<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, 1997 Commission file number 0-3613
SOUTHTRUST CORPORATION
================================================================================
(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
- --------------------------------------------------------------------------------
(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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of June 30,1997.
<TABLE>
<CAPTION>
Number of Shares
Title of Class Outstanding
-------------- -----------
<S> <C>
$2.50 par 99,713,302
</TABLE>
<PAGE> 2
SOUTHTRUST CORPORATION
Consolidated Statements of Condition
(Unaudited)
<TABLE>
<CAPTION>
June 30 December 31
--------------------------------------------
(In Thousands) 1997 1996 1996
--------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 851,012 $ 696,369 $ 903,134
Short-term investments:
Federal funds sold and securities purchased
under resale agreements 141,875 69,933 12,180
Interest-bearing deposits in other banks 19,301 19,982 4,185
Assets held for sale 319,204 238,774 209,159
--------------------------------------------
Total short-term investments 480,380 328,689 225,524
Securities available for sale 3,535,348 3,008,042 2,859,012
Securities held for investment (Fair value of $2,225,034 at
June 30, 1997 and $1,601,210 and $1,979,094 at
June 30, 1996 and December 31, 1996, respectivley) 2,205,140 1,590,714 1,956,596
Loans 21,253,182 17,212,410 19,466,650
Less:
Unearned income 147,309 113,485 135,518
Allowance for loan losses 297,696 240,405 269,863
--------------------------------------------
Net loans 20,808,177 16,858,520 19,061,269
Premises and equipment, net 560,852 476,699 510,043
Due from customers on acceptances 20,847 22,628 26,599
Other assets 731,190 633,021 681,016
--------------------------------------------
TOTAL ASSETS $ 29,192,946 $ 23,614,682 $ 26,223,193
============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest-bearing $ 16,571,692 $ 13,626,213 $ 14,725,077
Other 2,107,716 2,444,192 2,580,416
--------------------------------------------
Total deposits 18,679,408 16,070,405 17,305,493
Federal funds purchased and securities sold
under agreements to repurchase 4,234,881 2,909,435 3,205,948
Other short-term borrowings 1,091,100 1,012,557 865,053
Bank acceptances outstanding 20,847 22,628 26,599
Other liabilities 400,230 335,770 357,806
Federal Home Loan Bank advances 1,832,363 1,005,166 1,744,159
Long-term debt 982,358 635,195 983,243
--------------------------------------------
Total liabilities 27,241,187 21,991,156 24,488,301
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; 100,369,804 shares issued
at June 30, 1997 and 96,573,719 and 96,783,114 at
June 30, 1996 and December 31, 1996, respectively 250,925 241,434 241,958
Capital surplus 489,697 406,550 410,642
Retained earnings 1,211,022 1,008,007 1,100,170
Unrealized gain/(loss) on securities available for sale 10,952 (22,393) (7,520)
Treasury stock at cost:
656,502 shares at June 30, 1997 and 635,279 and 644,308
shares at June 30, 1996 and December 31, 1996, respectively (10,837) (10,072) (10,358)
--------------------------------------------
Total stockholders' equity 1,951,759 1,623,526 1,734,892
--------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 29,192,946 $ 23,614,682 $ 26,223,193
============================================
</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 30 June 30
--------------------------------------------------
(In thousands, except per share data) 1997 1996 1997 1996
--------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 454,568 $ 359,997 $ 878,238 $ 691,190
Interest on securities:
Taxable 36,552 24,573 67,429 46,681
Non-taxable 3,319 4,054 6,785 8,598
--------------------------------------------------
Total interest on investment securities 39,871 28,627 74,214 55,279
Interest on securities available for sale 57,345 46,553 105,389 87,361
Interest on short-term investments 6,402 5,468 10,995 10,923
--------------------------------------------------
Total interest income 558,186 440,645 1,068,836 844,753
--------------------------------------------------
INTEREST EXPENSE
Interest on deposits 181,386 159,483 352,427 309,263
Interest on short-term borrowings 76,325 47,277 135,378 91,571
Interest on Federal Home Loan Bank advances 23,482 11,451 44,996 20,560
Interest on long-term debt 14,968 9,445 29,454 18,808
--------------------------------------------------
Total interest expense 296,161 227,656 562,255 440,202
