<PAGE> 1
==============================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
--------------------------------------------
Commission File Number 0-3613
SOUTHTRUST CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 63-0574085
(State or other jursidiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
420 NORTH 20TH STREET, BIRMINGHAM, ALABAMA 35203
(Address of principal executive officers) (Zip Code)
(205) 254-5530
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act of
1934 during the proceeding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
At June 30, 2000, 168,233,823 shares of the Registrant's Common Stock, $2.50
par value were outstanding.
===============================================================================
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement Description Page(s)
--------------------- -------
<S> <C>
Consolidated Condensed Balance Sheets (Unaudited)
June 30, 2000, December 31, 1999,
and June 30, 1999 3
Consolidated Condensed Statements of Income (Unaudited)
Three months ended June 30, 2000 and 1999
Six months ended June 30, 2000 and 1999 4
Consolidated Condensed Statements of Stockholders' Equity (Unaudited)
Six months ended June 30, 2000 and 1999 5
Consolidated Condensed Statements of Cash Flows (Unaudited)
Six months ended June 30, 2000 and 1999 6
Notes to Consolidated Condensed Financial Statements 7-12
</TABLE>
The Consolidated Condensed Financial Statements were prepared by the
Company without an audit, but in the opinion of Management, reflect all
adjustments necessary for the fair presentation of the Company's financial
position and results of operations for the three and six month periods ended
June 30, 2000 and 1999. Results of operations for the interim 2000 period are
not necessarily indicative of results expected for the full year. While certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities
and Exchange Commission, the Company believes that the disclosures herein are
adequate to make the information presented not misleading. These condensed
financial statements should be read in conjunction with the Consolidated
Financial Statements and the notes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1999. The accounting
policies employed are the same as those shown in Note A to the Consolidated
Financial Statements on Form 10-K.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Management's Discussion and Analysis of the registrant is included on Pages
13-30.
2
<PAGE> 3
SOUTHTRUST CORPORATION
Consolidated Condensed Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31 JUNE 30
------------- ------------- -------------
(Dollars in thousands) 2000 1999 1999
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 926,096 $ 874,999 $ 968,438
Short-term investments:
Federal funds sold and securities purchased
under resale agreements 262,483 46,350 215,525
Interest-bearing deposits in other banks 1,031 417 388
Trading securities 72,489 69,508 113,729
Loans held for sale 326,268 251,844 307,335
------------- ------------- -------------
Total short-term investments 662,271 368,119 636,977
Available-for-sale securities 5,307,461 5,061,001 4,322,528
Held-to-maturity securities (1) 2,995,278 2,986,958 2,801,018
Loans 32,317,331 31,972,758 29,412,218
Less:
Unearned income 273,958 274,917 233,811
Allowance for loan losses 456,089 442,343 405,513
------------- ------------- -------------
Net loans 31,587,284 31,255,498 28,772,894
Premises and equipment, net 742,047 730,602 694,978
Due from customers on acceptances 22,734 20,574 19,131
Goodwill and core deposit intangibles 611,791 583,303 544,521
Mortgage servicing rights 78,362 79,450 74,679
Bank owned life insurance 864,207 742,370 724,009
Other assets 546,972 559,638 507,333
------------- ------------- -------------
Total assets $ 44,344,503 $ 43,262,512 $ 40,066,506
============= ============= =============
LIABILITIES
Deposits:
Interest-bearing $ 24,893,566 $ 24,182,135 $ 22,915,918
Other 3,734,025 3,557,210 3,380,750
------------- ------------- -------------
Total deposits 28,627,591 27,739,345 26,296,668
Federal funds purchased and securities sold
under agreements to repurchase 5,687,935 5,191,057 5,315,282
Other short-term borrowings 2,187,115 2,205,933 1,265,627
Bank acceptances outstanding 22,734 20,574 19,131
Federal Home Loan Bank advances 3,050,821 3,530,324 2,855,332
Long-term debt 1,125,342 1,125,483 1,075,546
Other liabilities 578,117 522,367 409,389
------------- ------------- -------------
Total liabilities 41,279,655 40,335,083 37,236,975
STOCKHOLDERS' EQUITY
Common stock, par value $2.50 a share (2) 423,924 423,096 421,238
Capital surplus 756,492 750,820 740,198
Retained earnings 2,040,440 1,886,481 1,731,146
Accumulated other comprehensive income (loss) (131,881) (108,928) (50,859)
Treasury stock, at cost (3) (24,127) (24,040) (12,192)
------------- ------------- -------------
Total stockholders' equity 3,064,848 2,927,429 2,829,531
------------- ------------- -------------
Total liabilities and stockholders' equity $ 44,344,503 $ 43,262,512 $ 40,066,506
============= ============= =============
(1) Held-to-maturity securities-fair value $ 2,859,241 $ 2,863,710 $ 2,747,654
(2) Common shares authorized 500,000,000 500,000,000 500,000,000
Common shares issued 169,569,758 169,238,391 168,495,041
(3) Treasury shares of common stock 1,335,935 1,333,042 1,018,601
</TABLE>
3
<PAGE> 4
SOUTHTRUST CORPORATION
Consolidated Condensed Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------- ---------------------------
(In thousands, except per share data) 2000 1999 2000 1999
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 689,753 $ 574,527 $1,360,526 $ 1,127,695
Available-for-sale securities 91,869 64,824 178,711 123,188
Held-to-maturity securities 51,171 45,373 102,428 93,740
Short-term investments 8,851 10,564 15,486 21,432
--------- --------- ---------- -----------
Total interest income 841,644 695,288 1,657,151 1,366,055
--------- --------- ---------- -----------
INTEREST EXPENSE
Deposits 303,977 225,136 599,723 446,283
Short-term borrowings 121,832 80,796 226,211 160,492
Federal Home Loan Bank advances 46,370 36,093 87,743 71,687
Long-term debt 18,662 16,468 36,511 34,294
--------- --------- ---------- -----------
Total interest expense 490,841 358,493 950,188 712,756
--------- --------- ---------- -----------
Net interest income 350,803 336,795 706,963 653,299
Provision for loan losses 24,182 31,776 54,844 62,138
--------- --------- ---------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 326,621 305,019 652,119 591,161
NON-INTEREST INCOME
Service charges on deposit accounts 59,398 49,152 114,030 95,643
Mortgage banking operations 9,717 11,450 18,113 26,669
Bank card fees 8,238 7,302 16,178 14,921
Trust fees 7,803 7,517 15,724 15,068
Investment fees 9,225 9,507 19,080 17,883
Bank owned life insurance 14,770 9,592 25,102 18,909
Gains on loans held for sale, net 491 3,623 1,938 8,075
Securities gains (losses) (77) (206) 484 (151)
Other 9,501 9,053 21,893 21,037
--------- --------- ---------- -----------
Total non-interest income 119,066 106,990 232,542 218,054
--------- --------- ---------- -----------
NON-INTEREST EXPENSE
Salaries and employee benefits 141,951 133,704 285,315 267,958
Net occupancy 23,286 19,890 45,949 39,482
Equipment 18,218 16,468 35,656 31,966
Professional services 17,657 17,652 32,832 32,731
Communications 13,098 13,141 26,272 25,363
Goodwill and core deposit amortization 10,996 11,050 21,751 21,920
Business development 7,772 7,732 15,213 15,351
Supplies 6,599 5,882 12,928 12,170
Other 29,239 23,367 56,512 44,588
--------- --------- ---------- -----------
Total non-interest expense 268,816 248,886 532,428 491,529
--------- --------- ---------- -----------
Income before income taxes 176,871 163,123 352,233 317,686
Income tax expense 56,999 53,437 114,273 103,476
--------- --------- ---------- -----------
NET INCOME $ 119,872 $ 109,686 $ 237,960 $ 214,210
========= ========= ========== ===========
Average shares outstanding - basic (in thousands) 168,184 167,439 168,111 167,355
Average shares outstanding - diluted (in thousands) 168,783 168,746 168,740 168,667
Net income per share - basic $ 0.71 $ 0.66 $ 1.41 $ 1.28
Net income per share - diluted 0.71 0.65 1.41 1.27
Dividends declared per share 0.25 0.22 0.50 0.44
</TABLE>
4
<PAGE> 5
SOUTHTRUST CORPORATION
Consolidated Condensed Statements of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON CAPITAL RETAINED COMPREHENSIVE TREASURY
(Dollars in thousands) STOCK SURPLUS EARNINGS INCOME (LOSS) STOCK TOTAL
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1999 $420,569 $733,577 $ 1,590,686 $ 5,530 $(12,096) $2,738,266
Net income 0 0 214,210 0 0 214,210
Change in unrealized loss on available-for-sale
securities, net of tax of $33,214* 0 0 0 (56,389) 0 (56,389)
----------
Comprehensive income $ 157,821
==========
Dividends declared ($.44 per share) 0 0 (73,750) 0 0 (73,750)
Issuance of 107,977 shares of Common Stock
for stock options exercised 270 1,968 0 0 0 2,238
