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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1995 Commission file number 0-3613
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SOUTHTRUST CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 63-0574085
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
420 North 20th Street, Birmingham, Alabama 35203
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (205) 254-5509
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of March 31, 1995.
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Number of Shares
Title of Class Outstanding
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$2.50 par 81,950,646
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SOUTHTRUST CORPORATION
Consolidated Statements of Condition
(Unaudited)
<TABLE>
<CAPTION>
March 31 December 31
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(In Thousands) 1995 1994 1994
-------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 533,760 $ 582,272 $ 650,433
Short-term investments:
Federal funds sold and securities purchased
under resale agreements 8,900 2,627 22,645
Interest-bearing deposits in other banks 21,310 21,040 13,875
Assets held for sale 132,629 193,048 164,528
-----------------------------------
Total short-term investments 162,839 216,715 201,048
Securities available for sale 2,259,844 2,314,700 2,280,849
Securities held for investment (Fair value of $1,633,826 at
March 31, 1995 and $1,535,495 and $1,618,411 at
March 31, 1994 and December 31, 1994, respectivley) 1,646,287 1,496,159 1,671,673
Loans 12,693,638 9,930,093 12,215,599
Less:
Unearned income 94,899 80,703 93,692
Allowance for loan losses 178,878 142,695 171,692
-----------------------------------
Net loans 12,419,861 9,706,695 11,950,215
Premises and equipment, net 382,882 327,509 364,642
Due from customers on acceptances 37,891 28,268 34,111
Other assets 511,261 408,710 479,088
-----------------------------------
TOTAL ASSETS $17,954,625 $15,081,028 $17,632,059
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest-bearing $11,467,433 $ 9,718,369 $10,761,495
Other 1,943,776 1,819,900 2,039,744
-----------------------------------
Total deposits 13,411,209 11,538,269 12,801,239
Federal funds purchased and securities sold
under agreements to repurchase 1,882,977 1,479,596 1,885,838
Other short-term borrowings 596,769 440,186 942,174
Bank acceptances outstanding 37,891 28,270 34,111
Other liabilities 200,420 182,537 192,713
Long-term debt 639,502 343,545 640,716
-----------------------------------
Total liabilities 16,768,768 14,012,403 16,496,791
Stockholders' equity:
Preferred Stock, par value $1.00 a share:
5,000,000 shares authorized; issued and outstanding - none 0 0 0
Common Stock, par value $2.50 a share:
200,000,000 shares authorized; 82,435,697 shares issued
at March 31, 1995 and 79,922,082 and 81,904,456 at
March 31, 1994 and December 31, 1994, respectively 206,089 199,805 204,761
Capital surplus 239,752 216,582 231,975
Retained earnings 780,311 657,477 750,699
Unrealized gain (loss) on securities available for sale (34,305) 533 (46,304)
Treasury stock at cost:
485,051 shares at March 31, 1995 and 474,198 and 478,896
shares at March 31, 1994 and December 31, 1994, respectively (5,990) (5,772) (5,863)
-----------------------------------
Total stockholders' equity 1,185,857 1,068,625 1,135,268
-----------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,954,625 $15,081,028 $17,632,059
===================================
</TABLE>
See Notes to Consolidated Financial Statements
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SOUTHTRUST CORPORATION
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
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(In thousands, except per share data) 1995 1994
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<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $273,823 $182,912
Interest on securities:
Taxable 21,015 16,121
Non-taxable 5,616 6,022
--------------------
Total interest on investment securities 26,631 22,143
Interest on securities available for sale 36,419 29,615
Interest on short-term investments 2,729 3,537
--------------------
Total interest income 339,602 238,207
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INTEREST EXPENSE
Interest on deposits 125,683 82,661
Interest on short-term borrowings 40,989 12,503
Interest on long-term debt 10,336 4,717
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Total interest expense 177,008 99,881
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Net interest income 162,594 138,326
PROVISION FOR LOAN LOSSES 12,542 10,189
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Net interest income after
provision for loan losses 150,052 128,137
