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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended:
March 31, 1996
Commission file number: 1-10853
SOUTHERN NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NORTH CAROLINA 56-0939887
(State of Incorporation) (I.R.S. Employer Identification No.)
200 WEST SECOND STREET
WINSTON-SALEM, NORTH CAROLINA 27101
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(910) 733-2000
(Registrant's Telephone Number, Including Area Code)
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 (check mark) No
At April 30, 1996, 103,325,369 shares of the registrant's common stock, $5
par value, were outstanding.
This Form 10-Q has 19 pages. The Exhibit Index is included on page 16.
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SOUTHERN NATIONAL CORPORATION
FORM 10-Q
MARCH 31, 1996
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).......................................................................... 3
Consolidated Financial Statements.............................................................................. 3
Notes to Consolidated Financial Statements..................................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 8
Analysis of Financial Condition................................................................................ 8
Asset/Liability Management..................................................................................... 9
Capital Adequacy and Resources................................................................................. 11
Analysis of Results of Operations.............................................................................. 12
Part II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................................................... 16
Item 6. Exhibits and Reports on Form 8-K.......................................................................... 16
SIGNATURES.......................................................................................................... 17
EXHIBIT 11 Computation of Earnings Per Share.
EXHIBIT 27 Financial Data Schedule -- Included with electronically-filed document only.
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHERN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
<S> <C> <C>
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
ASSETS
Cash and due from banks...................................................................... $ 656,099 $ 582,612
Interest-bearing bank balances............................................................... 836 1,172
Federal funds sold and securities purchased under resale agreements or
similiar arrangements..................................................................... 11,772 118,977
Securities available for sale................................................................ 4,692,489 5,201,344
Loans held for sale.......................................................................... 351,493 245,280
Securities held to maturity (market value: $147,529 at March 31, 1996, and
$159,886 at December 31, 1995)............................................................ 142,593 153,969
Loans and leases, net of unearned income..................................................... 13,707,633 13,567,205
Allowance for loan and lease losses....................................................... (175,104) (172,158)
Loans and leases, net................................................................... 13,532,529 13,395,047
Premises and equipment, net.................................................................. 316,627 312,002
Other assets................................................................................. 469,688 482,526
TOTAL ASSETS............................................................................ $20,174,126 $ 20,492,929
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits................................................................. $ 1,995,143 $ 1,885,725
Interest-bearing deposits.................................................................... 13,168,170 12,798,331
Total deposits.......................................................................... 15,163,313 14,684,056
Short-term borrowed funds.................................................................... 1,565,525 2,491,285
Long-term debt............................................................................... 1,603,346 1,383,935
Accounts payable and other liabilities....................................................... 278,861 259,590
TOTAL LIABILITIES....................................................................... 18,611,045 18,818,866
SHAREHOLDERS' EQUITY:
Preferred stock, $5 par, 5,000,000 shares authorized, no shares issued and outstanding at
March 31, 1996, and 733,869 issued and outstanding at December 31, 1995................... -- 3,669
Common stock, $5 par, 300,000,000 shares authorized, 103,343,520 issued and outstanding at
March 31, 1996, and 103,357,440 at December 31, 1995...................................... 516,718 516,787
Paid-in capital.............................................................................. 158,583 279,204
Retained earnings............................................................................ 892,769 847,550
Loan to employee stock ownership plan and unvested restricted stock.......................... (3,901) (4,314)
Net unrealized (depreciation) appreciation on securities available for sale.................. (1,088) 31,167
TOTAL SHAREHOLDERS' EQUITY.............................................................. 1,563,081 1,674,063
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............................................. $20,174,126 $ 20,492,929
</TABLE>
See accompanying notes to consolidated financial statements.
3
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SOUTHERN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
MARCH 31,
1996 1995
<S> <C> <C>
(DOLLARS IN THOUSANDS,
EXCEPT
PER SHARE DATA)
INTEREST INCOME
Interest and fees on loans and leases................................................... $308,609 $293,379
Interest and dividends on securities.................................................... 74,941 74,602
Interest on short-term investments...................................................... 232 656
Total interest income................................................................ 383,782 368,637
INTEREST EXPENSE
Interest on deposits.................................................................... 140,488 130,134
Interest on short-term borrowed funds................................................... 27,577 41,059
Interest on long-term debt.............................................................. 22,074 14,623
Total interest expense............................................................... 190,139 185,816
NET INTEREST INCOME....................................................................... 193,643 182,821
Provision for loan and lease losses..................................................... 10,500 7,000
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES............................. 183,143 175,821
NONINTEREST INCOME
Service charges on deposit accounts..................................................... 25,214 21,270
Mortgage banking income................................................................. 9,300 5,590
Trust revenue........................................................................... 4,674 4,280
General insurance commissions........................................................... 6,189 4,115
Other nondeposit fees and commissions................................................... 16,910 15,787
Securities losses, net.................................................................. (8) (19,845)
Other noninterest income................................................................ 5,388 5,780
Total noninterest income............................................................. 67,667 36,977
NONINTEREST EXPENSE
Personnel expense....................................................................... 73,666 124,233
Occupancy and equipment expense......................................................... 24,963 29,555
Foreclosed property expense............................................................. 744 700
Federal deposit insurance expense....................................................... 3,355 8,005
Other noninterest expense............................................................... 44,218 66,858
Total noninterest expense............................................................ 146,946 229,351
EARNINGS
Income (loss) before income taxes....................................................... 103,864 (16,553)
Income tax expense...................................................................... 34,254 (4,208)
Net income (loss)....................................................................... 69,610 (12,345)
Preferred dividend requirements...................................................... 610 1,299
Income (loss) applicable to common shares............................................ $ 69,000 $(13,644)
PER COMMON SHARE
Net income (loss):
Primary.............................................................................. $ .67 $ (.13)
Fully diluted........................................................................ $ .65 $ NM
Cash dividends declared.............................................................. $ .23 $ .20
AVERAGE SHARES OUTSTANDING
Primary................................................................................. 102,540,444 103,380,544
Fully diluted........................................................................... 106,315,683 108,424,625
</TABLE>
NM -- not meaningful.