Issuance of 86,491 shares of Common Stock
for dividend reinvestment and stock purchase plans 216 2,913 0 0 0 3,129
Issuance of 25,869 shares of Common Stock
under employee discounted stock purchase plan 65 718 0 0 0 783
Issuance of 47,251 shares of Common Stock under
long-term incentive plan 118 1,022 0 0 0 1,140
Purchase of 2,442 shares of treasury stock
for exercises of stock options 0 0 0 0 (96) (96)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 $421,238 $740,198 $ 1,731,146 $(50,859) $(12,192) $2,829,531
===================================================================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 2000 $423,096 $750,820 $ 1,886,481 $(108,928) $(24,040) $2,927,429
Net income 0 0 237,960 0 0 237,960
Change in unrealized loss on available-for-sale
securities, net of tax of $13,660* 0 0 0 (22,953) 0 (22,953)
----------
Comprehensive income $ 215,007
==========
Dividends declared ($.50 per share) 0 0 (84,001) 0 0 (84,001)
Issuance of 168,683 shares of Common Stock
for stock options exercised 422 1,588 0 0 0 2,010
Issuance of 118,620 shares of Common Stock
for dividend reinvestment and stock
purchase plans 296 3,111 0 0 0 3,407
Issuance of 44,064 shares of Common Stock under
long-term incentive plan 110 973 0 0 0 1,083
Purchase of 2,893 shares of treasury stock
for exercises of stock options 0 0 0 0 (87) (87)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2000 $423,924 $756,492 $ 2,040,440 $(131,881) $(24,127) $3,064,848
===================================================================================================================================
</TABLE>
*See disclosure of reclassification amount in Notes to Consolidated Condensed
Financial Statements
5
<PAGE> 6
SOUTHTRUST CORPORATION
Consolidated Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
---------------------------------
(In thousands) 2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 237,960 $ 214,210
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision (credit) for:
Loan losses 54,844 62,138
Depreciation of premises and equipment 29,724 27,197
Amortization of intangibles 30,039 26,289
Amortization of security premium 987 1,152
Accretion of security discount (1,692) (3,219)
Deferred income taxes 8,895 (4,542)
Bank owned life insurance (25,102) (18,909)
Net gain on trading securities (538) (389)
Net gain on loans held for sale (1,938) (8,075)
Net (gain) loss on available-for-sale securities (484) 151
Origination and purchase of loans held for sale (1,168,015) (1,667,137)
Proceeds from loans held for sale 1,095,529 1,763,510
Net increase in trading securities (2,443) (40,125)
Net decrease in other assets 6,931 18,707
Net increase (decrease) in other liabilities 36,732 (85,454)
----------- -----------
Net cash provided by operating activities 301,429 285,504
INVESTING ACTIVITIES
Proceeds from maturities/calls of:
Available-for-sale securities 93,793 653,984
Held-to-maturity securities 92,091 1,176,595
Proceeds from sales of available-for-sale-securities 137,712 199,308
Purchases of:
Available-for-sale securities (470,459) (1,401,020)
Held-to-maturity securities (66,309) (987,595)
Premises and equipment (30,831) (29,564)
Net increase in:
Short-term investments (188,072) (135,942)
Loans (169,731) (1,479,929)
Purchases of bank owned life insurance (100,000) 0
Net cash paid in acquisitions (41,381) (19,807)
----------- -----------
Net cash used in investing activities (743,187) (2,023,970)
FINANCING ACTIVITIES
Net increase in:
Deposits 558,162 1,333,553
Short-term borrowings 477,286 467,881
Proceeds from:
Common Stock issuances 6,500 7,290
Federal Home Loan Bank advances 2,950,757 350,007
Long term debt 57 145
Payments for:
Repurchase of common stock (87) (96)
Federal Home Loan Bank advances (3,430,260) (275,015)
Long-term debt (198) (79,536)
Cash dividends (69,362) (68,103)
----------- -----------
Net cash provided by financing activities 492,855 1,736,126
----------- -----------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 51,097 (2,340)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 874,999 970,778
----------- -----------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 926,096 $ 968,438
=========== ===========
</TABLE>
6
<PAGE> 7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note A - Pending Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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. Under certain conditions, a derivative may be
specifically designated as a hedge. Accounting for the changes in fair values
of derivatives will depend on their designation. Management is in the process
of assessing the impact of this Statement on the Company's financial position
and results of operations, but does not expect this impact to be material to
the Consolidated Condensed Financial Statements.
In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133. This Statement amends the effective date of SFAS 133, which
will now be effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000.
In June 2000, the FASB issued SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities - An Amendment to FASB
Statement No. 133. This Statement addresses a limited number of issues causing
implementation difficulties for numerous entities that apply SFAS 133, and
amends the accounting and reporting standards of SFAS 133 for certain
derivative instruments and certain hedging activities. Management is in the
process of assessing the impact of this statement on the Company's financial
position and results of operations, but does not expect this impact to be
material to the Consolidated Condensed Financial Statements.
7
<PAGE> 8
Note B - Earnings per Share Reconciliation
A reconciliation of the numerator and denominator of the basic EPS
computation to the diluted EPS computation is as follows:
<TABLE>
<CAPTION>
Three months ended June 30 Six months ended June 30
(In thousands, except per share data) 2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic:
Net income $119,872 $109,686 $237,960 $214,210
Average common shares
outstanding 168,184 167,439 168,111 167,355
-------- -------- -------- --------
Earnings per share $ 0.71 $ 0.66 $ 1.41 $ 1.28
======== ======== ======== ========
Diluted:
Net income $119,872 $109,686 $237,960 $214,210
Average common shares
outstanding 168,184 167,439 168,111 167,355
Dilutive effect of options issued 599 1,307 629 1,312
-------- -------- -------- --------
Average diluted shares
outstanding 168,783 168,746 168,740 168,667
-------- -------- -------- --------
Earnings per share $ 0.71 $ 0.65 $ 1.41 $ 1.27
======== ======== ======== ========
</TABLE>
In addition, the Company had 1,851,039 and 151,400 exercisable options
issued that were not included in the calculation of diluted EPS for the three
and six months ended June 30, 2000 and 1999, respectively, as the exercise
price of these options was in excess of the average market price.
Note C - Supplemental Cash Flow Information
The following is supplemental disclosure to the Consolidated Condensed
Statements of Cash Flows for the six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Six Months Ended June 30
(In thousands) 2000 1999
-------- --------
<S> <C> <C>
Cash paid during period for:
Interest $904,172 $736,459
Income taxes 111,441 104,780
Noncash transactions:
Assets acquired in business combinations 354,459 132,520
Liabilities assumed in business combinations 337,397 124,239
Loans transferred to other real estate 8,359 13,357
Financed sales of foreclosed property 6,931 15,097
Loans securitized into mortgage-backed securities 332,294 0
</TABLE>
8
<PAGE> 9
Note D - Comprehensive Income
Comprehensive income is the total of net income and all other
non-owner changes in equity. Items that are recognized under accounting
standards as components of comprehensive income are displayed in the
Consolidated Condensed Statements 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>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Unrealized holding gains/(losses)
on available-for-sale securities $ 16,024 $(75,740) $(36,129) $(89,754)
Less: reclassification adjustment for
(gains)/losses included in net income 77 206 (484) 151
-------- -------- -------- --------
Unrealized gain/(loss) on available-for-sale
securities 16,101 (75,534) (36,613) (89,603)
Tax effect (6,059) 30,756 13,660 33,214
-------- -------- -------- --------
Unrealized gain/(loss) on available-for-sale
securities, net of tax $ 10,042 $(44,778) $(22,953) $(56,389)
======== ======== ======== ========
</TABLE>
Note E - Business Segments
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, requires disclosure of certain information about the reportable
business segments of the Company. The Company segregates financial information
for use in assessing its performance which is ultimately used for allocating
resources to its business segments. The Company has four reportable business
segments which are primarily aligned 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 business
segments are Commercial Banking, Regional Banking, Funds Management, and Other.