NON-INTEREST INCOME
Service charges on deposit accounts 22,536 20,481
Mortgage origination and servicing fees 6,590 7,955
Trust fees 4,613 4,305
Miscellaneous fees 11,689 10,905
Securities gains, net 95 66
Other 2,419 3,111
--------------------
Total non-interest income 47,942 46,823
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NON-INTEREST EXPENSE
Salaries and employee benefits 68,798 62,846
Net occupancy 10,662 9,483
Equipment 7,248 6,434
FDIC insurance 6,884 6,182
Other 33,363 28,461
--------------------
Total non-interest expense 126,955 113,406
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Income before income taxes 71,039 61,554
INCOME TAX EXPENSE 24,199 20,817
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NET INCOME $ 46,840 $ 40,737
====================
Average number of shares outstanding (000's) 82,148 79,847
Net income per share $ 0.57 $ 0.51
Dividends declared per share $ 0.20 $ 0.17
</TABLE>
See Notes to Consolidated Financial Statements
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SouthTrust Corporation
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
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(In Thousands) 1995 1994
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 46,840 $ 40,737
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision (credit) for:
Loan losses 12,542 10,189
Depreciation of premises and equipment 6,536 5,576
Amortization of intangibles 4,658 4,493
Amortization of security premium 167 338
Accretion of security discount (1,361) (581)
Deferred income tax (1,312) 2,715
Net realized and unrealized gain on assets held for sale (1,265) (2,941)
Net securities (gains) and losses (95) (66)
Origination and purchase of loans held for sale (168,842) (152,351)
Proceeds of loans held for sale 192,558 219,638
Net (increase) decrease in trading securities 9,447 1,113
Net (increase) decrease in other assets (762) (21,995)
Net increase (decrease) in other liabilities 11,731 (2,824)
---------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 110,842 104,041
INVESTING ACTIVITIES
Proceeds from maturities of:
Investment securities 25,962 81,936
Securities available for sale 87,250 388,590
Proceeds from sales of:
Investment securities 0 0
Securities available for sale 68,807 2,794
Purchases of:
Investment securities 0 (300,160)
Securities available for sale (110,236) (260,629)
Premises and equipment (24,664) (11,462)
Net increase (decrease) in:
Short-term investments 6,309 25,960
Loans (450,721) (401,465)
Purchase of subsidiaries, net of cash acquired 230,013 0
---------------------
NET CASH USED IN INVESTING ACTIVITIES (167,280) (474,436)
FINANCING ACTIVITIES
Proceeds from issuance of:
Common Stock 1,984 1,935
Long-term debt 15,000 0
Payments for:
Long-term debt (16,214) (12,441)
Repurchase of Common Stock (127) (2,628)
Cash Dividends (17,473) (14,311)
Net increase (decrease) in:
Deposits 304,860 22,959
Short-term borrowings (348,265) 349,322
---------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES (60,235) 344,836
---------------------
DECREASE IN CASH AND DUE FROM BANKS (116,673) (25,559)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 650,433 607,831
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CASH AND DUE FROM BANKS AT END OF YEAR $ 533,760 $ 582,272
=====================
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 159,771 $ 96,272
Income taxes 2,288 4,012
Non-cash transactions:
Assets acquired in business combinations 309,164 0
Liabilities acquired in business combinations 306,985 0
Loans transferred to Other Real Estate 1,676 4,727
Loans securitized into mortgage-backed securities 45,363 199,147
</TABLE>
See Notes to Consolidated Financial Statements
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note A - Basis Of Presentation
The Consolidated Condensed Financial Statements were prepared by the
Company without audit, but in the opinion of management, reflect all
adjustments necessary for the fair presentation of the Company's financial
position and results of operations for the three month periods ended March 31,
1995 and 1994. Results of operations for the interim 1995 period are not
necessarily indicative of results expected for the full year. While certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities
and Exchange Commission, the Company believes that the disclosures herein are
adequate to make the information presented not misleading. These condensed
financial statements should be read in conjunction with the Consolidated
Financial Statements and the notes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1994. The accounting
policies employed are the same as those shown in Note 1 to the Consolidated
Financial Statements on Form 10-K.
