<PAGE> 1
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: JUNE 30, 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 June 30,1995 .
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<TABLE>
<CAPTION>
Number of Shares
Title of Class Outstanding
-------------- ----------------
<S> <C>
$2.50 par 83,464,258
</TABLE>
<PAGE> 2
SOUTHTRUST CORPORATION
Consolidated Statements of Condition
(Unaudited)
<TABLE>
<CAPTION>
June 30 December 31
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(In Thousands) 1995 1994 1994
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<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 594,413 $ 511,418 $ 650,433
Short-term investments:
Federal funds sold and securities purchased
under resale agreements 30,995 53,775 22,645
Interest-bearing deposits in other banks 18,902 9,883 13,875
Assets held for sale 199,895 179,295 164,528
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Total short-term investments 249,792 242,953 201,048
Securities available for sale 2,065,173 2,326,449 2,280,849
Securities held for investment (Fair value of $2,017,381 at
June 30, 1995 and $1,655,052 and $1,618,411 at
June 30, 1994 and December 31, 1994, respectively) 1,997,781 1,680,685 1,671,673
Loans 13,496,910 10,608,968 12,215,599
Less:
Unearned income 98,595 84,915 93,692
Allowance for loan losses 186,150 149,303 171,692
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Net loans 13,212,165 10,374,750 11,950,215
Premises and equipment, net 407,330 334,666 364,642
Due from customers on acceptances 29,476 27,159 34,111
Other assets 523,355 433,485 479,088
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TOTAL ASSETS $19,079,485 $15,931,565 $17,632,059
============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest-bearing $11,533,929 $ 9,967,558 $10,761,495
Other 2,279,748 1,859,593 2,039,744
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Total deposits 13,813,677 11,827,151 12,801,239
Federal funds purchased and securities sold
under agreements to repurchase 2,260,944 1,743,899 1,885,838
Other short-term borrowings 598,141 630,904 942,174
Bank acceptances outstanding 29,476 27,159 34,111
Other liabilities 229,862 166,007 192,713
Long-term debt 889,858 442,646 640,716
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Total liabilities 17,821,958 14,837,766 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; 83,950,192 shares issued
at June 30, 1995 and 80,414,703 and 81,904,456 at
June 30, 1994 and December 31, 1994, respectively 209,875 201,037 204,761
Capital surplus 253,137 219,425 231,975
Retained earnings 815,246 687,021 750,699
Unrealized gain (loss) on securities available for sale (14,722) (7,853) (46,304)
Treasury stock at cost:
485,934 shares at June 30, 1995 and 477,306 and 478,896
shares at June 30, 1994 and December 31, 1994, respectively (6,009) (5,831) (5,863)
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Total stockholders' equity 1,257,527 1,093,799 1,135,268
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,079,485 $15,931,565 $17,632,059
============================================
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE> 3
SOUTHTRUST CORPORATION
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
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(In thousands, except per share data) 1995 1994 1995 1994
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<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $294,210 $202,507 $568,033 $385,419
Interest on securities:
Taxable 24,572 20,349 45,587 36,470
Non-taxable 5,215 5,760 10,831 11,782
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Total interest on investment securities 29,787 26,109 56,418 48,252
Interest on securities available for sale 35,287 30,747 71,706 60,362
Interest on short-term investments 3,128 2,310 5,857 5,847
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Total interest income 362,412 261,673 702,014 499,880
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INTEREST EXPENSE
Interest on deposits 141,397 86,120 267,080 168,781
Interest on short-term borrowings 42,173 21,120 83,162 33,623
Interest on long-term debt 11,547 5,507 21,883 10,224
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Total interest expense 195,117 112,747 372,125 212,628
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Net interest income 167,295 148,926 329,889 287,252
PROVISION FOR LOAN LOSSES 13,555 11,703 26,097 21,892
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Net interest income after
provision for loan losses 153,740 137,223 303,792 265,360
NON-INTEREST INCOME