The Commercial Banking segment derives its revenues from commercial,
industrial and commercial real estate customers (large corporate and
middle-market) throughout all geographic areas covered by the Company. This
business segment also provides cash management, international and commercial
leasing services. The Regional Banking segment generates revenues from retail
lending, 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 segment is responsible for
the Company's asset and liability management, which includes management of
interest rate and liquidity risk. Activities include management of the
Company's securities portfolio, wholesale and long-term funding sources, and
the use of off-balance
9
<PAGE> 10
sheet instruments, including interest rate swap agreements. The category named
Other encompasses business 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 operating revenue. They
contain unallocated costs not directly associated with the other reportable
segments such as executive administration, finance, internal auditing, and risk
management. Other items in this grouping include any unallocated provision for
loan losses, income from bank owned life insurance, credits for data processing
and other support function costs allocated to reportable segments, intangible
amortization, and income tax expense. Intercompany eliminations are also
included in the Reconciliation group.
The Company's management accounting policies generally follow those
for the Company described in Note A to the Consolidated Financial Statements on
Form 10-K for the year ended December 31, 1999, except for the following items.
The Company uses a transfer pricing process to aid in assessing business
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. Also, net interest margin is reported on a fully taxable
equivalent basis. The provision for loan losses is charged to each business
segment primarily based on net charge-offs. Data processing and other support
function costs are charged in accordance with the relative operational cost of
each segment.
The Company's management accounting policies are continuously evolving
based on both internal and external factors. Therefore, the Company has
restated the comparative 1999 segment information to conform to the 2000
presentation. The restatement for 1999 includes enhancements to the transfer
pricing process, new allocations for interbranch processing and centralized
management and product support, and organizational structure changes made
during 2000. As management accounting policies change, prior period restatement
may also be necessary in the future.
10
<PAGE> 11
The following tables present the Company's business segment
information for the three and six month periods ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three months ended June 30, 2000
-----------------------------------------------------------------------------------------
Commercial Regional Funds Reconciling Total
(In millions) Banking Banking Management Other Items Company
----------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net interest margin (FTE) .... $ 142.0 $ 189.7 $ 24.0 $ 9.1 $ (10.3) $ 354.5
Provision for loan losses .... 10.9 13.3 0.0 0.0 0.0 24.2
Non-interest income .......... 26.5 65.6 0.1 13.6 13.3 119.1
Non-interest expense ......... 72.2 162.8 0.7 14.3 18.8 268.8
----------- ----------- ---------- ---------- -------- -----------
Income before income
taxes ................. 85.4 79.2 23.4 8.4 (15.8) 180.6
Income tax expense (FTE) ..... 0.0 0.0 0.0 0.0 60.7 60.7
----------- ----------- ---------- ---------- -------- -----------
Net income .............. $ 85.4 $ 79.2 $ 23.4 $ 8.4 $ (76.5) $ 119.9
=========== =========== ========== ========== ======== ===========
Six months ended June 30, 2000
-----------------------------------------------------------------------------------------
Commercial Regional Funds Reconciling Total
(In millions) Banking Banking Management Other Items Company
----------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net interest margin (FTE) .... $ 287.8 $ 374.4 $ 56.0 $ 18.2 $ (22.2) $ 714.2
Provision for loan losses .... 15.5 30.8 0.0 0.1 8.4 54.8
Non-interest income .......... 52.5 129.1 0.1 27.2 23.6 232.5
Non-interest expense ......... 144.1 317.3 1.4 28.1 41.5 532.4
----------- ----------- ---------- ---------- -------- -----------
Income before income
taxes ................. 180.7 155.4 54.7 17.2 (48.5) 359.5
Income tax expense (FTE) ..... 0.0 0.0 0.0 0.0 121.5 121.5
----------- ----------- ---------- ---------- -------- -----------
Net income .............. $ 180.7 $ 155.4 $ 54.7 $ 17.2 $ (170.0) $ 238.0
=========== =========== ========== ========== ======== ===========
Ending assets ................ $ 16,068.4 $ 17,659.8 $ 7,322.8 $ 2,656.2 $ 637.3 $ 44,344.5
=========== =========== ========== ========== ======== ===========
Three months ended June 30, 1999
-----------------------------------------------------------------------------------------
Commercial Regional Funds Reconciling Total
(In millions) Banking Banking Management Other Items Company
----------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net interest margin (FTE) .... $ 133.3 $ 183.8 $ 30.2 $ 5.2 $ (12.0) $ 340.5
Provision for loan losses .... 6.5 15.1 0.0 0.0 10.2 31.8
Non-interest income .......... 23.0 61.1 0.1 14.3 8.5 107.0
Non-interest expense ......... 68.7 150.7 0.6 14.2 14.7 248.9
----------- ----------- ---------- ---------- -------- -----------
Income before income
taxes ................. 81.1 79.1 29.7 5.3 (28.4) 166.8
Income tax expense (FTE) ..... 0.0 0.0 0.0 0.0 57.1 57.1
----------- ----------- ---------- ---------- -------- -----------
Net income .............. $ 81.1 $ 79.1 $ 29.7 $ 5.3 $ (85.5) $ 109.7
=========== =========== ========== ========== ======== ===========
Six months ended June 30, 1999
-----------------------------------------------------------------------------------------
Commercial Regional Funds Reconciling Total
(In millions) Banking Banking Management Other Items Company
----------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net interest margin (FTE) .... $ 260.9 $ 364.9 $ 53.3 $ 12.3 $ (30.6) $ 660.8
Provision for loan losses .... 11.5 24.3 0.0 0.0 26.4 62.2
Non-interest income .......... 46.0 123.7 0.2 28.1 20.1 218.1
Non-interest expense ......... 135.4 294.2 1.1 26.7 34.1 491.5
----------- ----------- ---------- ---------- -------- -----------
Income before income
taxes ................. 160.0 170.1 52.4 13.7 (71.0) 325.2
Income tax expense (FTE) ..... 0.0 0.0 0.0 0.0 111.0 111.0
----------- ----------- ---------- ---------- -------- -----------
Net income .............. $ 160.0 $ 170.1 $ 52.4 $ 13.7 $ (182.0) $ 214.2
=========== =========== ========== ========== ======== ===========
Ending assets ................ $ 14,540.4 $ 16,144.4 $ 6,216.1 $ 2,623.4 $ 542.2 $ 40,066.5
=========== =========== ========== ========== ======== ===========
</TABLE>
11
<PAGE> 12
Note F - Business Combinations
During the first six months of 2000, the Company completed the
following acquisitions:
<TABLE>
<CAPTION>
(In millions)
Date Institution Assets Loans Deposits Location
------- ----------------------- -------- ------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Jan 14 Brazos Bancshares, Inc. $176.7 $118.0 $168.7 Waxahachie, Texas
Apr 14 Security Bancorp, Inc. 177.8 104.1 161.3 San Antonio, Texas
------ ------ ------
$354.5 $222.1 $330.0
------ ------ ------
</TABLE>
Consideration for the acquisitions was approximately $67 million in
cash. Both acquisitions were accounted for as purchases. Under purchase
accounting, the results of operations, subsequent to the acquisition date, are
included in the Consolidated Condensed Financial Statements.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Business
SouthTrust Corporation ("SouthTrust" or the "Company") is a registered
financial holding company incorporated under the laws of Delaware in 1968. The
Company is headquartered in Birmingham, Alabama, and engages, through its
subsidiary bank, SouthTrust Bank and its non-banking subsidiaries, in a full
range of banking services from 640 banking locations in Alabama, Florida,
Georgia, Mississippi, North Carolina, South Carolina, Tennessee and Texas. As
of June 30, 2000, the Company had consolidated total assets of $44.3 billion,
which ranked it as the twenty-sixth largest bank holding company in the United
States.
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), and a variety of trust services.
SouthTrust Bank also offers Visa and/or MasterCard multi-purpose nationally
recognized credit card services. The Company also offers brokerage and other
investment services through its subsidiary SouthTrust Securities, Inc.
Information relating to the Company's business segments can be found
in Note E to the Consolidated Condensed 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, 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 the following: 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
changes; changes in law; changes in fiscal, monetary, regulatory and tax
policies; monetary fluctuations; success in gaining regulatory approvals when
required; other risks and uncertainties.