Note B - Implementation of Statement of Financial Accounting Standards
Nos. 114 and 118 - Accounting by Creditors for Impairment of a Loan.
During the first quarter of 1995, the Company implemented Statement of
Financial Accounting Standards ("SFAS") No. 114 "Accounting by Creditors for
Impairment of a Loan" and SFAS No. 118 "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures". A loan is impaired when,
based on current information and events, it is probable that a creditor will be
unable to collect both principal and interest payments due according to
contractual terms of the loan agreement.
Once a loan has been determined to be impaired, the Company measures
such impairment based on the present value of expected future cash flows
discounted at the loan's effective interest rate determined at the origination
of the loan, or the loan's observable market price, if available, except if a
loan is collateral dependent, the Company measures impairment based on the fair
value of the collateral.
The recorded investment in impaired loans at March 31, 1995 was $62.1
million. The average investment in these loans for the quarter ended March 31,
1995 was $66.7 million. The reserve for impaired loans was $18.2 million at
March 31, 1995, there were no unreserved impaired loans on that date.
Interest income related to impaired loans is recognized on the cash
basis once all past due principle and interest payments have been satisfied.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1995
(Unaudited)
EARNINGS SUMMARY
Net income for the first quarter of 1995 was $46.8 million, an
increase of $6.1 million or 15% from the first quarter 1994 net income of $40.7
million. Net income per share for the quarter was $0.57 in 1995 and $0.51 in
1994, an increase of 12%. Net income for the first quarter 1995 resulted in
returns on average total assets and average stockholders' equity of 1.07% and
16.47%, respectively.
NET INTEREST INCOME
Net interest income is the difference between interest income and
interest expense 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 is taxed at a preferential rate has been adjusted to fully taxable
equivalent amounts using a statutory federal tax rate of 35% in 1995 and 1994.
Interest yields, net interest margins and net interest spreads are
calculated using the underlying earning assets cost basis.
Net interest income in the first quarter of 1995 was $166.3 million,
up $23.9 million or 17% from the 1994 first quarter level of $142.4 million.
Total interest income increased to $343.3 million, as the average level of
interest earning assets increased 22% to $16,462.3 million, and the fully
taxable equivalent yield on earning assets increased 116 basis points to 8.42%
from the 1994 yield of 7.26%. This increase reflects an increase in market
interest rates.
Total interest expense increased $77.1 million or 77% to $177.0
million for the first quarter of 1995. This increase reflects an increase in
the level of average interest-bearing liabilities of 24% to $14,448.0 million
and an increase of 149 basis points in the average rate paid on
interest-bearing liabilities to 4.97%.
The taxable equivalent net interest margin for the first quarter of
1995 was 4.08% compared to 4.27% for the first quarter of 1994. The taxable
equivalent net interest spreads for the first quarters of 1995 and 1994 were
3.45% and 3.78%, respectively. The net interest spread is affected by
competitive pressures, Federal Reserve Bank ("FRB") monetary policies, and the
composition of interest-earning assets and interest-bearing liabilities.
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PROVISION FOR LOAN LOSSES
The provision for loan losses for the first quarter of 1995 was $12.5
million, reflecting an increase of $2.3 million from the 1994 first quarter
level of $10.2 million. For the first three months of 1995, net charge-offs
totaled $6.2 million or .20% of average net loans on an annualized basis.
During the same period of 1994, net charge-offs were $2.7 million or 0.12% of
net loans on an annualized basis. For the year ended December 31, 1994 net
charge-offs were $19.8 million or .19% of net loans.
