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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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COMMISSION FILE NUMBER 0-3613
SOUTHTRUST CORPORATION
(Exact name of registrant specified in its charter)
<TABLE>
<S> <C>
DELAWARE 63-0574085
(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 25, 2000.
Common Stock, par value $2.50 per share -- $3,886,580,085
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of February 25, 2000.
Common Stock, par value $2.50 per share -- 168,068,328 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual proxy statement for the annual meeting of
stockholders on April 19, 2000 incorporated by reference into Part III.
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CONTENTS
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PAGE
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PART I
Item 1. Business........................................... 1
Item 2. Properties......................................... 6
Item 3. Legal Proceedings.................................. 6
Item 4. Submission of Matters to a Vote of Security
Holders................................................... 6
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters....................................... 7
Item 6. Selected Financial Data............................ 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 9
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk............................................... 9
Item 8. Financial Statements and Supplementary Data........ 33
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ 66
PART III
Item 10. Directors and Executive Officers of the
Registrant................................................ 66
Item 11. Executive Compensation............................. 66
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 66
Item 13. Certain Relationships and Related Transactions..... 66
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K....................................... 67
</TABLE>
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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 and engages, through its
subsidiary bank, SouthTrust Bank, N.A. (SouthTrust Bank) and its non-banking
subsidiaries, in a full range of banking services from 623 banking locations in
Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina,
Tennessee and Texas. As of December 31, 1999, the Company had consolidated total
assets of $43.3 billion, which ranked it as the twenty-second largest bank
holding company in the United States.
The Company employs approximately 12,500 persons and considers that its
relations with these employees are good.
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. Services 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, and loans
(including business, personal, automobile, mortgage, home improvement and
educational loans). SouthTrust Bank also offers Visa and/or MasterCard
multi-purpose nationally recognized credit card services.
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 sheet
activities, including interest rate swap agreements.
The category named Other encompasses business segments such as non-bank
subsidiaries and the Company's trust asset management division. These areas
provide services such as mortgage banking, insurance, brokerage services,
investment services and a variety of trust services. The non-bank subsidiaries
of SouthTrust are SouthTrust Mortgage Corporation, a mortgage banking company
servicing approximately $9.8 billion in mortgage loans for long-term investors;
SouthTrust Securities, Inc., an investment services company; SouthTrust Life
Insurance Company, a credit life insurance company; and SouthTrust Insurance,
Inc., an insurance company.
Additional information relating to business segments can be found in Note P
to the Consolidated Financial Statements.
BUSINESS COMBINATIONS
The Company has pursued a strategy of acquiring banks and financial
institutions throughout the major growth areas of the southeast 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
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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 Company, as well as the stage of
development of such activity, are subject to change. These acquisitions are used
to augment the Company's internal growth. All potential acquisitions must meet
specific internal criteria designed to protect and enhance shareholder value.
During 1999, the Company completed three acquisitions, adding approximately
$706.1 million in total assets, $397.6 million in loans, and $652.5 million in
deposits.
Additional information relating to business combinations can be found in
Note B to the Consolidated Financial Statements.
SUPERVISION AND REGULATION
SouthTrust is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the "Holding Company Act"), and is registered
with the Federal Reserve Board. SouthTrust Bank is subject to restrictions under
federal law which limit the transfer of funds by a subsidiary bank to its
holding company and nonbanking subsidiaries, whether in the form of loans,
extensions of credit, investments or asset purchases. Such transfers by the
subsidiary bank to its holding company or any non-banking subsidiary are limited
in amount to 10% of the subsidiary bank's capital and surplus and, with respect
to SouthTrust and all such non-banking subsidiaries, to an aggregate of 20% of
such bank's capital and surplus. Furthermore, such loans and extensions of
credit are required to be secured in specified amounts. The Holding Company Act
also prohibits, subject to certain exceptions, a bank holding company from
engaging in or acquiring direct or indirect control of more than 5% of the
voting stock of any company engaged in non-banking activities. An exception to
this prohibition is for activities expressly found by the Federal Reserve Board
to be so closely related to banking or managing or controlling banks as to be a
proper incident thereto.
As a bank holding company, SouthTrust is required to file with the Federal
Reserve Board various reports and such additional information as the Federal
Reserve Board may require. The Federal Reserve Board may also make examinations
of SouthTrust and each of its subsidiaries.
According to Federal Reserve Board policy, a bank holding company is
expected to act as a source of financial strength to its subsidiary banks and to
commit resources to support each such subsidiary. This support may be required
at times 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, 1999,
approximately $561.5 million was available for payment of dividends to the
Company declared by the Company's subsidiaries, primarily SouthTrust Bank. The
payment of dividends by SouthTrust Bank may also be affected by other factors,
such as the maintenance of adequate capital for SouthTrust Bank. Furthermore,
the OCC has the authority to prohibit the payment of dividends by a national
bank when it determines such payment to be an unsafe and unsound banking
practice.
In addition to the foregoing restrictions, the Federal Reserve Board 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.
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RECENT LEGISLATION
On November 12, 1999, President Clinton signed into law legislation that
allows bank holding companies to engage in a wider range of non-banking
activities, including greater authority to engage in securities and insurance
activities. Under the Gramm-Leach-Bliley Act (the "Act"), a bank holding company
that elects to become a financial holding company may engage in any activity
that the Federal Reserve Board, in consultation with the Secretary of the
Treasury, determines by regulation or order is (i) financial in nature, (ii)
incidental to any such financial activity, or (iii) complementary to any such
financial activity and does not pose a substantial risk to the safety or
soundness of depository institutions or the financial system generally. This Act
makes significant changes in U.S. banking law, principally by repealing certain
restrictive provisions of the 1933 Glass-Steagall Act. The Act specifies certain
activities that are deemed to be financial in nature, including lending,
exchanging, transferring, investing for others, or safeguarding money or
securities; underwriting and selling insurance; providing financial, investment,
or economic advisory services; underwriting, dealing in or making a market in,
securities; and any activity currently permitted for bank holding companies by
the Federal Reserve Board under Section 4(c)(8) of the Holding Company Act. The
Act does not authorize banks or their affiliates to engage in commercial
activities that are not financial in nature. A bank holding company may elect to
be treated as a financial holding company only if all depository institution
subsidiaries of the holding company are well-capitalized, well-managed and have
at least a satisfactory rating under the Community Reinvestment Act.
National banks are also authorized by the Act to engage, through "financial
subsidiaries," in any activity that is permissible for a financial holding
company (as described above) and any activity that the Secretary of the
Treasury, in consultation with the Federal Reserve Board, determines is
financial in nature or incidental to any such financial activity, except (i)
insurance underwriting, (ii) real estate development or real estate investment
activities (unless otherwise permitted by law), (iii) insurance company
portfolio investments and (iv) merchant banking. The authority of a national
bank to invest in a financial subsidiary is subject to a number of conditions,
including, among other things, requirements that the bank must be well-managed
and well-capitalized (after deducting from the bank's capital outstanding
investments in financial subsidiaries). The Act provides that state banks may
invest in financial subsidiaries (assuming they have the requisite investment
authority under applicable state law) subject to the same conditions that apply
to national bank investments in financial subsidiaries.
The Act also contains a number of other provisions that will affect the
Company's operations and the operations of all financial institutions. One of
the new provisions relates to the financial privacy of consumers, authorizing
federal banking regulators to adopt rules that will limit the ability of banks
and other financial entities to disclose non-public information about consumers
to non-affiliated entities. These limitations will likely require more
disclosure to consumers, and in some circumstances, will require consent by the
consumer before information is allowed to be provided to a third party. On
February 15, 2000, the Company filed a written declaration with the Board of
Governors of the Federal Reserve System to become a financial holding company.
As of the date of this Form 10-K, final approval of this written declaration
remains pending.
At this time, no predictions can be made regarding the impact the Act or
the Company's written declaration may have upon the Company's financial
condition or results of operations.
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
undercapi-
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talized level occurs where tangible equity is less than 2% of total tangible
assets or less than 65% of the minimum leverage ratio to be prescribed by
regulation (except to the extent that 2% would be higher than such 65% level). A
depository institution may be deemed to be in a capitalization category that is
lower than is indicated by its actual capital position if it receives an
unsatisfactory examination rating.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are also subject to
restrictions on borrowing from the Federal Reserve System. In addition,
undercapitalized depository institutions are subject to growth limitations and
are required to submit capital restoration plans. A depository institution's
holding company must guarantee the capital plan, up to an amount equal to the
lesser of 5% of the depository institution's assets at the time it becomes
undercapitalized or the amount of the capital deficiency when the institution
fails to comply with the plan. The federal banking agencies may not accept a
capital plan without determining, among other things, that the plan is based on
realistic assumptions and is likely to succeed in restoring the depository
institution's capital. If a depository institution fails to submit an acceptable
plan, it is treated as if it is significantly undercapitalized.
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.
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
Tier 1 capital ratio in excess of 6% and a total risk-based capital (the sum of
Tier 1, Tier 2 and Tier 3 capital) ratio in excess of 10%. Under these
guidelines applicable to banks, 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"). Supplementary ("Tier 2 capital") 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"). Market Risk ("Tier 3
capital") includes qualifying unsecured subordinated debt. The Tier 3 capital
guidelines are only applicable to institutions that exceed certain prescribed
trading activity thresholds. Currently, the Company is not subject to the Tier 3
capital requirements. 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, 1999, the Company's subsidiary bank exceeded the "well
capitalized" threshold per the guidelines, with a Tier 1 capital ratio of 7.35%,
a total risk-based capital ratio of 10.38% and a leverage ratio of 6.41%.
Additional information relating to capital adequacy can be found in Note C to
the Consolidated Financial Statements.
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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.
EXECUTIVE OFFICERS OF THE COMPANY
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EXECUTIVE
OFFICER OF THE
COMPANY
NAME AND AGE POSITIONS HELD WITH THE COMPANY SINCE
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Wallace D. Malone, Jr. (63)............. Chairman, President and Chief Executive 1972
Officer
James W. Rainer, Jr. (57)............... Executive Vice President 1982
William C. Patterson (57)............... Executive Vice President 1979(1)
Alton E. Yother (47).................... Secretary, Treasurer and Controller 1998
Julian Banton (59)...................... Chairman, President and 1982
Chief Executive Officer
SouthTrust Bank, N.A.
Thomas H. Coley (56).................... Division President -- General Banking 1989
SouthTrust Bank, N.A.
Fred C. Crum, Jr. (55).................. Division President -- Credit 1986
SouthTrust Bank, N.A.
R. Glenn Eubanks (51)................... Division 1990
President -- Corporate/Enterprise
Banking
SouthTrust Bank, N.A.
E. Frank Schmidt (58)................... Division President -- Information 1995
Services and Strategic Support
SouthTrust Bank, N.A.
Richard S. White, Jr. (65).............. Division President -- Capital Management 1997
Group
SouthTrust Bank, N.A.
</TABLE>
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(1) Mr. Patterson was elected Executive Vice President of the Company effective
January 2000. Prior to that time, he served as Executive Vice President of
SouthTrust Bank, N.A.
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.
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ITEM 2 PROPERTIES
The Company's subsidiary bank and other subsidiaries 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 STOCK HOLDER
MATTERS
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1999 1998 1997 1996 1995
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Market price range:
High...................................... $ 42.88 $ 45.38 $ 42.83 $ 24.08 $ 18.17
Low....................................... 32.75 24.88 22.75 16.83 12.00
Market value at year end.................... 37.81 36.94 42.29 23.25 17.08
Book value per share........................ 17.44 16.38 14.28 12.03 10.85
Average price per share to earnings per
share ratio............................... 14.59x 17.19x 14.56x 11.09x 9.96x
Cash dividends declared per share........... 0.88 0.76 0.67 0.59 0.53
Dividend yield at year end.................. 2.33% 2.06% 1.58% 2.52% 3.12%
Dividend payout ratio....................... 33.27 33.67 32.47 32.41 33.74
Per common share:
Net income -- basic....................... $ 2.64 $ 2.27 $ 2.05 $ 1.80 $ 1.58
Net income -- diluted..................... 2.63 2.25 2.03 1.79 1.57
Shares outstanding (in thousands):
Average -- basic.......................... 167,560 162,732 149,684 141,183 125,838
Average -- diluted........................ 168,778 164,148 151,008 142,154 126,687
End of year............................... 167,905 167,211 153,665 144,209 131,856
</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 25, 2000, the Company had approximately 15,491 shareholders
of record.
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ITEM 6 SELECTED FINANCIAL DATA
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1999 1998 1997 1996 1995
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(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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Earnings Summary:
Interest income................ $ 2,906,447 $ 2,557,462 $ 2,232,252 $ 1,804,220 $ 1,484,623
Interest expense............... 1,539,538 1,386,256 1,186,079 938,194 791,423
----------- ----------- ----------- ----------- -----------
Net interest income............ 1,366,909 1,171,206 1,046,173 866,026 693,200
Provision for loan losses...... 141,249 94,796 90,613 90,027 61,286
----------- ----------- ----------- ----------- -----------
Net interest income after
provision for loan losses... 1,225,660 1,076,410 955,560 775,999 631,914
Non-interest income............ 409,726 346,704 247,087 235,457 202,157
Gains on trading securities,
net......................... 17,583 16,426 10,607 9,033 5,915
Gains on loans held for sale,
net......................... 15,349 18,420 11,074 8,910 399
Gains on available-for-sale
securities, net............. 899 4,292 1,739 1,409 193
Non-interest expense........... 1,010,501 914,443 748,216 643,298 536,534
----------- ----------- ----------- ----------- -----------
Income before income taxes..... 658,716 547,809 477,851 387,510 304,044
Income taxes................... 215,543 179,199 171,143 132,807 105,039
----------- ----------- ----------- ----------- -----------
Net income..................... $ 443,173 $ 368,610 $ 306,708 $ 254,703 $ 199,005
=========== =========== =========== =========== ===========
Per common share:
Net income -- basic............ $ 2.64 $ 2.27 $ 2.05 $ 1.80 $ 1.58
Net income -- diluted.......... 2.63 2.25 2.03 1.79 1.57
Cash dividends declared........ 0.88 0.76 0.67 0.59 0.53
Ending balances:
Loans, net of unearned
income...................... $31,697,841 $27,317,506 $22,474,785 $19,331,132 $14,655,162
Total assets................... 43,262,512 38,133,774 30,906,445 26,223,193 20,787,024
Deposits....................... 27,739,345 24,839,892 19,586,584 17,305,493 14,575,077
FHLB advances.................. 3,530,324 2,780,340 2,782,355 1,744,159 651,881
Long-term debt................. 1,125,483 1,154,937 1,106,443 983,243 535,431
Stockholders' equity........... 2,927,429 2,738,266 2,194,641 1,734,892 1,430,870
Common shares (in thousands)... 167,905 167,211 153,665 144,209 131,856
Average balances:
Loans, net of unearned
income...................... $29,307,866 $24,609,027 $20,888,850 $16,885,469 $13,326,127
Earning assets................. 37,106,969 31,407,762 26,769,701 21,774,828 17,616,243
Total assets................... 40,238,456 34,097,250 28,472,372 23,283,988 18,983,869
Deposits....................... 25,812,911 22,072,522 18,152,342 15,878,025 13,612,151
Stockholders' equity........... 2,814,032 2,547,217 1,951,243 1,599,615 1,260,719
Common shares (in thousands)
Basic....................... 167,560 162,732 149,684 141,183 125,838
Diluted..................... 168,778 164,148 151,008 142,154 126,687
Selected ratios:
Return on average total
assets...................... 1.10% 1.08% 1.08% 1.09% 1.05%
Return on average stockholders'
equity...................... 15.75 14.47 15.72 15.92 15.79
Average equity to average
assets...................... 6.99 7.47 6.85 6.87 6.64
Non-interest expense as a
percent of average total
assets...................... 2.51 2.68 2.63 2.76 2.83
Efficiency ratio............... 55.39 58.54 56.47 56.86 58.57
</TABLE>
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ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS EARNINGS SUMMARY
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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
change; changes in law; changes in fiscal, monetary, regulatory and tax
policies; monetary fluctuations; success in gaining regulatory approvals when
required; other risks and uncertainties.
THREE YEARS ENDED DECEMBER 31, 1999
SouthTrust reported net income of $443.2 million or $2.63 per diluted share
for the year ended December 31, 1999, compared to net income of $368.6 million
or $2.25 per diluted share for the year ended December 31, 1998. Net income in
1997 was $306.7 million or $2.03 per diluted share.
The increase in net income in 1999 over 1998 was primarily attributable to
the 18% growth in average earning assets, coupled with the 15% growth in
non-interest income. Loan growth remained strong in 1999, and the Company
continued to focus on sales and revenue generation. In addition to this growth,
the efficiency ratio improved in 1999 to 55.39%, compared to 58.54% in 1998.
This improvement demonstrates the Company's maintained focus on expense control.
Net earnings resulted in a return on average assets of 1.10% in 1999 and
1.08% in 1998, and a return on average stockholders' equity of 15.75% in 1999
compared to 14.47% for 1998.
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 17% to $1,381.8 million from $1,180.6 million
in 1998 and $1,056.2 million in 1997. The taxable equivalent net interest
margins for the three years ended December 31, 1999 were 3.72%, 3.76% and 3.94%,
respectively. The net interest spread between interest-earning assets and
interest-bearing liabilities increased 1 basis point to 3.36% in 1999 from 3.35%
in 1998. The net interest spread in 1997 was 3.43%. The net interest margin and
net interest spread are affected by competitive pressures, Federal Reserve Bank
(the "Fed") monetary policies and the composition of interest-earning assets and
interest-bearing liabilities.
The economy experienced outstanding growth during 1999. In response to this
growth, the Fed raised short-term interest rates a total of 75 basis points, in
three separate 25 basis point increments, in an attempt to control inflationary
pressures. Since economic growth remains strong, further increases in interest
rates could be expected from the Fed in the near future, which will cause
increased pressure in the Company's ability to maintain the interest rate spread
and yields experienced in recent years.
9
<PAGE> 12
Forecasted growth in net interest income is expected to slow down in this
rising rate environment, due in part to a decrease in expected loan demand and
the effect of the Company's assets repricing at a slower rate than its
liabilities. In an effort to mitigate the effects of changes in interest rates,
the Company is emphasizing diversification of the portfolio mix. As a part of
this diversification, the Company is placing more emphasis on variable rate
assets than in previous periods.
Interest Income
Interest income increased $354.5 million to $2,921.3 million in 1999 from
$2,566.8 million in 1998. Interest income in 1997 totaled $2,242.2 million. The
increase in interest income during 1999 was attributable to an increase in the
volume of average interest-earning assets of 18% to $37.1 billion. The effect of
the increase in interest-earning assets was partially offset by a decrease in
the yield of those assets of 32 basis points to 7.86% in 1999 from 8.18% in
1998. An increase in the volume of interest-earning assets of 17% was also
responsible for the $324.6 million increase in interest income from 1997 to
1998. The yield on average interest-earning assets decreased 19 basis points
from 8.37% in 1997 to 8.18% in 1998.
The mix of interest-earning assets remained relatively stable during 1999
as compared to 1998, with average loans accounting for approximately 79% and 78%
of average interest-earning assets in 1999 and 1998, respectively. During 1999,
average loans increased 19% to $29.3 billion, while interest income on loans
increased 14% to $2,389.3 million in 1999. The effect on interest income from
this loan growth was somewhat offset by a decrease in the average yield on loans
to 8.15% during 1999 from 8.55% during 1998, primarily due to the Fed monetary
policy in fiscal 1998. From 1997 to 1998, interest income on loans increased 15%
to $2,105.1 million, while the yield earned decreased 23 basis points.