See accompanying notes to consolidated financial statements.
4
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SOUTHERN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
RETAINED
SHARES OF EARNINGS
COMMON PREFERRED COMMON PAID-IN AND
STOCK STOCK STOCK CAPITAL OTHER* TOTAL
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
BALANCE, DECEMBER 31, 1994...................... 102,215,032 $ 3,850 $511,075 $285,599 $695,953 $1,496,477
Add (Deduct)
Net loss...................................... -- -- -- -- (12,345) (12,345)
Common stock issued........................... 627,397 -- 3,138 6,857 -- 9,995
Redemption of common stock.................... (659,750) -- (3,299) (10,561) -- (13,860)
Net appreciation on securities available
for sale................................... -- -- -- -- 45,628 45,628
Cash dividends declared:
Common stock............................... -- -- -- -- (30,298) (30,298)
Preferred stock............................ -- -- -- -- (1,299) (1,299)
Amortization of unearned stock compensation... -- -- -- -- 418 418
BALANCE, MARCH 31, 1995......................... 102,182,679 $ 3,850 $510,914 $281,895 $698,057 $1,494,716
BALANCE, DECEMBER 31, 1995...................... 103,357,440 $ 3,669 $516,787 $279,204 $874,403 $1,674,063
Add (Deduct)
Net income.................................... -- -- -- -- 69,610 69,610
Common stock issued........................... 623,388 -- 3,117 11,364 -- 14,481
Redemption of common stock.................... (4,972,000) -- (24,860) (113,980) -- (138,840)
Net depreciation on securities available
for sale................................... -- -- -- -- (32,255) (32,255)
Preferred stock cancellations and
conversions................................ 4,334,692 (3,669) 21,674 (18,005) -- --
Cash dividends declared:
Common stock............................... -- -- -- -- (23,781) (23,781)
Preferred stock............................ -- -- -- -- (610) (610)
Amortization of unearned stock compensation... -- -- -- -- 413 413
BALANCE, MARCH 31, 1996......................... 103,343,520 $ -- $516,718 $158,583 $887,780 $1,563,081
</TABLE>
* Includes net unrealized appreciation (depreciation) on securities available
for sale, unvested restricted stock and loan to employee stock ownership plan.
See accompanying notes to consolidated financial statements.
5
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SOUTHERN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................................................... $ 69,610 $ (12,345)
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses................................................................ 10,500 7,000
Depreciation of premises and equipment............................................................. 9,416 8,569
Amortization of intangibles........................................................................ 1,776 1,874
Accretion of negative goodwill..................................................................... (1,559) (1,561)
Amortization of unearned stock compensation........................................................ 413 418
Discount accretion and premium amortization on securities, net..................................... 1,491 591
Loss (gain) on sales of trading account securities, net............................................ 5 (71)
Loss (gain) on sales of securities, net............................................................ 8 19,845
Loss (gain) on sales of loans and mortgage loan servicing rights, net.............................. (723) 170
Loss (gain) on disposals of premises and equipment, net............................................ (247) 9,531
Loss on foreclosed property and other real estate, net............................................. 1,062 559
Proceeds from sales of trading account securities, net of purchases................................ (5) 71
Proceeds from sales of loans held for sale......................................................... 310,656 98,263
Purchases of loans held for sale................................................................... (107,809) (20,550)
Origination of loans held for sale, net of principal collected..................................... (308,337) (69,444)
Decrease (increase) in:
Accrued interest receivable...................................................................... 23,753 7,799
Other assets..................................................................................... (11,310) 45,138
Increase (decrease) in:
Accrued interest payable......................................................................... (2,370) 8,373
Accounts payable and other liabilities........................................................... 40,838 (1,093)
Net cash provided by operating activities...................................................... 37,168 103,137
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale................................................. 23,718 826,326
Proceeds from maturities of securities available for sale............................................ 829,396 364,532
Purchases of securities available for sale........................................................... (398,474) (1,009,237)
Proceeds from maturities of securities held to maturity.............................................. 12,378 104,017
Purchases of securities held to maturity............................................................. (1,050) (38,076)
Leases made to customers............................................................................. (12,841) (10,303)
Principal collected on leases........................................................................ 12,565 11,393
Loan originations, net of principal collected........................................................ (140,813) (268,147)
Purchases of loans................................................................................... (9,184) (5,382)
Proceeds from disposals of premises and equipment.................................................... 1,100 3,017
Purchases of premises and equipment.................................................................. (17,389) (11,413)
Proceeds from sales of foreclosed property........................................................... 3,384 2,857
Proceeds from sales of other real estate held for development or sale................................ 2,421 625
Other, net........................................................................................... -- (4,688)
Net cash provided by (used in) investing activities............................................ 305,211 (34,479)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits............................................................................. 479,257 205,458
Net decrease in short-term borrowed funds............................................................ (925,760) (212,163)
Proceeds from long-term debt......................................................................... 426,657 485
Repayments of long-term debt......................................................................... (207,246) (9,193)
Net proceeds from common stock issued................................................................ 13,890 9,995
Common stock acquired and retired.................................................................... (138,840) (14,066)
Cash dividends paid on common and preferred stock.................................................... (24,391) (21,746)
Net cash used in financing activities.......................................................... (376,433) (41,230)
Net (Decrease) Increase in Cash and Cash Equivalents................................................... (34,054) 27,428
CASH AND CASH EQUIVALENTS at Beginning of Period....................................................... 702,761 671,777
CASH AND CASH EQUIVALENTS at End of Period............................................................. $ 668,707 $ 699,205
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest........................................................................................... $ 192,509 $ 179,306
Income taxes....................................................................................... 223 10,259
Noncash financing and investing activities:
Transfer of loans to foreclosed property........................................................... 2,291 2,603
Common stock issued upon conversion of debentures.................................................. -- 35
Transfer of fixed assets to other real estate owned................................................ 2,495 --
Securitization of mortgage loans................................................................... -- 53,540
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
SOUTHERN NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
A. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the consolidated balance
sheets of Southern National Corporation and subsidiaries ("Southern
National" or "SNC") as of March 31, 1996 and December 31, 1995; the
consolidated statements of income for the three months ended March 31, 1996
and 1995; the consolidated statements of changes in shareholders' equity
for the three months ended March 31, 1996 and 1995; and the consolidated
statements of cash flows for the three months ended March 31, 1996 and
1995.
