<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: MARCH 31, 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
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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 31,1996.
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Number of Shares
Title of Class Outstanding
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$2.50 par 94,970,009
<PAGE> 2
SOUTHTRUST CORPORATION
Consolidated Statements of Condition
(Unaudited)
<TABLE>
<CAPTION>
March 31 December 31
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(In Thousands) 1996 1995 1995
ASSETS -------------------------------------------
<S> <C> <C> <C>
Cash and due from banks $ 658,638 $ 533,760 $ 773,656
Short-term investments:
Federal funds sold and securities purchased
under resale agreements 56,559 8,900 100,273
Interest-bearing deposits in other banks 4,831 21,310 18,715
Assets held for sale 233,349 132,629 237,139
----------- ----------- -----------
Total short-term investments 294,739 162,839 356,127
Securities available for sale 2,853,766 2,259,844 2,614,803
Securities held for investment (Fair value of $1,720,002 at
March 31, 1996 and $1,633,826 and $1,619,050 at
March 31, 1995 and December 31, 1995, respectivley) 1,747,220 1,646,287 1,585,562
Loans 16,303,459 12,693,638 14,757,093
Less:
Unearned income 103,303 94,899 101,931
Allowance for loan losses 230,913 178,878 206,638
----------- ----------- -----------
Net loans 15,969,243 12,419,861 14,448,524
Premises and equipment, net 457,161 382,882 433,527
Due from customers on acceptances 13,528 37,891 13,244
Other assets 630,865 511,261 561,581
----------- ----------- -----------
TOTAL ASSETS $22,625,160 $17,954,625 $20,787,024
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest-bearing $13,579,680 $11,467,433 $12,303,089
Other 2,284,413 1,943,776 2,271,988
----------- ----------- -----------
Total deposits 15,864,093 13,411,209 14,575,077
Federal funds purchased and securities sold
under agreements to repurchase 2,543,889 1,882,977 2,635,556
Other short-term borrowings 863,455 596,769 571,871
Bank acceptances outstanding 13,528 37,891 13,244
Other liabilities 357,816 200,420 373,094
Long-term debt 1,405,411 639,502 1,187,312
----------- ----------- -----------
Total liabilities 21,048,192 16,768,768 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:
200,000,000 shares authorized; 95,486,470 shares issued
at March 31, 1996 and 82,435,697 and 88,398,198 at
March 31, 1995 and December 31, 1995, respectively 238,716 206,089 220,996
Capital surplus 392,973 239,752 340,608
Retained earnings 965,591 780,311 885,129
Unrealized loss on securities available for sale (13,516) (34,305) (9,635)
Treasury stock at cost:
516,461 shares at March 31, 1996 and 485,051 and 494,515
shares at March 31, 1995 and December 31, 1995, respectively (6,796) (5,990) (6,228)
----------- ----------- -----------
Total stockholders' equity 1,576,968 1,185,857 1,430,870
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $22,625,160 $17,954,625 $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
March 31
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(In thousands, except per share data) 1996 1995
-----------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $331,193 $273,823
Interest on securities:
Taxable 22,108 21,015
Non-taxable 4,544 5,616
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Total interest on investment securities 26,652 26,631
Interest on securities available for sale 40,808 36,419
Interest on short-term investments 5,455 2,729
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Total interest income 404,108 339,602
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INTEREST EXPENSE
Interest on deposits 149,780 125,683
Interest on short-term borrowings 44,294 40,989
Interest on long-term debt 18,472 10,336
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Total interest expense 212,546 177,008
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Net interest income 191,562 162,594
PROVISION FOR LOAN LOSSES 20,458 12,542
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Net interest income after
provision for loan losses 171,104 150,052
NON-INTEREST INCOME
Service charges on deposit accounts 24,029 22,536
Mortgage banking operations 10,680 6,590
Bank card fees 5,370 4,395
Trust fees 5,188 4,613
Other fees 9,583 7,294
Securities gains, net 62 95
Other 8,904 2,419
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Total non-interest income 63,816 47,942
