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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
---------------------
(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, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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) 254-5530
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 26, 1999.
Common Stock, par value $2.50 per share -- $6,700,975,820
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of February 26, 1999.
Common Stock, par value $2.50 per share -- 167,263,047 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual proxy statement for the annual meeting of
stockholders on April 21, 1999 are incorporated by reference into Part III.
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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 616 banking locations in Alabama, Florida, Georgia,
Mississippi, North Carolina, South Carolina, Tennessee and Texas. As of December
31, 1998, the Company had consolidated total assets of $38.1 billion, which
ranked it as the largest bank holding company headquartered in Alabama, and one
of the twenty-two 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 12,000 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 $8.6 billion in mortgage loans for long-term investors; SouthTrust
Life Insurance Company, a credit life insurance company; SouthTrust Insurance,
Inc., an insurance company; and SouthTrust Securities, Inc., an investment
services 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, Tennessee and Texas. 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 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
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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 1998, the Company completed nine acquisitions, adding approximately
$5,154.5 million in total assets, $1,241.3 million in loans, and $4,780.0
million in deposits.
Additional information relating to business combinations can be found in
Note B to the Consolidated Financial Statements.
FORWARD-LOOKING STATEMENTS
In this report and in documents incorporated herein by reference, the
Company may communicate statements relating to the future results of the Company
that may be considered "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company's actual results
may differ materially from those included in the forward-looking statements.
Forward-looking statements are typically identified by the words "believe,
expect, anticipate, intend, estimate" and similar expressions. These statements
may relate to, among other things, Year 2000 readiness and unforeseen or
unanticipated costs associated with Year 2000 compliance, loan loss reserve
adequacy, simulation of changes in interest rates and litigation results. Actual
results may differ materially from those expressed or implied as a result of
certain risks and uncertainties, including, but not limited to, changes in
political and economic conditions, interest rate fluctuations, competitive
product and pricing pressures within the Company's markets, equity and fixed
income market fluctuations, personal and corporate customers' bankruptcies,
inflation, acquisitions and integrations of acquired businesses, technological
change, changes in law, changes in fiscal, monetary, regulatory and tax
policies, monetary fluctuations, success in gaining regulatory approvals when
required as well as other risks and uncertainties.
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 when 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, 1998,
approximately $527.7 million was available for payment of dividends to the
Company declared by the
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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.
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, 1998 the Company's subsidiary bank exceeded the "well
capitalized" threshold per the guidelines, with a Tier 1 capital ratio of 6.58%,
a total risk-based capital ratio of 10.60% and a leverage ratio of 6.10%.
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.
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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.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders 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, 1998, of the bank holding companies headquartered in
Alabama, SouthTrust was the largest in terms of assets. In other geographic
areas, the Company's market share is significantly smaller than its
competitor's.
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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.
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. (62)............ Chairman, President and Chief Executive 1972
Officer
James W. Rainer, Jr. (56).............. Executive Vice President 1982
Alton E. Yother (46)................... Secretary, Treasurer and Controller 1998(1)
Julian Banton (58)..................... Chairman, President and 1982
Chief Executive Officer
SouthTrust Bank, N.A.
J. Michael Battle (54)................. Executive Vice President 1992
SouthTrust Bank, N.A.
Thomas H. Coley (55)................... Executive Vice President 1989
SouthTrust Bank, N.A.
Fred C. Crum (54)...................... Executive Vice President 1986
SouthTrust Bank, N.A.
Robert H. Dewey, III (48).............. Executive Vice President 1998(2)
SouthTrust Bank, N.A.
Charles Mark Duthu (43)................ Executive Vice President 1998(3)
SouthTrust Bank, N.A.
R. Glenn Eubanks (50).................. Executive Vice President 1990
SouthTrust Bank, N.A.
Charles M. Murrell (52)................ Executive Vice President 1986(4)
SouthTrust Bank, N.A.
William C. Patterson (56).............. Executive Vice President 1979
SouthTrust Bank, N.A.
C. Perry Relfe (56).................... Executive Vice President 1981
SouthTrust Bank, N.A.
E. Frank Schmidt (57).................. Executive Vice President 1995
SouthTrust Bank, N.A.
Richard S. White, Jr. (64)............. Executive Vice President 1997
SouthTrust Bank, N.A.
</TABLE>
- ---------------
(1) Mr. Yother was elected as Secretary, Treasurer and Controller effective
October 1998. Prior to that time, Mr. Yother was Senior Vice President of
Management Accounting.
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(2) Mr. Dewey joined SouthTrust Bank, N.A. in August 1998 as Executive Vice
President of Corporate Banking in Atlanta, Georgia. Prior to that time, Mr.
Dewey headed statewide commercial banking operations for Barnett Bank of
Florida.
(3) Mr. Duthu joined SouthTrust Bank, N.A. as Executive Vice President of
SouthTrust Asset Management Company in December 1998. Prior to that time,
Mr. Duthu was Managing Director of Investment Management and Private Asset
Management with Bank One, Louisiana, N.A.
(4) Mr. Murrell became Executive Vice President of the Information Services
Division of SouthTrust Bank, N.A. in January 1998. Prior to that time, Mr.
Murrell was President of SouthTrust Data Services, Inc.
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,
Mississippi and Texas. 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.
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 and deposit-taking activities, including suits 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 HOLDERS
None
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PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
Market price range:
High.......................................... $ 45.38 $ 42.83 $ 24.08 $ 18.17 $ 14.75
Low........................................... 24.88 22.75 16.83 12.00 11.33
Market value at year end........................ 36.94 42.29 23.25 17.08 12.00
Book value per share............................ 16.38 14.28 12.03 10.85 9.29
Price per share to earnings ratio............... 17.19x 14.56x 11.09x 9.96x 9.09x
Cash dividends declared......................... 0.76 0.67 0.59 0.53 0.45
Dividend yield at year end...................... 2.06% 1.58% 2.52% 3.12% 3.78%
Dividend payout ratio........................... 33.67 32.47 32.41 33.74 31.45
Per common share:
Net income -- basic........................... $ 2.27 $ 2.05 $ 1.80 $ 1.58 $ 1.44
Net income -- diluted......................... 2.25 2.03 1.79 1.57 1.43
Shares outstanding (in thousands):
Average -- basic.............................. 162,732 149,684 141,183 125,838 120,264
Average -- diluted............................ 164,148 151,008 142,154 126,687 121,157
End of year................................... 167,211 153,665 144,209 131,856 122,139
</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.
As of February 26, 1999, the Company had approximately 15,907 shareholders
of record.
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ITEM 6 SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Earnings Summary:
Interest income............... $ 2,557,462 $ 2,232,252 $ 1,804,220 $ 1,484,623 $ 1,108,612
Interest expense.............. 1,386,256 1,186,079 938,194 791,423 501,067
----------- ----------- ----------- ----------- -----------
Net interest income........... 1,171,206 1,046,173 866,026 693,200 607,545
Provision for loan losses..... 94,796 90,613 90,027 61,286 44,984
----------- ----------- ----------- ----------- -----------
Net interest income after
provision for loan
losses..................... 1,076,410 955,560 775,999 631,914 562,561
Non-interest income (excluding
securities transactions)... 346,704 247,087 235,457 202,157 176,387
Gains on trading securities,
net........................ 16,426 10,607 9.033 5,915 7,052
Gains on loans held for sale,
net........................ 18,420 11,074 8,910 399 1,009
Gains on available-for-sale
securities, net............ 4,292 1,739 1,409 193 330
Non-interest expense.......... 914,443 748,216 643,298 536,534 485,999
----------- ----------- ----------- ----------- -----------
Income before income taxes.... 547,809 477,851 387,510 304,044 261,340
Income taxes.................. 179,199 171,143 132,807 105,039 88,338
----------- ----------- ----------- ----------- -----------
Net income.................... $ 368,610 $ 306,708 $ 254,703 $ 199,005 $ 173,002
=========== =========== =========== =========== ===========
Per common share:
Net income -- basic........... $2.27 $2.05 $1.80 $1.58 $1.44
Net income -- diluted......... 2.25 2.03 1.79 1.57 1.43
Cash dividends declared....... 0.76 0.67 0.59 0.53 0.45
Ending balances:
Loans, net of unearned
income..................... $27,317,506 $22,474,785 $19,331,132 $14,655,162 $12,121,907
Total assets.................. 38,133,774 30,906,445 26,223,193 20,787,024 17,632,059
Deposits...................... 24,839,892 19,586,584 17,305,493 14,575,077 12,801,239
FHLB advances................. 2,780,340 2,782,355 1,744,159 651,881 251,887
Long-term debt................ 1,154,937 1,106,443 983,243 535,431 388,829
Stockholders' equity.......... 2,738,266 2,194,641 1,734,892 1,430,870 1,135,268
Common shares (in
thousands)................. 167,211 153,665 144,209 131,856 122,139
Average balances:
Loans, net of unearned
income..................... $24,609,027 $20,888,850 $16,885,469 $13,326,127 $10,606,579
Earning assets................ 31,407,762 26,769,701 21,774,828 17,616,243 14,733,733
Total assets.................. 34,097,250 28,472,372 23,283,988 18,983,869 15,934,917
Deposits...................... 22,072,522 18,152,342 15,878,025 13,612,151 11,902,013
Stockholders' equity.......... 2,547,217 1,951,243 1,599,615 1,260,719 1,091,133
Common shares-basic (in
thousands)................. 162,732 149,684 141,183 125,838 120,264
Common shares-diluted (in
thousands)................. 164,148 151,008 142,154 126,687 121,157
Selected ratios:
Return on average total
assets..................... 1.08% 1.08% 1.09% 1.05% 1.09%
Return on average
stockholders' equity....... 14.47 15.72 15.92 15.79 15.86
Average equity to average
assets..................... 7.47 6.85 6.87 6.64 6.85
Non-interest expense as a
percent of average total
assets..................... 2.68 2.63 2.76 2.83 3.05
Efficiency ratio.............. 58.54 56.47 56.86 58.57 60.15
</TABLE>
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ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS EARNINGS SUMMARY
THREE YEARS ENDED DECEMBER 31, 1998
SouthTrust reported net income of $368.6 million or $2.25 per diluted share
for the year ended December 31, 1998, compared to net income of $306.7 million
or $2.03 per diluted share for the year ended December 31, 1997. Net income in
1996 was $254.7 million or $1.79 per diluted share.
The increase in net income in 1998 over 1997 was primarily attributable to
the 17% growth in average earning assets.
Net earnings resulted in a return on average assets of 1.08% in 1998 and
1997, and a return on average stockholders' equity of 14.47% in 1998 compared to
15.72% for 1997.
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 12% to $1,180.6 million from $1,056.2 million
in 1997 and $877.9 million in 1996. The taxable equivalent net interest margins
for the three years ended December 31, 1998 were 3.76%, 3.94% and 4.03%,
respectively. The net interest spread between interest-earning assets and
interest-bearing liabilities decreased 8 basis points to 3.35% in 1998 from
3.43% in 1997. The net interest spread in 1996 was 3.40%. 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 $324.6 million to $2,566.8 million in 1998 from
$2,242.2 million in 1997. Interest income in 1996 totaled $1,816.1 million. The
increase in interest income during 1998 was attributable to an increase in the
volume of average interest-earning assets of 17% to $31.4 billion. The effect of
the increase in interest-earning assets was partially offset by a decrease in
the yield of those assets of 19 basis points to 8.18% in 1998 from 8.37% in
1997. An increase in the volume of interest-earning assets of 23% was also
responsible for the $426.1 million increase in interest income from 1996 to
1997. In addition, the yield on average interest-earning assets increased 4
basis points from 8.33% in 1996 to 8.37% in 1997.
In 1998, the Company's net interest margin decreased in part due to the
effect of the Company's purchase of Bank Owned Life Insurance (BOLI), which is
more fully described in the non-interest income discussion in this report. BOLI
is a non-interest-earning asset and changes in its carrying value as a result of
increases in cash surrender value flow through non-interest income. The
investment in BOLI of $675 million, of which $175 million was purchased in 1998,
was made as an alternative to investing in interest-earning assets. The
resulting net interest margin effect of all BOLI for the year ended December 31,
1998 was recording approximately $29 million less interest income than would
have been reported if the BOLI investment had instead been invested in
interest-earning assets, or 9 basis points.
The trend was also affected by the loan mix. The Company is continuing to
place emphasis on growing its commercial loan portfolio. These loans are
competitively priced in the marketplace, generally having thinner margins than
other lending opportunities. However, these loans have shorter maturities than
other loan types, reducing the Company's exposure to interest rate and liquidity
risk. Since historical net credit losses on commercial loans have been lower
than those on loans to individuals, the Company considers the yield available on
commercial loans acceptable in comparison to other types of lending with higher
projected credit risk.
The mix of interest-earning assets remained relatively stable during 1998
as compared to 1997, with average loans accounting for approximately 78% of
average earning assets in both 1998 and 1997. During 1998, average loans
increased 18% to $24.6 billion from $20.9 billion in 1997. The effect on
interest income
9
<PAGE> 11
from this loan growth was somewhat offset by a decrease in the average yield on
loans to 8.55% during 1998 from 8.78% during 1997. Interest income on loans
increased 15% to $2,105.0 million in 1998.
Total securities, including held-to-maturity and available-for-sale
securities, accounted for approximately 19% of average earning assets in 1998
and 21% in 1997. Their average yield of 6.75% in 1998 compared to 6.91% in 1997.
Interest income on securities increased $29.5 million to $409.3 million. The net
increase in securities income was primarily the result of the change in the
volume of securities which increased 10% from 1997 to $6.1 billion at December
31, 1998.
Short-term investments were approximately 2% of average earning assets in
1998 and produced an average yield of 7.26%. During 1997 short-term investments
accounted for approximately 1% of average earning assets and produced an average
yield of 7.58%. Interest income on short-term investments increased $23.6
million to $52.5 million in 1998.
Interest expense increased $200.2 million or 17% to $1,386.3 million in
1998. This compares to an increase of $247.9 million or 26% to $1,186.1 million
in 1997. The average rate paid on interest-bearing liabilities decreased 11
basis points to 4.83% in 1998 from 4.94% in 1997. This decrease is primarily due
to the lowering of the Fed Funds inter-bank borrowing rate by the Federal
Reserve Bank during the latter part of 1998. The average rate paid on
interest-bearing liabilities in 1996 was 4.93%. Additionally, the increase in
interest expense was attributable to continued growth in the average volume of
interest-bearing liabilities. During 1998, the volume of average
interest-bearing liabilities increased $4.7 billion or 20% to $28.7 billion.
Approximately $4.6 billion of this increase was due to acquisitions. This
compared to 1997 growth in volume of $5.0 billion or 26%.
10
<PAGE> 12
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, 1998. 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>
1998 1997
---------------------------------- -----------------------
AVERAGE YIELD/ AVERAGE
BALANCE INTEREST RATE(1) BALANCE INTEREST
--------- ---------- --------- --------- -----------
(AVERAGE IN MILLIONS; INTEREST IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Loans, net of unearned
income(2)........................ $24,609.0 $2,105,011 8.55% $20,888.9 $ 1,833,552
Held-to-maturity securities:
Taxable.......................... 2,587.9 181,991 7.03 2,037.4 143,941
Non-taxable...................... 147.7 15,798 10.70 190.0 20,146
Available-for-sale securities:
Taxable.......................... 3,212.2 205,082 6.41 3,234.8 213,579
Non-taxable...................... 127.8 6,397 5.12 37.3 2,113
Short-term investments............ 723.2 52,533 7.26 381.3 28,916
--------- ---------- ----- --------- -----------
Total interest-earning
assets.................... 31,407.8 $2,566,812 8.18 26,769.7 $ 2,242,247
Allowance for loan losses......... (350.1) (298.2)
Other assets...................... 3,039.6 2,000.9
--------- ---------
Total assets............... $34,097.3 $28,472.4
========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Savings deposits.................. $ 1,969.2 $ 64,414 3.27% $ 1,265.3 $ 38,911
Interest-bearing demand
deposits......................... 607.0 15,658 2.58 533.7 14,425
Time deposits..................... 17,173.0 817,831 4.76 14,258.0 691,786
Short-term borrowings............. 4,976.2 264,980 5.33 4,834.8 266,816
Federal Home Loan Bank advances... 2,767.5 146,708 5.30 2,107.6 112,646
Long-term debt.................... 1,204.1 76,665 6.37 986.8 61,495
--------- ---------- ----- --------- -----------
Total interest-bearing
liabilities............... 28,697.0 1,386,256 4.83 23,986.2 1,186,079
Demand deposits non-interest
bearing.......................... 2,323.3 2,095.4
Other liabilities................. 529.8 439.6
--------- ---------
Total liabilities.......... 31,550.1 26,521.2
Stockholders' Equity.............. 2,547.2 1,951.2
--------- ---------
Total liabilities and
stockholders' equity...... $34,097.3 $28,472.4
========= ---------- ========= -----------
Net interest income............... $1,180,556 $ 1,056,168
========== ===========
Net interest margin............... 3.76%
=====
Net interest spread............... 3.35%
=====
<CAPTION>
1997 1996
-------- ---------------------------------
YIELD/ AVERAGE YIELD/
RATE(1) BALANCE INTEREST RATE(1)
-------- --------- ---------- --------
(AVERAGE IN MILLIONS; INTEREST IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Loans, net of unearned
income(2)........................ 8.78% $16,885.4 $1,486,719 8.80%
Held-to-maturity securities:
Taxable.......................... 7.07 1,491.8 101,862 6.83
Non-taxable...................... 10.60 230.1 24,499 10.64
Available-for-sale securities:
Taxable.......................... 6.58 2,786.1 178,210 6.34
Non-taxable...................... 6.18 39.4 2,051 5.61
Short-term investments............ 7.58 342.0 22,760 6.66
----- --------- ---------- -----
Total interest-earning
assets.................... 8.37 21,774.8 $1,816,101 8.33
Allowance for loan losses......... (239.3)
Other assets...................... 1,748.5
---------
Total assets............... $23,284.0
=========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Savings deposits.................. 3.08% $ 1,015.3 $ 27,519 2.71%
Interest-bearing demand
deposits......................... 2.70 567.8 15,956 2.81
Time deposits..................... 4.85 12,024.4 601,138 5.00
Short-term borrowings............. 5.52 3,636.7 194,159 5.34
Federal Home Loan Bank advances... 5.34 1,088.3 57,387 5.27
Long-term debt.................... 6.23 696.6 42,035 6.03
----- --------- ---------- -----
Total interest-bearing
liabilities............... 4.94 19,029.1 938,194 4.93
Demand deposits non-interest
bearing.......................... 2,270.5
Other liabilities................. 384.8
---------
Total liabilities.......... 21,684.4
Stockholders' Equity.............. 1,599.6
---------
Total liabilities and
stockholders' equity...... $23,284.0
========= ----------
Net interest income............... $ 877,907
==========
Net interest margin............... 3.94% 4.03%
===== =====
Net interest spread............... 3.43% 3.40%
===== =====
</TABLE>
- ---------------
(1) Yields were calculated using average amortized cost of the underlying
assets.