The consolidated financial statements and notes are presented in accordance
with the instructions for Form 10-Q. The information contained in the
footnotes included in Southern National's latest annual report on Form 10-K
should also be referred to in connection with the reading of these
unaudited interim consolidated financial statements.
Certain amounts for 1995 have been reclassified to conform with statement
presentations for 1996. The reclassifications have no effect on
shareholders' equity or net income as previously reported. The preparation
of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
B. NATURE OF OPERATIONS
Southern National is a multi-bank holding company headquartered in
Winston-Salem, North Carolina. Southern National conducts its operations in
North Carolina, South Carolina and Virginia primarily through its
commercial banking subsidiaries and, to a lesser extent, through its other
subsidiaries. The commercial banking subsidiaries provide a wide range of
traditional banking services for retail and commercial customers, including
small and mid-size businesses, public agencies and local governments, trust
companies and individuals. Substantially all of Southern National's loans
are to businesses and individuals in the Carolinas. Subsidiaries of the
commercial banks offer lease financing to commercial businesses and
municipal governments; investment alternatives, including discount
brokerage services, annuities, mutual funds and government and municipal
bonds; life and property and casualty insurance on an agency basis; and
insurance premium financing.
C. NEW ACCOUNTING PRONOUNCEMENTS
During 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement establishes accounting standards for long-lived assets, certain
identifiable intangibles and goodwill related to those assets to be held
and to be disposed of. The statement requires such assets to be reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Any resulting
impairment loss is required to be reported in the period in which the
recognition criteria are first applied and met. Southern National adopted
the provisions of the statement on January 1, 1996. The implementation did
not have a material impact on the consolidated financial position or
consolidated results of operations.
In October of 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," which establishes financial accounting and
reporting standards for stock-based compensation plans. The statement
defines a fair value based method of accounting for an employee stock
option or similar equity instrument and encourages the adoption of that
method of accounting. However, the statement also allows entities to
continue to account for such plans under Accounting Principles Board
("APB") Opinion No. 25. Entities electing to remain with the accounting in
Opinion No. 25 must make pro forma disclosures of net income and earnings
per share as if the fair value based method of accounting defined in the
statement had been applied. Southern National adopted the statement
effective January 1, 1996 and elected to continue to account for
stock-based compensation plans under the provisions of Opinion No. 25.
Therefore, the implementation of the statement did not have an impact on
Southern National's consolidated financial position or consolidated results
of operations.
7
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D. MERGERS AND ACQUISITIONS
On March 29, 1996, Southern National announced plans to acquire Regional
Acceptance Corporation of Greenville, N.C., ("Regional") in a stock
transaction to be accounted for under the pooling-of-interests method of
accounting. Regional's shareholders will receive .3929 shares of Southern
National stock for each share of Regional stock held. The exchange ratio is
fixed between Southern National stock prices of $26 and $30, with an
adjustment provision within an outer collar of $24 and $32. Southern
National will issue approximately 6,040,000 shares of common stock.
Regional, which specializes in indirect financing for consumer purchases of
mid-model and late-model used automobiles, operates 27 branch offices in
North Carolina, South Carolina, Tennessee and Virginia.
E. SUPPLEMENTAL CASH FLOW INFORMATION
During the first quarter of 1996, Southern National redeemed all
outstanding shares of Convertible Preferred Stock. All holders of the
preferred stock elected to convert their shares to shares of Southern
National common stock. This transaction, a noncash financing activity,
resulted in the conversion of 733,869 shares of preferred stock into
4,334,692 shares of common stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ANALYSIS OF FINANCIAL CONDITION
Southern National's total assets at March 31, 1996 were $20.2 billion, a
$318.8 million decrease from the balance at December 31, 1995. The primary
components of the decrease were securities available for sale, which fell 508.9
million, or 9.8%, and Federal funds sold and other interest-earning assets,
which declined $107.5 million. These decreases were offset by modest growth in
loans and leases, including loans held for sale, of $246.6 million, or 7.2% on
an annualized basis. Growth in loans was slowed by three significant first
quarter developments. First, Southern National is continuing the process of
integrating the credit administrations from the separate banks. Second, the
inclement weather of the first quarter slowed general economic activity in
Southern National's market area. Third, management made a conscious decision in
1995 not to pursue long-term fixed-rate commercial loans which were being priced
with low profit margins. Instead, Southern National placed more emphasis on
quality and pricing. This effort resulted in lower volume than in prior
quarters, however, management believes that this approach will generate greater
profitability throughout 1996. Management has also implemented a new incentive
program which is expected to provide increased origination volume. Growth rates
were also affected by loan securitizations in 1995. During the first quarter of
1995, a total of $53.5 million of loans were securitized. On average for the
quarter, $35.7 million of loans were securitized. While there were no such
securitizations during the first quarter of 1996, management anticipates
securitizing an additional $800 million of loans during the second and third
quarters of 1996.
Long-term debt rose $219.4 million compared to December 31, 1995, primarily
as a result of increases in Federal Home Loan Bank ("FHLB") advances. This
growth was more than offset by a $925.8 million reduction in short-term borrowed
funds compared to the year end 1995. The significant reduction in short-term
borrowed funds was made possible using funds obtained through the runoff of U.S.
Treasuries in the investment portfolio, as discussed below.
At March 31, 1996, securities available for sale had unrealized
depreciation, after tax, of $1.1 million compared to unrealized appreciation,
after tax, of $31.2 million at December 31, 1995. The taxable equivalent yield
on the securities portfolio during the first quarter was 6.50%, up from 6.32%
for the fourth quarter of 1995. During the fourth quarter of 1995, Southern
National began to reshape the balance sheet by changing the mix of investments
held. The change in mix was undertaken to improve the overall interest yield of
the securities portfolio. This effort continued into the first quarter of 1996.
