<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: September 30, 1996 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
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 September 30,1996 .
<TABLE>
<CAPTION>
Number of Shares
Title of Class Outstanding
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<S> <C>
$2.50 par 96,051,988
</TABLE>
<PAGE> 2
SOUTHTRUST CORPORATION
Consolidated Statements of Condition
(Unaudited)
<TABLE>
<CAPTION>
September 30 December 31
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(In Thousands) 1996 1995 1995
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<S> <C> <C> <C>
ASSETS
Cash and due from banks $ $833,531 $747,390 $ 773,656
Short-term investments:
Federal funds sold and securities purchased
under resale agreements 72,512 41,496 100,273
Interest-bearing deposits in other banks 14,725 3,073 18,715
Assets held for sale 272,624 198,335 237,139
----------------------------------------------------
Total short-term investments 359,861 242,904 356,127
Securities available for sale 2,873,937 2,023,635 2,614,803
Securities held for investment (Fair value of $1,746,430 at
September 30, 1996 and $2,054,074 and $1,619,050 at
September 30, 1995 and December 31, 1995, respectivley) 1,729,728 2,036,057 1,585,562
Loans 18,178,991 14,180,250 14,757,093
Less:
Unearned income 121,232 102,754 101,931
Allowance for loan losses 252,883 194,962 206,638
----------------------------------------------------
Net loans 17,804,876 13,882,534 14,448,524
Premises and equipment, net 490,949 421,087 433,527
Due from customers on acceptances 14,110 16,949 13,244
Other assets 668,958 650,207 561,581
----------------------------------------------------
TOTAL ASSETS $24,775,950 $20,020,763 $20,787,024
====================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest-bearing $14,196,995 $11,908,785 $12,303,089
Other 2,427,664 2,100,759 2,271,988
----------------------------------------------------
Total deposits 16,624,659 14,009,544 14,575,077
Federal funds purchased and securities sold
under agreements to repurchase 2,888,502 2,661,899 2,635,556
Other short-term borrowings 1,036,126 751,595 571,871
Bank acceptances outstanding 14,110 16,949 13,244
Other liabilities 353,673 302,240 373,094
Long-term debt 2,180,690 891,281 1,187,312
----------------------------------------------------
Total liabilities 23,097,760 18,633,508 19,356,154
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:
300,000,000 shares authorized; 96,961,536 shares issued
at September 30, 1996 and 88,115,682 and 88,398,198 at
September 30, 1995 and December 31, 1995, respectively 241,729 220,289 220,996
Capital surplus 409,091 337,358 340,608
Retained earnings 1,052,907 849,031 885,129
Unrealized loss on securities available for sale (15,329) (13,267) (9,635)
Treasury stock at cost:
639,548 shares at September 30, 1996 and 491,671 and 494,515
shares at September 30, 1995 and December 31, 1995, respectively (10,208) (6,156) (6,228)
----------------------------------------------------
Total stockholders' equity 1,678,190 1,387,255 1,430,870
----------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $24,775,950 $20,020,763 $20,787,024
====================================================
</TABLE>
See Notes to Consolidated Financial Statements
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SOUTHTRUST CORPORATION
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
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(In thousands, except per share data) 1996 1995 1996 1995
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<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 385,482 $312,897 $1,076,672 $ 880,930
Interest on securities:
Taxable 25,479 28,509 72,160 74,096
Non-taxable 3,827 4,998 12,425 15,829
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Total interest on investment securities 29,306 33,507 84,585 89,925
Interest on securities available for sale 46,900 31,663 134,261 103,369
Interest on short-term investments 5,895 4,754 16,818 10,611
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Total interest income 467,583 382,821 1,312,336 1,084,835
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INTEREST EXPENSE
Interest on deposits 163,992 146,600 473,255 413,680
Interest on short-term borrowings 52,558 45,098 144,129 128,260
Interest on long-term debt 25,583 15,046 64,951 36,929
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Total interest expense 242,133 206,744 682,335 578,869
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Net interest income 225,450 176,077 630,001 505,966
PROVISION FOR LOAN LOSSES 21,905 13,392 62,830 39,489
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Net interest income after
