<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 30,1996 Commission file number 0-3613
--------------- -----------------------------
SOUTHTRUST CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 63-0574085
- ----------------------------------- -------------------------------
(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 June 30, 1996 .
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Number of Shares
Title of Class Outstanding
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$2.50 par 95,938,440
<PAGE> 2
SOUTHTRUST CORPORATION
Consolidated Statements of Condition
(Unaudited)
<TABLE>
<CAPTION>
June 30 December 31
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(In Thousands) 1996 1995 1995
-----------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 696,369 $ 594,413 $ 773,656
Short-term investments:
Federal funds sold and securities purchased
under resale agreements 69,933 30,995 100,273
Interest-bearing deposits in other banks 19,982 18,902 18,715
Assets held for sale 238,774 199,895 237,139
----------------------------------------
Total short-term investments 328,689 249,792 356,127
Securities available for sale 3,008,042 2,065,173 2,614,803
Securities held for investment (Fair value of $1,601,210 at
June 30, 1996 and $2,017,381 and $1,619,050 at
June 30, 1995 and December 31, 1995, respectivley) 1,590,714 1,997,781 1,585,562
Loans 17,212,410 13,496,910 14,757,093
Less:
Unearned income 113,485 98,595 101,931
Allowance for loan losses 240,405 186,150 206,638
----------------------------------------
Net loans 16,858,520 13,212,165 14,448,524
Premises and equipment, net 476,699 407,330 433,527
Due from customers on acceptances 22,628 29,476 13,244
Other assets 633,021 523,355 561,581
----------------------------------------
TOTAL ASSETS $23,614,682 $19,079,485 $20,787,024
========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest-bearing $13,626,213 $11,533,929 $12,303,089
Other 2,444,192 2,279,748 2,271,988
----------------------------------------
Total deposits 16,070,405 13,813,677 14,575,077
Federal funds purchased and securities sold
under agreements to repurchase 2,909,435 2,260,944 2,635,556
Other short-term borrowings 1,012,557 598,141 571,871
Bank acceptances outstanding 22,628 29,476 13,244
Other liabilities 335,770 229,862 373,094
Long-term debt 1,640,361 889,858 1,187,312
----------------------------------------
Total liabilities 21,991,156 17,821,958 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; 96,573,719 shares issued
at June 30, 1996 and 83,950,192 and 88,398,198 at
June 30, 1995 and December 31, 1995, respectively 241,434 209,875 220,996
Capital surplus 406,550 253,137 340,608
Retained earnings 1,008,007 815,246 885,129
Unrealized loss on securities available for sale (22,393) (14,722) (9,635)
Treasury stock at cost:
635,279 shares at June 30, 1996 and 485,934 and 494,515
shares at June 30, 1995 and December 31, 1995, respectively (10,072) (6,009) (6,228)
----------------------------------------
Total stockholders' equity 1,623,526 1,257,527 1,430,870
----------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $23,614,682 $19,079,485 $20,787,024
========================================
</TABLE>
See Notes to Consolidated Financial Statements
-2-
<PAGE> 3
SOUTHTRUST CORPORATION
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June June
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(In thousands, except per share data) 1996 1995 1996 1995
------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $359,997 $294,210 $691,190 $568,033
Interest on securities:
Taxable 24,573 24,572 46,681 45,587
Non-taxable 4,054 5,215 8,598 10,831
----------------------------------------------
Total interest on investment securities 28,627 29,787 55,279 56,418
Interest on securities available for sale 46,553 35,287 87,361 71,706
Interest on short-term investments 5,468 3,128 10,923 5,857
----------------------------------------------
Total interest income 440,645 362,412 844,753 702,014
----------------------------------------------
INTEREST EXPENSE
Interest on deposits 159,483 141,397 309,263 267,080
Interest on short-term borrowings 47,277 42,173 91,571 83,162
Interest on long-term debt 20,896 11,547 39,368 21,883
----------------------------------------------
Total interest expense 227,656 195,117 440,202 372,125
----------------------------------------------
Net interest income 212,989 167,295 404,551 329,889
PROVISION FOR LOAN LOSSES 20,467 13,555 40,925 26,097
----------------------------------------------