--------------------------------------------------
Net interest income 262,025 212,989 506,581 404,551
PROVISION FOR LOAN LOSSES 26,502 20,467 48,877 40,925
--------------------------------------------------
Net interest income after
provision for loan losses 235,523 192,522 457,704 363,626
NON-INTEREST INCOME
Service charges on deposit accounts 30,930 26,751 61,634 50,780
Mortgage banking operations 6,639 11,510 12,861 22,190
Bank card fees 5,958 5,611 11,607 10,981
Trust fees 5,912 5,318 11,733 10,506
Other fees 9,807 8,883 20,121 18,466
Securities gains/(losses), net 304 (6) 398 56
Other 4,496 3,185 7,670 12,089
--------------------------------------------------
Total non-interest income 64,046 61,252 126,024 125,068
--------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 97,887 81,512 192,863 159,596
Net occupancy 14,217 12,370 28,378 24,330
Equipment 10,731 8,888 21,193 17,249
Other 59,323 53,404 113,765 101,304
--------------------------------------------------
Total non-interest expense 182,158 156,174 356,199 302,479
--------------------------------------------------
Income before income taxes 117,411 97,600 227,529 186,215
INCOME TAX EXPENSE 42,044 34,477 81,262 65,651
--------------------------------------------------
NET INCOME $ 75,367 $ 63,123 $ 146,267 $ 120,564
==================================================
Average number of shares outstanding (000's) 100,428 95,742 99,460 92,748
Net income per share $ 0.75 $ 0.66 $ 1.47 $ 1.30
Dividends declared per share $ 0.25 $ 0.22 $ 0.50 $ 0.44
</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) 1997 1996
--------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 146,267 $ 120,564
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision (credit) for:
Loan losses 48,877 40,925
Depreciation of premises and equipment 18,162 15,519
Amortization of intangibles 13,153 11,923
Amortization of security premium 306 1,475
Accretion of security discount (1,453) (1,901)
Deferred income tax 640 12,449
Net realized and unrealized (gain) on assets held for sale (8,378) (12,395)
Net securities (gains) (398) (56)
Origination and purchase of loans held for sale (1,284,766) (1,093,535)
Proceeds of loans held for sale 1,190,323 1,114,630
Net (increase) decrease in trading securities (7,225) 7,308
Net (increase) decrease in other assets 42,902 (59,834)
Net increase (decrease) in other liabilities 15,888 (73,741)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 174,298 83,331
INVESTING ACTIVITIES
Proceeds from maturities of:
Investment securities 405,510 719,407
Securities available for sale 92,331 42,022
Proceeds from sales of:
Investment securities 4,799 0
Securities available for sale 107,420 106,202
Purchases of:
Investment securities (643,417) (567,294)
Securities available for sale (856,717) (547,033)
Premises and equipment (55,681) (39,676)
Net (increase) decrease in:
Short-term investments (125,615) 58,085
Loans (1,533,962) (1,322,256)
Purchase of subsidiaries, net of cash acquired 820,019 28,997
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,785,313) (1,521,546)
FINANCING ACTIVITIES
Proceeds from issuance of:
Common Stock 78,866 4,574
Federal Home Loan Bank advances 1,706,750 358,286
Long-term debt 0 79,973
Payments for:
Federal Home Loan Bank advances (1,619,546) (74,001)
Long-term debt (886) (2,953)
Repurchase of Common Stock (478) (3,844)
Cash Dividends (31,733) (19,392)
Net increase in:
Deposits 171,498 343,782
Short-term borrowings 1,254,422 674,503
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,558,893 1,360,928
----------- -----------
DECREASE IN CASH AND DUE FROM BANKS (52,122) (77,287)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 903,134 773,656
----------- -----------
CASH AND DUE FROM BANKS AT END OF YEAR $ 851,012 $ 696,369
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 575,438 $ 441,003
Income taxes 70,527 78,504
Non-cash transactions:
Assets acquired in business combinations 1,230,314 1,432,603
Liabilities acquired in business combinations 1,206,789 1,308,385
Loans transferred to Other Real Estate 18,135 10,515
Loans securitized into mortgage-backed securities 278,296 507,491
</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 six month periods ended June 30, 1997
and 1996. Results of operations for the interim 1997 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, 1996. The accounting policies employed are
the same as those shown in Note A to the Consolidated Financial Statements on
Form 10-K.