13
<PAGE> 14
SELECTED QUARTERLY FINANCIAL DATA TABLE 1
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------------------------------------
2000 1999
-------------------------- ------------------------------------------
Jun 30 Mar 31 Dec 31 Sept 30 Jun 30
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
EARNINGS SUMMARY:
Interest income $ 841.6 $ 815.5 $ 790.3 $ 750.1 $ 695.3
Interest expense 490.8 459.3 432.4 394.4 358.5
--------- --------- --------- --------- ---------
Net interest income 350.8 356.2 357.9 355.7 336.8
Provision for loan losses 24.2 30.7 36.4 42.7 31.8
--------- --------- --------- --------- ---------
Net interest income after
provision for loan losses 326.6 325.5 321.5 313.0 305.0
Non-interest income 119.2 112.9 112.9 113.2 107.2
Securities gains (losses) (0.1) 0.6 (0.8) 0.2 (0.2)
Non-interest expense 268.8 263.6 260.2 258.8 248.9
--------- --------- --------- --------- ---------
Income before income taxes 176.9 175.4 173.4 167.6 163.1
Income taxes 57.0 57.3 57.5 54.5 53.4
--------- --------- --------- --------- ---------
Net income $ 119.9 $ 118.1 $ 115.9 $ 113.1 $ 109.7
========= ========= ========= ========= =========
PER COMMON SHARE:
Net income-basic $ 0.71 $ 0.70 $ 0.69 $ 0.67 $ 0.66
Net income-diluted 0.71 0.70 0.69 0.67 0.65
Cash dividends declared 0.25 0.25 0.22 0.22 0.22
Book value 18.22 17.69 17.44 17.20 16.90
Market value-high 30.375 37.063 41.813 38.938 42.875
Market value-low 22.500 20.875 32.750 32.750 36.000
ENDING BALANCES:
Loans, net of unearned income $32,043.4 $31,824.6 $31,697.8 $30,614.0 $29,178.4
Total assets 44,344.5 43,866.3 43,262.5 42,474.2 40,066.5
Deposits 28,627.6 28,550.5 27,739.3 27,497.2 26,296.7
Federal Home Loan Bank advances 3,050.8 3,350.3 3,530.3 3,480.3 2,855.3
Long-term debt 1,125.3 1,125.5 1,125.5 1,125.5 1,075.5
Stockholders' equity 3,064.8 2,974.3 2,927.4 2,885.5 2,829.5
Common shares (in thousands) 168,234 168,096 167,905 167,803 167,476
AVERAGE BALANCES:
Loans, net of unearned income $31,993.9 $31,931.3 $31,071.6 $29,823.5 $28,532.3
Earning assets 40,703.9 40,292.7 39,548.7 37,919.9 35,849.4
Total assets 44,038.1 43,565.0 42,784.3 41,041.4 38,951.2
Deposits 28,449.5 28,773.6 27,470.9 26,599.7 24,995.9
Stockholders' equity 2,989.5 2,946.0 2,901.4 2,801.0 2,798.8
Common shares (in thousands)
Basic 168,184 168,037 167,871 167,654 167,439
Diluted 168,783 168,697 168,970 168,742 168,746
SELECTED RATIOS:
Return on average total assets 1.09% 1.09% 1.07% 1.09% 1.13%
Return on average stockholders' equity 16.13 16.12 15.85 16.01 15.72
Net interest margin (FTE) 3.48 3.57 3.62 3.75 3.81
Average equity to average assets 6.79 6.76 6.78 6.82 7.19
Non-interest expense as a percent
of average total assets 2.46 2.43 2.41 2.50 2.56
Efficiency ratio 56.68 55.91 54.98 54.75 55.58
</TABLE>
14
<PAGE> 15
AVERAGE BALANCES, INTEREST INCOME AND EXPENSE AND TABLE 2
AVERAGE YIELDS EARNED AND RATES PAID
(DOLLARS IN MILLIONS; YIELDS ON TAXABLE EQUIVALENT BASIS)
<TABLE>
<CAPTION>
Quarters Ended
-----------------------------------------------------------------------
June 30, 2000 March 31, 2000
--------------------------------- ----------------------------------
(1) (1)
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
--------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans, net of unearned
income (2) $31,993.9 $690.4 8.68% $31,931.3 $671.4 8.46%
Available-for-sale securities:
Taxable 4,938.3 87.5 6.80 4,695.0 82.7 6.81
Non-taxable 344.1 6.8 7.62 322.9 6.5 7.62
Held-to-maturity securities:
Taxable 2,911.1 49.9 6.89 2,907.3 49.8 6.89
Non-taxable 77.8 1.9 9.71 81.9 2.1 10.13
Short-term investments 438.7 8.8 8.12 354.3 6.6 7.53
--------------------------------- ----------------------------------
Total interest-earning assets 40,703.9 $845.3 8.30 40,292.7 $819.1 8.14
Allowance for loan losses (456.7) (448.7)
Other assets 3,790.9 3,721.0
--------------------------------- ----------------------------------
Total assets $44,038.1 $43,565.0
================================= ==================================
LIABILITIES
Interest-bearing deposits $24,832.5 $304.0 4.92% $25,262.9 $295.7 4.71%
Short-term borrowings 7,739.1 121.8 6.33 7,134.4 104.4 5.88
Federal Home Loan Bank advances 3,151.7 46.4 5.92 3,026.0 41.4 5.50
Long-term debt 1,125.4 18.6 6.67 1,125.5 17.9 6.38
--------------------------------- ----------------------------------
Total interest-bearing liabilities 36,848.7 490.8 5.36 36,548.8 459.4 5.05
Non-interest bearing deposits 3,617.0 3,510.7
Other liabilities 582.9 559.5
Total liabilities 41,048.6 40,619.0
STOCKHOLDERS' EQUITY 2,989.5 2,946.0
--------------------------------- ----------------------------------
Total liabilities and stockholders' equity $44,038.1 $43,565.0
================================= ==================================
Net interest income $354.5 $359.7
================================= ==================================
Net interest margin 3.48% 3.57%
================================= ==================================
Net interest spread 2.94% 3.09%
================================= ==================================
</TABLE>
(1) YIELDS WERE CALCULATED USING THE AVERAGE AMORTIZED COST OF THE
UNDERLYING ASSETS. ALL YIELDS AND RATES ARE PRESENTED ON AN ANNUALIZED
BASIS.
(2) INCLUDED IN INTEREST ARE NET LOAN FEES OF $17.5 MILLION, $17.2
MILLION, $16.8 MILLION, $17.6 MILLION, AND $17.4 MILLION FOR THE FIVE
QUARTERS ENDED JUNE 30, 2000, RESPECTIVELY. THE AVERAGES INCLUDE LOANS
ON WHICH THE ACCRUAL OF INTEREST HAS BEEN DISCONTINUED. INCOME ON
CERTAIN NON-ACCRUAL LOANS IS RECOGNIZED ON A CASH-BASIS.