Lower-yielding U.S. Treasuries, which matured during the quarter, were not
reinvested in similar securities because many such securities have yields below
the current Federal funds rate and the advantages these investments provided in
prior years through reduced state taxes are currently less beneficial to
Southern National. The proceeds from these maturities were used primarily to pay
down short-term borrowed funds.
Total deposits increased by $479.3 million from the balance at December 31,
1995. Southern National, as well as many other financial institutions, is
experiencing a trend of slower deposit growth because of competition for
deposits from various non-financial institution sources. However, because of
increased emphasis on demand deposits, Southern National had stronger growth
during the first quarter than at any time during 1995. Noninterest-bearing
demand deposits increased $109.4 million, or 5.8% (23.3% on an annualized basis)
during the first quarter of 1996. Slower deposit growth during 1995 caused
management to rely more heavily on nondeposit funding sources, such as FHLB
advances. The improved deposit growth
8
<PAGE>
during the first quarter contributed to the reduction in short-term borrowed
funds. This reduction should provide more stability for the net interest margin.
ASSET QUALITY
Nonperforming assets were $72.4 million at March 31, 1996, compared to
$71.2 million at December 31, 1995. The allowance for losses as a percentage of
loans and leases was 1.25% and nonperforming assets as a percentage of
loan-related assets were .51% at both March 31, 1996 and December 31, 1995.
Certain asset quality measures deteriorated somewhat during the third quarter of
1995 and have remained steady. The increase in nonperforming assets and the
corresponding increase in net charge-offs reflects a reorganization of the
collections function which resulted from the merger of Southern National and
BB&T Financial Corporation. Also, Southern National's asset quality ratios have
been unusually strong compared to historic norms. Increases in net charge-offs
to a more normalized level have been expected by management as segments of the
overall economy softened during 1995. Loans 90 days or more past due and still
accruing interest were $28.2 million compared to a prior year-end balance of
$29.1 million. Management does not anticipate a material change in asset quality
levels during 1996.
The provision for loan and lease losses in the first three months of 1996
was $10.5 million compared to $7.0 million in the first three months of 1995.
The increase in the provision reflects higher net charge-offs during 1996
compared to 1995. Asset quality statistics relevant to the last five calendar
quarters are presented in the accompanying table.
ASSET QUALITY ANALYSIS
<TABLE>
<CAPTION>
3/31/96 12/31/95 9/30/95 6/30/95 3/31/95
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
ALLOWANCE FOR LOAN & LEASE LOSSES
Beginning balance.............................................. $172,158 $174,069 $176,175 $174,189 $171,734
Provision for loan and lease losses............................ 10,500 10,400 7,000 7,000 7,000
Net charge-offs................................................ (7,554) (12,311) (9,106) (5,014) (4,545)
Ending balance.............................................. $175,104 $172,158 $174,069 $176,175 $174,189
RISK ASSETS
Nonaccrual loans and leases.................................... $ 64,796 $ 61,489 $ 62,763 $ 48,927 $ 48,451
Foreclosed real estate......................................... 4,938 6,868 6,981 8,759 11,239
Other foreclosed property...................................... 2,662 2,817 2,717 1,518 691
Nonperforming assets........................................ $ 72,396 $ 71,174 $ 72,461 $ 59,204 $ 60,381
Loans 90 days or more past due and still accruing.............. $ 28,249 $ 29,094 $ 26,909 $ 30,335 $ 21,653
ASSET QUALITY RATIOS
Nonaccrual loans and leases as a percentage of total loans
and leases..................................................... .46% .45% .45% .36% .36%
Nonperforming assets as a percentage of:
Total assets................................................... .36 .35 .35 .29 .30
Loans and leases plus foreclosed property...................... .51 .51 .52 .43 .45
Net charge-offs as a percentage of average loans and leases...... .22 .35 .26 .15 .14
Allowance for loan and lease losses as a percentage of loans
and leases..................................................... 1.25 1.25 1.24 1.28 1.30
Ratio of allowance for loan and lease losses to:
Net charge-offs................................................ 5.76x 3.52x 4.82x 8.76x 9.45x
Nonaccrual loans and leases.................................... 2.70 2.80 2.77 3.60 3.60
</TABLE>
All items referring to loans and leases include loans held for sale and are
net of unearned income. Certain prior quarter balances have been adjusted to
reflect the adoption of SFAS No. 122, "Accounting for Mortgage Sevicing Rights."
Applicable ratios are annualized.
ASSET/LIABILITY MANAGEMENT
Asset/liability management activities are designed to assure liquidity and,
through the management of Southern National's interest sensitivity position, to
manage the impact of interest rate fluctuations on net interest income. It is
the
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responsibility of the Asset/Liability Management Committee ("ALCO") to set
policy guidelines and to establish long-term strategies with respect to interest
rate exposure and liquidity. The ALCO meets regularly to review Southern
National's interest rate and liquidity risk exposures in relation to present and
prospective market and business conditions, and adopts funding and balance sheet
management strategies that are intended to assure that the potential impact on
earnings and liquidity is within established parameters.
A prime objective in interest rate risk management is the avoidance of wide
fluctuations in net interest income through balancing the impact of changes in
interest rates on interest-sensitive assets and interest-sensitive liabilities.
Management uses Interest Sensitivity Simulation Analysis to measure the interest
rate sensitivity of earnings.
Balance sheet repositioning is the most efficient and cost-effective means
of managing interest rate risk and is accomplished through strategic pricing of
asset and liability accounts. The expected result of strategic pricing is the
development of appropriate maturity and repricing streams in those accounts to
produce consistent net income during adverse interest rate environments. The
ALCO monitors loan, investment and liability portfolios to ensure comprehensive
management of interest rate risk on the balance sheet. These portfolios are
analyzed for proper fixed-rate and variable-rate "mixes" given a specific
interest rate outlook.
Management has established parameters for asset/liability management which
proscribe a maximum impact on net interest income of 3% for a 150 basis point
change over six months from the most likely interest rate scenario, and no more
than a maximum 6% for a 300 basis point change over 12 months. It is
management's ongoing objective to effectively manage the impact of changes in
interest rates and minimize the resulting effect on earnings. At March 31, 1996,
these interest rate scenarios would not have a significant impact on Southern
National's earnings.