Service charges on deposit accounts 23,018 21,277 45,554 41,759
Mortgage origination and servicing fees 7,524 7,342 14,114 15,296
Trust fees 4,698 4,334 9,311 8,639
Miscellaneous fees 13,643 10,294 25,332 21,200
Securities gains, net 45 (9) 140 57
Other 2,035 1,449 4,454 4,558
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Total non-interest income 50,963 44,687 98,905 91,509
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NON-INTEREST EXPENSE
Salaries and employee benefits 69,605 63,599 138,403 126,445
Net occupancy 10,402 9,907 21,064 19,390
Equipment 7,700 6,689 14,948 13,123
FDIC insurance 6,952 6,186 13,836 12,368
Other 37,087 32,131 70,450 60,591
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Total non-interest expense 131,746 118,512 258,701 231,917
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Income before income taxes 72,957 63,398 143,996 124,952
INCOME TAX EXPENSE 24,928 21,006 49,127 41,823
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NET INCOME $ 48,029 $ 42,392 $ 94,869 $ 83,129
===================================================
Average number of shares outstanding (000's) 82,809 79,987 82,480 79,917
Net income per share $ 0.58 $ 0.53 $ 1.15 $ 1.04
Dividends declared per share $ 0.20 $ 0.17 $ 0.40 $ 0.34
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE> 4
SouthTrust Corporation
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
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(In Thousands) 1995 1994
------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 94,869 $ 83,129
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision (credit) for:
Loan losses 26,097 21,892
Depreciation of premises and equipment 13,081 11,443
Amortization of intangibles 9,748 8,834
Amortization of security premium 496 555
Accretion of security discount (2,297) (741)
Deferred income tax (37) 2,592
Net realized and unrealized gain on assets held for sale (3,144) (5,071)
Net securities (gains) and losses (141) (57)
Origination and purchase of loans held for sale (446,255) (359,047)
Proceeds of loans held for sale 406,908 436,632
Net (increase) decrease in trading securities 7,125 6,697
Net (increase) decrease in other assets (7,396) (37,797)
Net increase (decrease) in other liabilities 27,615 (19,302)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 126,669 149,759
INVESTING ACTIVITIES
Proceeds from maturities of:
Investment securities 189,724 154,814
Securities available for sale 290,877 564,569
Proceeds from sales of:
Investment securities 0 0
Securities available for sale 102,944 54,821
Purchases of:
Investment securities (473,125) (542,040)
Securities available for sale (130,628) (509,092)
Premises and equipment (50,214) (24,090)
Net increase (decrease) in:
Short-term investments 6,092 (14,032)
Loans (1,153,167) (1,052,527)
Purchase of subsidiaries, net of cash acquired 238,753 104,343
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NET CASH USED IN INVESTING ACTIVITIES (978,744) (1,263,234)
FINANCING ACTIVITIES
Proceeds from issuance of:
Common Stock 3,617 2,986
Long-term debt 256,000 100,000
Payments for:
Long-term debt (6,859) (13,339)
Repurchase of Common Stock (147) (2,688)
Cash Dividends (32,278) (27,825)
Net increase (decrease) in:
Deposits 548,052 153,609
Short-term borrowings 27,669 804,319
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NET CASH PROVIDED BY FINANCING ACTIVITIES 796,054 1,017,062
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DECREASE IN CASH AND DUE FROM BANKS (56,021) (96,413)
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 $ 594,412 $ 511,418
========================
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 341,860 $ 211,992
Income taxes 54,408 49,881
Non-cash transactions:
Assets acquired in business combinations 494,273 160,788
Liabilities acquired in business combinations 472,095 157,094
Loans transferred to Other Real Estate 10,403 9,453
Loans securitized into mortgage-backed securities 113,380 294,694
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE> 5
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note A - Basis of Presentation
The Consolidated Condensed Financial Statements were prepared by the
Company without an audit, but in the opinion of management, reflect all
adjustments necessary for the fair presentation of the Company's financial
position and results of operations for the six month periods ended June 30,
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
No.s 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, unless the
loan is collaterally dependent; in which case the Company measures impairment
based on the fair value of the collateral.