15
<PAGE> 16
TABLE 2
<TABLE>
<CAPTION>
Quarters Ended
--------------------------------------------------------------------------------
December 31, 1999 September 30, 1999
------------------------------------ ------------------------------------
(1) (1)
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans, net of unearned
income (2) $31,071.6 $646.7 8.26% $29,823.5 $613.7 8.16%
Available-for-sale securities:
Taxable 4,775.0 81.9 6.64 4,352.1 73.5 6.55
Non-taxable 325.2 6.4 7.51 322.9 6.3 7.51
Held-to-maturity securities:
Taxable 2,901.5 49.7 6.80 2,913.3 49.6 6.76
Non-taxable 86.4 2.2 9.80 95.5 2.4 9.88
Short-term investments 389.0 7.1 7.25 412.6 8.3 8.01
------------------------------------ ------------------------------------
Total interest-earning assets 39,548.7 $794.0 7.94 37,919.9 $753.8 7.87
Allowance for loan losses (437.1) (415.2)
Other assets 3,672.7 3,536.7
------------------------------------ ------------------------------------
Total assets $42,784.3 $41,041.4
==================================== ====================================
$23,960.8 $268.0 4.44% $23,178.9 $248.2 4.25%
LIABILITIES 7,331.7 101.9 5.52 6,941.5 90.9 5.19
Interest-bearing deposits 3,432.8 45.4 5.25 3,120.8 40.2 5.11
Short-term borrowings 1,125.5 17.1 6.02 1,084.2 15.1 5.51
Federal Home Loan Bank advances ------------------------------------ ------------------------------------
Long-term debt 35,850.8 432.4 4.79 34,325.4 394.4 4.56
3,510.1 3,420.8
Total interest-bearing liabilities 522.0 494.2
Non-interest bearing deposits 39,882.9 38,240.4
Other liabilities 2,901.4 2,801.0
Total liabilities ------------------------------------ ------------------------------------
STOCKHOLDERS' EQUITY $42,784.3 $41,041.4
==================================== ====================================
Total liabilities and stockholders' equity $361.6 $359.4
==================================== ====================================
Net interest income 3.62% 3.75%
==================================== ====================================
Net interest margin 3.15% 3.31%
==================================== ====================================
Net interest spread
<CAPTION>
June 30, 1999
------------------------------------
(1)
Average Yield/
Balance Interest Rate
------------------------------------
<S> <C> <C> <C>
ASSETS
Loans, net of unearned
income (2) $28,532.3 $575.1 8.09%
Available-for-sale securities:
Taxable 3,737.0 60.8 6.48
Non-taxable 329.3 6.3 7.60
Held-to-maturity securities:
Taxable 2,549.8 43.6 6.85
Non-taxable 101.7 2.6 10.45
Short-term investments 599.3 10.6 7.07
------------------------------------
Total interest-earning assets 35,849.4 $699.0 7.81
Allowance for loan losses (397.0)
Other assets 3,498.8
------------------------------------
Total assets $38,951.2
====================================
LIABILITIES
Interest-bearing deposits $21,643.6 $225.1 4.17%
Short-term borrowings 6,728.1 80.8 4.82
Federal Home Loan Bank advances 2,827.6 36.1 5.12
Long-term debt 1,118.4 16.5 5.91
------------------------------------
Total interest-bearing liabilities 32,317.7 358.5 4.45
Non-interest bearing deposits 3,352.3
Other liabilities 482.4
Total liabilities 36,152.4
STOCKHOLDERS' EQUITY 2,798.8
------------------------------------
Total liabilities and stockholders' equity $38,951.2
====================================
Net interest income $340.5
====================================
Net interest margin 3.81%
====================================
Net interest spread 3.36%
====================================
</TABLE>
<PAGE> 17
NET INTEREST INCOME/MARGIN.
The Company's net interest margin decreased 33 basis points from the
second quarter of 1999 to 3.48% for the 2000 second quarter period. Also, the
net interest margin is down 9 basis points from the first quarter of 2000. The
net interest spread between interest-earning assets and interest-bearing
liabilities decreased 42 basis points from the second quarter of 1999 to 2.94%.
Net interest spread is down 15 basis points from the first quarter of 2000. The
net interest margin and net interest spread are affected by the composition of
interest-earning assets and interest-bearing liabilities, competitive
pressures, and Federal Reserve Bank (the "Fed") monetary policies.
In response to outstanding growth in the economy, the Fed has raised
short-term interest rates on six separate occasions since mid-1999. In an
attempt to control inflationary pressures, rates on the first five occasions
were increased 25 basis points. The sixth rate increase, which occurred in the
second quarter of 2000, was 50 basis points. Further increases in interest
rates from the Fed could be possible in the near future; however, Management
believes that this cycle of interest rate increases is near an end.
Since the Company's interest-earning assets are repricing at a slower
rate than its interest-bearing liabilities, the Company's net interest margin
and net interest spread are being compressed. In an effort to mitigate the
effects of changes in interest rates, the Company is emphasizing
diversification of the portfolio mix. As part of this diversification, the
Company is placing more emphasis on variable rate assets than in previous
periods.
See Table 2 for detailed information concerning quarterly average
volumes, interest, yields earned and rates paid.
PROVISION FOR LOAN LOSSES.
During the second quarter of 2000, the Company recorded a $24.2
million provision for loan losses. This compares to a provision of $31.8
million for the quarter ended June 30, 1999. On a year-to-date basis, the
provision for loan losses was $54.8 million in 2000 compared to $62.1 million
in 1999. Provisions for loan losses are charged to income to bring the
allowance to a level deemed appropriate by Management based on the factors as
described in "Allowance for Loan Losses" later in Management's Discussion and
Analysis of Financial Condition and Results of Operations Earnings Summary.
17
<PAGE> 18
NON-INTEREST INCOME.
Total non-interest income for the quarter ended June 30, 2000 was
$119.1 million, an increase of $12.1 million or 11.3% over the same period in
1999. For the six month period ended June 30, 2000, non-interest income was up
$14.5 million, or 6.6% from the comparable period in 1999. Service charges on
deposit accounts, which represent the largest portion of non-interest income,
increased in the second quarter and first six months of 2000 by 20.9% and
19.2%, respectively from the comparable year-ago periods. This increase is
attributable to an increased number of deposit accounts and increases in
certain service charge rates. In particular, service charges increased from
increased usage of Visa debit cards and ATM cards. Mortgage banking operations
income decreased 15.1% compared to the 1999 second quarter. On a year-to-date
basis the decrease was $8.6 million or 32.1%. Mortgage interest rates have
increased significantly compared to the second quarter of 1999, and loan
production and related income have declined accordingly. Fee income related to
Bank Card and Trust operations has also increased, 12.8% and 3.8%,
respectively, over the year ago quarter. For the comparable six month periods,
the increases were 8.4% and 4.4%. Both were related to higher volume and
various rate increases. Investment fee income decreased $0.3 million or 3.0%
compared to the quarter ended June 30, 1999. On a year-to-date basis,
investment fee income increased $1.2 million or 6.7%. Investment fees include
trading account profits and commissions, which fluctuate based on market
conditions. Income from bank owned life insurance for the second quarter and
first six months of 2000 increased 54.0% and 32.8%, respectively over the
comparable year ago periods, due in part to an additional investment in the
second quarter of 2000.
Sales of loans during the second quarter and six month period ended
June 30, 2000 resulted in gains of approximately $0.5 and $1.9 million,
respectively. Securities losses were $0.1 million in the second quarter of
2000. On a year-to-date basis, securities had gains of $0.5 million.
There were no other significant non-recurring non-interest income
items recorded in 2000 or 1999.
NON-INTEREST INCOME TABLE 3
(In millions)
<TABLE>
<CAPTION>
Quarters Ended
-----------------------------------------------------------------
2000 1999
---------------------- ----------------------------------
Jun 30 Mar 31 Dec 31 Sept 30 Jun 30
------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 59.4 $ 54.6 $ 56.0 $ 52.3 $ 49.2
Mortgage banking operations 9.7 8.4 8.3 9.2 11.5
Bank card fees 8.3 7.9 8.3 8.0 7.3
Trust fees 7.8 7.9 7.8 7.4 7.5
Investment fees 9.2 9.9 8.9 8.9 9.5
Bank owned life insurance 14.8 10.3 10.1 12.4 9.6
Gains on loans held-for-sale, net 0.5 1.5 2.7 4.5 3.6
Securities gains (losses) (0.1) 0.6 (0.8) 0.2 (0.2)
Other 9.5 12.4 10.8 10.5 9.0
------ ------ ------ ------ ------
Total $119.1 $113.5 $112.1 $113.4 $107.0
====== ====== ====== ====== ======
</TABLE>
18
<PAGE> 19
NON-INTEREST EXPENSE.
Total non-interest expense increased 8.0% to $268.8 million in the
second quarter of 2000 as compared to the same period in 1999. On a
year-to-date basis, the increase was 8.3% as compared to the same period in
1999. Salaries and employee benefits expense is the largest component of
non-interest expense, accounting for $141.9 million or 52.8% of all
non-interest expense for the quarter ended June 30, 2000 and $285.3 million or
53.6% for the first six months of 2000. The June 30, 2000 quarter over June 30,
1999 quarter increase in salary and employee benefits expense was $8.2 million
or 6.2%, related mainly to annual merit increases and an increase in the number
of full-time equivalent employees of 3.6% to 12,451 at June 30, 2000. Occupancy
and equipment expenses were also up in the second quarter and first six months
of 2000. These increases are attributable to a higher number of banking
offices, including branches and other offices, as of June 30, 2000 compared to
June 30, 1999. The efficiency ratio, a measure of non-interest expense to net
interest income plus non-interest income, was 56.68% and 56.30% for the three
and six month periods ended June 30, 2000, respectively. The efficiency ratio
for the three and six month periods ended June 30, 1999 was 55.58% and 55.95%,
respectively.
