01—Abstract
Summary
Summary of the 10-K filed March 18, 1996. Cited figures are marked; the original filing is the authoritative source.
Important note: the filing is from Southern National Corporation (Winston-Salem, NC; NYSE: SNB), not Truist Financial.
Southern National later became BB&T and, after a 2019 merger with SunTrust, Truist. This 10-K covers fiscal 1995, the year Southern National completed its merger with BB&T Financial Corporation (effective February 28, 1995), which was accounted for as a pooling of interests, so prior-period figures are restated. Reported 1995 net income fell 25% to $178.1 milliona ($1.66 primary and $1.64 fully diluted EPS) from $236.9 million ($2.26 and $2.21) in 1994.
The decline was driven by merger-related charges and securities losses. Pretax nonrecurring merger charges were $108.0 millionb, and a $19.8 million loss on a securities portfolio restructuring was partly offset by a $12.3 million gain on divested deposits; the net after-tax impact was $76.3 million. Excluding these items, management reports recurring net income of $254.5 million ($2.34 per diluted share), up 7.4%.
Total assets reached $20.5 billionc, and the company remained well capitalized, with a Tier 1 risk-based ratio of 13.0%, a total risk-based ratio of 14.3%, and a leverage ratio of 7.8%. Credit quality stayed strong by historical standards but began normalizing. Net charge-offs rose to 0.23% of average loans from 0.13%, the provision increased to $31.4 million, and nonperforming assets were $68.4 million (0.33% of total assets).
The allowance covered 1.25%d of loans. Net interest margin compressed to 4.05% from 4.29% because of aggressive loan and deposit pricing after the merger. Management plans to continue securitizing mortgage loans to reduce concentration, and it expects the securities portfolio to shrink toward a historical 21-25% of assets.
02—Key points
Key Highlights
- 1995 net income was $178.1 million ($1.64 fully diluted EPS), down from $236.9 million ($2.21) in 1994, mainly because of $76.3 million in after-tax merger charges and securities losses.
- Excluding nonrecurring items, recurring net income was $254.5 million ($2.34 per diluted share), a 7.4% increase over 1994, with a 1.26% return on average assets.
- Total assets were $20.5 billion at year-end 1995, and net loans and leases were about $13.6 billion, funded by $14.7 billion in deposits.
- Net interest margin fell to 4.05% from 4.29% as the company used aggressive pricing to protect its customer base after the BB&T merger.
- Asset quality remained solid: nonperforming assets were 0.33% of total assets and net charge-offs were 0.23% of average loans, but both ratios rose from 1994 levels.
- Capital was strong, with a Tier 1 risk-based ratio of 13.0% and a leverage ratio of 7.8%. The company announced a plan to repurchase up to 4.3 million shares and redeem its convertible preferred stock in March 1996.
- The dividend rose to $0.86 per share from $0.74, the 23rd consecutive annual increase, and the year-end book value per share was $15.52, up 11.5%.
03—Questions
Frequently Asked Questions
Why did Southern National's earnings decline in 1995 if the business was growing?
The decline was mainly due to one-time items from the February 1995 merger with BB&T Financial and the company's balance sheet repositioning. Pretax nonrecurring merger charges totaled $108.0 million, and a $19.8 million loss on the sale of mortgage-backed and older Treasury securities was recorded in the first quarter. Recurring earnings rose 7.4% to $254.5 million.
Is the company's credit quality deteriorating?
Credit quality remains better than historical norms but is trending slightly weaker. Net charge-offs rose to 0.23% from 0.13%, and the provision for loan losses increased to $31.4 million from $17.8 million. Nonperforming assets rose 15.5% to $68.4 million. Management attributes part of the increase to reorganizing the collections function after the merger and expects charge-offs to move toward more normal levels as parts of the economy soften.
How strong is the company's capital position?
Capital is strong, with a Tier 1 risk-based ratio of 13.0% (regulatory minimum 4%), a total risk-based ratio of 14.3% (minimum 8%), and a leverage ratio of 7.8% (minimum 3%). All three subsidiary banks and the holding company were classified as well capitalized. The planned 4.3 million share buyback is expected to reduce the Tier 1 and total capital ratios by about 1 percentage point.
What risks are highlighted for 1996?
Key risks include continued margin pressure, since the net interest margin fell to 4.05% and management expects rates to be relatively stable. There is also a one-time SAIF special assessment, estimated at up to $41 million pretax, because about 40% of deposits are SAIF-insured. Other considerations are the planned securitization of $800 million in mortgage loans, reliance on higher-cost wholesale funding (short-term borrowings rose to $3.1 billion on average), and the potential for rising charge-offs.
04—Continue