Total securities, including available-for-sale and held-to-maturity
securities, accounted for approximately 20% and 19% of average interest-earning
assets in 1999 and 1998, respectively. The average yield was 6.73% in 1999
compared to 6.75% in 1998. Interest income on securities increased $85.8 million
to $495.1 million. The net increase in securities income was primarily the
result of the change in the average volume of securities which increased 20%
from 1998 to $7.3 billion at December 31, 1999. In 1997, interest income on
securities was $379.8 million and the average yield was 6.91%.
Interest Expense
Interest expense increased $153.2 million or 11% to $1,539.5 million in
1999. This compares to an increase of $200.2 million or 17% to $1,386.3 million
in 1998. The increase in interest expense was attributable to an increase in the
average volume of interest-bearing liabilities. During 1999, the volume of
average interest-bearing liabilities increased $5.5 billion or 19% to $34.2
billion. This compared to an increase of $4.7 billion or 20% during 1998. The
effect of the increase in interest-bearing liabilities was partially offset by a
decrease in the average rate paid on interest-bearing liabilities, which
declined 33 basis points to 4.50% in 1999 from 4.83% in 1998, primarily due to
1998 Fed rate decreases. The average rate paid on interest-bearing liabilities
in 1997 was 4.94%.
Average interest-bearing liabilities accounted for 85% of total liabilities
and stockholders' equity in 1999 and 84% in 1998. During 1999, average
interest-bearing deposits increased 17% to $23.1 billion from $19.7 billion in
1998. The effect on interest expense from this growth was somewhat offset by a
decrease in the average rate paid on interest-bearing deposits to 4.17% during
1999 from 4.55% during 1998, a decrease of 38 basis points.
10
<PAGE> 13
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, 1999. 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>
1999 1998
--------------------------------- -----------------------
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)... $29,307.9 $2,389,339 8.15% $24,609.0 $ 2,105,011
Available-for-sale securities:
Taxable......................... 4,096.9 270,778 6.51 3,212.2 205,082
Non-taxable..................... 323.4 24,937 7.58 127.8 6,397
Held-to-maturity securities:
Taxable......................... 2,763.6 189,079 6.84 2,587.9 181,991
Non-taxable..................... 100.0 10,333 10.33 147.7 15,798
Short-term investments............. 515.2 36,864 7.16 723.2 52,533
--------- ---------- ----- --------- -----------
Total interest-earning
assets..................... 37,107.0 $2,921,330 7.86 31,407.8 $ 2,566,812
Allowance for loan losses.......... (407.0) (350.1)
Other assets....................... 3,538.5 3,039.6
--------- ---------
Total assets................ $40,238.5 $34,097.3
========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Savings deposits................... $ 2,344.8 $ 66,670 2.84% $ 1,969.2 $ 64,414
Interest-bearing deposits.......... 883.2 23,157 2.62 607.0 15,658
Time deposits...................... 19,863.3 872,677 4.39 17,173.0 817,831
Short-term borrowings.............. 6,945.8 353,281 5.09 4,976.2 264,980
Federal Home Loan Bank advances.... 3,043.2 157,305 5.17 2,767.5 146,708
Long-term debt..................... 1,121.6 66,448 5.92 1,204.1 76,665
--------- ---------- ----- --------- -----------
Total interest-bearing
liabilities................ 34,201.9 1,539,538 4.50 28,697.0 1,386,256
Demand deposits non-interest
bearing........................... 2,721.6 2,323.3
Other liabilities.................. 501.0 529.8
--------- ---------
Total liabilities........... 37,424.5 31,550.1
Stockholders' equity............... 2,814.0 2,547.2
--------- ---------
Total liabilities and
stockholders' equity....... $40,238.5 $34,097.3
========= ---------- ========= -----------
Net interest income................ $1,381,792 $ 1,180,556
========== ===========
Net interest margin................ 3.72%
=====
Net interest spread................ 3.36%
=====
<CAPTION>
1998 1997
-------- ---------------------------------
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)... 8.55% $20,888.9 $1,833,552 8.78%
Available-for-sale securities:
Taxable......................... 6.41 3,234.8 213,579 6.58
Non-taxable..................... 5.12 37.3 2,113 6.18
Held-to-maturity securities:
Taxable......................... 7.03 2,037.4 143,941 7.07
Non-taxable..................... 10.70 190.0 20,146 10.60
Short-term investments............. 7.26 381.3 28,916 7.58
----- --------- ---------- -----
Total interest-earning
assets..................... 8.18 26,769.7 $2,242,247 8.37
Allowance for loan losses.......... (298.2)
Other assets....................... 2,000.9
---------
Total assets................ $28,472.4
=========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Savings deposits................... 3.27% $ 1,265.3 $ 38,911 3.08%
Interest-bearing deposits.......... 2.58 533.7 14,425 2.70
Time deposits...................... 4.76 14,258.0 691,786 4.85
Short-term borrowings.............. 5.33 4,834.8 266,816 5.52
Federal Home Loan Bank advances.... 5.30 2,107.6 112,646 5.34
Long-term debt..................... 6.37 986.8 61,495 6.23
----- --------- ---------- -----
Total interest-bearing
liabilities................ 4.83 23,986.2 1,186,079 4.94
Demand deposits non-interest
bearing........................... 2,095.4
Other liabilities.................. 439.6
---------
Total liabilities........... 26,521.2
Stockholders' equity............... 1,951.2
---------
Total liabilities and
stockholders' equity....... $28,472.4
========= ----------
Net interest income................ $1,056,168
==========
Net interest margin................ 3.76% 3.94%
===== =====
Net interest spread................ 3.35% 3.43%
===== =====
</TABLE>
- ---------------
(1) Yields were calculated using the average amortized cost of the underlying
assets.
(2) Included in interest are net loan fees of $68,164,000, $63,974,000, and
$58,237,000, in 1999, 1998, and 1997, respectively.
11
<PAGE> 14
TAXABLE EQUIVALENT ADJUSTMENT ANALYSIS
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------- ------------------------------------- ----------
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...................... $2,386,713 $ 2,626 $2,389,339 $2,102,095 $ 2,916 $2,105,011 $1,831,156
Available-for-sale
securities:
Taxable................... 270,778 0 270,778 205,082 0 205,082 213,579
Non-taxable............... 15,923 9,014 24,937 5,407 990 6,397 1,436
Held-to-maturity
securities:
Taxable................... 189,079 0 189,079 181,991 0 181,991 143,941
Non-taxable............... 7,090 3,243 10,333 10,354 5,444 15,798 13,224
Short-term investments..... 36,864 0 36,864 52,533 0 52,533 28,916
---------- -------- ---------- ---------- -------- ---------- ----------
Totals.............. $2,906,447 $ 14,883 $2,921,330 $2,557,462 $ 9,350 $2,566,812 $2,232,252
========== ======== ========== ========== ======== ========== ==========
<CAPTION>
1997
------------------------
TAXABLE INTEREST
EQUIVALENT INCOME
ADJUSTMENTS (FTE)
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Loans...................... $ 2,396 $1,833,552
Available-for-sale
securities:
Taxable................... 0 213,579
Non-taxable............... 677 2,113
Held-to-maturity
securities:
Taxable................... 0 143,941
Non-taxable............... 6,922 20,146
Short-term investments..... 0 28,916
-------- ----------
Totals.............. $ 9,995 $2,242,247
======== ==========
</TABLE>
VOLUME-RATE ANALYSIS (TABLE 2)
The following table shows a summary of the changes in interest income and
interest expense on a fully taxable equivalent basis resulting from changes in
volume and changes in rates for each category of interest-earning assets and
interest-bearing liabilities for 1999/1998 and 1998/1997. 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>
1999 VERSUS 1998 1998 VERSUS 1997
-------------------------------------- ---------------------------------------
INCREASE (DECREASE) DUE TO CHANGE IN: INCREASE (DECREASE) DUE TO CHANGE IN:
-------------------------------------- ---------------------------------------
VOLUME YIELD/ VOLUME YIELD/
OUTSTANDING RATE TOTAL OUTSTANDING RATE TOTAL
------------ ----------- --------- ------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income on:
Loans........................ $386,794 $ (102,466) $284,328 $319,260 $(47,801) $271,459
Available-for-sale
securities................ 71,701 12,535 84,236 4,412 (8,625) (4,213)
Held-to-maturity
securities................ 9,063 (7,440) 1,623 36,797 (3,095) 33,702
Short-term investments....... (14,895) (774) (15,669) 24,878 (1,261) 23,617
-------- ---------- -------- -------- -------- --------
Total interest
income............. 452,663 (98,145) 354,518 385,347 (60,782) 324,565
Interest expense on:
Interest-bearing deposits.... 143,477 (78,876) 64,601 168,149 (15,368) 152,781
Short-term borrowings........ 100,660 (12,359) 88,301 7,675 (9,511) (1,836)
Federal Home Loan Bank
advances.................. 14,323 (3,726) 10,597 34,990 (928) 34,062
Long-term debt............... (5,072) (5,145) (10,217) 13,808 1,362 15,170
-------- ---------- -------- -------- -------- --------
Total interest
expense............ 253,388 (100,106) 153,282 224,622 (24,445) 200,177
-------- ---------- -------- -------- -------- --------
Net interest
income............. $199,275 $ 1,961 $201,236 $160,725 $(36,337) $124,388
======== ========== ======== ======== ======== ========
</TABLE>
PROVISION FOR LOAN LOSSES
During 1999, the Company recorded a $141.2 million provision for loan
losses. This compares to a provision of $94.8 million in 1998. Provisions for
loan losses are charged to income to bring the allowance for loan losses 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 $57.8 million or 15% to $443.6 million
in 1999. Growth occurred in most categories, with the largest increases in
service charges on deposit accounts, investment fees and bank owned life
insurance. From 1997 to 1998, the increase in non-interest income was $115.3
million or 43%,
12
<PAGE> 15
primarily due to increases in service charges on deposit accounts, mortgage
banking operations, and bank owned life insurance.
Service charges on deposit accounts accounted for the largest portion of
the increase in non-interest income for the three years ended December 31, 1999.
During 1999, service charges increased $36.3 million or 22% to $204.0 million.
This increase is attributable to an increased number of deposit accounts and
increases in certain service charge rates, particularly on business and
individual checking accounts. In addition, service charges increased from
increased usage of VISA Debit Cards and ATMs.
Income from mortgage banking operations increased $2.6 million or 6% to
$44.2 million. Mortgage interest rates increased during 1999 and loan production
and related income leveled-off accordingly. From 1997 to 1998, income from
mortgage banking operations increased 53%, as declining mortgage interest rates
caused an increase in loan production.
Bank card fees increased $3.4 million to $31.2 million at December 31,
1999, and trust fees increased $2.6 million to $30.3 million. Both were related
to higher volume and various rate increases. All other fee income in 1999 was
$51.0 million, up $13.7 million from 1998 and included investment fees of $18.1
million, international fees of $11.7 million and other fee income of $21.1
million. The increase in investment fees, 83.8% over the 1998 level, relates
primarily to increased revenue from sales of annuity and mutual fund products.
Gains on trading securities were $17.6 million at December 31, 1999,
compared to $16.4 at December 31, 1998. Gains on available-for-sale securities
were $0.9 million in 1999 and $4.3 million in 1998. During 1999 and 1998, $15.3
million and $18.4 million, respectively, in gains on loans held for sale were
included in other non-interest income, primarily from sales of 1-4 family
mortgages in the secondary market.
Non-interest income also increased in 1999 and 1998 due to additional
funding in mid-1998 of Bank Owned Life Insurance ("BOLI"), which covers the
lives of certain of the Company's officers. These officers participate in the
plan on a voluntary basis and have no direct vested interest in the policies,
either through payments for or receipt of benefits from the plan. The Company is
the sole beneficiary of the BOLI and all increases in its cash surrender value
and death benefit proceeds are recorded in non-interest income. For the year
ended December 31, 1999, income on the BOLI totaled $41.4 million compared to
$32.6 million for the same period in 1998. The $32.0 million increase in BOLI
from 1997 to 1998 is due to the initial funding of BOLI occurring in December
1997.
There were no other significant non-recurring non-interest income items
recorded during any of the three years in the period ended December 31, 1999.
13
<PAGE> 16
NON-INTEREST INCOME (TABLE 3)
The following table presents an analysis on non-interest income for 1999,
1998 and 1997 together with the amount and percent change from the prior year
for 1999 and 1998:
<TABLE>
<CAPTION>
CHANGES FROM PRIOR YEAR
-------------------------------
YEAR ENDED DECEMBER 31, 1999 1998
------------------------ -------------- --------------
1999 1998 1997 AMOUNT % AMOUNT %
------ ------ ------ ------ ----- ------ -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts..... $204.0 $167.7 $129.9 $36.3 21.6% $ 37.8 29.2%
Mortgage banking operations............. 44.2 41.6 27.2 2.6 6.3 14.4 52.6
Bank card fees.......................... 31.2 27.8 23.0 3.4 12.1 4.8 20.9
Trust fees.............................. 30.3 27.7 24.5 2.6 9.2 3.2 13.0
Other fees.............................. 51.0 37.3 31.9 13.7 36.8 5.4 16.9
Gains on trading securities, net........ 17.6 16.4 10.6 1.2 7.0 5.8 54.9
Gains on loans held for sale, net....... 15.3 18.4 11.1 (3.1) (16.7) 7.3 66.3
Gains on available-for-sale securities,
net................................... 0.9 4.3 1.7 (3.4) (79.0) 2.6 146.8
Bank owned life insurance............... 41.4 32.6 0.6 8.8 27.1 32.0 --
Other................................... 7.7 12.0 10.0 (4.3) (35.9) 2.0 21.5
------ ------ ------ ----- ----- ------ -----
Totals........................ $443.6 $385.8 $270.5 $57.8 15.0% $115.3 42.6%
====== ====== ====== ===== ===== ====== =====
</TABLE>
NON-INTEREST EXPENSE
Total non-interest expense increased $96.1 million or 11% to $1,010.5
million from $914.4 million in 1998. The 1999 ratio of non-interest expense to
average total assets was 2.51% compared to the 1998 level of 2.68%. The
operating efficiency ratio was 55.39% in 1999 and 58.54% in 1998. The
improvement in these two ratios reflects the Company's continuing efforts to
control expense growth. From 1997 to 1998, the increase in non-interest expense
was $166.2 million or 22%, primarily from growth experienced both internally and
through acquisitions during 1998.
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 1999, salaries and employee benefits were $540.4 million, an
increase of $44.6 million or 9% over 1998. This increase primarily related to
annual merit increases, higher employee benefits costs, and an increase in the
number of full-time equivalent employees of 4% to approximately 12,500 at
December 31, 1999. From 1997 to 1998, salaries and employee benefits increased
23% to $493.8 million as the number of full-time equivalent employees increased
17%.
In 1999, net occupancy expense increased $9.5 million or 13% to $82.0
million, while equipment expense increased $6.7 million or 11% to $67.7 million.
These increases are attributable to a higher number of banking offices,
including branches and other offices, in 1999 compared to 1998. During 1998, net
occupancy expense increased $12.3 million or 21%, while equipment expense
increased $15.3 million or 33%, due to an increased number of banking offices in
1998. All other non-interest expense items increased a total of $35.3 million or
12% to $320.4 million for 1999. These increases are primarily a result of growth
in the general level of business throughout the Company. From 1997 to 1998, all
other non-interest expense increased $47.6 million or 20%, reflecting the
growth, both internal and through acquisitions, experienced by the Company
during 1998.
YEAR 2000
The Company uses a wide range of software and related technologies
throughout its business that were affected by the date change in the year 2000.
This date change required modification of portions of the Company's software so
that its computer systems would properly recognize dates beyond December 31,
1999. The Company believes that with the upgrades or modifications made to
existing software and conversion to new software, the impact of the Year 2000
issue was mitigated. SouthTrust has completed validating all systems that have
customer impact or financial impact on the Company and no Year 2000 problems
have been encountered. The Company does not expect any problems or issues
related to year 2000 going forward.
14
<PAGE> 17
The total Year 2000 project cost was approximately $14.8 million; the
Company expensed approximately $2.8 million, $6.2 million, and $5.8 million for
the years ended December 31, 1999, 1998 and 1997, respectively.
There were no other significant non-recurring non-interest expense items
recorded during any of the three years in the period ended December 31, 1999.
NON-INTEREST EXPENSE (TABLE 4)
The following table presents an analysis on non-interest expense for 1999,
1998 and 1997 together with the amount and percent change from the prior year
for 1999 and 1998:
<TABLE>
<CAPTION>
CHANGES FROM PRIOR YEAR
------------------------------
YEAR ENDED DECEMBER 31, 1999 1998
-------------------------- -------------- -------------
1999 1998 1997 AMOUNT % AMOUNT %
-------- ------ ------ ------ ----- ------ ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits.......... $ 540.4 $495.8 $404.8 $44.6 9.0% $ 91.0 22.5%
Net occupancy........................... 82.0 72.5 60.2 9.5 13.0 12.3 20.6
Equipment............................... 67.7 61.0 45.7 6.7 11.0 15.3 33.4
Professional services................... 67.4 57.5 51.4 9.9 17.2 6.1 11.8
Communications.......................... 51.5 47.1 36.5 4.4 9.4 10.6 29.1
Business development.................... 31.1 30.3 26.3 0.8 2.9 4.0 15.0
Supplies................................ 25.3 29.1 23.2 (3.8) (13.0) 5.9 25.3
Other................................... 145.1 121.1 100.1 24.0 19.8 21.0 20.9
-------- ------ ------ ----- ----- ------ ----
Totals........................ $1,010.5 $914.4 $748.2 $96.1 10.5% $166.2 22.2%
======== ====== ====== ===== ===== ====== ====
</TABLE>
INCOME TAXES
Income tax expense increased $36.3 million or 20.3% to $215.5 million for
the year ended December 31, 1999, resulting in an effective tax rate of 33%,
compared to 33% and 36% in 1998 and 1997, 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 N of the Consolidated Financial Statements.
BALANCE SHEET SUMMARY
Total assets at December 31, 1999 were $43.3 billion, representing an
increase of 13% over the 1998 level of $38.1 billion. Average total assets
increased 18% to $40.2 billion during 1999 from $34.1 billion in 1998. As of
December 31, 1999, the five-year compound growth rate in total assets was 20%.
During 1999, the Company consummated three business combinations in which
the Company acquired additional assets of $706.1 million, including loans of
$397.6 million, $36.4 million of cash and assumed deposits of $652.5 million.
During 1998, the Company acquired $5,154.5 million in assets, including $1,241.3
million in loans, $3,283.4 million of cash and assumed deposits of $4,780.0
million. Note B 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 interest-earning assets during 1999 were $37.1 billion, up $5.7
billion or 18% from 1998. Average interest-earning assets were 92% of average
total assets in 1999 and 1998, respectively.
Average interest-bearing liabilities were $34.2 billion in 1999 and $28.7
billion in 1998, and accounted for 85% of average liabilities and stockholders'
equity in 1999, compared to 84% in 1998.
15
<PAGE> 18
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 interest-earning assets and interest-bearing liabilities for
each of the three years in the period ended December 31, 1999.