NON-INTEREST INCOME
Total non-interest income increased $1.1 million or 2% to $47.9
million for the first three months of 1995. The largest portion of this
increase was due to an increase in service charges on deposit accounts of $2.1
million or 10% to $22.5 million. The increase is primarily attributable to an
increased number of deposit accounts and various rate increases for service
charges. Mortgage origination and servicing fees decreased $1.4 million or 17%
to $6.6 million. Recent mortgage rate increases have resulted in decreased
mortgage financing which has resulted in lower mortgage fee income. Trust fees
increased $0.3 million or 7% to $4.6 million. Other fee income increased $0.8
million or 7% to $11.7 million, primarily as a result of increases in bankcard
fees and other miscellaneous fees, which was partially offset by a decrease in
investment fees of $1.6 million. Net securities gains were $95,000 compared to
securities gains of $66,000 in 1994. All other non-interest income decreased
$0.7 million to $2.4 million for the first quarter 1995. There were no
significant non-recurring non-interest income items recorded in 1995 or 1994.
NON-INTEREST EXPENSE
Total non-interest expense for the quarter was $127.0 million,
reflecting an increase of $13.5 million or 12% from the first quarter 1994
level. The ratio of non-interest expense to average total assets for the first
quarter of 1995 and 1994 was 2.90% and 3.13%, respectively.
Salaries and employee benefits accounted for the largest portion of
total non-interest expense in both periods as well as the largest portion of
the increase. Salaries and employee benefits expense increased $6.0 million or
9% to $68.8 million for the first quarter 1995 as the number of full time
equivalent employees increased approximately 6% to 7,615. Net occupancy
expense increased $1.2 million or 12% to $10.7 million for the quarter
primarily as a result of the growth in the number of banking offices to 427 in
1995 from 396 at March 31, 1994. Equipment expense increased $0.8 million or
12% to $7.2 million. FDIC insurance expense increased $0.7 million or 11% to
$6.9 million as a result of increased deposits. All other non-interest expense
items totaled $33.4 million in the first quarter of 1995, reflecting an
increase of 17% from the first quarter of 1994. There were no significant non-
recurring non-interest expense items
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recorded in 1995 or 1994.
Income tax expense for the first quarter of 1995 was $24.2 million for
an effective tax rate of 34.1% compared to $20.8 million or an effective rate
of 33.8% in the first quarter of 1994. The increase in the effective tax rate
was due primarily to a decline in the proportional amount of revenue on
non-taxable investment securities, and provisions of the Tax Reform Act of
1986, particularly the 100% disallowance of interest expense deemed
attributable to debt used to carry non-taxable investment securities, which
have had the effect of increasing the effective income tax rate paid by the
Company. The statutory federal income tax rate was 35% in 1995 and 1994.
SUMMARY OF FINANCIAL CONDITION
Total assets at March 31, 1995 were $18.0 billion, representing an
increase of $2.9 billion or 19% from March 31, 1994. At December 31, 1994
total assets were $17.6 billion. Average total assets for the quarter were
$17.8 billion compared to $14.7 billion for the first quarter of 1994.
Average earning assets for the first quarter of 1995 were $16.5
billion, representing an increase of 22% from the first quarter 1994 level of
$13.5 billion. Average interest-bearing liabilities through March 31, 1995
were $14.4 billion, up 24% over the 1994 first quarter level of $11.6 billion.
LOANS
Loans, net of unearned income at March 31, 1995 totaled $12,598.7
million compared to $12,121.9 million at December 31, 1994.
As of December 31, 1994, the company reclassified certain loans
previously classified as commercial real estate mortgage loans to the
commercial, financial and agricultural loan category. The reclassification
represents loans which are secured by owner occupied business premises for
commercial or service related businesses. Management believes that classifying
such loans as commercial loans is more consistent with their underwriting
criteria, and also more accurately reflects the credit risk associated with
such loans. The amount of such loans reclassified for March 31, 1994 and
restated herein is approximately $1,353.3 million. The changes in loans
addressed in the remainder of this discussion are based on the restated amounts
applied retroactively.
Commercial real estate mortgage loans increased $90.5 million from
December 31, 1994 to $1,866.6 million, or 14.7% of total loans. This category
represents the Company's largest credit concentration. Residential real estate
mortgage loans at March 31, 1995 were $3,030.1 million or 23.9% of total loans
compared to $2,960.0 million or 24.2% at December 31, 1994. Real estate
construction loans were $795.0 million or 6.3% of total loans.