The recorded investment in impaired loans at June 30, 1995 was $78.8
million. The average investment in these loans for the six months ended June
30, 1995 was $70.7 million. The reserve for impaired loans was $24.7 million
at June 30, 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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<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE QUARTER ENDED June 30,1995
(Unaudited)
EARNINGS SUMMARY
Net income for the second quarter of 1995 was $48.0 million, an
increase of $5.6 million or 13% from the second quarter 1994 net income of
$42.4 million. Net income per share for the quarter was $0.58 in 1995 and
$0.53 in 1994, an increase of 9%. For the six months ended June 30, 1995 net
income was $94.9 million or $1.15 per share, compared to $83.1 million or $1.04
per share in 1994. Net income for the first six months of 1995 resulted in
returns on average total assets and average stockholders' equity of 1.05% and
16.19%, 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 second quarter of 1995 was $171.0 million,
up $18.1 million or 12% from the 1994 second quarter level of $152.9 million.
Total interest income increased to $366.2 million, as the average level of
interest earning assets increased 20% to $17,205.2 million, and the fully
taxable equivalent yield on earning assets increased 107 basis points to 8.52%
from the 1994 yield of 7.45%. This increase reflects an increase in market
interest rates. For the six months ended June 30, 1995 net interest income was
$337.4 million, an increase of $42.1 million or 14% from the 1994 level of
$295.3 million. During the six-month period total interest income increased
$201.5 million or 40% to $709.5 million.
Total interest expense increased $82.4 million or 73% to $195.1
million for the second quarter of 1995, and increased $159.5 million of 75% for
the six-month period to $372.1 million. These increases reflect an increase in
the level of average interest-bearing liabilities of 22% to $15,086.9 million
for the quarter and an increase of 23% to $14,767.6 million for the first six
months of 1995. The average rate paid on interest-bearing liabilities increased
153 basis points to 5.19% for the second quarter and 151 basis points to 5.08%
for the six months ended June 30, 1995.
The taxable equivalent net interest margin for the second quarter of
1995 was 3.98% compared to 4.29% for the second quarter of 1994.For the
six-month period the net interest margin decreased
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<PAGE> 7
to 4.03% in 1995 from 4.28% in 1994. The taxable equivalent net interest
spreads for the first six months of 1995 and 1994 were 3.39% and 3.79%,
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.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the second quarter of 1995 was $13.6
million, reflecting an increase of $1.9 million from the 1994 second quarter
level of $11.7 million. For the six months ended June 30, 1995 the provision
for loan losses was $26.1 million, an increase of $4.2 million from the 1994
level of $21.9 million. For the quarter, net charge-offs were $8.0 million or
.25% of average net loans on an annualized basis compared to .22% in the second
quarter of 1994. For the first six months of 1995, net charge-offs totaled
$14.2 million or .23% of average net loans on an annualized basis. During the
same period of 1994, net charge-offs were $8.2 million or 0.17% 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 $6.3 million or 14% to $51.0
million for the second quarter of 1995. Service charges on deposit accounts
increased $1.7 million or 8% to $23.0 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
increased $0.2 million or 2% to $7.5 million. While the level of mortgage fees
is virtually flat with the level one year ago, it does reflect an increase over
the past three consecutive quarters as recent mortgage rate decreases have
resulted in increased mortgage financing which has resulted in increased
mortgage fee income. Trust fees increased $0.4 million or 8% to $4.7 million.
Other fee income increased $3.3 million or 33% to $13.6 million. Net
securities gains were $45,000 compared to securities losses of $9,000 in 1994.