provision for loan losses 203,545 162,685 567,171 466,477
NON-INTEREST INCOME
Service charges on deposit accounts 28,738 23,041 79,518 68,595
Mortgage banking operations 8,606 8,788 30,796 22,902
Bank card fees 5,417 4,512 16,398 13,583
Trust fees 5,298 4,757 15,804 14,068
Other fees 8,554 8,448 27,020 24,709
Securities gains, net 86 22 142 162
Other 3,811 3,257 15,900 7,711
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Total non-interest income 60,510 52,825 185,578 151,730
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NON-INTEREST EXPENSE
Salaries and employee benefits 81,956 70,702 241,552 209,105
Net occupancy 12,924 10,983 37,254 32,047
Equipment 9,442 7,772 26,691 22,720
Other 64,931 48,351 166,235 132,637
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Total non-interest expense 169,253 137,808 471,732 369,509
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Income before income taxes 94,802 77,702 281,017 221,698
INCOME TAX EXPENSE 29,081 27,155 94,732 76,282
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NET INCOME $ 65,721 $ 50,547 $ 186,285 $ 145,416
====================================================================
Average number of shares outstanding (000's) 96,673 84,245 94,066 83,075
Net income per share $ 0.68 $ 0.60 $ 1.98 $ 1.75
Dividends declared per share 0.22 0.20 0.66 0.60
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE> 4
SouthTrust Corporation
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
--------------------------------
(In Thousands) 1996 1995
--------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 186,285 $145,416
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision (credit) for:
Loan losses 62,830 39,489
Depreciation of premises and equipment 23,913 19,853
Amortization of intangibles 18,311 14,976
Amortization of security premium 1,845 705
Accretion of security discount (2,440) (3,468)
Deferred income tax 10,972 1,552
Net realized and unrealized gain on assets held for sale (14,862) (5,107)
Net securities (gains) and losses (142) (163)
Origination and purchase of loans held for sale (1,551,760) (783,955)
Proceeds of loans held for sale 1,531,401 738,967
Net (increase) decrease in trading securities 17,379 16,289
Net (increase) decrease in other assets (73,997) (106,505)
Net increase (decrease) in other liabilities (44,279) 85,494
--------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 165,456 163,543
INVESTING ACTIVITIES
Proceeds from maturities of:
Investment securities 778,313 279,679
Securities available for sale 97,556 555,987
Proceeds from sales of:
Investment securities 0 0
Securities available for sale 225,208 102,966
Purchases of:
Investment securities (764,970) (593,125)
Securities available for sale (580,392) (331,184)
Premises and equipment (59,690) (69,410)
Net increase (decrease) in:
Short-term investments 61,668 19,728
Loans (2,221,243) (1,789,361)
Purchase of subsidiaries, net of cash acquired 23,584 346,912
--------------------------------
NET CASH USED IN INVESTING ACTIVITIES (2,439,966) (1,477,808)
FINANCING ACTIVITIES
Proceeds from issuance of:
Common Stock 6,805 94,425
Long-term debt 1,188,259 283,022
Payments for:
Long-term debt (286,625) (32,457)
Repurchase of Common Stock (3,980) (293)
Cash Dividends (61,521) (48,973)
Net increase (decrease) in:
Deposits 819,156 533,427
Short-term borrowings 672,291 582,071
--------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,334,385 $1,411,222
--------------------------------
DECREASE IN CASH AND DUE FROM BANKS 59,875 96,957
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 773,656 650,433
--------------------------------
CASH AND DUE FROM BANKS AT END OF YEAR $ 833,531 $ 747,390
================================
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 660,072 $ 512,927
Income taxes 103,883 68,116
Non-cash transactions:
Assets acquired in business combinations 1,524,082 713,022
Liabilities acquired in business combinations 1,392,932 684,512
Loans transferred to Other Real Estate 13,390 10,438
Loans securitized into mortgage-backed securities 620,363 218,507
</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 three month and nine month periods
ended September 30, 1996 and 1995. Results of operations for the interim 1996
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, 1995. The
accounting policies employed are the same as those shown in Note 1 to the
Consolidated Financial Statements on Form 10-K.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE QUARTER ENDED September 30,1996
(Unaudited)
EARNINGS SUMMARY
Net income for the third quarter of 1996 was $65.7 million, an increase
of $15.2 million or 30% from the third quarter 1995 net income of $50.5 million.
