1 $10,606.6 $8,422.0
========= ========= ========= ========= ========
(IN THOUSANDS)
Balance beginning of year.............. $ 269,863 $ 206,638 $ 171,692 $ 135,233 $103,770
Loans charged-off:
Commercial, financial and
agricultural...................... 20,090 27,183 10,554 9,617 14,781
Real estate construction............. 105 38 160 582 657
Commercial real estate mortgage...... 1,131 2,234 4,543 2,256 884
Residential real estate mortgage..... 4,301 1,598 2,351 1,581 2,545
Lease financing...................... 902 417 199 156 49
Loans to individuals................. 36,374 29,871 23,328 15,594 17,704
--------- --------- --------- --------- --------
Total charge-offs............ 62,903 61,341 41,135 29,786 36,620
--------- --------- --------- --------- --------
Recoveries of loans previously
charged-off:
Commercial, financial and
agricultural...................... 4,089 3,487 3,151 2,566 4,313
Real estate construction............. 0 39 10 70 260
Commercial real estate mortgage...... 513 1,326 2,584 517 278
Residential real estate mortgage..... 271 270 332 446 367
Lease financing...................... 56 15 25 51 4
Loans to individuals................. 6,195 8,544 5,561 6,360 6,783
--------- --------- --------- --------- --------
Total recoveries............. 11,124 13,681 11,663 10,010 12,005
--------- --------- --------- --------- --------
Net loans charged-off.................. 51,779 47,660 29,472 19,776 24,615
Additions to allowance charged to
expense.............................. 90,613 90,027 61,286 44,984 45,032
Subsidiaries' allowance at date of
purchase............................. 6,774 20,858 3,132 11,251 11,046
--------- --------- --------- --------- --------
Balance end of year.................... $ 315,471 $ 269,863 $ 206,638 $ 171,692 $135,233
========= ========= ========= ========= ========
Allowance for loan loss allocation, end
of year:
Commercial, financial and
agricultural...................... $ 109,744 $ 90,258 $ 67,206 $ 58,186 $ 56,515
Real Estate construction............. 21,568 24,844 15,883 11,405 4,786
Commercial real estate mortgage...... 44,617 26,925 24,874 44,065 24,551
Residential real estate mortgage..... 44,867 47,057 24,071 20,010 14,032
Lease financing...................... 1,181 877 782 454 269
Loans to individuals................. 68,258 49,790 44,418 25,786 15,296
Unallocated portion of reserve....... 25,236 30,112 29,404 11,786 19,784
--------- --------- --------- --------- --------
Total........................ $ 315,471 $ 269,863 $ 206,638 $ 171,692 $135,233
========= ========= ========= ========= ========
Ratios:
End-of-year allowance to net loans
outstanding....................... 1.40% 1.40% 1.41% 1.42% 1.43%
Net loans charged-off to net average
loans............................. 0.25 0.28 0.22 0.19 0.29
Provision for loan losses to net
charge-offs....................... 175.00 188.89 207.95 227.46 182.95
Provision for loan losses to net
average loans..................... 0.43 0.53 0.46 0.42 0.53
End-of-year allowance to net average
loans............................. 1.51 1.60 1.55 1.62 1.61
</TABLE>
See Note A to Consolidated Financial Statements for discussion of the
determination of the provision for loan losses.
19
<PAGE> 21
HELD-TO-MATURITY AND AVAILABLE-FOR-SALE SECURITIES
At December 31, 1997, total securities were $5,474.3 million.
Held-to-maturity securities amounted to $2,557.2 million and securities
classified as available-for-sale amounted to $2,917.1 million.
Held-to-maturity securities increased 31% from the year-end 1996 level to
$2,557.2 million, and included U.S. Treasury securities of $0.7 million, U.S.
Government agency securities of $1,895.2 million, collateralized mortgage
obligations ("CMO's") and mortgage backed securities of $464.1 million,
obligations of states and political subdivisions of $161.9 million and other
securities of $35.3 million.
Available-for-sale securities increased 2% from the year-end 1996 level to
$2,917.1 million and included U.S. Treasury securities of $173.4 million, U.S.
Government agency securities of $475.0 million, CMO's and mortgage backed
securities of $2,056.5 million, obligations of states and political subdivisions
$3.9 million and other securities of $208.3 million.
At December 31, 1997, the Company's investment portfolio included
approximately $2,520.6 million in CMO's and other mortgage backed securities.
Approximately 48% of this amount were securities with floating interest rates,
and 52% were fixed interest rate securities. CMO's and mortgage backed
securities present 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 low interest
rates when many borrowers refinance their mortgages, creating prepayments on
their existing mortgages.
The Company's investment in structured notes and derivative investment
securities is nominal and would not have a significant effect on the Company's
net interest margin.
At December 31, 1997, the fair value of held-to-maturity securities
exceeded the amortized cost by $36.1 million, compared to an unrealized gain of
$22.5 million at December 31, 1996. For available-for-sale securities, the fair
value exceeded the amortized cost by $17.9 million, resulting in an after-tax
increase to stockholders' equity of $11.2 million. This unrealized gain compares
to a net of tax unrealized loss of $7.5 million at December 31, 1996. The
increase in fair values relative to amortized cost is attributable to decreasing
market interest rates from the prevailing rates in the previous year.
At December 31, 1997, the gross unrealized gains for the entire securities
portfolio were $72.0 million and gross unrealized losses were $18.0 million.
During 1997, proceeds from sales of available-for-sale securities were $652.2
million and resulted in gross gains of $2.5 million and gross losses of $0.8
million. Gross unrealized gains and losses in the securities portfolio are not
expected to have a material impact on future income, liquidity or capital
resource trends.
20
<PAGE> 22
HELD-TO-MATURITY AND AVAILABLE-FOR-SALE SECURITIES (TABLE 8)
The following table provides an analysis of amortized cost and fair value
of held-to-maturity and available-for-sale securities as well as their
maturities and year-end yields at December 31, 1997.
<TABLE>
<CAPTION>
HELD-TO-MATURITY SECURITIES AVAILABLE-FOR-SALE SECURITIES
------------------------------- -------------------------------
AMORTIZED FAIR YEAR-END AMORTIZED FAIR YEAR-END
COST VALUE YIELD COST VALUE YIELD
--------- -------- -------- --------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury:
Within one year............................. $ 0.5 $ 0.5 5.15% $ 10.6 $ 10.6 6.21%
One to five years........................... 0.2 0.2 4.87 162.0 162.8 6.21
Five to 10 years............................ 0.0 0.0 0.00 0.0 0.0 0.00
More than 10 years.......................... 0.0 0.0 0.00 0.0 0.0 0.00
-------- -------- ----- -------- -------- -----
Totals............................... 0.7 0.7 5.06 172.6 173.4 6.21
-------- -------- ----- -------- -------- -----
U.S. Government agencies:
Within one year............................. 35.1 35.1 5.26 6.3 6.3 5.11
One to five years........................... 183.3 183.8 6.64 285.9 286.2 6.64
Five to 10 years............................ 1,676.8 1,686.9 7.04 181.0 182.5 7.02
More than 10 years.......................... 0.0 0.0 0.00 0.0 0.0 0.00
-------- -------- ----- -------- -------- -----
Totals............................... 1,895.2 1,905.8 6.96 473.2 475.0 6.77
-------- -------- ----- -------- -------- -----
Collateralized Mortgage Obligations and
Mortgage-backed securities:
Within one year............................. 31.5 32.1 7.31 9.4 9.2 5.64
One to five years........................... 86.0 87.6 7.44 554.0 560.0 6.79
Five to 10 years............................ 135.5 139.7 7.67 605.4 605.7 6.35
More than 10 years.......................... 211.1 216.8 7.38 875.2 881.6 6.51
-------- -------- ----- -------- -------- -----
Totals............................... 464.1 476.2 7.47 2,044.0 2,056.5 6.53
-------- -------- ----- -------- -------- -----
States and political subdivisions:
Within one year............................. 30.8 31.3 11.03 0.3 0.3 8.93
One to five years........................... 51.3 54.1 10.70 2.6 2.6 8.86
Five to 10 years............................ 46.7 51.2 10.55 0.9 1.0 8.03
More than 10 years.......................... 33.1 37.1 11.42 0.0 0.0 0.00
-------- -------- ----- -------- -------- -----
Totals............................... 161.9 173.7 10.86 3.8 3.9 8.62
-------- -------- ----- -------- -------- -----
Other securities:
Within one year............................. 2.9 2.9 5.02 26.3 29.5 6.46
One to five years........................... 25.5 25.5 5.91 0.1 0.1 0.00
Five to 10 years............................ 6.1 7.7 11.04 0.5 0.6 11.30
More than 10 years.......................... 0.8 0.8 4.59 178.7 178.1 7.25
-------- -------- ----- -------- -------- -----
Totals............................... 35.3 36.9 6.75 205.6 208.3 7.18
-------- -------- ----- -------- -------- -----
Total:
Within one year............................. 100.8 101.9 7.65 52.9 55.9 6.14
One to five years........................... 346.3 351.2 7.39 1,004.6 1,011.7 6.66
Five to 10 years............................ 1,865.1 1,885.5 7.19 787.8 789.8 6.51
More than 10 years.......................... 245.0 254.7 7.91 1,053.9 1,059.7 6.63
-------- -------- ----- -------- -------- -----
Totals............................... $2,557.2 $2,593.3 7.30% $2,899.2 $2,917.1 6.60%
======== ======== ===== ======== ======== =====
</TABLE>
SHORT-TERM INVESTMENTS
At December 31, 1997, total short-term investments were $512.0 million, an
increase of $286.5 million from the $225.5 million level at year-end 1996. At
year-end 1997, short-term investments included $49.0 million in federal funds
sold, $0.2 million in securities purchased under agreements to resell, $0.2
million in interest-bearing deposits with other banks, loans held for sale of
$403.8 million and trading securities of $58.8 million. Loans held for sale
consist of mortgage loans in the process of being securitized and sold to third
party investors. Securities held for trading purposes are primarily inventory at
the Company's brokerage subsidiary. Loans held for sale are carried at the lower
of cost or fair value. Trading account securities are carried at fair value.
21
<PAGE> 23
The Company's Asset/Liability Management Committee monitors current and
future expected economic conditions, as well as the Company's liquidity
position, in determining desired balances of short-term investments and
alternative uses of such funds.
FUNDING
Total borrowed funds at December 31, 1997 were $28.2 billion, up 17% from
the 1996 level of $24.1 billion. The Company's funding sources can be divided
into four broad categories: deposits, short-term borrowings, Federal Home Loan
Bank advances and long-term debt.
Deposits are the Company's primary source of funding. At December 31, 1997,
total deposits were $19,586.6 million, up $2,281.1 million or 13% from the 1996
level of $17,305.5 million. During 1997, the Company acquired deposits of
financial institutions totaling approximately $1,387.5 million.
The largest portion of the increase in total deposits was an increase in
consumer time and savings deposits of $2,142.6 million or 17% to $14,516.5
million. Other time deposits, consisting of time deposits of $100,000 and over,
increased $430.3 million or 18% to $2,781.4 million. Non-interest-bearing demand
deposits decreased $291.7 million or 11% to $2,288.7 million.
Non-interest-bearing demand deposits accounted for 11.7% and 14.9% of total
deposits at December 31, 1997 and 1996, respectively.
Core deposits are defined as demand deposits and time deposits less than
$100,000. At December 31, 1997, core deposits totaled $16,805.2 million or 85.8%
of total deposits, compared to $14,954.4 million or 86.4% of total deposits at
December 31, 1996.
DEPOSITS (TABLE 9)
The average daily balance of deposits and rates paid on such deposits are
summarized for the periods indicated in the following table.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
--------- ---- --------- ---- --------- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits:
Non-interest-bearing....................... $ 2,095.4 $ 2,270.5 $ 2,023.3
Interest-bearing........................... 533.7 2.70% 567.8 2.81% 1,556.7 2.66%
Savings deposits............................. 1,265.3 3.08 1,015.3 2.71 806.9 2.67
Time deposits................................ 14,258.0 4.85 12,024.4 5.00 9,225.3 5.43
--------- --------- ---------
Totals............................. $18,152.4 $15,878.0 $13,612.2
========= ========= =========
</TABLE>
Maturities of time certificates of deposit and other time deposits of
$100,000 or more outstanding at December 31, 1997, are summarized as follows:
<TABLE>
<CAPTION>
TIME OTHER
CERTIFICATES TIME
OF DEPOSIT DEPOSITS TOTAL
------------ -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Within three months...................................... $1,092.8 $151.7 $1,244.5
After three through six months........................... 435.2 0.0 435.2
After six through 12 months.............................. 513.6 0.0 513.6
After 12 months.......................................... 588.1 0.0 588.1
-------- ------ --------
Totals......................................... $2,629.7 $151.7 $2,781.4
======== ====== ========
</TABLE>
Short-term borrowings consist of federal funds purchased, securities sold
under agreements to repurchase, and miscellaneous other borrowed funds.
Short-term borrowings have become an increasingly used funding source by the
Company. Access to alternative short-term funding sources allows the Company to
meet its liquidity needs without relying solely on increasing deposits on a
short-term basis, which could have
22
<PAGE> 24
the effect of increasing deposit rates on a substantial portion of the deposit
base to obtain an incremental level of funding. Total short-term borrowings
increased $679.4 million, or 17%, to $4,750.4 million at December 31, 1997 from
$4,071.0 million at December 31, 1996. At December 31, 1997, total short-term
borrowings included federal funds purchased of $2,185.2 million, securities sold
under agreements to repurchase of $1,403.4 million, and other borrowed funds of
$1,161.8 million, including $1,011.0 million in short-term bank notes payable,
and other short-term borrowings of $150.8 million.
At year-end 1997, total short-term borrowings were 16.8% of total funding
compared to 16.9% at December 31, 1996.
Note H to the Consolidated Financial Statements includes additional
information relating to outstanding balances and rates of short-term borrowings.
The Company uses Federal Home Loan Bank (FHLB) advances as an alternative
to increasing its liability in certificates of deposits or other deposit
programs with similar maturities.
FHLB advances totaled $2,782.4 million at December 31, 1997, up $1,038.2
million from last year's level of $1,744.2 million. Of the $2,782.4 million
outstanding at year-end 1997, $1,432.9 million have remaining maturities of less
than five years, and substantially all of the remaining $1,349.5 million have
remaining maturities through 2016. Note I to the Consolidated Financial
Statements includes additional information relating to outstanding balances and
rates of Federal Home Loan Bank advances.
Long-term debt is used to provide funds to finance long-term assets, and is
an integral element of the Company's supplemental regulatory capital. Long-term
debt consists primarily of subordinated notes and debentures. Long-term debt at
December 31, 1997 totaled $1,106.4 million compared to $983.2 million at
December 31, 1996. During 1997, the Company increased long-term borrowings by
$125.0 million, including $100.0 million and $25.0 million of subordinated notes
which mature in 2027 and 2017, respectively. Repayments of long-term debt during
1997 totaled $1.8 million. Note J to the Consolidated Financial Statements
provides details of long-term debt issues, scheduled maturities, and other terms
of the debt agreements.
For the year ended December 31, 1997, the Company's average long-term debt
to equity ratio was 50.6% compared to 43.5% at December 31, 1996.
Scheduled maturities of long-term debt are not expected to have a
significant impact on the Company's liquidity. There are no plans at present to
repay any significant amounts of outstanding indebtedness prior to the scheduled
maturity.
LIQUIDITY
Liquidity refers to the ability of the Company to meet its cash flow
requirements in the normal course of business. The Company may achieve its
desired liquidity objectives through management of assets and liabilities and
through funds provided by operations. Funds invested in short-term marketable
instruments, the continuous maturing of other earning assets, the possible sale
of available-for-sale securities and the ability to securitize certain types of
loans, provide sources of liquidity from an asset perspective. The liability
base provides sources of liquidity through deposits, the maturity structure of
liabilities, and the accessibility to market sources of funds. The Consolidated
Statements of Cash Flows included elsewhere in this report provide an analysis
of cash from operating, investing, and financing activities for each of the
three years in the period ended December 31, 1997.
Table 5, Loan Portfolio, included elsewhere in this report, shows scheduled
loan maturities as of December 31, 1997. Approximately 28% of total loans mature
within one year. Of the $16,198.1 million maturing after one year, $4,773.7
million or 29% had adjustable interest rates. Repayments of loans and scheduled
loan maturities represent a substantial source of liquidity.