LOANS
Loans comprise the major portion of interest-earning assets of the Company,
accounting for 79% and 78% of average interest-earning assets in 1999 and 1998,
respectively. At December 31, 1999, loans, net of unearned income, totaled
$31,697.8 million, up 16% from the December 31, 1998 level of $27,317.5 million.
Of the total increase of $4,380.3 million from 1998 to 1999, $397.6 million
represents loans obtained in acquisitions. The remainder of the increase,
$3,982.7 million, represents an internal growth rate for loans of 15% for 1999.
The largest portion of the increase in total loans was attributable to an
increase in commercial, financial and agricultural loans, which increased
$1,504.8 million to $11,265.2 million or 35.2% of total loans at December 31,
1999.
Real estate construction loans increased $816.5 million to $4,342.9 million
or 13.6% of total loans at December 31, 1999, from $3,526.4 million at December
31, 1998. At December 31, 1999 construction loans included approximately $766.0
million in loans on residential properties, loans on income producing commercial
real estate of $3,034.9 million, and $542.0 million of loans secured by owner
occupied real estate.
Demand for commercial real estate mortgage loans was strong in 1999, with
loans increasing $1,129.0 million to $6,029.2 million or 18.9% of total loans at
December 31, 1999. 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 $529.7 million to $6,773.4
million or 21.2% of total loans in 1999 compared to $6,243.7 million in 1998. As
mortgage interest rates increased during 1999, demand for adjustable rate
mortgages has also increased.
Loans to individuals at December 31, 1999 were $3,562.0 million or 11.1% of
total loans, up $466.1 million from December 31, 1998. Loans to individuals
totaling $354.5 million were obtained in the acquisition of other financial
institutions.
Demand for all types of loans remained strong during 1999, and all
categories experienced growth. However, the Company is expecting slower loan
growth in 2000 as compared to historical growth rates. Given the recent and
possible future interest rate increases from the Fed, economic growth in general
is expected to slow down, including loan demand. Also, the Company is
emphasizing diversification of the loan portfolio mix. As part of this
diversification, the Company is placing more emphasis on variable rate loans.
16
<PAGE> 19
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
-------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------- ----------------- ----------------- ----------------- -----------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural.............. $11,265.2 35.2% $ 9,760.4 35.4% $ 7,709.6 34.1% $ 6,847.5 35.2% $ 5,965.9 40.4%
Real estate construction.... 4,342.9 13.6 3,526.4 12.8 2,937.2 13.0 1,930.6 9.9 1,245.8 8.4
Commercial real estate
mortgage.................. 6,029.2 18.9 4,900.2 17.8 3,543.8 15.6 3,008.9 15.5 2,264.7 15.4
Residential real estate
mortgage.................. 6,773.4 21.2 6,243.7 22.7 5,277.1 23.3 4,687.5 24.0 3,221.3 21.8
Loans to individuals........ 3,562.0 11.1 3,095.9 11.3 3,166.2 14.0 2,992.1 15.4 2,059.3 14.0
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
31,972.7 100.0% 27,526.6 100.0% 22,633.9 100.0% 19,466.6 100.0% 14,757.0 100%
===== ===== ===== ===== =====
Unearned income........... (274.9) (209.1) (159.1) (135.5) (101.9)
--------- --------- --------- --------- ---------
Loans, net of unearned
income.................... 31,697.8 27,317.5 22,474.8 19,331.1 14,655.1
Allowance for loan
losses.................. (442.3) (377.5) (315.5) (269.9) (206.6)
--------- --------- --------- --------- ---------
Net Loans........... $31,255.5 $26,940.0 $22,159.3 $19,061.2 $14,448.5
========= ========= ========= ========= =========
</TABLE>
As of December 31, 1999, 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................ $3,340.8 $ 5,339.4 $ 2,585.0 $11,265.2 $ 5,327.6 $2,596.8
Real estate construction...... 1,851.5 1,911.1 580.2 4,342.8 1,002.6 1,488.7
Commercial real estate
mortgage.................... 1,008.7 3,165.6 1,855.0 6,029.3 3,697.9 1,322.7
Residential real estate
mortgage.................... 1,593.2 646.3 4,533.9 6,773.4 3,249.0 1,931.2
Loans to individuals.......... 792.1 1,679.9 1,090.0 3,562.0 2,748.2 21.7
-------- --------- --------- --------- --------- --------
$8,586.3 $12,742.3 $10,644.1 $31,972.7 $16,025.3 $7,361.1
======== ========= ========= ========= ========
Unearned income............... (274.9)
---------
Loans net of unearned
income...................... $31,697.8
=========
</TABLE>
NON-PERFORMING ASSETS
Non-performing assets at December 31, 1999 were $162.7 million or .51% of
net loans, plus other non-performing assets, representing a decrease of $1.2
million from the December 31, 1998 level of $163.9 million or .60%.
Non-performing assets at December 31, 1999 included $112.0 million in loans on
non-accrual status, $38.3 million in other real estate owned, and $12.4 million
of other repossessed assets. During 1999, the total other real estate owned and
repossessed assets obtained through acquisitions was $0.5 million.
Combined non-performing real estate loans and properties taken in
foreclosure of real estate loans totaled $54.8 million at December 31, 1999.
This represented 34% of total non-performing assets as compared to $73.6 million
or 45% at December 31, 1998.
Loans 90 days past due and accruing were $71.5 million at December 31,
1999, compared to $80.9 million at December 31, 1998.
In addition to loans on non-performing status at December 31, 1999, the
Company has identified potential problem loans of approximately $67.6 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
17
<PAGE> 20
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, 1998, potential problem loans
totaled $59.7 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>
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural........... $ 78.7 $ 49.6 $ 61.4 $ 46.1 $ 33.3
Real estate construction......................... 3.8 7.5 4.4 4.3 3.8
Commercial real estate mortgage.................. 12.2 13.8 15.5 11.5 21.7
Residential real estate mortgage................. 14.7 23.5 31.5 16.6 13.1
Loans to individuals............................. 2.6 3.9 7.1 6.4 4.1
------- ------- ------- ------- -------
Total non-performing loans............. 112.0 98.3 119.9 84.9 76.0
Other real estate owned.......................... 38.3 46.5 43.8 43.9 39.3
Other repossessed assets......................... 12.4 19.1 16.7 10.2 6.8
------- ------- ------- ------- -------
Total non-performing assets............ 162.7 163.9 180.4 139.0 122.1
Accruing loans 90 days or more past due.......... 71.5 80.9 54.0 40.4 36.3
------- ------- ------- ------- -------
Total non-performing assets and
accruing loans 90 days or more past
due.................................. $ 234.2 $ 244.8 $ 234.4 $ 179.4 $ 158.4
======= ======= ======= ======= =======
Provision for loan losses........................ $ 141.2 $ 94.8 $ 90.6 $ 90.0 $ 61.3
Net charge-offs.................................. 86.3 58.3 51.8 47.7 29.5
For the Period Ended:
Net loans charged-off to average net loans..... 0.29% 0.24% 0.25% 0.28% 0.22%
Provision for loan losses to net charge-offs... 163.58 162.69 175.00 188.89 207.95
Period End:
Allowance to net loans outstanding............. 1.40 1.38 1.40 1.40 1.41
Allowance to non-performing loans.............. 394.83 383.98 263.16 317.57 271.88
Non-performing loans to total loans............ 0.35 0.36 0.53 0.44 0.52
Non-performing assets to total loans plus other
non-performing assets....................... 0.51 0.60 0.80 0.72 0.83
Non-performing assets and accruing loans 90
days or more past due to total loans plus
other non-performing assets................. 0.74 0.89 1.04 0.93 1.08
</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 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.
The Company's total allowance at December 31, 1999 and 1998 equated to
approximately 675% and 720%, respectively, of the average net charge-offs over
the past three years. However, historical charge-offs are
18
<PAGE> 21
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 the 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 has historically experienced an annual growth
rate 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 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.
The allowance allocated to Problem loans at December 31, 1999 totaled
$156.8 million and represented an allowance percentage of 6.31% of Problem
loans. The allowance allocated to Non-problem loans totaled $285.5 million or
0.98% 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 $442.3 million at December 31, 1999 and $377.5 million at December
31, 1998. As a percentage of outstanding loans, the allowance for loan losses
was 1.40%, compared to the December 31, 1998 level of 1.38%. Net charge-offs
during 1999 totaled $86.3 million, an increase of $28.0 million from the 1998
level.
19
<PAGE> 22
ALLOWANCE FOR LOAN LOSSES (TABLE 7)
The following table summarizes information concerning the allowance for
loan losses for each of the last five years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Loans outstanding at year end, net of
unearned income......................... $31,697.8 $27,317.5 $22,474.8 $19,331.1 $14,655.1
========= ========= ========= ========= =========
Average loans outstanding, net of unearned
income.................................. $29,307.9 $24,609.0 $20,888.9 $16,885.4 $13,326.1
========= ========= ========= ========= =========
(IN THOUSANDS)
Balance beginning of year................. $ 377,525 $ 315,471 $ 269,863 $ 206,638 $ 171,692
Loans charged-off:
Commercial, financial and
agricultural......................... 47,612 18,131 20,992 27,600 10,753
Real estate construction................ 421 18 105 38 160
Commercial real estate mortgage......... 270 894 1,131 2,234 4,543
Residential real estate mortgage........ 3,393 3,510 4,301 1,598 2,351
Loans to individuals.................... 49,406 49,744 36,374 29,871 23,328
--------- --------- --------- --------- ---------
Total charge-offs............... 101,102 72,297 62,903 61,341 41,135
--------- --------- --------- --------- ---------
Recoveries of loans previously
charged-off:
Commercial, financial and
agricultural......................... 5,239 4,936 4,145 3,502 3,176
Real estate construction................ 0 41 0 39 10
Commercial real estate mortgage......... 12 50 513 1,326 2,584
Residential real estate mortgage........ 376 328 271 270 332
Loans to individuals.................... 9,126 8,673 6,195 8,544 5,561
--------- --------- --------- --------- ---------
Total recoveries................ 14,753 14,028 11,124 13,681 11,663
--------- --------- --------- --------- ---------
Net loans charged-off..................... 86,349 58,269 51,779 47,660 29,472
Additions to allowance charged to
expense................................. 141,249 94,796 90,613 90,027 61,286
Subsidiaries' allowance at date of
purchase................................ 9,918 25,527 6,774 20,858 3,132
--------- --------- --------- --------- ---------
Balance end of year....................... $ 442,343 $ 377,525 $ 315,471 $ 269,863 $ 206,638
========= ========= ========= ========= =========
Allowance for loan losses, end of year:
Commercial, financial and
agricultural......................... $ 164,501 $ 135,343 $ 110,925 $ 91,135 $ 67,988
Real estate construction................ 51,784 38,200 21,568 24,844 15,883
Commercial real estate mortgage......... 79,910 72,996 44,617 26,925 24,874
Residential real estate mortgage........ 25,221 25,630 44,867 47,057 24,071
Loans to individuals.................... 65,838 67,603 68,258 49,790 44,418
Unallocated portion of reserve.......... 55,089 37,753 25,236 30,112 29,404
--------- --------- --------- --------- ---------
Balance end of year.................. $ 442,343 $ 377,525 $ 315,471 $ 269,863 $ 206,638
========= ========= ========= ========= =========
Ratios:
Allowance to net loans outstanding...... 1.40% 1.38% 1.40% 1.40% 1.41%
Net loans charged-off to average net
loans................................ 0.29 0.24 0.25 0.28 0.22
Provision for loan losses to net
charge-offs.......................... 163.58 162.69 175.00 188.89 207.95
Provision for loan losses to average net
loans................................ 0.48 0.39 0.43 0.53 0.46
Allowance to average net loans.......... 1.51 1.53 1.51 1.60 1.55
</TABLE>
20
<PAGE> 23
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.
At December 31, 1999, total securities were $8,048.0 million, consisting of
available-for-sale securities of $5,061.0 million and securities classified as
held-to-maturity of $2,987.0 million. Available-for-sale securities increased
$1,258.3 million or 33% from the year-end 1998 levels. The largest portion of
the increase was in U.S. Government agency securities, which increased $829.8
million over the 1998 level.
At December 31, 1999, the Company's investment portfolio included
approximately $2,315.5 million in collateralized mortgage obligations ("CMO's")
and other mortgage backed securities. Approximately 35% of this amount were
securities with floating interest rates, and 65% 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 declining interest rates when many borrowers refinance
their mortgages, creating prepayments on their existing mortgages. The Company
does not consider this risk to be significant.
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.
For available-for-sale securities, the amortized cost exceeded the fair
value by $173.4 million, resulting in an after-tax decrease to stockholders'
equity of $108.9 million at December 31, 1999. This unrealized loss compares to
a net of tax unrealized gain of $5.5 million at December 31, 1998. The decrease
in fair values relative to amortized cost is primarily attributable to the
effects of the rising interest rate environment during the last half of 1999. At
December 31, 1999, the amortized cost of held-to-maturity securities exceeded
the fair value by $123.3 million, compared to an unrealized gain of $32.8
million at December 31, 1998.
At December 31, 1999, the gross unrealized gains for the entire securities
portfolio were $10.0 million and gross unrealized losses were $306.7 million.
During 1999, proceeds from sales of available-for-sale securities were $461.7
million and resulted in gross gains of $4.9 million and gross losses of $4.0
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> 24
AVAILABLE-FOR-SALE AND HELD-TO-MATURITY SECURITIES (TABLE 8)
The following table provides an analysis of amortized cost and fair value
of available-for-sale securities and held-to-maturity securities as well as
their maturities and year-end yields at December 31, 1999:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES HELD-TO-MATURITY 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............................. $ 8.5 $ 8.5 6.46% $ 3.5 $ 3.5 5.54%
One to five years........................... 30.6 30.4 6.06 3.4 3.3 5.85
Five to ten years........................... 0.0 0.0 0.00 0.0 0.0 0.00
More than ten years......................... 0.0 0.0 0.00 0.0 0.0 0.00
-------- -------- ---- -------- -------- -----
Totals............................... 39.1 38.9 6.15 6.9 6.8 5.69
-------- -------- ---- -------- -------- -----
U.S. Government Agencies:
Within one year............................. 2.5 2.5 5.22 1.5 1.5 4.98
One to five years........................... 110.5 108.9 6.20 224.6 221.4 6.82
Five to ten years........................... 2,241.5 2,123.2 6.76 2,263.2 2,150.0 6.80
More than ten years......................... 0.0 0.0 0.00 0.0 0.0 0.00
-------- -------- ---- -------- -------- -----
Totals............................... 2,354.5 2,234.6 6.73 2,489.3 2,372.9 6.80
-------- -------- ---- -------- -------- -----
Collateralized Mortgage Obligations and
Mortgage-backed Securities:
Within one year............................. 30.0 30.0 7.01 19.0 19.1 7.37
One to five years........................... 394.2 387.0 6.03 70.2 70.8 7.31
Five to ten years........................... 1,235.4 1,215.5 6.90 77.3 77.2 7.53
More than ten years......................... 410.7 405.1 6.42 111.4 108.4 6.75
-------- -------- ---- -------- -------- -----
Totals............................... 2,070.3 2,037.6 6.64 277.9 275.5 7.15
-------- -------- ---- -------- -------- -----
States and Political Subdivisions:
Within one year............................. 1.5 1.5 7.78 17.8 18.0 10.79
One to five years........................... 4.4 4.4 7.28 21.9 22.5 10.25
Five to ten years........................... 47.0 45.2 7.03 26.4 27.9 10.61
More than ten years......................... 235.5 220.8 7.08 18.9 19.0 9.22
-------- -------- ---- -------- -------- -----
Totals............................... 288.4 271.9 7.08 85.0 87.4 10.25
-------- -------- ---- -------- -------- -----
Other Debt Securities:
Within one year............................. 5.1 5.1 5.34 10.1 10.0 6.78
One to five years........................... 0.0 0.0 0.00 1.0 1.0 6.75
Five to ten years........................... 54.2 51.4 6.84 81.5 78.7 7.29
More than ten years......................... 12.0 10.7 5.23 35.3 31.4 7.09
-------- -------- ---- -------- -------- -----
Totals............................... 71.3 67.2 6.50 127.9 121.1 7.19
-------- -------- ---- -------- -------- -----
Total Debt Securities:
Within one year............................. 47.6 47.6 6.66 51.9 52.1 8.24
One to five years........................... 539.7 530.7 6.08 321.1 319.0 7.15
Five to ten years........................... 3,578.1 3,435.3 6.81 2,448.4 2,333.8 6.88
More than ten years......................... 658.2 636.6 6.63 165.6 158.8 7.10
-------- -------- ---- -------- -------- -----
Totals............................... 4,823.6 4,650.2 6.70% 2,987.0 2,863.7 6.94%
-------- -------- ==== -------- -------- =====
Equity Securities............................. 410.8 410.8 -- --
-------- -------- -------- --------
Total Securities..................... $5,234.4 $5,061.0 $2,987.0 $2,863.7
======== ======== ======== ========
</TABLE>
22
<PAGE> 25
SHORT-TERM INVESTMENTS
At December 31, 1999, total short-term investments were $368.1 million, a
decrease of $489.5 million from the $857.6 million level at year-end 1998. At
year-end 1999, short-term investments included $46.4 million in federal funds
sold, $0.4 million in interest-bearing deposits with other banks, trading
securities of $69.5 million, and loans held for sale of $251.8 million.
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 family 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
Total deposits and borrowed funds at December 31, 1999 were $39.8 billion,
up 14% from the 1998 level of $34.9 billion. 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 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 source, excluding deposits, as a percent of
total assets of 20%. Various maturity limits have also been established.
Deposits are the Company's primary source of funding. At December 31, 1999,
total deposits were $27,739.3 million, up $2,899.4 million or 12% from the 1998
level of $24,839.9 million. During 1999, the Company acquired deposits of
financial institutions totaling approximately $652.5 million. The remaining
$2,246.9 million increase in deposits during 1999 represents an internal growth
rate of 9%.
The largest portion of the increase in total deposits was an increase in
time deposits of $100,000 and over, which increased $3,994.0 million to $7,513.9
million. Consumer time and savings decreased $1,181.5 million or 6% to $17,364.3
million. Non-interest-bearing demand deposits increased $86.9 million or 3% to
$2,861.1 million. Non-interest-bearing demand deposits accounted for 10.3% and
11.2% of total deposits at December 31, 1999 and 1998, respectively.
23
<PAGE> 26
DEPOSITS (TABLE 9)
The average daily balances of deposits and rates paid on such deposits are
summarized for the last three years in the following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1999 1998 1997
---------------- ---------------- ----------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
--------- ---- --------- ---- --------- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits:
Non-interest-bearing....................... $ 2,721.6 $ 2,323.3 $ 2,095.4
Interest-bearing........................... 883.2 2.62% 607.0 2.58% 533.7 2.70%
Savings deposits............................. 2,344.8 2.84 1,969.2 3.27 1,265.3 3.08
Time deposits................................ 19,863.3 4.39 17,173.0 4.76 14,258.0 4.85
--------- --------- ---------
Totals............................. $25,812.9 $22,072.5 $18,152.4
========= ========= =========
</TABLE>
Maturities of time certificates of deposit and other time deposits of
$100,000 or more outstanding at December 31, 1999, are summarized as follows:
<TABLE>
<CAPTION>
TIME OTHER
CERTIFICATES TIME
OF DEPOSIT DEPOSITS TOTAL
------------ ------------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Within three months......................................... $5,210.1 $ 27.5 $5,237.6
After three through six months.............................. 444.9 0.0 444.9
After six through twelve months............................. 1,119.9 0.0 1,119.9
After twelve months......................................... 418.9 292.6 711.5
-------- ------ --------
Totals............................................ $7,193.8 $320.1 $7,513.9
======== ====== ========
</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 in order to obtain an incremental level
of funding.