For the nine months ended September 30, 1996 net income was $186.3 million, an
increase of 28% from the first nine months of 1995 level of $145.4 million. Net
income per share for the third quarter was $0.68 in 1996 and $0.60 in 1995, an
increase of 13%. On a year-to-date basis, net income per share was $1.98 at
September 30, 1996, up 13% from the comparable period in 1995. Net income for
the first nine months of 1996 resulted in returns on average total assets and
average stockholders' equity of 1.10% and 15.89%, 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 both 1996 and
1995.
Interest yields, net interest margins and net interest spreads are
calculated using the underlying earning assets cost basis.
Net interest income in the third quarter of 1996 was $228.3 million, up
$48.7 million or 27% from the 1995 third quarter level of $179.6 million. On
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a year-to-date basis net interest income increased $122.2 million or 24% to
$639.1 million. The fully-taxable equivalent net interest margins were 4.05% for
the quarter and 4.03% for the nine months ended September 30, 1996,
respectively. Total interest income increased to $470.5 million for the quarter,
as the average level of interest earning assets increased 25% to $22,371.5
million, and the fully taxable equivalent yield on earning assets decreased 17
basis points to 8.35% from the 1995 yield of 8.52%. For the first nine months of
1996, total interest income increased $225.6 million or 21% to $1,321.4 million
as the average balance of interest-earning assets increased 23% to $21,178.8
million and the yield on interest-earning assets decreased 16 basis points to
8.33%.
Total interest expense increased $35.4 million or 17% to $242.1 million
for the third quarter of 1996. The increase reflects an increase in the level of
average interest-bearing liabilities of 24% to $19,589.0 million for the
quarter. The average rate paid on interest-bearing liabilities decreased 29
basis points to 4.92% for the third quarter from 5.21% in the third quarter of
1995. For the nine months ended September 30, 1996 total interest expense
increased $103.4 million or 18% to $682.3 million as the average balance of
interest-bearing liabilities increased 22% to $18,476.9 million and the average
rate paid decreased 20 basis points to 4.93%.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the second quarter of 1996 was $21.9
million, reflecting an increase of $8.5 million from the 1995 third quarter
level of $13.4 million. On a year-to-date basis the provision for loan losses
was $62.8 million reflecting an increase of $23.3 million or 59% from the first
nine months of 1995. For the quarter, net charge-offs were $10.4 million
bringing the total for the year to $35.2 million. Total net charge-offs of loans
amounted to .24% of average net loans on an annualized basis for the 1996 third
quarter and .29% for the nine month period compared to .16% for the third
quarter of 1995 and .20% for the first nine months of 1995. For the year ended
December 31, 1995 net charge-offs were $29.5 million or .22% of net loans.
NON-INTEREST INCOME
Total non-interest income increased $7.7 million or 15% to $60.5
million for the third quarter of 1996. For the nine months ended September 30,
1996, total non-interest income increased 22% to $185.6 million. Service charges
on deposit accounts increased $5.7 million or 25% to $28.7 million for the
quarter and increased $10.9 million or 16% to $79.5 million for the nine month
period. These increases were due primarily to an increase in the number of
deposit accounts during the periods. Mortgage banking fees decreased $0.2
million or 2% to $8.6 million for the quarter and increased $7.9 million or 34%
to $30.8 million for the nine months ended September 30, 1996. Statement of
Financial Accounting Standards #122 ("SFAS #122"), "Accounting for Mortgage
Servicing Rights", was adopted during the third quarter of 1995. The adoption of
SFAS #122 required that the Company record rights to service loans to others
whether the loans were acquired through purchasing or origination of the loan.
Bank card fees increased $0.9 million or 20% to $5.4 million for the quarter,
and $2.8 million or 21% for the nine month period.