The Company has $2,917.1 million in securities designated as
available-for-sale. Though management has no present plans to dispose of the
available-for-sale securities, such securities do represent saleable assets to
meet liquidity needs. Table 8, Held-to-Maturity and Available-for-Sale
Securities, included elsewhere in this report, shows the maturity distribution
of the Corporation's securities portfolio by major category. At December 31,
1997, securities classified as held-to-maturity included $100.8 million or 4% of
the portfolio
23
<PAGE> 25
which had maturities of one year or less, and $346.3 million or 14% that mature
within one to five years. Note D of the Consolidated Financial statements
includes an analysis of the amortized cost and fair values of the securities
portfolio by contractual maturity, and an analysis of gross unrealized gains and
gross unrealized losses in the securities portfolio at December 31, 1997 by
major category. For held-to-maturity securities, gross unrealized gains at
December 31, 1997 were $37.5 million and gross unrealized losses were $1.4
million.
Core deposits, defined as total deposits less time deposits of $100,000 and
over, constitute the Company's primary source of funding. Significant growth in
core deposits, $1,850.8 million or 12% in 1997, provides a great deal of
liquidity. Table 9, Deposits, included elsewhere in the report, details average
balances of deposits by type, the weighted average rate paid by type, and a
maturity distribution of deposits of $100,000 or more.
Short-term funds secured from external sources include federal funds
purchased, securities sold under agreements to repurchase, and other borrowed
funds. Average short-term borrowings during 1997 were $4,834.8 million, and
average short-term investments were $381.3 million, resulting in an average
short-term borrowing position of $4,453.5 million in 1997.
The primary source of funds available to SouthTrust Corporation, the parent
company, is payment of dividends from its subsidiary bank. Banking laws and
other regulations limit the amount of dividends a bank subsidiary may pay
without prior regulatory approval. At December 31, 1997, $472.5 million of the
net assets of the Company's subsidiaries, primarily SouthTrust Bank, N.A., was
available for payment as dividends without prior regulatory approval.
Substantially all other net assets were restricted as to payments to the parent
company.
No trends in the sources or uses of cash by the Company are expected to
have an impact on the Company's liquidity position. The Company believes that
the level of liquidity is sufficient to meet current and future liquidity
requirements.
ASSET AND LIABILITY RISK MANAGEMENT
The Securities and Exchange Commission issued final rules in January 1997
governing disclosure requirements for financial instruments, including
derivatives. The final rules require detailed description of the accounting
policies used for derivatives (see Note A to the Consolidated Financial
Statements), as well as qualitative and quantitative disclosures regarding
market risk exposures. The quantitative disclosures are to be segregated between
trading and non-trading portfolios. As the Company's trading portfolio is
relatively insignificant, it does not pose significant market risk and therefore
separate disclosure is not presented below.
The Company's primary market risk is its exposure to interest rate changes.
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.
Interest rate risk management is administered through the Company's
Treasury Management group which operates under policies established by the
Treasury Management Committee of the Company's board of directors. This
committee, which meets monthly, reviews interest rate risk, liquidity, capital
positions and discretionary on- and off-balance sheet activity including
interest rate swap agreements. Interim oversight of the treasury management
function is administered by the Treasury Management manager through regular
meetings with the Company's Chief Financial Officer and other executive
management. All decisions are made within established risk management guidelines
and strategies.
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. Under a scenario simulating a hypothetical 100
basis point rate increase applied to all interest earning assets and
interest-bearing liabilities, the Company would expect a net loss in fair value
of the underlying instruments of $223.8 million. This hypothetical loss is not a
precise indicator of future events. Instead, it is a reasonable estimate of the
results anticipated if the assumptions used in the modeling techniques were to
occur.
24
<PAGE> 26
INTEREST RATE SENSITIVITY ANALYSIS (TABLE 10)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------------------------------------------
NON-
0-30 31-90 91-180 181-365 OVER 1 INTEREST
DAYS DAYS DAYS DAYS YEAR SENSITIVE TOTAL
--------- --------- --------- --------- --------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Variable-rate commercial and
real estate loans......... $ 7,001.5 $ 558.3 $ 418.1 $ 663.4 $ 1,685.7 $ 0.0 $10,327.0
Fixed-rate commercial and
real estate loans......... 589.6 373.1 483.3 952.4 6,129.3 0.0 8,527.7
Loans to individuals........ 834.5 521.0 394.8 411.1 1,458.7 0.0 3,620.1
--------- --------- --------- --------- --------- -------- ---------
Total Loans........ 8,425.6 1,452.4 1,296.2 2,026.9 9,273.7 0.0 22,474.8
Securities.................. 884.5 515.1 305.1 289.2 3,480.4 0.0 5,474.3
Other earning assets........ 249.3 262.7 0.0 0.0 0.0 0.0 512.0
--------- --------- --------- --------- --------- -------- ---------
Total earning
assets........... 9,559.4 2,230.2 1,601.3 2,316.1 12,754.1 0.0 28,461.1
Other assets................ 0.0 0.0 0.0 0.0 0.0 2,760.8 2,760.8
Less: Allowance for loan
losses.................... 0.0 0.0 0.0 0.0 0.0 (315.5) (315.5)
--------- --------- --------- --------- --------- -------- ---------
Total Assets....... $ 9,559.4 $ 2,230.2 $ 1,601.3 $ 2,316.1 $12,754.1 $2,445.3 $30,906.4
========= ========= ========= ========= ========= ======== =========
Non-interest-bearing demand
deposits.................. $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $2,288.7 $ 2,288.7
Interest-bearing demand
deposits.................. 755.8 0.0 0.0 0.0 0.0 0.0 755.8
Money market deposits....... 4,550.5 0 0 0 0 0 4,550.5
Savings deposits............ 1,411.5 0.0 0.0 0.0 0.0 0.0 1,411.5
Time deposits under
$100,000.................. 712.6 1,991.3 1,492.9 1,858.3 1,743.6 0.0 7,798.7
Other time deposits......... 920.0 879.6 264.9 314.6 402.3 0.0 2,781.4
--------- --------- --------- --------- --------- -------- ---------
Total deposits..... 8,350.4 2,870.9 1,757.8 2,172.9 2,145.9 2,288.7 19,586.6
Short-term borrowings....... 4,375.0 350.4 25.0 0.0 0.0 0.0 4,750.4
Federal Home Loan Bank
advances.................. 550.0 280.0 35.0 12.0 1,905.4 0.0 2,782.4
Long-term debt.............. 0.0 25.0 0.0 0.0 1,081.4 0.0 1,106.4
Other liabilities........... 0.0 0.0 0.0 0.0 486.0 0.0 486.0
Stockholders' equity........ 0.0 0.0 0.0 0.0 2,194.6 0.0 2,194.6
--------- --------- --------- --------- --------- -------- ---------
Total liabilities
and stockholders'
equity........... $13,275.4 $ 3,526.3 $ 1,817.8 $ 2,184.9 $ 7,813.3 $2,288.7 $30,906.4
========= ========= ========= ========= ========= ======== =========
Interest rate gap........... $(3,716.0) $(1,296.1) $ (216.5) $ 131.2 $ 4,940.8 $ 156.6
Effect of interest rate
swaps..................... (170.0) (175.0) (500.0) (75.0) 920.0
--------- --------- --------- --------- ---------
Cumulative interest rate
gap....................... $(3,886.0) $(5,357.1) $(6,073.6) $(6,017.4) $ (156.6)
========= ========= ========= ========= =========
Cumulative gap as a
percentage of earning
assets -- December 31,
1997...................... (13.65)% (18.82)% (21.34)% (21.14)% (0.55)%
December 31, 1996......... (6.64)% (13.00)% (19.51)% (18.15)% 2.99%
</TABLE>
Significant assumptions:
(1) Allocations to specific interest sensitivity periods are based on the
earlier of the repricing or maturity dates. These allocations have not been
adjusted for any estimated early principal payoffs with the exception of
trading and held for sale assets. Since trading and held for sale assets are
expected to be sold in the short-term, they have been classified in "0-30"
or "31-90" based on anticipated future sales.
(2) Since interest-bearing demand and savings deposit accounts can theoretically
be repriced at any time, all such balances have been included in 0-30 days.
If these amounts were spread based upon expected repricing characteristics,
the cumulative gap would have been significantly reduced.
(3) Non-accrual loans are included in their respective loan categories and are
classified in the "Over 1 year" repricing period.
CAPITAL
The assessment of capital adequacy is dependent on several factors
including asset quality, earning trends, liquidity, and economic conditions. 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 to provide a return to the stockholders in the form of
dividends.
25
<PAGE> 27
Stockholders' equity at December 31, 1997 was $2,194.6 million or 7.10% of
year-end assets compared to $1,734.9 million or 6.62% in 1996. During 1997, net
income added $306.7 million to stockholders' equity and dividends declared
totaled $99.6 million, resulting in an internal common equity generation rate of
10.6% in 1997 compared to 10.8% in 1996.
During 1997, sales of common stock through the Dividend Reinvestment Plan,
the Employee Discount Stock Purchase Plan, the stock option plans, and the
Long-term Incentive Plan totaling 645,813 shares added $11.3 million to equity.
During 1997 shares issued in business combinations totaled 1,905,047 shares and
added $23.5 million to equity. Also, 6,925,218 shares were issued in secondary
offerings, adding $199.7 million to equity. The net unrealized gain after tax on
available-for-sale securities was $18.7 million for the year ended December 31,
1997, compared to an unrealized net gain of $2.1 million for the year ended
December 31, 1996. Treasury stock purchases for 20,478 shares reduced equity by
$0.6 million.
The Company has issued 6,547,500 shares of common stock pursuant to its
Prospectus Supplement dated January 22, 1998. These shares were offered to the
public at a price of $36.50 per share and the Company received net proceeds of
$35.68 per share, or a total of $233.6 million. The Company plans to use the
proceeds from this sale for general corporate and working capital purposes,
including funding investments in, or extensions of credit to, its banking and
nonbanking subsidiaries. In addition, some portion of the proceeds may be used
to fund pending or other prospective acquisitions.
The annual dividend rate during 1997 was $.67 per share, representing a 14%
increase over 1996. For 1998 the indicated annual dividend rate is $.76 per
share, marking the twenty-eighth consecutive year in which SouthTrust has
increased its dividend. The dividend pay-out ratio during 1997 was 32.5%. Item
5, Market for the Registrant's Common Equity and Related Stockholder
Information, includes a five-year history of the dividend pay-out ratio.
The Federal Reserve Board, which is the regulatory agency governing bank
holding companies, sets guidelines for determining ratios to aid in the analysis
and determination of capital levels required to support a company's operations.
Likewise, the OCC prescribes various minimum levels of capital which must be
held by the Company's subsidiary bank. The Federal Reserve Board and the OCC
have adopted risk-based capital guidelines that incorporate factors weighing the
relative credit risk of assets and items with off-balance sheet exposure. The
guidelines also define regulatory capital, placing strong emphasis on the equity
components of regulatory capital.
The rules require a risk-based capital ratio of 8%, at least one-half of
which must be made up of Core or Tier I capital elements. Tier I capital
generally consists of common stock, capital surplus and retained earnings less
treasury stock and certain intangible assets. Total risk-based capital includes
Tier I capital, and supplemental capital elements which consist of certain
subordinated debt and the allowance for loan losses subject to certain
limitations. The guidelines also impose a leverage requirement, defined as the
ratio of Tier I capital to average assets subject to certain adjustments. The
leverage ratio generally must exceed 4% and is driven by evaluation and
discretion of the regulators. At December 1997, SouthTrust had a total
risk-based capital ratio of 12.07% consisting of Tier I capital elements of
7.72% and supplemental capital elements of 4.35%, and a leverage ratio of 6.61%.
The Federal Deposit Insurance Corporation Improvement Act of 1995 provided
further guidance as to capital levels to be maintained by insured depository
institutions and corresponding supervisory treatments. Under these guidelines
the subsidiary bank is considered "well capitalized," the highest of the five
supervisory groupings.
26
<PAGE> 28
CAPITAL POSITION (TABLE 11)
Following are the Company's risk-based capital ratio's for the years ended
December 31, 1997 and 1996.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
----- -----
<S> <C> <C>
Tier I capital ratio........................................ 7.72% 7.33%
Supplemental capital element................................ 4.35 4.46
----- -----
Total risk-based capital ratio.................... 12.07% 11.79%
===== =====
Leverage ratio.............................................. 6.61% 6.21%
===== =====
</TABLE>
QUARTERLY INCOME INFORMATION (TABLE 12)
The Company's unaudited consolidated operating results for each quarter of
1997 and 1996 are summarized in the table below.
<TABLE>
<CAPTION>
1997 1996
----------------------------------------- -----------------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
----------------------------------------- -----------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MAR. 31 DEC. 31 SEPT. 30 JUNE 30 MAR. 31
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income........... $589,174 $574,242 $558,186 $510,650 $491,884 $467,583 $440,645 $404,108
Interest expense.......... 315,376 308,448 296,161 266,094 255,859 242,133 227,656 212,546
Net interest income....... 273,798 265,794 262,025 244,556 236,025 225,450 212,989 191,562
Provision for loan
losses.................. 21,734 20,002 26,502 22,375 27,197 21,905 20,467 20,458
Non-interest income
(excluding securities
gains (losses))......... 74,399 68,743 63,742 61,884 67,964 60,424 61,258 63,754
Securities gains (losses),
net..................... 288 1,053 304 94 1,267 86 (6) 62
Non-interest expense...... 199,030 192,987 182,158 174,041 171,566 169,253 156,174 146,305
Income before income
taxes................... 127,721 122,601 117,411 110,118 106,493 94,802 97,600 88,615
Income tax expense........ 45,768 44,113 42,044 39,218 38,075 29,081 34,477 31,174
Net income................ 81,953 78,488 75,367 70,900 68,418 65,721 63,123 57,441
Net income per share --
basic................... 0.54 0.53 0.50 0.48 0.47 0.46 0.44 0.43
Net income per share --
diluted................. 0.53 0.52 0.50 0.48 0.47 0.45 0.44 0.43
Dividends declared per
share................... 0.16 2/3 0.16 2/3 0.16 2/3 0.16 2/3 0.14 2/3 0.14 2/3 0.14 2/3 0.14 2/3
</TABLE>
27
<PAGE> 29
CAPITAL STOCK (TABLE 13)
SouthTrust Common Stock is traded in the over-the-counter market and quoted
on the NASDAQ national market system under the symbol SOTR. As of February 27,
approximately 15,169 shareholders of record owned Company stock. The following
table summarizes the historical book value per share and dividends per share for
each quarter of the past two years. Also included are the stock market price
ranges of SouthTrust shares, as reported by NASDAQ's national market system.