Total short-term borrowings increased $1,284.0 million, or 21%, to $7,397.0
million at December 31, 1999 from $6,113.0 million at December 31, 1998. At
December 31, 1999, total short-term borrowings included federal funds purchased
of $3,465.6 million, securities sold under agreements to repurchase of $1,725.5
million, and other borrowed funds of $2,205.9 million, which includes $2,100.0
million in short-term bank notes payable, and other short-term borrowings of
$105.9 million. At year-end 1999, total short-term borrowings were 18.6% of
total funding compared to 17.5% at December 31, 1998. Note I to the Consolidated
Financial Statements includes additional information relating to outstanding
balances and rates on short-term borrowings.
The Company uses Federal Home Loan Bank ("FHLB") advances as an alternative
to other funding sources with similar maturities. FHLB advances totaled $3,530.3
million at December 31, 1999, up $749.9 million from last year's level of
$2,780.4 million. Approximately 20% of the year-end balance had floating
interest rates, while 80% had fixed interest rates. Of the $3,530.3 million
outstanding at year-end 1999, $705.1 million have remaining maturities of less
than five years, and substantially all of the remaining $2,825.2 million have
remaining maturities through 2016. Note J to the Consolidated Financial
Statements includes additional information relating to outstanding balances and
rates of FHLB 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, 1999 totaled $1,125.5 million compared to $1,154.9 million at
24
<PAGE> 27
December 31, 1998, a decrease of $29.4 million. In 1999, the Company issued $50
million of 8.00% Subordinated Notes which mature in 2014 and $0.2 million of
other long-term debt. Repayments of long-term debt during 1999 included the
maturity of $75 million of 9.95% Subordinated Capital Notes and $4.6 million in
other repayments. Note K 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, 1999, the Company's average long-term debt
to equity ratio was 39.9% compared to 47.3% at December 31, 1998. Scheduled
maturities of long-term debt are not expected to have a significant impact on
the Company's liquidity. There are no plans at present to repay any significant
amounts of outstanding indebtedness prior to the scheduled maturity.
LIQUIDITY
Liquidity refers to the ability of the Company to meet its cash flow
requirements in the normal course of business. The Company may achieve its
desired liquidity objectives through management of assets and liabilities and
through funds provided by operations. Funds invested in short-term marketable
instruments, the continuous maturing of other interest-earning assets, the
possible sale of available-for-sale securities and the ability to securitize
certain types of loan 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, 1999.
Table 5, included elsewhere in this report, shows scheduled loan maturities
as of December 31, 1999. Approximately 27% of total loans mature within one
year. Of the $23,386.4 million maturing after one year, $7,361.1 million or 31%
had adjustable interest rates. Repayments of loans and scheduled loan maturities
represent a substantial source of liquidity.
The Company has $5,061.0 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, included elsewhere in this report, shows the
maturity distribution of the Corporation's securities portfolio by major
category. At December 31, 1999, securities classified as held-to-maturity
included $51.9 million or 17% of the portfolio which had maturities of one year
or less, and $321.1 million or 11% that mature within one to five years. Note D
to the Consolidated Financial Statements includes an analysis of the amortized
cost and fair value 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, 1999 by major category. For held-to-maturity
securities, gross unrealized gains at December 31, 1999 were $6.1 million and
gross unrealized losses were $129.4 million.
Core deposits, defined as total deposits less time deposits of $100,000 and
over, constitute the Company's primary source of funding. The growth in core
deposits, $1,094.6 million in 1999, provides a great deal of liquidity. Table 9,
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 1999 were $6,945.8 million, and
average short-term investments were $515.2 million, resulting in an average
short-term borrowing position of $6,430.6 million in 1999.
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, 1999, $561.5 million of the
net assets of the Company's subsidiaries, primarily SouthTrust Bank, N.A., was
available for payment as dividends without prior regulatory approval.
Substantially all other net assets were restricted as to payments to the parent
company.
25
<PAGE> 28
No trends in the sources or uses of cash by the Company are expected to
have a significant 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
Market risk is the risk of loss due to adverse changes in instrument values
or earnings fluctuation resulting from changes in market values. This includes
changes in interest rates, foreign exchange rates, commodity prices and equity
price risk. The Company's primary market risk is exposure to interest rate
changes, which is discussed below. As the Company's trading portfolio is
relatively insignificant, it does not pose significant market risk and therefore
separate disclosure is not presented below. See Note A to the Consolidated
Financial Statements for a detailed description of the accounting policies used
for derivatives, which are used to mitigate interest rate risk.
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 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 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.
For 1999, the Company is changing the method of disclosure about market
risk. In 1998, the Company disclosed the effect of a hypothetical 100 basis
point increase in interest rates on the fair values of market risk sensitive
instruments. The Company believes that disclosure of the effect of a
hypothetical 100 basis point increase or decrease in interest rates on net
interest income is a more meaningful indicator of the Company's market risk
exposure.
The following table illustrates the expected effect a given interest rate
shift would have on net interest income of the Company as of December 31, 1999
and 1998:
<TABLE>
<CAPTION>
CHANGE IN NET INTEREST
INCOME
-----------------------
CHANGE IN INTEREST RATES $ %
- ------------------------ --------- --------
<S> <C> <C>
1999
+ 100 basis points........................................ $(74,220) (4.87)%
- 100 basis points........................................ 58,997 3.87
1998
+ 100 basis points........................................ $(23,379) (1.68)%
- 100 basis points........................................ 17,113 1.23
</TABLE>
26
<PAGE> 29
The following table is an analysis of the Company's interest rate
sensitivity position at December 31, 1999 and 1998. The interest rate
sensitivity gap, which is the difference between interest-earning assets and
interest-bearing liabilities by repricing period, is based upon maturity or
first repricing opportunity, along with a cumulative interest rate sensitivity
gap. Factors considered are the contractual terms of the underlying obligations,
including off-balance sheet items such as interest rate swaps, as well as
Management's estimates of prepayment patterns and interest sensitivity of core
deposits. It is important to note that the table indicates a position at a
specific point in time and may not be reflective of positions at other times
during the year or in subsequent periods. Major changes in the gap position can
be, and are, made promptly as market outlooks change. In addition, significant
variations in interest rate sensitivity may exist within the repricing periods
presented in which the Company has interest rate positions.
INTEREST RATE SENSITIVITY ANALYSIS (TABLE 10)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------------------------------------------------------
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............. $ 8,948.1 $ 1,400.1 $ 410.2 $ 524.4 $ 1,326.9 $ 329.1 $ 0.0 $12,938.8
Fixed-rate commercial and real
estate loans.................. 650.7 503.9 641.2 1,200.3 8,205.3 3,391.3 0.0 14,592.7
Loans to individuals............ 1,516.0 436.9 287.7 391.3 1,205.5 328.9 0.0 4,166.3
--------- ---------- ---------- ---------- --------- -------- --------- ---------
Total loans............. 11,114.8 2,340.9 1,339.1 2,116.0 10,737.7 4,049.3 0.0 31,697.8
Securities...................... 785.3 39.7 90.7 142.0 1,085.0 5,905.3 0.0 8,048.0
Other interest-earning assets... 153.9 214.2 0.0 0.0 0.0 0.0 0.0 368.1
--------- ---------- ---------- ---------- --------- -------- --------- ---------
Total interest-earning
assets................ 12,054.0 2,594.8 1,429.8 2,258.0 11,822.7 9,954.6 0.0 40,113.9
Allowance for loan losses....... 0.0 0.0 0.0 0.0 0.0 0.0 (442.3) (442.3)
Other assets.................... 0.0 .0.0 .0.0 0.0 0.0 0.0 3,590.9 3,590.9
--------- ---------- ---------- ---------- --------- -------- --------- ---------
Total assets............ $12,054.0 $ 2,594.8 $ 1,429.8 $ 2,258.0 $11,822.7 $9,954.6 $ 3,148.6 $43,262.5
========= ========== ========== ========== ========= ======== ========= =========
Non-interest-bearing demand
deposits...................... $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 2,861.1 $ 2,861.1
Interest-bearing demand
deposits...................... 156.6 430.8 0.0 0.0 500.8 0.0 0.0 1,088.2
Money market deposits........... 907.4 2,685.2 0.0 0.0 2,497.1 0.0 0.0 6,089.7
Savings deposits................ 222.3 .0.0 0.0 0.0 2,001.2 0.0 0.0 2,223.5
Time deposits under $100,000 792.8 2,247.0 1,266.4 1,950.4 1,696.1 10.2 0.0 7,962.9
Other time deposits............. 3,382.5 2,289.2 512.1 810.1 374.6 145.4 0.0 7,513.9
--------- ---------- ---------- ---------- --------- -------- --------- ---------
Total deposits.......... 5,461.6 7,652.2 1,778.5 2,760.5 7,069.8 155.6 2,861.1 27,739.3
Short-term borrowings........... 5,655.0 1,739.4 0.6 2.0 0.0 0.0 0.0 7,397.0
FHLB advances................... 1,475.0 1,355.3 200.0 500.0 0.0 0.0 0.0 3,530.3
Long-term debt.................. 0.0 25.5 0.0 0.0 300.0 800.0 0.0 1,125.5
Other liabilities............... 0.0 0.0 0.0 0.0 0.0 0.0 543.0 543.0
Stockholders' equity............ 0.0 0.0 0.0 0.0 0.0 0.0 2,927.4 2,927.4
--------- ---------- ---------- ---------- --------- -------- --------- ---------
Total liabilities and
stockholders'
equity................ $12,591.6 $ 10,772.4 $ 1,979.1 $ 3,262.5 $ 7,369.8 $ 955.6 $ 6,331.5 $43,262.5
========= ========== ========== ========== ========= ======== ========= =========
Interest rate gap............... $ (537.6) $ (8,177.6) $ (549.3) $ (1,004.5) $ 4,452.9 $8,999.0 $(3,182.9)
Effect of interest rate swaps... (300.0) (640.0) (450.0) 75.0 1,315.0 0.0
--------- ---------- ---------- ---------- --------- --------
Cumulative interest rate gap.... $ (837.6) $ (9,655.2) $(10,654.5) $(11,584.0) $(5,816.1) $3,182.9
========= ========== ========== ========== ========= ========
Cumulative gap as a percentage
of earning assets --
December 31, 1999............. (2.09)% (24.07)% (26.56)% (28.88)% (14.50)% 7.93%
December 31, 1998............. 8.94% (3.35)% (6.89)% (9.44)% (3.25)% 8.16%
</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,
loans held for sale, and FHLB advances.
(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 1 year" repricing period.
27
<PAGE> 30
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, 1999 was $2,927.4 million or 6.77% of
year-end assets compared to $2,738.3 million or 7.18% in 1998. During 1999, net
income added $443.2 million to stockholders' equity and dividends declared
totaled $147.4 million, resulting in an internal common equity generation rate
of 10.5% in 1999 compared to 9.6% in 1998.
During 1999, 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 529,179 shares added $13.1 million to equity.
During 1999, 481,759 shares were issued in a business combination and added $6.7
million to equity. The net unrealized loss after tax on available-for-sale
securities resulted in a net reduction to equity of $114.5 million for the year
ended December 31, 1999, compared to a net reduction of $5.6 million for the
year ended December 31, 1998. Treasury stock purchases for the exercise of stock
options and the funding of employee benefit plans for 316,883 shares reduced
equity by $12.0 million.
During 1998, the Company 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 $233.2 million. The Company has used
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 have been or
may be used to fund closed or pending acquisitions.
The annual dividend rate during 1999 was $.88 per share, representing a 16%
increase over 1998. For 2000 the indicated annual dividend rate is $1.00 per
share, marking the thirtieth consecutive year in which SouthTrust has increased
its dividend. The dividend pay-out ratio during 1999 was 33.3%. 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 1 capital elements. Tier 1 capital
generally consists of common stock, capital surplus and retained earnings less
treasury stock and certain intangible assets. Total risk-based capital includes
Tier 1 capital, Tier 2 capital elements which consist of certain subordinated
debt and the allowance for loan losses subject to certain limitations, and Tier
3 capital which includes qualifying unsecured subordinated debt. Tier 3 capital
guidelines are only applicable to institutions that exceed certain prescribed
trading activity thresholds. Currently, the Company is not subject to the Tier 3
capital requirements. The guidelines also impose a leverage requirement, defined
as the ratio of Tier 1 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, 1999, SouthTrust had a total
risk-based capital ratio of 10.41%, consisting of Tier 1 capital elements of
6.65% and Tier 2 capital elements of 3.76%, and a leverage ratio of 5.81%. 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> 31
CAPITAL POSITION (TABLE 11)
Following are the Company's risk-based capital ratios for the years ended
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
-------- -----
<S> <C> <C>
Tier 1 capital ratio........................................ 6.65% 6.58%
Tier 2 capital elements..................................... 3.76 4.02
-------- -----
Total risk-based capital ratio.................... 10.41% 10.60%
======== =====
Leverage ratio.............................................. 5.81% 6.10%
======== =====
</TABLE>
QUARTERLY INCOME INFORMATION (TABLE 12)
The Company's unaudited consolidated operating results for each quarter of
1999 and 1998 are summarized in the table below:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------- -----------------------------------------
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....................... $790,269 $750,123 $695,288 $670,767 $668,011 $656,045 $635,944 $597,462
Interest expense...................... 432,401 394,381 358,493 354,263 357,074 359,196 345,874 324,112
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income................... 357,868 355,742 336,795 316,504 310,937 296,849 290,070 273,350
Provision for loan losses............. 36,354 42,757 31,776 30,362 29,420 22,040 25,481 17,855
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income after provision
for loan losses..................... 321,514 312,985 305,019 286,142 281,517 274,809 264,589 255,495
Non-interest income................... 104,562 104,846 99,520 100,798 95,999 92,349 82,962 75,394
Gains on trading securities, net...... 4,197 3,963 4,143 5,280 4,400 4,114 4,274 3,638
Gains on loans held for sale, net..... 2,784 4,490 3,623 4,452 3,330 3,305 4,851 6,934
Gains (losses) on available-for-sale
securities, net..................... 513 148 (296) 534 1,481 (399) 1,058 2,152
Non-interest expense.................. 260,160 258,812 248,886 242,643 242,226 236,798 222,913 212,506
-------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes............ 173,410 167,620 163,123 154,563 144,501 137,380 134,821 131,107
Income tax expense.................... 57,504 54,563 53,437 50,039 46,496 42,719 45,329 44,655
-------- -------- -------- -------- -------- -------- -------- --------
Net income............................ $115,906 $113,057 $109,686 $104,524 $ 98,005 $ 94,661 $ 89,492 $ 86,452
======== ======== ======== ======== ======== ======== ======== ========
Net income per share -- basic......... $ 0.69 $ 0.67 $ 0.66 $ 0.62 $ 0.59 $ 0.57 $ 0.56 $ 0.55
Net income per share -- diluted....... 0.69 0.67 0.65 0.62 0.59 0.57 0.55 0.54
Dividends declared per share.......... 0.22 0.22 0.22 0.22 0.19 0.19 0.19 0.19
</TABLE>
29
<PAGE> 32
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 25,
2000, approximately 15,491 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> <C> <C>
1999
First Quarter................................. $16.72 $35 3/8 $42 3/8 $0.22
Second Quarter................................ 16.90 36 42 7/8 0.22
Third Quarter................................. 17.20 32 3/4 38 15/16 0.22
Fourth Quarter................................ 17.44 32 3/4 41 13/16 0.22
Year.................................. 32 3/4 42 7/8 0.88
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
</TABLE>
30
<PAGE> 33
SIX-YEAR CONDENSED BALANCE SHEETS (TABLE 14)
<TABLE>
<CAPTION>
GROWTH RATES
------------------
ONE FIVE-YEAR
1999 1998 1997 1996 1995 1994 YEAR COMPOUND
--------- --------- --------- --------- --------- --------- ------ ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE BALANCES:
Loans, net of unearned income........ $29,307.9 $24,609.0 $20,888.9 $16,885.4 $13,326.1 $10,606.6 19.09% 22.54%
Available-for-sale securities........ 4,420.3 3,340.0 3,272.1 2,825.5 2,209.4 2,339.6 32.34 13.57
Held-to-maturity securities.......... 2,863.6 2,735.6 2,227.4 1,721.9 1,838.3 1,565.0 4.68 12.84
Short-term investments:
Federal funds sold and securities
purchased under resale
agreements....................... 53.2 34.5 28.3 66.5 29.6 21.3 54.20 20.09
Interest-bearing deposits in other
banks............................ 1.2 1.1 18.0 17.5 16.8 12.6 9.09 (37.52)
Trading securities................. 54.7 43.5 30.3 15.4 15.1 14.9 25.75 29.71
Loans held for sale................ 406.1 644.1 304.7 242.6 180.9 173.7 (36.95) 18.51
--------- --------- --------- --------- --------- --------- ------ ------
Total short-term
investments................ 515.2 723.2 381.3 342.0 242.4 222.5 (28.76) 18.28
--------- --------- --------- --------- --------- --------- ------ ------
Total earning assets......... 37,107.0 31,407.8 26,769.7 21,774.8 17,616.2 14,733.7 18.15 20.29
Allowance for loan losses............ (407.0) (350.1) (298.2) (239.3) (187.1) (154.1) 16.25 21.44
Other assets......................... 3,538.5 3,039.6 2,000.9 1,748.5 1,554.8 1,355.3 16.41 21.16
--------- --------- --------- --------- --------- --------- ------ ------
Total assets................. $40,238.5 $34,097.3 $28,472.4 $23,284.0 $18,983.9 $15,934.9 18.01% 20.35%
========= ========= ========= ========= ========= ========= ====== ======
Deposits:
Interest-bearing................... $23,091.3 $19,749.2 $16,057.0 $13,607.5 $11,588.9 $10,052.8 16.92% 18.10%
Other.............................. 2,721.6 2,323.3 2,095.4 2,270.5 2,023.3 1,849.2 17.14 8.04
--------- --------- --------- --------- --------- --------- ------ ------
Total deposits............... 25,812.9 22,072.5 18,152.4 15,878.0 13,612.2 11,902.0 16.95 16.75
Federal funds purchased and other
short-term borrowed funds.......... 6,945.8 4,976.2 4,834.8 3,636.7 2,995.9 2,259.9 39.58 25.18