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Trust fees increased $0.5 million or 11% to $5.3 million for the third quarter
of 1996 and $1.7 million or 12% for the first nine months of 1996. Other fee
income increased $0.1 million or 1% to $8.5 million for the quarter and
increased $2.3 million or 9% to $27.0 million for the nine months ended
September 30, 1996. Net securities transactions were a gain of $86,000 for the
third quarter and a net gain of $142,000 for the first nine months of 1996,
compared to securities gains of $22,000 and $163,000 for the third quarter and
first nine months of 1995, respectively. All other non-interest income increased
$0.6 million to $3.8 million for the third quarter and $8.2 million to $15.9
million for the nine month period. Included in other non-interest income during
the first quarter of 1996 were gains from the sale of certain commercial and
commercial real estate loans totaling $5.6 million. These loans were sold in
response to a decision by management to limit concentrations of certain types of
loans within the loan portfolio. There were no other significant non-recurring
non-interest income items recorded in 1996 or 1995.
NON-INTEREST EXPENSE
Total non-interest expense for the quarter was $169.3 million, reflecting
an increase of $31.4 million or 23% from the third quarter 1995 level. For the
nine months ended September 30, 1996 non-interest expense totaled $471.7 million
reflecting an increase of $75.2 million or 19% from the comparable period in
1995.
The ratio of non-interest expense to average total assets was 2.82% for the
third quarter of 1996 and 2.78% for the nine month period compared to 2.83% and
2.86% for the third quarter and nine month periods of 1995, 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 $11.3 million or 16%
to $82.0 million for the third quarter 1996. During the third quarter the
Corporation amended certain employee benefit arrangements which resulted in the
defeasance of liabilities and a reduction in employee benefits expense totaling
$5.1 million. On a year-to-date basis salaries and employee benefits increased
$32.4 million or 16% to $242.0 million. Contributing to these increases was the
increase in the number of full time equivalent employees which increased
approximately 14% from September 30, 1995 to approximately 8,800 at September
30, 1996. Net occupancy expense increased $1.9 million or 18% to $12.9 million
for the quarter and increased $5.2 million or 16% to $37.3 million for the nine
month period primarily as a result of the growth in the number of banking
offices to 505 in 1996 from 444 at September 30, 1995. Equipment expense
increased $1.7 million or 21% to $9.4 million for the quarter and $4.0 million
or 17% to $26.7 million for the nine months ended September 30, 1996. Other
non-interest expense totaled $64.9 million for the quarter and $166.2 million
for the nine months ended September 30, 1996 reflecting increases of 34% and
25%, respectively over the comparable periods in 1995.
On September 30, 1996, legislation was passed that requires a one-time
assessment on deposits insured by the Savings Association Insurance Fund
("SAIF"). This assessment, which amounted to approximately $14.0 million,
reduced after-tax earnings by $8.6 million. Also, as part of the SAIF
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legislation, the deposit insurance rate on SAIF insured deposits will decrease
from 23 basis points to 6.44 basis points beginning October 1, 1996. Also, the
insurance rate charged on Bank Insurance Fund ("BIF") insured deposits will
increase to 1.29 basis points through 1999. At the present level of insured
deposits outstanding at September 30, 1996 of $16.4 billion, this would result
in a combined decrease of approximately $4.2 million annually as compared to
rates in effect prior to the recently enacted legislation. There were no other
significant non-recurring non-interest expense items recorded in 1996 or 1995.
Income tax expense for the third quarter of 1996 was $29.1 million for
an effective tax rate of 30.7% compared to $27.2 million or an effective rate of
34.9% in the third quarter of 1995. The decrease in the third quarter effective
tax rate was primarily due to the reversal of approximately $4.5 million of
accrued tax that will not be paid as a result of legislation enacted during the
quarter which rescinded the previous law requiring the recapture of certain bad
debt deductions previously deducted by Thrift institutions upon their conversion
from a Thrift charter to a bank charter. For the nine months ended September 30,
1996 income tax expense was $94.7 million for an effective tax rate of 33.7%
compared to tax expense or $76.3 million and an effective rate of 34.4% during
the first nine months of 1995. The statutory federal income tax rate was 35% in
1996 and 1995.
SUMMARY OF FINANCIAL CONDITION
Total assets at September 30, 1996 were $24.8 billion, representing an
increase of $4.8 billion or 24% from September 30, 1995. At December 31, 1995,
total assets were $20.8 billion. Average total assets for the first nine months
of 1996 were $22.7 billion compared to $18.6 billion for the nine month period
in 1995.