<TABLE>
<CAPTION>
STOCK MARKET
BOOK VALUE PRICE RANGE
PER SHARE AT ------------- DIVIDENDS
END OF PERIOD LOW HIGH PER SHARE
------------- ---- ----- ---------
<S> <C> <C> <C> <C>
1997
First Quarter........................................ $ 12.52 $22 3/4 $28 1/2 $0.16 2/3
Second Quarter....................................... 13.05 23 7/12 28 1/4 0.16 2/3
Third Quarter........................................ 13.46 25 3/4 34 11/24 0.16 2/3
Fourth Quarter....................................... 14.28 30 2/3 42 5/6 0.16 2/3
Year......................................... 22 3/4 42 5/6 0.66 2/3
1996
First Quarter........................................ $ 11.07 $16 5/6 $19 1/6 $0.14 2/3
Second Quarter....................................... 11.28 17 3/4 19 0.14 2/3
Third Quarter........................................ 11.65 17 2/3 21 1/4 0.14 2/3
Fourth Quarter....................................... 12.03 20 1/3 24 1/12 0.14 2/3
Year......................................... 16 5/6 24 1/12 0.58 2/3
</TABLE>
28
<PAGE> 30
SIX-YEAR CONDENSED STATEMENTS OF CONDITION (TABLE 14)
<TABLE>
<CAPTION>
GROWTH RATE
------------------
ONE FIVE-YEAR
1997 1996 1995 1994 1993 1992 YEAR COMPOUND
--------- --------- --------- --------- --------- --------- ------ ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE BALANCES:
Loans, net of unearned income........ $20,888.9 $16,885.4 $13,326.1 $10,606.6 $ 8,422.0 $ 6,466.7 23.71% 26.43%
Held-to-maturity securities:
Taxable............................. 2,037.4 1,491.8 1,558.8 1,224.4 3,498.8 2,969.9 36.57 (7.26)
Non-taxable......................... 190.0 230.1 279.5 340.6 376.3 402.8 (17.43) (13.95)
--------- --------- --------- --------- --------- --------- ------ ------
Total held-to-maturity
securities.................. 2,227.4 1,721.9 1,838.3 1,565.0 3,875.1 3,372.7 29.36 (7.96)
Available-for-sale securities........ 3,272.1 2,825.5 2,209.4 2,339.6 0 0 15.81 0.00
Short-term investments:
Federal funds sold and securities
purchased under resale
agreements........................ 28.3 66.5 29.6 21.3 54.5 57.3 (57.44) (13.16)
Interest-bearing deposits in other
banks............................. 18.0 17.5 16.8 12.6 19.4 46.3 2.86 (17.22)
Trading securities.................. 30.3 15.4 15.1 14.9 12.2 8.7 96.75 28.35
Loans held for sale................. 304.7 242.6 180.9 173.7 193.0 138.4 25.60 17.10
--------- --------- --------- --------- --------- --------- ------ ------
Total short-term
investments................. 381.3 342.0 242.4 222.5 279.1 250.7 11.49 8.75
--------- --------- --------- --------- --------- --------- ------ ------
Total earning assets.......... 26,769.7 21,774.8 17,616.2 14,733.7 12,576.2 10,090.1 22.94 21.55
Allowance for loan losses............ (298.2) (239.3) (187.1) (154.1) (118.1) (90.7) 24.61 26.88
Other assets......................... 2,000.9 1,748.5 1,554.8 1,355.3 1,194.9 1,028.8 14.44 14.23
--------- --------- --------- --------- --------- --------- ------ ------
Total assets.................. $28,472.4 $23,284.0 $18,983.9 $15,934.9 $13,653.0 $11,028.2 22.28% 20.89%
========= ========= ========= ========= ========= ========= ====== ======
Deposits:
Interest-bearing.................... $16,057.0 $13,607.5 $11,588.9 $10,052.8 $ 9,166.6 $ 7,703.0 18.00% 15.82%
Other............................... 2,095.4 2,270.5 2,023.3 1,849.2 1,606.0 1,293.1 (7.71) 10.14
--------- --------- --------- --------- --------- --------- ------ ------
Total deposits................ 18,152.4 15,878.0 13,612.2 11,902.0 10,772.6 8,996.1 14.32 15.07
Federal funds purchased and other
short-term borrowed funds........... 4,834.8 3,636.7 2,995.9 2,259.9 1,340.0 925.5 32.94 39.19
Federal Home Loan Bank advances...... 2,107.6 1,088.3 351.1 104.0 114.5 3.8 93.66 253.84
Long-term debt....................... 986.8 696.6 486.0 359.2 300.7 203.1 41.66 37.18
Other liabilities.................... 439.6 384.8 277.9 218.6 174.8 170.1 14.24 20.91
Stockholders' equity................. 1,951.2 1,599.6 1,260.8 1,091.2 950.4 729.6 21.98 21.74
--------- --------- --------- --------- --------- --------- ------ ------
Total liabilities and
stockholders' equity........ $28,472.4 $23,284.0 $18,983.9 $15,934.9 $13,653.0 $11,028.2 22.28% 20.89%
========= ========= ========= ========= ========= ========= ====== ======
BALANCES AT YEAR END:
Loans, net of unearned income........ $22,474.8 $19,331.1 $14,655.1 $12,121.9 $ 9,448.3 $ 7,546.6 16.26% 24.39%
Held-to-maturity securities:
Taxable............................. 2,395.3 1,744.9 1,330.9 1,364.6 921.6 3,366.2 37.27 (6.58)
Non-taxable......................... 161.9 211.7 254.7 307.1 356.4 390.0 (23.52) (16.12)
--------- --------- --------- --------- --------- --------- ------ ------
Total held-to-maturity
securities.................. 2,557.2 1,956.6 1,585.6 1,671.7 1,278.0 3,756.2 30.70 (7.40)
Available-for-sale securities........ 2,917.1 2,859.0 2,614.8 2,280.8 2,454.8 0 2.03 0.00
Short-term investments:
Federal funds sold and securities
purchased under resale
agreements........................ 49.2 12.2 100.3 22.6 2.0 49.1 303.28 0.04
Interest-bearing deposits in other
banks............................. 0.2 4.2 18.7 13.9 47.6 50.5 (95.24) (66.92)
Trading securities.................. 58.8 17.8 15.7 16.9 14.7 3.6 230.34 74.83
Loans held for sale................. 403.8 191.3 221.4 147.7 243.8 195.2 111.08 15.65
--------- --------- --------- --------- --------- --------- ------ ------
Total short-term
investments................. 512.0 225.5 356.1 201.1 308.1 298.4 127.05 11.40
--------- --------- --------- --------- --------- --------- ------ ------
Total earning assets.......... 28,461.1 24,372.2 19,211.6 16,275.5 13,489.2 11,601.2 16.78 19.66
Allowance for loan losses............ (315.5) (269.9) (206.6) (171.7) (135.2) (103.8) 16.90 24.90
Other assets......................... 2,760.8 2,120.9 1,782.0 1,528.3 1,354.0 1,217.0 30.17 17.80
--------- --------- --------- --------- --------- --------- ------ ------
Total assets.................. $30,906.4 $26,223.2 $20,787.0 $17,632.1 $14,708.0 $12,714.4 17.86% 19.44%
========= ========= ========= ========= ========= ========= ====== ======
Deposits:
Interest-bearing.................... $17,297.9 $14,725.1 $12,303.1 $10,761.5 $ 9,732.5 $ 8,484.5 17.47% 15.31%
Other............................... 2,288.7 2,580.4 2,272.0 2,039.7 1,782.9 1,597.8 (11.30) 7.45
--------- --------- --------- --------- --------- --------- ------ ------
Total deposits................ 19,586.6 17,305.5 14,575.1 12,801.2 11,515.4 10,082.3 13.18 14.20
Federal funds purchased and other
short-term borrowed funds........... 4,750.4 4,071.0 3,207.4 2,828.0 1,456.4 1,331.1 16.69 28.97
Federal Home Loan Bank advances...... 2,782.4 1,744.2 651.9 251.9 145.8 20.7 59.52 166.50
Long-term debt....................... 1,106.4 983.2 535.4 388.8 324.2 237.5 12.53 36.03
Other liabilities.................... 486.0 384.4 386.3 226.9 214.4 182.4 26.43 21.65
Stockholders' equity................. 2,194.6 1,734.9 1,430.9 1,135.3 1,051.8 860.4 26.50 20.60
--------- --------- --------- --------- --------- --------- ------ ------
Total liabilities and
stockholders' equity........ $30,906.4 $26,223.2 $20,787.0 $17,632.1 $14,708.0 $12,714.4 17.86% 19.44%
========= ========= ========= ========= ========= ========= ====== ======
</TABLE>
29
<PAGE> 31
SIX-YEAR SUMMARY OF EARNINGS (TABLE 15)
<TABLE>
<CAPTION>
GROWTH RATES
------------------
ONE FIVE-YEAR
1997 1996 1995 1994 1993 1992 YEAR COMPOUND
---------- ---------- ---------- -------- -------- -------- ------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans...... $1,831,156 $1,483,705 $1,208,209 $868,461 $669,495 $561,757 23.42% 26.66%
Interest on held-to-maturity
securities:
Taxable....................... 143,941 101,861 100,831 75,721 217,555 221,692 41.31 (8.28)
Non-taxable................... 13,224 15,974 20,604 23,377 26,435 30,246 (17.22) (15.25)
---------- ---------- ---------- -------- -------- -------- ------ ------
Total interest on held-to-
maturity securities..... 157,165 117,835 121,435 99,098 243,990 251,938 33.38 (9.01)
Interest on available-for-sale
securities...................... 215,015 179,920 139,451 130,470 0 0 19.51 0.00
Interest on federal funds sold and
securities purchased under
resale agreements............... 1,605 3,582 1,743 875 1,637 2,056 (55.19) (4.83)
Interest on time deposits in other
banks........................... 1,072 1,015 1,079 539 890 2,001 5.62 (11.73)
Interest on trading securities.... 1,844 629 859 744 124 379 193.16 37.22
Interest on loans held for sale... 24,395 17,534 11,847 8,425 11,415 9,949 39.13 19.65
---------- ---------- ---------- -------- -------- -------- ------ ------
Total interest income..... 2,232,252 1,804,220 1,484,623 1,108,612 927,551 828,080 23.72 21.94
INTEREST EXPENSE:
Deposits........................ 745,122 644,613 564,064 377,643 335,708 337,878 15.59 17.14
Short-term borrowings........... 266,816 194,159 174,330 98,189 39,340 31,418 37.42 53.39
Federal Home Loan Bank
advances...................... 112,646 57,387 20,511 4,628 5,103 173 96.29 265.37
Long-term debt.................. 61,495 42,035 32,518 20,607 17,592 13,461 46.29 35.50
---------- ---------- ---------- -------- -------- -------- ------ ------
Total interest expense.... 1,186,079 938,194 791,423 501,067 397,743 382,930 26.42 25.37
---------- ---------- ---------- -------- -------- -------- ------ ------
Net interest income....... 1,046,173 866,026 693,200 607,545 529,808 445,150 20.80 18.64
Provision for loan losses......... 90,613 90,027 61,286 44,984 45,032 43,305 0.65 15.91
---------- ---------- ---------- -------- -------- -------- ------ ------
Net interest income after
provision for loan
losses.................. 955,560 775,999 631,914 562,561 484,776 401,845 23.14 18.92
NON-INTEREST INCOME:
Service charges on deposit
accounts...................... 129,869 109,213 93,276 86,304 76,716 63,894 18.91 15.24
Mortgage banking operations..... 27,242 42,096 31,712 27,760 33,771 22,794 (35.29) 3.63
Bank card fees.................. 22,981 22,727 18,699 15,847 12,574 9,667 1.12 18.91
Trust fees...................... 24,529 21,886 18,936 16,863 15,224 11,938 12.08 15.49
Other fee income................ 42,518 36,845 33,758 27,466 25,075 19,526 15.40 16.84
Securities gains, net........... 1,739 1,409 193 330 603 634 23.42 22.36
Other........................... 21,629 20,633 12,090 10,208 10,739 8,230 4.83 21.32
---------- ---------- ---------- -------- -------- -------- ------ ------
Total non-interest
income.................. 270,507 254,809 208,664 184,778 174,702 136,683 6.16 14.63
NON-INTEREST EXPENSE:
Salaries and employee
benefits...................... 404,846 331,600 281,546 257,637 227,017 184,921 22.09 16.97
Net occupancy expense........... 60,158 49,361 43,423 40,273 36,775 32,254 21.87 13.28
Equipment expense............... 45,724 37,336 30,932 27,899 25,353 20,687 22.47 17.19
Business development............ 26,312 23,199 21,221 16,090 12,795 10,771 13.42 19.56
Communications.................. 36,452 30,791 25,157 22,136 20,017 18,085 18.39 15.05
Professional services........... 51,414 45,596 34,785 27,242 25,420 18,909 12.76 22.15
Other........................... 123,310 125,415 99,470 94,722 87,574 88,009 (1.68) 6.98
---------- ---------- ---------- -------- -------- -------- ------ ------
Total non-interest
expense................. 748,216 643,298 536,534 485,999 434,951 373,636 16.31 14.90
---------- ---------- ---------- -------- -------- -------- ------ ------
Income before income
taxes................... 477,851 387,510 304,044 261,340 224,527 164,892 23.31 23.71
Income tax expense................ 171,143 132,807 105,039 88,338 73,992 50,646 28.87 27.57
---------- ---------- ---------- -------- -------- -------- ------ ------
NET INCOME................ $ 306,708 $ 254,703 $ 199,005 $173,002 $150,535 $114,246 20.42% 21.84%
========== ========== ========== ======== ======== ======== ====== ======
Average shares
outstanding--basic.............. 149,684 141,183 125,838 120,264 115,841 102,317
Average shares
outstanding--diluted............ 151,008 142,154 126,687 121,157 117,027 103,791
Net income per share--basic....... $ 2.05 $ 1.80 $ 1.58 $ 1.44 $ 1.30 $ 1.12
Net income per share--diluted..... 2.03 1.79 1.57 1.43 1.29 1.10
Dividends declared per share...... 0.67 0.59 0.53 0.45 0.40 0.35
</TABLE>
30
<PAGE> 32
SOUTHTRUST CORPORATION
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Southtrust Corporation:
We have audited the accompanying consolidated statements of condition of
SouthTrust Corporation (a Delaware corporation) and subsidiaries as of December
31, 1997 and 1996, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's Management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
Management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
SouthTrust Corporation and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Birmingham, Alabama
February 13, 1998
31
<PAGE> 33
SOUTHTRUST CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 877,885 $ 903,134
Short-term investments:
Federal funds sold and securities purchased under resale
agreements............................................. 49,175 12,180
Interest-bearing deposits in other banks.................. 228 4,185
Trading securities........................................ 58,750 17,850
Loans held for sale....................................... 403,837 191,309
----------- -----------
Total short-term investments...................... 511,990 225,524
Available-for-sale securities............................... 2,917,080 2,859,012
Held-to-maturity securities (Fair Value of $2,593,259 and
$1,979,094 in 1997 and 1996, respectively)................ 2,557,251 1,956,596
Loans....................................................... 22,633,861 19,466,650
Less --
Unearned income........................................... 159,076 135,518
Allowance for loan losses................................. 315,471 269,863
----------- -----------
Net loans......................................... 22,159,314 19,061,269
Premises and equipment, net................................. 598,294 510,043
Due from customers on acceptances........................... 8,561 26,599
Other assets................................................ 1,276,070 681,016
----------- -----------
Total Assets...................................... $30,906,445 $26,223,193
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest-bearing.......................................... $17,297,931 $14,725,077
Other..................................................... 2,288,653 2,580,416
----------- -----------
Total deposits.................................... 19,586,584 17,305,493
Federal funds purchased and securities sold under agreements
to repurchase............................................. 3,588,599 3,205,948
Other short-term borrowings................................. 1,161,779 865,053
Bank acceptances outstanding................................ 8,561 26,599
Federal Home Loan Bank advances............................. 2,782,355 1,744,159
Long-term debt.............................................. 1,106,443 983,243
Other liabilities........................................... 477,483 357,806
----------- -----------
Total liabilities................................. 28,711,804 24,488,301
Stockholders' equity:
Preferred Stock, par value $1.00 a share: 5,000,000 shares
authorized; issued and outstanding -- none............. 0 0
Common Stock, par value $2.50 a share: 300,000,000 shares
authorized; 154,650,747 shares issued in 1997 and
145,174,671 in 1996.................................... 386,626 362,936
Capital surplus........................................... 486,166 289,664
Retained earnings......................................... 1,321,586 1,100,170
Unrealized gain/(loss) on available-for-sale securities,
net.................................................... 11,176 (7,520)
Treasury stock at cost (986,940 shares in 1997 and 966,462
shares in 1996)........................................ (10,913) (10,358)
----------- -----------
Total stockholders' equity........................ 2,194,641 1,734,892
----------- -----------
Total Liabilities and Stockholders' Equity........ $30,906,445 $26,223,193
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
32
<PAGE> 34
SOUTHTRUST CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Interest Income
Interest and fees on loans............................... $1,831,156 $1,483,705 $1,208,209
Interest on held-to-maturity securities:
Taxable............................................... 143,941 101,861 100,831
Non-taxable........................................... 13,224 15,974 20,604
---------- ---------- ----------
Total interest on held-to-maturity securities.... 157,165 117,835 121,435
Interest on available-for-sale securities................ 215,015 179,920 139,451
Interest on short-term investments....................... 28,916 22,760 15,528
---------- ---------- ----------
Total interest income............................ 2,232,252 1,804,220 1,484,623
---------- ---------- ----------
Interest Expense
Interest on deposits..................................... 745,122 644,613 564,064
Interest on short-term borrowings........................ 266,816 194,159 174,330
Interest on Federal Home Loan Bank advances.............. 112,646 57,387 20,511
Interest on long-term debt............................... 61,495 42,035 32,518
---------- ---------- ----------
Total interest expense........................... 1,186,079 938,194 791,423
---------- ---------- ----------
Net interest income........................................ 1,046,173 866,026 693,200
Provision for loan losses.................................. 90,613 90,027 61,286
---------- ---------- ----------
Net interest income after provision for loan losses........ 955,560 775,999 631,914
Non-Interest Income
Service charges on deposit accounts...................... 129,869 109,213 93,276
Mortgage banking operations.............................. 27,242 42,096 31,712
Bank card fees........................................... 22,981 22,727 18,699
Trust fees............................................... 24,529 21,886 18,936
Other fee income......................................... 42,518 36,845 33,758
Securities gains, net.................................... 1,739 1,409 193
Other.................................................... 21,629 20,633 12,090
---------- ---------- ----------
Total non-interest income........................ 270,507 254,809 208,664
---------- ---------- ----------
Non-Interest Expense
Salaries and employee benefits........................... 404,846 331,600 281,546
Net occupancy............................................ 60,158 49,361 43,423
Equipment................................................ 45,724 37,336 30,932
Business development..................................... 26,312 23,199 21,221
Communications........................................... 36,452 30,791 25,157
Professional services.................................... 51,414 45,596 34,785
Other.................................................... 123,310 125,415 99,470
---------- ---------- ----------
Total non-interest expense....................... 748,216 643,298 536,534
---------- ---------- ----------
Income before income taxes................................. 477,851 387,510 304,044
Income tax expense......................................... 171,143 132,807 105,039
---------- ---------- ----------
NET INCOME................................................. $ 306,708 $ 254,703 $ 199,005
========== ========== ==========
Average number of shares outstanding -- basic.............. 149,684 141,183 125,838
Average number of shares outstanding -- diluted............ 151,008 142,154 126,687
Net income per share -- basic.............................. $ 2.05 $ 1.80 $ 1.58
Net income per share -- diluted............................ 2.03 1.79 1.57
Dividends declared per share............................... 0.67 0.59 0.53
</TABLE>
See Notes to Consolidated Financial Statements.