Commercial, financial and agricultural loans at March 31, 1995 were
$5,195.3 million or 40.9% of total loans, compared to $5,058.4
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million or 41.4% of total loans at December 31, 1994. This segment is widely
diversified and there were no significant industry concentrations.
Loans to individuals at March 31, 1995 totaled $1,806.8 million or
14.2% of total loans, compared to $1,745.9 million or 14.3% of total loans at
December 31, 1994.
Total unearned income at March 31, 1995 was $94.9 million compared to
$93.7 million at December 31, 1994.
NON-PERFORMING ASSETS
Non-performing assets at March 31, 1995 were $101.7 million or 0.80%
of net loans and other real estate owned, representing a decrease of $1.0
million from the December 31, 1994 level of $102.7 million. Included in
non-performing assets at March 31, 1995 were $50.9 million of loans on
non-accrual status, other real estate owned totaling $48.2 million, and $2.6
million of restructured loans. Loans 90 days past due and accruing were $20.3
at March 31, 1995 compared to $16.6 million at December 31, 1994.
As of March 31, 1995, the Company had loans of approximately $8.6
million for which management has serious doubts as to the ability of the
borrowers to comply with the present repayment terms, and may result in the
loans' repayment terms being restructured, and/or the loans going on
non-performing status. Such loans are continuously reviewed by management, and
their classification may be changed if conditions warrant.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at March 31, 1995 was $178.9 million or
1.42% of net loans compared to $171.7 million or 1.42% at December 31, 1994.
While deterioration of the economy or rising interest rates could have a
near-term effect on the Company's earnings, Management has taken into
consideration present and expected economic conditions, the level of risk in
the portfolio, the level of non-performing assets, potential problem loans, and
delinquencies in assessing the allowance for loan losses and considers the
allowance for loan losses to be adequate.
Net charge-offs during the quarter totaled $6.2 million or 0.20% of
average net loans on an annualized basis compared to $2.7 million or .12%
during the first quarter of 1994. The provision for loan losses as a
percentage of net charge-offs was 204% during the first quarter of 1995 and
374% during the first quarter of 1994. Market interest rates, including the
prime lending rate have recently increased. Although Management does not
believe that the recent rate increases will have any significant impact on
non-performing assets, substantial rate increases could result in higher debt
service cost to borrowers, and in turn result in higher delinquencies and
non-performing loans.
INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE
At March 31, 1995, total securities were $3,906.1 million. Investment
securities amounted to $1,646.3 million and securities
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classified as available for sale amounted to $2,259.8 million.
Investment securities increased 2% from the year-end 1994 level to
$1,646.3 million, and included U.S. Treasury securities of $16.0 million, U.S.
Government agency securities of $923.6 million, Collateralized mortgage
obligations (CMOs) of $124.1 million, other mortgage backed securities of
$201.9 million, State, County and Municipal securities of $289.1 million and
other securities of $91.6 million.
Securities available for sale included U.S. Treasury securities of
$575.3 million, U.S. Government agency securities of $324.8 million, CMOs of
$1,022.0 million, other mortgage backed securities of $246.5 million, State,
County and Municipal securities of $1.6 million and other securities of $89.6
million.
At March 31, 1995, the Company's investment portfolio included
$1,146.1 million in CMOs. CMOs 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.
Additionally, the Company's investment portfolio included
approximately $944.3 million in Agency Securities with forward coupon rate
increases, commonly known as "step-ups." $865.5 million of the step-ups held
by the Company have maturities through 1999, and the remaining $78.8 million
matures in 2004. The Company has invested in step-ups, utilizing a strategy to
avoid purchasing fixed rates securities that the Company believes would have
provided lower than desirable yields in a rising rate environment. Step-ups
are callable by the issuer at predetermined call dates, generally on each
interest payment date. Step-ups present some degree of risk that the security
will be called in a declining rate environment, resulting in the Company
reinvesting the proceeds at a lower yield than was available at a fixed
longer-term rate than when the security was originally purchased, and the risk
that yield increases in a rising rate environment will be less than the yield
that would currently be available in the marketplace at the time of scheduled
rate increases.