(2) Included in interest are net loan fees of $63,974,000, $58,237,000 and
$49,790,000 in 1998, 1997 and 1996, respectively.
TAXABLE EQUIVALENT ADJUSTMENT ANALYSIS
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------- ------------------------------------- ----------
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...................... $2,102,095 $2,916 $2,105,011 $1,831,156 $2,396 $1,833,552 $1,483,706
Held-to-maturity
securities:
Taxable................... 181,991 0 181,991 143,941 0 143,941 101,862
Non-taxable............... 10,354 5,444 15,798 13,224 6,922 20,146 15,972
Available-for-sale
securities:
Taxable................... 205,082 0 205,082 213,579 0 213,579 178,210
Non-taxable............... 5,407 990 6,397 1,436 677 2,113 1,710
Short-term investments..... 52,533 0 52,533 28,916 0 28,916 22,760
---------- ------ ---------- ---------- ------ ---------- ----------
Totals.................... $2,557,462 $9,350 $2,566,812 $2,232,252 $9,995 $2,242,247 $1,804,220
========== ====== ========== ========== ====== ========== ==========
<CAPTION>
1996
------------------------
TAXABLE INTEREST
EQUIVALENT INCOME
ADJUSTMENTS (FTE)
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Loans...................... $ 3,013 $1,486,719
Held-to-maturity
securities:
Taxable................... 0 101,862
Non-taxable............... 8,527 24,499
Available-for-sale
securities:
Taxable................... 0 178,210
Non-taxable............... 341 2,051
Short-term investments..... 0 22,760
------- ----------
Totals.................... $11,881 $1,816,101
======= ==========
</TABLE>
11
<PAGE> 13
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 1998/1997 and 1997/1996. 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>
1998 VERSUS 1997 1997 VERSUS 1996
---------------- ----------------
INCREASE (DECREASE) DUE TO CHANGE IN: INCREASE (DECREASE) DUE TO CHANGE IN:
----------------------------------------- -----------------------------------------
VOLUME YIELD/ VOLUME YIELD/
OUTSTANDING RATE TOTAL OUTSTANDING RATE TOTAL
----------- ---------------- -------- ----------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest income on:
Loans............................... $319,260 ($47,801) $271,459 $351,417 ($ 4,584) $346,833
Held-to-maturity securities......... 36,797 (3,095) 33,702 37,235 491 37,726
Available-for-sale securities....... 4,412 (8,625) (4,213) 29,271 6,160 35,431
Short-term investments.............. 24,878 (1,261) 23,617 2,794 3,362 6,156
-------- -------- -------- -------- -------- --------
Total interest income......... 385,347 (60,782) 324,565 420,717 5,429 426,146
Interest expense on:
Interest-bearing deposits........... 168,149 (15,368) 152,781 113,907 (13,398) 100,509
Short-term borrowings............... 7,675 (9,511) (1,836) 65,920 6,737 72,657
Federal Home Loan Bank advances..... 34,990 (928) 34,062 54,467 792 55,259
Long-term debt...................... 13,808 1,362 15,170 18,048 1,412 19,460
-------- -------- -------- -------- -------- --------
Total interest expense........ 224,622 (24,445) 200,177 252,342 (4,457) 247,885
-------- -------- -------- -------- -------- --------
Net interest income........... $160,725 $(36,337) $124,388 $168,375 $ 9,886 $178,261
======== ======== ======== ======== ======== ========
</TABLE>
PROVISION FOR LOAN LOSSES
During 1998, the Company recorded a $94.8 million provision for loan
losses. This compares to a provision of $90.6 million in 1997. Provisions for
loan losses are charged to income to bring our allowance to a level deemed
appropriate by management based on the factors as described in "Allowance for
Loan Losses" later in the Management's Discussion and Analysis of Financial
Condition and Results of Operations Earnings Summary.
NON-INTEREST INCOME
Total non-interest income increased $115.3 million or 43% to $385.8 million
in 1998. Service charges on deposit accounts accounted for the largest portion
of the increase in non-interest income, increasing $37.8 million or 29% to
$167.7 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,
increased $14.4 million or 53% to $41.6 million. In 1998, mortgage origination
fees were approximately $38.9 million, and loan servicing income was $2.7
million. Mortgage interest rates have been favorable to borrowers in 1998 and
loan production and related income have increased accordingly.
Bank Card Fees increased $4.8 million to $27.8 million at December 31,
1998. Trust fees increased $3.2 million or 13% to $27.7 million. All other fee
income in 1998 was $37.3 million, up $5.4 million from 1997 and included
investment fees of $9.9 million, international fees of $10.1 million and other
fee income of $17.3 million. Gains on trading securities were $16.4 million at
December 31, 1998, compared to $10.6 at December 31, 1997. Gains on
available-for-sale securities were $4.3 million in 1998 and $1.7 million in
1997. During 1998 and 1997, $18.4 million and $11.1 million, respectively, in
gains on loans held for sale were included in other non-interest income. Other
non-interest income increased $2.0 million or 21% to $11.8 million.
Other non-interest income also increased in 1998 due to the funding of a
Bank Owned Life Insurance (BOLI) program which covers the lives of certain of
the Company's officers. These officers participate in the plan on a voluntary
basis and have no direct vested interest in the policies, either through
payments for or
12
<PAGE> 14
receipt of benefits from the plan. The Company is the sole beneficiary of the
BOLI and all increases in its cash surrender value and death proceeds are
credited to non-interest income. For the year ended December 31, 1998, income on
the BOLI totaled $32.8 million.
There were no other significant non-recurring non-interest income items
recorded during any of the three years in the period ended December 31, 1998.
NON-INTEREST INCOME (TABLE 3)
The following table presents an analysis on non-interest income for 1998,
1997 and 1996 together with the amount and percent change from the prior year
for 1998 and 1997:
<TABLE>
<CAPTION>
CHANGES FROM PRIOR YEAR
--------------------------------
YEAR ENDED DECEMBER 31, 1998 1997
------------------------ --------------- --------------
1998 1997 1996 AMOUNT % AMOUNT %
------ ------ ------ ------ ------ ------ -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts..... $167.7 $129.9 $109.2 $ 37.8 29.2% $20.7 18.9%
Mortgage banking operations............. 41.6 27.2 42.1 14.4 52.6 (14.9) (35.2)
Bank card fees.......................... 27.8 23.0 22.7 4.8 20.9 0.3 1.1
Trust fees.............................. 27.7 24.5 21.9 3.2 13.0 2.6 12.1
Investment fees......................... 9.9 5.1 3.2 4.8 92.7 1.9 63.2
International fees...................... 10.1 8.9 8.5 1.2 14.1 0.4 4.6
Collection fees......................... 7.1 5.6 4.9 1.5 25.9 0.7 16.0
Safe deposit fees....................... 4.8 3.9 3.6 0.9 22.7 0.3 8.6
Other fees.............................. 5.4 8.4 7.7 (3.0) (35.8) 0.7 8.4
Gains on trading securities, net........ 16.4 10.6 9.0 5.8 54.9 1.6 17.4
Gains on loans held for sale, net....... 18.4 11.1 8.9 7.3 66.3 2.2 24.3
Gains on available-for-sale securities,
net................................... 4.3 1.7 1.4 2.6 146.8 0.3 23.4
Bank owned life insurance............... 32.8 0.8 0.0 32.0 -- 0.8 --
Other................................... 11.8 9.8 11.7 2.0 21.3 (1.9) (16.7)
------ ------ ------ ------ ------ ----- -----
Totals........................ $385.8 $270.5 $254.8 $115.3 42.6% $15.7 6.2%
====== ====== ====== ====== ====== ===== =====
</TABLE>
NON-INTEREST EXPENSE
Total non-interest expense increased $166.2 million or 22% to $914.4
million from $748.2 million in 1997. The 1998 ratio of non-interest expense to
average total assets was 2.68% compared to the 1997 level of 2.63%. The
operating efficiency ratio was 58.54% in 1998 and 56.47% in 1997.
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 1998, salaries and employee benefits were $495.8 million, an
increase of $91.0 million or 23% over 1997. This was primarily reflective of the
increase in the number of full-time equivalent employees by 17% to approximately
12,000 at December 31, 1998. 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
$12.3 million or 21% to $72.5 million as the number of branches increased 14% to
616 at December 31, 1998 from 540 at December 31, 1997. Equipment expense
increased $15.3 million or 33% to $61.0 million in 1998 as a result of the
increase of banking offices and personnel.
Deposit insurance increased $2.1 million to $5.6 million in 1998. During
1997, deposit insurance expense had decreased $17.0 million or 83% from the 1996
level of $20.5 million as a result of a one-time assessment by the Savings
Association Insurance Fund in 1996. 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 in 1996. As a part of the SAIF
legislation, the deposit insurance rate on SAIF insured deposits decreased from
23 basis points to
13
<PAGE> 15
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 $45.5 million or 19% to
$279.5 million for 1998, primarily as a result of growth in the general level of
business throughout the Company. From 1996 to 1997, total non-interest expense
increased $104.9 million or 16% primarily as a result of increased salaries and
benefits, and other operating expenses, reflecting the growth experienced by the
Company during 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 requires modification of portions of the Company's
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 established a Year 2000 Program Office in 1996 staffed by six
full-time employees and headed by a member of senior management. In addition,
there are 20 full-time equivalent employees from within the Company and 12
full-time equivalent employees from outside sources working on the project.
SouthTrust also has a related management committee dedicated to Year 2000
issues. The Program Office has helped to establish and actively participates in
several peer groups that work together on the Year 2000 issue and its
resolution. The Year 2000 Program office reports on the status of Year 2000
readiness to the SouthTrust Corporation and SouthTrust Bank Boards of Directors
quarterly.
SouthTrust has established a four-phase methodology for use in assessing
the project's state of readiness. The first phase is Awareness. In this phase
both upper and executive management are made aware of the issues and executive
sponsorship is obtained. The second phase is Assessment and Inventory, during
which the extent of problems is assessed and an inventory is taken of systems
and applications. The third phase, Remediation, includes correcting the code and
unit testing of those corrections. The fourth phase is Certification Testing and
Implementation.
The majority of the Year 2000 issues facing the Company are information
technology ("IT") in nature. All IT systems, which includes mainframe and
midrange computer systems, are complete in the four phases. Non-IT systems,
which include embedded technology such as micro controllers, are also being
considered. These systems are currently in the third phase and are expected to
have completed the fourth and final phase by the middle of 1999. SouthTrust's
overall readiness testing plan calls for three complete parallels of the century
rollover. All mainframe systems will experience these three tests before
December 31, 1999.
The Company has established an extensive contingency plan for the period of
time that the Company is going through the century change and is exposed to the
Year 2000 problem. This plan is designed to address the most likely risks facing
the Company during that period. Some of these risks include application system
failures, power outages, security systems, and environmental systems. As part of
the contingency plan, the Company has completed a business impact analysis for
all of its core business units. This analysis was completed by December 31,
1998.
The Company relies on several third party service providers who are also
affected by the Year 2000 issue. The Company has worked closely with these
providers to monitor, to the extent possible, the progress of their Year 2000
efforts. The Program Office has interviewed or conducted on-site visits with
most of its critical service providers and in many cases has obtained written or
oral verification of their status. Although the Company has obtained and
continues to obtain these verifications, there can be no assurance that the
potential impact of a major interruption or failure in the services provided by
these companies would not have a material adverse effect on the Company's
financial condition or results of operations.
The total Year 2000 project cost is expected to total approximately $15
million, $6.2 million of which was expensed in the year ended December 31, 1998.
In 1997, the Company expensed $5.8 million.
There were no other significant non-recurring non-interest expense items
recorded during any of the three years in the period ended December 31, 1998.
14
<PAGE> 16
NON-INTEREST EXPENSE (TABLE 4)
The following table presents an analysis on non-interest expense for 1998,
1997 and 1996 together with the amount and percent change from the prior year
for 1998 and 1997:
<TABLE>
<CAPTION>
CHANGES FROM PRIOR YEAR
----------------------------------
YEAR ENDED DECEMBER 31, 1998 1997
-------------------------- --------------- ---------------
1998 1997 1996 AMOUNT % AMOUNT %
------ ------ ------ ------ ----- ------ -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee
benefits.................. $495.8 $404.8 $331.6 $ 91.0 22.5% $ 73.2 22.1%
Net occupancy expense....... 72.5 60.2 49.4 12.3 20.6 10.8 21.9
Equipment expense........... 61.0 45.7 37.3 15.3 33.4 8.4 22.5
Professional services....... 57.5 51.4 45.6 6.1 11.8 5.8 12.8
Communications.............. 47.1 36.5 30.8 10.6 29.1 5.7 18.4
Business development........ 30.3 26.3 23.2 4.0 15.0 3.1 13.4
Supplies.................... 29.1 23.2 17.2 5.9 25.3 6.0 34.4
Other insurance............. 14.2 17.1 15.2 (2.9) (17.3) 1.9 12.6
Data processing............. 11.5 8.5 7.7 3.0 35.5 0.8 10.8
Deposit insurance........... 5.6 3.5 20.5 2.1 62.3 (17.0) (83.0)
Other....................... 89.8 71.0 64.8 18.8 26.5 6.2 9.6
------ ------ ------ ------ ----- ------ -----
Totals............ $914.4 $748.2 $643.3 $166.2 22.2% $104.9 16.3%
====== ====== ====== ====== ===== ====== =====
</TABLE>
INCOME TAXES
Income tax expense increased $8.1 million or 5% to $179.2 million for the
year ended December 31, 1998, resulting in an effective tax rate of 33% compared
to 36% and 34% in 1997 and 1996, 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 was attributable to income on bank owned life
insurance during 1998, and state income tax, net of federal tax benefit in 1997
and 1996.
BALANCE SHEET SUMMARY
Total assets at December 31, 1998, were $38.1 billion, representing an
increase of 23% over the 1997 level of $30.9 billion. Average total assets
increased 20% to $34.1 billion during 1998 from $28.5 billion in 1997. As of
December 31, 1998, the five-year compound growth rate in total assets was 21%.
During 1998, the Company consummated nine business combinations in which
the Company acquired additional assets of $5,154.5 million, including loans of
$1,241.3 million, $3,283.4 million of cash and assumed deposits of $4,780.0
million. During 1997, the Company acquired $1,463.3 million in assets, including
$421.5 million in loans, $872.8 million of cash and assumed deposits of $1,387.5
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 1998 were $31.4 billion up $4.6 billion or
17% from 1997. Average earning assets were 92.1% and 94.0% of average total
assets in 1998 and 1997, respectively.
Average interest-bearing liabilities were $28.7 billion in 1998 and $24.0
billion in 1997, and accounted for 84.2% of average liabilities and
stockholders' equity in 1998 and 1997.
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, 1998.
15
<PAGE> 17
LOANS
Loans comprise the major portion of earning assets of the Company,
accounting for 78% of average earning assets in both 1998 and 1997. At December
31, 1998, loans, net of unearned income, totaled $27,317.5 million, up 22% from
the December 31, 1997 level of $22,474.8 million. Of the total increase of
$4,842.7 million from 1997 to 1998, $1,241.3 million represents loans obtained
in acquisitions. The remainder of the increase, $3,601.4 million, represents an
internal growth rate for loans of 16% for 1998.
Demand for all types of loans remained strong during 1998. The largest
portion of the increase in total loans was attributable to an increase in
commercial, financial and agricultural loans, which increased $2,050.8 million,
$173.8 million of which were acquired, to $9,760.4 million or 35.4% of total
loans at December 31, 1998.
Real estate construction loans increased $589.2 million or 20% to $3,526.4
million or 12.8% of total loans at December 31, 1998, from $2,937.2 million or
13.0% of total loans at December 31, 1997. This increase included $40.0 million
of acquired real estate construction loans. At December 31, 1998 construction
loans included approximately $656.1 million in loans on residential properties,
loans on income producing commercial real estate totaling $2,367.2 million, and
$503.1 million of loans secured by owner occupied real estate.
Commercial real estate mortgage loans increased $1,356.4 million or 38% to
$4,900.2 million or 17.8% of total loans at December 31, 1998. Of the increase,
$201.1 million was acquired and the remaining $1,155.3 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.
Residential real estate mortgage loans increased $966.6 million or 18% to
$6,243.7 million or 22.7% of total loans in 1998 compared to $5,277.1 million or
23.3% of loans in 1997. Approximately $576.6 million of the total increase in
these loans during 1998 was obtained through acquisitions.
Loans to individuals at December 31, 1998 were $3,095.9 million, down $70.3
million from December 31, 1997. Loans totaling $249.8 million to individuals
were obtained in the acquisition of other financial institutions. Loans to
individuals accounted for 11.3% and 14.0% of total loans at year-end 1998 and
1997, respectively.
Unearned income at December 31, 1998 was $209.1 million, up $50.0 million
from the December 31, 1997 level of $159.1 million.