DERIVATIVES AND OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Interest rate volatility often increases to the point that balance sheet
repositioning through the use of account repricing and other on-balance sheet
strategies cannot occur rapidly enough to avoid adverse net income effects. At
those times, off-balance sheet or synthetic hedges are utilized. Management uses
interest rate swaps, caps and floors to supplement balance sheet repositioning.
Such products are designed to move the interest sensitivity of the corporation
toward a neutral position.
Interest rate swaps are contractual agreements between two parties to
exchange a series of cash flows representing interest payments. A swap allows
both parties to transform the repricing characteristics of an asset or liability
from a fixed to a floating rate, a floating rate to a fixed rate, or one
floating rate to another floating rate. The underlying principal positions are
not affected. Swap terms generally range from one year to ten years depending on
need. At March 31, 1996, interest rate swaps with a total notional value of
$651.0 million, and terms of up to seven years, were outstanding.
10
<PAGE>
The following tables set forth certain information concerning Southern
National's interest rate swaps at March 31, 1996:
INTEREST RATE SWAPS
MARCH 31, 1996
<TABLE>
<CAPTION>
NOTIONAL RECEIVE PAY UNREALIZED
TYPE AMOUNT RATE RATE GAINS (LOSSES)
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Receive fixed swaps..................................................... $ 75,000 7.43% 5.82% $ 574
Pay fixed swaps......................................................... 326,009 5.49 5.54 (516)
Basis swaps............................................................. 250,000 5.60 5.51 (3,020)
Total................................................................... $ 651,009 5.76% 5.56% $ (2,962)
<CAPTION>
RECEIVE PAY FIXED BASIS
YEAR-TO-DATE ACTIVITY FIXED SWAPS SWAPS SWAPS TOTAL
<S> <C> <C> <C> <C>
Balance, December 31, 1995.............................................. $ 140,000 $ 353,413 $ 250,000 $743,413
Additions............................................................... -- -- -- --
Maturities/amortizations................................................ (65,000) (27,404) -- (92,404)
Terminations............................................................ -- -- -- --
Balance, March 31, 1996................................................. $ 75,000 $ 326,009 $ 250,000 $651,009
<CAPTION>
ONE TO
ONE YEAR FIVE AFTER FIVE
MATURITY SCHEDULE* OR LESS YEARS YEARS TOTAL
<S> <C> <C> <C> <C>
Receive fixed swaps..................................................... $ 15,000 $ 60,000 $ -- $ 75,000
Pay fixed swaps......................................................... 20,012 301,422 4,575 326,009
Basis swaps............................................................. -- 250,000 -- 250,000
Total................................................................... $ 35,012 $ 611,422 $ 4,575 $651,009
</TABLE>
*Maturities are based on full contract extensions.
As of March 31, 1996, there was no unearned income or deferred premiums
from new swap transactions. Deferred losses from terminated swap transactions
were $1.1 million. The deferred losses will be recognized in the next year. The
combination of active and terminated transactions resulted in expense of
$237,000 during the first quarter of 1996.
In addition to interest rate swaps, Southern National utilizes written
covered over-the-counter call options on specific securities in the
available-for-sale portfolio in order to enhance returns. Option fee income was
$295,000 for the first quarter of 1996. There were no unexercised options on
securities outstanding at March 31, 1996.
Southern National also utilizes purchased over-the-counter put options in
its mortgage banking activities to hedge the mortgage pipeline. During 1996,
options with a par value of $60.0 million were purchased and remained
outstanding at March 31, 1996.
CAPITAL ADEQUACY AND RESOURCES
The maintenance of appropriate levels of capital is a management priority.
Capital adequacy is monitored on an ongoing basis by management. Southern
National's principal capital planning goals are to provide an adequate return to
shareholders while retaining a sufficient base from which to provide future
growth and compliance with all regulatory standards.
Total shareholders' equity was $1.56 billion at March 31, 1996 and $1.67
billion at December 31, 1995. As a percentage of total assets, total
shareholders' equity was 7.7% at March 31, 1996, down from 8.2% at December 31,
1995. Southern National's book value per common share at March 31, 1996 was
$15.13, versus $15.52 at December 31, 1995. Average shareholders' equity as a
percentage of average assets was 8.1% for the three months ended March 31, 1996
and 8.0% for the three months ended December 31, 1995.
Tier 1 and total risk-based capital ratios at March 31, 1996 were 12.1% and
13.4%, respectively. The leverage ratio was 7.6% at the end of the first
quarter. The comparable ratios at the end of 1995 were 13.0%, 14.3% and 7.8%,
respectively. These capital ratios measure the capital to risk-weighted assets
and off-balance sheet items as defined by Federal Reserve
11
<PAGE>
Board ("FRB") guidelines. An 8.00% minimum of total capital to risk-weighted
assets is required. One-half of the 8.00% minimum must consist of tangible
common shareholders' equity (Tier 1 capital) under regulatory guidelines. The
leverage ratio, established by the FRB, measures Tier 1 capital to average total
assets less goodwill and must be maintained in conjunction with the risk-based
capital standards. The regulatory minimum for the leverage ratio is 3.00%.
The declines in certain capital ratios reflect the impact of a common stock
repurchase plan which was undertaken to facilitate the conversion of all of
Southern National's preferred stock outstanding. On January 11, 1996, Southern
National announced that these shares would be used in the anticipated conversion
of the preferred stock which was redeemed on March 29, 1996, at the price of
$104.05 per share. Each share of preferred stock was convertible into 5.9068
shares of common stock.