Also included in U.S. Government Agency Securities at March 31, 1995
were $132.5 million in structured notes. $130.0 million of these structured
notes mature through 1997. The remaining $2.5 million have maturities through
2000. All structured notes have floating interest rates. Of the total $132.5
million, $127.5 million are dual index bonds which present the risk of
narrowing spreads between the floating indices, resulting in a lower yield on
the bonds. The remaining $5.0 million is an "Inverse Floater," which pays
interest at a rate determined by a formula of 12.9% less the six-month LIBOR
rate. This security matures in 1997. Inverse floaters present the risk of
decreasing yields in rising rate environments.
At March 31, 1995 the book value of investment securities exceeded the
fair value by $12.5 million, compared to an unrealized loss of $53.3 million at
December 31, 1994. For securities available for sale, the amortized cost
exceeded the fair value by $55.5 million, resulting in an after-tax adjustment
to
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stockholders' equity of $34.3 million. This unrealized loss, which Management
believes is temporary, compares to a net of tax unrealized loss of $46.3
million at December 31, 1994. The decrease in fair values of securities is
attributable to rising interest rates and general uncertainty in the bond
market over future interest rate trends.
SHORT-TERM INVESTMENTS
Short-term investments at March 31, 1995 totaled $162.8 million,
reflecting a decrease of $38.2 million from the December 31, 1994 level of
$201.0. At March 31, 1995 short-term investments consisted of $5.6 million in
federal funds sold, $3.3 million in securities purchased under resale
agreements, $21.3 million in time deposits with other banks, and $132.6 million
in assets held for sale. Assets held for sale consisted of $124.3 million in
mortgage loans in the process of being securitized and sold to third party
investors and $8.3 million in securities held for trading purposes. Mortgage
loans held for sale are carried at the lower of cost or fair value. Trading
account securities are carried at fair value with unrealized gains and losses
recognized in net income.
The Company's 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.
OTHER ASSETS
Other assets at March 31, 1995 were $932.0 million compared to $877.8
million at December 31, 1994. At March 31, 1995 other assets included $382.9
million in premises and equipment, due from customers on acceptances of $37.9
million and other non-earning assets of $511.2 million.
Cash and due from banks was $533.8 million at March 31, 1995, a
decrease of $116.6 million from $650.4 million at December 31, 1994.
FUNDING
The Company's funding sources can be divided into three broad
categories: deposits, short-term borrowings and long-term borrowings.
DEPOSITS
Deposits are the Company's primary source of funding. Total deposits
at March 31, 1995 were $13,411.2 million up 16% from the March 31, 1994 level
of $11,538.3 million. Total deposits at December 31, 1994 were $12,801.2
million. At March 31, 1995 total deposits included interest-bearing deposits
of $11,467.4 million and other deposits of $1,943.8 million.
Core deposits, defined as demand deposits and time deposits under
$100,000, totaled $11,698.4 million or 87.2% of total
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deposits at March 31, 1995. This compares to core deposits of $10,117.8
million or 87.7% of total deposits at March 31, 1994 and $11,104.9 million or
86.7% at December 31, 1994.
SHORT-TERM BORROWINGS
Short-term borrowings at March 31, 1995 were $2,479.7 million and
included federal funds purchased of $914.0 million, securities sold under
agreements to repurchase of $969.0 million and other borrowed funds of $596.7
million. At March 31, 1995 total short-term borrowings were 13.8% of total
liabilities and stockholders' equity. This compares to total short-term
borrowings of $2,828.0 million or 16.0% of total liabilities and stockholders'
equity at December 31, 1994.
LONG-TERM DEBT
At March 31, 1995 total long-term debt was $639.5 million representing
a decrease of $1.2 million from the December 31, 1994 level of $640.7 million.