LOANS
Loans, net of unearned income at September 30, 1996 totaled $18,057.8
million compared to $14,655.2 million at December 31, 1995, an increase of
$3,402.6 million or 23%. Of the total increase, $1,212.4 million were obtained
in the acquisitions of other financial institutions consummated during the first
nine months of 1996.
Commercial real estate mortgage loans increased $613.1 million from
December 31, 1995 to $2,877.8 million, or 15.8% of total loans. During the first
nine months of 1996 commercial real estate mortgage loans totaling $237.2
million were obtained through acquisitions. This category represents the
Company's largest credit concentration. Residential real estate mortgage loans
at September 30, 1996 were $4,240.8 million or 23.3% of total loans compared to
$3,221.3 million or 21.8% at December 31, 1995. Of the total increase of
$1,019.5 million during the nine month period, $706.2 million was the result of
acquisitions. Real estate construction loans were $1,772.6 million or 9.8% of
total loans, up from $1,245.8 million at December 31, 1995 when such loans
accounted for 8.4% of total loans. Real estate construction loans obtained
through acquisitions during the quarter amounted to $65.7 million.
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Commercial, financial and agricultural loans at September 30, 1996 were
$6,397.7 million or 35.2% of total loans, compared to $5,965.9 million or 40.4%
of total loans at December 31, 1995. The increase during the year included $73.7
million in loans obtained through acquisitions. This segment is widely
diversified and there were no significant industry concentrations.
Loans to individuals at September 30, 1996 totaled $2,890.1 million or
15.9% of total loans, compared to $2,059.3 million or 14.0% of total loans at
December 31, 1995. Loans to individuals obtained through acquisitions during the
year were $133.2 million.
Total unearned income at September 30, 1996 was $121.2 million compared
to $101.9 million at December 31, 1995.
NON-PERFORMING ASSETS
Non-performing assets at September 30, 1996 were $143.0 million or
0.79% of net loans and other real estate owned, representing an increase of
$20.9 million from the December 31, 1995 level of $122.1 million. Non-performing
assets obtained through acquisitions during the year totaled $16.0 million.
Included in non-performing assets at September 30, 1996 were $96.4 million of
loans on non-accrual status, other real estate owned totaling $35.3 million,
other repossessed assets of $9.0 million, and $2.3 million of restructured
loans. Loans 90 days past due and accruing were $44.8 million at September 30,
1996 compared to $36.3 million at December 31, 1995.
As of September 30, 1996, the Company had loans of approximately $24.7
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 September 30, 1996 was $252.9 million
or 1.40% of net loans compared to $206.6 million or 1.41% at December 31, 1995.
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 nine months ended September 30, 1996 totaled
$35.2 million or 0.29% of average net loans on an annualized basis. The
provision for loan losses during the nine months added $62.9 million to the
allowance for loan losses. The allowance for loan losses at acquisition date on
acquired financial institutions totaled $18.6 million.
INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE
At September 30, 1996, total securities were $4,603.6 million.
Investment securities amounted to $1,729.7 million and securities classified
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as available for sale amounted to $2,873.9 million. Investment securities are
carried at amortized cost and securities available for sale are carried at fair
value.
Investment securities increased 9% from the year-end 1995 level to
$1,729.7 million; and included U.S. Treasury securities of $7.3 million, U.S.
Government agency securities of $975.4 million, Collateralized Mortgage
Obligations("CMOs") and other mortgage-backed securities ("MBS") of $469.2,
State, County and Municipal securities of $220.3 million and other securities of
$57.5 million.
Securities available for sale included U.S. Treasury securities of
$344.5 million, U.S. Government agency securities of $827.9 million, CMOs and
other MBS of $1,471.1 million, State, County and Municipal securities of $10.0
million and other securities of $220.4 million.
At September 30, 1996, the Company's investment portfolio included
$997.3 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.
The company's investment in structured notes and derivative investment
securities is nominal and would not have a significant effect on the Company's
net interest margin.