Net interest income after
provision for loan losses 192,522 153,740 363,626 303,792
NON-INTEREST INCOME
Service charges on deposit accounts 26,751 23,018 50,780 45,554
Mortgage banking operations 11,510 7,524 22,190 14,114
Bank card fees 5,611 4,676 10,981 9,071
Trust fees 5,318 4,698 10,506 9,311
Other fees 8,883 8,967 18,466 16,261
Securities gains, net (6) 45 56 140
Other 3,185 2,035 12,089 4,454
----------------------------------------------
Total non-interest income 61,252 50,963 125,068 98,905
----------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 81,512 69,605 159,596 138,403
Net occupancy 12,370 10,402 24,330 21,064
Equipment 8,888 7,700 17,249 14,948
Other 53,404 44,039 101,304 84,286
----------------------------------------------
Total non-interest expense 156,174 131,746 302,479 258,701
----------------------------------------------
Income before income taxes 97,600 72,957 186,215 143,996
INCOME TAX EXPENSE 34,477 24,928 65,651 49,127
----------------------------------------------
NET INCOME $ 63,123 $ 48,029 $120,564 $ 94,869
==============================================
Average number of shares outstanding (000's) 95,742 82,809 92,748 82,480
Net income per share $0.66 $0.58 $1.30 $1.15
Dividends declared per share $0.22 $0.20 $0.44 $0.40
</TABLE>
See Notes to Consolidated Financial Statements
-3-
<PAGE> 4
SouthTrust Corporation
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-----------------------
(In Thousands) 1996 1995
-----------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 120,564 $ 94,869
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision (credit) for:
Loan losses 40,925 26,097
Depreciation of premises and equipment 15,519 13,081
Amortization of intangibles 11,923 9,748
Amortization of security premium 1,475 496
Accretion of security discount (1,901) (2,297)
Deferred income tax 12,449 (37)
Net realized and unrealized gain on assets held for sale (12,395) (3,144)
Net securities (gains) and losses (56) (141)
Origination and purchase of loans held for sale (1,093,535) (446,255)
Proceeds of loans held for sale 1,114,630 406,908
Net (increase) decrease in trading securities 7,308 7,125
Net (increase) decrease in other assets (59,834) (7,396)
Net increase (decrease) in other liabilities (73,741) 27,615
-----------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 83,331 126,669
INVESTING ACTIVITIES
Proceeds from maturities of:
Investment securities 719,407 189,724
Securities available for sale 42,022 290,877
Proceeds from sales of:
Investment securities 0 0
Securities available for sale 106,202 102,944
Purchases of:
Investment securities (567,294) (473,125)
Securities available for sale (547,033) (130,628)
Premises and equipment (39,676) (50,214)
Net increase (decrease) in:
Short-term investments 58,085 6,092
Loans (1,322,256) (1,153,167)
Purchase of subsidiaries, net of cash acquired 28,997 238,753
-----------------------
NET CASH USED IN INVESTING ACTIVITIES (1,521,546) (978,744)
FINANCING ACTIVITIES
Proceeds from issuance of:
Common Stock 4,574 3,617
Long-term debt 438,259 256,000
Payments for:
Long-term debt (76,954) (6,859)
Repurchase of Common Stock (3,844) (147)
Cash Dividends (19,392) (32,278)
Net increase (decrease) in:
Deposits 343,782 548,052
Short-term borrowings 674,503 27,669
-----------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,360,928 796,054
-----------------------
DECREASE IN CASH AND DUE FROM BANKS (77,287) (56,021)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 773,656 650,433
-----------------------
CASH AND DUE FROM BANKS AT END OF YEAR $ 696,369 $ 594,412
=======================
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 441,006 $ 341,860
Income taxes 78,504 54,408
Non-cash transactions:
Assets acquired in business combinations 1,432,603 494,273
Liabilities acquired in business combinations 1,308,385 472,095
Loans transferred to Other Real Estate 10,515 10,403
Loans securitized into mortgage-backed securities 507,491 113,380
</TABLE>
See Notes to Consolidated Financial Statements
-4-
<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 six month periods
ended June 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 JUNE 30,1996
(Unaudited)
EARNINGS SUMMARY
Net income for the second quarter of 1996 was $63.1 million, an increase
of $15.1 million or 31% from the second quarter 1995 net income of $48.0
million. For the six months ended June 30, 1996 net income was $120.6 million,
an increase of 27% from the first six months of 1995 level of $94.9 million.