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NON-INTEREST EXPENSE
Salaries and employee benefits 78,084 68,798
Net occupancy 11,960 10,662
Equipment 8,361 7,248
Other 47,900 40,247
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Total non-interest expense 146,305 126,955
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Income before income taxes 88,615 71,039
INCOME TAX EXPENSE 31,174 24,199
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NET INCOME $ 57,441 $ 46,840
========================
Average number of shares outstanding (000's) 89,754 82,148
Net income per share $ 0.64 $ 0.57
Dividends declared per share $ 0.22 $ 0.20
</TABLE>
See Notes to Consolidated Financial Statements
-3-
<PAGE> 4
SouthTrust Corporation
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
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1996 1995
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(In Thousands)
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 57,441 $ 46,840
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision (credit) for:
Loan losses 20,458 12,542
Depreciation of premises and equipment 7,479 6,536
Amortization of intangibles 5,717 4,658
Amortization of security premium 710 167
Accretion of security discount (985) (1,361)
Deferred income tax 3,386 (1,312)
Net realized and unrealized gain on assets held for sale (9,101) (1,265)
Net securities (gains) and losses (62) (95)
Origination and purchase of loans held for sale (356,858) (168,842)
Proceeds of loans held for sale 380,335 192,558
Net (increase) decrease in trading securities 7,057 9,447
Net (increase) decrease in other assets (41,817) (762)
Net increase (decrease) in other liabilities (38,023) 11,731
------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 35,737 110,842
INVESTING ACTIVITIES
Proceeds from maturities of:
Investment securities 352,606 25,962
Securities available for sale 3,484 87,250
Proceeds from sales of:
Investment securities 0 0
Securities available for sale 2,328 68,807
Purchases of:
Investment securities (377,501) 0
Securities available for sale (248,834) (110,236)
Premises and equipment (13,852) (24,664)
Net increase (decrease) in:
Short-term investments 72,881 6,309
Loans (547,307) (450,721)
Purchase of subsidiaries, net of cash acquired 25,824 230,013
------------------------
NET CASH USED IN INVESTING ACTIVITIES (730,371) (167,280)
FINANCING ACTIVITIES
Proceeds from issuance of:
Common Stock 2,804 1,984
Long-term debt 176,973 15,000
Payments for:
Long-term debt (50,619) (16,214)
Repurchase of Common Stock (568) (127)
Cash Dividends (19,432) (17,473)
Net increase (decrease) in:
Deposits 310,604 304,860
Short-term borrowings 159,854 (348,265)
------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 579,616 (60,235)
------------------------
DECREASE IN CASH AND DUE FROM BANKS (115,018) (116,673)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 773,656 650,433
------------------------
CASH AND DUE FROM BANKS AT END OF YEAR $ 658,638 $533,760
========================
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 210,148 $159,771
Income taxes 3,200 2,288
Non-cash transactions:
Assets acquired in business combinations 1,244,367 309,164
Liabilities acquired in business combinations 1,133,313 306,985
Loans transferred to Other Real Estate 1,681 1,676
Loans securitized into mortgage-backed securities 171,138 45,363
</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 periods ended March 31,
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 MARCH 31,1996
(Unaudited)
EARNINGS SUMMARY
Net income for the first quarter of 1996 was $57.4 million, an increase
of $10.6 million or 23% from the first quarter 1995 net income of $46.8 million.
Net income per share for the quarter was $0.64 in 1996 and $0.57 in 1995, an
increase of 12%. Net income for the first three months of 1996 resulted in
returns on average total assets and average stockholders' equity of 1.09% and
15.74%, 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.
<PAGE> 6
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 1996 was $194.8 million, up
$28.5 million or 17% from the 1995 first quarter level of $166.3 million. Total
interest income increased to $407.3 million, as the average level of interest
earning assets increased 19% to $19,650.7 million, and the fully taxable
equivalent yield on earning assets decreased 9 basis points to 8.33% from the
1995 yield of 8.42%.