CAPITAL
At March 31, 1995 total stockholders' equity was $1,185.9 million or
6.6% of total assets compared to $1,135.3 million or 6.4% at December 31, 1994.
During the first quarter net income added $46.8 million to capital. Sales of
common stock through the Dividend Reinvestment Plan, the employee stock
purchase and stock option plans for $1.9 million represented the issuance of
135,440 shares. Equity added in business combinations increased equity by $6.2
million. The conversion of debentures added $0.1 million to equity. Treasury
stock purchases for 6,155 shares reduced equity by $0.1 million. Dividends
declared during the period totaled $16.4 million, and the net unrealized loss
on securities available for sale decreased $12.0 million from $46.3 million at
December 31, 1994 to $34.3 million at March 31, 1995.
The Company is subject to the capital adequacy guidelines adopted by
the Federal Reserve Board, which is the regulatory agency governing bank
holding companies. The Company's capital ratios and those of subsidiary banks
are in excess of these regulatory requirements and Management expects that
these ratios will continue to be maintained above the minimum levels required
by the regulators.
At March 31, 1995, the Company had a total risk-based capital ratio of
11.58%, consisting of a Tier I capital ratio of 7.62% and supplemental capital
elements of 3.96%; and a leverage ratio of 6.00%.
COMMITMENTS
The Company's subsidiary banks had standby letters of credit
outstanding of approximately $555.5 million at March 31, 1995 and $527.7
million at December 31, 1994.
The Company's subsidiary banks had outstanding commitments to
12
<PAGE> 13
extend credit of approximately $3,908.9 million at March 31, 1995 and $3,873.0
million at December 31, 1994.
The Company's policies as to collateral and assumption of credit risk
for off-balance sheet commitments is essentially the same as those for
extension of credit to its customers.
Presently the Company has no commitments for significant capital
expenditures.
The Company's subsidiaries regularly originate and sell loans,
consisting primarily of mortgage loans sold to third party investors, which
contain various recourse provisions to the seller. Losses historically
realized through the repurchase or other satisfaction of these recourse
provisions are insignificant. The total amount of loans outstanding subject to
recourse was $1,268.5 million at March 31, 1995 and $1,275.0 million at December
31, 1994. Under terms of the recourse agreements, the Company would be
required to repurchase certain loans if they become non-performing. All such
loans sold had a loan-to-collateral ratio of 80% or less, or mortgage insurance
to cover losses up to 80% of the collateral value, at the times the various
loans were originated. The underlying collateral to these mortgages are
generally 1-4 family residential properties. Potential losses under these
recourse agreements are affected by the collateral value of the particular
loans involved. Losses are recognized when the mortgage is repurchased or the
obligation is otherwise satisfied.
INTEREST RATE RISK MANAGEMENT
SouthTrust's asset/liability strategies are designed to optimize net interest
income while minimizing fluctuations caused by changes in the interest rate
environment. To achieve this, the Company uses various modeling techniques to
simulate interest rate stress on interest earning assets and interest bearing
liabilities that will reprice during the next year. Important elements of
these modeling 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.
In conjunction with the Company's asset/liability management
strategies, the Company utilizes interest rate swap agreements ("Swaps") to
hedge certain longer-term liabilities, converting the effective rate paid on
the hedged liabilities to a floating rate from a fixed rate. All Swaps
employed by the Company represent end-user activities designed as hedges and,
accordingly, fluctuations in the fair value of such contracts are not included
in the results of operations.
13
<PAGE> 14
At March 31, 1995 the contractual maturities of Swaps were as follows:
<TABLE>
<CAPTION>
Notional
In Millions Amount Expiration Liabilities Hedged
- ----------- -------- ---------- ------------------
<S> <C> <C> <C>
$230 1995 Deposit liabilities
200 1996 Deposit liabilities
100 2003 Long-term debt
200 2004 Long-term debt
----
$730
</TABLE>
The Company has also terminated one Swap agreement prior to the
contractual maturity. Since the Swap was designed as a hedge, the gain
realized on the termination of this contract has been deferred and is amortized
to reduce interest expense over the remaining life of the hedged liabilities.