Net income per share for the second quarter was $0.66 in 1996 and $0.58 in
1995, an increase of 14%. On a year-to-date basis, net income per share was
$1.30 at June 30, 1996, up 13% from the comparable period in 1995. Net income
for the first six months of 1996 resulted in returns on average total assets
and average stockholders' equity of 1.10% and 15.88%, 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 second quarter of 1996 was $216.0 million, up
$45.0 million or 26% from the 1995 second quarter level of $171.0 million. On
a year-to-date basis net interest income increased $73.4 million or 22% to
$410.8 million. The fully-taxable equivalent net interest margins were 4.03%
for the quarter and 4.01% for the six months ended June 30, 1996, respectively.
Total interest income increased to $443.6 million for the quarter, as the
average level of interest earning assets increased 25% to $21,496.1 million,
and the fully taxable equivalent yield on earning assets decreased 23 basis
points to 8.29% from the 1995 yield of 8.52%. For the first six months of 1996,
total interest income increased $141.5 million or 20% to $851.0 million as the
average balance of interest-earning assets increased 22% to $20,573.4 million
and the yield on interest-earning assets decreased 16 basis points to 8.31 %.
Total interest expense increased $32.5 million or 17% to $227.7 million
for the second quarter of 1996. The increase reflects an increase in the level
of average interest-bearing liabilities of 24% to $18,733.8 million for the
quarter. The average rate paid on interest-bearing liabilities decreased 30
basis points to 4.89% for the second quarter from 5.19% in the second quarter
of 1995. For the six months ended June 30, 1996 total interest expense
increased $68.1 million or 18% to $440.2 million as the average balance of
interest-bearing liabilities increased 21% to $17,912.2 million and the average
rate paid decreased 14 basis points to 4.94%.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the second quarter of 1996 was $20.5
million, reflecting an increase of $6.9 million from the 1995 second quarter
level of $13.6 million. On a year-to-date basis the provision for loan losses
was $40.9 million reflecting an increase of $14.8 million or 57% from the first
six months of 1995. For the quarter, net charge-offs were $13.4 million
bringing the total for the year to $24.8 million. Total net charge-offs of
loans amounted to .33% of average net loans on an annualized basis for the
1996 second quarter and .32% for the six month period compared to .25% for the
second quarter of 1995 and .23% for the first six 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 $10.3 million or 20% to $61.3 million
for the second quarter of 1996. For the six months ended June 30, 1996, total
non-interest income increased 26% to $125.1 million. Service charges on
deposit accounts increased $3.7 million or 16% to $26.8 million for the
quarter and increased $5.2 million or 11% to $50.8 million for the six month
period. These increases were due primarily to an increase in the number of
deposit accounts during the periods. Mortgage banking fees increased $4.0
million or 53% to $11.5 million for the quarter and $8.1 million or 57% to
$22.2 million for the six months ended June 30, 1996. The increases in mortgage
banking income are due to increased demand for new mortgage loans, higher
servicing income due in part to the Company's first quarter 1996 acquisition of
Bankers First Corporation, and the adoption of Statement of Financial
Accounting Standards #122 ("SFAS #122"), "Accounting
<PAGE> 7
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 $0.9 million or 20% to $5.6
million for the quarter, and $1.9 million or 21% for the six month period. Trust
fees increased $0.6 million or 13% to $5.3 million for the second quarter of
1996 and $1.2 million or 13% for the first six months of 1996. Other fee income
decreased $0.1 million or 1% to $8.9 million for the quarter and increased $2.2
million or 14% to $18.5 million for the six months ended June 30, 1996. Net
securities transactions were a loss of $6,000 for the second quarter and a net
gain of $56,000 for the first six months of 1996, compared to securities gains
of $45,000 and $141,000 for the second quarter and first six months of 1995,
respectively. All other non-interest income increased $1.1 million to $3.2
million for the second quarter and $7.6 million or 171% to $12.1 million for
the six 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 $156.2 million, reflecting
an increase of $24.4 million or 19% from the second quarter 1995 level. For the
six months ended June 30, 1996 non-interest expense totaled $302.5 million
reflecting an increase of $43.8 million or 17% from the comparable period in
1995.