Note B - SFAS No.128, Earnings per Share
In February 1997 the FASB issued SFAS No.128, Earnings per Share. This
statement is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods; earlier adoption is not permitted.
This statement requires restatement for all prior-period earnings per share
(EPS) data presented.
SFAS No.128 simplifies the standards for computing EPS previously found
in APB Opinion No.15, Earnings per Share, and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with
the presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to Opinion 15.
EPS as calculated under Opinion 15, and as shown in the following
Management's Discussion and Analysis, for the six-month periods ended June 30,
1997 and June 30, 1996 was $1.47 and $1.30, respectively. The restated basic EPS
amounts for those same periods in 1997 and 1996, had SFAS No.128 been in effect,
would have been $1.48 and $1.31, respectively. The restated diluted EPS amounts
for those same periods in 1997 and 1996, had SFAS No.128 been in effect, would
have been $1.47 and $1.30, respectively.
5
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE QUARTER ENDED June 30,1997
(Unaudited)
EARNINGS SUMMARY
Net income for the second quarter of 1997 was $75.4 million, an
increase of $12.3 million or 19% from the second quarter 1996 net income of
$63.1 million. For the six months ended June 30, 1997 net income was $146.3
million, an increase of 21% from the first six months of 1996 level of $120.6
million. Net income per share for the second quarter was $0.75 in 1997 and $0.66
in 1996, an increase of 14%. On a year-to-date basis, net income per share was
$1.47 at June 30, 1997, up 13% from the comparable period in 1996. Net income
for the first six months of 1997 resulted in returns on average total assets and
average stockholders' equity of 1.08% and 16.00%, 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 1997 and
1996.
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 1997 was $264.6 million,
up $48.6 million or 23% from the 1996 second quarter level of $216.0 million. On
a year-to-date basis net interest income increased $100.9 milion or 25% to
$511.7 million. The fully taxable equivalent net interest margins were 3.97% for
the quarter and 4.00% for the six months ended June 30, 1997, respectively.
Total interest income increased to $560.7 million for the quarter, as the
average level of interest earning assets increased 24% to $26,712.1 million, and
the fully taxable equivalent yield on earning assets increased 12 basis points
to 8.41% from the 1996 yield of 8.29%. For the first six months of 1997, total
interest income increased $223.0 million or 26% to $1,074.0 million as the
average balance of interest-earning assets increased 25% to $25,763.6 million
and the yield on interest-earning assets increased 9 basis points to 8.40%.
Total interest expense increased $68.5 million or 30% to $296.2 million
over the second quarter of 1996. The increase reflects an increase in the level
of average interest-bearing liabilities of 28% to $24,071.5 million for the
quarter. The average rate paid on interest-bearing liabilities increased 4 basis
points to 4.93% for the second quarter from 4.89% in the second quarter of 1996.
For the six months ended June 30, 1997 total interest expense increased $122.1
million or 28% to $562.3 million as the average balance of interest-bearing
liabilities increased 28% to $22,976.8 million and the average rate paid
decreased 1 basis point to 4.93%.