16
<PAGE> 18
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
-------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------- ----------------- ----------------- ----------------- -----------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial financial and
agricultural................ $ 9,760.4 35.4% $ 7,709.6 34.1% $ 6,847.5 35.2% $ 5,965.9 40.4% $ 5,058.4 41.4%
Real estate construction...... 3,526.4 12.8 2,937.2 13.0 1,930.6 9.9 1,245.8 8.4 675.2 5.5
Commercial real estate
mortgage.................... 4,900.2 17.8 3,543.8 15.6 3,008.9 15.5 2,264.7 15.4 1,776.1 14.6
Residential real estate
mortgage.................... 6,243.7 22.7 5,277.1 23.3 4,687.5 24.0 3,221.3 21.8 2,960.0 24.2
Loans to individuals.......... 3,095.9 11.3 3,166.2 14.0 2,992.1 15.4 2,059.3 14.0 1,745.9 14.3
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
27,526.6 100.0% 22,633.9 100.0% 19,466.6 100.0% 14,757.0 100.0% 12,215.6 100.0%
===== ===== ===== ===== =====
Unearned income............. (209.1) (159.1) (135.5) (101.9) (93.7)
--------- --------- --------- --------- ---------
Loans, net of unearned
income...................... 27,317.5 22,474.8 19,331.1 14,655.1 12,121.9
Allowance for loan losses... (377.5) (315.5) (269.9) (206.6) (171.7)
--------- --------- --------- --------- ---------
Net Loans............. $26,940.0 $22,159.3 $19,061.2 $14,448.5 $11,950.2
========= ========= ========= ========= =========
</TABLE>
As of December 31, 1998, contractual maturities of loans in the indicated
classification and sensitivity to changes in interest rates on certain of these
loans were as follows:
<TABLE>
<CAPTION>
LOANS MATURING AFTER
MATURITIES ONE YEAR
---------------------------------------------- -----------------------------
ONE YEAR ONE TO OVER PREDETERMINED ADJUSTABLE
OR LESS FIVE YEARS FIVE YEARS TOTALS INTEREST RATE INTEREST RATE
-------- ---------- ---------- --------- ------------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural................. $3,561.9 $ 4,200.9 $1,997.6 $ 9,760.4 $ 4,363.4 $1,835.1
Real estate construction....... 1,554.6 1,466.1 505.7 3,526.4 970.2 1,001.6
Commercial real estate
mortgage..................... 919.4 2,763.9 1,216.9 4,900.2 3,146.0 834.8
Residential real estate
mortgage..................... 1,415.9 542.2 4,285.6 6,243.7 2,932.0 1,895.8
Loans to individuals........... 513.9 1,562.9 1,019.1 3,095.9 2,481.7 100.3
-------- --------- -------- --------- --------- --------
$7,965.7 $10,536.0 $9,024.9 $27,526.6 $13,893.3 $5,667.6
======== ========= ======== ========= ========= ========
Unearned income................ $ (209.1)
=========
Loans net of unearned income... $27,317.5
=========
</TABLE>
NON-PERFORMING ASSETS
Non-performing assets at December 31, 1998 were $163.9 million or .60% of
net loans, plus other non-performing assets. This represents a decrease of $16.5
million from the December 31, 1997 level of $180.4 million or .80% of net loans,
plus other non-performing assets. At December 31, 1998, total non-performing
assets included $97.7 million in loans on non-accrual status, $0.6 million in
restructured loans, $46.5 million in other real estate owned, and $19.1 million
of other repossessed assets. During 1998, the total other real estate owned and
repossessed assets obtained through acquisitions was $2.0 million.
Total non-performing loans, consisting of loans on non-accrual status and
restructured loans, included real estate construction loans of $7.5 million,
commercial real estate mortgage loans of $13.8 million, residential real estate
mortgage loans of $23.5 million, commercial, financial and agricultural loans of
$49.6 million, and loans to individuals of $3.9 million. Combined non-performing
real estate loans and properties taken in foreclosure of real estate loans
totaled $73.6 million at December 31, 1998. This represented 45% of total
non-performing assets as compared to $78.7 million or 44% at December 31, 1997.
Loans 90 days past due and accruing were $80.9 million at December 31,
1998, compared to $54.0 million at December 31, 1997.
17
<PAGE> 19
In addition to loans on non-performing status at December 31, 1998, the
Company had loans of approximately $59.7 million for which Management has
serious doubts as to the ability of the borrowers to comply with the present
repayment terms, which may result in the 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, 1997, potential problem loans totaled $23.3
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>
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Non-performing loans:
Commercial, financial and agricultural........... $ 49.6 $ 61.4 $ 46.1 $ 33.3 $ 15.1
Real estate construction......................... 7.5 4.4 4.3 3.8 1.4
Commercial real estate mortgage.................. 13.8 15.5 11.5 21.7 21.7
Residential real estate mortgage................. 23.5 31.5 16.6 13.1 11.3
Loans to individuals............................. 3.9 7.1 6.4 4.1 3.4
------- ------- ------- ------- -------
Total non-performing loans............. 98.3 119.9 84.9 76.0 52.9
Other real estate owned.......................... 46.5 43.8 43.9 39.3 46.0
Other repossessed assets......................... 19.1 16.7 10.2 6.8 3.8
------- ------- ------- ------- -------
Total non-performing assets............ 163.9 180.4 139.0 122.1 102.7
Accruing loans 90 days or more past due.......... 80.9 54.0 40.4 36.3 16.6
------- ------- ------- ------- -------
Total non-performing assets and
accruing loans 90 days or more past
due.................................. $ 244.8 $ 234.4 $ 179.4 $ 158.4 $ 119.3
======= ======= ======= ======= =======
Provision for loan losses........................ $ 94.8 $ 90.6 $ 90.0 $ 61.3 $ 45.0
Net charge-offs.................................. 58.3 51.8 47.7 29.5 19.8
Ratios:
For the Period Ended:
Net loans charged-off to net average loans..... 0.24% 0.25% 0.28% 0.22% 0.19%
Provision for loan losses to net charge-offs... 162.69 175.00 188.89 207.95 227.46
Period End:
End-of-quarter allowance to net loans.......... 1.38 1.40 1.40 1.41 1.42
Allowance to non-performing loans.............. 383.98 263.16 317.57 271.88 324.55
Non-performing loans to total loans............ 0.36 0.53 0.44 0.52 0.44
Non-performing assets to total loans plus other
non-performing assets....................... 0.60 0.80 0.72 0.83 0.84
Non-performing assets and accruing loans 90
days or more past due to total loans plus
other non-performing assets................. 0.89 1.04 0.93 1.08 0.98
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The Company maintains an allowance for loan losses to absorb losses
inherent in the loan portfolio. The allowance is based upon management's
estimated range of those losses. Actual losses for these loans can vary
significantly from this estimate. The Company's subsidiary bank is regulated by
the Office of the Comptroller of the Currency ("OCC"). Management also considers
recommendations from the OCC in concluding on the adequacy of the allowance for
loan losses. The methodology and assumptions used to calculate the allowance are
continually reviewed as to their appropriateness given the most recent
estimation of probable losses realized and other factors that influence the
estimation process. The model and resulting allowance level is
18
<PAGE> 20
adjusted accordingly as these factors change. The historical and migration loss
rates described below which are used in determining the allowance also provide a
self-correcting feature to the methodology.
The Company's total allowance at December 31, 1998 and 1997 equated to
approximately 720% and 730%, respectively, of the average net charge-offs over
the past three years. However, historical charge-offs are not necessarily
indicative of future expectations; therefore, the Company considers other risk
factors when determining the allowance for loan losses.
Loans are separated by internal risk ratings into two categories for
assessment of their estimated allowance level needs; Non-problem and Problem.
The allowance for Non-problem loans is calculated by applying historical
Non-problem loss factors to outstanding Non-problem loans within each loan type.
The loss factors represent either the average of the last four years' losses or,
in some cases, the most recent year's loss experience if in Management's
judgement that loss rate is more representative of current trends in a
particular loan type. Problem loans include any loans that have an internal
credit review or regulatory rating of less than "good". The allowance associated
with Problem loans is calculated by applying loss factors determined either
through a migration analysis or an average of the last four years' loss
experience, both of which are specific to Problem loans. The migration analysis
is performed periodically and measures losses in relation to the internal risk
ratings assigned to loans. Additionally, certain Problem loans (generally large
commercial credits) are specifically reviewed. This specific review considers
estimates of future cash flows, fair values of collateral and other indicators
of the borrower's ability to repay the loan.
In addition to the above, the Company considers other risk elements in
establishing its reserve for both Non-problem and Problem loans. These risk
elements are based on Management's evaluation of various conditions that affect
inherent losses which are not directly measured by applying the historical or
migration loss rates. Also, in most cases, the impact of these risk elements has
not yet been reflected in the level of non-performing loans or in the internal
risk grading process. Evaluation of these elements involves a higher degree of
uncertainty since they are not directly associated with specific problem
credits. These elements are discussed below.
The Company's loan portfolio experienced an annual growth rate in excess of
our peers for 1998. While the Company strives to use prudent underwriting and
credit management standards, such growth and related underwriting risks could
lead to increased losses. Additionally, loans acquired through the various
business combinations carry additional credit risk due to uncertainties
associated with the underwriting process and deviations from the Company's
credit underwriting standards at the acquired institutions. The Company is also
subject to risk associated with certain industry concentrations. Commercial real
estate mortgage loans represent the Company's largest concentration and although
this segment of the portfolio has performed well in recent years, Management
considers the associated risk within the commercial real estate portfolio as
part of the other risk elements. Due to the Company's predominant amount of
variable rate loans, the Company has exposure to credit risk associated with
rising interest rates. When such an environment exists, the Company considers
this with the other risk factors above in establishing the allowance for loan
losses. The Company has established a sound credit policy which guides the
manner loans are underwritten. Exceptions from this policy may be necessary to
facilitate the lending process. The associated exception risk has also been
considered in computing the allowance.
The allowance allocated to Problem loans at December 31, 1998 totaled
$157.1 million and represented an allowance percentage of 7.80% of Problem
loans. The allowance allocated to Non-problem loans totaled $220.4 million or
0.87% of Non-problem loans. The allocation of the allowance on Non-problem loans
is based on estimates of losses inherent in this portfolio which have not yet
been specifically identified in the Company's problem loan rating process.
Based on the methodology outlined above, the total allowance for loan
losses was $377.5 million at December 31, 1998 and $315.5 million at December
31, 1997. As a percentage of outstanding loans, the allowance for loan losses
was 1.38%, down from the December 31, 1997 level of 1.40%. Net charge-offs
during 1998 totaled $58.3 million, an increase of $6.5 million from the 1997
level.
19
<PAGE> 21
ALLOWANCE FOR LOAN LOSSES (TABLE 7)
The following table summarizes information concerning the allowance for
loan losses:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Loans outstanding at year end, net of
unearned income......................... $27,317.5 $22,474.8 $19,331.1 $14,655.1 $12,121.9
========= ========= ========= ========= =========
Average loans outstanding, net of unearned
income.................................. $24,609.0 $20,888.9 $16,885.4 $13,326.1 $10,606.6
========= ========= ========= ========= =========
(IN THOUSANDS)
Balance beginning of year................. $ 315,471 $ 269,863 $ 206,638 $ 171,692 $ 135,233
Loans charged-off:
Commercial, financial and
agricultural......................... 18,131 20,992 27,600 10,753 9,773
Real estate construction................ 18 105 38 160 582
Commercial real estate mortgage......... 894 1,131 2,234 4,543 2,256
Residential real estate mortgage........ 3,510 4,301 1,598 2,351 1,581
Loans to individuals.................... 49,744 36,374 29,871 23,328 15,594
--------- --------- --------- --------- ---------
Total charge-offs............... 72,297 62,903 61,341 41,135 29,786
--------- --------- --------- --------- ---------
Recoveries of loans previously
charged-off:
Commercial, financial and
agricultural......................... 4,936 4,145 3,502 3,176 2,617
Real estate construction................ 41 0 39 10 70
Commercial real estate mortgage......... 50 513 1,326 2,584 517
Residential real estate mortgage........ 328 271 270 332 446
Loans to individuals.................... 8,673 6,195 8,544 5,561 6,360
--------- --------- --------- --------- ---------
Total recoveries................ 14,028 11,124 13,681 11,663 10,010
--------- --------- --------- --------- ---------
Net loans charged-off..................... 58,269 51,779 47,660 29,472 19,776
Additions to allowance charged to
expense................................. 94,796 90,613 90,027 61,286 44,984
Subsidiaries allowance at date of
purchase................................ 25,527 6,774 20,858 3,132 11,251
--------- --------- --------- --------- ---------
Balance end of year....................... $ 377,525 $ 315,471 $ 269,863 $ 206,638 $ 171,692
========= ========= ========= ========= =========
Allowance for loan losses, end of year:
Commercial, financial and
agricultural......................... $ 135,343 $ 110,925 $ 91,135 $ 67,988 $ 58,640
Real Estate construction................ 38,200 21,568 24,844 15,883 11,405
Commercial real estate mortgage......... 72,996 44,617 26,925 24,874 44,065
Residential real estate mortgage........ 25,630 44,867 47,057 24,071 20,010
Loans to individuals.................... 67,603 68,258 49,790 44,418 25,786
Unallocated portion of reserve.......... 37,753 25,236 30,112 29,404 11,786
--------- --------- --------- --------- ---------
Balance end of year............. $ 377,525 $ 315,471 $ 269,863 $ 206,638 $ 171,692
========= ========= ========= ========= =========
Ratios:
End-of-year allowance to net loans
outstanding.......................... 1.38% 1.40% 1.40% 1.41% 1.42%
Net loans charged-off to net average
loans................................ 0.24 0.25 0.28 0.22 0.19
Provision for loan losses to net
charge-offs.......................... 162.69 175.00 188.89 207.95 227.46
Provision for loan losses to net average
loans................................ 0.39 0.43 0.53 0.46 0.42
End-of-year allowance to net average
loans................................ 1.53 1.51 1.60 1.55 1.62
</TABLE>
20
<PAGE> 22
HELD-TO-MATURITY AND AVAILABLE-FOR-SALE SECURITIES
At December 31, 1998, total securities were $6,791.1 million.
Held-to-maturity securities amounted to $2,988.4 million and securities
classified as available-for-sale amounted to $3,802.7 million.
Held-to-maturity securities increased 17% from the year-end 1997 level to
$2,988.4 million, and included U.S. Treasury securities of $3.9 million, U.S.
Government agency securities of $2,129.2 million, collateralized mortgage
obligations ("CMO's") and mortgage-backed securities of $374.4 million,
obligations of states and political subdivisions of $124.9 million and other
securities of $356.0 million.
Available-for-sale securities increased 30% from the year-end 1997 level to
$3,802.7 million and included U.S. Treasury securities of $171.0 million, U.S.
Government agency securities of $1,404.8 million, CMO's and mortgage-backed
securities of $1,735.2 million, obligations of states and political subdivisions
$253.6 million and other securities of $238.1 million.
At December 31, 1998, the Company's investment portfolio included
approximately $2,109.6 million in CMO's and other mortgage backed securities.
Approximately 50% of this amount were securities with floating interest rates,
and 50% 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, 1998, the fair value of held-to-maturity securities
exceeded the amortized cost by $32.8 million, compared to an unrealized gain of
$36.1 million at December 31, 1997. For available-for-sale securities, the fair
value exceeded the amortized cost by $8.7 million, resulting in an after-tax
increase to stockholders' equity of $5.5 million at December 31, 1998. This
unrealized gain compares to a net of tax unrealized gain of $11.2 million at
December 31, 1997. The decrease in fair values relative to amortized cost is
primarily attributable to CMO's and other mortgage-backed securities, which were
affected by declining mortgage interest rates.
At December 31, 1998, the gross unrealized gains for the entire securities
portfolio were $68.5 million and gross unrealized losses were $27.0 million.
During 1998, proceeds from sales of available-for-sale securities were $321.5
million and resulted in gross gains of $5.5 million and gross losses of $1.2
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.
21
<PAGE> 23
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 securities and available-for-sale securities as well as
their maturities and year-end yields at December 31, 1998:
<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............................. $ 0.3 $ 0.3 5.24% $ 165.7 $ 166.3 6.40%
One to five years........................... 3.1 3.2 6.16 4.5 4.7 6.52
Five to 10 years............................ 0.5 0.5 6.48 0.0 0.0 0.00
More than 10 years.......................... 0.0 0.0 0.00 0.0 0.0 0.00
-------- -------- ----- -------- -------- ----
Totals............................... 3.9 4.0 6.14 170.2 171.0 6.40
-------- -------- ----- -------- -------- ----
U.S. Government Agencies:
Within one year............................. 1.9 1.9 6.37 1.2 1.2 5.96
One to five years........................... 109.8 111.1 6.74 14.0 14.0 6.01
Five to 10 years............................ 2,017.5 2,025.6 6.77 1,382.7 1,384.6 6.62
More than 10 years.......................... 0.0 0.0 0.00 5.0 5.0 7.01
-------- -------- ----- -------- -------- ----
Totals............................... 2,129.2 2,138.6 6.77 1,402.9 1,404.8 6.61
-------- -------- ----- -------- -------- ----
Collateralized Mortgage Obligations and
Mortgage-backed Securities:
Within one year............................. 7.6 7.9 9.05 19.4 19.5 6.33
One to five years........................... 119.6 122.7 7.50 563.9 565.6 6.10
Five to 10 years............................ 106.3 110.1 7.53 546.1 544.6 5.87
More than 10 years.......................... 140.9 143.5 6.85 602.9 605.5 6.11
-------- -------- ----- -------- -------- ----
Totals............................... 374.4 384.2 7.29 1,732.3 1,735.2 6.04
-------- -------- ----- -------- -------- ----
States and Political Subdivisions:
Within one year............................. 24.5 24.9 11.09 0.5 0.5 8.66
One to five years........................... 37.0 39.3 10.66 2.3 2.4 8.75
Five to 10 years............................ 36.1 40.3 10.63 22.5 22.9 7.02
More than 10 years.......................... 27.3 31.4 9.96 223.9 227.8 7.09
-------- -------- ----- -------- -------- ----
Totals............................... 124.9 135.9 10.59 249.2 253.6 7.10
-------- -------- ----- -------- -------- ----
Other Securities:
Within one year............................. 323.1 323.1 6.23 8.7 8.6 6.39
One to five years........................... 0.2 0.2 7.75 0.0 0.0 0.00
Five to 10 years............................ 31.8 34.3 7.60 6.0 6.1 7.83
More than 10 years.......................... 0.9 0.9 4.40 224.7 223.4 6.81
-------- -------- ----- -------- -------- ----
Totals............................... 356.0 358.5 6.32 239.4 238.1 7.03
-------- -------- ----- -------- -------- ----
Total:
Within one year............................. 357.4 358.1 6.62 195.5 196.1 6.40
One to five years........................... 269.7 276.5 7.61 584.7 586.7 6.11
Five to 10 years............................ 2,192.2 2,210.8 6.88 1,957.3 1,958.2 6.42
More than 10 years.......................... 169.1 175.8 7.34 1,056.5 1,061.7 6.47
-------- -------- ----- -------- -------- ----
Totals............................... $2,988.4 $3,021.2 6.94% $3,794.0 $3,802.7 6.40%
======== ======== ===== ======== ======== ====
</TABLE>
22
<PAGE> 24
SHORT-TERM INVESTMENTS
At December 31, 1998, total short-term investments were $857.6 million, an
increase of $345.6 million from the $512.0 million level at year-end 1997. At
year-end 1998, short-term investments included $76.1 million in federal funds
sold, $0.2 million in securities purchased under agreements to resell, $0.5
million in interest-bearing deposits with other banks, loans held for sale of
$707.6 million and trading securities of $73.2 million. Loans held for sale
consist primarily 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.
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, 1998 were $34.9 billion, up 24% from
the 1997 level of $28.2 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, 1998,
total deposits were $24,839.9 million, up $5,253.3 million or 27% from the 1997
level of $19,586.6 million. During 1998, the Company acquired deposits of
financial institutions totaling approximately $4,780.0 million.