Total interest expense increased $35.5 million or 20% to $212.5 million
for the first quarter of 1996. The increase reflects an increase in the level of
average interest-bearing liabilities of 18% to $17,074.3 million for the
quarter. The average rate paid on interest-bearing liabilities increased 4 basis
points to 5.01% for the first quarter from 4.97% in the first quarter of 1995.
The taxable equivalent net interest margin for the first quarter of
1996 was 3.99% compared to 4.08% for the first quarter of 1995. The taxable
equivalent net interest spreads for the first quarter of 1996 and 1995 were
3.32% and 3.45%, 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 first quarter of 1996 was $20.5
million, reflecting an increase of $8.0 million from the 1995 first quarter
level of $12.5 million. For the quarter, net charge-offs were $11.4 million or
.31% of average net loans on an annualized basis compared to .20% in the first
quarter 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 $15.9 million or 33% to $63.8
million for the first quarter of 1996. Service charges on deposit accounts
increased $1.5 million or 7% to $24.0 million. Mortgage banking fees
increased $4.1 million or 62% to $10.7 million due to a recent decrease in rates
available on mortgages resulting in increased demand. Also contributing to the
increase from the first quarter of 1995 was the adoption of Statement of
Financial Accounting Standards #122 ("SFAS #122"), "Accounting for Mortgage
Servicing Rights", which 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 $1.0 million or 22% to $5.4 million for the
quarter. Trust fees increased $0.6 million or 12% to $5.2 million. Other fee
income increased $2.3 million or 31% to $9.6 million. Net securities gains were
$62,000 compared to securities gains of $95,000 in 1995. All other non-interest
income increased $6.5 million to $8.9 million for the first quarter 1996.
Included in other non-interest income during the first quarter of 1996 were
gains from 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.
<PAGE> 7
NON-INTEREST EXPENSE
Total non-interest expense for the quarter was $146.3 million, reflecting
an increase of $19.4 million or 15% from the first quarter 1995 level.
The ratio of non-interest expense to average total assets was 2.79% for
the first quarter of 1996 down from 2.90% in the first quarter of 1995. The
efficiency ratio was 56.59% for the quarter compared to 59.28% in the first
quarter of 1995.
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 $9.3 million or
14% to $78.1 million for the first quarter 1996. The number of full time
equivalent employees increased approximately 4% from March 31, 1995 to
approximately 7,900 at March 31, 1996. Net occupancy expense increased $1.3
million or 12% to $12.0 million for the quarter primarily as a result of the
growth in the number of banking offices to 479 in 1996 from 427 at March 31,
1995. Equipment expense increased $1.1 million or 15% to $8.4 million for the
quarter. Other non-interest expense totaled $47.9 million, up $7.7 million or
19% over the first quarter of 1995. There were no other significant
non-recurring non-interest expense items recorded in 1996 or 1995.
Income tax expense for the first quarter of 1996 was $31.2 million for an
effective tax rate of 35.2% compared to $24.2 million or an effective rate of
34.0% in the first quarter of 1995. 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 1996 and 1995.
SUMMARY OF FINANCIAL CONDITION
Total assets at March 31, 1996 were $22.6 billion, representing an
increase of $4.7 billion or 26% from March 31, 1995. At December 31, 1995,
total assets were $20.8 billion. Average total assets for the first three
months of 1996 were $21.1 billion compared to $17.8 billion for the first
quarter of 1995.
Average earning assets for the first quarter of 1996 were $19.7 billion,
representing an increase of 19% over the 1995 level of $16.5 billion. Average
interest-bearing liabilities through March 31, 1996 were $17.1 billion, up 18%
over the 1995 first quarter level of $14.4 billion.
LOANS
Loans, net of unearned income at March 31, 1996 totaled $16,200.2 million
compared to $14,655.2 million at December 31, 1995, an increase of $1,545.0
million. Of the total increase, $1,010.4 million were obtained in the
acquisitions of other financial institutions consummated during the first
quarter of 1996.