Federal Home Loan Bank advances...... 3,043.2 2,767.5 2,107.6 1,088.3 351.1 104.0 9.96 96.45
Long-term debt....................... 1,121.6 1,204.1 986.8 696.6 486.0 359.2 (6.85) 25.57
Other liabilities.................... 501.0 529.8 439.6 384.8 277.9 218.6 (5.44) 18.04
Stockholders' equity................. 2,814.0 2,547.2 1,951.2 1,599.6 1,260.8 1,091.2 10.47 20.86
--------- --------- --------- --------- --------- --------- ------ ------
Total liabilities and
stockholders' equity....... $40,238.5 $34,097.3 $28,472.4 $23,284.0 $18,983.9 $15,934.9 18.01% 20.35%
========= ========= ========= ========= ========= ========= ====== ======
BALANCES AT YEAR-END:
Loans, net of unearned income........ $31,697.8 $27,317.5 $22,474.8 $19,331.1 $14,655.1 $12,121.9 16.03% 21.20%
Available-for-sale securities........ 5,061.0 3,802.7 2,917.1 2,859.0 2,614.8 2,280.8 33.09 17.28
Held-to-maturity securities:......... 2,987.0 2,988.4 2,557.2 1,956.6 1,585.6 1,671.7 (0.05) 12.31
Short-term investments:
Federal funds sold and securities
purchased under resale
agreements....................... 46.4 76.3 49.2 12.2 100.3 22.6 (39.19) 15.47
Interest-bearing deposits in
other banks...................... 0.4 0.5 0.2 4.2 18.7 13.9 (20.00) (50.82)
Trading securities................. 69.5 73.2 58.8 17.8 15.7 16.9 (5.05) 32.68
Loans held for sale................ 251.8 707.6 403.8 191.3 221.4 147.7 (64.41) 11.26
--------- --------- --------- --------- --------- --------- ------ ------
Total short-term
investments................ 368.1 857.6 512.0 225.5 356.1 201.1 (57.08) 12.85
--------- --------- --------- --------- --------- --------- ------ ------
Total earning assets......... 40,113.9 34,966.2 28,461.1 24,372.2 19,211.6 16,275.5 14.72 19.77
Allowance for loan losses............ (442.3) (377.5) (315.5) (269.9) (206.6) (171.7) 17.17 20.83
Other assets......................... 3,590.9 3,545.1 2,760.8 2,120.9 1,782.0 1,528.3 1.29 18.63
--------- --------- --------- --------- --------- --------- ------ ------
Total assets................. $43,262.5 $38,133.8 $30,906.4 $26,223.2 $20,787.0 $17,632.1 13.45% 19.66%
========= ========= ========= ========= ========= ========= ====== ======
Deposits:
Interest-bearing................... $24,878.2 $22,065.7 $17,297.9 $14,725.1 $12,303.1 $10,761.5 12.75% 18.25%
Other.............................. 2,861.1 2,774.2 2,288.7 2,580.4 2,272.0 2,039.7 3.13 7.00
--------- --------- --------- --------- --------- --------- ------ ------
Total deposits............... 27,739.3 24,839.9 19,586.6 17,305.5 14,575.1 12,801.2 11.67 16.73
Federal funds purchased and other
short-term borrowed funds.......... 7,397.0 6,113.0 4,750.4 4,071.0 3,207.4 2,828.0 21.00 21.20
Federal Home Loan Bank advances...... 3,530.3 2,780.4 2,782.4 1,744.2 651.9 251.9 26.97 69.56
Long-term debt....................... 1,125.5 1,154.9 1,106.4 983.2 535.4 388.8 (2.55) 23.69
Other liabilities.................... 543.0 507.3 486.0 384.4 386.3 226.9 7.04 19.07
Stockholders' equity................. 2,927.4 2,738.3 2,194.6 1,734.9 1,430.9 1,135.3 6.91 20.86
--------- --------- --------- --------- --------- --------- ------ ------
Total liabilities and
stockholders' equity....... $43,262.5 $38,133.8 $30,906.4 $26,223.2 $20,787.0 $17,632.1 13.45% 19.66%
========= ========= ========= ========= ========= ========= ====== ======
</TABLE>
31
<PAGE> 34
SIX-YEAR SUMMARY OF EARNINGS (TABLE 15)
<TABLE>
<CAPTION>
GROWTH RATES
------------------
ONE FIVE-YEAR
1999 1998 1997 1996 1995 1994 YEAR COMPOUND
---------- ---------- ---------- ---------- ---------- ----------- ------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees...... $2,386,713 $2,102,095 $1,831,156 $1,483,705 $1,208,209 $ 868,461 13.54% 22.41%
Available-for-sale
securities............... 286,701 210,489 215,015 179,920 139,451 130,470 36.21 17.05
Held-to-maturity
securities............... 196,169 192,345 157,165 117,835 121,435 99,098 1.99 14.63
Federal funds sold and
securities purchased
under resale
agreements............... 2,784 1,929 1,605 3,582 1,743 875 44.32 26.05
Time deposits in other
banks.................... 30 65 1,072 1,015 1,079 539 (53.85) (43.88)
Trading securities......... 4,465 3,213 1,844 629 859 744 38.97 43.10
Loans held for sale........ 29,585 47,326 24,395 17,534 11,847 8,425 (37.49) 28.56
---------- ---------- ---------- ---------- ---------- ----------- ------ ------
Total interest
income............. 2,906,447 2,557,462 2,232,252 1,804,220 1,484,623 1,108,612 13.65 21.26
---------- ---------- ---------- ---------- ---------- ----------- ------ ------
INTEREST EXPENSE:
Deposits................... 962,504 897,903 745,122 644,613 564,064 377,643 7.19 20.58
Short-term borrowings...... 353,281 264,980 266,816 194,159 174,330 98,189 33.32 29.18
Federal Home Loan Bank
advances................. 157,305 146,708 112,646 57,387 20,511 4,628 7.22 102.43
Long-term debt............. 66,448 76,665 61,495 42,035 32,518 20,607 (13.33) 26.38
---------- ---------- ---------- ---------- ---------- ----------- ------ ------
Total interest
expense............ 1,539,538 1,386,256 1,186,079 938,194 791,423 501,067 11.06 25.17
---------- ---------- ---------- ---------- ---------- ----------- ------ ------
Net interest
income............. 1,366,909 1,171,206 1,046,173 866,026 693,200 607,545 16.71 17.61
Provision for loan
losses................... 141,249 94,796 90,613 90,027 61,286 44,984 49.00 25.71
---------- ---------- ---------- ---------- ---------- ----------- ------ ------
Net interest income
after provision for
loan losses........ 1,225,660 1,076,410 955,560 775,999 631,914 562,561 13.87 16.85
---------- ---------- ---------- ---------- ---------- ----------- ------ ------
NON-INTEREST INCOME:
Service charges on deposit
accounts................. 204,044 167,742 129,869 109,213 93,276 86,304 21.64 18.78
Mortgage banking
operations............... 44,175 41,565 27,242 42,096 31,712 27,760 6.28 9.74
Bank card fees............. 31,142 27,785 22,981 22,727 18,699 15,847 12.08 14.47
Trust fees................. 30,254 27,704 24,529 21,886 18,936 16,863 9.20 12.40
Other fees................. 50,954 37,239 31,911 27,812 27,843 20,414 36.83 20.07
Bank owned life
insurance................ 41,404 32,580 603 0 0 0 27.70 --
Gains on trading
securities, net.......... 17,583 16,426 10,607 9,033 5,915 7,052 7.04 20.05
Gains on loans held for
sale, net................ 15,349 18,420 11,074 8,910 399 1,009 (16.67) 72.36
Gains on available-for-sale
securities, net.......... 899 4,292 1,739 1,409 193 330 (79.05) 22.19
Other...................... 7,753 12,089 9,952 11,723 11,691 9,199 (38.92) (4.70)
---------- ---------- ---------- ---------- ---------- ----------- ------ ------
Total non-interest
income............. 443,557 385,842 270,507 254,809 208,664 184,778 14.96 19.14
---------- ---------- ---------- ---------- ---------- ----------- ------ ------
NON-INTEREST EXPENSE:
Salaries and employee
benefits................. 540,382 495,837 404,846 331,600 281,546 257,637 8.98 15.97
Net occupancy expense...... 81,984 72,538 60,158 49,361 43,423 40,273 13.02 15.28
Equipment expense.......... 67,734 61,005 45,724 37,336 30,932 27,899 11.03 19.41
Professional services...... 67,411 57,503 51,414 45,596 34,785 27,242 17.23 19.87
Communications............. 51,516 47,073 36,452 30,791 25,157 22,136 9.44 18.40
Business development....... 31,149 30,263 26,312 23,199 21,221 16,090 2.93 14.12
Supplies................... 25,274 29,054 23,190 17,250 12,051 10,248 (13.01) 19.79
Other...................... 145,051 121,170 100,120 108,165 87,419 84,474 19.71 11.42
---------- ---------- ---------- ---------- ---------- ----------- ------ ------
Total non-interest
expense............ 1,010,501 914,443 748,216 643,298 536,534 485,999 10.50 15.77
---------- ---------- ---------- ---------- ---------- ----------- ------ ------
Income before income
taxes.............. 658,716 547,809 477,851 387,510 304,044 261,340 20.25 20.31
Income tax expense......... 215,543 179,199 171,143 132,807 105,039 88,338 20.28 19.53
---------- ---------- ---------- ---------- ---------- ----------- ------ ------
NET INCOME................... $ 443,173 $ 368,610 $ 306,708 $ 254,703 $ 199,005 $ 173,002 20.23% 20.70%
========== ========== ========== ========== ========== =========== ====== ======
Average shares outstanding--
basic...................... 167,560 162,732 149,684 141,183 125,838 120,264 2.97% 6.86%
Average shares outstanding--
diluted.................... 168,778 164,148 151,008 142,154 126,687 121,157 2.82 6.85
Net income per
share--basic............... $ 2.64 $ 2.27 $ 2.05 $ 1.80 $ 1.58 $ 1.44 16.30 12.89
Net income per
share--diluted............. 2.63 2.25 2.03 1.79 1.57 1.43 16.89 12.96
Dividends declared per
share...................... 0.88 0.76 0.67 0.59 0.53 0.45 15.79 14.35
</TABLE>
32
<PAGE> 35
SOUTHTRUST CORPORATION
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SouthTrust Corporation:
We have audited the accompanying consolidated balance sheets of SouthTrust
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1999. 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 audit 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, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Birmingham, Alabama
January 28, 2000
33
<PAGE> 36
SOUTHTRUST CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 874,999 $ 970,778
Short-term investments:
Federal funds sold and securities purchased under resale
agreements.............................................. 46,350 76,275
Interest-bearing deposits in other banks.................. 417 506
Trading securities........................................ 69,508 73,215
Loans held for sale....................................... 251,844 707,586
----------- -----------
Total short-term investments....................... 368,119 857,582
Available-for-sale securities............................... 5,061,001 3,802,718
Held-to-maturity securities(1).............................. 2,986,958 2,988,428
Loans....................................................... 31,972,758 27,526,597
Less --
Unearned income........................................... 274,917 209,091
Allowance for loan losses................................. 442,343 377,525
----------- -----------
Net loans.......................................... 31,255,498 26,939,981
Premises and equipment, net................................. 730,602 690,852
Due from customers on acceptances........................... 20,574 28,965
Goodwill and core deposit intangibles....................... 583,303 549,689
Mortgage servicing rights................................... 79,450 61,601
Bank owned life insurance................................... 742,370 705,100
Other assets................................................ 559,638 538,080
----------- -----------
Total Assets....................................... $43,262,512 $38,133,774
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest-bearing.......................................... $24,878,183 $22,065,653
Other..................................................... 2,861,162 2,774,239
----------- -----------
Total deposits..................................... 27,739,345 24,839,892
Federal funds purchased and securities sold under agreements
to repurchase............................................. 5,191,057 5,200,026
Other short-term borrowings................................. 2,205,933 913,002
Bank acceptances outstanding................................ 20,574 28,965
Federal Home Loan Bank advances............................. 3,530,324 2,780,340
Long-term debt.............................................. 1,125,483 1,154,937
Other liabilities........................................... 522,367 478,346
----------- -----------
Total liabilities.................................. 40,335,083 35,395,508
Stockholders' equity:
Preferred stock, par value $1.00 a share(2)............... 0 0
Common stock, par value $2.50 a share(3).................. 423,096 420,569
Capital surplus........................................... 750,820 733,577
Retained earnings......................................... 1,886,481 1,590,686
Accumulated other comprehensive income.................... (108,928) 5,530
Treasury stock, at cost(4)................................ (24,040) (12,096)
----------- -----------
Total stockholders' equity......................... 2,927,429 2,738,266
----------- -----------
Total Liabilities and Stockholders' Equity......... $43,262,512 $38,133,774
=========== ===========
(1) Held-to-maturity securities-fair value.................. $ 2,863,710 $ 3,021,199
(2) Preferred shares authorized............................. 5,000,000 5,000,000
Preferred shares issued................................. 0 0
(3) Common shares authorized................................ 500,000,000 500,000,000
Common shares issued.................................... 169,238,391 168,227,453
(4) Treasury shares of common stock......................... 1,333,042 1,016,159
</TABLE>
See Notes to Consolidated Financial Statements
34
<PAGE> 37
SOUTHTRUST CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees.................................... $2,386,713 $2,102,095 $1,831,156
Available-for-sale securities............................ 286,701 210,489 215,015
Held-to-maturity securities.............................. 196,169 192,345 157,165
Short-term investments................................... 36,864 52,533 28,916
---------- ---------- ----------
Total interest income............................ 2,906,447 2,557,462 2,232,252
---------- ---------- ----------
INTEREST EXPENSE:
Deposits................................................. 962,504 897,903 745,122
Short-term borrowings.................................... 353,281 264,980 266,816
Federal Home Loan Bank advances.......................... 157,305 146,708 112,646
Long-term debt........................................... 66,448 76,665 61,495
---------- ---------- ----------
Total interest expense........................... 1,539,538 1,386,256 1,186,079
---------- ---------- ----------
Net interest income.............................. 1,366,909 1,171,206 1,046,173
Provision for loan losses.................................. 141,249 94,796 90,613
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES......................................... 1,225,660 1,076,410 955,560
NON-INTEREST INCOME:
Service charges on deposit accounts...................... 204,044 167,742 129,869
Mortgage banking operations.............................. 44,175 41,565 27,242
Bank card fees........................................... 31,142 27,785 22,981
Trust fees............................................... 30,254 27,704 24,529
Other fees............................................... 50,954 37,239 31,911
Bank owned life insurance................................ 41,404 32,580 603
Gains on trading securities, net......................... 17,583 16,426 10,607
Gains on loans held for sale, net........................ 15,349 18,420 11,074
Gains on available-for-sale securities, net.............. 899 4,292 1,739
Other.................................................... 7,753 12,089 9,952
---------- ---------- ----------
Total non-interest income........................ 443,557 385,842 270,507
---------- ---------- ----------
NON-INTEREST EXPENSE:
Salaries and employee benefits........................... 540,382 495,837 404,846
Net occupancy............................................ 81,984 72,538 60,158
Equipment................................................ 67,734 61,005 45,724
Professional services.................................... 67,411 57,503 51,414
Communications........................................... 51,516 47,073 36,452
Business development..................................... 31,149 30,263 26,312
Supplies................................................. 25,274 29,054 23,190
Other.................................................... 145,051 121,170 100,120
---------- ---------- ----------
Total non-interest expense....................... 1,010,501 914,443 748,216
---------- ---------- ----------
Income before income taxes................................. 658,716 547,809 477,851
Income tax expense......................................... 215,543 179,199 171,143
---------- ---------- ----------
NET INCOME................................................. $ 443,173 $ 368,610 $ 306,708
========== ========== ==========
Average shares outstanding -- basic (in thousands)......... 167,560 162,732 149,684
Average shares outstanding -- diluted (in thousands)....... 168,778 164,148 151,008
Net income per share -- basic.............................. $ 2.64 $ 2.27 $ 2.05
Net income per share -- diluted............................ 2.63 2.25 2.03
Dividends declared per share............................... 0.88 0.76 0.67
</TABLE>
See Notes to Consolidated Financial Statements
35
<PAGE> 38
SOUTHTRUST CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON CAPITAL RETAINED OTHER COMPRE- TREASURY
STOCK SURPLUS EARNINGS HENSIVE INCOME STOCK TOTAL
-------- -------- ---------- -------------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
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
Unrealized gain on available-for-sale securities, net
of tax of $(11,158)*............................... 0 0 0 18,696 0 18,696
----------
Comprehensive income................................. 325,404
Dividends declared ($.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 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
offering........................................... 17,313 182,398 0 0 0 199,711
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
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
Net income........................................... 0 0 368,610 0 0 368,610
Unrealized loss on available-for-sale securities, net
of tax of 3,502*................................... 0 0 0 (5,646) 0 (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
Net income........................................... 0 0 443,173 0 0 443,173
Unrealized loss on available-for-sale securities, net
of tax of $67,715*................................. 0 0 0 (114,458) 0 (114,458)
----------
Comprehensive income................................. 328,715
Dividends declared ($.88 per share).................. 0 0 (147,443) 0 0 (147,443)
Issuance of 275,824 shares of Common Stock for stock
options exercised.................................. 689 3,963 0 0 0 4,652
Issuance of 170,782 shares of Common Stock for
dividend reinvestment and stock purchase plans..... 427 5,826 0 0 0 6,253
Issuance of 34,720 shares of Common Stock under
employee discounted stock purchase plan............ 87 978 0 0 0 1,065
Issuance of 47,853 shares of Common Stock under
long-term incentive plan........................... 120 1,035 0 0 0 1,155
Issuance of 481,759 shares of Common Stock for
acquisitions accounted for as
poolings-of-interest............................... 1,204 5,441 65 0 0 6,710
Purchase of 5,626 shares of treasury stock for
exercises of stock options......................... 0 0 0 0 (242) (242)
Purchase of 311,257 shares of treasury stock for
employee benefit plans............................. 0 0 0 0 (11,702) (11,702)
-------- -------- ---------- --------- -------- ----------
DECEMBER 31, 1999..................................... $423,096 $750,820 $1,886,481 $(108,928) $(24,040) $2,927,429
======== ======== ========== ========= ======== ==========
</TABLE>
* See disclosure of reclassification amount in Note A to Consolidated Financial
Statements.
See Notes to Consolidated Financial Statements.