The largest portion of the increase in total deposits was an increase in
consumer time and savings deposits of $4,029.3 million or 28% to $18,545.8
million. Other time deposits, consisting of time deposits of $100,000 and over,
increased $738.4 million or 27% to $3,519.9 million. Non-interest-bearing demand
deposits increased $485.5 million or 21% to $2,774.2 million.
Non-interest-bearing demand deposits accounted for 11.2% and 11.7% of total
deposits at December 31, 1998 and 1997, respectively.
Core deposits are defined as demand deposits and time deposits less than
$100,000. At December 31, 1998, core deposits totaled $21,320.0 million or 85.8%
of total deposits, compared to $16,805.2 million or 85.8% of total deposits at
December 31, 1997.
DEPOSITS (TABLE 9)
The average daily balances of deposits and rates paid on such deposits are
summarized for the periods indicated in the following table.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------
1998 1997 1996
---------------- ---------------- ----------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
--------- ---- --------- ---- --------- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits:
Non-interest-bearing..................... $ 2,323.3 $ 2,095.4 $ 2,270.5
Interest-bearing......................... 607.0 2.58% 533.7 2.70% 567.8 2.81%
Savings deposits........................... 1,969.2 3.27 1,265.3 3.08 1,015.3 2.71
Time deposits.............................. 17,173.0 4.76 14,258.0 4.85 12,024.4 5.00
--------- --------- ---------
Totals........................... $22,072.5 $18,152.4 $15,878.0
========= ========= =========
</TABLE>
23
<PAGE> 25
Maturities of time certificates of deposit and other time deposits of
$100,000 or more outstanding at December 31, 1998, are summarized as follows:
<TABLE>
<CAPTION>
TIME
CERTIFICATES OTHER
OF TIME
DEPOSITS DEPOSITS TOTAL
------------ -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Within three months......................................... $1,436.1 $112.2 $1,548.3
After three through six months.............................. 578.0 0.0 578.0
After six through twelve months............................. 674.6 0.0 674.6
After twelve months......................................... 581.0 138.0 719.0
-------- ------ --------
Totals............................................ $3,269.7 $250.2 $3,519.9
======== ====== ========
</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 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 $1,362.6 million, or 29%, to
$6,113.0 million at December 31, 1998 from $4,750.4 million at December 31,
1997. At December 31, 1998, total short-term borrowings included federal funds
purchased of $3,907.1 million, securities sold under agreements to repurchase of
$1,292.9 million, and other borrowed funds of $913.0 million, which includes
$775.0 million in short-term bank notes payable, and other short-term borrowings
of $138.0 million.
At year-end 1998, total short-term borrowings were 17.5% of total funding
compared to 16.8% at December 31, 1997.
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 $2,780.4 million at December 31, 1998, down $2.0
million from last year's level of $2,782.4 million. Of the $2,780.4 million
outstanding at year-end 1998, $1,180.1 million have remaining maturities of less
than five years, and substantially all of the remaining $1,600.3 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, 1998 totaled $1,154.9 million compared to $1,106.4 million at
December 31, 1997. During 1998, the Company increased long-term borrowings by
$48.5 million, including $200.0 million of subordinated notes which mature in
2028 and $0.4 million in other long-term debt. Repayments of long-term debt
during 1998 included $150.0 million of maturities and $1.9 million in other
repayments. 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, 1998, the Company's average long-term debt
to equity ratio was 47.3% compared to 50.6% at December 31, 1997.
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.
24
<PAGE> 26
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, 1998.
Table 5, Loan Portfolio, included elsewhere in this report, shows scheduled
loan maturities as of December 31, 1998. Approximately 29% of total loans mature
within one year. Of the $19,560.9 million maturing after one year, $5,667.6
million or 29% had adjustable interest rates. Repayments of loans and scheduled
loan maturities represent a substantial source of liquidity.
The Company has $3,802.7 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,
1998, securities classified as held-to-maturity included $357.4 million or 12%
of the portfolio which had maturities of one year or less, and $269.7 million or
9% that mature within one to five years. Note D to 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, 1998 by major category. For held-to-maturity securities, gross
unrealized gains at December 31, 1998 were $35.0 million and gross unrealized
losses were $2.2 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, $4,514.8 million or 27% in 1998, 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 1998 were $4,976.2 million, and
average short-term investments were $723.2 million, resulting in an average
short-term borrowing position of $4,253.0 million in 1998.
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, 1998, $527.7 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.
25
<PAGE> 27
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 $382.4 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.
26
<PAGE> 28
INTEREST RATE SENSITIVITY ANALYSIS (TABLE 10)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------------------------------------------------
NON-
0-30 31-90 91-180 181-365 1-5 OVER 5 INTEREST
DAYS DAYS DAYS DAYS YEARS YEARS SENSITIVE TOTAL
--------- --------- --------- --------- --------- -------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Variable-rate
commercial and real
estate loans......... $ 8,368.4 $ 1,389.6 $ 244.7 $ 469.5 $ 1,061.2 $ 130.7 $ 0.0 $11,664.1
Fixed-rate commercial
and real estate
loans................ 348.5 390.1 609.8 1,056.0 6,351.5 3,166.1 0.0 11,922.0
Loans to individuals... 1,176.6 410.3 283.9 282.1 1,343.2 235.3 0.0 3,731.4
--------- --------- --------- --------- --------- -------- --------- ---------
Total Loans... 9,893.5 2,190.0 1,138.4 1,807.6 8,755.9 3,532.1 0.0 27,317.5
Securities............. 1,297.9 548.9 1,015.8 442.6 957.2 2,528.7 0.0 6,791.1
Other earning assets... 337.1 520.5 0.0 0.0 0.0 0.0 0.0 857.6
--------- --------- --------- --------- --------- -------- --------- ---------
Total earning
assets...... 11,528.5 3,259.4 2,154.2 2,250.2 9,713.1 6.060.8 0.0 34,966.2
Other assets........... 0.0 0.0 0.0 0.0 0.0 0.0 3,545.1 3,545.1
Less: Allowance for
loan losses.......... 0.0 0.0 0.0 0.0 0.0 0.0 (377.5) (377.5)
--------- --------- --------- --------- --------- -------- --------- ---------
Total
assets...... $11,528.5 $ 3,259.4 $ 2,154.2 $ 2,250.2 9,713.1 6,060.8 $ 3,167.6 $38,133.8
========= ========= ========= ========= ========= ======== ========= =========
Non-interest-bearing
demand deposits...... $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 2,774.3 $ 2,774.3
Interest-bearing demand
deposits............. 167.9 504.0 0.0 0.0 448.0 0.0 0.0 1,119.9
Money market
deposits............. 824.1 2,472.2 0.0 0.0 2,197.6 0.0 0.0 5,493.9
Savings deposits....... 0.0 0.0 0.0 0.0 2,383.7 0.0 0.0 2,383.7
Time deposits under
$100,000............. 1,092.5 2,385.5 2,061.9 2,417.0 1,580.1 9.3 0.0 9,546.3
Other time deposits.... 841.9 863.3 537.6 614.9 532.3 131.8 0.0 3,521.8
--------- --------- --------- --------- --------- -------- --------- ---------
Total
deposits.... 2,926.4 6,225.0 2,599.5 3,031.9 7,141.7 141.1 2,774.3 24,839.9
Short-term
borrowings........... 4,976.8 656.6 318.1 110.0 0.7 50.8 0.0 6,113.0
FHLB advances.......... 500.0 175.0 0.0 0.0 505.1 1,600.3 0.0 2,780.4
Long-term debt......... 0.0 25.0 75.0 0.0 100.0 954.9 0.0 1,154.9
Other liabilities...... 0.0 0.0 0.0 0.0 0.0 0.0 507.3 507.3
Stockholders' equity... 0.0 0.0 0.0 0.0 0.0 0.0 2,738.3 2,738.3
--------- --------- --------- --------- --------- -------- --------- ---------
Total
liabilities
and
stockholders'
equity...... $ 8,403.2 $ 7,081.6 $ 2,992.6 $ 3,141.9 $ 7,747.5 $2,747.1 $ 6,019.9 $38,133.8
========= ========= ========= ========= ========= ======== ========= =========
Interest rate gap...... $ 3,125.3 $(3,822.2) $ (838.4) $ (891.7) 1,965.6 3,313.7 $(2,852.3)
Effect of interest rate
swaps................ 0.0 (475.0) (400.0) 0.0 200.0 675.0
--------- --------- --------- --------- --------- --------
Cumulative interest
rate gap............. $ 3,125.3 $(1,171.9) $(2,410.3) $(3,302.0) $(1,136.4) $2,852.3
========= ========= ========= ========= ========= ========
Cumulative gap as a
percentage of earning
assets --
December 31, 1998.... 8.94% (3.35)% (6.89)% (9.44)% (3.25)% 8.16%
December 31, 1997.... 7.18% (6.20)% (8.72)% (8.52)% 5.76% 8.84%
</TABLE>
Significant assumptions:
(1) Allocations to specific interest sensitivity periods are based on the
earlier of the repricing or maturity dates. These allocations have been
adjusted for any estimated early principle payoffs, including callable
bonds, mortgage-backed securities, 1-4 family mortgages, trading securities
and loans held for sale.
(2) Interest-bearing demand, money market and savings deposit account repricing
volumes are based on management assumptions of the sensitivity of these
accounts in relation to changes in short-term market rates.
(3) Non-accrual loans are included in their respective loan categories and are
classified in the "Over 5 years" repricing period.
27
<PAGE> 29
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 returns to the stockholders in the form of dividends.
Stockholders' equity at December 31, 1998 was $2,738.3 million or 7.18% of
year-end assets compared to $2,194.6 million or 7.10% in 1997. During 1998, net
income added $368.6 million to stockholders' equity and dividends declared
totaled $124.1 million, resulting in an internal common equity generation rate
of 9.6% in 1998 compared to 10.6% in 1997.
During 1998, 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 788,193 shares added $15.3 million to equity.
During 1998, shares issued in business combinations totaled 6,241,013 and added
$57.5 million to equity. Also, 6,547,500 shares were issued in a stock offering,
adding $233.2 million to equity. The net unrealized loss after tax on
available-for-sale securities resulted in a net reduction to equity of $5.6
million for the year ended December 31, 1998, compared to a net addition of
$18.7 million for the year ended December 31, 1997. Treasury stock purchases for
the exercise of stock options for 29,219 shares reduced equity by $1.2 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
non-banking subsidiaries. In addition, some portion of the proceeds may be used
to fund pending or other prospective acquisitions.
The annual dividend rate during 1998 was $.76 per share, representing a 13%
increase over 1997. For 1999 the indicated annual dividend rate is $.88 per
share, marking the twenty-ninth consecutive year in which SouthTrust has
increased its dividend. The dividend pay-out ratio during 1998 was 33.7%. 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 31, 1998, SouthTrust had a total
risk-based capital ratio of 10.60% consisting of Tier I capital elements of
6.58% and supplemental capital elements of 4.02%, and a leverage ratio of 6.10%.
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.
28
<PAGE> 30
CAPITAL POSITION (TABLE 11)
Following are the Company's risk-based capital ratios for the years ended
December 31, 1998 and 1997.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1998 1997
----- -----
<S> <C> <C>
Tier I capital ratio........................................ 6.58% 7.72%
Supplemental capital element................................ 4.02 4.35
----- -----
Total risk-based capital ratio.................... 10.60% 12.07%
===== =====
Leverage ratio.............................................. 6.10% 6.61%
===== =====
</TABLE>
QUARTERLY INCOME INFORMATION (TABLE 12)
The Company's unaudited consolidated operating results for each quarter of
1998 and 1997 are summarized in the table below.
<TABLE>
<CAPTION>
1998 1997
----------------------------------------- -----------------------------------------
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........... $668,011 $656,045 $635,944 $597,462 $589,174 $574,242 $558,186 $510,650
Interest expense.......... 357,074 359,196 345,874 324,112 315,376 308,448 296,161 266,094
Net interest income....... 310,937 296,849 290,070 273,350 273,798 265,794 262,025 244,556
Provision for loan
losses.................. 29,420 22,040 25,481 17,855 21,734 20,002 26,502 22,375
Non-interest income
(excluding securities
transactions)........... 95,999 92,349 82,962 75,394 68,294 61,545 58,952 58,296
Gains on trading
securities, net......... 4,400 4,114 4,274 3,638 3,042 2,832 2,375 2,358
Gains on loans held for
sale, net............... 3,330 3,305 4,851 6,934 3,063 4,366 2,415 1,230
Gains (losses) on
available-for-sale
securities, net......... 1,481 (399) 1,058 2,152 288 1,053 304 94
Non-interest expense...... 242,226 236,798 222,913 212,506 199,030 192,987 182,158 174,041
Income before income
taxes................... 144,501 137,380 134,821 131,107 127,721 122,601 117,411 110,118
Income tax expense........ 46,496 42,719 45,329 44,655 45,768 44,113 42,044 39,218
Net income................ 98,005 94,661 89,492 86,452 81,953 78,488 75,367 70,900
Net income per share
(basic)................. 0.59 0.57 0.56 0.55 0.54 0.53 0.50 0.48
Net income per share
(diluted)............... 0.59 0.57 0.55 0.54 0.53 0.52 0.50 0.48
Dividends declared per
share................... 0.19 0.19 0.19 0.19 0.16 2/3 0.16 2/3 0.16 2/3 0.16 2/3
</TABLE>
29
<PAGE> 31
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 26,
1999, approximately 15,907 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>
1998
First Quarter................................. $15.49 $35 3/4 $45 1/8 $0.19
Second Quarter................................ 15.65 39 1/4 45 0.19
Third Quarter................................. 16.10 30 11/16 45 3/8 0.19
Fourth Quarter................................ 16.38 24 7/8 39 0.19
Year.................................. 24 7/8 45 3/8 0.76
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
</TABLE>
30
<PAGE> 32
SIX-YEAR CONDENSED STATEMENTS OF CONDITION (TABLE 14)
<TABLE>
<CAPTION>
GROWTH RATES
-------------------
ONE FIVE-YEAR
1998 1997 1996 1995 1994 1993 YEAR COMPOUND
--------- --------- --------- --------- --------- --------- ------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE BALANCES:
Loans, net of unearned income...... $24,609.0 $20,888.9 $16,885.4 $13,326.1 $10,606.6 $ 8,422.0 17.81% 23.92%
Held-to-maturity securities........ 2,735.6 2,227.4 1,721.9 1,838.3 1,565.0 3,875.1 22.82 (6.73)
Available-for-sale securities...... 3,340.0 3,272.1 2,825.5 2,209.4 2,339.6 0.0 2.08 0.00
Short-term investments
Federal funds sold and securities
purchased under resale
agreements..................... 34.5 28.3 66.5 29.6 21.3 54.5 21.91 (8.74)
Interest-bearing deposits in
other banks.................... 1.1 18.0 17.5 16.8 12.6 19.4 (93.89) (43.67)
Trading securities............... 43.5 30.3 15.4 15.1 14.9 12.2 43.56 28.95
Loans held for sale.............. 644.1 304.7 242.6 180.9 173.7 193.0 111.39 27.26
--------- --------- --------- --------- --------- --------- ------- ------
Total short-term
investments.............. 723.2 381.3 342.0 242.4 222.5 279.1 89.67 20.98
--------- --------- --------- --------- --------- --------- ------- ------
Total earning assets....... 31,407.8 26,769.7 21,774.8 17,616.2 14,733.7 12,576.2 17.33 20.09
Allowance for loan losses.......... (350.1) (298.2) (239.3) (187.1) (154.1) (118.1) 17.40 24.28
Bank owned life insurance.......... 567.3 6.7 0.0 0.0 0.0 0.0 -- 0.00
Other assets....................... 2,472.3 1,994.2 1,748.5 1,554.8 1,355.3 1,194.9 23.97 15.65
--------- --------- --------- --------- --------- --------- ------- ------
Total assets............... $34,097.3 $28,472.4 $23,284.0 $18,983.9 $15,934.9 $13,653.0 19.76% 20.09%
========= ========= ========= ========= ========= ========= ======= ======
Deposits:
Interest-bearing................. $19,749.2 $16,057.0 $13,607.5 $11,588.9 $10,052.8 $ 9,166.6 22.99% 16.59%
Other............................ 2,323.3 2,095.4 2,270.5 2,023.3 1,849.2 1,606.0 10.88 7.66
--------- --------- --------- --------- --------- --------- ------- ------
Total deposits................. 22,072.5 18,152.4 15,878.0 13,612.2 11,902.0 10,772.6 21.60 15.43
Federal funds purchased and other
short-term borrowed funds........ 4,976.2 4,834.8 3,636.7 2,995.9 2,259.9 1,340.0 2.92 30.00
Federal Home Loan Bank advances.... 2,767.5 2,107.6 1,088.3 351.1 104.0 114.5 31.31 89.08
Long-term debt..................... 1,204.1 986.8 696.6 486.0 359.2 300.7 22.02 31.98
Other liabilities.................. 529.8 439.6 384.8 277.9 218.6 174.8 20.52 24.83
Stockholders' equity............... 2,547.2 1,951.2 1,599.6 1,260.8 1,091.2 950.4 30.55 21.80
--------- --------- --------- --------- --------- --------- ------- ------
Total liabilities and
stockholders' equity..... $34,097.3 $28,472.4 $23,284.0 $18,983.9 $15,934.9 $13,653.0 19.76% 20.09%
========= ========= ========= ========= ========= ========= ======= ======
BALANCES AT YEAR-END:
Loans, net of unearned income...... $27,317.5 $22,474.8 $19,331.1 $14,655.1 $12,121.9 $ 9,448.3 21.55% 23.66%
Held-to-maturity securities:....... 2,988.4 2,557.2 1,956.6 1,585.6 1,671.7 1,278.0 16.86 18.52
Available-for-sale securities...... 3,802.7 2,917.1 2,859.0 2,614.8 2,280.8 2,454.8 30.36 9.15
Short-term investments
Federal funds sold and securities
purchased under resale
agreements..................... 76.3 49.2 12.2 100.3 22.6 2.0 55.08 107.16
Interest-bearing deposits in
other banks.................... 0.5 0.2 4.2 18.7 13.9 47.6 150.00 (59.80)
Trading securities............... 73.2 58.8 17.8 15.7 16.9 14.7 24.49 37.86
Loans held for sale.............. 707.6 403.8 191.3 221.4 147.7 243.8 75.24 23.75
--------- --------- --------- --------- --------- --------- ------- ------
Total short-term
investments.............. 857.6 512.0 225.5 356.1 201.1 308.1 67.50 22.72
--------- --------- --------- --------- --------- --------- ------- ------
Total earning assets....... 34,966.2 28,461.1 24,372.2 19,211.6 16,275.5 13,489.2 22.86 20.99
Allowance for loan losses.......... (377.5) (315.5) (269.9) (206.6) (171.7) (135.2) 19.65 22.80
Bank owned life insurance.......... 715.2 506.9 0.0 0.0 0.0 0.0 41.09 0.00
Other assets....................... 2,829.9 2,253.9 2,120.9 1,782.0 1,528.3 1,354.0 25.56 15.89
--------- --------- --------- --------- --------- --------- ------- ------
Total assets............... $38,133.8 $30,906.4 $26,223.2 $20,787.0 $17,632.1 $14,708.0 23.38% 20.99%
========= ========= ========= ========= ========= ========= ======= ======
Deposits:
Interest-bearing................. $22,065.7 $17,297.9 $14,725.1 $12,303.1 $10,761.5 $ 9,732.5 27.56% 17.79%
Other............................ 2,774.2 2,288.7 2,580.4 2,272.0 2,039.7 1,782.9 21.21 9.25
--------- --------- --------- --------- --------- --------- ------- ------
Total deposits................. 24,839.9 19,586.6 17,305.5 14,575.1 12,801.2 11,515.4 26.82 16.62
Federal funds purchased and other
short-term borrowed funds........ 6,113.0 4,750.4 4,071.0 3,207.4 2,828.0 1,456.4 28.68 33.23
Federal Home Loan Bank advances.... 2,780.4 2,782.4 1,744.2 651.9 251.9 145.8 (0.07) 80.33
Long-term debt..................... 1,154.9 1,106.4 983.2 535.4 388.8 324.2 4.38 28.93
Other liabilities.................. 507.3 486.0 384.4 386.3 226.9 214.4 4.38 18.80
Stockholders' equity............... 2,738.3 2,194.6 1,734.9 1,430.9 1,135.3 1,051.8 24.77 21.09
--------- --------- --------- --------- --------- --------- ------- ------
Total liabilities and
stockholders' equity..... $38,133.8 $30,906.4 $26,223.2 $20,787.0 $17,632.1 $14,708.0 23.38% 20.99%
========= ========= ========= ========= ========= ========= ======= ======
</TABLE>
31
<PAGE> 33
SIX-YEAR SUMMARY OF EARNINGS (TABLE 15)
<TABLE>
<CAPTION>
GROWTH RATES
-------------------
ONE FIVE-YEAR
1998 1997 1996 1995 1994 1993 YEAR COMPOUND
---------- ---------- ---------- ---------- ---------- -------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees....... $2,102,095 $1,831,156 $1,483,705 $1,208,209 $ 868,461 $669,495 14.80% 25.71%