<PAGE> 8
Commercial real estate mortgage loans decreased $47.5 million from
December 31, 1995 to $2,217.2 million, or 13.6% of total loans. During the
quarter $181.4 million of commercial real estate mortgage loans were obtained
through acquisitions. This category represents the Company's largest credit
concentration. Residential real estate mortgage loans at March 31, 1996 were
$4,223.4 million or 25.9% of total loans compared to $3,221.3 million or 21.8%
at December 31, 1995. Of the total increase of $1,002.1 million during the
quarter, $639.7 million was the result of acquisitions. Real estate construction
loans were $1,275.7 million or 7.8% 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
$51.8 million.
Commercial, financial and agricultural loans at March 31, 1996 were
$6,331.4 million or 38.8% of total loans, compared to $5,965.9 million or 40.4%
of total loans at December 31, 1995. The increase during the quarter included
$19.7 million in loans obtained through acquisitions. This segment is widely
diversified and there were no significant industry concentrations.
Loans to individuals at March 31, 1996 totaled $2,255.8 million or
13.9% 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 quarter were $120.1 million.
Total unearned income at March 31, 1996 was $103.3 million compared
to $101.9 million at December 31, 1995.
NON-PERFORMING ASSETS
Non-performing assets at March 31, 1996 were $129.6 million or .80% of
net loans and other real estate owned, representing an increase of $7.5 million
from the December 31, 1995 level of $122.1 million. Non-performing assets
obtained through acquisitions during the quarter totaled $10.7 million.
Included in non-performing assets at March 31, 1996 were $76.6 million of loans
of non-accrual status, other real estate owned totaling $41.3 million, other
repossessed assets of $6.6 million, and $5.1 million of restructured loans.
Loans 90 days past due and accruing were $25.9 at March 31, 1996 compared to
$36.3 million at December 31, 1995.
As of March 31, 1996, the Company had loans of approximately $29.8
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, 1996 was $230.9 million or
1.43% 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 quarter ended March 31, 1996 totaled $11.4
<PAGE> 9
million or 0.31% of average net loans on an annualized basis. This compares to
net charge-offs of $6.2 million or .20% during the first quarter of 1995. Net
charge-offs for the full year of 1995 were $29.5 million or .22% of average net
loans. The provision for loan losses during the first quarter added $20.5
million to the allowance for loan losses. The allowance for loan losses at
acquisition date on acquired financial institutions totaled $15.6 million.
INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE
At March 31, 1996, total securities were $4,601.0 million. Investment
securities amounted to $1,747.2 million and securities classified as available
for sale amounted to $2,853.8 million.
Investment securities increased 10% from the year-end 1995 level to
$1,747.2 million, and included U.S. Treasury securities of $8.1 million, U.S.
Government agency securities of $1,117.5 million, Collateralized mortgage
obligations ("CMOs") and other mortgage backed securities ("MBS") of $315.4
million, State, County and Municipal securities of $237.8 million and other
securities of $68.4 million.
Securities available for sale included U.S. Treasury securities of
$381.2 million, U.S. Government agency securities of $992.4 million, CMOs and
other MBS of $1,305.2 million, State, County and Municipal securities of $10.2
million and other securities of $164.8 million.
At March 31, 1996, the Company's investment portfolio included $1,017.5
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
$412.4 million in Agency Securities with forward coupon rate increases, commonly
known as "step-ups." Substantially all of the step-ups held by the Company have
maturities through 1999. 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.
The company's investment in other structured notes and derivative
investment securities is nominal and would not have a significant effect on the
Company's net interest margin.
At March 31, 1996, the fair value of investment securities exceeded
the book value by $27.2 million, compared 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 $20.0 million, resulting in an after-tax
adjustment decreasing stockholders' equity by $13.5 million. This unrealized
loss, which Management believes is temporary, compares to a
<PAGE> 10
net of tax unrealized loss of $15.6 million at December 31, 1995.