CAPITAL ADEQUACY RATIOS
<TABLE>
<CAPTION>
1996 1995
FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C> <C>
Average equity to average assets............................................. 8.07% 8.05% 7.71% 7.61% 7.60%
Equity to assets at period end............................................... 7.75 8.17 7.77 7.60 7.51
Risk-based capital ratios:
Tier 1 capital............................................................. 12.1 13.0 12.0 11.3 11.5
Total capital.............................................................. 13.4 14.3 13.3 12.6 12.7
Leverage ratio............................................................... 7.6 7.8 7.5 7.4 7.3
</TABLE>
ANALYSIS OF RESULTS OF OPERATIONS
Southern National had net income for the first three months of 1996
totaling $69.6 million, compared to a net loss of $12.3 million during the first
three months of 1995. On a fully diluted per share basis, earnings for the three
months ended March 31, 1996 were $.65, compared to a loss of $.13 for the same
period in 1995. The loss in the prior year was caused by approximately $70.5
million in after-tax nonrecurring charges and securities losses related to the
merger between Southern National and BB&T. Excluding nonrecurring items from the
prior year, Southern National's net income would have increased 19.6%, or $11.4
million.
NET INTEREST INCOME
Net interest income on a fully taxable equivalent ("FTE") basis was $201.7
million for the first three months of 1996 compared to $190.3 million for the
same period in 1995, a 6.0% increase. This increase resulted primarily from
changes in volumes. Average interest-earning assets increased $220.7 million, or
1.2%, to a balance of $18.9 billion, while average interest-bearing liabilities
increased by only $25.7 million. This asset growth was funded by a $112.1
million increase in average demand deposits. Southern National also experienced
positive development in the net interest margin, which increased from 4.14% to
4.28%. The increase in margin was caused primarily by a 45 basis point increase
in yields from securities, combined with a 55 basis point decrease in rates paid
on short-term borrowed funds and a 68 basis point decrease in rates paid on
long-term debt. These fluctuations reflect the restructuring of the securities
portfolio discussed above as well as reductions in short-term interest rates by
the Federal Reserve.
Hedging strategies have been used in the past and will be utilized in the
future to reduce sensitivity to interest rate movements. See "ASSET/LIABILITY
MANAGEMENT" for additional discussion of hedging strategies.
12
<PAGE>
NET INTEREST INCOME AND RATE/VOLUME ANALYSIS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
CHANGE
AVERAGE BALANCES YIELD/RATE INCOME/EXPENSE INCREASE DUE TO
FULLY TAXABLE EQUIVALENT 1996 1995 1996 1995 1996 1995 (DECREASE) RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
ASSETS
Securities (1):
U.S. Treasury, government and other
(5)................................... $ 4,796,925 $ 5,201,895 6.45% 5.94% $ 76,885 $ 76,230 $ 655 $ 6,882
States and political subdivisions....... 161,018 180,325 9.20 8.89 3,705 4,006 (301) 137
Total securities (5).................. 4,957,943 5,382,220 6.50 6.05 80,590 80,236 354 7,019
Other earning assets (2).................. 17,560 46,815 5.59 5.68 244 656 (412) (5)
Loans and leases, net of unearned income
(1)(3)(4)(5)............................ 13,878,078 13,203,804 9.00 9.07 311,016 295,197 15,819 (2,097)
Total earning assets.................. 18,853,581 18,632,839 8.34 8.19 391,850 376,089 15,761 4,917
Non-earning assets.................... 1,152,516 1,149,380
TOTAL ASSETS........................ $20,006,097 $19,782,219
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits:
Savings and interest checking
deposits.............................. $ 3,188,972 $ 3,172,684 1.93 2.32 15,269 18,153 (2,884) (3,129)
Money market deposits................... 1,348,224 1,811,143 3.53 3.40 11,829 15,204 (3,375) 669
Time deposits........................... 8,169,118 7,596,786 5.58 5.17 113,390 96,777 16,613 8,975
Total interest-bearing deposits....... 12,706,314 12,580,613 4.45 4.20 140,488 130,134 10,354 6,515
Short-term borrowed funds................. 2,108,860 2,866,363 5.26 5.81 27,577 41,059 (13,482) (3,303)
Long-term debt............................ 1,511,577 905,484 5.87 6.55 22,074 14,623 7,451 (1,658)
Total interest-bearing liabilities.... 16,326,751 16,352,460 4.68 4.61 190,139 185,816 4,323 1,554
Demand deposits....................... 1,798,323 1,686,262
Other liabilities..................... 265,912 239,861
Shareholders' equity.................. 1,615,111 1,503,636
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY................................ $20,006,097 $19,782,219
Average interest rate
spread.................................. 3.66 3.58
Net yield on earning assets............... 4.28% 4.14% $201,711 $190,273 $ 11,438 $ 3,363
Taxable equivalent adjustment............. $ 8,068 $ 7,452
<CAPTION>
FULLY TAXABLE EQUIVALENT VOLUME
<S> <<C>
ASSETS
Securities (1):
U.S. Treasury, government and other
(5)................................... $ (6,227)
States and political subdivisions....... (438)
Total securities (5).................. (6,665)
Other earning assets (2).................. (407)
Loans and leases, net of unearned income
(1)(3)(4)(5)............................ 17,916
Total earning assets.................. 10,844
Non-earning assets....................
TOTAL ASSETS........................
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits:
Savings and interest checking
deposits.............................. 245
Money market deposits................... (4,044)
Time deposits........................... 7,638
Total interest-bearing deposits....... 3,839
Short-term borrowed funds................. (10,179)
Long-term debt............................ 9,109
Total interest-bearing liabilities.... 2,769
Demand deposits.......................
Other liabilities.....................
Shareholders' equity..................
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY................................
Average interest rate
spread..................................
Net yield on earning assets............... $ 8,075
Taxable equivalent adjustment.............
</TABLE>
(1) Yields related to securities, loans and leases exempt from both federal
and state income taxes, federal income taxes only or state income taxes
only are stated on a taxable equivalent basis using statutory tax rates
in effect for the periods presented.
(2) Includes federal funds sold and securities purchased under resale
agreements or similar arrangements.
(3) Loan fees, which are not material for the periods shown, are included
for rate calculation purposes.
(4) Nonaccrual loans have been included in the average balances.
(5) Includes assets which were held for sale or available for sale at
amortized cost.