33
<PAGE> 35
SOUTHTRUST CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
COMMON CAPITAL RETAINED GAIN/(LOSS), TREASURY
STOCK SURPLUS EARNINGS NET STOCK TOTAL
-------- -------- ---------- ------------ -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994...................... $307,142 $129,594 $ 750,699 $(46,304) $ (5,863) $1,135,268
Net income...................................... 0 0 199,005 0 0 199,005
Dividends declared ($.53 per share)............. 0 0 (67,153) 0 0 (67,153)
Issuance of 383,952 shares of Common Stock for
stock options exercised....................... 960 1,881 0 0 0 2,841
Issuance of 273,492 shares of Common Stock under
dividend reinvestment and stock purchase
plans......................................... 684 3,345 0 0 0 4,029
Issuance of 54,399 shares of Common Stock under
employee discounted stock purchase plan....... 136 464 0 0 0 600
Issuance of 129,280 shares of Common Stock for
conversion of debentures...................... 323 146 0 0 0 469
Issuance of 3,236,989 shares of Common Stock for
acquisitions accounted for as
pooling-of-interests.......................... 8,092 18,368 2,578 (644) 0 28,394
Issuance of 5,662,500 shares of Common Stock in
secondary offering............................ 14,156 76,313 0 0 0 90,469
Decrease in unrealized loss, net, on
available-for-sale securities................. 0 0 0 37,313 0 37,313
Purchase of 23,429 shares of treasury stock..... 0 0 0 0 (365) (365)
-------- -------- ---------- -------- -------- ----------
BALANCE AT DECEMBER 31, 1995...................... 331,493 230,111 885,129 (9,635) (6,228) 1,430,870
Net income...................................... 0 0 254,703 0 0 254,703
Dividends declared ($.59 per share)............. 0 0 (82,546) 0 0 (82,546)
Issuance of 331,749 shares of Common Stock for
stock options exercised....................... 829 1,594 0 0 0 2,423
Issuance of 286,978 shares of Common Stock under
dividend reinvestment and stock purchase
plans......................................... 717 4,707 0 0 0 5,424
Issuance of 49,542 shares of Common Stock under
employee discounted stock purchase plan....... 124 584 0 0 0 708
Issuance of 11,441,208 shares of Common Stock
for acquisitions accounted for as
pooling-of-interests.......................... 28,603 46,176 42,884 0 0 117,663
Issuance of 461,007 shares of Common Stock for
acquisitions accounted for as purchases....... 1,153 6,484 0 0 0 7,637
Issuance of 6,890 shares of Common Stock for
conversion of debentures...................... 17 8 0 0 0 25
Decrease in unrealized loss, net, on
available-for-sale securities................. 0 0 0 2,115 0 2,115
Purchase of 224,690 shares of treasury stock.... 0 0 0 0 (4,130) (4,130)
-------- -------- ---------- -------- -------- ----------
BALANCE AT DECEMBER 31, 1996...................... 362,936 289,664 1,100,170 (7,520) (10,358) 1,734,892
Net income...................................... 0 0 306,708 0 0 306,708
Dividends declared ($.67 per share)............. 0 0 (99,581) 0 0 (99,581)
Issuance of 284,297 shares of Common Stock for
stock options exercised....................... 711 1,880 0 0 0 2,591
Issuance of 232,145 shares of Common Stock under
dividend reinvestment and stock purchase
plans......................................... 580 5,745 0 0 0 6,325
Issuance of 42,891 shares of Common Stock under
employee discounted stock purchase plan....... 107 828 0 0 0 935
Issuance of 1,905,047 shares of Common Stock for
acquisitions accounted for as
pooling-of-interests.......................... 4,763 4,452 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 6,925,218 shares of Common Stock in
secondary offering............................ 17,313 182,398 0 0 0 199,711
Increase in unrealized gain, net, on
available-for-sale securities................. 0 0 0 18,696 0 18,696
Purchase of 20,478 shares of treasury stock..... 0 0 0 0 (555) (555)
-------- -------- ---------- -------- -------- ----------
BALANCE AT DECEMBER 31, 1997...................... $386,626 $486,166 $1,321,586 $ 11,176 $(10,913) $2,194,641
======== ======== ========== ======== ======== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
34
<PAGE> 36
SOUTHTRUST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 306,708 $ 254,703 $ 199,005
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Provision (credit) for:
Loan losses........................................... 90,613 90,027 61,286
Depreciation of premises and equipment................ 38,790 33,058 26,965
Amortization of intangibles........................... 28,089 22,251 20,493
Amortization of security premium...................... 584 2,056 1,396
Accretion of security discount........................ (3,289) (3,456) (5,430)
Deferred income taxes................................. 15,525 (1,391) 1,595
Net gain on trading securities............................ (10,607) (9,033) (5,915)
Net gain on loans held for sale........................... (11,074) (8,910) (399)
Net securities gains...................................... (1,739) (1,409) (193)
Origination and purchase of loans held for sale........... (1,987,135) (1,626,529) (1,106,881)
Proceeds from loans held for sale......................... 1,785,680 1,665,589 1,033,481
Net (increase) decrease in trading securities............. (30,293) 6,863 7,103
Net increase in other assets.............................. (512,241) (47,724) (20,615)
Net increase (decrease) in other liabilities.............. 81,050 (54,898) 155,956
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES....... (209,339) 321,197 367,847
INVESTING ACTIVITIES
Proceeds from maturities of:
Held-to-maturity securities............................. 678,361 971,392 731,581
Available-for-sale securities........................... 545,273 196,935 729,901
Proceeds from sales of:
Held-to-maturity securities............................. 0 0 4,710
Available-for-sale securities........................... 652,172 345,233 108,621
Purchases of:
Held-to-maturity securities............................. (1,262,777) (1,149,999) (593,125)
Available-for-sale securities........................... (1,200,062) (775,205) (1,103,104)
Premises and equipment.................................. (107,953) (85,786) (88,962)
Net (increase) decrease in:
Short-term investments.................................. 14,158 141,131 (54,691)
Loans................................................... (2,776,662) (3,372,110) (2,376,266)
Purchases of subsidiaries, net of cash acquired........... 779,919 28,165 346,926
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES..................... (2,677,571) (3,700,244) (2,294,409)
FINANCING ACTIVITIES
Proceeds from issuance of:
Common Stock............................................ 210,977 8,584 98,408
Federal Home Loan Bank advances......................... 2,957,750 1,313,259 466,022
Long-term debt.......................................... 125,000 450,124 150,000
Payments for:
Repurchase of Common Stock.............................. (555) (4,130) (365)
Federal Home Loan Bank advances......................... (1,920,554) (311,009) (66,028)
Long-term debt.......................................... (1,800) (4,029) (3,398)
Cash Dividends.......................................... (81,546) (75,446) (69,817)
Net increase in:
Deposits................................................ 893,570 1,312,514 1,098,961
Short-term borrowings................................... 678,819 818,658 376,002
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES................. 2,861,661 3,508,525 2,049,785
----------- ----------- -----------
INCREASE/(DECREASE) IN CASH AND DUE FROM BANKS............ (25,249) 129,478 123,223
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR................ 903,134 773,656 650,433
----------- ----------- -----------
CASH AND DUE FROM BANKS AT END OF YEAR...................... $ 877,885 $ 903,134 $ 773,656
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
35
<PAGE> 37
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- ACCOUNTING POLICIES
The significant accounting policies followed by SouthTrust Corporation and
its subsidiaries ("the Company") and the method of applying those policies are
summarized below:
NATURE OF OPERATIONS
The Company is a regional bank holding company which owns one bank
operating 540 banking offices located in Alabama, Georgia, Florida, North
Carolina, South Carolina, Tennessee and Mississippi. SouthTrust is engaged in a
full range of banking services and, through its bank-related subsidiaries, also
offers a range of other services, including trust, mortgage banking, leasing and
brokerage services.
PRESENTATION
The Consolidated Financial Statements include accounts of the Company and
its subsidiaries. All significant inter-company transactions have been
eliminated in preparing the Consolidated Financial Statements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires Management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain amounts in the 1996 and 1995 financial statements have been
reclassified to conform to the 1997 presentation. Such reclassification had no
effect on net income or total assets.
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 shareholders of
record on February 13, 1998. All share and per share information in this report
has been restated to give retroactive effect to this split.
LOANS HELD FOR SALE
Loans held for sale consist primarily of mortgage loans in the process of
being sold to third-party investors and are carried at the lower of cost or fair
value in the aggregate.
SECURITIES
The Company classifies securities as either trading, available-for-sale or
held-to-maturity based on Management's intention at the time of purchase.
Securities classified as trading are intended to be sold in the near term
and primarily represent the inventory of securities held in the Company's
brokerage subsidiary. Trading securities are carried at fair value and
unrealized gains and losses are included in earnings. 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.
Amortization of premiums and accretion of discounts are computed under the
interest method. The adjusted cost of the specific security sold is used to
compute gain or loss on the sale of securities.
36
<PAGE> 38
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LOANS
Interest is credited to income using the interest method. The net amount of
non-refundable loan origination fees and direct costs associated with the
lending process, including commitment fees, are deferred and amortized to
interest income over the lives of the loans using a method that approximates the
level-yield method. If loan commitments expire, income is recognized upon
expiration of the commitment. Interest accrual on loans is generally stopped if
principal or interest payments become 90 days past due or Management considers
the collectibility of principal or interest according to contractual terms to be
in question. When a loan is placed on non-accrual status, uncollected interest
accrued in the current year is reversed by a charge to income. Uncollected
interest accrued in prior years on loans placed on non-accrual status in the
current year is charged against the allowance for loan losses.
A loan is considered impaired when, based on current information and
events, it is probable that the Company will be unable to collect all amounts
due according to the contractual terms of the loan agreement. A loan is not
considered impaired during a period of delay in payment if the Company expects
to collect all amounts due including interest accrued for the period of delay.
At December 31, 1997 and December 31, 1996, the Company's investment in impaired
loans was considered to be immaterial.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level that Management
considers to be adequate to absorb losses inherent in the loan portfolio.
Changes in the allowance can result from changes in economic events or changes
in the credit worthiness of the borrowers. The effect of these changes is
reflected when known. Management's estimation of the amount of the allowance is
based on a continuing evaluation of the loan portfolio and includes such factors
as economic conditions, analysis of individual loans, and overall portfolio
characteristics and delinquencies. This evaluation also considers the balance of
impaired loans (which are generally considered to be nonperforming loans,
excluding residential mortgages and other homogeneous loans). The amount of the
allowance is maintained through the provision for loan losses. Specific
allowances for impaired loans are based on comparisons of the recorded carrying
values of the loans to the present value of these loans' estimated cash flows at
each loan's effective interest rate, the fair value of the collateral, or the
loans' observable market prices.
LONG-LIVED ASSETS
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed principally on the
straight-line method over the estimated useful lives of the assets.
Goodwill is amortized on a straight-line basis, primarily over 20-25 years.
Total goodwill was $113,657,000 and $109,091,000 at December 31, 1997 and 1996,
respectively. Intangible assets attributable to core deposits purchased are
amortized over the estimated life of the deposit base, not to exceed 10 years,
on a straight-line basis. Core deposit intangibles totaled $106,666,000 and
$74,323,000 at December 31, 1997 and 1996, respectively.
The Company continually evaluates whether events and circumstances have
occurred that indicate that such long-lived assets have been impaired.
Measurement of any impairment of such long-lived assets is based on those
assets' fair values and is recognized through a valuation allowance with the
resulting charge recorded as a loss. There were no significant impairment losses
recorded during 1997.
Total other real estate and other repossessed assets, included in other
assets, amounted to $60,545,000 and $54,087,000 at December 31, 1997 and 1996,
respectively. Such properties are carried at the lower of the investment in the
asset or fair value of the properties less estimated selling costs. Any excess
of the recorded investment in the loan over the fair value of the property
received at the time of foreclosure, less estimated
37
<PAGE> 39
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
selling costs, is charged to the allowance for loan losses. Any subsequent
valuation adjustments are recorded in other non-interest expenses. Revenues and
expenses associated with operating or disposing of foreclosed properties are
recorded in non-interest expense during the period in which they are incurred.
MORTGAGE SERVICING RIGHTS
The Company accounts for transfers and servicing of financial assets and
extinguishments of liabilities in accordance with Statement of Financial
Accounting Standard (SFAS) No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. SFAS No. 125 provides that,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished.
The Company records, as separate assets, rights to service mortgage loans
for others whether the loans were acquired through the purchase or origination
of the loans. For purposes of measuring impairment, the rights are stratified
based on the predominant risk characteristics of the underlying loans. The
strata are product type and interest rate bands. The cost of mortgage servicing
rights is being amortized in proportion to and over the period of estimated net
servicing income. The realization of these assets is periodically evaluated in
relation to net servicing revenues using a discounted cash flow analysis, and is
adjusted appropriately for any impairment of the underlying assets.
At December 31, 1997 and 1996, mortgage servicing rights were approximately
$37,172,000 and $32,825,000, respectively, net of accumulated amortization of
approximately $33,709,000 and $25,881,000, respectively. The Company recognized
mortgage servicing rights of $12,175,000 and $8,549,000 in 1997 and 1996,
respectively. Amortization expense related to these mortgage servicing rights
was $7,828,000 in 1997 and $6,301,000 in 1996.
Fair value of mortgage servicing rights is estimated based on the estimated
future cash flows of the servicing rights discounted at a market rate. At
December 31, 1997 and 1996, fair value was approximately $42,663,000 and
$41,213,000, respectively.
INCOME TAXES
Because some income and expense items are recognized in different periods
for financial reporting purposes and for purposes of computing currently payable
income taxes, a provision or credit for deferred income taxes is made for such
temporary differences at currently enacted income tax rates applicable to the
period in which realization or settlement is expected. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
DERIVATIVE FINANCIAL INSTRUMENTS
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.
38
<PAGE> 40
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
From time to time, the Company utilizes interest rate options to hedge
mortgage loans held for sale. During 1997 the effect on net income from use of
options was insignificant. At December 31, 1997, there were no option contracts
outstanding.
EARNINGS PER SHARE AND DIVIDENDS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 128, Earnings per Share.
This statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier adoption is not
permitted. This statement requires restatement for all prior-period earnings per
share (EPS) data presented.
SFAS No. 128 simplifies the standards for computing EPS previously found in
APB Opinion No. 15, Earnings per Share, and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with
the presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures.
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock are excised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS pursuant to Opinion 15.
A reconciliation of the numerator and denominator of the basic EPS
computation to the diluted EPS computation is as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------- -------------------------------------
DILUTIVE EFFECT DILUTIVE EFFECT
OF OPTIONS OF OPTIONS
BASIC ISSUED DILUTED BASIC ISSUED DILUTED
-------- --------------- -------- -------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income.................... $306,708 -- $306,708 $254,703 -- $254,703
Shares available to common
shareholders................ 149,684 1,324 151,008 141,183 971 142,154
-------- ----- -------- -------- ----- --------
Earnings per share............ $ 2.05 -- $ 2.03 $ 1.80 -- $ 1.79
======== ===== ======== ======== ===== ========
</TABLE>
STATEMENTS OF CASH FLOWS
The Company includes cash, due from banks, and certain cash items, as cash
equivalents in preparing the Statement of Cash Flows.
The following is supplemental disclosure to the statements of cash flows
for the three years ended December 31, 1997:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------
1997 1996 1995
---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid during the period for:
Interest............................................ $1,130,556 $902,303 $722,180
Income taxes........................................ 150,191 128,594 99,231
Non-cash transactions:
Assets acquired in business combinations............ 1,463,289 1,744,929 713,022
Liabilities assumed in business combinations........ 1,391,633 1,600,427 684,512
Loans transferred to Other Real Estate.............. 31,977 30,928 11,575
Loans securitized into mortgage-backed securities... 855,360 567,136 396,476
Financed sales of foreclosed property............... 29,107 24,320 21,673
</TABLE>
39
<PAGE> 41
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENDING ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, Reporting of Comprehensive
Income. Comprehensive income is the total of net income and all other nonowner
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.