36
<PAGE> 39
SOUTHTRUST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
----------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 443,173 $ 368,610 $ 306,708
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision (credit) for:
Loan losses............................................. 141,249 94,796 90,613
Depreciation of premises and equipment.................. 56,080 50,699 38,790
Amortization of intangibles............................. 53,969 44,502 28,089
Amortization of security premium........................ 2,311 2,042 584
Accretion of security discount.......................... (4,686) (5,383) (3,289)
Deferred income taxes................................... 41,566 48,843 (15,525)
Bank owned life insurance............................... (41,404) (32,580) (603)
Net gain on trading securities............................ (17,583) (16,426) (10,607)
Net gain on loans held for sale........................... (15,349) (18,420) (11,074)
Net gain on available-for-sale securities................. (899) (4,292) (1,739)
Origination and purchase of loans held for sale........... (2,868,073) (3,665,643) (1,987,135)
Proceeds from loans held for sale......................... 3,027,210 3,380,314 1,785,680
Net (increase) decrease in trading securities............. 21,290 1,961 (30,293)
Net (increase) decrease in other assets................... (79,997) (94,659) 19,412
Net increase (decrease) in other liabilities.............. 32,877 (20,988) 81,050
----------- ----------- -----------
Net cash provided by operating activities............... 791,734 133,376 290,661
----------- ----------- -----------
INVESTING ACTIVITIES:
Proceeds from maturities/calls of:
Available-for-sale securities........................... 719,983 1,266,217 545,273
Held-to-maturity securities............................. 1,322,684 2,104,486 678,361
Proceeds from sales of available-for-sale securities...... 461,746 321,522 652,172
Purchases of:
Available-for-sale securities........................... (2,525,010) (2,313,956) (1,200,062)
Held-to-maturity securities............................. (1,215,345) (2,264,771) (1,262,777)
Premises and equipment.................................. (75,695) (83,824) (107,953)
Net (increase) decrease in:
Short-term investments.................................. 142,008 33,837 14,158
Loans................................................... (3,741,665) (3,662,559) (2,776,662)
Purchases of bank owned life insurance.................... 0 (175,000) (500,000)
Net cash received (paid) in acquisitions.................. (83,927) 2,771,092 756,415
----------- ----------- -----------
Net cash used in investing activities................... (4,995,221) (2,002,956) (3,201,075)
----------- ----------- -----------
FINANCING ACTIVITIES:
Net increase in:
Deposits................................................ 2,246,912 473,413 893,570
Short-term borrowings................................... 1,283,962 1,255,810 678,819
Proceeds from:
Common stock issuances.................................. 19,835 305,963 234,481
Federal Home Loan Bank advances......................... 2,550,014 300,281 2,957,750
Long-term debt issuances................................ 50,148 200,436 125,000
Payments for:
Repurchase of common stock.............................. (11,944) (1,183) (555)
Federal Home Loan Bank advances......................... (1,800,030) (302,296) (1,920,554)
Long-term debt.......................................... (79,602) (151,943) (1,800)
Cash dividends.......................................... (151,587) (118,008) (81,546)
----------- ----------- -----------
Net cash provided by financing activities............... 4,107,708 1,962,473 2,885,165
----------- ----------- -----------
Increase/(decrease) in cash and due from banks.......... (95,779) 92,893 (25,249)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR................ 970,778 877,885 903,134
----------- ----------- -----------
CASH AND DUE FROM BANKS AT END OF YEAR...................... $ 874,999 $ 970,778 $ 877,885
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
37
<PAGE> 40
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- BUSINESS AND ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is a regional bank holding company headquartered in Birmingham,
Alabama which owns one bank operating 623 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.
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.
PRESENTATION
The Consolidated Financial Statements include accounts of the Company and
its subsidiaries. All significant intercompany 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. Material
estimates that are particularly susceptible to significant change in the near
term relate to the determination of the allowance for loan losses and the
valuation of other real estate.
Certain amounts in the 1998 and 1997 financial statements have been
reclassified to conform to the 1999 presentation. Such reclassification had no
effect on net income or total assets.
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 realized
and unrealized gains and losses are included in non-interest income. Securities
classified as held-to-maturity are carried at amortized cost, as the Company has
the ability and positive intent to hold these securities to maturity. All
securities not considered held-to-maturity or part of the trading portfolio have
been designated as available-for-sale and are carried at fair value. Unrealized
gains and losses on available-for-sale securities are excluded from earnings and
are reported, net of deferred taxes, in accumulated other comprehensive income,
a component of stockholders' equity. This caption includes securities that the
Company 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. Gains and losses on securities are computed using the specific
identification method.
38
<PAGE> 41
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. Net unrealized losses, if any, are recognized through
valuation allowances by charges to income.
LOANS
Loans that the Company has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are recorded at their principal
amount outstanding, net of unearned income and the allowance for loan losses.
Interest is credited to income using the interest method. The net amount of
non-refundable loan origination fees, including commitment fees, and direct
costs associated with the lending process are deferred and amortized to interest
income over the estimated lives of the loans using a method that approximates
the interest method.
Interest accrual on loans is generally discontinued if principal or
interest payments become 90 days past due or when the Company 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. Cash receipts on
non-accrual loans for which the ultimate collectibility of principal is
uncertain, are applied as principal reductions. Otherwise, such cash receipts
are credited to interest income when received.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision charged to
earnings when losses are estimated to have occurred. Loan losses are charged
against the allowance when the loss is confirmed. Subsequent recoveries, if any,
are credited to the allowance.
The allowance for loan losses is based upon Management's estimated range of
losses inherent in the loan portfolio. 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.
Loans classified as non-accrual, excluding residential mortgages, consumer
and other homogeneous loans, meet the criteria to be considered as impaired
loans. 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. 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
Land is stated at cost. Buildings 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 $509.8 million and $454.5 million at December 31, 1999 and
1998, respectively. Core deposit intangibles generated in business combinations
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 $73.5 million and $95.2 million at
December 31, 1999 and 1998, respectively.
39
<PAGE> 42
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 1999, 1998 or 1997.
Total other real estate and other repossessed assets, included in other
assets, amounted to $50.7 million and $65.6 million at December 31, 1999 and
1998, respectively. Such assets 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 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
extinguishment of liabilities in accordance with Statement of Financial
Accounting Standard ("SFAS") No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment 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, 1999 and 1998, mortgage servicing rights were approximately
$79.5 million and $61.6 million, respectively, net of accumulated amortization
of approximately $68.2 million and $54.7 million, respectively. The Company
recognized mortgage servicing rights of $31.7 million and $35.6 million in 1999
and 1998, respectively. Amortization expense related to these mortgage servicing
rights was $13.7 million in 1999 and $15.8 million in 1998.
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, 1999 and 1998, fair value was approximately $114.0 million and
$62.2 million, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS
As part of the Company's asset/liability management, the Company uses
derivatives in the form of interest rate swap contracts to manage interest rate
risk arising from certain of the Company's fixed-rate balance sheet instruments.
Derivatives that represent end-user activities are designed and designated at
their inception as hedges and must be effective at reducing the risk associated
with the exposure being hedged. 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 net interest
income related to the specific asset or 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 asset or
liability and is recognized in net interest income over the expected remaining
life of the related asset or liability. In instances where the underlying
instrument is sold or otherwise settled, the cumulative change in
40
<PAGE> 43
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the value of the associated derivative is recognized immediately in the
component of earnings related to the underlying instrument.
Those derivatives that do not meet the hedging criteria are classified as
trading and are recorded at fair value with changes in fair value recorded in
earnings. The Company's investment in these derivatives during 1999, 1998 and
1997 was immaterial.
In June 1998, the Financial Accounting Standards Board ("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 balance sheet and measure
those instruments at fair value. Under certain conditions, a derivative may be
specifically designated as a hedge. Accounting for 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 operation, but does not expect this impact to be material.
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 No. 133,
which will now be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000.
STOCK-BASED COMPENSATION
In accordance with the provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, the Company applies APB Opinion 25 and related
Interpretations in accounting for its stock option plans and, accordingly, does
not recognize compensation cost for stock options granted at fair value. The
Company follows the pro-forma disclosures of SFAS No. 123 using the fair value
method of accounting for stock-based compensation. The pro-forma disclosures
include the effects of all awards granted on or after January 1, 1995 and are
included in Note M.
41
<PAGE> 44
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 exercised 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>
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Basic:
Net income....................................... $443,173 $368,610 $306,708
Average common shares outstanding................ 167,560 162,732 149,684
-------- -------- --------
Earnings per share............................... $ 2.64 $ 2.27 $ 2.05
======== ======== ========
Diluted:
Net income....................................... $443,173 $368,610 $306,708
Average common shares outstanding................ 167,560 162,732 149,684
Dilutive effect of options issued................ 1,218 1,416 1,324
-------- -------- --------
Average diluted shares outstanding............... 168,778 164,148 151,008
-------- -------- --------
Earnings per share............................... $ 2.63 $ 2.25 $ 2.03
======== ======== ========
</TABLE>
In addition, the Company had 151,400 exercisable options issued that were
not included in the calculation of diluted EPS for 1999, as the exercise price
of these options was in excess of the market price.
COMPREHENSIVE INCOME
Comprehensive income is the total of net income and all other non-owner
changes in equity. Items that are to be recognized under accounting standards as
components of comprehensive income are displayed in the Consolidated 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>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
--------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Unrealized holding gains (losses) on available-for-sale
securities........................................... $(181,274) $(4,856) $ 31,593
Less: reclassification adjustment for (gains) losses
included in net income............................... (899) (4,292) (1,739)
--------- ------- --------
Unrealized gain/(loss) on available-for-sale
securities........................................... (182,173) (9,148) 29,854
Tax effect............................................. 67,715 3,502 (11,158)
--------- ------- --------
Unrealized gain/(loss) on available-for-sale
securities, net of tax............................... $(114,458) $(5,646) $ 18,696
========= ======= ========
</TABLE>
42
<PAGE> 45
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF CASH FLOWS
The Company includes cash, due from banks, and certain cash equivalents in
preparing the Consolidated Statements of Cash Flows. The following is
supplemental disclosure to the Consolidated Statements of Cash Flows for the
three years ended December 31, 1999:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash Paid During the Period for:
Interest........................................... $1,535,219 $1,385,185 $1,130,556
Income taxes....................................... 185,469 155,883 150,191
Non-cash transactions:
Assets acquired in business combinations......... 706,133 5,137,063 1,463,289
Liabilities assumed in business combinations..... 659,437 4,922,881 1,391,633
Common stock issued in business combinations..... 6,710 57,504 23,504
Loans transferred to other real estate........... 19,351 28,406 31,977
Financed sales of foreclosed property............ 25,506 24,157 29,461
</TABLE>
NOTE B -- BUSINESS COMBINATIONS
During 1999, the Company completed the following acquisitions:
<TABLE>
<CAPTION>
(In millions)
DATE INSTITUTION ASSETS LOANS DEPOSITS LOCATION
- ------------- ----------- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
LCNB Bancorporation, Inc. ("LCNB") $132.5 $ 94.8 $123.2 Houston, Texas
March 12
Navigation Bank ("Navigation") 79.9 54.4 72.9 Houston, Texas
July 30
First of Groves Corporation ("Groves") 493.7 248.4 456.4 Groves, Texas
August 13
------ ------ ------
$706.1 $397.6 $652.5
====== ====== ======
</TABLE>
The acquisitions of all of the outstanding shares of LCNB and Groves 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 acquisition of Navigation was accounted for as a pooling-of-interest;
however, the Company's previously reported consolidated financial results have
not been restated to include the effect of the acquisition prior to the
acquisition date, since the effect is not material.
Consideration for all acquisitions during 1999 aggregated approximately
$113.5 million in cash and 0.5 million shares of SouthTrust Corporation common
stock with a total market value at the time of issuance of $17.7 million. Total
goodwill recognized in these transactions was approximately $73.4 million.
During 1998, the Company completed nine acquisitions with aggregate total
assets of $5,154.5 million, loans of $1,241.3 million, and deposits of $4,780.0
million.
During 1998, the acquisitions of Home Savings of America, FSB and Partners
Mortgage Services, Inc. were accounted for as purchases of assets and
assumptions of liabilities. The acquisitions of all of the outstanding shares of
First of America Bank -- Florida, FSB and Gardner Mortgage Services, Inc. were
accounted for as purchases. Under purchase accounting, the results of
operations, subsequent to the acquisition date, are included in the Consolidated
Financial Statements.
During 1998, the acquisitions of American National Bank, Marine Bank,
SecurityBank Texas, Georgia National Bank and First American Bank of Indian
River County 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.
43
<PAGE> 46
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Assuming the 1999 acquisitions of LCNB, Navigation, and Groves, and the
1998 acquisitions of First of America Bank -- Florida, FSB, American National
Bank of Florida, Gardner Mortgage Services, Inc., Marine Bank, SecurityBank
Texas, Georgia National Bank and First American Bank of Indian River County had
occurred on January 1, 1998, the consolidated results of operations on a pro
forma basis for 1999 and 1998 would have been approximately as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(Unaudited)
<S> <C> <C>
(In thousands, except per share data)
Net interest income......................................... $1,382,453 $1,227,687
Net income.................................................. 444,743 379,283
Net income per share -- basic............................... 2.65 2.27
Net income per share -- diluted............................. 2.63 2.25
</TABLE>
On January 14, 2000, the Company acquired Brazos Bancshares, Inc. in
Waxahatchie, Texas for approximately $23 million in cash. This transaction,
which was accounted for as a purchase, added $176.7 million in assets, $118.0
million in loans, and $168.7 million in deposits (unaudited).
On January 20, 2000, the Company entered into an agreement and plan of
share exchange with Security Bancorp, Inc. (Security), in San Antonio, Texas.
Per the agreement, the Company will pay approximately $44 million in cash for
all of the outstanding shares of Security. Security had total assets of
approximately $175 million at December 31, 1999. This acquisition is expected to
close in the second quarter of 2000 and is subject to certain closing conditions
and regulatory approval.
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,
1999, was approximately $57.3 million.
The Company has pledged $1,089.3 million in securities and $5,488.9 in
loans against Federal Home Loan Bank ("FHLB") advances at December 31, 1999. At
December 31, 1998, assets pledged against FHLB advances consisted of $553.1
million in securities and $3,193.3 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 FHLB 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, 1999 and 1998 there were no outstanding balances under this credit
facility.
At December 31, 1999 and 1998, securities with a par value of $5,840.8
million and $4,207.3 million respectively, were pledged to secure public
deposits, securities sold under agreements to repurchase, and for other
purposes.
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
adjusted 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. As of
44
<PAGE> 47
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1999, the Company and its subsidiary bank exceed all capital
adequacy requirements imposed by its regulators.
As of December 31, 1999 and 1998, 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 1 risk-based, and Tier 1 leverage
ratios as set forth in the table. There have been no conditions or events since
that notification that Management believes have changed the institutions'
category.
Actual capital amounts as well as required and well capitalized Tier 1,
Total, and Tier 1 leverage ratios as of December 31 for the Company and its bank
subsidiary are as follows:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------ ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- ----- ---------- -----
(DOLLARS IN THOUSANDS)
1999
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Capital:
SouthTrust Corporation........................ $2,453,054 6.65% $1,475,535 4.00% N/A
SouthTrust Bank, N.A.......................... 2,706,658 7.35 1,473,433 4.00 $2,210,150 6.00%
Total Capital:
SouthTrust Corporation........................ $3,840,397 10.41% $2,951,069 8.00% N/A
SouthTrust Bank, N.A.......................... 3,824,001 10.38 2,946,867 8.00 $3,683,583 10.00%
Tier 1 Leverage:
SouthTrust Corporation........................ $2,453,054 5.81% $1,688,042 4.00% N/A
SouthTrust Bank, N.A.......................... 2,706,658 6.41 1,690,027 4.00 $2,112,534 5.00%
1998
----------------------------------------------------------
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%
</TABLE>
45
<PAGE> 48
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- AVAILABLE-FOR-SALE SECURITIES AND HELD-TO-MATURITY SECURITIES
The amortized costs, unrealized gross gains and losses, and approximate
fair values at December 31 are as follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
-----------------------------------------------------------------------------------------------------
1999 1998
------------------------------------------------- -------------------------------------------------
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............ $ 39,072 $ 24 $ (183) $ 38,913 $ 170,198 $ 766 $ (0) $ 170,964
U.S. Government agency
securities............ 2,354,562 0 (119,975) 2,234,587 1,402,886 2,940 (1,005) 1,404,821
Collateralized mortgage
obligations and
mortgage-backed
securities............ 2,070,283 3,759 (36,441) 2,037,601 1,732,372 25,345 (22,504) 1,735,213
Obligations of states
and political
subdivisions.......... 288,388 38 (16,492) 271,934 249,228 4,373 (0) 253,601
Other debt securities... 71,331 69 (4,181) 67,219 23,406 140 (1,326) 22,220
Equity securities....... 410,794 0 (47) 410,747 215,884 15 0 215,899
---------- ------ --------- ---------- ---------- ------- -------- ----------
Totals.......... $5,234,430 $3,890 $(177,319) $5,061,001 $3,793,974 $33,579 $(24,835) $3,802,718
========== ====== ========= ========== ========== ======= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
HELD-TO-MATURITY SECURITIES
-----------------------------------------------------------------------------------------------------
1999 1998
------------------------------------------------- -------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GROSS GAIN GROSS LOSS VALUE COST GROSS GAIN GROSS LOSS VALUE
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
securities............ $ 6,837 $ 2 $ (26) $ 6,813 $ 3,889 $ 124 $ (0) $ 4,013
U.S. Government agency
securities............ 2,489,305 0 (116,456) 2,372,849 2,129,201 10,897 (1,553) 2,138,545
Collateralized mortgage
obligations and
mortgage-backed
securities............ 277,888 1,756 (4,162) 275,482 374,403 10,440 (645) 384,198
Obligations of states
and political
subdivisions.......... 85,002 3,476 (1,045) 87,433 124,939 11,009 (0) 135,948
Other debt securities... 127,926 889 (7,682) 121,133 355,996 2,499 (0) 358,495
---------- ------ --------- ---------- ---------- ------- ------- ----------
Totals.......... $2,986,958 $6,123 $(129,371) $2,863,710 $2,988,428 $34,969 $(2,198) $3,021,199
========== ====== ========= ========== ========== ======= ======= ==========
</TABLE>
The amortized costs and approximate fair values of securities at December
31, 1999, by contractually scheduled maturity, are as shown below (expected
maturities will differ from contractual maturities because of rights to call or
repay obligations with or without penalties):
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
----------------------- -----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less................. $ 17,596 $ 17,601 $ 32,871 $ 33,066
Due after one year through five years... 145,526 143,700 250,882 248,281
Due after five years through ten
years................................. 2,342,767 2,219,873 2,371,132 2,256,526
Due after ten years..................... 247,464 231,479 54,185 50,355
---------- ---------- ---------- ----------
Subtotal................................ 2,753,353 2,612,653 2,709,070 2,588,228
Collateralized mortgage obligations and
mortgage-backed securities............ 2,070,283 2,037,601 277,888 275,482
Equity securities....................... 410,794 410,747 -- --
---------- ---------- ---------- ----------
Totals............................. $5,234,430 $5,061,001 $2,986,958 $2,863,710
========== ========== ========== ==========
</TABLE>
Proceeds from sales of available-for-sale securities were $461,746,000,
$321,522,000, and $652,172,000, in 1999, 1998, and 1997, respectively. Gross
Gains of $4,863,000, $5,546,000, and $2,526,000, and gross losses of $3,964,000,
$1,254,000, and $787,000 were realized on those sales.
46
<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>
1999 1998
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Commercial, financial and agricultural...................... $11,265,209 $ 9,760,444
Real estate construction.................................... 4,342,892 3,526,376
Commercial real estate mortgage............................. 6,029,264 4,900,155
Residential real estate mortgage............................ 6,773,389 6,243,684
Loans to individuals........................................ 3,562,004 3,095,938
----------- -----------
31,972,758 27,526,597
Unearned income............................................. (274,917) (209,091)
Allowance for loan losses................................... (442,343) (377,525)
----------- -----------
Net loans......................................... $31,255,498 $26,939,981
=========== ===========
</TABLE>
In the normal course of business, loans are made to directors and executive
officers of the Company and its subsidiaries. These related party 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, 1999 and 1998, respectively, $132.7
million and $71.5 million of these loans were outstanding. During 1999, $431.9
million of new loans were made, repayments totaled $358.1 and loans that are no
longer related party in nature totaled $12.6 million.
The Company's largest loan grouping is commercial, financial and
agricultural loans, which totaled $11,265.2 million or 35.2% of total loans at
December 31, 1999 and $9,760.4 million or 35.4% of total loans at December 31,
1998. There were no significant industry concentrations within the loan
portfolio and the Company's geographic loan distribution is concentrated in the
southern markets served by the Company at December 31, 1999 and 1998.