NONINTEREST INCOME
Noninterest income for the three months ended March 31, 1996 was $67.7
million, compared to $37.0 million for the same period in 1995. Securities
losses of $19.8 million recorded in the first quarter of 1995 were the primary
factor contributing to the increase in income. Southern National also
experienced positive development in service charges on deposits, mortgage
banking activities, general insurance commissions and trust revenues. The
percentage of total revenues, calculated as net interest income plus noninterest
income excluding securities gains or losses, derived from noninterest
(fee-based) income for the three months ended March 31, 1996 was 25.9%, up from
23.7% for the first quarter of 1995. Management anticipates continued strong
growth in noninterest income because of enhanced revenues made available from
the Southern National/BB&T merger. Also, management expects to implement new
fees on automatic teller machines which are expected to provide an additional
$6.0 million in fee income on an annual basis, with no additional expenses.
Service charges on deposits grew for the first three months in 1996
compared to 1995, increasing by $3.9 million, or 18.5%. The primary factor
contributing to the significant growth in service charges on deposits was
increased fees during 1996. The most significant increases involved commercial
account analysis income and overdraft charges. Additionally,
13
<PAGE>
rising interest rates during 1995 negatively affected service charges on deposit
accounts by increasing the earnings credit used in service charge computations.
Trust revenues grew 9.2% to $4.7 million for the three months ended March
31,1996. For the first quarter of 1995, trust services income totaled $4.3
million. Management anticipates that trust revenues will accelerate during the
year.
Southern National also realized substantial growth in general insurance
commissions, up $2.1 million, or 50.4%, compared to the first three months of
1995. The growth in general insurance commissions resulted from unusually large
commissions on contingency policies and earnings from sales of life insurance
contracts. This high rate of growth is expected to return to a more normalized
level for the remainder of 1996.
Mortgage banking activities increased 66.4%, or $3.7 million, for the three
months ended March 31, 1996 compared to the same period in 1995. This increase
resulted from significant gains on the sale of mortgage loans during the first
quarter of 1996.
Other nondeposit fees and commissions increased by $1.1 million to a level
of $16.9 million in 1996 compared with $15.8 million for the first three months
of 1995. Major sources of nondeposit fees and commissions generating the
increase were bankcard income, up $958,000 from the prior year balance and
international income, up $260,000 over the prior year.
Other income decreased $392,000, or 6.8%, through the first three months of
1996.
NONINTEREST EXPENSE
Noninterest expense was $146.9 million for the first three months of 1996
compared to $229.4 million for the same period a year ago. The merger-related
accruals and expenses discussed above led to an elevated level of noninterest
expense in the first three months of 1995. These items included $83.4 million of
pretax nonrecurring charges which primarily affected personnel expense,
occupancy and equipment expense and other noninterest expense.
Excluding nonrecurring charges, personnel expense, the largest component of
noninterest expense, increased from $73.6 million for the first three months of
1995 to $73.7 million for the same period in 1996. This steady level of
personnel expense reflects efficiencies of scale accomplished as a result of the
Southern National/BB&T merger. The nonrecurring charges discussed above
contributed $50.6 million to total personnel costs during the first three months
of 1995 in the form of severance pay, termination of employment contracts, early
retirement packages and related benefits.
Occupancy and equipment expense, excluding nonrecurring charges, for the
three months ended March 31, 1996 increased $2.2 million, or 9.9%, compared to
1995. On-going depreciation of property and equipment purchased in connection
with implementing the merger is a major component of the increase. The $6.8
million in nonrecurring charges relating to branch closings and the
consolidation of bank operations and systems associated with the merger had a
significant impact on the total occupancy and equipment expense in the prior
year.
Federal deposit insurance expense decreased $4.7 million, or 58.1%, for the
three months ended March 31, 1996, compared to the same period in the prior year
as a result of a reduction in insurance premiums charged by the FDIC for deposit
insurance. Because of the recapitalization of the Bank Insurance Fund ("BIF"),
the FDIC eliminated the insurance premium on FDIC-insured deposits. For the
first three months of last year, this premium was calculated as $.23 per $100 of
estimated insured deposits.
In late 1995, proposed legislation was passed in Congress that contained
provisions to recapitalize the Savings Association Insurance Fund ("SAIF").
However, the President vetoed the proposed legislation on December 6, 1995, for
reasons unrelated to the SAIF recapitalization issue. The legislation included
provisions for a one-time special assessment, as determined by the FDIC, on
SAIF-assessable deposits of insured depository institutions in an amount
adequate to cause the SAIF to achieve its specific designated reserve ratio of
1.25%, which would have called for a special assessment in the range of $.80 per
$100 of insured deposits for SAIF institutions.
Under the vetoed legislation, the special assessment would have been
applied to the amount of SAIF-assessable deposits held as of March 31, 1995. The
SAIF-assessable deposits of BB&T-NC and BB&T-SC as of March 31, 1995 totaled
approximately $4.3 billion and $1.5 billion, respectively. Under the vetoed
legislation, BB&T-NC would have received a 20% discount on the assessment,
because the bank's SAIF-assessable deposits were less than 50% of its total
assessable deposits as of June 30, 1995. The pretax impact on Southern National
of a one-time assessment of the type included in the vetoed legislation would
not have exceeded $41.0 million. The vetoed legislation contained additional
provisions that, among other
14
<PAGE>
things, would have required BIF member institutions to share pro rata in the
obligations of SAIF members for certain government bonds.
Although the SAIF-recapitalization provisions discussed in the preceding
paragraphs were included in legislation that was vetoed and therefore have not
been enacted into law, similar provisions may be considered and included in
other legislation later in 1996. The final form of the legislation, including
whether the legislation will contain some or all of the provisions discussed
above, cannot be determined with certainty at this time. Similarly, the date of
passage of the final form of any such legislation cannot be determined with
certainty at this time. In the event that the SAIF is recapitalized pursuant to
any such legislation, it is expected that future assessment rates applicable to
SAIF-assessable deposits would be reduced.
Excluding $25.2 million in nonrecurring charges which were recorded in the
first quarter of last year, other noninterest expenses increased $3.4 million,
or 8.1%. This increase was driven by increases in advertising, up $1.6 million,
and other charge-offs, up $2.1 million.