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. 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 condition
or results of operations.
NOTE B -- BUSINESS COMBINATIONS
During 1997 the Company completed the following acquisitions:
<TABLE>
<CAPTION>
DATE INSTITUTION ASSETS LOANS DEPOSITS LOCATION
- ------------ ----------- -------- ------ -------- ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
February 28 Equity Bank ("Equity")..................... $ 75.1 $ 56.2 $ 65.8 Delray Beach, FL
March 27 Charter Bank ("Charter")................... 236.8 214.9 218.5 Delray Beach, FL
June 19 Home Savings of America ("Home Savings")... 918.4 1.5 918.1 Various Florida
locations
September 18 Barnett Bank of Southwest Georgia
("Barnett")................................ 233.0 148.9 185.1 Columbus, GA
-------- ------ --------
Totals........................................... $1,463.3 $421.5 $1,387.5
======== ====== ========
</TABLE>
The acquisition of Home Savings was accounted for as a purchase of assets
and assumption of liabilities. The acquisition of all of the outstanding shares
of Barnett was accounted for as a purchase. Under purchase accounting, the
results of operations, subsequent to the acquisition date, are included in the
Consolidated Financial Statements.
The acquisitions of Equity and Charter 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 acquisitions dates, since the effect is
not material.
Consideration for all acquisitions during 1997 aggregated approximately
$93.1 million in cash and 1,905,047 shares of SouthTrust Corporation common
stock with a total market value at the time of issuance of $49.3 million. Total
intangibles recognized in these transactions were approximately $56.6 million.
During 1996, the company completed ten acquisitions with aggregate total
assets of $1,744.9 million, loans of $1,358.5 million, and deposits of $1,417.9
million.
The pro forma effect of the purchase and assumption transactions is not
calculated below since the results of the acquired operations differ
substantially from the historical results of the sellers and, therefore, the pro
forma results would not be meaningful. Assuming the 1997 acquisitions of Equity,
Charter, and Barnett, the 1996 acquisitions of Bankers First Corporation,
Citizens Bank of Macclenny, FFE Financial Corporation, Realty Rental Company,
Inc., First State Bank, Lake State Bank, Prime Bank, Heritage Bancshares, Inc.,
Preferred Bank and FirstMerit Bank and the 1998 acquisition of First of America
Bank -- Florida, FSB had
40
<PAGE> 42
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
occurred on January 1, 1996, the consolidated results of operations on a pro
forma basis for 1997 and 1996 would have been approximately as follows:
<TABLE>
<CAPTION>
1997 1996
---------- --------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net interest income......................................... 1,088,875 942,332
Net income.................................................. 309,394 234,893
Net income per share -- basic............................... $ 2.06 $ 1.61
Net income per share -- diluted............................. 2.05 1.60
</TABLE>
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 a definitive agreement to assume deposits and acquire certain assets of
Home Savings of America, FSB, a subsidiary of H.F. Ahmanson & Company, for a
deposit 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 by
mid-year 1998.
NOTE C -- REGULATORY REQUIREMENTS AND RESTRICTIONS ON CERTAIN ASSETS
The Company's banking subsidiary is required either by law or regulation to
maintain cash reserves with the Federal Reserve Bank or in accounts with other
banks. The average amount of reserve balances for the year ended December 31,
1997, was approximately $196,144,000.
The Company has pledged certain assets, consisting primarily of securities
and mortgage loans, to secure a line of credit with the Federal Home Loan Bank
of Atlanta totaling $5.0 billion. This line is maintained for liquidity and
other treasury management purposes. This line of credit has no expiration date.
At December 31, 1997 and 1996 there were no outstanding balances under this
credit facility.
At December 31, 1997 and 1996, securities with a par value of
$3,276,443,000 and $2,766,343,000 respectively, were pledged to secure public
deposits, securities sold under agreements to repurchase, and for other
purposes.
The primary source of funds available to the Company is payment of
dividends from the Company's subsidiary bank . Banking laws and other
regulations limit the amount of dividends a bank subsidiary may pay without
prior regulatory approval. At December 31, 1997, $472.5 million of the net
assets of the Company's subsidiaries was available for payment without prior
regulatory approval. Substantially all other net assets of the Company's
subsidiary bank were restricted as to payments to the Company.
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
weightings, capital components, and other details. The quantitative measures to
ensure capital adequacy require that the Company maintain amounts and ratios, as
set forth in the schedule below, of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier 1 capital to
average total assets (as defined). 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. Management
believes, as of December 31, 1997, that the Company meets all capital adequacy
requirements imposed by its regulators.
41
<PAGE> 43
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1997 and December 31, 1996, the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There have been no
conditions or events since that notification that Management believes have
changed the institutions' category.
Actual capital amounts as well as required and well capitalized Tier 1,
total, and Tier 1 leverage ratios as of December 31 for the Company and its
significant bank subsidiaries are as follows:
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------- ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- ----- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Capital:
SouthTrust Corporation.......... $1,963,143 7.72% $1,016,720 4.00% N/A
SouthTrust Bank, N.A............ 1,963,636 7.76 1,011,848 4.00 $1,517,771 6.00%
Total Capital:
SouthTrust Corporation.......... $3,068,614 12.07% $2,033,440 8.00% N/A
SouthTrust Bank, N.A............ 2,754,650 10.87 2,023,695 8.00 $2,529,619 10.00%
Tier 1 Leverage:
SouthTrust Corporation.......... $1,963,143 6.61% $1,188,305 4.00% N/A
SouthTrust Bank, N.A............ 1,963,636 6.66 1,178,619 4.00 $1,473,273 5.00%
</TABLE>
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Capital:
SouthTrust Corporation.......... $1,550,310 7.33% $ 846,148 4.00% N/A
SouthTrust Bank of Alabama,
N.A.......................... 842,572 7.32 460,444 4.00 $ 690,666 6.00%
SouthTrust Bank of Georgia,
N.A.......................... 348,643 8.29 168,216 4.00 252,324 6.00
SouthTrust Bank of Florida,
N.A.......................... 324,419 9.13 142,154 4.00 213,232 6.00
Total Capital:
SouthTrust Corporation.......... $2,494,799 11.79% $1,692,297 8.00% N/A
SouthTrust Bank of Alabama,
N.A.......................... 1,274,283 11.07 920,888 8.00 $1,151,110 10.00%
SouthTrust Bank of Georgia,
N.A.......................... 451,324 10.73 336,432 8.00 420,540 10.00
SouthTrust Bank of Florida,
N.A.......................... 373,524 10.51 284,309 8.00 355,386 10.00
Tier 1 Leverage:
SouthTrust Corporation.......... $1,550,310 6.21% $ 999,603 4.00% N/A
SouthTrust Bank of Alabama,
N.A.......................... 842,572 6.59 511,216 4.00 $ 639,020 5.00%
SouthTrust Bank of Georgia,
N.A.......................... 348,643 6.70 208,068 4.00 260,085 5.00
SouthTrust Bank of Florida,
N.A.......................... 324,419 7.24 179,131 4.00 223,914 5.00
</TABLE>
42
<PAGE> 44
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- HELD-TO-MATURITY SECURITIES AND AVAILABLE-FOR-SALE SECURITIES
The amortized costs, gross gains and losses, and approximate fair values at
December 31, are as follows:
<TABLE>
<CAPTION>
HELD-TO-MATURITY SECURITIES
---------------------------------------------------------------------------------------------------------
1997 1996
--------------------------------------------------- ---------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GROSS GAIN GROSS LOSS VALUE COST GROSS GAIN GROSS LOSS VALUE
---------- ----------- ----------- ---------- ---------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
securities......... $ 754 $ 0 $ (3) $ 751 $ 5,779 $ 3 $ (18) $ 5,764
U.S. Government
agency
securities......... 1,895,204 11,483 (926) 1,905,761 1,237,641 4,141 (3,703) 1,238,079
Collateralized
mortgage
obligations and
mortgage backed
securities......... 464,056 12,589 (444) 476,201 444,263 11,026 (983) 454,306
Obligations of states
and political
subdivisions....... 161,955 11,719 (0) 173,674 211,740 14,348 (3,900) 222,188
Other securities..... 35,282 1,651 (61) 36,872 57,173 1,584 (0) 58,757
---------- ------- -------- ---------- ---------- ------- ------- ----------
Totals....... $2,557,251 $37,442 $ (1,434) $2,593,259 $1,956,596 $31,102 $(8,604) $1,979,094
========== ======= ======== ========== ========== ======= ======= ==========
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
---------------------------------------------------------------------------------------------------------
1997 1996
--------------------------------------------------- ---------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GROSS GAIN GROSS LOSS VALUE COST GROSS GAIN GROSS LOSS VALUE
---------- ----------- ----------- ---------- ---------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
securities......... $ 172,657 $ 694 $ (2) $ 173,349 $ 301,417 $ 812 $ (356) $ 301,873
U.S. Government
agency
securities......... 473,196 2,106 (354) 474,948 835,309 1,544 (2,323) 834,530
Collateralized
mortgage
obligations and
mortgage backed
securities......... 2,043,979 28,104 (15,559) 2,056,524 1,538,245 10,120 (23,161) 1,525,204
Obligations of states
and political
subdivisions....... 3,790 136 (8) 3,918 5,162 172 (49) 5,285
Other securities..... 205,566 3,416 (641) 208,341 190,841 3,058 (1,779) 192,120
---------- -------- -------- ---------- ---------- ------- -------- ----------
Totals....... $2,899,188 $ 34,456 $(16,564) $2,917,080 $2,870,974 $15,706 $(27,668) $2,859,012
========== ======== ======== ========== ========== ======= ======== ==========
</TABLE>
The amortized costs and approximate fair values of securities at December
31, 1997, by contractually scheduled maturity, are as shown below:
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
----------------------- -----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less............... $ 100,790 $ 101,943 $ 52,794 $ 55,936
Due after one year through five
years............................... 346,409 351,190 1,004,664 1,011,701
Due after five years through 10
years............................... 1,864,498 1,885,011 787,761 789,691
Due after 10 years.................... 245,554 255,115 1,053,969 1,059,752
---------- ---------- ---------- ----------
Totals...................... $2,557,251 $2,593,259 $2,899,188 $2,917,080
========== ========== ========== ==========
</TABLE>
Proceeds from sales of available-for-sale securities were $652,172,000,
$345,233,000 and $108,621,000 in 1997, 1996 and 1995, respectively. Gross gains
of $2,526,000, $1,986,000 and $214,000 and gross losses of $787,000, $577,000
and $74,000 were realized on those sales.
The Company sold $4,710,000 in securities classified as held-to-maturity
during 1995 and realized a gain of $53,000. The sales of such investments were
prompted by the deterioration of the issuer.
43
<PAGE> 45
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- LOANS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Commercial, financial and agricultural...................... $ 7,548,415 $ 6,733,363
Real estate construction.................................... 2,937,161 1,930,685
Commercial real estate mortgage............................. 3,543,851 3,008,866
Residential real estate mortgage............................ 5,277,070 4,687,495
Lease financing............................................. 869,015 732,985
Loans to individuals........................................ 2,458,349 2,373,256
----------- -----------
22,633,861 19,466,650
Unearned income............................................. (159,076) (135,518)
Allowance for loan losses................................... (315,471) (269,863)
----------- -----------
Net Loans......................................... $22,159,314 $19,061,269
=========== ===========
</TABLE>
In the normal course of business, loans are made to directors and executive
officers of the Company and its subsidiaries and their associates. These loans
are made on substantially the same terms, including interest rates and
collateral, as those prevailing for comparable transactions with others. Such
loans do not involve more than normal risk of collectibility nor do they present
other unfavorable features. As of December 31, 1997 and 1996, respectively,
$81,084,000 and $122,491,000 of these loans were outstanding. During 1997,
$117,380,000 of new loans were made, repayments totaled $138,785,000, and loans
that are no longer related totaled $20,002,000.
The Company's largest loan grouping is commercial, financial and
agricultural loans, which totaled $7,548.4 million or 33.3% of total loans at
December 31, 1997 and $6,733.3 million or 34.6% of total loans at December 31,
1996. There were no significant industry concentrations within the loan
portfolio and the Company's geographic loan distribution is concentrated in the
Southeast markets served by the Company at December 31, 1997 and 1996.
In 1997, interest income of $3,522,000 and $25,000 was recorded on non-accrual
and restructured loans, respectively. Had income on these loans been recorded
under original terms, $7,030,000 of interest on non-accrual loans and $38,000 of
interest on restructured loans would have been recorded.
NOTE F -- ALLOWANCE FOR LOAN LOSSES
The following is an analysis of changes in the allowance for loan losses
for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year........................... $269,863 $206,638 $171,692
Additions:
Provision charged to operations...................... 90,613 90,027 61,286
Recoveries on loans previously charged-off........... 11,124 13,681 11,663
Loans charged off.................................... (62,903) (61,341) (41,135)
Allowances of purchased subsidiaries................. 6,774 20,858 3,132
-------- -------- --------
Balance at end of year................................. $315,471 $269,863 $206,638
======== ======== ========
</TABLE>
44
<PAGE> 46
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- PREMISES AND EQUIPMENT
The following is a summary of premises and equipment at December 31:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $145,333 $126,897
Buildings and improvements.................................. 406,752 348,952
Equipment................................................... 297,982 254,255
-------- --------
850,067 730,104
Less accumulated depreciation............................... 251,773 220,061
-------- --------
Totals............................................ $598,294 $510,043
======== ========
</TABLE>
NOTE H -- SHORT-TERM BORROWINGS
The following presents federal funds purchased, securities sold under
agreements to repurchase, and other borrowed funds at December 31, 1997 and
1996; the weighted-average interest rate at December 31, 1997 and 1996; the
average outstanding borrowings; the daily weighted-average interest rate for
each; and the maximum outstanding balance at any month end during each year.
Such short-term borrowings are issued on normal banking terms.
<TABLE>
<CAPTION>
FEDERAL FUNDS
PURCHASED AND SECURITIES OTHER
SOLD UNDER AGREEMENTS SHORT-TERM
TO REPURCHASE BORROWINGS
------------------------ ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Year Ended December 31:
1997...................................................... $3,588.6 $1,161.8
1996...................................................... 3,205.9 865.1
Weighted-average interest rate at year end:
1997...................................................... 5.49% 5.73%
1996...................................................... 5.31 5.50
Maximum amount outstanding at any month end:
1997...................................................... $4,776.9 $1,162.7
1996...................................................... 3,205.9 1,115.0
Average amount outstanding during the year:
1997...................................................... $3,785.4 $1,049.4
1996...................................................... 2,745.9 890.8
Daily weighted-average interest rate during the year:
1997...................................................... 5.49% 5.62%
1996...................................................... 5.29 5.49
</TABLE>
NOTE I -- FEDERAL HOME LOAN BANK ADVANCES
The Company uses Federal Home Loan Bank advances as an alternative to
funding sources with similar maturities such as certificates of deposits or
other deposit programs. 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.
45
<PAGE> 47
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes information concerning Federal Home Bank Loan
advances:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996
------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Ending balance......................................... $2,782.4 $1,744.2
Average balance........................................ 2,107.6 1,088.3
Maximum month end balance during year.................. 2,782.4 1,744.2
Average rate paid...................................... 5.34% 5.27%
Weighted average remaining maturity.................... 6.23 years 4.83 years
</TABLE>
Scheduled maturities of Federal Home Loan Bank advances in 1998 are
approximately $202.8 million. Maturities during 1999, 2000, 2001, and 2002 are
approximately $175.0 million, $350.0 million, $150.1 million, and $555.0
million, respectively.
NOTE J -- LONG-TERM DEBT
A summary of long-term debt at December 31 follows:
<TABLE>
<CAPTION>
1997 1996
---------- --------
(IN THOUSANDS)
<S> <C> <C>
Subordinated:
8 5/8% Subordinated Notes, due May 15, 2004............... $ 100,000 $100,000
7.00% Debentures, due May 15, 2003........................ 100,000 100,000
7 5/8% Subordinated Notes, due May 1, 2004................ 100,000 100,000
9.95% Subordinated Capital Notes, due June 1, 1999........ 75,000 75,000
7.74% Subordinated Notes, due May 15, 2025................ 50,000 50,000
7.69% Subordinated Notes, due May 15, 2025................ 100,000 100,000
7.00% Subordinated Notes, due November 15, 2008........... 200,000 200,000
6.57% Subordinated Notes, due December 15, 2027........... 100,000 0
Variable rate Subordinated Notes, due December 29, 2017... 25,000 0
Bank Notes................................................ 250,000 250,000
Other..................................................... 6,443 8,243
---------- --------
Total long-term debt.............................. $1,106,443 $983,243
========== ========
</TABLE>
The Company uses interest rate Swaps to hedge certain of the long-term debt
instruments above, converting the effective rate paid on the debt to a LIBOR
based floating rate from a fixed rate. The average rate paid on long-term for
the years ended December 31, 1997 and 1996 was 6.58% and 6.35%, respectively.