There were no significant non-recurring non-interest expense items
recorded in 2000 or 1999.
NON-INTEREST EXPENSE TABLE 4
(In millions)
<TABLE>
<CAPTION>
Quarters Ended
------------------------------------------------
2000 1999
---------------- ---------------------------
Jun 30 Mar 31 Dec 31 Sept 30 Jun 30
------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $141.9 $143.4 $136.0 $136.5 $133.7
Net occupancy 23.3 22.6 21.6 20.9 19.9
Equipment 18.2 17.4 17.9 17.8 16.5
Professional services 17.7 15.2 17.6 17.0 17.7
Communications 13.1 13.2 13.5 12.7 13.1
Goodwill and core deposit amortization 11.0 10.8 10.6 8.0 11.1
Business development 7.8 7.4 8.4 7.4 7.7
Supplies 6.6 6.3 6.9 6.2 5.9
Other 29.2 27.3 27.7 32.3 23.3
------ ------ ------ ------ ------
Total $268.8 $263.6 $260.2 $258.8 $248.9
====== ====== ====== ====== ======
</TABLE>
INCOME TAX EXPENSE.
Income tax expense for the second quarter of 2000 was $57.0 million
for an effective tax rate of 32.2% compared to $53.4 million or an effective
rate of 32.8% in the second quarter of 1999. For the six months ended June 30,
2000, income tax expense was $114.3 million for an effective tax rate of 32.4%
compared to tax expense of $103.5 million and an effective tax rate of 32.6%
during the first six months of 1999. The statutory federal income tax rate was
35% in 2000 and 1999.
19
<PAGE> 20
LOANS.
Loans, net of unearned income at June 30, 2000 were $32,043.4 million,
an increase of $345.6 million over the December 31, 1999 level. Of the total
loan increase, $222.1 million was obtained in acquisitions. Internal growth
accounted for the remaining $123.5 million of the increase. Loan growth has
slowed down in the first six months of 2000 when compared to previous periods
as a result of the increasing interest rate environment. Given the recent and
possible future interest rate increases from the Fed, economic growth in
general is expected to slow down, which will continue to slow anticipated loan
growth. Also contributing to slower loan growth, the Company is emphasizing
diversification of its loan portfolio mix, which includes a greater emphasis on
variable rate loans. In addition, the Company securitized approximately $332.3
million of 1-4 family mortgages into mortgage-backed securities during the six
month period ended June 30, 2000. The Company retained these securities,
classifying them as available-for-sale. The primary purpose of the
securitization was to enable greater liquidity for these assets.
The Company regularly participates in loan sales in the secondary
market, which facilitates the management of its loan portfolio. Specifically,
these sales allow the Company to manage credit concentrations, while continuing
to extend credit to customers. Loans sold, consisting mainly of 1-4 family
mortgages, amounted to approximately $389.1 million during the six month period
ended June 30, 2000.
LOAN PORTFOLIO TABLE 5
(In millions)
<TABLE>
<CAPTION>
Quarters Ended
-----------------------------------------------------------------------------------
2000 1999
---------------------------- -----------------------------------------------
Jun 30 Mar 31 Dec 31 Sept 30 Jun 30
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 11,658.2 $ 11,357.2 $ 11,265.2 $ 10,734.5 $ 10,222.4
Real estate construction 4,035.6 4,369.9 4,342.9 4,270.5 4,006.6
Commercial real estate mortgage 6,521.4 6,266.1 6,029.2 5,560.8 5,507.0
Residential real estate mortgage 6,752.4 6,616.2 6,773.4 6,716.7 6,359.4
Loans to individuals 3,349.7 3,482.1 3,562.0 3,591.8 3,316.8
----------- ----------- ----------- ----------- -----------
32,317.3 32,091.5 31,972.7 30,874.3 29,412.2
Unearned income (273.9) (266.9) (274.9) (260.3) (233.8)
----------- ----------- ----------- ----------- -----------
Loans, net of unearned income 32,043.4 31,824.6 31,697.8 30,614.0 29,178.4
Allowance for loan losses (456.1) (453.3) (442.3) (434.8) (405.5)
----------- ----------- ----------- ----------- -----------
Net loans $ 31,587.3 $ 31,371.3 $ 31,255.5 $ 30,179.2 $ 28,772.9
=========== =========== =========== =========== ===========
</TABLE>
20
<PAGE> 21
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 State Banking Department of the State of Alabama. The bank is a member bank
of the Federal Reserve System, and as such, is also subject to the regulations
of the Federal Reserve Board applicable to state member banks. Management may
also consider recommendations from these regulators 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
are 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.
Loans are separated by internal risk ratings into two categories for
assessment of their estimated allowance level needs; Non-problem and
Watch-list. 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 years' loss experience if in
Management's judgement that loss rate is more representative of current trends
in a particular loan type. Watch-list loans include any loans that have an
internal credit review or regulatory rating of less than "good" or loans that
are sound and collectible, but contain certain characteristics that require
review by Management. The allowance associated with Watch-list 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 Watch-list loans. The migration analysis is performed
periodically and measures losses in relation to the internal risk ratings
assigned to loans. Additionally, certain Watch-list 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 borrowers' ability to repay the loan.
In addition to the above, the Company considers other risk elements in
establishing the reserve for both Non-problem and Watch-list 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 has historically experienced growth rates
in excess of our peers. While the Company strives to use prudent underwriting
and credit management standards, such growth and related underwriting risks
lead to increased losses, which are not realized until after period end.
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
21
<PAGE> 22
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. The Company has established a sound credit policy which
guides the manner in which 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.
Based on the methodology outlined above, the allowance for loan losses
allocated to Non-problem and Watch-list loans was $340.6 million and $115.5
million, respectively, at June 30, 2000 and $285.5 million and $156.8 million,
respectively, at December 31, 1999. As a percentage of outstanding loans, the
total allowance for loan losses was 1.42%, compared to the December 31, 1999
level of 1.40%. Net charge-offs during the three months ended June 30, 2000
totaled $24.0 million or .30% of average net loans on an annualized basis, an
increase of $3.6 million from the 1999 second quarter. For the six months ended
June 30, 2000, net charge-offs totaled $46.6 million or .29% of average net
loans on an annualized basis.
ALLOWANCE FOR LOAN LOSSES TABLE 6
(In thousands)
<TABLE>
<CAPTION>
Quarters Ended
------------------------------------------------------------------------------
2000 1999
-------------------------- --------------------------------------------
Jun 30 Mar 31 Dec 31 Sept 30 Jun 30
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balance beginning of quarter $ 453,280 $ 442,343 $ 434,771 $ 405,513 $ 394,135
Loans charged-off:
Commercial, financial and agricultural 13,883 9,912 20,961 13,605 7,870
Real estate construction 0 0 1 59 331
Commercial real estate mortgage 0 0 2 78 90
Residential real estate mortgage 1,821 1,215 991 804 961
Loans to individuals 11,382 14,519 10,795 10,591 14,714
--------- --------- --------- --------- ---------
Total charge-offs 27,086 25,646 32,750 25,137 23,966
========= ========= ========= ========= =========
Recoveries of loans previously charged-off:
Commercial, financial and agricultural 450 1,371 1,553 999 1,297
Real estate construction 0 0 0 0 0
Commercial real estate mortgage 0 0 0 3 6
Residential real estate mortgage 179 112 21 70 222
Loans to individuals 2,465 1,544 2,311 2,414 2,047
--------- --------- --------- --------- ---------
Total recoveries 3,094 3,027 3,885 3,486 3,572
========= ========= ========= ========= =========
Net loans charged-off 23,992 22,619 28,865 21,651 20,394
Additions to allowance charged to expense 24,182 30,662 36,354 42,757 31,776
Subsidiaries' allowance at date of purchase 2,619 2,894 83 8,152 (4)
--------- --------- --------- --------- ---------
Balance at end of quarter $ 456,089 $ 453,280 $ 442,343 $ 434,771 $ 405,513
========= ========= ========= ========= =========
(In millions)
Loans outstanding at quarter end,
net of unearned income $32,043.4 $31,824.6 $31,697.8 $30,614.0 $29,178.4
Average loans outstanding,
net of unearned income $31,993.9 $31,931.3 $31,071.6 $29,823.5 $28,532.3
Ratios:
Allowance to net loans outstanding 1.42% 1.42% 1.40% 1.42% 1.39%
Net loans charged-off to average net loans 0.30 0.28 0.37 0.29 0.29
Provision for loan losses to net charge-offs 100.79 135.56 125.94 197.48 155.81
Provision for loan losses to average net loans 0.30 0.39 0.46 0.57 0.45
</TABLE>
22
<PAGE> 23
NON-PERFORMING ASSETS.