At March 31, 1995 and December 31, 1994, the remaining deferred gain related to
such termination was $3.3 million and $3.8 million, respectively. The effect
of the amortization of the deferred gain reduces interest expense by
approximately $1.6 million annually through 1997.
CONTINGENCIES
Several of the Company's subsidiaries are defendants in various legal
proceedings arising in the normal course of business. These claims relate to
the lending and investment advisory services provided by the Company and
include alleged compensatory and punitive damages. Although it is not possible
to determine, with any certainty, the potential exposure related to punitive
damages, in the opinion of Management, based upon consultation with legal
counsel, the ultimate resolution of these proceedings will not have a material
effect on the Company's financial statements.
14
<PAGE> 15
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No. (4) SouthTrust Corporation Shareholders' Rights
Agreement. (Incorporated herein by reference from
Registration Statement No. 1-3613).
No. (11) Statement of Computation of Earnings Per Share.
No. (27) Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
During the three months ended March 31, 1995 the Company did
not file a Form 8-K current report with the Securities and
Exchange Commission.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHTRUST CORPORATION
Date: May 12, 1995 /s/ Wallace D. Malone, Jr.
------------- ---------------------------
Wallace D. Malone, Jr.
Chairman and Chief
Executive Officer
Date: May 12, 1995 /s/ Aubrey D. Barnard
-------------- ---------------------------
Aubrey D. Barnard
Secretary, Treasurer and
Controller
15
<PAGE> 1
Exhibit No. 11
Statement of Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------
(In thousands, March 31, 1995 March 31, 1994
except per share data) ----------------------- -----------------------
Earnings Earnings
Shares Per Share Shares Per Share
------ --------- ------ ---------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Average shares outstanding 81,740 79,409
Common stock equivalents for
stock options 408 438
------ ------
Primary Earnings per share 82,148 $0.57 79,847 $0.51
====== ===== ====== =====
FULLY DILUTED EARNINGS PER SHARE
Average shares outstanding 81,740 79,409
Common stock equivalents for
stock options and convertible
debentures 534 648
------ ------
Fully diluted earnings per share 82,274 $0.57 80,057 $0.51
====== ===== ====== =====
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SOUTHTRUST CORPORATION FOR THE QUARTER ENDED MARCH 31,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 533,760
<INT-BEARING-DEPOSITS> 21,310
<FED-FUNDS-SOLD> 8,900
<TRADING-ASSETS> 8,360
<INVESTMENTS-HELD-FOR-SALE> 124,269
<INVESTMENTS-CARRYING> 1,646,287
<INVESTMENTS-MARKET> 1,633,826
<LOANS> 12,598,739
<ALLOWANCE> 178,878
<TOTAL-ASSETS> 17,954,625
<DEPOSITS> 13,411,209
<SHORT-TERM> 2,479,746
<LIABILITIES-OTHER> 238,311
<LONG-TERM> 639,502
<COMMON> 206,089
0
0
<OTHER-SE> 979,768
<TOTAL-LIABILITIES-AND-EQUITY> 17,954,625
<INTEREST-LOAN> 273,823
<INTEREST-INVEST> 63,050
<INTEREST-OTHER> 2,729
<INTEREST-TOTAL> 339,602
<INTEREST-DEPOSIT> 125,683
<INTEREST-EXPENSE> 177,008
<INTEREST-INCOME-NET> 162,594
<LOAN-LOSSES> 12,542
<SECURITIES-GAINS> 95
<EXPENSE-OTHER> 126,955
<INCOME-PRETAX> 71,039
<INCOME-PRE-EXTRAORDINARY> 71,039
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,840
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
<YIELD-ACTUAL> 8.42
<LOANS-NON> 50,942
<LOANS-PAST> 20,252
<LOANS-TROUBLED> 2,594
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 171,692
<CHARGE-OFFS> 9,438
<RECOVERIES> 3,277
<ALLOWANCE-CLOSE> 178,878
<ALLOWANCE-DOMESTIC> 178,878
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 178,878
</TABLE>