6
<PAGE> 7
PROVISION FOR LOAN LOSSES
The provision for loan losses for the second quarter of 1997 was $26.5
million, reflecting an increase of $6.0 million from the 1996 second quarter
level of $20.5 million. On a year-to-date basis the provision for loan losses
was $48.9 million reflecting an increase of $8.0 million or 19% from the first
six months of 1996. For the quarter, net charge-offs were $13.3 million bringing
the total for the year to $24.9 million. Total net charge-offs of loans amounted
to .26% of average net loans on an annualized basis for the 1997 second quarter
and .25% for the first six month period compared to .33% for the second quarter
of 1996 and .32% for the first six months of 1996. For the year ended December
31, 1996 net charge-offs were $47.7 million or .28% of net loans.
NON-INTEREST INCOME
Total non-interest income increased $2.8 million or 5% to $64.0 million
for the second quarter of 1997. For the six months ended June 30, 1997, total
non-interest income increased 1% or $0.9 million to $126.0 million. Service
charges on deposit accounts increased $4.2 million or 16% to $30.9 million for
the quarter and increased $10.9 million or 21% 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 decreased $4.9 million or 42% to $6.6
million for the quarter and decreased $9.3 million or 42% to $12.9 million for
the six months ended June 30, 1997. Bank card fees increased $0.3 million or 6%
to $6.0 million for the quarter and $0.6 million or 6% to $11.6 million for the
six month period. Trust fees increased $0.6 million or 11% to $5.9 million for
the second quarter and $1.2 million or 12% for the first six months of 1997.
Other fee income increased $0.9 million or 10% to $9.8 million for the three
months ended June 30, 1997 and $1.6 million or 9% for the six months ended June
30, 1997. Net securities transactions were a gain of $304,000 for the second
quarter and a gain of $398,000 for the first six months of 1997 compared to
losses of $6,000 in the second quarter and gains of $56,000 for the first six
months of 1996. All other non-interest income increased $1.3 million to $4.5
million for the second quarter of 1997 and decreased $4.4 million or 37% to $7.7
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 1997.
NON-INTEREST EXPENSE
Total non-interest expense for the quarter was $182.2 million,
reflecting an increase of $26.0 million or 17% from the second quarter 1996
level. For the six months ended June 30, 1997 non-interest expense totaled
$356.2 million reflecting an increase of $53.7 million or 18% from the
comparable period in 1996.
The ratio of non-interest expense to average total assets was 2.57%
for the second quarter of 1997 and 2.62% for the six month period compared to
7
<PAGE> 8
2.73% and 2.76% for the quarter and six month periods ended June 30, 1996.
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 $16.4 million or 20%
to $97.9 million for the second quarter 1997. On a year-to-date basis salaries
and employee benefits expense increased $33.3 million or 21% to $192.9 million.
Contributing to this increase was the increase in the number of full time
equivalent employees which increased approximately 19% from June 30, 1996 to
approximately 9,800 at June 30, 1997. Net occupancy expense increased $1.8
million or 15% to $14.2 million for the quarter and $4.0 million or 17% to $28.4
million for the six month period primarily as a result of the growth in the
number of banking offices to 534 at June 30, 1997 from 493 at June 30, 1996.
Equipment expense increased $1.8 million or 21% to $10.7 million for the quarter
and $3.9 million or 23% to $21.2 million for the six months ended June 30, 1997.
Other non-interest expense totaled $59.3 million for the quarter and $113.8
million for the six months ended June 30, 1997, reflecting increases of 11% and
12%, respectively over the comparable periods in 1996.
Banking legislation was enacted September 30, 1996 to eliminate the
premium differential between Savings Association Insurance Fund (SAIF)insured
institutions and Bank Insurance Fund (BIF) insured institutions. The FDIC Board
of Directors met October 8, 1996 and approved a rule that, except for the
possible impact of certain exemptions for de novo and "weak" institutions,
established the special assessment necessary to recapitalize the SAIF at 65.7
basis points of SAIF assessable deposits held by affected institutions as of
June 30, 1995. The legislation provides that all SAIF member institutions pay a
special one-time assessment to recapitalize the SAIF, which in the aggregate is
sufficient to bring the reserve ratio in the SAIF to 1.25% of insured deposits.