The ratio of non-interest expense to average total assets was 2.73% for
the second quarter of 1996 and 2.76% for the six month period compared to 2.85%
and 2.87% for the second quarter and six month period 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 $11.9 million or
17% to $81.5 million for the second quarter 1996. On a year-to-date basis
salaries and employee benefits increased $21.2 million or 15% to $159.6
million. Contributing to these increases was the increase in the number of full
time equivalent employees which increased approximately 4% from June 30, 1995
to approximately 8,200 at June 30, 1996. Net occupancy expense increased $2.0
million or 19% to $12.4 million for the quarter and increased $3.3 million or
16% to $24.3 million for the six-month period primarily as a result of the
growth in the number of banking offices to 493 in 1996 from 437 at June 30,
1995. Equipment expense increased $1.2 million or 15% to $8.9 million for the
quarter and $2.3 million or 15% to $17.2 million for the six months ended June
30, 1996. Other non-interest expense totaled $53.4 million for the quarter and
$101.3 million for the six months ended June 30, 1996 reflecting increases of
21% and 20%, respectively over the comparable periods in 1995. There were no
other significant non-recurring non-interest expense items recorded in 1996 or
1995.
Income tax expense for the second quarter of 1996 was $34.5 million for an
effective tax rate of 35.3% compared to $24.9 million or an effective rate of
34.2% in the second quarter of 1995. For the six months ended June 30,
<PAGE> 8
1996 income tax expense was $65.7 million for an effective tax rate of 35.3%
compared to tax expense or $49.1 million and an effective rate of 34.1% during
the first six months of 1995. The statutory federal income tax rate was 35% in
1996 and 1995.
SUMMARY OF FINANCIAL CONDITION
Total assets at June 30, 1996 were $23.6 billion, representing an
increase of $4.5 billion or 24% from June 30, 1995. At December 31, 1995,
total assets were $20.8 billion. Average total assets for the first six months
of 1996 were $22.1 billion compared to $18.2 billion for the comparable period
in 1995.
LOANS
Loans, net of unearned income at June 30, 1996 totaled $17,098.9 million
compared to $14,655.2 million at December 31, 1995, an increase of $2,443.7
million or 17%. Of the total increase, $1,143.9 million were obtained in the
acquisitions of other financial institutions consummated during the first six
months of 1996.
Commercial real estate mortgage loans increased $439.0 million from
December 31, 1995 to $2,703.7 million, or 15.7% of total loans. During the
first six months of 1996 commercial real estate mortgage loans totaling $216.0
million were obtained through acquisitions. This category represents the
Company's largest credit concentration. Residential real estate mortgage loans
at June 30, 1996 were $4,063.7 million or 23.6% of total loans compared to
$3,221.3 million or 21.8% at December 31, 1995. Of the total increase of $842.4
million during the six month period, $680.2 million was the result of
acquisitions. Real estate construction loans were $1,524.3 million or 8.9% 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 $60.1 million.
Commercial, financial and agricultural loans at June 30, 1996 were
$6,228.6 million or 36.2% 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
$61.1 million in loans obtained through acquisitions. This segment is widely
diversified and there were no significant industry concentrations.
Loans to individuals at June 30, 1996 totaled $2,692.1 million or 15.6% 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 $130.2 million.
Total unearned income at June 30, 1996 was $113.5 million compared to
$101.9 million at December 31, 1995.
NON-PERFORMING ASSETS
Non-performing assets at June 30, 1996 were $139.1 million or .81% of net
loans and other real estate owned, representing an increase of $17.0 million
from the December 31, 1995 level of $122.1 million. Non-performing
<PAGE> 9
assets obtained through acquisitions during the period totaled $0.5 million.
Included in non-performing assets at June 30, 1996 were $90.4 million of loans
on non-accrual status, other real estate owned totaling $38.2 million, other
repossessed assets of $7.8 million, and $2.7 million of restructured loans.
Loans 90 days past due and accruing were $35.0 million at June 30, 1996
compared to $36.3 million at December 31, 1995.