SHORT-TERM INVESTMENTS
Short-term investments at March 31, 1996 totaled $294.7 million,
reflecting a decrease of $61.4 million from the December 31, 1995 level of
$356.1 million. At March 31, 1996, short-term investments consisted of $11.4
million in federal funds sold, $45.2 million in securities purchased under
resale agreements, $4.8 million in time deposits with other banks, and $233.3
million in assets held for sale. Assets held for sale consisted of $222.3
million in mortgage loans in the process of being securitized and sold to first
party investors and $11.0 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, 1996 were $1,101.6 million compared to
$1,008.4 million at December 31, 1995. At March 31, 1996, other assets included
$457.2 million in premises and equipment, due from customers on acceptances of
$13.5 million, accrued interest receivable of $178.0 million, other accounts
receivable of $70.7 million, other real estate owned and other repossessed
assets totaling $47.9 million, mortgage servicing rights of $28.3 million, other
intangible assets of $172.6 million and other non-earning assets of $133.4
million.
Cash and due from banks was $658.6 million at March 31, 1996, a
decrease of $115.1 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 March 31, 1996 were $15,864.1 million up $1,289.0 million or 9% from the
December 31, 1995 level of $14,575.1 million. During the first quarter of 1996,
acquisitions of other financial institutions added $978.4 million of deposits.
At March 31, 1996, total deposits included interest-bearing deposits of
$13,579.7 million and other deposits of $2,284.4 million.
Core deposits, defined as demand deposits and time deposits less than
$100,000, totaled $13,704.8 million or 86.4% of total deposits at March 31,
1996. This compares to core deposits of $12,601.2 million or 86.5% at December
31, 1995.
<PAGE> 11
SHORT-TERM BORROWINGS
Short-term borrowings at March 31, 1996 were $3,407.3 million and
included federal funds purchased of $1,553.5 million, securities sold under
agreements to repurchase of $990.4 million and other borrowed funds of $863.4
million. At March 31, 1996, total short-term borrowings were 15.1% 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 March 31, 1996, total long-term debt was $1,405.4 million
representing an increase of $218.1 million from the December 31, 1995 level of
$1,187.3 million. During the first three months of 1996 the Company issued
$200.0 million of additional long-term debt including $100.0 million in bank
notes which matures in 2006, and $100.0 million of Federal Home Loan Bank
advances which mature through 2001. Acquisitions completed during the first
quarter added $68.7 million in long-term debt, including $67.0 million in
Federal Home Loan Bank advances and other long-term debt of $1.7 million. During
the three month period repayments of long-term debt totaled $50.6 million.
CAPITAL
At March 31, 1996, total stockholders' equity was $1,577.0 million, or
6.97% of total assets compared to $1,430.9 million or 6.88% at December 31,
1995. During the first three months net income added $57.4 million to capital.
Sales of common stock through the Dividend Reinvestment Plan, the employee stock
purchase and stock option plans for $2.9 million represented the issuance of
163,874 shares. Equity added in business combinations increased equity by $109.7
million. Treasury stock purchases for 21,946 shares reduced equity by $0.6
million. Dividends declared during the period totaled $19.4 million, and the
net unrealized loss on securities available for sale increased $3.9 million from
$9.6 million at December 31, 1995 to $13.5 million at March 31, 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 March 31, 1996, the Company had an estimated total risk-based
capital ratio of 12.04%, consisting of a Tier I capital ratio of 8.00% and
supplemental capital elements of 4.04%. The leverage ratio was 6.77%.
COMMITMENTS
The Company's subsidiary banks had standby letters of credit
outstanding of approximately $633.1 million at March 31, 1996 and $608.8 million
at December 31, 1995.
The Company's subsidiary banks had outstanding commitments to extend
credit of approximately $4,848.6 million at March 31, 1996 and $4,715.9
<PAGE> 12
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 first 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
$1,166.4 million, at March 31, 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 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.
<PAGE> 13
At March 31, 1996, the contractual maturities of Swaps were as follows:
Notional
In Millions Amount Expiration Liabilities Hedged
- ----------- -------- ---------- ------------------
$ 25 1996 Deposit liabilities
175 1996 Deposit liabilities
50 1997 Deposit liabilities
100 2001 Long-term debt
100 2003 Long-term debt
200 2004 Long-term debt
150 2005 Long-term debt
----
$800
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, 1996 and December 31, 1995, the remaining deferred gain related to such
termination was $1.8 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.