Southern National's efficiency ratio improved to 54.3% for the first
quarter of 1996 compared to 58.8%, excluding nonrecurring charges, for the same
period in 1995.
PROVISION FOR INCOME TAXES
The provision for income taxes increased to $34.3 million for the first
quarter of 1996 compared to a tax benefit of $4.2 million recorded in the first
quarter of 1995 which resulted from the net loss. Excluding the impact of the
nonrecurring charges recorded in 1995, the income tax provision increased $5.8
million, or 20.4%, because of higher pretax earnings. Effective tax rates were
33.0% and 32.8%, for the three months ended March 31, 1996 and 1995,
respectively.
PROFITABILITY MEASURES
<TABLE>
<CAPTION>
1996 1995
FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C> <C>
Return on average assets..................................................... 1.40% 1.36% 1.20% 1.15% (.25)%
Return on average common equity.............................................. 17.86 17.35 16.00 15.48 (3.87)
Net interest margin.......................................................... 4.28 4.07 3.95 4.06 4.14
Efficiency ratio (taxable equivalent)*....................................... 54.3 53.2 54.5 57.9 58.8
</TABLE>
* Excludes securities gains (losses) and foreclosed property expense for all
periods and nonrecurring items totaling $83,393 for the first quarter of 1995,
$3,458 for the second quarter of 1995 and $6,117 for the third quarter of
1995.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The nature of the business of Southern National's banking subsidiaries
ordinarily results in a certain amount of litigation. The subsidiaries of
Southern National are involved in various legal proceedings, all of which are
considered incidental to the normal conduct of business. Management believes
that the liabilities arising from these proceedings will not have a materially
adverse effect on the consolidated financial position or consolidated results of
operations of Southern National.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 -- "Computation of Earnings Per Share" is included herein.
(b) Exhibit 27 -- "Financial Data Schedule" is included in the
electronically-filed document as required.
(c) Southern National filed a Form 8-K under Item 5 on April 15, 1996 to
report the results of operations and financial condition as of March 31, 1996.
Southern National filed a Form 8-K under Item 5 on May 3, 1996 to report the
plans to acquire Regional Acceptance Corporation.
16
<PAGE>
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.
SOUTHERN NATIONAL CORPORATION
(Registrant)
Date: May 14, 1996 By: /s/ SCOTT E. REED
SCOTT E. REED, SENIOR EXECUTIVE VICE
PRESIDENT
AND CHIEF FINANCIAL OFFICER
Date: May 14, 1996 By: /s/ SHERRY A. KELLETT
SHERRY A. KELLETT, EXECUTIVE VICE
PRESIDENT AND
CONTROLLER (PRINCIPAL ACCOUNTING
OFFICER)
17
<PAGE>
EXHIBIT 11
SOUTHERN NATIONAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
PRIMARY EARNINGS PER SHARE:
Weighted average number of common shares outstanding during the period..................... 100,904,475 102,200,432
Add --
Dilutive effect of outstanding options (as determined by application of treasury
stock method)......................................................................... 1,497,949 1,180,112
Issuance of additional shares under share repurchase agreement, contingent upon market
price.................................................................................. 138,020 --
Weighted average number of common shares, as adjusted...................................... 102,540,444 103,380,544
Net income (loss).......................................................................... $ 69,610 $ (12,345)
Less -- Preferred dividend requirement..................................................... 610 1,299
Income (loss) available for common shares.................................................. $ 69,000 $ (13,644)
Primary earnings (loss) per share.......................................................... $ .67 $ (.13)
FULLY DILUTED EARNINGS PER SHARE:
Weighted average number of common shares outstanding during the period..................... 100,904,475 102,200,432
Add --
Shares issuable assuming conversion of convertible preferred stock...................... 3,775,239 4,548,236
Dilutive effect of outstanding options (as determined by application of treasury
stock method)......................................................................... 1,497,949 1,180,268
Issuance of additional shares under share repurchase agreement, contingent upon market
price.................................................................................. 138,020 --
Shares assuming conversion of convertible debentures.................................... -- 495,689
Weighted average number of common shares, as adjusted...................................... 106,315,683 108,424,625
Net income (loss).......................................................................... $ 69,610 $ (12,345)
Add -- After tax interest expense and amortization issue costs applicable to
convertible debentures.................................................................. -- 81
Net income (loss), as adjusted............................................................. $ 69,610 $ (12,264)
Fully diluted earnings per share........................................................... $ .65 $ NM
</TABLE>
NM -- not meaningful.
<TABLE> <S> <C>
<ARTICLE> 9
<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> 656,099
<INT-BEARING-DEPOSITS> 836
<FED-FUNDS-SOLD> 11,772
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,692,489
<INVESTMENTS-CARRYING> 142,593
<INVESTMENTS-MARKET> 147,529
<LOANS> 13,707,633
<ALLOWANCE> 175,104
<TOTAL-ASSETS> 20,174,126
<DEPOSITS> 15,163,313
<SHORT-TERM> 1,565,525
<LIABILITIES-OTHER> 278,861
<LONG-TERM> 1,603,346
0
0
<COMMON> 516,718
<OTHER-SE> 1,046,363
<TOTAL-LIABILITIES-AND-EQUITY> 20,174,126
<INTEREST-LOAN> 308,609
<INTEREST-INVEST> 74,941
<INTEREST-OTHER> 232
<INTEREST-TOTAL> 383,782
<INTEREST-DEPOSIT> 140,488
<INTEREST-EXPENSE> 190,139
<INTEREST-INCOME-NET> 193,643
<LOAN-LOSSES> 10,500
<SECURITIES-GAINS> (8)
<EXPENSE-OTHER> 146,946
<INCOME-PRETAX> 103,864
<INCOME-PRE-EXTRAORDINARY> 69,610
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,610
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.65
<YIELD-ACTUAL> 4.28
<LOANS-NON> 64,796
<LOANS-PAST> 28,249
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 172,158
<CHARGE-OFFS> 10,599
<RECOVERIES> 3,045
<ALLOWANCE-CLOSE> 175,104
<ALLOWANCE-DOMESTIC> 175,104
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 28,017
</TABLE>