As of June 30, 1996, the Company had loans of approximately $27.3 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, 1996 was $240.4 million or 1.41%
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 six months ended June 30, 1996 totaled $24.8
million or 0.32% of average net loans on an annualized basis. The provision for
loan losses during the six months added $40.9 million to the allowance for loan
losses. The allowance for loan losses at acquisition date on acquired financial
institutions totaled $17.7 million.
INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE
At June 30, 1996, total securities were $4,598.8 million. Investment
securities amounted to $1,590.7 million and securities classified as available
for sale amounted to $3,008.1 million. Investment securities are carried at
amortized cost and securities available for sale are carried at fair value.
Investment securities decreased 9% from the year-end 1995 level to
$1,590.7 million; and included U.S. Treasury securities of $8.8 million, U.S.
Government agency securities of $998.1 million, Collateralized Mortgage
Obligations("CMOs") and other mortgage-backed securities ("MBS") of $293.2,
State, County and Municipal securities of $232.1 million and other securities
of $58.5 million.
Securities available for sale included U.S. Treasury securities of $370.1
million, U.S. Government agency securities of $988.9 million, CMOs and other
MBS of $1,464.5 million, State, County and Municipal securities of
$10.1 million and other securities of $174.5 million.
At June 30, 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.
<PAGE> 10
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 June 30, 1996, the fair value of investment securities exceeded the
book value by $10.5 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 $35.8 million, resulting in an after-tax
adjustment decreasing stockholders' equity by $22.4 million. This unrealized
loss, which Management believes is temporary, compares to a net of tax
unrealized loss of $9.9 million at December 31, 1995.
SHORT-TERM INVESTMENTS
Short-term investments at June 30, 1996 totaled $328.7 million, reflecting
a decrease of $27.4 million from the December 31, 1995 level of $356.1 million.
At June 30, 1996, short-term investments consisted of $16.2 million in federal
funds sold, $53.7 million in securities purchased under resale agreements,
$20.0 million in time deposits with other banks, and $238.8 million in assets
held for sale. Assets held for sale consisted of $225.8 million in mortgage
loans in the process of being securitized and sold to second party investors
and $13.0 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 June 30, 1996 were $1,132.3 million compared to $1,008.4
million at December 31, 1995. At June 30, 1996, other assets included $476.7
million in premises and equipment, due from customers on acceptances of $22.6
million, accrued interest receivable of $171.1 million, other accounts
receivable of $65.7 million, other real estate owned and other repossessed
assets totaling $46.0 million, mortgage servicing rights of $25.3 million,
other intangible assets of $173.9 million and other non-earning assets of
$151.0 million.
Cash and due from banks was $696.4 million at June 30, 1996, a decrease of
$77.3 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
June 30, 1996 were $16,070.4 million up $1,495.3 million or 10% from the
December 31, 1995 level of $14,575.1 million. During the first six months of
1996, acquisitions of other financial institutions added $1,151.5 million of
deposits. At June 30, 1996, total deposits included interest-bearing deposits
<PAGE> 11
of $13,626.2 million and other deposits of $2,444.2 million.
Core deposits, defined as demand deposits and time deposits less than
$100,000, totaled $13,910.0 million or 86.6% of total deposits at June 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 June 30, 1996 were $3,922.0 million and included
federal funds purchased of $2,015.2 million, securities sold under agreements
to repurchase of $894.2 million and other borrowed funds of $1,012.6 million.
At June 30, 1996, total short-term borrowings were 16.6% 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 June 30, 1996, total long-term debt was $1,640.4 million representing
an increase of $453.1 million from the December 31, 1995 level of $1,187.3
million. During the first six months of 1996 the Company issued $530.0 million
of additional long-term debt including $100.0 million in bank notes which
matures in 2006, $338.7 million of Federal Home Loan Bank advances of which
substantially all mature through 2001. Acquisitions completed during the second
quarter added $91.3 million in long-term debt, including $90.0 million in
Federal Home Loan Bank advances and other long-term debt of $1.3
million. During the six month period repayments of long-term debt totaled $76.9
million.