The legislation also provides for the merger of the BIF and the SAIF, with such
merger being conditioned upon the prior elimination of the thrift charter.
Based upon its level of SAIF deposits as of March 31, 1995, the Company
paid and expensed approximately $14.0 million in the quarter ended March 31,
1996.
There were no other significant non-recurring non-interest expense
items recorded in 1996 or 1997.
Income tax expense for the second quarter of 1997 was $42.0 million for
an effective tax rate of 35.8% compared to $34.5 million or an effective rate of
35.3% in the second quarter of 1996. For the six months ended June 30, 1997,
income tax expense was $81.3 million for an effective tax rate of 35.7% compared
to tax expense of $65.7 million for an effective tax rate of 35.3% during the
first six months of 1996. The statutory federal income tax rate was 35% in both
1996 and 1997.
SUMMARY OF FINANCIAL CONDITION
Total assets at June 30, 1997 were $29.2 billion, representing an
increase of $5.6 billion or 24% from June 30, 1996. At December 31, 1996, total
assets were $26.2 billion. Average total assets for the first six months of 1997
were $27.4 billion compared to $22.1 billion for the six month period in 1996.
8
<PAGE> 9
Average earning assets for the first six months of 1997 were $25.8
billion, representing and increase of 25% over the 1996 level of $20.6 billion.
Average interest-bearing liabilities through June 30, 1997 were $23.0 billion,
up 28% over the 1996 level of $17.9 billion.
LOANS
Loans, net of unearned income at June 30, 1997 totaled $21,105.9
million compared to $19,331.1 million at December 31, 1996, an increase of
$1,774.8 million or 9%. Of the total increase, $272.6 million were obtained in
the acquisitions of other financial institutions consummated during the first
six months of 1997.
Commercial real estate mortgage loans increased $388.1 million from
December 31, 1996 to $3,397.0 million, or 16.0% of total loans. During the first
six months of 1997 commercial real estate mortgage loans totaling $36.5 million
were obtained through acquisitions. This category represents the Company's
largest credit concentration. Residential real estate mortgage loans at June 30,
1997 were $5,201.8 million or 24.5% of total loans compared to $4,687.5 million
or 24.0% at December 31, 1996. Of the total increase of $514.3 million during
the six month period, $195.1 million was the result of acquisitions. Real estate
construction loans were $2,349.0 million or 11.0% of total loans, up from
$1,930.6 million at December 31, 1996 when such loans accounted for 9.9% of
total loans. Real estate construction loans obtained through acquisitions during
the last six months amounted to $25.9 million.
Commercial, financial and agricultural loans at June 30, 1997 were
$7,179.7 million or 33.8% of total loans, compared to $6,847.5 million or 35.2%
of total loans at December 31, 1996. The increase during the quarter included
$11.6 million in loans obtained through acquisitions. This segment is widely
diversified and there were no significant industry concentrations.
Loans to individuals at June 30, 1997 totaled $3,125.7 million or 14.7%
of total loans, compared to $2,992.1 million or 15.4% of total loans at December
31, 1996. Loans to individuals obtained through acquisitions during the quarter
were $3.6 million.
Total unearned income at June 30, 1997 was $147.3 million compared to
$135.5 million at December 31, 1996.
NON-PERFORMING ASSETS
Non-performing assets at June 30, 1997 were $169.0 million or 0.80% of
net loans and other real estate owned, representing an increase of $30.0 million
from the December 31, 1996 level of $139.0 million. Non-performing assets
obtained through acquisitions during the period totaled $6.1 million. Included
in non-performing assets at June 30, 1997 were $103.7 million of loans on
non-accrual status, other real estate owned totaling $52.6 million, other
repossessed assets of $12.0 million, and $0.7 million of restructured loans.