All other non-interest income increased $0.6 million to $2.0 million for the
second quarter 1995. There were no significant non-recurring non-interest
income items recorded in 1995 or 1994.
For the six months ended June 30, 1995 total non-interest income increased
$7.4 million or 8% to $98.9 million. During the period service charges on
deposit accounts increased $3.8 million or 9% to $45.6 million. Mortgage
origination and service were $14.1 million, a decrease of $1.2 million or 8%
from the first six months of 1994. Trust fees increased 8% to $9.3 million,
other fee income increased $4.1 million or 19% to $25.3 million, and other
non-interest income decreased 2% to $4.5 million. Securities gains for the
1995 six-month period were $141,000 compared to $57,000 during the first six
months of 1994.
There were no significant non-recurring non-interest income items during
either the quarter or six month periods discussed.
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<PAGE> 8
NON-INTEREST EXPENSE
Total non-interest expense for the quarter was $131.7 million,
reflecting an increase of $13.2 million or 11% from the second quarter 1994
level. For the six months ended June 30, 1995 total non-interest expense was
$258.7 million, an increase of $26.8 million or 12% over the first six months
of 1994. The ratio of non-interest expense to average total assets was 2.85%
for the second quarter of 1995 down from 3.07% in the second quarter of
1994.For the first six months of 1995 the non-interest expenses to total
average asset ratio was 2.87% compared to 3.10% in 1994.
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 $69.6 million for the second quarter 1995. For the six months ended June
30, 1995 salaries and employee benefits increased $12.0 million or 9% to $138.4
million. The number of full time equivalent employees increased approximately
7% from June 30, 1994 to approximately 7,700 at June 30, 1995. Net occupancy
expense increased $0.5 million or 5% to $10.4 million for the quarter and $1.7
million or 9% for the six- month period primarily as a result of the growth in
the number of banking offices to 430 in 1995 from 400 at June 30, 1994.
Equipment expense increased $1.0 million or 15% to $7.7 million for the quarter
and $1.8 million or 14% to $14.9 million for the six-month period. FDIC
insurance expense increased $0.8 million or 12% to $7.0 million for the quarter
and $1.5 million or 12% to $13.8 million for the six-month period as a result
of increased deposits. All other non-interest expense items totaled $37.1
million in the second quarter of 1995 and $70.5 million for the six months
ended June 30, 1995, reflecting increases of 15% and 16%, respectively over
the comparable periods of 1994. There were no significant non-recurring
non-interest expense items recorded in 1995 or 1994.
Income tax expense for the second quarter of 1995 was $24.9 million
for an effective tax rate of 34.2% compared to $21.0 million or an effective
rate of 33.1% in the second quarter of 1994. For the six-month period income
tax expense was $49.1 million or an effective rate of 34.1% in 1995 compared to
$41.8 million or an effective rate of 33.5% in the comparable period 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 June 30, 1995 were $19.1 billion, representing an
increase of $3.1 billion or 20% from June 30, 1994. At December
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<PAGE> 9
31, 1994, total assets were $17.6 billion. Average total assets for the first
six months of 1995 were $18.2 billion compared to $15.1 billion for the first
six months of 1994.
Average earning assets for the first six months of 1995 were $16.8
billion, representing an increase of 21% over the 1994 level of $13.9 billion.
Average interest-bearing liabilities through June 30, 1995 were $14.8 billion,
up 23% over the 1994 first six-month level of $12.0 billion.
LOANS
Loans, net of unearned income at June 30, 1995 totaled $13,398.3
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 the
classification of 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 June
30, 1994 and restated herein is approximately $1,428.2 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 $185.4 million from
December 31, 1994 to $1,961.6 million, or 14.6% of total loans. This category
represents the Company's largest credit concentration. Residential real estate
mortgage loans at June 30, 1995 were $3,108.1 million or 23.0% of total loans
compared to $2,960.0 million or 24.2% at December 31, 1994. Real estate
construction loans were $973.3 million or 7.2% of total loans, up from $675.2
million at December 31, 1994 when such loans accounted for 5.5% of total loans.