The modified rates paid for those same periods, given effect for the Swaps, was
6.23% and 6.03%, respectively.
During 1997, the Company issued $100.0 million in 6.57% Subordinated Notes
due in 2027, and $25.0 million in Subordinated Notes (variable rate of 3 month
LIBOR + 0.275%) due in 2017. The 6.57% Subordinated Notes are callable in the
year 2007. All other Subordinated Notes, along with the 7% Debentures and the
Bank Notes, are not callable prior to maturity and no sinking fund is required.
All of the Subordinated Notes and debentures qualify as supplemental capital
under the Capital Adequacy Guidelines of the Federal Reserve Board.
At maturity the 9.95% Subordinated Capital Notes will be redeemed, at the
Company's option, in cash from the proceeds of the sale of capital securities,
or exchanged for qualifying capital securities, having a market value equal to
the principal amount of the notes. These notes are unsecured and subordinated to
all present and future senior indebtedness of the Company. These notes may not
be redeemed prior to maturity, except upon the occurrence of certain events
relating to the federal income tax treatment of the notes by the Company.
Scheduled maturities of long-term debt in 1998, 1999, 2000, 2001, and 2002
are approximately $150.0 million, $75.0 million, none, $0.1 million, and none,
respectively.
46
<PAGE> 48
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE K -- COMMITMENTS AND CONTINGENCIES
LITIGATION
Certain of the Company's subsidiaries are defendants in various 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 at this point
in time, 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.
LEASES
At December 31, 1997, the Company was obligated under various cancelable
and non-cancelable leases for premises and equipment. Certain leases contain
various renewal options that are priced at market rates. Total rental expense
for the years ended December 31, 1997, 1996 and 1995 was $34,276,000,
$21,497,000 and $18,579,000. Future minimum rental commitments as of December
31, 1997 for all non-cancelable leases with initial or remaining terms of more
than one year are as follows:
<TABLE>
<CAPTION>
PREMISES EQUIPMENT TOTAL
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
1998................................................... $ 21,928 $360 $ 22,288
1999................................................... 19,138 289 19,427
2000................................................... 16,416 188 16,604
2001................................................... 14,817 73 14,890
2002................................................... 12,710 21 12,731
After 2002............................................. 45,320 0 45,320
-------- ---- --------
Totals....................................... $130,329 $931 $131,260
======== ==== ========
</TABLE>
STANDBY LETTERS OF CREDIT AND COMMITMENTS
The Company's subsidiary bank had standby letters of credit outstanding of
approximately $621,611,000 at December 31, 1997 and $595,053,000 at December 31,
1996.
The Company's subsidiary bank had outstanding commitments to extend credit
of approximately $7,107,622,000 at December 31, 1997 and $6,319,860,000 at
December 31, 1996. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements.
The Company's policies as to collateral and assumption of credit risk for
off-balance sheet commitments are essentially the same as those for extension of
credit to its customers.
47
<PAGE> 49
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ASSETS SOLD WITH RECOURSE
The Company's subsidiaries regularly originate and sell loans, consisting
primarily of mortgages, subject to various recourse provisions. Losses
historically realized through the repurchase or other satisfaction of these
recourse provisions are insignificant. The total amount of loans outstanding
subject to such recourse was $1,138.4 million at December 31, 1997 and $1,163.6
million at December 31, 1996. Under terms of the recourse agreements, the
Company would be required to repurchase certain loans if they become non-
performing. All such loans sold had a loan-to-collateral ratio of 80% or less,
or mortgage insurance to cover losses up to 80% of the collateral value, at the
times the various loans were originated. The underlying collateral to these
mortgages are generally 1-4 family residential properties. Potential losses
under these recourse agreements are affected by changes in 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.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company has entered into interest rate swap agreements ("Swaps"), which
provide for the Company to pay interest based on the Floating London Interbank
Offered Rate while receiving payments on a fixed rate. The average notional
amount of these agreements was $942.3 million in 1997 and $790.4 million in
1996. The effective notional amounts outstanding at December 31, 1997 and 1996
were $945 million and $970 million, respectively. During 1997, the average rate
paid under the agreements was 5.76% and the average rate earned was 6.78%. For
1996, the average rate paid was 5.56% and the average rate earned was 6.68%.
Credit risk represents the potential loss of the net accrued receivable
that may occur due to the nonperformance by a party to a contract. The Company
controls credit risk for interest rate swap contracts by applying uniform credit
standards maintained for other activities with credit risk. The Company monitors
transactions under credit risk limits previously approved as a result of the
credit review and also enters into collateralization agreements with each
counterparty. At December 31, 1997 the net accrued receivable was $12.3 million.
At December 31, 1997, the effective notional amounts and contractual
maturities of Swaps are as follows:
<TABLE>
<CAPTION>
EFFECTIVE LIABILITIES
NOTIONAL AMOUNT EXPIRATION HEDGED
- --------------- ---------- -------------------
(IN MILLIONS)
<C> <C> <S>
$ 25 1998 Deposit liabilities
100 2001 Long-term debt
100 2003 Long-term debt
45 2003 Deposit liabilities
200 2004 Long-term debt
150 2005 Long-term debt
50 2006 Deposit liabilities
200 2008 Long-term debt
50 2008 Deposit liabilities
25 2009 Deposit liabilities
----
$945
====
</TABLE>
During 1997, the average notional amount of Swaps outstanding was $942.3
million; the average rate received under the contracts was 6.78% and the average
rate paid was 5.76%, resulting in a reduction in interest expense of $9.7
million. During 1996, the average notional outstanding amount was $790.4 million
and the average rates received and paid were 6.68% and 5.56%, respectively and
reduced interest expense by $8.9 million.
48
<PAGE> 50
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
From time to time, the Company utilizes interest rate options to hedge
mortgage loans held for sale. During 1997 the effect on net income from use of
options was insignificant. At December 31, 1997, there were no option contracts
outstanding.
The Company received a $4.6 million payment during 1996 from a Swap
counterparty in consideration of modifying the fixed rate paid on the Swap.
Recognition of this payment as a reduction of interest expense has been deferred
over the remaining life of the Swap. Interest expense was reduced by $0.6
million in 1997 and $0.1 million in 1996. Interest expense will be reduced by
approximately $0.6 million in 1998 through 2003 and $0.3 million in 2004.
NOTE L -- EMPLOYEE BENEFITS
DEFINED BENEFIT AND DEFINED CONTRIBUTION PLANS
The Company has a trusteed defined benefit pension plan for the benefit of
substantially all employees of the Company and its subsidiaries, the "Trusteed
Plan." The Company also maintains a supplemental defined benefit plan, the
"Supplemental Plan," a deferred compensation plan, the "Deferred Plan," and an
incentive pay plan, the "Incentive Plan," for certain key executives. The
Company's funding policy with respect to the Trusteed Plan is to contribute
amounts to the plan sufficient to meet minimum funding requirements as set by
law. The other plans are unfunded.
The weighted-average discount rate and rate used in determining the
actuarial present value of the projected benefit obligations for all defined
benefit plans were 7.25% in 1997, 8.0% in 1996 and 7.5% in 1995. The rate of
increase in future compensation levels for all defined benefit plans was 5.50%
in 1997, 1996 and 1995. The rate of expected return on plan assets for the
Trusteed Plan in 1997, 1996 and 1995 was 9.25%. Prior service costs for all
defined benefit plans are being amortized on a straight-line basis.
The Company also maintains a defined contribution deferred profit sharing
plan that meets the requirements of section 401(k) of the Internal Revenue Code.
Company contributions to the deferred profit sharing plan are based on a
predetermined formula of up to 15% of participants' salaries, which is the
maximum amount deductible for federal income tax purposes.
Provisions for contributions to the deferred profit sharing plan were
approximately $14.2 million in 1997, $12.4 million in 1996 and $11.7 million in
1995.
As of December 31, 1997, the Trusteed Plan and the profit sharing plan
owned 727,943 and 2,763,732 shares of the Company's common stock, and received
dividends on those shares of $313,825 and $1,184,031 respectively.
49
<PAGE> 51
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TRUSTEED PLAN
The following table sets forth the plan's funded status and amounts
recognized in the Company's Consolidated Financial Statements at December 31,
1997 and 1996 and for each of the three years in the period ended December 31,
1997:
<TABLE>
<CAPTION>
1997 1996
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $76,349 in 1997 and $55,281 in 1996................. $ (84,958) $(63,929)
========= ========
Projected benefit obligation for service rendered to
date................................................... (103,442) (78,189)
Plan assets at fair value, primarily listed stocks and U.S.
Government securities..................................... 107,867 82,010
--------- --------
Plan assets over projected benefit obligation............... 4,425 3,821
Unrecognized net gain from past experience different from
that assumed and effects of changes in assumptions........ (5,616) (3,804)
Prior service cost not yet recognized in net periodic
pension cost.............................................. 30 36
Unrecognized net asset at January 1, 1997 and 1996.......... (2,598) (3,119)
--------- --------
Accrued pension cost included in other liabilities.......... $ (3,759) $ (3,066)
========= ========
</TABLE>
Net pension cost for 1997, 1996 and 1995 includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Service cost-benefits earned during the period.......... $ 5,173 $ 5,108 $ 3,155
Interest cost on projected benefit obligation........... 6,656 5,252 4,191
Actual return on plan assets............................ (28,118) (9,690) (15,126)
Net amortization and deferral........................... 20,072 3,145 9,919
-------- ------- --------
Net periodic pension cost............................... $ 3,783 $ 3,815 $ 2,139
======== ======= ========
</TABLE>
SUPPLEMENTAL, DEFERRED AND INCENTIVE PLANS
The following table sets forth the plans' funded status and amounts
recognized in the Company's Consolidated Financial Statements at December 31,
1997 and 1996 and for each of the three years ended December 31, 1997:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $11,348 in 1997 and $9,010 in 1996.................. $(11,534) $ (9,205)
======== ========
Projected benefit obligation for service rendered to
date................................................... $(13,458) $(10,865)
Plan assets at fair value................................... 0 0
-------- --------
Excess of projected benefit obligation over plan assets..... (13,458) (10,865)
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions........ $ 3,375 1,810
Prior service cost not yet recognized in net periodic
pension cost.............................................. 2,166 2,365
Unrecognized net liability at January 1, 1997 and 1996...... 0 69
Additional periodic liability............................... (3,618) (2,584)
-------- --------
Accrued pension cost included in other liabilities.......... $(11,535) $ (9,205)
======== ========
</TABLE>
50
<PAGE> 52
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net pension cost for 1997, 1996 and 1995 includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Service cost-benefits earned during the period.............. $ 275 $ 622 $ 544
Interest cost on projected benefit obligation............... 913 761 588
Net amortization and deferral............................... 441 397 268
------ ------ ------
Net periodic pension cost................................... $1,629 $1,780 $1,400
====== ====== ======
</TABLE>
POSTRETIREMENT BENEFITS
The Company sponsors an unfunded defined benefit postretirement health care
plan. All employees who retire under the plan at age 55 or later with 10 or more
years of service are eligible to receive certain limited postretirement health
care benefits until age 65. The plan is identical to the specific medical plan
covering the employee prior to retirement. The plan is contributory, with
retiree contributions adjusted annually.
Net postretirement health care cost for 1997, 1996 and 1995 includes the
following components:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost - benefits attributed to service during the
period.................................................... $381 $353 $265
Interest cost on accumulated postretirement benefit
obligation................................................ 298 277 233
Amortization of transition obligation over 20 years......... 82 107 88
---- ---- ----
Net periodic postretirement benefit costs......... $761 $737 $586
==== ==== ====
</TABLE>
For measurement purposes, a 7%, 10% and 10% annual rate of increase in the
per capita cost of covered health care claims was assumed for 1997, 1996 and
1995, respectively; the rate is assumed to decrease to 7% for years thereafter.
Increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation as of
December 31, 1997, by $569,400 and the aggregate of the components of net
periodic postretirement benefit cost for the year then ended by $114,200. The
weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% in 1997, 8.0% in 1996 and 7.5% in
1995.
The Company has elected to amortize the unfunded transition obligation over
a 20-year period as permitted.
The plan's accumulated postretirement benefit obligation was $4,745,000 at
December 31, 1997, with $505,000 related to retirees and $4,240,000 for other
active employees. The plan had an unrecognized transition obligation of
$1,583,000, and an unrecognized net gain of $369,000, resulting in an accrued
liability of $3,531,000.
LONG-TERM INCENTIVE PLAN
The Company maintains an incentive compensation plan, known as the
Long-Term Incentive Plan (the "Plan"), that permits the grant of either stock
options, stock appreciation rights, restricted stock, performance shares, or
performance units to certain key employees. The Company has reserved 6,300,000
shares for issuance under the Plan. Effective January 1, 1996, this plan
replaced the Amended and Restated 1984 Stock Option Plan (the "1984 Plan") and
the 1993 Stock Option Plan (the "1993 Plan") described below. The option awards
outstanding under those plans were not affected and no further grants will be
made under these plans.
51
<PAGE> 53
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the 1984 Plan and the 1993 Plan the Company could grant options for
up to 5,197,500 and 2,550,000 shares, respectively. The Company has granted
options on approximately 3.5 million and 1.4 million shares, respectively,
through December 31, 1996, under these plans.
Under the Plan, the option exercise price equals the stock's market price
on the date of grant. The Plan's options vest after one year, and expire after
ten years.
A summary of the status of the Company's stock options at December 31,
1997, 1996, and 1995 and changes during the years then ended is presented in the
table and narrative below:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000) PRICE (000) PRICE (000) PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year...................... 2,211,435 $11.80 1,869,458 $ 9.77 1,802,549 $ 8.63
Granted..................... 707,025 24.25 579,300 16.83 458,873 12.75
Issued in business
combinations.............. 72,029 8.41 111,751 7.17 69,159 9.13
Exercised................... (284,297) 9.15 (331,749) 6.90 (383,885) 6.07
Forfeited................... (14,932) 23.37 (17,325) 16.15 (77,238) 12.33
Expired..................... (435) 5.85 -- -- -- --
--------- ------ --------- ------ --------- ------
Outstanding at end of
year...................... 2,690,825 15.20 2,211,435 11.80 1,869,458 9.77
--------- ------ --------- ------ --------- ------
Exercisable at end of
year...................... 1,997,375 12.05 1,632,135 10.07 1,410,585 8.83
Weighted average fair value
of options granted........ $4.47 $ 2.58 $2.47
</TABLE>
389,762 of the 2,690,825 options outstanding at December 31, 1997 have
exercise prices between $3.25 and $8.83, with a weighted average exercise price
of $5.06 and a weighted average remaining contractual life of 3.4 years. All of
these options are exercisable. The remaining 2,301,063 options have exercise
prices between $8.83 and $24.25, with a weighted average exercise price of
$16.91 and a weighted average remaining contractual life of 7.3 years. 1,607,613
of these options are exercisable; their weighted average exercise price is
$13.75.
In accordance with the provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, the Company elected to continue to apply APB Opinion
25 and related Interpretations in accounting for its stock option plans and,
accordingly, does not recognize compensation cost for options granted at market
value. If the Company had elected to recognize compensation cost for options
granted in 1997, 1996, based on the fair value of the options granted at grant
date as permitted by SFAS No. 123, net income and earnings per share would have
reduced to the pro forma amounts indicated below (in thousands except per share
amounts:)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net income -- as reported........................ $ 306,708 $ 254,703 $ 199,005
Net income -- pro forma.......................... 304,652 253,690 198,215
Earnings per share -- as reported -- basic....... 2.05 1.80 1.58
Earnings per share -- pro forma -- basic......... 2.03 1.80 1.57
Earnings per share -- as reported -- diluted..... 2.03 1.79 1.57
Earnings per share -- pro forma -- diluted....... 2.02 1.78 1.56
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro-forma compensation
cost may not be representative of that to be expected in future years.
52
<PAGE> 54
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Expected dividend yield.............................. 3.08% 3.17% 3.56%
Expected stock price volatility...................... 19% 17% 18%
Risk-free interest rate.............................. 6.21% 5.26% 7.74%
Expected life of options............................. 4 years 4 years 4 years
</TABLE>
PERFORMANCE SHARES
During 1997, the Company granted 54,150 performance shares to certain
executive officers. Actual shares awarded are determined by various performance
criteria, which may result in the issuance of either more or fewer shares than
initially granted. Payment of the earned performance shares will be made 50% in
cash and 50% in shares. Sale or other transfer of the shares is restricted for
three years from the end of the performance period. The performance period is
generally three years. Compensation for performance shares under the Plan is
charged to earnings over the performance period based on the fair value of the
Company's Stock at the award date, and amounted to $5.6 million in 1997.