CAPITAL
At June 30, 1996, total stockholders' equity was $1,623.5 million, or
6.88% of total assets compared to $1,430.9 million or 6.88% at December 31,
1995. During the first six months net income added $120.6 million to capital.
Sales of common stock through the Dividend Reinvestment Plan, the employee
stock purchase and stock option plans for $4.5 million represented the issuance
of 243,076 shares. Equity added in business combinations increased equity by
$124.4 million. Treasury stock purchases for 140,764 shares reduced equity by
$3.8 million. Dividends declared during the period totaled $40.3 million, and
the net unrealized loss on securities available for sale increased $3.2 million
from $9.6 million at December 31, 1995 to $12.8 million at June 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 June 30, 1996, the Company had an estimated total risk-based capital
ratio of 11.77%, consisting of a Tier I capital ratio of 7.93% and supplemental
capital elements of 3.84%. The leverage ratio was 6.43%.
<PAGE> 12
COMMITMENTS
The Company's subsidiary banks had standby letters of credit outstanding
of approximately $594.1 million at June 30, 1996 and $608.8 million at December
31, 1995.
The Company's subsidiary banks had outstanding commitments to extend
credit of approximately $5,604.4 million at June 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
$1,167.6 million, at June 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 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 June 30, 1996, the contractual maturities of Swaps were as follows:
<TABLE>
<CAPTION>
National
In Millions Amount Expiration Liabilities Hedged
- ----------- ------- ---------- -------------------
<S> <C> <C> <C>
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
----
$775
</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, 1996 and December 31, 1995, the remaining deferred gain related to
such termination was $1.4 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 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
<PAGE> 14
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 June 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: August 12, 1996 /s/ Wallace D. Malone, Jr.
---------------- ----------------------------
Wallace D. Malone, Jr.
Chairman and Chief
Executive Officer
Date: August 12, 1996 /s/ Aubrey D. Barnard
---------------- ----------------------------
Aubrey D. Barnard
Secretary, Treasurer and
Controller
<PAGE> 1
EXHIBIT NO. 11 Other Information
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
June 30, 1996 June 30, 1995
-------------------------------
(in thousands) Shares EPS Shares EPS
-------- ----- ------- ------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Average shares outstanding 92,163 82,028
Common Stock equivalents 585 452
------ ------
Primary shares/EPS 92,748 $ 1.30 82,480 $1.15
====== ====== ====== =====
FULLY DILUTED EARNINGS PER SHARE
Average shares outstanding 92,163 82,028
Common Stock equivalents 617 578
------ ------ ------
Fully diluted shares/EPS 92,780 $ 1.30 82,606 $ 1.15
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SOUTHTRUST CORP. FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 696,369
<INT-BEARING-DEPOSITS> 19,982
<FED-FUNDS-SOLD> 69,932
<TRADING-ASSETS> 238,774
<INVESTMENTS-HELD-FOR-SALE> 3,008,042
<INVESTMENTS-CARRYING> 1,590,714
<INVESTMENTS-MARKET> 1,601,210
<LOANS> 17,098,925
<ALLOWANCE> 240,405
<TOTAL-ASSETS> 23,614,682
<DEPOSITS> 16,070,405
<SHORT-TERM> 3,921,991
<LIABILITIES-OTHER> 335,771
<LONG-TERM> 1,640,361
0
0
<COMMON> 241,434
<OTHER-SE> 1,382,092
<TOTAL-LIABILITIES-AND-EQUITY> 23,614,682
<INTEREST-LOAN> 691,190
<INTEREST-INVEST> 142,640
<INTEREST-OTHER> 10,923
<INTEREST-TOTAL> 844,753
<INTEREST-DEPOSIT> 309,263
<INTEREST-EXPENSE> 440,202
<INTEREST-INCOME-NET> 404,551
<LOAN-LOSSES> 40,925
<SECURITIES-GAINS> 56
<EXPENSE-OTHER> 302,479
<INCOME-PRETAX> 186,215
<INCOME-PRE-EXTRAORDINARY> 186,215
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 120,564
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.30
<YIELD-ACTUAL> 8.29
<LOANS-NON> 90,372
<LOANS-PAST> 34,895
<LOANS-TROUBLED> 2,752
<LOANS-PROBLEM> 27,300
<ALLOWANCE-OPEN> 206,638
<CHARGE-OFFS> 30,884
<RECOVERIES> 6,052
<ALLOWANCE-CLOSE> 240,405
<ALLOWANCE-DOMESTIC> 240,405
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