Held-to-maturity
securities................ 192,345 157,165 117,835 121,435 99,098 243,990 22.38 (4.65)
Available-for-sale
securities................ 210,489 215,015 179,920 139,451 130,470 0 (2.10) 0.00
Federal funds sold and
securities purchased under
resale agreements......... 1,929 1,605 3,582 1,743 875 1,637 20.19 3.34
Time deposits in other
banks..................... 65 1,072 1,015 1,079 539 890 (93.94) (40.75)
Trading securities.......... 3,213 1,844 629 859 744 124 74.24 91.73
Loans held for sale......... 47,326 24,395 17,534 11,847 8,425 11,415 94.00 32.90
---------- ---------- ---------- ---------- ---------- -------- ------- ------
Total interest
income.............. 2,557,462 2,232,252 1,804,220 1,484,623 1,108,612 927,551 14.57 22.49
INTEREST EXPENSE:
Deposits.................... 897,903 745,122 644,613 564,064 377,643 335,708 20.50 21.75
Short-term borrowings....... 264,980 266,816 194,159 174,330 98,189 39,340 (0.69) 46.45
Federal Home Loan Bank
advances.................. 146,708 112,646 57,387 20,511 4,628 5,103 30.24 95.76
Long-term debt.............. 76,665 61,495 42,035 32,518 20,607 17,592 24.67 34.23
---------- ---------- ---------- ---------- ---------- -------- ------- ------
Total interest
expense............. 1,386,256 1,186,079 938,194 791,423 501,067 397,743 16.88 28.37
Net interest income... 1,171,206 1,046,173 866,026 693,200 607,545 529,808 11.95 17.19
Provision for loan losses..... 94,796 90,613 90,027 61,286 44,984 45,032 4.62 16.05
---------- ---------- ---------- ---------- ---------- -------- ------- ------
Net interest income
after provision for
loan losses......... 1,076,410 955,560 775,999 631,914 562,561 484,776 12.65 17.30
NON-INTEREST INCOME:
Service charges on deposit
accounts.................. 167,742 129,869 109,213 93,276 86,304 76,716 29.16 16.94
Mortgage banking
operations................ 41,565 27,242 42,096 31,712 27,760 33,771 52.58 4.24
Bank card fees.............. 27,785 22,981 22,727 18,699 15,847 12,574 20.90 17.18
Trust fees.................. 27,704 24,529 21,886 18,936 16,863 15,224 12.95 12.72
Other fee income............ 37,239 31,911 27,812 27,843 20,414 16,456 16.70 17.74
Bank owned life insurance... 32,832 795 0 0 0 0 -- 0.00
Gains on trading securities,
net....................... 16,426 10,607 9,033 5,915 7,052 8,619 54.86 13.77
Gains on loans held for
sale, net................. 18,420 11,074 8,910 399 1,009 1,255 66.34 71.13
Gains on available-for-sale
securities, net........... 4,292 1,739 1,409 193 330 603 146.81 48.07
Other....................... 11,837 9,760 11,723 11,691 9,199 9,484 21.28 4.53
---------- ---------- ---------- ---------- ---------- -------- ------- ------
Total non-interest
income.............. 385,842 270,507 254,809 208,664 184,778 174,702 42.64 17.17
NON-INTEREST EXPENSE:
Salaries and employee
benefits.................. 495,837 404,846 331,600 281,546 257,637 227,017 22.48 16.91
Net occupancy expense....... 72,538 60,158 49,361 43,423 40,273 36,775 20.58 14.55
Equipment expense........... 61,005 45,724 37,336 30,932 27,899 25,353 33.42 19.20
Business development........ 30,263 26,312 23,199 21,221 16,090 12,795 15.02 18.79
Communications.............. 47,073 36,452 30,791 25,157 22,136 20,017 29.14 18.65
Professional services....... 57,503 51,414 45,596 34,785 27,242 25,420 11.84 17.73
Other....................... 150,224 123,310 125,415 99,470 94,722 87,574 21.83 11.40
---------- ---------- ---------- ---------- ---------- -------- ------- ------
Total non-interest
expense............. 914,443 748,216 643,298 536,534 485,999 434,951 22.22 16.02
---------- ---------- ---------- ---------- ---------- -------- ------- ------
Income before income
taxes............... 547,809 477,851 387,510 304,044 261,340 224,527 14.64 19.53
Income tax expense............ 179,199 171,143 132,807 105,039 88,338 73,992 4.71 19.35
---------- ---------- ---------- ---------- ---------- -------- ------- ------
NET INCOME............ $ 368,610 $ 306,708 $ 254,703 $ 199,005 $ 173,002 $150,535 20.18% 19.62%
========== ========== ========== ========== ========== ======== ======= ======
Average shares outstanding--
basic....................... 162,732 149,684 141,183 125,838 120,264 115,841 8.72% 7.03%
Average shares outstanding--
diluted..................... 164,148 151,008 142,154 126,687 121,157 117,027 8.70 7.00
Net income per share--basic... $ 2.27 $ 2.05 $ 1.80 $ 1.58 $ 1.44 $ 1.30 10.73 11.79
Net income per
share--diluted.............. 2.25 2.03 1.79 1.57 1.43 1.29 10.84 11.77
Dividends declared per
share....................... 0.76 0.67 0.59 0.53 0.45 0.40 13.43 13.70
</TABLE>
32
<PAGE> 34
SOUTHTRUST CORPORATION
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of SouthTrust Corporation:
We have audited the accompanying consolidated statements of condition of
SouthTrust Corporation (a Delaware corporation) and subsidiaries as of December
31, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Birmingham, Alabama
January 29, 1999
33
<PAGE> 35
SOUTHTRUST CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 970,778 $ 877,885
Short-term investments:
Federal funds sold and securities purchased under resale
agreements.............................................. 76,275 49,175
Interest-bearing deposits in other banks.................. 506 228
Trading securities........................................ 73,215 58,750
Loans held for sale....................................... 707,586 403,837
------------ ------------
Total short-term investments....................... 857,582 511,990
Available-for-sale securities............................... 3,802,718 2,917,080
Held-to-maturity securities(1).............................. 2,988,428 2,557,251
Loans....................................................... 27,526,597 22,633,861
Less --
Unearned income........................................... 209,091 159,076
Allowance for loan losses................................. 377,525 315,471
------------ ------------
Net loans.......................................... 26,939,981 22,159,314
Premises and equipment, net................................. 690,852 598,294
Due from customers on acceptances........................... 28,965 8,561
Goodwill and core deposit intangibles....................... 549,689 220,323
Mortgage servicing rights and related intangibles........... 61,601 53,638
Bank owned life insurance................................... 715,175 506,939
Other assets................................................ 528,005 495,170
------------ ------------
Total Assets....................................... $ 38,133,774 $ 30,906,445
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest-bearing.......................................... $ 22,065,653 $ 17,297,931
Other..................................................... 2,774,239 2,288,653
------------ ------------
Total deposits..................................... 24,839,892 19,586,584
Federal funds purchased and securities sold under agreements
to repurchase............................................. 5,200,026 3,588,599
Other short-term borrowings................................. 913,002 1,161,779
Bank acceptances outstanding................................ 28,965 8,561
Federal Home Loan Bank advances............................. 2,780,340 2,782,355
Long-term debt.............................................. 1,154,937 1,106,443
Other liabilities........................................... 478,346 477,483
------------ ------------
Total liabilities.................................. 35,395,508 28,711,804
Stockholders' equity:
Preferred stock, par value $1.00 a share(2)............... 0 0
Common stock, par value $2.50 a share(3).................. 420,569 386,626
Capital surplus........................................... 733,577 486,166
Retained earnings......................................... 1,590,686 1,321,586
Unrealized gain on available-for-sale securities, net..... 5,530 11,176
Treasury stock, at cost(4)................................ (12,096) (10,913)
------------ ------------
Total stockholders' equity......................... 2,738,266 2,194,641
------------ ------------
Total Liabilities and Stockholders' Equity......... $ 38,133,774 $ 30,906,445
============ ============
(1) Held-to-maturity securities-fair value.................. $ 3,021,199 $ 2,593,259
(2) Preferred shares authorized............................. 5,000,000 5,000,000
Preferred shares issued................................. 0 0
(3) Common shares authorized................................ 500,000,000 300,000,000
Common shares issued.................................... 168,227,453 154,650,747
(4) Treasury shares of common stock......................... 1,016,159 986,940
</TABLE>
See Notes to Consolidated Financial Statements
34
<PAGE> 36
SOUTHTRUST CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Interest Income
Interest and fees on loans............................... $2,102,095 $1,831,156 $1,483,705
Interest on available-for-sale securities................ 210,489 215,015 179,920
Interest on held-to-maturity securities.................. 192,345 157,165 117,835
Interest on short-term investments....................... 52,533 28,916 22,760
---------- ---------- ----------
Total interest income............................ 2,557,462 2,232,252 1,804,220
---------- ---------- ----------
Interest Expense
Interest on deposits..................................... 897,903 745,122 644,613
Interest on short-term borrowings........................ 264,980 266,816 194,159
Interest on Federal Home Loan Bank advances.............. 146,708 112,646 57,387
Interest on long-term debt............................... 76,665 61,495 42,035
---------- ---------- ----------
Total interest expense........................... 1,386,256 1,186,079 938,194
---------- ---------- ----------
Net interest income........................................ 1,171,206 1,046,173 866,026
Provision for loan losses.................................. 94,796 90,613 90,027
---------- ---------- ----------
Net interest income after provision for loan losses........ 1,076,410 955,560 775,999
Non-Interest Income
Service charges on deposit accounts...................... 167,742 129,869 109,213
Mortgage banking operations.............................. 41,565 27,242 42,096
Bank card fees........................................... 27,785 22,981 22,727
Trust fees............................................... 27,704 24,529 21,886
Other fees............................................... 37,239 31,911 27,812
Bank owned life insurance................................ 32,832 795 0
Gains on trading securities, net......................... 16,426 10,607 9,033
Gains on loans held for sale, net........................ 18,420 11,074 8,910
Gains on available-for-sale securities, net.............. 4,292 1,739 1,409
Other.................................................... 11,837 9,760 11,723
---------- ---------- ----------
Total non-interest income........................ 385,842 270,507 254,809
---------- ---------- ----------
Non-Interest Expense
Salaries and employee benefits........................... 495,837 404,846 331,600
Net occupancy............................................ 72,538 60,158 49,361
Equipment................................................ 61,005 45,724 37,336
Business development..................................... 30,263 26,312 23,199
Communications........................................... 47,073 36,452 30,791
Professional services.................................... 57,503 51,414 45,596
Other.................................................... 150,224 123,310 125,415
---------- ---------- ----------
Total non-interest expense....................... 914,443 748,216 643,298
---------- ---------- ----------
Income before income taxes................................. 547,809 477,851 387,510
Income tax expense......................................... 179,199 171,143 132,807
---------- ---------- ----------
NET INCOME................................................. $ 368,610 $ 306,708 $ 254,703
========== ========== ==========
Average shares outstanding -- basic (in thousands)......... 162,732 149,684 141,183
Average shares outstanding -- diluted (in thousands)....... 164,148 151,008 142,154
Net income per share -- basic.............................. $ 2.27 $ 2.05 $ 1.80
Net income per share -- diluted............................ 2.25 2.03 1.79
Dividends declared per share............................... 0.76 0.67 0.59
</TABLE>
See Notes to Consolidated Financial Statements
35
<PAGE> 37
SOUTHTRUST CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED NON-OWNER
COMMON CAPITAL RETAINED GAIN/(LOSS), TREASURY CHANGES
STOCK SURPLUS EARNINGS NET STOCK TOTAL IN EQUITY
-------- -------- ---------- ------------ -------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
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 $254,703
Unrealized gain on
available-for-sale securities,
net of tax of $(1,563)........... 0 0 0 2,115 0 2,115 2,115*
--------
Comprehensive income............... $256,818
========
Dividends declared ($.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
poolings-of-interest............. 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
Purchase of 224,690 shares of
treasury stock for exercises of
stock options.................... 0 0 0 0 (4,130) (4,130)
-------- -------- ---------- -------- -------- ----------
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 $306,708
Unrealized gain on
available-for-sale securities,
net of tax of $(11,158).......... 0 0 0 18,696 0 18,696 18,696*
--------
Comprehensive income............... $325,404
========
Dividends declared ($.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
poolings-of-interest............. 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
Purchase of 20,478 shares of
treasury stock for exercises of
stock options.................... 0 0 0 0 (555) (555)
-------- -------- ---------- -------- -------- ----------
DECEMBER 31, 1997.................... 386,626 486,166 1,321,586 11,176 (10,913) 2,194,641
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
UNREALIZED NON-OWNER
COMMON CAPITAL RETAINED GAIN/(LOSS), TREASURY CHANGES
STOCK SURPLUS EARNINGS NET STOCK TOTAL IN EQUITY
-------- -------- ---------- ------------ -------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income......................... 0 0 368,610 0 0 368,610 $368,610
Unrealized loss on
available-for-sale securities,
net of tax of $3,502............. 0 0 0 (5,646) 0 (5,646) (5,646)*
--------
Comprehensive income............... $362,964
========
Dividends declared ($.76 per
share)........................... 0 0 (124,119) 0 0 (124,119)
Issuance of 523,119 shares of
Common Stock for stock options
exercised........................ 1,308 4,473 0 0 0 5,781
Issuance of 164,869 shares of
Common Stock for dividend
reinvestment and stock purchase
plan............................. 412 6,199 0 0 0 6,611
Issuance of 37,359 shares of Common
Stock under employee discounted
stock purchase plan.............. 94 1,072 0 0 0 1,166
Issuance of 62,846 shares of Common
Stock under long-term incentive
plan............................. 157 1,571 0 0 0 1,728
Issuance of 6,547,500 shares of
Common Stock in offering......... 16,369 216,804 0 0 0 233,173
Issuance of 6,241,013 shares of
Common Stock for acquisitions
accounted for as
poolings-of-interest............. 15,603 17,292 24,609 0 0 57,504
Purchase of 29,219 shares of
treasury stock for exercises of
stock options.................... 0 0 0 0 (1,183) (1,183)
-------- -------- ---------- -------- -------- ----------
DECEMBER 31, 1998.................... $420,569 $733,577 $1,590,686 $ 5,530 $(12,096) $2,738,266
======== ======== ========== ======== ======== ==========
</TABLE>
* See disclosure of reclassification amount in Note A to Consolidated Financial
Statements.
See Notes to Consolidated Financial Statements.
37
<PAGE> 39
SOUTHTRUST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
----------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 368,610 $ 306,708 $ 254,703
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision (credit) for:
Loan losses............................................. 94,796 90,613 90,027
Depreciation of premises and equipment.................. 50,699 38,790 33,058
Amortization of intangibles............................. 44,502 28,089 22,251
Amortization of security premiums....................... 2,042 584 2,056
Accretion of security discounts......................... (5,383) (3,289) (3,456)
Deferred income tax (benefit)........................... 48,843 (15,525) (1,391)
Increase in value of bank owned life insurance.......... (32,832) (795) 0
Net gain on trading securities............................ (16,426) (10,607) (9,033)
Net gain on loans held for sale........................... (18,420) (11,074) (8,910)
Net gains on available-for-sale securities................ (4,292) (1,739) (1,409)
Origination and purchase of loans held for sale........... (3,665,643) (1,987,135) (1,626,529)
Proceeds from loans held for sale......................... 3,380,314 1,785,680 1,665,589
Net (increase) decrease in trading securities............. 1,961 (30,293) 6,863
Net increase (decrease) in other assets................... (94,407) 19,604 (47,724)
Net increase (decrease) in other liabilities.............. (20,988) 81,050 (54,898)
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES............... 133,376 290,661 321,197
INVESTING ACTIVITIES
Proceeds from maturities of:
Held-to-maturity securities............................. 2,104,486 678,361 971,392
Available-for-sale securities........................... 1,266,217 545,273 196,935
Proceeds from sales of:
Held-to-maturity securities............................. 0 0 0
Available-for-sale securities........................... 321,522 652,172 345,233
Purchases of:
Held-to-maturity securities............................. (2,264,771) (1,262,777) (1,149,999)
Available-for-sale securities........................... (2,313,956) (1,200,062) (775,205)
Premises and equipment.................................. (83,824) (107,953) (85,786)
Net (increase) decrease in:
Short-term investments.................................. 33,837 14,158 141,131
Loans................................................... (3,662,559) (2,776,662) (3,372,110)
Purchases of bank owned life insurance.................... (175,000) (500,000) 0
Purchases of subsidiaries, net of cash acquired........... 2,771,092 756,415 (97,132)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES..................... (2,002,956) (3,201,075) (3,825,541)
FINANCING ACTIVITIES
Proceeds from issuance of:
Common Stock............................................ 305,963 234,481 133,881
Federal Home Loan Bank advances......................... 300,281 2,957,750 1,313,259
Long-term debt.......................................... 200,436 125,000 450,124
Payments for:
Repurchase of Common Stock.............................. (1,183) (555) (4,130)
Federal Home Loan Bank advances......................... (302,296) (1,920,554) (311,009)
Long-term debt.......................................... (151,943) (1,800) (4,029)
Cash dividends.......................................... (118,008) (81,546) (75,446)
Net increase in:
Deposits................................................ 473,413 893,570 1,312,514
Short-term borrowings................................... 1,255,810 678,819 818,658
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES................. 1,962,473 2,885,165 3,633,822
INCREASE/(DECREASE) IN CASH AND DUE FROM BANKS............ 92,893 (25,249) 129,478
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR................ 877,885 903,134 773,656
----------- ----------- -----------
CASH AND DUE FROM BANKS AT END OF YEAR...................... $ 970,778 $ 877,885 $ 903,134
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
38
<PAGE> 40
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- ACCOUNTING POLICIES
The significant accounting policies followed by SouthTrust Corporation and
its subsidiaries ("the Company" or "SouthTrust") 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 616 banking offices located in Alabama, Georgia, Florida, North
Carolina, South Carolina, Tennessee, Mississippi and Texas. 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 1997 and 1996 financial statements have been
reclassified to conform to the 1998 presentation. Such reclassification had no
effect on net income or total assets.