CONTINGENCIES
The Company has $3.3 billion in deposits resulting from acquisitions of
savings associations or other deposits which are insured through the Savings
Association Insurance Fund ("SAIF"). The deposits continue to be assessed at
$.23 per $100 for deposit insurance coverage. The SAIF fund is undercapitalized
as a result of losses sustained during the S&L crisis during the late 1980s and
early 1990s. While failures of thrift institutions have diminished during the
past two years, the premiums charged on SAIF deposits have not adequately
recapitalized the fund, because of interest paid on debt incurred to pay
depositors of failed institutions. To adequately recapitalize the fund, various
proposals have been made to levy a one-time assessment on SAIF deposits. At the
present time, there is no pending legislation regarding this matter. Any charge
related to such an assessment would be made at the time of the enactment of the
law requiring any assessment.
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
<PAGE> 14
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.
<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, 1996 the Company filed a Form
8-K current report dated January 9, 1996 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 14, 1996 /s/ Wallace D. Malone, Jr.
----------------- ----------------------------
Wallace D. Malone, Jr.
Chairman and Chief
Executive Officer
Date: May 14, 1996 /s/ Aubrey D. Barnard
--------------- ----------------------------
Aubrey D. Barnard
Secretary, Treasurer and
Controller
<PAGE> 1
EXHIBIT NO. 11
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------
March 31, 1996 March 31, 1995
----------------------------------------------
(in thousands) Shares EPS Shares EPS
----------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Average shares outstanding 89,183 81,740
Common Stock equivalents 571 408
------ ------
Primary shares/EPS 89,754 $0.64 82,148 $0.57
====== ===== ====== =====
FULLY DILUTED EARNINGS PER SHARE
Average shares outstanding 89,183 81,740
Common Stock equivalents 616 534
------- -----
Fully diluted shares/EPS 89,799 $0.64 82,274 $0.57
======= ===== ====== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SOUTHTRUST CORPORATION FOR THE THREE MONTHS ENDED MARCH
31, 1996 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 658,638
<INT-BEARING-DEPOSITS> 4,831
<FED-FUNDS-SOLD> 56,559
<TRADING-ASSETS> 233,349
<INVESTMENTS-HELD-FOR-SALE> 2,853,766
<INVESTMENTS-CARRYING> 1,747,220
<INVESTMENTS-MARKET> 1,720,002
<LOANS> 16,200,156
<ALLOWANCE> 230,913
<TOTAL-ASSETS> 22,625,160
<DEPOSITS> 15,864,093
<SHORT-TERM> 3,407,344
<LIABILITIES-OTHER> 357,816
<LONG-TERM> 1,405,411
0
0
<COMMON> 238,716
<OTHER-SE> 1,338,252
<TOTAL-LIABILITIES-AND-EQUITY> 22,265,160
<INTEREST-LOAN> 331,193
<INTEREST-INVEST> 67,460
<INTEREST-OTHER> 5,455
<INTEREST-TOTAL> 404,108
<INTEREST-DEPOSIT> 149,780
<INTEREST-EXPENSE> 212,546
<INTEREST-INCOME-NET> 191,562
<LOAN-LOSSES> 20,458
<SECURITIES-GAINS> 62
<EXPENSE-OTHER> 146,305
<INCOME-PRETAX> 88,615
<INCOME-PRE-EXTRAORDINARY> 88,615
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,441
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.64
<YIELD-ACTUAL> 8.33
<LOANS-NON> 76,600
<LOANS-PAST> 25,900
<LOANS-TROUBLED> 5,100
<LOANS-PROBLEM> 29,800
<ALLOWANCE-OPEN> 206,638
<CHARGE-OFFS> 14,700
<RECOVERIES> 3,278
<ALLOWANCE-CLOSE> 230,913
<ALLOWANCE-DOMESTIC> 230,913
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