EMPLOYEE STOCK PURCHASE PLAN
The 1990 Discounted Stock Plan (the "Discounted Plan") was established in
order to give all employees an opportunity to acquire an equity interest in the
Company at a discount (17.5%) to the market value as of the acceptance date.
Awards are made to all employees (including executive officers) who have
completed five years of full time service to the Company and its subsidiaries.
Employees have two opportunities to accept all or a portion of the award.
Transfer, sale or other disposition of the shares is restricted for three years
after the date of purchase. If an employee leaves, the Company has the right to
repurchase the shares at the purchase price. Total shares purchased under the
Discounted Plan in 1997 were 42,891. A total of 1,687,500 shares of Common Stock
of the Company is reserved for issuance under the Discounted Plan, and the
aggregate purchase price of shares of Common Stock awarded to each employee may
not exceed 10% of the annual salary of each employee.
53
<PAGE> 55
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M -- INCOME TAXES
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.............................................. $165,223 $119,424 $ 91,290
State................................................ 21,445 14,774 12,154
-------- -------- --------
186,668 134,198 103,444
-------- -------- --------
Deferred (Prepaid):
Federal.............................................. (11,975) (726) 2,124
State................................................ (3,550) (665) (529)
-------- -------- --------
(15,525) (1,391) 1,595
-------- -------- --------
Totals....................................... $171,143 $132,807 $105,039
======== ======== ========
</TABLE>
The differences between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate (35%) to income
before taxes were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Pre-tax income at statutory rates...... $167,248 35% $135,602 35% $106,415 35%
Add (deduct)
State income tax, net of federal tax
benefit........................... 11,631 2 9,170 2 7,556 3
Tax-exempt interest income........... (6,663) (1) (7,790) (2) (9,581) (3)
Other................................ (1,073) 0 (4,175) (1) 649 0
-------- --- -------- --- -------- ---
Totals....................... $171,143 36% $132,807 34% $105,039 35%
======== === ======== === ======== ===
</TABLE>
The components of the net deferred tax asset were as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred Tax Assets:
Allowance for loan losses................................. $116,948 $ 93,295
Net unrealized losses on securities....................... 0 4,442
Other..................................................... 32,112 29,159
-------- --------
Total deferred tax assets......................... 149,060 126,896
-------- --------
Deferred Tax Liabilities:
Depreciation.............................................. (12,626) (12,737)
Leasing................................................... (72,002) (62,864)
Net unrealized gain on securities......................... (6,716) 0
Other..................................................... (9,437) (7,203)
-------- --------
Total deferred tax liabilities.................... (100,781) (82,804)
-------- --------
Net Deferred Tax Asset............................ $ 48,279 $ 44,092
======== ========
</TABLE>
The deferred tax asset above is net of an insignificant valuation
allowance. The Company has sufficient refundable taxes paid in available
carryback years to realize its recorded deferred tax asset.
The company's federal and state income tax returns are subject to routine
examination by governmental authorities. Various examinations are now in
progress covering certain returns and, in the opinion of Management, any
adjustments which may result from such examinations will not have a material
effect on the Company's consolidated financial statements.
54
<PAGE> 56
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE N -- FAIR VALUES OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks................... $ 877,885 $ 877,885 $ 903,134 $ 903,134
Federal funds sold and other short-term
investments............................ 49,403 49,403 16,365 16,365
Trading securities........................ 58,750 58,750 17,850 17,850
Loans held for sale....................... 403,837 403,837 191,309 191,309
Available-for-sale securities............. 2,917,080 2,917,080 2,859,012 2,859,012
Held-to-maturity securities............... 2,557,251 2,593,259 1,956,596 1,979,094
Loans, net of leases...................... 21,657,027 21,756,771 18,849,650 18,294,649
Interest receivable and other assets...... 303,588 303,588 316,040 316,040
Liabilities:
Deposits.................................. 19,586,584 19,617,716 17,305,493 17,217,548
Federal funds purchased and other
short-term borrowings.................. 4,750,378 4,750,378 4,071,001 4,071,001
Interest payable and other liabilities.... 486,044 486,044 384,405 384,405
Federal Home Loan Bank advances........... 2,782,355 2,769,993 1,744,159 1,681,920
Long-term debt............................ 1,106,443 1,162,471 983,243 893,716
Off-balance sheet instruments asset
(liability):
Interest rate swaps in a net receivable
position............................... 12,302 39,938 26,513 33,528
Commitments to extend credit.............. (24,864) (40,145) (17,336) (40,001)
Standby letters of credit................. (1,194) (1,194) (555) (555)
</TABLE>
In cases where quoted market prices are not available, fair values have
been estimated using present value or other valuation techniques. These methods
are highly sensitive to the assumptions used, such as those concerning
appropriate discount rates and estimates of future cash flows. In that regard,
estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current settlement of the underlying financial
instruments, and they are not intended to represent a measure of the underlying
value of the Company.
The following methods and assumptions were used by the Company in
estimating the fair values provided above:
CASH AND DUE FROM BANKS, FEDERAL FUNDS SOLD AND OTHER SHORT-TERM INVESTMENTS
The carrying values of highly liquid instruments, such as cash on hand,
interest and noninterest bearing deposits in financial institutions, and federal
funds sold and other short-term investments are considered to approximate their
fair values.
LOANS HELD FOR SALE AND SECURITIES
Substantially all of the Company's held-to-maturity securities and loans
held for sale to third-party investors, have a readily determinable fair value.
Fair values for these securities are based on quoted market prices, where
available. If not available, fair values are based on market prices of
comparable instruments. The carrying amount of accrued interest on securities
approximates its fair value.
55
<PAGE> 57
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LOANS, NET OF LEASES
For loans with rates that are repriced in coordination with movements in
market rates and with no significant change in credit risk, fair value estimates
are based on carrying values. The fair values for other types of loans are
estimated by discounting future cash flows using current rates at which loans
with similar terms would be made to borrowers of similar credit ratings. The
carrying amount of accrued interest on loans approximates its fair value.
DEPOSITS
The fair values of deposit liabilities with no stated maturity are
considered to be the amounts payable on demand at the reporting date (i.e., at
their carrying or book value). The fair values of fixed maturity deposits are
estimated using a discounted cash flow calculation that applies rates currently
offered for time deposits of similar remaining maturities. The carrying amount
of accrued interest payable on deposits approximates its fair value.
The economic value attributable to the long-term relationship with
depositors who provide low-cost funds to the Company is considered to be a
separate intangible asset and is excluded from the presentation above.
FEDERAL FUNDS PURCHASED AND OTHER SHORT-TERM BORROWINGS
The carrying amounts of federal funds purchased, borrowings under
repurchase agreements, and other short-term borrowings approximate their fair
values.
FEDERAL HOME LOAN BANK ADVANCES AND LONG-TERM DEBT
The fair values of the Company's long-term debt are based on quoted market
prices of similar instruments or estimates using the Company's incremental
borrowing rates for similar types of instruments.
OFF-BALANCE-SHEET INSTRUMENTS
Off-balance-sheet financial instruments include commitments to extend
credit, standby letters of credit, interest rate swaps, and similar instruments.
The fair value of such instruments is estimated using current settlement values
or based on fees currently charged for similar arrangements in the market place,
adjusted for changes in terms and credit risk as appropriate.
56
<PAGE> 58
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE O -- CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
PARENT COMPANY STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash*....................................................... $ 150 $ 1,216
Interest-bearing time deposits*............................. 210,242 80,913
Available-for-sale securities............................... 16,597 16,235
Held-to-maturity securities................................. 0 12,269
Loans....................................................... 100,135 121,726
Loans to subsidiaries*...................................... 25,508 65,977
Investment in subsidiaries*:
Bank and bank holding company............................. 2,298,733 1,850,614
Non-banks................................................. 15,135 12,899
Other assets................................................ 38,727 60,160
---------- ----------
Total Assets....................................... $2,705,227 $2,222,009
---------- ----------
LIABILITIES
Short-term borrowings....................................... $ 27,139 $ 21,162
Other liabilities........................................... 108,447 90,955
Long-term debt.............................................. 375,000 375,000
---------- ----------
Total Liabilities.................................. 510,586 487,117
Stockholders' Equity........................................ 2,194,641 1,734,892
---------- ----------
Total Liabilities and Stockholders' Equity......... $2,705,227 $2,222,009
========== ==========
</TABLE>
PARENT COMPANY STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income:
From subsidiaries*:
Dividends
Bank................................................. $ 97,757 $ 84,762 $ 73,267
Non-banks............................................ 0 0 7,047
Interest................................................ 14,662 10,989 12,721
Service fees............................................ 62,982 51,863 48,115
Other..................................................... 13,333 14,515 7,040
-------- -------- --------
Total Income....................................... 188,734 162,129 148,190
-------- -------- --------
Expense:
Salaries and employee benefits............................ 31,509 21,379 20,541
Interest.................................................. 26,240 26,416 26,589
Other..................................................... 29,592 28,739 28,259
-------- -------- --------
Total Expense...................................... 87,341 76,534 75,389
-------- -------- --------
Income before income taxes and equity in undistributed net
income of subsidiaries.................................... 101,393 85,595 72,801
Income taxes (credit)....................................... 1,506 335 (3,293)
-------- -------- --------
Income Before Equity in Undistributed Net Income of
Subsidiaries......................................... 99,887 85,260 76,094
Equity in undistributed net income of subsidiaries*:
Bank and bank holding company............................. 204,338 168,451 122,732
Non-banks................................................. 2,483 992 179
-------- -------- --------
Net Income......................................... $306,708 $254,703 $199,005
======== ======== ========
</TABLE>
- ---------------
* Eliminated in consolidation.
57
<PAGE> 59
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PARENT COMPANY STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating Activities
Net Income................................................ $ 306,708 $ 254,703 $ 199,005
Less equity in undistributed net income of subsidiaries... (206,821) (169,443) (122,911)
--------- --------- ---------
Income before equity in undistributed net income of
subsidiaries............................................ 99,887 85,260 76,094
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision (credit) for:
Depreciation of premises and equipment................ 1,381 1,333 1,197
Amortization of intangibles........................... 0 1,177 2,583
Deferred income tax (benefit) expense................. (2,037) 592 (3,551)
Realized net (gain) loss on sales of securities........... (1,538) (118) 9
Net (increase) decrease in other assets................... 36,545 (4,826) (9,588)
Net increase (decrease) in other liabilities.............. (429) 7,692 10,390
--------- --------- ---------
Net Cash Provided by Operating Activities.......... 133,809 91,110 77,134
Investing Activities
Proceeds from maturities of:
Held-to-maturity securities............................. 646 61 0
Available-for-sale securities........................... 0 564 58,344
Proceeds from sale of:
Held-to-maturity securities............................. 0 0 0
Available-for-sale securities........................... 1,537 135,524 24,964
Purchase of:
Held-to-maturity securities............................. 0 (405) (108)
Available-for-sale securities........................... (665) 0 (147,603)
Capital contributions..................................... (201,500) (55,684) (37,644)
Net (increase) decrease in:
Short-term investments.................................. (128,973) (35,279) (23,524)
Loans to subsidiaries................................... 40,469 7,626 87,054
Loans................................................... 21,591 31,314 (150,966)
Premises and equipment.................................. (2,833) (3,804) (2,707)
--------- --------- ---------
Net Cash Provided by (Used In) Investing
Activities....................................... (269,728) 79,917 (192,190)
Financing Activities
Proceeds from issuance of:
Common Stock............................................ 210,977 8,584 96,568
Payments for:
Long-term debt.......................................... 0 (100,219) 0
Repurchase of common stock.............................. (555) (4,130) (365)
Cash dividends.......................................... (81,546) (75,446) (69,817)
Net increase in short-term borrowings..................... 5,977 0 86,965
--------- --------- ---------
Net Cash Provided By (Used In) Financing
Activities....................................... 134,853 (171,211) 113,351
--------- --------- ---------
Decrease in Cash and Due from Banks......................... (1,066) (184) (1,705)
--------- --------- ---------
Cash and Due from Banks at Beginning of Year................ 1,216 1,400 3,105
--------- --------- ---------
Cash and Due from Banks at End of Year...................... $ 150 $ 1,216 $ 1,400
========= ========= =========
Supplemental Disclosure of Cash Flow Information; Cash Paid
During the Period for Interest............................ $ 35,719 $ 32,872 $ 31,790
</TABLE>
58
<PAGE> 60
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Company's directors is contained on pages 2
through 6, inclusive, of the Company's proxy statement for the annual meeting of
stockholders, April 15, 1998 and is incorporated herein by reference.
Information concerning the Company's executive officers is contained herein
in response to Item I of Part I.
ITEM 11 EXECUTIVE COMPENSATION
Information relating to executive compensation is contained on pages 9
through 21, inclusive, of the Company's proxy statement for the annual meeting
of stockholders, April 15, 1998 and is incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is contained on pages 3 through 6,
inclusive, of the Company's proxy statement for the annual meeting of
stockholders, April 15, 1998, and is incorporated herein by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to this item is contained on page 22 of the Company's
proxy statement for the annual meeting of stockholders, April 15, 1998, and is
incorporated herein by reference.
59
<PAGE> 61
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1 -- Financial Statements:
The following consolidated financial statements of SouthTrust Corporation
and subsidiaries, included in the annual report of the Company to its
stockholders for the year ended December 31, 1997 are:
Report of Independent Public Accountants
Consolidated Statements of Condition -- December 31, 1997 and December
31, 1996
Consolidated Statements of Income -- Years ended December 31, 1997,
1996, and 1995
Consolidated Statements of Stockholders' Equity -- December 31, 1997,
1996, and 1995
Consolidated Statements of Cash Flows -- Years ended December 31,
1997, 1996, and 1995
Notes to Consolidated Financial Statements -- Three years ended
December 31, 1997
(a)2 -- Financial Statement Schedules:
All schedules to the Consolidated Financial Statements required by Article
9 of Regulation S-X are omitted since they are either not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
(a)3 -- Exhibits:
*No. 3 -- Composite Restated Certificate of Incorporation of SouthTrust
Corporation which was filed as Exhibit 3 to SouthTrust Corporation's
Registration Statement on Form S-3 (Reg. No. 333-34947).
*No. 4(a) -- Articles FOURTH, SIXTH, SEVENTH and ELEVENTH of the Restated
Certificate of Incorporation of SouthTrust Corporation (included at Exhibit 3).
*No. 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).
*No. 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).
*No. 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).
*No. 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).
*No. 4(f) -- Composite Restated Bylaws of SouthTrust Corporation which was
filed as Exhibit 4(e) to the Registration Statement on Form S-4 of SouthTrust
Corporation (Registration No. 33-61557).
*No. 4(g)(i) -- Form of Senior Indenture which was filed as Exhibit 4(b)(i)
to the Registration Statement on Form S-3 of SouthTrust Corporation
(Registration No. 33-44857).
*No. 4(g)(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).
No. 11 Statement of Computation of Earnings Per Share.
No. 12 Statement of Computation of Ratios.
60
<PAGE> 62
No. 21 Subsidiaries of the Registrant.
No. 23 Consents of Experts and Counsel.
No. 24 Powers of Attorney.
No. 27 Financial Data Schedule (for SEC use only)
* Incorporated herein by reference.
(b) Reports on Form 8-K filed in the fourth quarter of 1997: October 10,
1997 and December 5, 1997. The Company filed a current report on Form 8-K on
January 12, 1998 disclosing the unaudited results of operations and statement of
financial condition for the year ended December 31, 1997.
(c) Exhibits -- The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial Statements Schedules: None
61
<PAGE> 63
SIGNATURES
Pursuant to the requirements of Section 13 and 13(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SOUTHTRUST CORPORATION
/s/ WALLACE D. MALONE, JR.
--------------------------------------
Wallace D. Malone, Jr.
Date: March 6, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ WALLACE D. MALONE, JR. Chairman, President, Chief March 6, 1998
- ----------------------------------------------------- Executive Officer, Director
Wallace D. Malone, Jr.
/s/ AUBREY D. BARNARD Secretary, Treasurer and March 6, 1998
- ----------------------------------------------------- Controller (Principal
Aubrey D. Barnard Accounting and Financial
Officer)
/s/ JULIAN W. BANTON Chairman and Chief Executive March 6, 1998
- ----------------------------------------------------- Officer, SouthTrust Bank,
Julian W. Banton N.A., Director
* Director March 6, 1998
- -----------------------------------------------------
Van L. Richey
* Director March 6, 1998
- -----------------------------------------------------
F. Crowder Falls
* Director March 6, 1998
- -----------------------------------------------------
Rex J. Lysinger
* Director March 6, 1998
- -----------------------------------------------------
William C. Hulsey
* Director March 6, 1998
- -----------------------------------------------------
John M. Bradford
* Director March 6, 1998
- -----------------------------------------------------
Wm. Kendrick Upchurch, Jr.