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.
39
<PAGE> 41
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.
ALLOWANCE FOR LOAN LOSSES
The Company maintains an allowance for loan losses to absorb losses
inherent in the loan portfolio. The allowance is based upon Management's
estimated range of those losses. Actual losses for these loans can vary
significantly from this estimate. The methodology and assumptions used to
calculate the allowance are continually reviewed as to their appropriateness
given the most recent estimation of probable losses realized and other factors
that influence the estimation process. The model and resulting allowance level
is adjusted accordingly as these factors change. The allowance calculation also
considers the balance of impaired loans (which are generally considered to be
nonperforming loans, excluding residential mortgages and other homogeneous
loans). 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 25 years.
Total goodwill was $454,486,000 and $113,657,000 at December 31, 1998 and 1997,
respectively. Intangible assets attributable to core deposits purchased are
amortized over the estimated life of the deposit base, which generally does not
exceed 10 years, on either a straight-line or a 150% declining balance basis.
Core deposit intangibles totaled $95,203,000 and $106,666,000 at December 31,
1998 and 1997, 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 1998, 1997 or 1996.
Total other real estate and other repossessed assets, included in other
assets, amounted to $65,612,000 and $60,545,000 at December 31, 1998 and 1997,
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 selling costs, is charged to
the allowance for loan losses. Any subsequent valuation adjustments are recorded
in
40
<PAGE> 42
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
other non-interest expense. Revenues and expenses associated with operating or
disposing of foreclosed properties are recorded in non-interest income and
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.
When loans are transferred in accordance with SFAS No. 125, the Company
records, as separate assets, rights to service such mortgage loans for others
whether the loans were acquired through the purchase or origination of the
loans. For purposes of measuring impairment, servicing rights are stratified
based on the predominant risk characteristics of the underlying loans. The
strata are product type and interest rate bands. Mortgage servicing rights are
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 income using a discounted cash flow analysis to approximate fair
value.
At December 31, 1998 and 1997, mortgage servicing rights were approximately
$52,802,000 and $37,172,000, respectively, net of accumulated amortization of
approximately $48,260,000 and $33,709,000, respectively. The Company recognized
mortgage servicing rights of $29,746,000 and $12,175,000 in 1998 and 1997,
respectively. Amortization expense related to these mortgage servicing rights
was $14,116,000 in 1998 and $7,828,000 in 1997.
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, 1998 and 1997, fair value was approximately $62,179,000 and
$42,663,000, respectively.
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.
In addition, the Company uses forward contracts to hedge commercial
mortgage loans held for sale. Changes in fair values of these forward contracts
are not included in the results of operations until the underlying instrument is
sold.
41
<PAGE> 43
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS PER SHARE
Basic earnings per share ("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 Company.
A reconciliation of the numerator and denominator of the basic EPS
computation to the diluted EPS computation is as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------------- -------------------------------------
DILUTIVE EFFECT DILUTIVE EFFECT
OF OPTIONS OF OPTIONS
BASIC ISSUED DILUTED BASIC ISSUED DILUTED
-------- --------------- -------- -------- --------------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net income.................... $368,610 -- $368,610 $306,708 -- $306,708
Shares available to common
shareholders................ 162,732 1,416 164,148 149,684 1,324 151,008
-------- ------ -------- -------- ------ --------
Earnings per share............ $ 2.27 -- $ 2.25 $ 2.05 -- $ 2.03
======== ====== ======== ======== ====== ========
</TABLE>
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. Comprehensive income is the total of net income and all other non-owner
changes in equity. SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general-purpose
financial statements. It requires that all items that are to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income is displayed in the Consolidated
Statement of Stockholders' Equity.
In the calculation of comprehensive income, certain reclassification
adjustments are made to avoid double counting items that are displayed as part
of net income for a period that also had been displayed as part of other
comprehensive income in that period or earlier periods. The disclosure of the
reclassification amount is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Unrealized holding gains (losses) arising during the
period, net of tax....................................... $(2,985) $19,774 $2,989
Less: reclassification adjustment for gains included in net
income, net of tax....................................... (2,661) (1,078) (874)
------- ------- ------
Net unrealized gain (loss) on available-for-sale
securities..................................... $(5,646) $18,696 $2,115
======= ======= ======
</TABLE>
42
<PAGE> 44
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1998:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------
CASH PAID DURING THE PERIOD FOR: 1998 1997 1996
- -------------------------------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest........................................... $1,385,185 $1,130,556 $ 902,303
Income taxes....................................... 155,883 150,191 128,594
Non-cash transactions:
Assets acquired in business combinations......... 5,137,063 1,463,289 1,744,929
Liabilities assumed in business combinations..... 4,922,881 1,391,633 1,600,427
Common stock issued in business combinations..... 57,504 23,504 125,300
Loans transferred to other real estate........... 28,406 31,977 30,928
Loans securitized into mortgage-backed
securities.................................... 2,045,621 855,360 567,136
Financed sales of foreclosed property............ 24,157 29,107 24,320
</TABLE>
PENDING ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement establishes accounting and
reporting standards for derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This Statement is effective as of the beginning of fiscal years
ending after June 15, 1999. Management is in the process of assessing the impact
of this Statement on the presentation of the Company's financial condition or
results of operation.
In October 1998, the FASB issued SFAS No. 134, Accounting for
Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise. This Statement, an amendment to
SFAS No. 65, requires that after the securitization of mortgage loans held for
sale, an entity engaged in mortgage banking activities classify the resulting
mortgage-backed securities or other retained interests based on its ability to
sell or hold those investments. This Statement is effective the first fiscal
quarter beginning after December 15, 1998. The Company adopted the provisions of
this Statement on January 1, 1999. 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 operation.
43
<PAGE> 45
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- BUSINESS COMBINATIONS
DURING 1998 THE COMPANY COMPLETED THE FOLLOWING ACQUISITIONS:
<TABLE>
<CAPTION>
(In millions)
DATE INSTITUTION ASSETS LOANS DEPOSITS LOCATION
- ------------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
First of America Bank -- Florida, FSB ("FOA") $1,079.2 $ 732.0 $ 861.1 Tampa, Florida
January 29
American National Bank of Florida ("American
National") 513.3 328.6 433.5 Jacksonville, Florida
June 18
Home Savings of America, FSB ("Home Savings") 3,256.9 6.9 3,235.4 Various Florida Locations
July 17
Gardner Mortgage Services, Inc. ("Gardner") 0.4 0.0 0.0 San Antonio, Texas
July 31
Partners Mortgage Services, Inc. ("Partners") 17.0 0.0 0.0 San Antonio, Texas
July 31
Marine Bank 59.5 35.9 45.9 St. Petersburg, Florida
August 7
SecurityBank Texas 90.9 38.8 82.2 Arlington, Texas
October 30
Georgia National Bank 90.7 69.4 79.8 Athens, Georgia
November 24
First American Bank of Indian River County
("Indian") 46.6 29.7 42.1 Vero Beach, Florida
December 11
-------- -------- --------
$5,154.5 $1,241.3 $4,780.0
Total
-------- -------- --------
</TABLE>
The acquisitions of Home Savings and Partners were accounted for as
purchases of assets and assumptions of liabilities. The acquisitions of all of
the outstanding shares of FOA and Gardner were accounted for as purchases. Under
purchase accounting, the results of operations, subsequent to the acquisition
date, are included in the Consolidated Financial Statements.
The acquisitions of American National, Marine, SecurityBank Texas, Georgia
National Bank and Indian were accounted for as poolings-of-interest; however,
the Company's previously reported consolidated financial results have not been
restated to include the effect of the acquisitions prior to their respective
acquisition dates, since the effect is not material.
Consideration for all acquisitions during 1998 aggregated approximately
$487.7 million in cash and 6.2 million shares of SouthTrust Corporation common
stock with a total market value at the time of issuance of $245.0 million. Total
intangibles recognized in these transactions were approximately $357.6 million.
During 1997, the Company completed four acquisitions with aggregate total
assets of $1,463.3 million, loans of $421.5 million, and deposits of $1,387.5
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 1998 acquisitions of FOA,
American National, Gardner, Marine Bank, SecurityBank Texas, Georgia National
Bank and Indian, and the 1997 acquisitions of Equity Bank, Charter Bank and
Barnett Bank of Southwest Georgia had occurred on January 1, 1997, the
consolidated results of operations on a pro forma basis for 1998 and 1997 would
have been approximately as follows:
<TABLE>
<CAPTION>
(In thousands, except per share data)
1998 1997
--------- ---------
<S> <C> <C>
Net interest income......................................... 1,198,110 1,124,658
Net income.................................................. 357,729 316,314
Net income per share -- basic............................... 2.15 2.02
Net income per share -- diluted............................. 2.13 2.01
</TABLE>
In addition, on December 11, 1998, the Company entered into an agreement
and plan of share exchange with LCNB Bancorporation, Inc. (LCNB). Per the
agreement, the Company will pay approximately $24.5 million in cash for all of
the outstanding shares of LCNB. LCNB had total assets of approximately $138.4
million as of December 31, 1998. This acquisition is expected to close by March
31, 1999.
44
<PAGE> 46
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
1998, was approximately $3,934,000.
The Company has pledged $553.1 million in securities and $3,193.3 in loans
against FHLB advances at December 31, 1998. At December 31, 1997, assets pledged
against FHLB advances consisted of $3,976.6 million in loans.
Also, 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, 1998 and 1997 there were no outstanding
balances under this credit facility.
At December 31, 1998 and 1997, securities with a par value of
$4,207,334,000 and $3,276,443,000 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, 1998, $527.7 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, 1998, that the Company meets all capital adequacy
requirements imposed by its regulators.
As of December 31, 1998 and December 31, 1997, 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.
45
<PAGE> 47
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 subsidiary are as follows:
<TABLE>
<CAPTION>
1998
--------------------------------------------------------------
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............ $2,183,047 6.58% $1,326,307 4.00% N/A
SouthTrust Bank, N.A.............. 2,337,527 7.07 1,322,819 4.00 $1,984,229 6.00%
Total Capital:
SouthTrust Corporation............ $3,515,572 10.60% $2,652,614 8.00% N/A
SouthTrust Bank, N.A.............. 3,390,052 10.25 2,645,639 8.00 $3,307,049 10.00%
Tier 1 Leverage:
SouthTrust Corporation............ $2,183,047 6.10% $1,432,581 4.00% N/A
SouthTrust Bank, N.A.............. 2,337,527 6.56 1,424,608 4.00 $1,780,760 5.00%
1997 *
--------------------------------------------------------------
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>
* 1997 amounts and ratios are actual; they have not been restated for 1998
acquisitions.
46
<PAGE> 48
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- AVAILABLE-FOR-SALE SECURITIES AND HELD-TO-MATURITY SECURITIES
The amortized costs, gross gains and losses, and approximate fair values at
December 31, are as follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
-----------------------------------------------------------------------------------------------------
1998 1997
------------------------------------------------- -------------------------------------------------
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............ $ 170,198 $ 766 $ (0) $ 170,964 $ 172,657 $ 694 $ (2) $ 173,349
U.S. Government agency
securities............ 1,402,886 2,940 (1,005) 1,404,821 473,196 2,106 (354) 474,948
Collateralized mortgage
obligations and
mortgage-backed
securities............ 1,732,372 25,345 (22,504) 1,735,213 2,043,979 28,104 (15,559) 2,056,524
Obligations of states
and political
subdivisions.......... 249,228 4,373 (0) 253,601 3,790 136 (8) 3,918
Other securities........ 239,290 155 (1,326) 238,119 205,566 3,416 (641) 208,341
---------- ------- -------- ---------- ---------- ------- -------- ----------
Totals.......... $3,793,974 $33,579 $(24,835) $3,802,718 $2,899,188 $34,456 $(16,564) $2,917,080
========== ======= ======== ========== ========== ======= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
HELD-TO-MATURITY SECURITIES
-----------------------------------------------------------------------------------------------------
1998 1997
------------------------------------------------- -------------------------------------------------
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............ $ 3,889 $ 124 $ (0) $ 4,013 $ 754 $ 0 $ (3) $ 751
U.S. Government agency
securities............ 2,129,201 10,897 (1,553) 2,138,545 1,895,204 11,483 (926) 1,905,761
Collateralized mortgage
obligations and
mortgage-backed
securities............ 374,403 10,440 (645) 384,198 464,056 12,589 (444) 476,201
Obligations of states
and political
subdivisions.......... 124,939 11,009 (0) 135,948 161,955 11,719 (0) 173,674
Other securities........ 355,996 2,499 (0) 358,495 35,282 1,651 (61) 36,872
---------- ------- ------- ---------- ---------- ------- ------- ----------
Totals.......... $2,988,428 $34,969 $(2,198) $3,021,199 $2,557,251 $37,442 $(1,434) $2,593,259
========== ======= ======= ========== ========== ======= ======= ==========
</TABLE>
The amortized costs and approximate fair values of securities at December
31, 1998, by contractually scheduled maturity, are as shown below (expected
maturities will differ from contractual maturities because of rights to call or
prepay obligations with or without penalties):
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
----------------------- -----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less................. $ 176,018 $ 176,629 $ 349,790 $ 350,189
Due after one year through five years... 20,883 21,115 150,196 153,841
Due after five years through 10 years... 1,411,141 1,413,615 2,085,873 2,100,703
Due after 10 years...................... 453,560 456,146 28,166 32,267
---------- ---------- ---------- ----------
Subtotal................................ 2,061,602 2,067,505 2,614,025 2,637,000
---------- ---------- ---------- ----------
Collateralized mortgage obligations and
mortgage-backed securities............ 1,732,372 1,735,213 374,403 384,199
---------- ---------- ---------- ----------
Totals........................ $3,793,974 $3,802,718 $2,988,428 $3,021,199
========== ========== ========== ==========
</TABLE>
Proceeds from sales of available-for-sale securities were $321,522,000,
$652,172,000, $345,233,000 in 1998, 1997, and 1996, respectively. Gross Gains of
$5,546,000, $2,526,000, $1,986,000, and gross losses of $1,254,000, $787,000,
$577,000 were realized on those sales.
47
<PAGE> 49
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- LOANS
The classifications of loans at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Commercial, financial and agricultural...................... $ 9,760,444 $ 7,709,625
Real estate construction.................................... 3,526,376 2,937,161
Commercial real estate mortgage............................. 4,900,155 3,543,851
Residential real estate mortgage............................ 6,243,684 5,277,070
Loans to individuals........................................ 3,095,938 3,166,154
----------- -----------
27,526,597 22,633,861
Unearned income............................................. (209,091) (159,076)
Allowance for loan losses................................... (377,525) (315,471)
----------- -----------
Net Loans......................................... $26,939,981 $22,159,314
=========== ===========
</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, 1998 and 1997, respectively,
$71,462,000 and $81,084,000 of these loans were outstanding. During 1998,
$182,537,000 of new loans were made, repayments totaled $190,729,000 and loans
that are no longer related totaled $1,430,000.
The Company's largest loan grouping is commercial, financial and
agricultural loans, which totaled $9,760.4 million or 35.4% of total loans at
December 31, 1998 and $7,709.6 million or 34.1% of total loans at December 31,
1997. 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, 1998 and 1997.
Had income on non-accrual and restructured loans been recorded under
original terms, $4,118,000 of interest on non-accrual loans and $9,000 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>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year........................... $315,471 $269,863 $206,638
Additions:
Provision charged to operations...................... 94,796 90,613 90,027
Recoveries on loans previously charged-off........... 14,028 11,124 13,681
Loans charged off.................................... (72,297) (62,903) (61,341)
Allowance of purchased subsidiaries.................. 25,527 6,774 20,858
-------- -------- --------
Balance at end of year................................. $377,525 $315,471 $269,863
======== ======== ========
</TABLE>
The recorded investment in impaired loans at December 31, 1998 was $98.0
million and at December 31, 1997 was $120.0 million. The Company had a specific
allowance related to those loans of $19.4 million and $23.8 million,
respectively. The average investment in these loans for the years ended December
31, 1998 and 1997 amounted to $108.3 million and $112.2 million, respectively.
48
<PAGE> 50
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>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $175,807 $145,333
Buildings and improvements.................................. 457,268 406,752
Equipment................................................... 352,597 297,982
-------- --------
985,672 850,067
Less accumulated depreciation............................... 294,820 251,773
-------- --------
Totals............................................ $690,852 $598,294
======== ========
</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, 1998 and
1997; the weighted-average interest rate at December 31, 1998 and 1997; 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:
1998...................................................... $5,200.0 $ 913.0
1997...................................................... 3,588.6 1,161.8
Weighted-average interest rate at year end:
1998...................................................... 4.77% 4.68%
1997...................................................... 5.49 5.73
Maximum amount outstanding at any month end:
1998...................................................... $5,370.3 $1,376.9
1997...................................................... 4,776.9 1,162.7
Average amount outstanding during the year:
1998...................................................... $3,909.9 $1,066.3
1997...................................................... 3,785.4 1,049.4
Daily weighted-average interest rate during the year:
1998...................................................... 5.33% 5.32%
1997...................................................... 5.49 5.62
</TABLE>
49
<PAGE> 51
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
The following summarizes information concerning Federal Home Bank Loan
advances:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997
----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Ending balance.............................................. $ 2,780.4 $ 2,782.4
Average balance............................................. 2,767.5 2,107.6
Maximum month end balance during year....................... 2,787.3 2,782.4
Average rate paid........................................... 5.30% 5.34%
Weighted average remaining maturity......................... 6.05 years 6.23 years
</TABLE>
Scheduled maturities of Federal Home Loan Bank advances in 1999 are
approximately $175.0 million. Maturities during 2000, 2001, 2002 and 2003 are
approximately $350.0 million, $100.1 million, $555.0 and none, respectively.