Loans 90 days past due and accruing were $45.3 million at June 30, 1997 compared
to $40.4 million at December 31, 1996.
As of June 30, 1997, the Company had loans of approximately $25.7
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
9
<PAGE> 10
their classification may be changed if conditions warrant.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at June 30, 1997 was $297.7 million or
1.41% of net loans compared to $269.9 million or 1.40% at December 31, 1996.
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, 1997 totaled $24.9
million or 0.25% of average net loans on an annualized basis. The provision for
loan losses during the six months added $48.9 million to the allowance for loan
losses. The allowance for loan losses at acquisition date on acquired financial
institutions totaled $3.9 million.
INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE
At June 30, 1997, total securities were $5,740.4 million. Investment
securities amounted to $2,205.1 million and securities classified as available
for sale amounted to $3,535.3 million. Investment securities are carried at
amortized cost and securities available for sale are carried at fair value.
Investment securities increased 13% from the year-end 1996 level to
$2,205.1 million; and included U.S. Treasury securities of $3.3 million, U.S.
Government agency securities of $1,501.4 million, Collateralized Mortgage
Obligations("CMOs") and other mortgage-backed securities ("MBS") of $457.2,
State, County and Municipal securities of $194.1 million and other securities of
$49.1 million.
Securities available for sale included U.S. Treasury securities of
$282.4 million, U.S. Government agency securities of $963.4 million, CMOs and
other MBS of $2,027.3 million, State, County and Municipal securities of $4.8
million and other securities of $257.4 million.
At June 30, 1997, the Company's investment portfolio included $930.8
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 June 30, 1997, the fair value of investment securities exceeded the
book value by $19.9 million. This compares to an unrealized gain of $22.5
million at December 31, 1996. For securities available for sale, the fair value
exceeded amortized cost by $8.5 million, resulting in an after-tax adjustment
increasing stockholders' equity by $10.9 million. This unrealized gain, which
Management believes is temporary, compares to a net of tax unrealized loss of
$7.5 million at December 31, 1996.
10
<PAGE> 11
SHORT-TERM INVESTMENTS
Short-term investments at June 30, 1997 totaled $480.4 million,
reflecting an increase of $254.9 million from the December 31, 1996 level of
$225.5 million. At June 30, 1997, short-term investments consisted of $141.9
million in federal funds sold, $19.3 million in time deposits with other banks,
and $319.2 million in assets held for sale. Assets held for sale consisted of
$289.4 million in mortgage loans in the process of being securitized and sold to
second party investors and $29.8 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.
OTHER ASSETS
Other assets at June 30, 1997 were $1,312.9 million compared to
$1,217.7 million at December 31, 1996. At June 30, 1997, other assets included
$560.9 million in premises and equipment, due from customers on acceptances of
$20.8 million, accrued interest receivable of $213.0 million, other accounts
receivable of $51.4 million, other real estate owned and other repossessed
assets totaling $64.6 million, mortgage servicing rights of $34.7 million, other
intangible assets of $228.6 million and other non-earning assets of $138.9
million.
Cash and due from banks was $851.0 million at June 30, 1997, a decrease
of $52.1 million from $903.1 million at December 31, 1996.
FUNDING
The Company's funding sources can be divided into four broad
categories: deposits, short-term borrowings, Federal Home Loan Bank advances,
and long-term borrowings.
DEPOSITS
Deposits are the Company's primary source of funding. Total deposits at
June 30, 1997 were $18,679.4 million up $1,373.9 million or 8% from the December
31, 1996 level of $17,305.5 million. During the first six months of 1997,
acquisitions of other financial institutions added $1,202.4 million of deposits.
At June 30, 1997, total deposits included interest-bearing deposits of $16,571.7
million and other deposits of $2,107.7 million.