Had income on non-accrual loans been recorded under original terms, $6.2
million of interest 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>
1999 1998 1997
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year.......................... $ 377,525 $315,471 $269,863
Additions:
Provision charged to operations..................... 141,249 94,796 90,613
Recoveries on loans previously charged-off.......... 14,753 14,028 11,124
Loans charged off................................... (101,102) (72,297) (62,903)
Allowance of purchased subsidiaries................. 9,918 25,527 6,774
--------- -------- --------
Balance at end of year................................ $ 442,343 $377,525 $315,471
========= ======== ========
</TABLE>
The recorded investment in impaired loans at December 31, 1999 was $94.7
million and at December 31, 1998 was $98.0 million. The Company had a specific
allowance related to those loans of $19.6 million and $19.4 million,
respectively. The average investment in these loans for the years ended December
31, 1999 and 1998 was approximately $96.4 million and $108.3 million,
respectively.
47
<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>
1999 1998
---------- --------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 187,609 $175,807
Buildings and improvements.................................. 488,480 457,268
Equipment................................................... 382,669 352,597
---------- --------
1,058,758 985,672
Less accumulated depreciation............................... 328,156 294,820
---------- --------
Totals............................................ $ 730,602 $690,852
========== ========
</TABLE>
NOTE H -- DEPOSITS
The aggregate amount of time deposits of $100,000 or more at December 31,
1999 and 1998 were $7,513.9 million and $3,520 million, respectively.
At December 31, 1999, the scheduled maturities of time deposits are as
follows.
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
2000........................................................ $12,797.2
2001........................................................ 1,818.4
2002........................................................ 302.1
2003........................................................ 146.6
2004........................................................ 112.4
Thereafter.................................................. 300.1
---------
Total............................................. $15,476.8
=========
</TABLE>
48
<PAGE> 51
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- SHORT-TERM BORROWINGS
The following presents information concerning federal funds purchased,
securities sold under agreements to repurchase, and other short-term borrowings
(primarily short-term bank notes) at December 31, 1999 and 1998. 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:
1999...................................................... $5,191.1 $2,205.9
1998...................................................... 5,200.0 913.0
Weighted-average interest rate at year end:
1999...................................................... 5.51% 6.07%
1998...................................................... 4.77 4.68
Average amount outstanding during the year:
1999...................................................... $5,556.4 $1,389.4
1998...................................................... 3,909.9 1,066.3
Daily weighted-average interest rate during the year:
1999...................................................... 5.04% 5.27%
1998...................................................... 5.33 5.32
Maximum amount outstanding at any month end:
1999...................................................... $6,742.6 $2,205.9
1998...................................................... 5,370.3 1,376.9
</TABLE>
NOTE J -- FEDERAL HOME LOAN BANK ADVANCES
The Company uses Federal Home Loan Bank 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
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,
--------------------------
1999 1998
------------ -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Ending balance.............................................. $ 3,530.3 $ 2,780.4
Average balance............................................. 3,043.2 2,767.5
Maximum month end balance during year....................... 3,580.3 2,787.3
Average rate paid........................................... 5.17% 5.30%
Weighted average remaining maturity......................... 10.69 years 6.05 years
</TABLE>
Of the $3,530.3 million balance of FHLB advances, $2,830.3 million had
fixed interest rates and $700.0 million had floating interest rates. Scheduled
maturities of Federal Home Loan Bank advances in 2000 are approximately $350.0
million. Maturities during 2001, 2002, 2003, and 2004 are approximately $0.1
million, $205.0 million, none, and $150.0 million, respectively.
49
<PAGE> 52
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE K -- LONG-TERM DEBT
A summary of long-term debt at December 31 follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
9.95% Subordinated Capital Notes due June 1, 1999........... $ 0 $ 75,000
7.00% Debentures due May 15, 2003........................... 100,000 100,000
7.625% Subordinated Notes due May 1, 2004................... 100,000 100,000
8.625% Subordinated Notes due May 15, 2004.................. 100,000 100,000
7.00% Subordinated Notes due November 15, 2008.............. 200,000 200,000
8.00% Subordinated Notes due September 15, 2014............. 50,000 0
Variable Rate Subordinated Notes due December 29, 2017...... 25,000 25,000
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
6.57% Subordinated Notes due December 15, 2027.............. 100,000 100,000
6.125% Subordinated Notes due January 9, 2028............... 200,000 200,000
Bank Notes.................................................. 100,025 100,022
Other....................................................... 458 4,915
---------- ----------
Total long-term debt.............................. $1,125,483 $1,154,937
========== ==========
</TABLE>
The Company uses interest rate swap agreements ("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, 1999, 1998 and 1997 was
6.57%, 6.81% and 6.58%, respectively. The modified rates paid for those same
periods, given effect for the swaps, was 5.92%, 6.37% and 6.23%, respectively.
See further discussion in Note L.
During 1999, the Company issued $50.0 million in 8.00% Subordinated Notes
due in 2014, which are callable in 2003. In addition, the 6.125% Subordinated
Notes are callable in the year 2008, 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 7.00% Debentures
and the Bank Notes, are not callable prior to maturity and no sinking fund is
required. All of the Subordinated Notes and debentures, totaling $1,025.0
million in 1999 and $1,050.0 million in 1998, qualify as supplemental capital
under the Capital Adequacy Guidelines of the Federal Reserve Board.
There are no scheduled maturities of long-term debt in 2000, 2001 or 2002.
Scheduled maturities of long-term debt in 2003 and 2004 are $100 million and
$200 million, respectively.
50
<PAGE> 53
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L -- 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, 1999, 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, 1999, 1998 and 1997 was $37.1 million, $31.2
million and $34.3 million, respectively. Future minimum rental commitments as of
December 31, 1999 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>
2000................................................... $ 25,255 $199 $ 25,454
2001................................................... 22,993 84 23,077
2002................................................... 20,327 32 20,359
2003................................................... 15,435 3 15,438
2004................................................... 14,470 2 14,472
Thereafter............................................. 69,876 0 69,876
-------- ---- --------
Totals....................................... $168,356 $320 $168,676
======== ==== ========
</TABLE>
STANDBY LETTERS OF CREDIT AND COMMITMENTS
The Company's subsidiary bank had standby letters of credit outstanding of
approximately $876.6 million at December 31, 1999 and $724.8 million at December
31, 1998.
The Company's subsidiary bank had outstanding commitments to extend credit
of approximately $10,818.6 million at December 31, 1999 and $10,897.0 million at
December 31, 1998. 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 $180.1 million at December
31, 1999 and $400.2 million at December 31, 1998.
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.
51
<PAGE> 54
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
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. The following table summarizes information about
swaps at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
AVERAGE
NOTIONAL NOTIONAL AVERAGE RATE AVERAGE RATE
1999 AMOUNT AMOUNT RECEIVED PAID FAIR VALUE
- ---- -------- -------- ------------ ------------ ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Gain position..................... $ 375.0 $ 369.3 7.17% 5.31% $ 5.1
Loss position..................... 1,040.0 784.8 6.50 5.42 (23.3)
-------- -------- ---- ---- ------
Total................... $1,415.0 $1,154.1 6.71% 5.38% $(18.2)
======== ======== ==== ==== ======
1998
- ----
Gain position..................... $ 875.0 $ 930.6 6.80% 5.66% $ 60.0
Loss position..................... 0.0 0.0 0.00 0.00 0.0
-------- -------- ---- ---- ------
Total................... $ 875.0 $ 930.6 6.80% 5.66% $ 60.0
======== ======== ==== ==== ======
</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. At December 31, 1999 and 1998, the net accrued receivable was
$67.8 million and $54.2 million, respectively.
At December 31, 1999, the effective notional amounts, liabilities hedged,
and contractual maturities of related swaps are as follows:
<TABLE>
<CAPTION>
DEPOSIT SHORT-TERM LONG-TERM
LIABILITIES BORROWINGS DEBT TOTAL
----------- ---------- --------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
2000............................................ $ 75 $25 $ 0 $ 100
2001............................................ 50 0 100 150
2002............................................ 0 0 0 0
2003............................................ 0 0 100 100
2004............................................ 25 0 200 225
Thereafter...................................... 140 0 700 840
---- --- ------ ------
$290 $25 $1,100 $1,415
==== === ====== ======
</TABLE>
NOTE M -- EMPLOYEE BENEFITS
DEFINED BENEFIT AND DEFINED CONTRIBUTION PLANS
The Company has a trusteed defined benefit pension plan for the benefit of
substantially all employees of the Company and its subsidiaries, the "Trusteed
Plan." The Company also maintains a supplemental defined benefit plan, the
"Supplemental Plan," a deferred compensation plan, the "Deferred Plan," and an
incentive pay plan, the "Incentive Plan," for certain key executives. The
Company's funding policy with respect to the Trusteed Plan is to contribute
amounts to the plan sufficient to meet minimum funding requirements as set by
law. The other plans are unfunded.
52
<PAGE> 55
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also maintains a defined contribution profit sharing plan that
meets the requirements of section 401(a) of the Internal Revenue Code and
includes a cash or deferred arrangement under Section 401(k). Company
contributions to the profit sharing plan are based on a predetermined formula of
up to 15% of participants' salaries, subject to the maximum amount deductible
for federal income tax purposes. Provisions for contributions to the profit
sharing plan were approximately $18.9 million in 1999, $16.7 million in 1998 and
$14.2 million in 1997.
As of December 31, 1999, the Trusteed Plan and the profit sharing plan
owned 727,942 and 2,626,370 shares of the Company's common stock, and received
dividends on those shares of $640,589 and $2,402,521, respectively.
TRUSTEED PLAN
The following table sets forth the trusteed plan's funded status and
amounts recognized in the Company's Consolidated Financial Statements at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Projected obligation:
Balance at the beginning of the year...................... $122,405 $103,442
Service cost.............................................. 9,298 7,014
Interest cost............................................. 8,561 7,638
Actuarial (gain)/loss..................................... (8,545) 8,848
Benefits paid............................................. (4,673) (4,537)
Change in plan provisions................................. 0 0
-------- --------
Balance at the end of the year............................ $127,046 $122,405
======== ========
Plan assets:
Fair value at the beginning of the year................... $107,649 $107,867
Actual return on plan assets.............................. 2,863 2,166
Employer contributions.................................... 0 2,153
Benefits paid............................................. (4,673) (4,537)
-------- --------
Fair value at the end of the year......................... $105,839 $107,649
======== ========
Funded status............................................... $(21,207) $(14,756)
Unrecognized transition obligation.......................... (1,556) (2,077)
Unrecognized prior service cost............................. 18 24
Unrecognized net (gain)/loss................................ 9,167 10,803
-------- --------
Net amount recognized....................................... $(13,578) $ (6,006)
======== ========
Weighted average assumed discount rate...................... 7.75% 7.00%
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>
53
<PAGE> 56
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net pension cost for 1999, 1998, and 1997 includes the following
components:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost................................................ $ 9,298 $7,014 $5,173
Interest cost............................................... 8,561 7,638 6,656
Expected return on plan assets.............................. (9,785) (9,737) (7,531)
Amortization of unrecognized transitional asset............. (521) (521) (521)
Amortization of prior service cost.......................... 6 6 6
Recognized net actuarial loss............................... 13 0 0
-------- ------ ------
Total............................................. $ 7,572 $4,400 $3,783
======== ====== ======
</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,
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Projected benefit obligation:
Balance at the beginning of the year...................... $ 18,297 $ 13,458
Service cost.............................................. 436 368
Interest cost............................................. 1,336 965
Actuarial loss............................................ 420 658
Benefits paid............................................. (912) (673)
Change in plan provisions................................. 250 3,521
--------- --------
Balance at the end of the year............................ $ 19,827 $ 18,297
========= ========
Plan assets:
Fair value at the beginning of the year................... $ 0 $ 0
Employer contributions.................................... 912 673
Benefits paid............................................. (912) (673)
--------- --------
Fair value at the end of the year......................... $ 0 $ 0
========= ========
Funded status............................................... $ (19,827) $(18,297)
Unrecognized transition obligation.......................... 0 0
Unrecognized prior service cost............................. 5,343 5,488
Unrecognized net loss....................................... 4,421 3,828
--------- --------
Net amount recognized....................................... $ 10,063 $ (8,981)
========= ========
Amount recognized in the consolidated balance sheet:
Accrued liability......................................... $ (15,406) $(14,469)
Unrecognized prior service cost........................... 5,343 5,488
--------- --------
Net amount recognized..................................... $ 10,063 $ (8,981)
========= ========
Weighted average assumed discount rate...................... 7.75% 7.00%
Assumed rate of annual compensation increases............... 5.50% 5.50%
</TABLE>
54
<PAGE> 57
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net pension cost for 1999, 1998 and 1997 includes the following components:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------ ------
<S> <C> <C> <C>
Service cost................................................ $ 436 $ 368 $ 275
Interest cost............................................... 1,336 965 913
Expected return on plan assets.............................. 0 0 0
Amortization of unrecognized transitional liability......... 0 0 68
Amortization of prior service cost.......................... 395 199 199
Recognized net actuarial loss............................... 348 206 174
-------- ------ ------
Total............................................. $ 2,515 $1,738 $1,629
======== ====== ======
</TABLE>
POSTRETIREMENT BENEFITS
The Company sponsors an unfunded defined benefit postretirement health care
plan. All employees who retire under the plan at age 55 or later with 10 or more
years of service are eligible to receive certain limited postretirement health
care benefits until age 65. The plan is identical to the specific medical plan
covering the employee prior to retirement. The plan is contributory, with
retiree contributions adjusted annually.
The following table sets forth the plan's funded status and amounts
recognized in the Company's Consolidated Financial Statements at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Balance at the beginning of the year...................... $ 6,214 $ 4,745
Service cost.............................................. 265 493
Interest cost............................................. 194 383
Plan participants' contributions.......................... 78 216
Actuarial (gain)/loss..................................... (3,499) 794
Benefits paid............................................. (150) (417)
Change in plan provisions................................. 0 0
------- -------
Balance at the end of the year............................ $ 3,102 $ 6,214
======= =======
Plan assets:
Fair value at the beginning of the year................... $ 0 $ 0
Employer contributions.................................... 72 201
Plan participants' contributions.......................... 78 216
Benefits paid............................................. (150) (417)
------- -------
Fair value at the end of the year......................... $ 0 $ 0
======= =======
Funded status............................................... $(3,102) $(6,214)
Unrecognized transition obligation.......................... 1,372 1,477
Unrecognized prior service cost............................. 0 0
Unrecognized net (gain)/loss................................ (2,904) 425
------- -------
Net amount recognized....................................... $(4,634) $(4,312)
======= =======
Weighted average assumed discount rate...................... 7.75% 7.00%
Medical trend rate.......................................... 7.00% 7.00%
</TABLE>
55
<PAGE> 58
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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................................... 70 (59)
Accumulated postretirement benefit obligation............... 326 (280)
</TABLE>
Net postretirement health care cost for 1999, 1998, and 1997 includes the
following components:
<TABLE>
<CAPTION>
1999 1998 1997
----- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost................................................ $ 265 $493 $382
Interest cost............................................... 194 383 298
Expected return on plan assets.............................. 0 0 0
Amortization of unrecognized transitional liability......... 105 106 105
Amortization of prior service cost.......................... 0 0 0
Recognized net actuarial (gain)/loss........................ (169) 0 (24)
----- ---- ----
Total............................................. $ 395 $982 $761
===== ==== ====
</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. For options granted under the Plan, the
option exercise price equals the stock market's price on the date of grant. The
majority of the Plan's options vest after one year, and expire after ten years.
The remainder are on a graded vesting schedule ranging from two to five years,
and expire after ten years.
A summary of the status of the Company's stock options at December 31,
1999, 1998, and 1997 and changes during the years then ended is presented in the
tables below:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year........................ 3,603,613 $ 25.44 2,690,825 $15.20 2,211,435 $11.80
Granted....................... 1,284,150 37.49 1,475,443 40.15 707,025 24.25
Issued in business
combinations................ -- -- 2,400 12.68 72,029 8.41
Exercised..................... (275,824) 16.86 (523,119) 11.06 (284,304) 9.15
Forfeited..................... (32,140) 35.23 (41,936) 26.45 (14,925) 23.37
Expired....................... -- -- -- -- (435) 5.85
--------- -------- --------- ------ --------- ------
Outstanding at end of year.... 4,579,799 $ 29.27 3,603,613 25.44 2,690,825 15.20
--------- -------- --------- ------ --------- ------
Exercisable at end of year.... 2,716,349 $ 22.66 2,140,944 16.11 1,997,375 12.05
Weighted average fair value of
options granted............. $ 8.35 $ 10.35 $ 4.47
</TABLE>
56
<PAGE> 59
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information pertaining to options outstanding at December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ----------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
NUMBER LIFE (IN EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING YEARS) PRICE EXERCISABLE PRICE
- ------------------------ ----------- -------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$4.00 - $12.00................. 223,191 1.5 $ 7.25 223,191 $ 7.25
12.01 - 25.00................. 1,680,169 5.7 17.66 1,680,169 17.66
25.01 - 45.00................. 2,676,439 8.7 38.39 812,989 37.23
</TABLE>
If the Company had elected to recognize compensation cost for options
granted in 1999, 1998 and 1997, 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:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income -- as reported.............................. $443,173 $368,610 $306,708
Net income -- pro forma................................ 435,952 358,322 304,652
Earnings per share -- as reported -- basic............. 2.64 2.27 2.05
Earnings per share -- pro forma -- basic............... 2.60 2.20 2.03
Earnings per share -- as reported -- diluted........... 2.63 2.25 2.03
Earnings per share -- pro forma -- diluted............. 2.58 2.18 2.02
</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>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Expected dividend yield..................................... 2.35% 1.91% 3.08%
Expected stock price volatility............................. 25% 25% 19%
Risk-free interest rate..................................... 5.15% 5.58% 6.21%
Expected life of options.................................... 4 years 4 years 4 years
</TABLE>
PERFORMANCE SHARES
During 1999, 1998 and 1997, the Company granted 34,300, 54,375 and 54,150
performance shares, respectively, 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 $3.3 million, $2.1 million and $5.6 million in 1999,
1998, and 1997, respectively.