* Director March 6, 1998
- -----------------------------------------------------
Carl F. Bailey
* Director March 6, 1998
- -----------------------------------------------------
Allen J. Keesler, Jr.
* Director March 6, 1998
- -----------------------------------------------------
H. Allen Franklin
/s/ WILLIAM L. PRATER
- -----------------------------------------------------
William L. Prater
Attorney-in-fact
</TABLE>
62
<PAGE> 1
EXHIBIT NO. 11
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
--------------------
EARNINGS
SHARES PER SHARE
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Basic Weighted average shares outstanding................. 149,684 $2.05
======= =====
Diluted
Average shares outstanding................................ 149,684
Common stock equivalents.................................. 1,324
-------
151,008 $2.03
======= =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
--------------------
EARNINGS
SHARES PER SHARE
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Basic Weighted average shares outstanding................. 141,183 $1.80
======= =====
Diluted
Average shares outstanding................................ 141,183
Common stock equivalents.................................. 971
-------
142,154 $1.79
======= =====
</TABLE>
63
<PAGE> 1
EXHIBIT NO. 12
EARNINGS TO FIXED CHANGES COMPUTATION
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Income before income taxes............ $ 477,851 $ 387,510 $ 304,044 $ 261,340 $ 224,527
Plus:
Fixed Charges....................... 1,199,730 948,497 800,986 507,940 404,360
Less:
Capitalized Interest................ (1,732) (785) (2,056) (599) (82)
Earnings, including interest on
deposits(a)......................... 1,675,849 1,335,222 1,102,974 768,681 628,805
Less:
Interest on deposits................ (745,122) (644,613) (564,064) (377,643) (335,708)
Earnings, excluding interest on
deposits(b)......................... 930,727 690,609 538,910 391,038 293,097
Fixed Charges:
Interest Expense.................... 1,186,079 938,194 791,423 501,067 397,743
Capitalized Interest................ 1,732 785 2,056 599 82
Amortization of debt expenses....... 602 132 190 215 195
Interest portion of rent expense.... 11,317 9,386 7,317 6,059 6,340
---------- ---------- ---------- --------- ---------
Total Fixed Charges(c)...... 1,199,730 948,497 800,986 507,940 404,360
Less:
Interest on deposits................ (745,122) (664,613) (564,064) (377,643) (335,708)
---------- ---------- ---------- --------- ---------
Total Fixed Charges
excluding Interest expense
on deposits(d)............ $ 454,608 $ 303,884 $ 236,922 $ 130,297 $ 68,652
========== ========== ========== ========= =========
Earnings to fixed charges:
Including interest on
deposits(a/c).................... $ 1.40 $ 1.41 $ 1.38 $ 1.51 $ 1.56
Excluding interest on
deposits(b/d).................... $ 2.05 $ 2.27 $ 2.27 $ 3.00 $ 4.27
</TABLE>
64
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State of
Incorporation
-------------
<S> <C>
SouthTrust Corporation .................................................................. Not Applicable
SouthTrust of Alabama, Inc. ........................................................... Alabama
SouthTrust Bank, N.A. ............................................................... (1)
SouthTrust Mortgage Corporation ................................................... Delaware
SC Realty, Inc. ................................................................... Delaware
Magic City, Inc. .................................................................. Delaware
Magic City Three, Inc. .......................................................... Delaware
SouthTrust Capital Funding Corporation ............................................ Delaware
SouthTrust Mobile Services Funding Corporation .................................... Alabama
SouthTrust Insurance, Inc. ........................................................ Alabama
First State Service Corporation ................................................... North Carolina
SouthTrust Capital Management, Inc. ............................................... North Carolina
SouthTrust Asset Management Company of the Carolinas, Inc. ........................ North Carolina
SouthTrust Asset Management Company of Georgia, N.A. .............................. (1)
Dekalb Finance Subsidiary, Inc. ................................................... Georgia
SouthTrust Insurance of Georgia, Inc. ............................................. Georgia
Minority Business Development Corporation ......................................... Georgia
SouthTrust Development Corporation ................................................ Georgia
SouthTrust Asset Management Company of Florida, N.A. .............................. (1)
Central Pinellas Homes, Inc. ...................................................... Florida
Holmes Capital Corporation ........................................................ Florida
SouthTrust Life Insurance Company ..................................................... Arizona
SouthTrust Insurance Agency, Inc. ..................................................... Alabama
Southern Financial Advisors, Inc. ..................................................... Alabama
SouthTrust Securities, Inc. ........................................................... Delaware
SouthTrust Community Reinvestment Corp. ............................................... Alabama
</TABLE>
(1) National Banks are chartered under the laws of the United States.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 33-25513, 33-33187, 33-46804, 33-55069,
33-55287, 33-55543, 33-55746, 33-61407, 333-02203, 333-11079, and 333-41823.
Birmingham, Alabama
March 4, 1998
<PAGE> 1
EXHIBIT 24
STATE OF ALABAMA )
COUNTY OF JEFFERSON )
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS THAT:
The undersigned director of SouthTrust Corporation, a Delaware
corporation (the "Company") hereby constitutes and appoints William L. Prater
and Aubrey D. Barnard, and each of them (with full power of each of them to act
alone), his true and lawful attorney-in-fact and agent for him and on his
behalf and in his name, place and stead, in any and all capacities, to sign,
execute and affix his seal thereto and file with the United States Securities
and Exchange Commission and any other regulatory authority, the annual report
of the Company for the year ended December 31, 1997 on Form 10-K under the
Securities and Exchange Act of 1934, as amended, including any amendment or
amendments thereto, and any and all documents required to be filed with respect
thereto, granting unto said attorneys and each of them full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises in order to effectuate the same as fully and to
all intents and purposes as he himself might or could do if personally present,
hereby ratifying and confirming all the said attorneys-in-fact and agents, or
any of them may lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned director has hereto set his hand
and seal this 4th day of March, 1998
/s/ Van L. Richey (L.S.)
--------------------------------------
Van L. Richey
<PAGE> 2
STATE OF ALABAMA )
COUNTY OF JEFFERSON )
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS THAT:
The undersigned director of SouthTrust Corporation, a Delaware
corporation (the "Company") hereby constitutes and appoints William L. Prater
and Aubrey D. Barnard, and each of them (with full power of each of them to act
alone), his true and lawful attorney-in-fact and agent for him and on his
behalf and in his name, place and stead, in any and all capacities, to sign,
execute and affix his seal thereto and file with the United States Securities
and Exchange Commission and any other regulatory authority, the annual report
of the Company for the year ended December 31, 1997 on Form 10-K under the
Securities and Exchange Act of 1934, as amended, including any amendment or
amendments thereto, and any and all documents required to be filed with respect
thereto, granting unto said attorneys and each of them full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises in order to effectuate the same as fully and to
all intents and purposes as he himself might or could do if personally present,
hereby ratifying and confirming all the said attorneys-in-fact and agents, or
any of them may lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned director has hereto set his hand
and seal this 4th day of March, 1998
/s/ F. Crowder Falls (L.S.)
--------------------------------------
F. Crowder Falls
<PAGE> 3
STATE OF ALABAMA )
COUNTY OF JEFFERSON )
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS THAT:
The undersigned director of SouthTrust Corporation, a Delaware
corporation (the "Company") hereby constitutes and appoints William L. Prater
and Aubrey D. Barnard, and each of them (with full power of each of them to act
alone), his true and lawful attorney-in-fact and agent for him and on his
behalf and in his name, place and stead, in any and all capacities, to sign,
execute and affix his seal thereto and file with the United States Securities
and Exchange Commission and any other regulatory authority, the annual report
of the Company for the year ended December 31, 1997 on Form 10-K under the
Securities and Exchange Act of 1934, as amended, including any amendment or
amendments thereto, and any and all documents required to be filed with respect
thereto, granting unto said attorneys and each of them full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises in order to effectuate the same as fully and to
all intents and purposes as he himself might or could do if personally present,
hereby ratifying and confirming all the said attorneys-in-fact and agents, or
any of them may lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned director has hereto set his hand
and seal this 4th day of March, 1998
/s/ Rex J. Lysinger (L.S.)
--------------------------------------
Rex J. Lysinger
<PAGE> 4
STATE OF ALABAMA )
COUNTY OF JEFFERSON )
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS THAT:
The undersigned director of SouthTrust Corporation, a Delaware
corporation (the "Company") hereby constitutes and appoints William L. Prater
and Aubrey D. Barnard, and each of them (with full power of each of them to act
alone), his true and lawful attorney-in-fact and agent for him and on his
behalf and in his name, place and stead, in any and all capacities, to sign,
execute and affix his seal thereto and file with the United States Securities
and Exchange Commission and any other regulatory authority, the annual report
of the Company for the year ended December 31, 1997 on Form 10-K under the
Securities and Exchange Act of 1934, as amended, including any amendment or
amendments thereto, and any and all documents required to be filed with respect
thereto, granting unto said attorneys and each of them full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises in order to effectuate the same as fully and to
all intents and purposes as he himself might or could do if personally present,
hereby ratifying and confirming all the said attorneys-in-fact and agents, or
any of them may lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned director has hereto set his hand
and seal this 4th day of March, 1998
/s/ William C. Hulsey (L.S.)
--------------------------------------
William C. Hulsey
<PAGE> 5
STATE OF ALABAMA )
COUNTY OF JEFFERSON )
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS THAT:
The undersigned director of SouthTrust Corporation, a Delaware
corporation (the "Company") hereby constitutes and appoints William L. Prater
and Aubrey D. Barnard, and each of them (with full power of each of them to act
alone), his true and lawful attorney-in-fact and agent for him and on his
behalf and in his name, place and stead, in any and all capacities, to sign,
execute and affix his seal thereto and file with the United States Securities
and Exchange Commission and any other regulatory authority, the annual report
of the Company for the year ended December 31, 1997 on Form 10-K under the
Securities and Exchange Act of 1934, as amended, including any amendment or
amendments thereto, and any and all documents required to be filed with respect
thereto, granting unto said attorneys and each of them full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises in order to effectuate the same as fully and to
all intents and purposes as he himself might or could do if personally present,
hereby ratifying and confirming all the said attorneys-in-fact and agents, or
any of them may lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned director has hereto set his hand
and seal this 4th day of March, 1998
/s/ John M. Bradford (L.S.)
--------------------------------------
John M. Bradford
<PAGE> 6
STATE OF ALABAMA )
COUNTY OF JEFFERSON )
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS THAT:
The undersigned director of SouthTrust Corporation, a Delaware
corporation (the "Company") hereby constitutes and appoints William L. Prater
and Aubrey D. Barnard, and each of them (with full power of each of them to act
alone), his true and lawful attorney-in-fact and agent for him and on his
behalf and in his name, place and stead, in any and all capacities, to sign,
execute and affix his seal thereto and file with the United States Securities
and Exchange Commission and any other regulatory authority, the annual report
of the Company for the year ended December 31, 1997 on Form 10-K under the
Securities and Exchange Act of 1934, as amended, including any amendment or
amendments thereto, and any and all documents required to be filed with respect
thereto, granting unto said attorneys and each of them full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises in order to effectuate the same as fully and to
all intents and purposes as he himself might or could do if personally present,
hereby ratifying and confirming all the said attorneys-in-fact and agents, or
any of them may lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned director has hereto set his hand
and seal this 4th day of March, 1998
/s/ Wm. Kendrick Upchurch, Jr. (L.S.)
--------------------------------------
Wm. Kendrick Upchurch, Jr.
<PAGE> 7
STATE OF ALABAMA )
COUNTY OF JEFFERSON )
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS THAT:
The undersigned director of SouthTrust Corporation, a Delaware
corporation (the "Company") hereby constitutes and appoints William L. Prater
and Aubrey D. Barnard, and each of them (with full power of each of them to act
alone), his true and lawful attorney-in-fact and agent for him and on his
behalf and in his name, place and stead, in any and all capacities, to sign,
execute and affix his seal thereto and file with the United States Securities
and Exchange Commission and any other regulatory authority, the annual report
of the Company for the year ended December 31, 1997 on Form 10-K under the
Securities and Exchange Act of 1934, as amended, including any amendment or
amendments thereto, and any and all documents required to be filed with respect
thereto, granting unto said attorneys and each of them full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises in order to effectuate the same as fully and to
all intents and purposes as he himself might or could do if personally present,
hereby ratifying and confirming all the said attorneys-in-fact and agents, or
any of them may lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned director has hereto set his hand
and seal this 4th day of March, 1998
/s/ Carl F. Bailey (L.S.)
--------------------------------------
Carl F. Bailey
<PAGE> 8
STATE OF ALABAMA )
COUNTY OF JEFFERSON )
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS THAT:
The undersigned director of SouthTrust Corporation, a Delaware
corporation (the "Company") hereby constitutes and appoints William L. Prater
and Aubrey D. Barnard, and each of them (with full power of each of them to act
alone), his true and lawful attorney-in-fact and agent for him and on his
behalf and in his name, place and stead, in any and all capacities, to sign,
execute and affix his seal thereto and file with the United States Securities
and Exchange Commission and any other regulatory authority, the annual report
of the Company for the year ended December 31, 1997 on Form 10-K under the
Securities and Exchange Act of 1934, as amended, including any amendment or
amendments thereto, and any and all documents required to be filed with respect
thereto, granting unto said attorneys and each of them full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises in order to effectuate the same as fully and to
all intents and purposes as he himself might or could do if personally present,
hereby ratifying and confirming all the said attorneys-in-fact and agents, or
any of them may lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned director has hereto set his hand
and seal this 4th day of March, 1998
/s/ Allen J. Keesler, Jr. (L.S.)
--------------------------------------
Allen J. Keesler, Jr.
<PAGE> 9
STATE OF ALABAMA )
COUNTY OF JEFFERSON )
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS THAT:
The undersigned director of SouthTrust Corporation, a Delaware
corporation (the "Company") hereby constitutes and appoints William L. Prater
and Aubrey D. Barnard, and each of them (with full power of each of them to act
alone), his true and lawful attorney-in-fact and agent for him and on his
behalf and in his name, place and stead, in any and all capacities, to sign,
execute and affix his seal thereto and file with the United States Securities
and Exchange Commission and any other regulatory authority, the annual report
of the Company for the year ended December 31, 1997 on Form 10-K under the
Securities and Exchange Act of 1934, as amended, including any amendment or
amendments thereto, and any and all documents required to be filed with respect
thereto, granting unto said attorneys and each of them full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises in order to effectuate the same as fully and to
all intents and purposes as he himself might or could do if personally present,
hereby ratifying and confirming all the said attorneys-in-fact and agents, or
any of them may lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned director has hereto set his hand
and seal this 4th day of March, 1998
/s/ H. Allen Franklin (L.S.)
--------------------------------------
H. Allen Franklin
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SOUTHTRUST CORPORATION FOR THE YEAR ENDED DECEMBER 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 877,885
<INT-BEARING-DEPOSITS> 228
<FED-FUNDS-SOLD> 49,175
<TRADING-ASSETS> 462,587
<INVESTMENTS-HELD-FOR-SALE> 2,917,080
<INVESTMENTS-CARRYING> 2,557,251
<INVESTMENTS-MARKET> 2,593,259
<LOANS> 22,474,785
<ALLOWANCE> 315,471
<TOTAL-ASSETS> 30,906,445
<DEPOSITS> 19,586,584
<SHORT-TERM> 4,750,378
<LIABILITIES-OTHER> 486,044
<LONG-TERM> 1,106,443
0
0
<COMMON> 386,626
<OTHER-SE> 1,808,015
<TOTAL-LIABILITIES-AND-EQUITY> 30,906,445
<INTEREST-LOAN> 1,831,156
<INTEREST-INVEST> 372,180
<INTEREST-OTHER> 28,916
<INTEREST-TOTAL> 2,232,252
<INTEREST-DEPOSIT> 745,122
<INTEREST-EXPENSE> 1,186,079
<INTEREST-INCOME-NET> 1,046,173
<LOAN-LOSSES> 90,613
<SECURITIES-GAINS> 1,739
<EXPENSE-OTHER> 748,216
<INCOME-PRETAX> 477,851
<INCOME-PRE-EXTRAORDINARY> 306,708
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 306,708
<EPS-PRIMARY> 2.05
<EPS-DILUTED> 2.03
<YIELD-ACTUAL> 8.37
<LOANS-NON> 118,800
<LOANS-PAST> 54,000
<LOANS-TROUBLED> 1,100
<LOANS-PROBLEM> 23,262
<ALLOWANCE-OPEN> 269,863
<CHARGE-OFFS> 62,903
<RECOVERIES> 11,124
<ALLOWANCE-CLOSE> 315,471
<ALLOWANCE-DOMESTIC> 315,471
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