Core deposits, defined as demand deposits and time deposits less than
$100,000, totaled $16,045.7 million or 85.9% of total deposits at June 30, 1997.
This compares to core deposits of $14,954.3 million or 86.4% at December 31,
1996.
11
<PAGE> 12
SHORT-TERM BORROWINGS
Short-term borrowings at June 30, 1997 were 5,326.0 million and
included federal funds purchased of $2,857.4 million, securities sold under
agreements to repurchase of $1,377.5 million and other borrowed funds of
$1,091.1 million. At June 30, 1997, total short-term borrowings were 18.2% of
total liabilities and stockholders' equity. This compares to total short-term
borrowings of $4,071.0 million or 15.5% of total liabilities and stockholders'
equity at December 31, 1996.
FEDERAL HOME LOAN BANK ADVANCES
The Company uses Federal Home Loan Bank (FHLB) advances as an
alternative to increasing its liability in certificates of deposits or other
deposit programs with similar maturities. These advances generally offer more
attractive rates when compared to other mid-term financing options.
FHLB advances totaled $1,832.4 million at June 30, 1997. The current
quarter end balance is up $88.2 million or 5% from level outstanding at December
31, 1996.
LONG-TERM DEBT
At June 30, 1997, total long-term debt was $982.3 million representing
a decrease of $0.9 million, resulting from repayments, from the December 31,
1996 level of $983.2 million. The Company issued no additional long-term debt
during the first six months of 1997. Also, acquisitions completed during the
quarter had no effect on long-term debt outstanding.
CAPITAL
At June 30, 1997, total stockholders' equity was $1,951.7 million, or
6.7% of total assets compared to $1,734.9 million or 6.6% at December 31, 1996.
During the first six months net income added $146.3 million to capital. Sales of
common stock through the Dividend Reinvestment Plan, the employee stock purchase
and stock option plans for $5.4 million represented the issuance of 235,994
shares. A stock offering for 2,023,012 shares increased equity by $72.1 million.
Equity added in business combinations increased equity by $23.4 million or
1,270,031 shares. 57,653 shares were issued under the Long-Term Incentive Plan
and amounted to an increase in equity of $1.4 million. Treasury stock purchases
for 12,194 shares reduced equity by $0.5 million. Dividends declared during the
period totaled $49.7 million, and the net unrealized gain on securities
available for sale increased $18.4 million from the December 31, 1996 unrealized
loss level of $7.5 million to an unrealized gain of $10.9 million at June 30,
1997.
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 it's subsidiary
bank 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, 1997, the Company had an estimated risk-based capital
ratio of 11.29% consisting of a Tier I capital ratio of 7.23% and supplemental
12
<PAGE> 13
capital elements of 4.06%. The leverage ratio was 6.08%.
COMMITMENTS
The Company's subsidiary bank had standby letters of credit outstanding
of approximately $633.5 million at June 30, 1997 and $595.1 million at December
31, 1996.
The Company's subsidiary bank had outstanding commitments to extend
credit of approximately $6,931.4 million at June 30, 1997 and $6,319.9 million
at December 31, 1996.
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 have
been insignificant. The total amount of loans outstanding subject to recourse
was $1,277.6 million at June 30, 1997 and $1,163.6 million at December 31, 1996.
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 risks associated with different repricing dates, yield
curve changes, basis risk and option risks. 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.
13
<PAGE> 14
At June 30, 1997, the contractual maturities of Swaps were as follows:
<TABLE>
<CAPTION>
Notional
In Millions Amount Expiration Liabilities Hedged
- ----------- ------ ---------- ------------------
<S> <C> <C> <C>
25 1998 Deposit liabilities
100 2001 Long-term debt
100 2003 Long-term debt
45 2003 Deposit liabilities
200 2004 Long-term debt
150 2005 Long-term debt
50 2006 Deposit liabilities
200 2008 Long-term debt
50 2008 Deposit liabilities
25 2009 Deposit liabilities
----
$945
</TABLE>
CONTINGENCIES
Certain of the Company's subsidiaries are defendants in various legal
proceedings arising in the normal course of business. These claims relate to the
lending and investment advisory services provided by the Company and include
alleged compensatory and punitive damages.