Non-performing assets, which include non-accrual and restructured
loans, other real estate owned and other repossessed assets were $187.9 million
at June 30, 2000, an increase of $25.2 million from December 31, 1999. The
ratio of non-performing assets to total loans plus other non-performing assets
was .59% at June 30, 2000, while the allowance to non-performing loans ratio
was 332.73% for the same period.
In addition to loans on non-performing status at June 30, 2000, the
Company had loans of approximately $55.1 million for which Management had
serious doubts as to the ability of the borrowers to comply with the present
repayment terms, which may result in the loans' repayment terms being
restructured and/or the loans being placed on non-performing status. These
potential problem loans are not presently on non-accrual status; however, they
are continuously reviewed by Management and their classification may be changed
if conditions warrant. At December 31, 1999, potential problem loans totaled
$67.6 million.
NON-PERFORMING ASSETS TABLE 7
(Dollars in millions)
<TABLE>
<CAPTION>
Quarters Ended
-------------------------------------------------------------------------
2000 1999
------------------------- -----------------------------------------
Jun 30 Mar 31 Dec 31 Sept 30 Jun 30
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Non-performing loans
Commercial, financial, and agricultural $ 102.9 $ 92.5 $ 78.7 $ 69.7 $ 67.6
Real estate construction 4.6 4.2 3.8 4.2 7.0
Commercial real estate mortgage 4.6 5.5 12.2 10.1 10.6
Residential real estate mortgage 15.0 15.7 14.7 21.5 24.9
Loans to individuals 10.0 15.5 2.6 3.1 3.4
--------- --------- --------- --------- ---------
Total non-performing loans 137.1 133.4 112.0 108.6 113.5
--------- --------- --------- --------- ---------
Other real estate owned 39.0 37.1 38.3 39.6 42.8
Other repossessed assets 11.8 13.3 12.4 11.1 12.9
--------- --------- --------- --------- ---------
Total non-performing assets $ 187.9 $ 183.8 $ 162.7 $ 159.3 $ 169.2
========= ========= ========= ========= =========
Accruing loans past due 90 days or more $ 55.8 $ 60.6 $ 71.5 $ 72.5 $ 76.6
Ratios:
Non-performing loans to total loans 0.43% 0.42% 0.35% 0.35% 0.39%
Non-performing assets to total loans
plus other non-performing assets 0.59 0.58 0.51 0.52 0.58
Non-performing assets and accruing loans
90 days or more past due to total loans
plus other non-performing assets 0.76 0.77 0.74 0.76 0.84
Allowance to non-performing loans 332.73 339.80 394.83 400.20 357.43
</TABLE>
23
<PAGE> 24
AVAILABLE-FOR-SALE AND HELD-TO-MATURITY SECURITIES.
The investment portfolio is managed to maximize yield over an entire
interest rate cycle while providing liquidity and minimizing risk. Securities
classified as held-to-maturity are carried at amortized cost, as the Company
has the ability and Management has the positive intent to hold these securities
to maturity. All securities not considered held-to-maturity or part of the
trading portfolio have been designated as available-for-sale and are carried at
fair value. Unrealized gains and losses on available-for-sale securities are
excluded from earnings and are reported net of deferred taxes as a component of
stockholders' equity. This caption includes securities that Management intends
to use as part of its asset / liability management strategy or that may be sold
in response to changes in interest rates, changes in prepayment risk, liquidity
needs, or for other purposes.
Total securities, including those designated as available-for-sale and
held-to-maturity, have increased $254.8 million since December 31, 1999.
Securities obtained through the acquisition of other financial institutions
were $63.4 million during the first six months of 2000.
The Company's investment in collateralized mortgage obligations
presents some degree of risk that the mortgages collateralizing the securities
can prepay, thereby affecting the yield of the securities and their carrying
amounts. Such an occurrence is most likely in periods of declining interest
rates when many borrowers refinance their mortgages, creating prepayments on
their existing mortgages. The Company doesn't consider this risk to be
significant. The Company's investment in structured notes and other derivative
investment securities is nominal and would not have a significant effect on the
Company's net interest margin.
24
<PAGE> 25
AVAILABLE-FOR-SALE AND HELD-TO-MATURITY SECURITIES TABLE 8
<TABLE>
<CAPTION>
Available-for-Sale Securities
-------------------------------------------------------------------------------
June 30, 2000 December 31, 1999
--------------------------------- ---------------------------------
Amortized Fair Amortized Fair
(DOLLARS IN MILLIONS) Cost Value Cost Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 77.5 $ 77.5 $ 39.1 $ 38.9
U.S. Government agency securities 2,356.0 2,229.5 2,354.5 2,234.6
Collateralized mortgage obligations
and mortgage backed securities 2,398.9 2,332.7 2,070.3 2,037.6
Obligations of states and political
subdivisions 307.0 294.5 288.4 271.9
Other debt securities 70.1 65.4 71.3 67.2
Equity securities 308.0 307.9 410.8 410.8
---------- ---------- ---------- ----------
Total $ 5,517.5 $ 5,307.5 $ 5,234.4 $ 5,061.0
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Held-to-Maturity Securities
-------------------------------------------------------------------------------
June 30, 2000 December 31, 1999
--------------------------------- ---------------------------------
Amortized Fair Amortized Fair
(DOLLARS IN MILLIONS) Cost Value Cost Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 4.3 $ 4.3 $ 6.9 $ 6.8
U.S. Government agency securities 2,516.7 2,392.1 2,489.3 2,372.9
Collateralized mortgage obligations
and mortgage backed securities 256.2 252.2 277.9 275.5
Obligations of states and political
subdivisions 75.5 77.5 85.0 87.4
Other debt securities 142.6 133.1 127.9 121.1
---------- ---------- ---------- ----------
Total $ 2,995.3 $ 2,859.2 $ 2,987.0 $ 2,863.7
========== ========== ========== ==========
</TABLE>
25
<PAGE> 26
SHORT-TERM INVESTMENTS.
Short-term investments at June 30, 2000 totaled $662.3 million,
reflecting an increase of $294.2 million from the December 31, 1999 level of
$368.1 million. At June 30, 2000, short-term investments consisted of $262.5
million in federal funds sold and securities purchased under resale agreements,
$1.0 million in time deposits with other banks, $72.5 million in trading
securities and $326.3 million in loans held for sale. Securities held for
trading purposes are primarily inventory at the Company's brokerage subsidiary
and are carried at fair value. Loans held for sale, primarily 1-4 mortgage
loans in the process of being securitized and sold to third party investors,
are carried at the lower of cost or 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.
The Company's overall funding level is governed by current and
expected asset demand and capital needs. The Company's funding sources can be
divided into four broad categories: deposits, short-term borrowings, Federal
Home Loan Bank ("FHLB") advances, and long-term debt. The mixture of these
funding types depends upon the Company's maturity and liquidity needs, the
current rate environment, and the availability of such funds.
The Company monitors certain ratios and liability concentrations to
ensure funding levels are maintained within established policies. These
policies include a maximum short-term liability to total asset ratio of 40% and
a limit on funding concentrations from any one source as a percent of total
assets of 20%. Various maturity limits have also been established.
Deposits are the Company's primary source of funding. Total deposits
at June 30, 2000 were $28,627.6 million, up $888.3 million or 32.0% from the
December 31, 1999 level of $27,739.3 million. Of the total increase in
deposits, $330.0 million were obtained in acquisitions. At June 30, 2000, total
deposits included interest-bearing deposits of $24,893.6 million and other
deposits of $3,734.0 million.
Short-term borrowings at June 30, 2000 were $7,875.1 million and
included federal funds purchased of $3,475.7 million, securities sold under
agreements to repurchase of $2,212.3 million and other borrowed funds of
$2,187.1 million. At June 30, 2000, total short-term borrowings were 17.8% of
total liabilities and stockholders' equity. This compares to total short-term
borrowings of $7,397.0 million or 17.1% of total liabilities and stockholders'
equity at December 31, 1999.
FHLB advances totaled $3,050.8 million at June 30, 2000. The current
quarter end balance is down $479.5 million from the level outstanding at
December 31, 1999. The Company uses FHLB advances as an alternative to other
funding sources with similar maturities. These advances generally offer more
attractive rates when compared to other mid-term financing options. They are
26
<PAGE> 27
also flexible, allowing the Company to quickly obtain the necessary maturities
and rates that best suit its overall asset/liability management strategy.