At September 30, 1996, the fair value of investment securities exceeded
the book value by $16.7 million. This compares to an unrealized gain of $33.5
million at December 31, 1995. For securities available for sale, the amortized
cost exceeded the fair value by $24.1 million, resulting in an after-tax
adjustment decreasing stockholders' equity by $15.3 million. This unrealized
loss, which Management believes is temporary, compares to a net of tax
unrealized loss of $9.6 million at December 31, 1995.
SHORT-TERM INVESTMENTS
Short-term investments at September 30, 1996 totaled $359.9 million,
reflecting an increase of $3.8 million from the December 31, 1995 level of
$356.1 million. At September 30, 1996, short-term investments consisted of
$30.7 million in federal funds sold, $41.8 million in securities purchased
under resale agreements, $14.7 million in time deposits with other banks, and
$272.7 million in assets held for sale. Assets held for sale consisted of
$267.9 million in mortgage loans in the process of being securitized and sold
to second party investors and $4.8 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.
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OTHER ASSETS
Other assets at September 30, 1996 were $1,174.0 million compared to
$1,008.4 million at December 31, 1995. At September 30, 1996, other assets
included $490.9 million in premises and equipment, due from customers on
acceptances of $14.1 million, accrued interest receivable of $194.1 million,
other accounts receivable of $71.7 million, other real estate owned and other
repossessed assets totaling $44.3 million, mortgage servicing rights of $24.2
million, other intangible assets of $181.4 million and other non-earning assets
of $153.3 million.
Cash and due from banks was $833.5 million at September 30, 1996,
a increase of $59.8 million from $773.7 million at December 31, 1995.
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
September 30, 1996 were $16,624.7 million up $2,049.6 million or 14% from the
December 31, 1995 level of $14,575.1 million. During the first nine months of
1996, acquisitions of other financial institutions added $1,230.4 million of
deposits. At September 30, 1996, total deposits included interest-bearing
deposits of $14,197.0 million and other deposits of $2,427.7 million.
Core deposits, defined as demand deposits and time deposits less than
$100,000, totaled $14,301.9 million or 86.0% of total deposits at September 30,
1996. This compares to core deposits of $12,601.2 million or 86.5% at December
31, 1995.
SHORT-TERM BORROWINGS
Short-term borrowings at September 30, 1996 were $3,924.6 million and
included federal funds purchased of $1,959.8 million, securities sold under
agreements to repurchase of $928.7 million and other borrowed funds of $1,036.1
million. At September 30, 1996, total short-term borrowings were 15.8% of total
liabilities and stockholders' equity. This compares to total short-term
borrowings of $3,207.4 million or 15.4% of total liabilities and stockholders'
equity at December 31, 1995.
LONG-TERM DEBT
At September 30, 1996, total long-term debt was $2,180.7 million
representing an increase of $993.4 million from the December 31, 1995 level of
$1,187.3 million. During the first nine months of 1996 the Company issued
$1,280.0 million of additional long-term debt including $250.0 million in bank
notes,$150.0 million of which matures in 1998 $100.0 million that matures in
2006, and $938.3 million of Federal Home Loan Bank advances of which
substantially all mature through 2001. Acquisitions completed during 1996 added
$91.7 million in long-term debt, including $90.0 million in Federal Home Loan
Bank advances and other long-term debt of $1.7 million.
11
<PAGE> 12
During the nine month period repayments of long-term debt totaled $286.6
million.
CAPITAL
At September 30, 1996, total stockholders' equity was $1,678.2 million,
or 6.77% of total assets compared to $1,430.9 million or 6.88% at December 31,
1995. During the first nine months net income added $186.3 million to capital.
Sales of common stock through the Dividend Reinvestment Plan, the employee stock
purchase and stock option plans for $6.8 million represented the issuance of
353,935 shares. Equity added in business combinations increased equity by $125.3
million. Treasury stock purchases for 145,033 shares reduced equity by $4.0
million. Dividends declared during the period totaled $61.4 million, and the net
unrealized loss on securities available for sale decreased $5.7 million from
$9.6 million at December 31, 1995 to $15.3 million at September 30, 1996.
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.
At September 30, 1996, the Company had a risk-based capital ratio
of 11.23% connsisting of a Tier I capital ratio of 7.57% and supplemental
capital elements of 3.66%. The leverage ratio was 6.37%.