Commercial, financial and agricultural loans at June 30, 1995 were
$5,508.0 million or 40.8% of total loans, compared to $5,058.4 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 June 30, 1995 totaled $1,945.9 million or
14.4% of total loans, compared to $1,745.9 million or 14.3% of total loans at
December 31, 1994.
Total unearned income at June 30, 1995 was $98.6 million compared to
$93.7 million at December 31, 1994.
NON-PERFORMING ASSETS
Non-performing assets at June 30, 1995 were $108.2 million or 0.80% of
net loans and other real estate owned, representing an increase of $5.5 million
from the December 31, 1994 level of $102.7 million. Included in non-performing
assets at June 30, 1995 were
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<PAGE> 10
$57.5 million of loans on non-accrual status, other real estate owned totaling
$48.1 million, and $2.6 million of restructured loans. Loans 90 days past due
and accruing were $25.4 at June 30, 1995 compared to $16.6 million at December
31, 1994.
As of June 30, 1995, the Company had loans of approximately $18.7
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 June 30, 1995 was $186.1 million or
1.39% 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 six months ended June 30, 1995 totaled
$14.2 million or 0.23% of average net loans on an annualized basis compared to
$8.2 million or .17% during the first six months of 1994. The provision for
loan losses as a percentage of net charge-offs were 184% during the first six
months of 1995 and 268% during the comparable period of 1994.
INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE
At June 30, 1995, total securities were $4,063.0 million. Investment
securities amounted to $1,997.8 million and securities classified as available
for sale amounted to $2,065.2 million.
Investment securities increased 19% from the year-end 1994 level to
$1,997.8 million, and included U.S. Treasury securities of $16.4 million, U.S.
Government agency securities of $1,346.1 million, Collateralized mortgage
obligations (CMOs) of $127.5 million, other mortgage backed securities of
$128.3 million, State, County and Municipal securities of $285.1 million and
other securities of $94.4 million.
Securities available for sale included U.S. Treasury securities of
$422.8 million, U.S. Government agency securities of $293.4 million, CMOs of
$1,013.5 million, other mortgage backed securities of $240.6 million, State,
County and Municipal securities of $1.7 million and other securities of $93.2
million.
At June 30, 1995, the Company's investment portfolio included $1,141.0
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.
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<PAGE> 11
Additionally, the Company's investment portfolio included
approximately $854.3 million in Agency Securities with forward coupon rate
increases, commonly known as "step-ups." $775.4 million of the step-ups held
by the Company have maturities through 1999, $77.9 million matures through
2004, and $1.0 million matures in 2009. 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 June 30, 1995
were $133.0 million in structured notes. $130.0 million of these structured
notes mature through 1997. The remaining $3.0 million have maturities through
2000. All structured notes have floating interest rates. Of the total $133.0
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 $5.5 million are "Inverse Floaters." These securities
pay interest at a rate determined by a formula based on a fixed interest rate
less the six-month LIBOR rate. $5.0 million of these securities mature in 1997
and $0.5 million matures in 2000. Inverse floaters present the risk of
decreasing yields in rising rate environments.
At June 30, 1995, the fair value of investment securities exceeded the
book value by $19.6 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 $23.8 million, resulting in an after-tax adjustment
to stockholders' equity of $14.7 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 increase in fair values of securities
is attributable to falling interest rates.