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
57
<PAGE> 60
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 1999 were 34,720. 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> 61
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE N -- INCOME TAXES
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................ $161,563 $123,162 $165,223
State.............................................. 12,414 7,194 21,445
-------- -------- --------
173,977 130,356 186,668
-------- -------- --------
Deferred (Prepaid):
Federal............................................ 37,902 41,947 (11,975)
State.............................................. 3,664 6,896 (3,550)
-------- -------- --------
41,566 48,843 (15,525)
-------- -------- --------
Totals..................................... $215,543 $179,199 $171,143
======== ======== ========
</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>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Pre-tax income at statutory
rates............................ $230,551 35% $191,733 35% $167,248 35%
Add (deduct)
State income tax, net of federal
tax benefit................... 10,451 1 9,158 2 11,631 2
Tax-exempt interest income....... (9,929) (1) (7,823) (1) (6,663) (1)
Income on bank owned life
insurance..................... (14,656) (2) (11,486) (2) (274) 0
Other............................ (874) 0 (2,383) (1) (799) 0
-------- --- -------- --- -------- ---
Totals................... $215,543 33% $179,199 33% $171,143 36%
======== === ======== === ======== ===
</TABLE>
The components of the net deferred tax asset were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses................................. $159,849 $143,359
Employee benefits......................................... 16,098 13,616
Unrealized loss on securities............................. 64,501 0
Other..................................................... 10,043 43,528
-------- --------
Total deferred tax assets......................... 250,491 200,503
-------- --------
Deferred tax liabilities:
Depreciation.............................................. (14,794) (14,549)
Leasing................................................... (167,440) (143,447)
Loan fees................................................. (5,735) (9,884)
Servicing income.......................................... (19,747) (15,003)
Other..................................................... (9,828) (9,119)
-------- --------
Total deferred tax liabilities.................... (217,544) (192,002)
-------- --------
Net deferred tax asset...................................... $ 32,947 $ 8,501
======== ========
</TABLE>
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> 62
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE O -- FAIR VALUES OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
1999 1998
------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks................... $ 874,999 $ 874,999 $ 970,778 $ 970,778
Federal funds sold and other short-term
investments............................ 46,767 46,767 76,781 76,781
Trading securities........................ 69,508 69,508 73,215 73,215
Loans held for sale....................... 251,844 251,844 707,586 707,586
Available-for-sale securities............. 5,061,001 5,061,001 3,802,718 3,802,718
Held-to-maturity securities............... 2,986,958 2,863,710 2,988,428 3,021,199
Loans, net of leases...................... 30,364,266 30,175,338 26,338,590 26,645,088
Interest receivable and other assets...... 354,096 354,096 352,794 352,794
Liabilities:
Deposits.................................. 27,739,345 27,737,179 24,839,893 24,949,495
Federal funds purchased and other
short-term borrowings.................. 7,396,990 7,396,990 6,113,028 6,113,028
Interest payable and other liabilities.... 542,941 542,941 507,311 507,311
Federal Home Loan Bank advances........... 3,530,324 3,527,930 2,780,340 2,840,823
Long-term debt............................ 1,125,483 1,092,788 1,154,937 1,259,765
Off-balance sheet
instruments -- asset/(liability):
Interest rate swaps in a net receivable
position............................... 4,839 (18,246) 1,250 60,020
Commitments to extend credit.............. (33,882) (60,864) (31,465) (53,956)
Standby letters of credit................. (1,054) (1,054) (1,090) (1,090)
</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 non-interest-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> 63
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 interest rate swaps,
commitments to extend credit, and standby letters of credit. 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> 64
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE P -- 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 operating
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. Services 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, and loans
(including business, personal, automobile, mortgage, home improvement and
educational loans). SouthTrust Bank also offers Visa and/or MasterCard
multi-purpose nationally recognized credit card services.
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 sheet
activities, 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 trust asset
management division and non-bank subsidiaries. These business segments provide
services such as mortgage origination and servicing, brokerage services,
investment services and a variety of trust services.
The remaining Company divisions included within the Reconciliation grouping
are divisions that have no revenue. They contain unallocated costs not directly
associated with the other reportable segments such as executive administration,
finance, internal auditing, and risk assessment. Other items in this grouping
include any unallocated provision for loan losses, income from bank owned life
insurance, credits for data processing costs allocated to reportable segments,
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, 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. Also,
net interest margin is reported on a fully taxable equivalent 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.
62
<PAGE> 65
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's management accounting policies are continuously evolving
based on both internal and external factors. Therefore, the Company has restated
the comparative 1998 business segment information to conform to the 1999
presentation. The restatement for 1998 includes enhancements to the transfer
pricing process and organizational structure changes made during 1999. As
management accounting policies change, prior period restatement may also be
necessary in the future.
The following tables present the Company's business segment information for
the periods ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999
------------------------------------------------------------------------
COMMERCIAL REGIONAL FUNDS RECONCILING TOTAL
BANKING BANKING MANAGEMENT OTHER ITEMS COMPANY
---------- --------- ---------- -------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net interest margin
(FTE)................. $ 250.2 $ 1,003.3 $ 122.1 $ 8.3 $ (2.1) $ 1,381.8
Provision for loan
losses................ 27.6 63.4 0.0 0.0 50.3 141.3
Non interest income..... 18.8 328.0 0.3 58.0 38.5 443.6
Non interest expense.... 48.4 834.4 2.3 54.4 71.0 1,010.5
--------- --------- -------- -------- -------- ---------
Income before income
taxes.............. 193.0 433.5 120.1 11.9 (84.9) 673.6
Income tax expense
(FTE)................. 0.0 0.0 0.0 0.0 230.4 230.4
--------- --------- -------- -------- -------- ---------
Net income............ $ 193.0 $ 433.5 $ 120.1 $ 11.9 $ (315.3) $ 443.2
========= ========= ======== ======== ======== =========
Ending assets........... $10,242.0 $23,331.9 $6,888.6 $1,416.7 $1,383.3 $43,262.5
========= ========= ======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
1998
------------------------------------------------------------------------
COMMERCIAL REGIONAL FUNDS RECONCILING TOTAL
BANKING BANKING MANAGEMENT OTHER ITEMS COMPANY
---------- --------- ---------- -------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net interest margin
(FTE)................. $ 210.1 $ 903.8 $ 77.9 $ 7.1 $ (18.4) $ 1,180.5
Provision for loan
losses................ 9.1 60.6 0.0 0.0 25.1 94.8
Non-interest income..... 13.5 284.5 0.4 52.1 35.3 385.8
Non-interest expense.... 48.5 719.8 2.2 50.9 93.0 914.4
-------- --------- -------- -------- -------- ---------
Income before income
taxes.............. 166.0 407.9 76.1 8.3 (101.2) 557.1
Income tax expense
(FTE)................. 0.0 0.0 0.0 0.0 188.5 188.5
-------- --------- -------- -------- -------- ---------
Net income.... $ 166.0 $ 407.9 $ 76.1 $ 8.3 $ (289.7) $ 368.6
======== ========= ======== ======== ======== =========
Ending assets........... $8,578.9 $20,899.8 $5,710.5 $1,338.5 $1,606.1 $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 period ended December 31,
1997 is not presented because it is not available.
63
<PAGE> 66
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE Q -- CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
PARENT COMPANY BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash*....................................................... $ 133 $ 116
Short-term investments*..................................... 74,939 161,643
Available-for-sale securities............................... 8,137 15,969
Loans....................................................... 355 61,502
Loans to subsidiaries*...................................... 49,185 32,285
Investment in subsidiaries*:
Banks and bank holding company............................ 3,181,880 2,893,626
Non-banks................................................. 24,676 19,950
Other assets................................................ 46,231 19,326
---------- ----------
Total assets...................................... $3,385,536 $3,204,417
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings....................................... $ 24,227 $ 16,138
Other liabilities........................................... 83,880 75,013
Long-term debt.............................................. 350,000 375,000
---------- ----------
Total liabilities................................. 458,107 466,151
Stockholders' equity........................................ 2,927,429 2,738,266
---------- ----------
Total liabilities and stockholders' equity........ $3,385,536 $3,204,417
========== ==========
</TABLE>
- ---------------
PARENT COMPANY STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME:
From subsidiaries*:
Dividends from bank.................................... $153,408 $119,646 $ 97,757
Interest............................................... 7,312 20,406 14,662
Service fees........................................... 12,402 11,908 62,982
Other..................................................... 7,234 12,361 13,333
-------- -------- --------
Total income...................................... 180,356 164,321 188,734
-------- -------- --------
EXPENSE:
Salaries and employee benefits............................ 10,666 8,308 31,509
Interest.................................................. 23,043 27,970 26,240
Other..................................................... 2,162 2,226 29,592
-------- -------- --------
Total expense..................................... 35,871 38,504 87,341
-------- -------- --------
INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED NET
INCOME OF SUBSIDIARIES.................................... 144,485 125,817 101,393
Income taxes................................................ (3,219) 2,292 1,506
-------- -------- --------
INCOME BEFORE EQUITY IN UNDISTRIBUTED NET INCOME
OF SUBSIDIARIES................................. 147,704 123,525 99,887
EQUITY IN UNDISTRIBUTED NET INCOME OF SUBSIDIARIES*:
Banks and bank holding company............................ 290,829 241,062 204,338
Non-banks................................................. 4,640 4,023 2,483
-------- -------- --------
NET INCOME........................................ $443,173 $368,610 $306,708
======== ======== ========
</TABLE>
- ---------------
* Eliminated in consolidation.
64
<PAGE> 67
SOUTHTRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PARENT COMPANY STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 443,173 $ 368,610 $ 306,708
Less equity in undistributed net income of subsidiaries... (295,469) (245,085) (206,821)
--------- --------- ---------
Income before equity in undistributed net income of
subsidiaries............................................ 147,704 123,525 99,887
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision (credit) for:
Depreciation of premises and equipment................ 34 32 1,381
Deferred income tax................................... (2,026) (235) (2,037)
Realized net gain on sales of securities................ (1,638) (4,198) (1,538)
Net decrease in other assets............................ (24,850) 5,751 36,545
Net (increase) decrease in other liabilities............ 13,017 (38,432) (429)
--------- --------- ---------
Net cash provided by operating activities.......... 132,241 86,443 133,809
INVESTING ACTIVITIES:
Proceeds from maturities calls of available-for-sale
securities.............................................. 7,832 0 0
Proceeds from sale of available-for-sale securities....... 1,638 4,198 1,537
Purchase of available-for-sale securities................. 0 (2,305) (665)
Payments for investments in and advances to
subsidiaries............................................ (111,975) (357,504) (225,004)
Net (increase) decrease in:
Short-term investments.................................. 86,704 46,500 (128,327)
Loans to subsidiaries................................... (16,900) (6,777) 40,469
Loans................................................... 61,147 38,633 21,591
Premises and equipment.................................. (63) 15,005 (2,833)
--------- --------- ---------
Net cash provided by (used in) investing
activities....................................... 28,383 (262,250) (293,232)
FINANCING ACTIVITIES:
Proceeds from issuance of:
Common stock............................................ 19,835 305,963 234,481
Long-term debt.......................................... 50,000 0 0
Payments for:
Repurchase of common stock.............................. (11,944) (1,183) (555)
Long-term debt.......................................... (75,000) 0 0
Cash dividends.......................................... (151,587) (118,008) (81,546)
Net increase (decrease) in short-term borrowings.......... 8,089 (10,999) 5,977
--------- --------- ---------
Net cash provided by (used in) financing
activities....................................... (160,607) 175,773 158,357
--------- --------- ---------
Increase (decrease) in cash and due from banks.............. 17 (34) (1,066)
--------- --------- ---------
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR................ 116 150 1,216
--------- --------- ---------
CASH AND DUE FROM BANKS AT END OF YEAR...................... $ 133 $ 116 $ 150
========= ========= =========
Supplemental disclosure of cash flow information; Cash paid
during the period for interest............................ $ 25,735 $ 24,777 $ 35,719
</TABLE>
65
<PAGE> 68
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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 19, 2000
and is incorporated herein by reference.
Information concerning the Company's executive officers is contained herein
in response to Item 1 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
1999 all filing requirements applicable to its officers, directors and
stockholders were complied with in a timely manner.
ITEM 11 EXECUTIVE COMPENSATION
Information relating to executive compensation is contained in the
Company's proxy statement for the annual meeting of stockholders, April 19, 2000
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 19, 2000, 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 19, 2000, and is
incorporated herein by reference.
66
<PAGE> 69
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, 1999 are:
Report of Independent Public Accountants
Consolidated Balance Sheets -- December 31, 1999 and December 31, 1998
Consolidated Statements of Income -- Years ended December 31, 1999,
1998, and 1997
Consolidated Statements of Stockholders' Equity -- December 31, 1999,
1998, and 1997
Consolidated Statements of Cash Flows -- Years ended December 31, 1999,
1998, and 1997
Notes to Consolidated Financial Statements -- Three years ended December
31, 1999
(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(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 (Reg. No. 333-34947).
*No. 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).
*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. 001-14781).
*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. 33-52717).
67
<PAGE> 70
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 1999: None.
(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> 71
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 3, 2000
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 3, 2000
- -------------------------------------------------------- Executive Officer, Director
Wallace D. Malone, Jr.
/s/ ALTON E. YOTHER Secretary, Treasurer and March 3, 2000
- -------------------------------------------------------- Controller (Principal
Alton E. Yother Accounting and Financial
Officer)
/s/ JULIAN W. BANTON Chairman and Chief Executive March 3, 2000
- -------------------------------------------------------- Officer, SouthTrust Bank,
Julian W. Banton N.A., Director
* Director March 3, 2000
- --------------------------------------------------------
Van L. Richey
* Director March 3, 2000
- --------------------------------------------------------
William A. Coley
* Director March 3, 2000
- --------------------------------------------------------
Rex J. Lysinger
* Director March 3, 2000
- --------------------------------------------------------
William C. Hulsey
* Director March 3, 2000
- --------------------------------------------------------
John M. Bradford
* Director March 3, 2000
- --------------------------------------------------------
W. Kendrick Upchurch, Jr.
* Director March 3, 2000
- --------------------------------------------------------
Carl F. Bailey
* Director March 3, 2000
- --------------------------------------------------------
Allen J. Keesler, Jr.
</TABLE>
69
<PAGE> 72
<TABLE>
<C> <S> <C>
* Director March 3, 2000
- --------------------------------------------------------
H. Allen Franklin
* Director March 3, 2000
- --------------------------------------------------------
Donald M. James
/s/ WILLIAM L. PRATER March 3, 2000
- --------------------------------------------------------
William L. Prater
Attorney-in-fact
</TABLE>
70
<PAGE> 1
EXHIBIT 12
EARNINGS TO FIXED CHARGES COMPUTATION
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes........... $ 658,716 $ 547,809 $ 477,851 $ 387,510 $ 304,044
Plus:
Fixed charges................... 1,553,080 1,398,114 1,199,730 948,497 800,986
Less:
Capitalized interest............ (1,371) (919) (1,732) (785) (2,056)
---------- ---------- ---------- ---------- ----------
Earnings, including interest on
deposits(a)........................ 2,210,425 1,945,004 1,675,849 1,335,222 1,102,974
Less:
Interest on deposits............... (962,504) (897,903) (745,122) (644,613) (564,064)
---------- ---------- ---------- ---------- ----------
Earnings, excluding interest on
deposits(b)........................ 1,247,921 1,047,101 930,727 690,609 538,910
========== ========== ========== ========== ==========
Fixed Charges:
Interest expense................... 1,539,538 1,386,256 1,186,079 938,194 791,423
Capitalized interest............... 1,371 919 1,732 785 2,056
Amortization of debt expense....... 461 681 602 132 190
Interest portion of rent
expense*........................ 11,710 10,258 11,317 9,386 7,317
---------- ---------- ---------- ---------- ----------
Total fixed charges(c)..... 1,553,080 1,398,114 1,199,730 948,497 800,986
Less:
Interest on deposits............... (962,504) (897,903) (745,122) (644,613) (564,064)
---------- ---------- ---------- ---------- ----------
Total fixed charges
excluding interest
expense on deposits(d)... $ 590,576 $ 500,211 $ 454,608 $ 303,884 $ 236,922
========== ========== ========== ========== ==========
Earnings to fixed charges:
Including interest on
deposits(a/c)...................... 1.42 1.39 1.40 1.41 1.38
Excluding interest on
deposits(b/d)...................... 2.11 2.09 2.05 2.27 2.27
</TABLE>
- ---------------
* Assumed to be one-third of total rent expense.
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)
SouthTrust 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
SouthTrust Insurance of Georgia, Inc. .................... Georgia
Minority Business Development Corporation ................ Georgia
SouthTrust Development Corporation ....................... Georgia
ST Holdings, Inc. ........................................ Alabama
ST Realty 1, Inc. ................................... Alabama
ST Realty 3, Inc. ................................... Alabama
ST Realty 4, Inc. ................................... Alabama
SouthTrust Insurance of North Carolina, Inc. ............. North Carolina
SouthTrust Insurance of Mississippi, Inc. ................ Mississippi
HNB Auto Exchange, LLC ................................... 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
SouthTrust Community Development, LLC ......................... Alabama
PRN Holdings, Inc. ................................................. Delaware
</TABLE>
(1) National Banks are chartered under the laws of the United States.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 33-25513, 33-33187, 33-46804, 33-55746,
33-55069, 33-55287, 33-55543, 33-61407, 333-02203, 333-11079, 333-24099,
333-25387, 333-68483, and 333-31132.
Arthur Andersen LLP
Birmingham, Alabama
March 3, 2000
<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, 1999 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 1 day of March, 2000.
/s/ W.K. Upchurch, Jr. (L.S.)
----------------------
W.K. Upchurch, Jr.
<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, 1999 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 25th day of February, 2000.
/s/ Carl F. Bailey (L.S.)
------------------
Carl F. Bailey
<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, 1999 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, 2000.
/s/ William A. Coley (L.S.)
------------------------------
William A. Coley
<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 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, 1999 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 THEREOF, the undersigned director has hereto set his hand
and seal this 27th day of February, 2000.
---- --------
/s/ William C. Hulsey (L.S.)
----------------------------
William C. Hulsey
<PAGE> 5
STATE OF ALABAMA )
COUNTY OF JEFFERSON )
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS THAT:
The undersigned director of SouthTrust Corporation, a Delaware
corporation (the "Company") hereby constitutes and appoints William L. Prater
and 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, 1999 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 22nd day of February, 2000.
/s/ Allen J. Keesler, Jr. (L.S.)
------------------------------
Allen J. Keesler, Jr.
<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, 1999 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 22nd day of February, 2000.
/s/ John M. Bradford (L.S.)
------------------------------
John M. Bradford
<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, 1999 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 21st day of February, 2000.
/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, 1999 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 29th day of February, 2000.
/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, 1999 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 29th day of February, 2000.
/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, 1999 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, 2000.
--- -----
/s/ Donald M. James (L.S.)
------------------------
Donald M. James
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SOUTHTRUST CORPORATION FOR THE YEAR ENDED DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 874,999
<INT-BEARING-DEPOSITS> 417
<FED-FUNDS-SOLD> 46,350
<TRADING-ASSETS> 321,352
<INVESTMENTS-HELD-FOR-SALE> 5,061,001
<INVESTMENTS-CARRYING> 2,986,958
<INVESTMENTS-MARKET> 2,863,710
<LOANS> 31,697,841
<ALLOWANCE> 442,343
<TOTAL-ASSETS> 43,262,512
<DEPOSITS> 27,739,345
<SHORT-TERM> 7,396,990
<LIABILITIES-OTHER> 522,367
<LONG-TERM> 1,125,483
0
0
<COMMON> 423,096
<OTHER-SE> 2,504,333
<TOTAL-LIABILITIES-AND-EQUITY> 43,262,512
<INTEREST-LOAN> 2,386,713
<INTEREST-INVEST> 482,870
<INTEREST-OTHER> 36,864
<INTEREST-TOTAL> 2,906,447
<INTEREST-DEPOSIT> 962,504
<INTEREST-EXPENSE> 1,539,538
<INTEREST-INCOME-NET> 1,366,909
<LOAN-LOSSES> 141,249
<SECURITIES-GAINS> 899
<EXPENSE-OTHER> 1,010,501
<INCOME-PRETAX> 658,716
<INCOME-PRE-EXTRAORDINARY> 443,173
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 443,173
<EPS-BASIC> 2.64
<EPS-DILUTED> 2.63
<YIELD-ACTUAL> 7.86
<LOANS-NON> 112,033
<LOANS-PAST> 71,535
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 67,602
<ALLOWANCE-OPEN> 377,525
<CHARGE-OFFS> 101,102
<RECOVERIES> 14,753
<ALLOWANCE-CLOSE> 442,343
<ALLOWANCE-DOMESTIC> 387,254
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 55,089
</TABLE>