COMMITMENTS
The Company's subsidiary banks had standby letters of credit
outstanding of approximately $621.8 million at September 30, 1996 and $608.8
million at December 31, 1995.
The Company's subsidiary banks had outstanding commitments to extend
credit of approximately $6,028.5 million at September 30, 1996 and $4,715.9
million at December 31, 1995.
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
$1,155.5 million, at September 30, 1996 and $1,209.0 million at December 31,
1995. 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
12
<PAGE> 13
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.
At September 30, 1996, the contractual maturities of Swaps were as follows:
<TABLE>
<CAPTION>
Notional
In Millions Amount Expiration Liabilities Hedged
- ----------- ------ ---------- ------------------
<S> <C> <C> <C>
175 1996 Deposit liabilities
50 1997 Deposit liabilities
25 1998 Deposit liabilities
100 2001 Long-term debt
100 2003 Long-term debt
25 2003 Deposit liabilities
200 2004 Long-term debt
150 2005 Long-term debt
50 2006 Deposit liabilities
25 2008 Deposit liabilities
$900
</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 September
30, 1996 and December 31, 1995, the remaining deferred gain related to such
termination was $1.1 million and $2.2 million, respectively. The effect of the
amortization of the deferred gain reduces interest expense by approximately $1.6
million in 1996 and $0.6 million in 1997.
13
<PAGE> 14
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 corporations 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 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 and 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
resolutions of these proceedings will not have a material adverse 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 September 30, 1996 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: November 14, 1996 /s/ Wallace D. Malone, Jr.
---------------------------------------
Wallace D. Malone, Jr.
Chairman and Chief
Executive Officer
Date: November 14, 1996 /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>
Nine Months Ended
-------------------------------
Sept. 30, 1996 Sept. 30, 1995
-------------- --------------
(in thousands) Shares EPS Shares EPS
-------------- --------------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Average shares outstanding 93,454 82,576
Common Stock equivalents 612 499
--------------- ---------------
Primary shares/EPS 94,066 $ 1.98 83,075 $ 1.75
=============== ===============
FULLY DILUTED EARNINGS PER SHARE
Average shares outstandi ng 93,454 82,576
Common Stock equivalents 644 607
--------------- ---------------
Fully diluted shares/EPS 94,098 $ 1.98 83,183 $ 1.75
=============== ===============
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SOUTHTRUST CORPORATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 833,531
<INT-BEARING-DEPOSITS> 14,725
<FED-FUNDS-SOLD> 72,512
<TRADING-ASSETS> 272,624
<INVESTMENTS-HELD-FOR-SALE> 2,873,937
<INVESTMENTS-CARRYING> 1,729,728
<INVESTMENTS-MARKET> 1,746,430
<LOANS> 18,057,759
<ALLOWANCE> 252,883
<TOTAL-ASSETS> 24,775,950
<DEPOSITS> 16,624,659
<SHORT-TERM> 3,924,628
<LIABILITIES-OTHER> 353,673
<LONG-TERM> 2,180,690
0
0
<COMMON> 241,729
<OTHER-SE> 1,436,461
<TOTAL-LIABILITIES-AND-EQUITY> 24,775,950
<INTEREST-LOAN> 1,076,672
<INTEREST-INVEST> 218,846
<INTEREST-OTHER> 16,818
<INTEREST-TOTAL> 1,312,336
<INTEREST-DEPOSIT> 473,255
<INTEREST-EXPENSE> 682,335
<INTEREST-INCOME-NET> 630,001
<LOAN-LOSSES> 62,830
<SECURITIES-GAINS> 142
<EXPENSE-OTHER> 471,732
<INCOME-PRETAX> 281,017
<INCOME-PRE-EXTRAORDINARY> 281,017
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 186,285
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.98
<YIELD-ACTUAL> 8.33
<LOANS-NON> 96,374
<LOANS-PAST> 44,827
<LOANS-TROUBLED> 2,341
<LOANS-PROBLEM> 24,683
<ALLOWANCE-OPEN> 206,638
<CHARGE-OFFS> 12,781
<RECOVERIES> 2,432
<ALLOWANCE-CLOSE> 252,883
<ALLOWANCE-DOMESTIC> 252,883
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