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 activities. 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, the
potential exposure related to punitive damages in connection with these suits,
Management, 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.
RECENT DEVELOPMENTS
Effective June 2, 1997, the Corporation, pursuant to the Reigle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Reigle-Neal Act"),
consolidated all of its banking subsidiaries, consisting of ten banking
subsidiaries located in the states of Alabama, Florida, Georgia, North Carolina,
Mississippi, Tennessee and South Carolina, into its largest banking subsidiary,
SouthTrust Bank of Alabama, National Association. The Bank consolidation was
undertaken by the Corporation in order to obtain the benefits of the Reigle-Neal
Act, which, subject to certain limitations, permits, after June 1, 1997,
qualifying bank holding companies to engage in interstate mergers and allows
banks to maintain and operate branches in states other than the states where
they maintain their principal place of business.
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 six months ended June 30, 1997 the Company filed a
Form 8-K current report dated January 22, 1997 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 11, 1997 /s/ Wallace D. Malone, Jr.
----------------------- ---------------------------
Wallace D. Malone, Jr.
Chairman and Chief
Executive Officer
Date: August 11, 1997 /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>
Six Months Ended
--------------------------------
June 30, 1997 June 30, 1996
--------------------------------
(in thousands) Shares EPS Shares EPS
-------------- ---------------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Average shares outstanding 98,672 92,163
Common Stock equivalents 788 585
---------------- ---------------
Primary shares/EPS 99,460 $1.47 92,748 $1.30
================ ===============
FULLY DILUTED EARNINGS PER SHARE
Average shares outstanding 98,672 92,163
Common Stock equivalents 828 617
---------------- ---------------
Fully diluted shares/EPS 99,500 $1.47 92,780 $1.30
================ ===============
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SOUTHTRUST CORPORATION FOR THE SIX MONTHS ENDED
JUNE 30, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 851,012
<INT-BEARING-DEPOSITS> 19,301
<FED-FUNDS-SOLD> 141,875
<TRADING-ASSETS> 319,204
<INVESTMENTS-HELD-FOR-SALE> 3,535,348
<INVESTMENTS-CARRYING> 2,205,140
<INVESTMENTS-MARKET> 2,225,034
<LOANS> 21,105,873
<ALLOWANCE> 297,696
<TOTAL-ASSETS> 29,192,946
<DEPOSITS> 18,679,408
<SHORT-TERM> 5,325,981
<LIABILITIES-OTHER> 400,230
<LONG-TERM> 982,358
0
0
<COMMON> 250,925
<OTHER-SE> 1,700,834
<TOTAL-LIABILITIES-AND-EQUITY> 29,192,946
<INTEREST-LOAN> 878,238
<INTEREST-INVEST> 179,603
<INTEREST-OTHER> 10,995
<INTEREST-TOTAL> 1,068,836
<INTEREST-DEPOSIT> 352,427
<INTEREST-EXPENSE> 562,255
<INTEREST-INCOME-NET> 506,581
<LOAN-LOSSES> 48,877
<SECURITIES-GAINS> 398
<EXPENSE-OTHER> 356,199
<INCOME-PRETAX> 227,529
<INCOME-PRE-EXTRAORDINARY> 146,267
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146,267
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.47
<YIELD-ACTUAL> 8.40
<LOANS-NON> 103,688
<LOANS-PAST> 45,255
<LOANS-TROUBLED> 736
<LOANS-PROBLEM> 25,661
<ALLOWANCE-OPEN> 269,863
<CHARGE-OFFS> 29,847
<RECOVERIES> 4,923
<ALLOWANCE-CLOSE> 297,696
<ALLOWANCE-DOMESTIC> 297,696
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