NOTE J -- LONG-TERM DEBT
A summary of long-term debt at December 31 follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
8 5/8% Subordinated Notes due May 15, 2004................ $ 100,000 $ 100,000
7% 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 Capital 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............ 100,000 100,000
Variable Rate Subordinated Notes, due December 29,
2017................................................... 25,000 25,000
6.125% Subordinated Notes due January 9, 2028............. 200,000 0
Bank Notes................................................ 100,022 250,000
Other..................................................... 4,915 6,443
---------- ----------
Total long-term debt.............................. $1,154,937 $1,106,443
========== ==========
</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 debt
for the years ended December 31, 1998, 1997 and 1996 was 6.81%, 6.58% and 6.35%
respectively. The modified rates paid for those same periods, given effect for
the swaps, was 6.37%, 6.23% and 6.03%, respectively. See further discussion in
Note K.
During 1998, the Company issued $200.0 million in 6.125% Subordinated Notes
due in 2028, which are callable in the year 2008. In addition, the 6.57%
Subordinated Notes are callable in the year 2007 and the 7.74% and 7.69%
Subordinated Capital Notes are callable in the year 2005. All other Subordinated
Notes, along with the 7% Debentures and the Bank Notes, are not callable prior
to maturity and no sinking fund is
50
<PAGE> 52
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 1999, 2000, 2001, 2002, and 2003
are approximately $75.0 million, none, none, $0.4 million, and $100.0 million,
respectively.
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 and deposit-taking activities, including suits 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, 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, 1998, 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, 1998, 1997 and 1996 was $31,174,000,
$34,276,000 and $21,497,000. Future minimum rental commitments as of December
31, 1998 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>
1999................................................... $ 24,794 $306 $ 25,100
2000................................................... 21,377 198 21,575
2001................................................... 18,974 82 19,056
2002................................................... 16,588 30 16,618
2003................................................... 12,679 2 12,681
After 2003............................................. 71,359 0 71,359
-------- ---- --------
Totals....................................... $165,771 $618 $166,389
======== ==== ========
</TABLE>
51
<PAGE> 53
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STANDBY LETTERS OF CREDIT AND COMMITMENTS
The Company's subsidiary bank had standby letters of credit outstanding of
approximately $724,729,000 at December 31, 1998 and $621,611,000 at December 31,
1997.
The Company's subsidiary bank had outstanding commitments to extend credit
of approximately $10,897,013,000 at December 31, 1998 and $7,107,622,000 at
December 31, 1997. 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 mortgage banking subsidiary had outstanding commitments to
sell mortgage loans and mortgage-baked securities of $400,159,000 at December
31, 1998 and $223,561,000 at December 31, 1997.
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.
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 effective notional
amounts outstanding at December 31, 1998 and 1997 were $875 million and $945
million, respectively.
During 1998, the average notional amount of Swaps outstanding was $930.6
million; the average rate received under the contracts was 6.80% and the average
rate paid was 5.66%, resulting in a reduction in interest expense of $10.6
million. During 1997, the average notional outstanding amount was $942.3 million
and the average rates received and paid were 6.78% and 5.76%, respectively and
reduced interest expense by $9.7 million.
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, 1998 and 1997, the net accrued receivable was
$54.2 million and $12.3 million, respectively.
At December 31, 1998, 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>
$100 2001 Long-term debt
100 2003 Long-term debt
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
----
$875
====
</TABLE>
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 1998 and
52
<PAGE> 54
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997. Interest expense will be reduced by approximately $0.6 million in 1999
through 2003 and $0.3 million in 2004.
In addition, the Company utilizes forward contracts to hedge commercial
mortgage loans held for sale. During 1998, the Company realized a net loss on
closed hedges of approximately $0.1 million, which was recorded in non-interest
income. The amount of forward contracts outstanding at December 31, 1998 was $45
million. Sales of the commercial mortgage loans being hedged are expected to
close on March 31, 1999.
NOTE L -- EMPLOYEE BENEFITS
In 1998, the Company adopted the provisions of SFAS No. 132, Employers'
Disclosure About Pensions and Other Postretirement 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 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 $16.7
million in 1998, $14.2 million in 1997 and $12.4 million in 1996.
As of December 31, 1998, the Trusteed Plan and the profit sharing plan
owned 727,942 and 2,850,363 shares of the Company's common stock, and received
dividends on those shares of $536,000 and $2,083,000 respectively.
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,
1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Projected obligation:
Balance at the beginning of the year...................... $103,442 $ 78,189
Service cost.............................................. 7,014 5,173
Interest cost............................................. 7,638 6,656
Actuarial loss............................................ 8,848 18,776
Benefits paid............................................. (4,537) (5,352)
Change in plan provisions................................. 0 0
-------- --------
Balance at the end of the year............................ $122,405 $103,442
======== ========
</TABLE>
53
<PAGE> 55
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Plan assets:
Fair value at the beginning of the year................... $107,867 $ 82,010
Actual return on plan assets.............................. 2,166 28,118
Employer contributions.................................... 2,153 3,091
Benefits paid............................................. (4,537) (5,352)
-------- --------
Fair value at the end of the year......................... $107,649 $107,867
======== ========
Funded status............................................... $(14,756) $ 4,425
Unrecognized transition obligation.......................... (2,077) (2,598)
Unrecognized prior service cost............................. 24 30
Unrecognized net (gain) or loss............................. 10,803 (5,616)
-------- --------
Net amount recognized....................................... $ (6,006) $ (3,759)
======== ========
Weighted average assumed discount rate 7.00% 7.25%
Weighted avg expected long-term rate of return on plan
assets 9.25% 9.25%
Assumed rate of annual compensation increases 5.50% 5.50%
</TABLE>
Net pension cost for 1998, 1997, and 1996 includes the following components:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost............................................ $ 7,014 $ 5,173 $ 5,108
Interest cost........................................... 7,638 6,656 5,252
Expected return on plan assets.......................... (9,737) (7,531) (9,690)
Amortization of unrecognized transitional asset......... (521) (521) (521)
Amortization of prior service cost...................... 6 6 6
Recognized net actuarial loss........................... 0 0 3,660
------- ------- -------
Total......................................... $ 4,400 $ 3,783 $ 3,815
======= ======= =======
</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,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Projected benefit obligation:
Balance at the beginning of the year...................... $ 13,458 $ 10,865
Service cost.............................................. 368 275
Interest cost............................................. 965 913
Actuarial loss............................................ 658 1,700
Benefits paid............................................. (673) (295)
Change in plan provisions................................. 3,521 0
-------- --------
Balance at the end of the year............................ $ 18,297 $ 13,458
======== ========
</TABLE>
54
<PAGE> 56
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Plan assets:
Fair value at the beginning of the year................... $ 0 $ 0
Employer contributions.................................... 673 295
Benefits paid............................................. (673) (295)
-------- --------
Fair value at the end of the year......................... $ 0 $ 0
======== ========
Funded status............................................... $(18,297) $(13,458)
Unrecognized transition obligation.......................... 0 0
Unrecognized prior service cost............................. 5,488 2,166
Unrecognized net loss....................................... 3,828 3,375
-------- --------
Net amount recognized....................................... $ (8,981) $ (7,917)
======== ========
Amount recognized in the consolidated statement of
condition:
Accrued liability......................................... $(14,469) $(10,083)
Deferred compensation cost asset.......................... 5,488 2,166
-------- --------
Net amount recognized..................................... $ (8,981) $ (7,917)
======== ========
Weighted average assumed discount rate...................... 7.00% 7.25%
Assumed rate of annual compensation increases............... 4.00% 4.00%
</TABLE>
Net pension cost for 1998, 1997 and 1996 includes the following components:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ----
<S> <C> <C> <C>
Service cost................................................ $ 368 $ 275 $ 622
Interest cost............................................... 965 913 761
Expected return on plan assets.............................. 0 0 0
Amortization of unrecognized transitional liability......... 0 68 69
Amortization of prior service cost.......................... 199 199 199
Recognized net actuarial loss............................... 206 174 129
------ ------ ------
Total............................................. $1,738 $1,629 $1,780
====== ====== ======
</TABLE>
55
<PAGE> 57
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
The following table sets forth the plan's funded status and amounts
recognized in the Company's Consolidated Financial Statements at December 31,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Balance at the beginning of the year...................... $4,745 $3,987
Service cost.............................................. 493 382
Interest cost............................................. 383 298
Plan participants' contributions.......................... 216 91
Actuarial loss............................................ 794 178
Benefits paid............................................. (417) (191)
Change in plan provisions................................. 0 0
------- -------
Balance at the end of the year............................ $ 6,214 $ 4,745
======= =======
Plan assets:
Fair value at the beginning of the year................... $ 0 $ 0
Employer contributions.................................... 201 100
Plan participants' contributions.......................... 216 91
Benefits paid............................................. (417) (191)
------- -------
Fair value at the end of the year......................... $ 0 $ 0
======= =======
Funded status............................................... $(6,214) $(4,745)
Unrecognized transition obligation.......................... 1,477 1,583
Unrecognized prior service cost............................. 0 0
Unrecognized net loss....................................... 425 (369)
------- -------
Net amount recognized....................................... $(4,312) $(3,531)
======= =======
Weighted average assumed discount rate 7.00% 7.25%
Medical trend rate 7.00% 7.00%
</TABLE>
Effect of one percentage point change in health care cost trend on:
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
---------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Service and interest cost................................ 151 (128)
Accumulated Postretirement Benefit Obligation............ 764 (656)
</TABLE>
56
<PAGE> 58
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net postretirement health care cost for 1998, 1997, and 1996 includes the
following components:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Components of net periodic pension cost:
Service cost................................................ $493 $382 $353
Interest cost............................................... 383 298 277
Expected return on plan assets.............................. 0 0 0
Amortization of unrecognized transitional liability......... 106 105 0
Amortization of prior service cost.......................... 0 0 132
Recognized net actuarial gain............................... 0 (24) (25)
---- ---- ----
Total............................................. $982 $761 $737
==== ==== ====
</TABLE>
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"). The option awards outstanding
under those plans were not affected and no further grants will be made under
these plans.
Under the Plan, the option exercise price equals the stock market's 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,
1998, 1997, and 1996 and changes during the years then ended is presented in the
table and narrative below:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- --------------------
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......................... 2,690,825 $15.20 2,211,435 $11.80 1,869,458 $ 9.77
Granted........................ 1,475,443 40.15 707,025 24.25 579,300 16.83
Issued in business
combinations................. 2,400 12.68 72,029 8.41 111,751 7.17
Exercised...................... (523,119) 11.06 (284,304) 9.15 (331,749) 6.90
Forfeited...................... (41,936) 26.45 (14,925) 23.37 (17,325) 16.15
Expired........................ -- -- (435) 5.85 -- --
--------- ------ --------- ------ --------- ------
Outstanding at end of year..... 3,603,613 25.88 2,690,825 15.20 2,211,435 11.80
--------- ------ --------- ------ --------- ------
Exercisable at end of year..... 2,140,944 16.11 1,997,375 12.05 1,632,135 10.07
Weighted average fair value of
options granted.............. $ 10.35 $ 4.47 $ 2.58
</TABLE>
1,054,752 of the 3,603,613 options outstanding at December 31, 1998 have
exercise prices between $4.15 and $12.75, with a weighted average exercise price
of $11.11 and a weighted average remaining contractual life of 4.5 years. Also,
1,086,192 of the 3,603,613 options outstanding at December 31, 1998 have
exercise prices between $12.75 and $24.25, with a weighted average exercise
price of $20.96 and a weighted average remaining contractual life of 7.6 years.
All of these options are exercisable. The remaining 1,462,669 options have
exercise prices between $24.25 and $44.00, with a weighted average exercise
price of $40.19 and a weighted average remaining contractual life of 9.2 years.
None of these options are exercisable.
57
<PAGE> 59
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 1998, 1997 and 1996, based on the fair value of the options 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>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Net income -- as reported.............................. $368,610 $306,708 $254,703
Net income -- pro forma................................ 358,322 304,652 253,690
Earnings per share -- as reported -- basic............. 2.27 2.05 1.80
Earnings per share -- pro forma -- basic............... 2.20 2.03 1.80
Earnings per share -- as reported -- diluted........... 2.25 2.03 1.79
Earnings per share -- pro forma -- diluted............. 2.18 2.02 1.78
</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.
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>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Expected dividend yield................................. 1.91% 3.08% 3.17%
Expected stock price volatility......................... 25% 19% 17%
Risk-free interest rate................................. 5.58% 6.21% 5.26%
Expected life of options................................ 4 years 4 years 4 years
</TABLE>
PERFORMANCE SHARES
During 1998, the Company granted 54,375 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 $2.1 million in 1998.
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 by employees
under the Discounted Plan in 1998 were 37,359. 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.
58
<PAGE> 60
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,
------------------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.......................... $123,162 $165,223 $119,424
State............................ 7,194 21,445 14,774
-------- -------- --------
130,356 186,668 134,198
-------- -------- --------
Deferred (Prepaid):
Federal.......................... 41,947 (11,975) (726)
State............................ 6,896 (3,550) (665)
-------- -------- --------
48,843 (15,525) (1,391)
-------- -------- --------
Totals................... $179,199 $171,143 $132,807
======== ======== ========
</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>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Pre-tax income at statutory
rates............................ $191,733 35% $167,248 35% $135,602 35%
Add (deduct)
State income tax, net of federal
tax benefit................... 9,158 2 11,631 2 9,170 2
Tax-exempt interest income....... (7,823) (1) (6,663) (1) (7,790) (2)
Income on bank owned life
insurance (11,486) (2) (274) 0 0 0
Other............................ (2,383) (1) (799) 0 (4,175) (1)
-------- --- -------- --- -------- ---
Totals................... $179,199 33% $171,143 36% $132,807 34%
======== === ======== === ======== ===
</TABLE>
The components of the net deferred tax asset were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses........................ $143,359 $116,948
Employee benefits................................ 13,616 8,588
Other............................................ 28,526 23,524
-------- --------
Total deferred tax assets................ 185,501 149,060
Deferred tax liabilities:
Depreciation..................................... (14,549) (12,626)
Leasing.......................................... (143,447) (72,002)
Loan fees........................................ (9,884) (3,998)
Net unrealized gain on securities................ (3,214) (6,716)
Other............................................ (5,906) (5,439)
-------- --------
Total deferred tax liabilities........... (177,000) (100,781)
-------- --------
Net Deferred Tax Asset............................. $ 8,501 $ 48,279
======== ========
</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.
59
<PAGE> 61
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE N -- FAIR VALUES OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
1998 1997
------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks................ $ 970,778 $ 970,778 $ 877,885 $ 877,885
Federal funds sold and other short-term
investments......................... 76,781 76,781 49,403 49,403
Trading securities..................... 73,215 73,215 58,750 58,750
Loans held for sale.................... 707,586 707,586 403,837 403,837
Available-for-sale securities.......... 3,802,718 3,802,718 2,917,080 2,917,080
Held-to-maturity securities............ 2,988,428 3,021,199 2,557,251 2,593,259
Loans, net of leases................... 26,338,590 26,645,088 21,657,027 21,756,771
Interest receivable and other assets... 352,794 352,794 303,588 303,588
Liabilities:
Deposits............................... 24,839,893 24,949,495 19,586,584 19,617,716
Federal funds purchased and other
short-term borrowings............... 6,113,028 6,113,028 4,750,378 4,750,378
Interest payable and other
liabilities......................... 507,311 507,311 486,044 486,044
Federal Home Loan Bank advances........ 2,780,340 2,840,823 2,782,355 2,794,126
Long-term debt......................... 1,154,937 1,259,765 1,106,443 1,162,471
Off-balance sheet instruments asset
(liability):
Interest rate swaps in a net receivable
position............................ 1,250 60,020 12,302 39,938
Commitments to extend credit........... (31,465) (53,956) (24,864) (40,145)
Standby letters of credit.............. (1,090) (1,090) (1,194) (1,194)
</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.
60
<PAGE> 62
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.
61
<PAGE> 63
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE O -- BUSINESS SEGMENTS
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, requires disclosure of certain information about the reportable
operating segments of the Company. The Company segregates financial information
for use in assessing its performance which is ultimately used for allocating
resources to its operating segments. The Company has four reportable operating
segments which are primarily separated along customer base or asset/liability
management lines. Each segment is managed by one or more of the Company's
executives who, in conjunction with the Chief Executive Officer, make strategic
business decisions regarding that segment.
The four reportable operating segments are Commercial Banking, Regional
Banking, Funds Management, and Other. Commercial Banking derives its revenues
from commercial, industrial and commercial real estate customers throughout all
geographic areas covered by the Company. This reportable segment also provides
cash management, international and commercial leasing services. Regional Banking
generates its revenues from retail lending and depository services, and regional
commercial lending not underwritten by the Commercial Banking division. Branch
administration costs are also included in Regional Banking. The Funds Management
group is responsible for management of the Company's securities portfolio as
well as its wholesale and long-term funding requirements. The category named
Other encompasses operating segments that qualify for aggregation as provided by
SFAS No. 131 such as the Company's non-bank subsidiaries which provide various
services such as securities brokerage and asset management to either external or
internal customers. The remaining Company divisions included within the
Reconciliation grouping are divisions that have no revenue. They contain costs
not directly associated with the other reportable segments such as executive
administration, finance, internal auditing, and risk assessment.
The Company's management accounting policies generally follow those for the
Company described in Note A, except for the following items. The Company uses a
transfer pricing process to aid in assessing operating segment performance. This
process involves matched rate transfer pricing of assets and liabilities to
determine a contribution to the net interest margin on a segment basis. The
provision for loan losses is charged to each operating segment primarily based
on net charge-offs. Data processing costs are charged in accordance with the
relative operational cost of each segment.