SHORT-TERM INVESTMENTS
Short-term investments at June 30, 1995 totaled $249.8 million,
reflecting an increase of $48.8 million from the December 31, 1994 level of
$201.0 million. At June 30, 1995, short-term investments consisted of $27.7
million in federal funds sold, $3.3 million in securities purchased under
resale agreements, $18.9 million in time deposits with other banks, and $199.9
million in assets held for sale. Assets held for sale consisted of $187.5
million in mortgage loans in the process of being securitized and sold to third
party investors and $12.4 million in securities held
-11-
<PAGE> 12
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 June 30, 1995 were $960.2 million compared to $877.8
million at December 31, 1994. At June 30, 1995, other assets included $407.3
million in premises and equipment, due from customers on acceptances of $29.5,
other real estate owned of $48.1 million, mortgage servicing rights of $28.4
million, other intangible assets of $159.7 million and other non-earning assets
of $287.2 million.
Cash and due from banks was $594.4 million at June 30, 1995, a
decrease of $56.0 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 June 30, 1995 were $13,813.7 million up 17% from the June 30, 1994 level of
$11,827.2 million. Total deposits at December 31, 1994 were $12,801.2 million.
At June 30, 1995, total deposits included interest-bearing deposits of
$11,533.9 million and other deposits of $2,279.8 million.
Core deposits, defined as demand deposits and time deposits less than
$100,000, totaled $12,036.7 million or 87.1% of total deposits at June 30,
1995. This compares to core deposits of $10,378.0 million or 87.7% of total
deposits at June 30, 1994 and $11,104.9 million or 86.7% at December 31, 1994.
SHORT-TERM BORROWINGS
Short-term borrowings at June 30, 1995 were $2,859.1 million and
included federal funds purchased of $1,253.7 million, securities sold under
agreements to repurchase of $1,007.3 million and other borrowed funds of $598.1
million. At June 30, 1995, total short-term borrowings were 15.0% 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.
-12-
<PAGE> 13
LONG-TERM DEBT
At June 30, 1995, total long-term debt was $889.9 million representing
an increase of $249.2 million from the December 31, 1994 level of $640.7
million. During the first six months of 1995 the Company issued $256.0 million
of additional long-term debt including $150.0 million in subordinated debt of
which $50.0 million matures in 2005 and $100.0 million matures in 2025, and
$106.0 million of Federal Home Loan Bank advances which mature through
1998.During the six month period repayments of long-term debt totaled $6.8
million.
CAPITAL
At June 30, 1995, total stockholders' equity was $1,257.5 million or
6.6% of total assets compared to $1,135.3 million or 6.4% at December 31, 1994.
During the first six months net income added $94.9 million to capital. Sales
of common stock through the Dividend Reinvestment Plan, the employee stock
purchase and stock option plans for $3.5 million represented the issuance of
234,604 shares. Equity added in business combinations increased equity by
$25.1 million. The conversion of debentures added $0.1 million to equity.
Treasury stock purchases for 7,038 shares reduced equity by $0.1 million.
Dividends declared during the period totaled $32.9 million, and the net
unrealized loss on securities available for sale decreased $31.6 million from
$46.3 million at December 31, 1994 to $14.7 million at June 30, 1995.
The Company is subject to the capital adequacy guidelines adopted by
the Federal Reserve Board, which is the regulatory agency that governs 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.
The June 30, 1995, the Company had a total risk-based capital ratio
of 11.35%, consisting of Tier I capital ratio of 7.55% and supplemental capital
elements of 3.80%. The leverage ratio was 6.06%.
COMMITMENTS
The Company's subsidiary banks had standby letters of credit
outstanding of approximately $549.5 million at June 30, 1995 and $527.7 million
at December 31, 1994.
The Company's subsidiary banks had outstanding commitments to extend
credit of approximately $4,310.3 million at June 30, 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 commitment 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
-13-
<PAGE> 14
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 $1,245.2 million at June 30, 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 values of such contracts are not included
in the results of operations.