At June 30, 2000 and December 31, 1999, total long-term debt was
$1,125.3 million and $1,125.5 million, respectively.
CAPITAL.
The Company continually monitors current and projected capital
adequacy positions of both the Company and its subsidiary bank. Maintaining
adequate capital levels is integral to providing stability to the Company,
resources to achieve the Company's growth objectives, and returns to
stockholders in the form of dividends.
The Company is subject to various regulatory capital requirements that
prescribe quantitative measures of the Company's assets, liabilities, and
certain off-balance sheet items. The Company's regulators have also imposed
qualitative guidelines for capital amounts and classifications such as risk
weighting, capital components, and other details. The quantitative measures to
ensure capital adequacy require that the Company maintain Tier 1 and Total
capital to risk-weighted assets of 4% and 8%, respectively, and Tier 1 capital
to adjusted quarter average total assets of 4%. Failure to meet minimum capital
requirements can initiate certain actions by regulators that, if undertaken,
could have a direct material effect on the Company's financial statements. As
of the periods ended below, the Company meets all capital adequacy requirements
imposed by its regulators.
The June 30, 2000 Tier 1 and Total capital to risk weighted assets
were 6.99% and 10.61%, respectively, compared to the December 31, 1999 ratios
of 6.65% and 10.41%.
27
<PAGE> 28
CAPITAL RATIOS TABLE 9
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
2000 1999
------------------------------ ------------------------------------------------
Jun 30 Mar 31 Dec 31 Sept 30 Jun 30
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Tier 1 capital:
Stockholders' equity $ 3,064.8 $ 2,974.3 $ 2,927.4 $ 2,885.5 $ 2,829.5
Intangible assets other than
servicing rights (611.8) (590.8) (583.3) (593.9) (544.5)
Unrealized (gain)/loss on
available-for-sale securities 131.9 141.9 108.9 69.3 50.9
------------ ------------ ------------ ------------ ------------
Total Tier 1 capital 2,584.9 2,525.4 2,453.0 2,360.9 2,335.9
------------ ------------ ------------ ------------ ------------
Tier 2 capital:
Allowable reserve for loan losses 456.1 453.3 442.3 434.8 405.5
Allowable long-term debt 885.0 945.0 945.0 945.0 895.0
------------ ------------ ------------ ------------ ------------
Total Tier 2 capital 1,341.1 1,398.3 1,387.3 1,379.8 1,300.5
------------ ------------ ------------ ------------ ------------
Total risk-based capital $ 3,926.0 $ 3,923.7 $ 3,840.3 $ 3,740.7 $ 3,636.4
============ ============ ============ ============ ============
Risk-weighted assets $ 37,015.4 $ 37,035.7 $ 36,888.4 $ 36,382.4 $ 34,726.8
Risk-based ratios:
Tier 1 capital 6.99% 6.82% 6.65% 6.49% 6.73%
Total capital 10.61 10.60 10.41 10.28 10.47
Leverage ratio 5.95 5.88 5.81 5.84 6.08
</TABLE>
COMMITMENTS.
The Company's subsidiary bank had standby letters of credit
outstanding of approximately $819.6 million at June 30, 2000 and $876.6 million
at December 31, 1999.
The Company's subsidiary bank had outstanding commitments to extend
credit of approximately $9,714.5 million at June 30, 2000 and $10,818.6 million
at December 31, 1999. 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-backed securities of approximately $191.0
million at June 30, 2000 and $180.1 million at December 31, 1999.
The Company's policies as to collateral and assumption of credit risk
for off-balance sheet commitments are essentially the same as those for
extension of credit to its customers.
Presently the Company has no commitments for significant capital
expenditures.
28
<PAGE> 29
INTEREST RATE RISK MANAGEMENT.
The Company's primary market risk is its exposure to interest rate
changes. This risk has not changed materially since December 31, 1999. Interest
rate risk management strategies are designed to optimize net interest income
while minimizing fluctuations caused by changes in the interest rate
environment. It is through these strategies that the Company seeks to manage
the maturity and repricing characteristics of its balance sheet.
The modeling techniques used by SouthTrust simulate changes in net
interest income under various rate scenarios. Important elements of these
techniques include the mix of floating versus fixed rate assets and
liabilities, and the scheduled, as well as expected, repricing and maturing
volumes and rates of the existing balance sheet.
The Company has entered into interest rate swap agreements, which
provide for the Company to pay interest based on the Floating London Interbank
Offered Rate ("LIBOR") while receiving payments on a fixed rate. The fair value
of interest rate swap agreements is estimated by discounting future cash flows
based on current market rates.
INTEREST RATE SWAPS TABLE 10
June 30, 2000
(Dollars in millions)
<TABLE>
<CAPTION>
Average
Maturity In Average Rate Average Rate
Notional Value Fair Value Months Paid Received
---------------- ------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Gain position $ 924.5 $ 5.1 48.3 6.31% 7.27%
Loss position 1,255.0 (28.1) 66.1 6.22 6.61
---------------- ------------- -------------- --------------- ---------------
Total $ 2,179.5 $ (23.0) 60.7 6.24% 6.81%
================ ============= ============== =============== ===============
</TABLE>
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.
CONTINGENCIES.
Certain of the Company's subsidiaries are defendants in various legal
proceedings arising in the normal course of business. These claims relate to
the lending and investment advisory services provided by the Company and
include alleged compensatory and punitive damages.
In addition, subsidiaries of the Company have been named as defendants
in suits that allege fraudulent, deceptive or collusive practices in connection
with certain financing 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
29
<PAGE> 30
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.
30
<PAGE> 31
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Pursuant to Rule 14a-4(c) of the Securities Exchange Act of 1934, as
amended, if a stockholder who intends to present a proposal at the 2001 annual
meeting of stockholders does not notify the Company of such proposal on or
prior to January 28, 2001, then the Board of Directors' proxies would be
allowed to use their discretionary voting authority to vote on the proposal
when the proposal is raised at the annual meeting, even though there is no
discussion of the proposal in the 2001 proxy statement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
<TABLE>
<S> <C> <C>
* 3(i)- Composite Restated Certificate of Incorporation of
SouthTrust Corporation which was filed as Exhibit 3
to SouthTrust Corporation's Registration Statement
on Form S-3 (Registration No. 333-34947).
* 3(ii)- Composite Restated Bylaws of SouthTrust Corporation
which was filed as Exhibit 4(e) to the Registration
Statement on Form S-4 of SouthTrust Corporation
(Registration No. 33-61557).
* 4(a)- Articles FOURTH, SIXTH, SEVENTH, and ELEVENTH of the
Restated Certificate of Incorporation of SouthTrust
Corporation (included at Exhibit 3)
* 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.
001-14781)
* 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).
* 4(d)- Indenture, dated as of May 1, 1987, between
SouthTrust Corporation and National Westminster Bank
USA, which was filed as Exhibit 4(a) to SouthTrust
Corporation's Registration Statement on Form S-3
(Registration No. 33-13637).
</TABLE>
31
<PAGE> 32
<TABLE>
<S> <C> <C>
* 4(e)- Subordinated Indenture, dated as of May 1, 1992,
between SouthTrust Corporation and Chemical Bank,
which was filed as Exhibit 4(b)(ii) to the
Registration Statement on Form S-3 of SouthTrust
Corporation (Registration No. 33-52717).
* 4(f)- Composite Restated Bylaws of SouthTrust Corporation
which was filed as Exhibit 4(e) to the Registration
Statement on Form S-4 of SouthTrust Corporation
(Registration No. 33-61557).
* 4(g)(i)- Form of Senior Indenture which was filed as Exhibit
4(b)(i) to the Registration Statement on Form S-3 of
SouthTrust Corporation (Registration No. 33-52717).
27- Financial Data Schedule (for SEC use only)
* Incorporated herein by reference
(b) Reports on Form 8-K filed in the second quarter of 2000: none.
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHTRUST CORPORATION
Date: August 14, 2000 /s/ Wallace D. Malone, Jr.
----------------- ---------------------------------
Wallace D. Malone, Jr.
Chairman and Chief
Executive Officer
Date: August 14, 2000 /s/ Alton E. Yother
----------------- --------------------------------
Alton E. Yother
Secretary, Treasurer and
Controller
32