The following table presents the Company's Business Segment information for
the period ended December 31, 1998:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
COMMERCIAL REGIONAL FUNDS RECONCILING TOTAL
BANKING BANKING MANAGEMENT OTHER ITEMS COMPANY
---------- --------- ---------- -------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net Interest Margin
(FTE)................. $ 220.4 $ 864.9 $ 71.1 $ 2.1 $ 22.0 $ 1,180.5
Provision for Loan
Losses................ 9.1 61.0 0.0 0.0 24.7 94.8
Non Interest Income..... 13.9 288.2 0.3 52.4 31.0 385.8
Non Interest Expense.... 53.2 699.3 2.2 50.9 108.8 914.4
-------- --------- -------- -------- -------- ---------
Income before income
taxes.............. 172.0 392.8 69.2 3.6 (80.5) 557.1
Income tax expense
(FTE)................. 0.0 0.0 0.0 0.0 188.5 188.5
-------- --------- -------- -------- -------- ---------
Net Income............ $ 172.0 $ 392.8 $ 69.2 $ 3.6 $ (269.0) $ 368.6
======== ========= ======== ======== ======== =========
Ending Assets........... $8,796.7 $21,184.8 $5,710.5 $1,335.6 $1,106.2 $38,133.8
======== ========= ======== ======== ======== =========
</TABLE>
62
<PAGE> 64
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Following are reconciliations of reportable segment totals to the consolidated
Company totals:
Net interest margin for reportable segments totaled $1,158.5 million. The
$22.0 million necessary to reconcile that total to the consolidated net interest
margin of $1,180.5 million are amounts attributable to transfer pricing.
<TABLE>
<S> <C>
Non Interest Income:
Total Non Interest Income for reportable segments......... $ 354.8
Bank owned life insurance................................. 32.8
Affiliate service fees.................................... 11.9
Securities gains.......................................... 4.2
Other..................................................... 1.7
Eliminations.............................................. (19.6)
---------
Consolidated Non Interest Income.......................... $ 385.8
=========
Non Interest Expense:
Total Non Interest Expense for reportable segments........ $ 805.6
Salaries and benefits..................................... 87.9
Premises and equipment.................................... 40.0
Communication............................................. 23.0
Professional services..................................... 25.2
Intangible amortization................................... 29.1
Allocated data processing................................. (98.1)
Other..................................................... 21.3
Eliminations.............................................. (19.6)
---------
Consolidated Non Interest Expense......................... $ 914.4
=========
Total Assets:
Total Assets for reportable segments...................... $37,027.6
Goodwill and core deposit intangibles..................... 549.7
Bank owned life insurance................................. 715.2
Other..................................................... 390.2
Eliminations.............................................. (548.9)
---------
Consolidated Total Assets................................. $38,133.8
=========
</TABLE>
On June 2, 1997, the Company consolidated all of its banking subsidiaries
located in the states of Alabama, Georgia, Florida, Mississippi, Tennessee,
North Carolina and South Carolina into one consolidated bank. Extensive changes
to its management reporting system were required as a result of this
consolidation. Comparable information related to the periods ended December 31,
1997 and 1996 is not presented because it is not available.
63
<PAGE> 65
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE P -- CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
PARENT COMPANY STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash*....................................................... $ 116 $ 150
Short-term investments*..................................... 161,643 210,242
Available-for-sale securities............................... 15,969 16,597
Loans....................................................... 61,502 100,135
Loans to subsidiaries*...................................... 32,285 25,508
Investment in subsidiaries*:
Banks and bank holding company............................ 2,893,626 2,298,733
Non-banks................................................. 19,950 15,135
Other assets................................................ 19,326 38,727
---------- ----------
Total Assets....................................... $3,204,417 $2,705,227
---------- ----------
LIABILITIES
Short-term borrowings....................................... $ 16,138 $ 27,139
Other liabilities........................................... 75,013 108,447
Long-term debt.............................................. 375,000 375,000
---------- ----------
Total Liabilities.................................. 466,151 510,586
Stockholders' Equity........................................ 2,738,266 2,194,641
---------- ----------
Total Liabilities and Stockholders' Equity......... $3,204,417 $2,705,227
========== ==========
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income:
From subsidiaries*:
Dividends
Banks................................................ $119,646 $ 97,757 $ 84,762
Interest................................................ 20,406 14,662 10,989
Service fees............................................ 11,908 62,982 51,863
Other................................................... 12,361 13,333 14,515
-------- -------- --------
Total Income....................................... 164,321 188,734 162,129
-------- -------- --------
Expense:
Salaries and employee benefits............................ 8,308 31,509 21,379
Interest.................................................. 27,970 26,240 26,416
Other..................................................... 2,226 29,592 28,739
-------- -------- --------
Total Expense...................................... 38,504 87,341 76,534
-------- -------- --------
Income before income taxes and equity in undistributed net
income of subsidiaries.................................... 125,817 101,393 85,595
Income taxes................................................ 2,292 1,506 335
-------- -------- --------
Income Before Equity in Undistributed Net Income of
Subsidiaries......................................... 123,525 99,887 85,260
Equity in undistributed net income of subsidiaries*:
Banks and bank holding company............................ 241,062 204,338 168,451
Non-banks................................................. 4,023 2,483 992
-------- -------- --------
Net Income......................................... $368,610 $306,708 $254,703
======== ======== ========
</TABLE>
- ---------------
* Eliminated in consolidation.
64
<PAGE> 66
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PARENT COMPANY STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating Activities
Net Income................................................ $ 368,610 $ 306,708 $ 254,703
Less equity in undistributed net income of subsidiaries... (245,085) (206,821) (169,443)
--------- --------- ---------
Income before equity in undistributed net income of
subsidiaries............................................ 123,525 99,887 85,260
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision (credit) for:
Depreciation of premises and equipment................ 32 1,381 1,333
Amortization of intangibles........................... 0 0 1,177
Deferred income tax (benefit) expense................. (235) (2,037) 592
Realized net gain on sales of securities................ (4,198) (1,538) (118)
Net (increase) decrease in other assets................. 5,751 36,545 (4,826)
Net increase (decrease) in other liabilities............ (38,432) (429) 7,692
--------- --------- ---------
Net Cash Provided by Operating Activities.......... 86,443 133,809 91,110
Investing Activities
Proceeds from maturities of available-for-sale
securities.............................................. 0 0 564
Proceeds from sale of available-for-sale securities....... 4,198 1,537 135,524
Purchase of available-for-sale securities................. (2,305) (665) 0
Payments for investments in and advances to
subsidiaries............................................ (357,504) (225,004) (180,981)
Net (increase) decrease in:
Short-term investments.................................. 46,500 (128,327) (35,623)
Loans to subsidiaries................................... (6,777) 40,469 7,626
Loans................................................... 38,633 21,591 31,314
Premises and equipment.................................. 15,005 (2,833) (3,804)
--------- --------- ---------
Net Cash Used In Investing Activities.............. (262,250) (293,232) (45,380)
Financing Activities
Proceeds from issuance of:
Common Stock............................................ 305,963 234,481 133,881
Payments for:
Long-term debt.......................................... 0 0 (100,219)
Repurchase of common stock.............................. (1,183) (555) (4,130)
Cash dividends.......................................... (118,008) (81,546) (75,446)
Net increase (decrease) in short-term borrowing........... (10,999) 5,977 0
--------- --------- ---------
Net Cash Provided By (Used In) Financing
Activities....................................... 175,773 158,357 (45,914)
--------- --------- ---------
Decrease in Cash and Due from Banks....................... (34) (1,066) (184)
--------- --------- ---------
Cash and Due from Banks at Beginning of Year.............. 150 1,216 1,400
--------- --------- ---------
Cash and Due from Banks at End of Year.................... $ 116 $ 150 $ 1,216
========= ========= =========
Supplemental Disclosure of Cash Flow Information; Cash Paid
During the Period for Interest............................ $ 24,777 $ 35,719 $ 32,872
</TABLE>
65
<PAGE> 67
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Company's directors is contained in the
Company's proxy statement for the annual meeting of stockholders, April 21, 1999
and is incorporated herein by reference.
Information concerning the Company's executive officers is contained herein
in response to Item I of Part I.
Section 16(a) Beneficial Ownership Reporting Compliance: SouthTrust's
executive officers, directors and 10% stockholders are required under the
Securities Exchange Act of 1934 to file reports of ownership and changes in
ownership with the Commission. Copies of these reports must also be furnished to
SouthTrust.
Based solely on a review of copies of such reports furnished to SouthTrust
through the date hereof, or written representations of such officers, directors
or stockholders that no reports were required, SouthTrust believes that during
1998 all filing requirements applicable to its officers, directors and
stockholders were complied with in a timely manner, with the exception of a Form
3 that was filed late by Donald M. James and a Form 4 and Form 5 that were each
filed late by Wallace D. Malone, Jr.
ITEM 11 EXECUTIVE COMPENSATION
Information relating to executive compensation is contained in the
Company's proxy statement for the annual meeting of stockholders, April 21, 1999
and is incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is contained in the Company's proxy
statement for the annual meeting of stockholders, April 21, 1999, and is
incorporated herein by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to this item is contained in the Company's proxy
statement for the annual meeting of stockholders, April 21, 1999, and is
incorporated herein by reference.
66
<PAGE> 68
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, 1998 are:
Report of Independent Public Accountants
Consolidated Statements of Condition -- December 31, 1998 and December
31, 1997
Consolidated Statements of Income -- Years ended December 31, 1998,
1997, and 1996
Consolidated Statements of Stockholders' Equity -- December 31, 1998,
1997, and 1996
Consolidated Statements of Cash Flows -- Years ended December 31, 1998,
1997, and 1996
Notes to Consolidated Financial Statements -- Three years ended December
31, 1998
(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(a) -- 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. 3(b) -- Composite Restated Bylaws of SouthTrust Corporation which was
filed as Exhibit 4(e) to the Registration Statement on Form S-4 of SouthTrust
Corporation (Registration No. 33-61557).
*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 Designation on Preferences and Rights of Series
1999 Junior Participating Preferred Stock, adopted December 16, 1998, which was
filed as Exhibit A to 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 January 12, 1999
and effective as of the close of business on February 22, 1999, between
SouthTrust Corporation and Chase Mellon Shareholder Services, L.L.C., 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).
67
<PAGE> 69
No. 12 -- Statement of Computation of Ratios.
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 1998: None. The
Company filed a 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
68
<PAGE> 70
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 5, 1999
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 5, 1999
- -------------------------------------------------------- Executive Officer, Director
Wallace D. Malone, Jr.
/s/ ALTON E. YOTHER Secretary, Treasurer and March 5, 1999
- -------------------------------------------------------- Controller (Principal
Alton E. Yother Accounting and Financial
Officer)
/s/ JULIAN W. BANTON Chairman and Chief Executive March 5, 1999
- -------------------------------------------------------- Officer, SouthTrust Bank,
Julian W. Banton N.A., Director
* Director March 5, 1999
- --------------------------------------------------------
Van L. Richey
* Director March 5, 1999
- --------------------------------------------------------
F. Crowder Falls
* Director March 5, 1999
- --------------------------------------------------------
Rex J. Lysinger
* Director March 5, 1999
- --------------------------------------------------------
William C. Hulsey
* Director March 5, 1999
- --------------------------------------------------------
John M. Bradford
* Director March 5, 1999
- --------------------------------------------------------
Wm. Kendrick Upchurch, Jr.
* Director March 5, 1999
- --------------------------------------------------------
Carl F. Bailey
* Director March 5, 1999
- --------------------------------------------------------
Allen J. Keesler, Jr.
</TABLE>
69
<PAGE> 71
<TABLE>
<C> <S> <C>
* Director March 5, 1999
- ---------------------------------------------------------
H. Allen Franklin
* Director March 5, 1999
- ---------------------------------------------------------
Donald M. James
* /s/ WILLIAM L. PRATER March 5, 1999
- ---------------------------------------------------------
William L. Prater
Attorney-in-fact
</TABLE>
70
<PAGE> 1
Exhibit 12
EARNINGS TO FIXED CHARGES COMPUTATION
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes........... $ 547,809 $ 477,851 $ 387,510 $ 304,044 $ 261,340
Plus:
Fixed Charges...................... 1,398,114 1,199,730 948,497 800,986 507,940
Less:
Capitalized Interest............... (919) (1,732) (785) (2,056) (599)
---------- ---------- ---------- ---------- ---------
Earnings, including interest on
deposits(a)........................ 1,945,004 1,675,849 1,335,222 1,102,974 768,681
Less:
Interest on deposits............... (897,903) (745,122) (644,613) (564,064) (377,643)
---------- ---------- ---------- ---------- ---------
Earnings, excluding interest on
deposits(b)........................ 1,047,101 930,727 690,609 538,910 391,038
========== ========== ========== ========== =========
Fixed Charges:
Interest expense................... 1,386,256 1,186,079 938,194 791,423 501,067
Capitalized interest............... 919 1,732 785 2,056 599
Amortization of debt expense....... 681 602 132 190 215
Interest portion of rent expense... 10,258 11,317 9,386 7,317 6,059
---------- ---------- ---------- ---------- ---------
Total Fixed Charges(c)..... 1,398,114 1,199,730 948,497 800,986 507,940
Less:
Interest on deposits............... (897,903) (745,122) (644,613) (564,064) (377,643)
---------- ---------- ---------- ---------- ---------
Total Fixed Charges
excluding interest
expense on deposits(d)... $ 500,211 $ 454,608 $ 303,884 $ 236,922 $ 130,297
========== ========== ========== ========== =========
Earnings to fixed charges:
Including interest on
deposits(a/c)...................... $ 1.39 $ 1.40 $ 1.41 $ 1.38 $ 1.51
Excluding interest on
deposits(b/d)...................... $ 2.09 $ 2.05 $ 2.27 $ 2.27 $ 3.00
</TABLE>
71
<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)
South Trust Mortgage Corporation.................. Delaware
Gardner Mortgage Services, Inc................ Texas
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
Dekalb Finance Subsidiary, Inc........................ Georgia
SouthTrust Insurance of Georgia, Inc.................. Georgia
Minority Business Development Corporation............. Georgia
SouthTrust Development Corporation.................... Georgia
Holmes Capital Corporation............................ Florida
ST Holdings, Inc...................................... Alabama
ST Realty 1, Inc.............................. Alabama
ST Realty 3, Inc.............................. Alabama
ST Realty 4, Inc.............................. Alabama
SouthTrust Life Insurance Company..................... Arizona
SouthTrust Insurance Agency, Inc...................... Alabama
Southern Financial Advisors, Inc...................... Alabama
SouthTrust Securities, Inc............................ Delaware
SouthTrust Community Reinvestment Corp................ Alabama
PRN Holdings, Inc..................................... Delaware
</TABLE>
(1) National Banks are chartered under the laws of the United States.
<PAGE> 1
Exhibit 23
ARTHUR ANDERSEN LLP
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 Statements File Nos. 33-25513, 33-33187, 33-46804, 33-55746,
33-55069, 33-55287, 33-55543, 33-61407, 333-02203, 333-11079, 333-41823,
333-24099, 333-25387, and 333-68483.
Arthur Andersen LLP
Birmingham, Alabama
March 3, 1999
<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 ALTON E. YOTHER, 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, 1998 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 3RD DAY OF MARCH, 1999.
/s/ Donald M. James
---------------------------(L.S.)
DONALD M. JAMES
<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 ALTON E. YOTHER, 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, 1998 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 3RD DAY OF MARCH, 1999.
/S/ ALLEN J. KEESLER, JR.
--------------------------------(L.S.)
ALLEN J. KEESLER, JR.
<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 Alton E. Yother, 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, 1998 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 2nd day of March, 1999.
/s/ Carl F. Bailey
----------------------(L.S.)
Carl F. Bailey
<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 ALTON E. YOTHER, 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, 1998 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 1ST DAY OF MARCH, 1999.
/s/ W.K. Upchurch, Jr.
--------------------------------(L.S.)
W.K. UPCHURCH, JR.
<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 ALTON E. YOTHER, 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, 1998 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 2ND DAY OF MARCH, 1999.
/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 ALTON E. YOTHER, 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, 1998 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 1ST DAY OF MARCH, 1999.
/S/ WILLIAM C. HULSEY
---------------------------------(L.S.)
WILLIAM C. HULSEY
<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 ALTON E. YOTHER, 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, 1998 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 1ST DAY OF MARCH, 1999.
/s/ Rex J. Lysinger
--------------------------------(L.S.)
Rex J. Lysinger
<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 ALTON E. YOTHER, 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, 1998 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 1ST DAY OF MARCH, 1999.
/S/ VAN L. RICHEY
--------------------------------(L.S.)
VAN L. RICHEY
<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 ALTON E. YOTHER, 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, 1998 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 3RD DAY OF MARCH, 1999.
/S/ H. ALLEN FRANKLIN
--------------------------------(L.S.)
H. ALLEN FRANKLIN
<PAGE> 10
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 ALTON E. YOTHER, 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, 1998 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 3RD DAY OF MARCH, 1999.
/s/ F. Crowder Falls
--------------------------------(L.S.)
F. CROWDER FALLS
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 970,778
<INT-BEARING-DEPOSITS> 506
<FED-FUNDS-SOLD> 76,275
<TRADING-ASSETS> 780,801
<INVESTMENTS-HELD-FOR-SALE> 3,802,718
<INVESTMENTS-CARRYING> 2,988,428
<INVESTMENTS-MARKET> 3,021,199
<LOANS> 27,317,506
<ALLOWANCE> 377,525
<TOTAL-ASSETS> 38,133,774
<DEPOSITS> 24,839,892
<SHORT-TERM> 6,113,028
<LIABILITIES-OTHER> 478,346
<LONG-TERM> 1,154,937
0
0
<COMMON> 420,569
<OTHER-SE> 2,317,697
<TOTAL-LIABILITIES-AND-EQUITY> 38,133,774
<INTEREST-LOAN> 2,102,095
<INTEREST-INVEST> 402,834
<INTEREST-OTHER> 52,533
<INTEREST-TOTAL> 2,557,462
<INTEREST-DEPOSIT> 897,903
<INTEREST-EXPENSE> 1,386,256
<INTEREST-INCOME-NET> 1,171,206
<LOAN-LOSSES> 94,796
<SECURITIES-GAINS> 4,292
<EXPENSE-OTHER> 914,443
<INCOME-PRETAX> 547,809
<INCOME-PRE-EXTRAORDINARY> 368,610
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 368,610
<EPS-PRIMARY> 2.27
<EPS-DILUTED> 2.25
<YIELD-ACTUAL> 8.18
<LOANS-NON> 97,694
<LOANS-PAST> 80,930
<LOANS-TROUBLED> 624
<LOANS-PROBLEM> 59,696
<ALLOWANCE-OPEN> 315,471
<CHARGE-OFFS> 72,297
<RECOVERIES> 14,028
<ALLOWANCE-CLOSE> 377,525
<ALLOWANCE-DOMESTIC> 377,525
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