-14-
<PAGE> 15
At June 30, 1995, the contractual maturities of Swaps were as follows:
<TABLE>
<CAPTION>
Notional
In Millions Amount Expiration Liabilities Hedged
----------- -------- ---------- ------------------
<S> <C> <C>
$ 25 1995 Deposit liabilities
200 1996 Deposit liabilities
100 2003 Long-term debt
200 2004 Long-term debt
150 2005 Long-term debt
----
$675
</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 June 30, 1995 and December 31, 1994, the remaining deferred gain related to
such termination was $3.0 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
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 practices (including the sale of insurance). These
suits, which are not filed as class actions, name unaffiliated corporation as
co-defendants, and the Company's insurance carrier is defending these suits
under a reservation of rights. These suits are typical of complaints that have
been filed in recent years in the State of Alabama 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, juries
in the State of Alabama, in certain counties where some of the suits described
above are pending, have awarded large punitive damage awards to plaintiffs.
Although it is not possible to determine, with any certainty and at
this point in time, the potential exposure related to punitive damages in
connection with these suits, the Company, in the opinion of mangement, and
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.
-15-
<PAGE> 16
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 June 30, 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
<TABLE>
<S> <C> <C>
Date: August 11, 1995 /s/ Wallace D. Malone, Jr.
--------------- ---------------------------
Wallace D. Malone, Jr.
Chairman and Chief
Executive Officer
Date: August 11, 1995 /s/ Aubrey D. Barnard
---------------- --------------------------
Aubrey D. Barnard
Secretary, Treasurer and
Controller
</TABLE>
-16-
<PAGE> 1
EXHIBIT NO. 11
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------------------------
(In thousands) June 30, 1995 June 30, 1994
-----------------------------------------------------
Earnings Earnings
Shares Per Share Shares Per Share
--------- ----------- -------- ------------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Average shares outstanding 82,028 79,461
Common stock equivalents for
stock options 452 456
------ ------
Primary Earnings per share 82,480 $1.15 79,917 $1.04
------ ----- ------ -----
FULLY DILUTED EARNINGS PER SHARE
Average shares outstanding 82,028 79,461
Common stock equivalents for
stock options and convertible
debentures 578 665
------ ------
Fully diluted earnings per share 82,606 $1.15 80,126 $1.04
------ ----- ------ -----
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SOUTHTRUST CORPORATION FOR THE QUARTER ENDED JUNE 30,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 594,413
<INT-BEARING-DEPOSITS> 11,534
<FED-FUNDS-SOLD> 27,695
<TRADING-ASSETS> 199,894
<INVESTMENTS-HELD-FOR-SALE> 2,065,173
<INVESTMENTS-CARRYING> 1,997,781
<INVESTMENTS-MARKET> 2,017,381
<LOANS> 13,398,315
<ALLOWANCE> 186,150
<TOTAL-ASSETS> 19,079,485
<DEPOSITS> 13,813,677
<SHORT-TERM> 2,859,086
<LIABILITIES-OTHER> 259,337
<LONG-TERM> 889,858
<COMMON> 209,875
0
0
<OTHER-SE> 1,047,652
<TOTAL-LIABILITIES-AND-EQUITY> 19,079,485
<INTEREST-LOAN> 568,033
<INTEREST-INVEST> 128,124
<INTEREST-OTHER> 5,857
<INTEREST-TOTAL> 702,014
<INTEREST-DEPOSIT> 267,080
<INTEREST-EXPENSE> 372,125
<INTEREST-INCOME-NET> 329,889
<LOAN-LOSSES> 26,097
<SECURITIES-GAINS> 141
<EXPENSE-OTHER> 258,701
<INCOME-PRETAX> 143,996
<INCOME-PRE-EXTRAORDINARY> 143,996
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94,869
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
<YIELD-ACTUAL> 8.47
<LOANS-NON> 57,517
<LOANS-PAST> 25,398
<LOANS-TROUBLED> 2,595
<LOANS-PROBLEM> 18,665
<ALLOWANCE-OPEN> 178,878
<CHARGE-OFFS> 19,767
<RECOVERIES> 5,598
<ALLOWANCE-CLOSE> 186,150
<ALLOWANCE-DOMESTIC> 186,150
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
