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 period ended March 31, 2000
Commission File Number: 0-12358
CCB FINANCIAL CORPORATION
(Exact name of issuer as specified in charter)
North Carolina 56-1347849
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
111 Corcoran Street, Post Office Box 931, Durham, NC 27702
(Address of principal executive offices)
Registrant's telephone number, including area code (919) 683-7777
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $5 Par value 38,808,681
(Class of Stock) (Shares outstanding as of May 9, 2000)
CCB FINANCIAL CORPORATION
FORM 10-Q
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2000, December 31, 1999 and March 31, 1999 3
Consolidated Statements of Income
Three Months Ended March 31, 2000 and 1999 4
Consolidated Statements of Shareholders' Equity and
Comprehensive Income Three Months Ended March 31,
2000 and 1999 5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements
As of and for the Three Months Ended March 31,
2000 and 1999 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 15
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CCB Financial Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited) December (Unaudited)
March 31, 31, March 31,
2000 1999 1999
---- ---- ----
(In Thousands Except Share Data)
Assets:
Cash and due from banks $ 261,374 300,051 268,788
Time deposits in other banks 92,312 63,020 48,328
Federal funds sold and other
short-term investments 53,915 37,918 468,500
Investment securities:
Available for sale (amortized
costs of $1,642,969,
$1,585,372 and $1,363,886) 1,613,704 1,563,120 1,378,658
Held to maturity (market
values of $71,905
$75,448 and $80,210) 69,997 73,370 75,435
Loans (notes 2 and 4) 6,179,370 5,954,184 5,406,258
Less reserve for loan
losses (notes 2 and 3) 78,177 77,266 72,093
--------- --------- ----------
Net loans 6,101,193 5,876,918 5,334,165
Premises and equipment 115,666 113,858 94,301
Other assets (note 4) 241,526 158,043 135,250
--------- --------- ---------
Total assets $ 8,549,687 8,186,298 7,803,425
========= ========= =========
Liabilities:
Deposits:
Demand (noninterest-bearing) $ 923,812 833,389 886,208
Savings and NOW accounts 840,696 852,265 817,104
Money market accounts 1,984,980 1,895,099 1,823,907
Jumbo time deposits 446,933 422,280 433,432
Consumer time deposits 2,746,980 2,713,992 2,587,532
--------- --------- ---------
Total deposits 6,943,401 6,717,025 6,548,183
Short-term borrowed funds 393,603 329,670 250,308
Long-term debt 383,457 328,922 216,595
Other liabilities 107,684 90,720 99,106
--------- --------- ----------
Total liabilities 7,828,145 7,466,337 7,114,192
--------- --------- ----------
Shareholders' equity (note 5):
Serial preferred stock. Authorized
10,000,000 shares; none issued -- -- --
Common stock of $5 par value.
Authorized 100,000,000 shares;
39,161,784, 39,579,808
and 40,058,092 shares issued 195,809 197,900 200,290
Additional paid-in capital 15,960 29,690 57,470
Retained earnings 527,828 506,092 422,373
Accumulated other comprehensive
income (loss) (18,055) (13,721) 9,100
-------- ------- --------
Total shareholders' equity 721,542 719,961 689,233
-------- ------- --------
Total liabilities and
shareholders' equity $ 8,549,687 8,186,298 7,803,425
========= ========= =========
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
2000 1999
---- -----
(In Thousands Except Per Share Data)
Interest income:
Interest and fees on loans $ 129,104 115,672
Interest and dividends on
investment securities:
U.S. Treasury 4,810 5,993
U.S. Government agencies
and corporations 20,190 13,451
States and political subdivisions
(primarily tax-exempt) 1,042 1,137
Equity and other securities 850 784
Interest on time deposits in other banks 1,065 504
Interest on federal funds sold
and other short-term investments 420 5,433
------- -------
Total interest income 157,481 142,974
------- -------
Interest expense:
Deposits 65,263 56,236
Short-term borrowed funds 5,147 2,549
Long-term debt 5,556 3,330
------ ------
Total interest expense 75,966 62,115
------ ------
Net interest income 81,515 80,859
Provision for loan losses (note 3) 2,097 1,811
------ ------
Net interest income after provision
for loan losses 79,418 79,048
------ ------
Other income:
Service charges on deposit accounts 15,860 14,231
Trust and custodian fees 3,223 2,996
Sales and insurance commissions 4,020 2,742
Merchant discount 3,374 2,576
Other service charges and fees 1,111 1,506
Secondary marketing and servicing - mortgages 1,044 4,409
Other operating income 3,016 3,459
Investment securities gains 239 124
Investment securities losses (29) (3)
------ ------
Total other income 31,858 32,040
------ ------
Other expenses:
Personnel expense 34,150 32,889
Net occupancy expense 4,613 4,093
Equipment expense 4,483 4,090
Other operating expense 17,794 18,150
------ ------
Total other expenses 61,040 59,222
------ ------
Income before income taxes 50,236 51,866
Income taxes 17,058 18,113
------ ------
Net income $ 33,178 33,753
====== ======
Earnings per common share (note 5):
Basic $ .84 .84
Diluted .84 .83
Weighted average shares outstanding (note 5):
Basic 39,468 40,237
Diluted 39,733 40,655
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
Three Months Ended March 31, 2000 and 1999
(Unaudited)
Additional hensive Share-
Common Paid-In Retained Income holders'
Stock Capital Earnings (Loss) Equity
(In Thousands)
Balance December 31, 1998 $ 201,726 73,771 399,066 13,331 687,894
Net income - - 33,753 - 33,753
Other comprehensive loss -
Unrealized losses on
securities, net of deferred
tax benefit of $2,718 and
reclassification adjustment - - - (4,231) (4,231)
-------
Total comprehensive income 29,522
Restricted stock trans-
actions, net (1) (2) - - (3)
Stock options exercised, net
of shares tendered 203 (300) - - (97)
Purchase and retirement
of shares (1,638) (15,999) - - (17,637)
Dividends declared ($.26
per share) - - (10,446) - (10,446)
------- -------- --------- ------ -------
Balance March 31, 1999 $ 200,290 57,470 422,373 9,100 689,233
======= ======== ========= ====== =======
Balance December 31, 1999 $ 197,900 29,690 506,092 (13,721) 719,961
Net income - - 33,178 - 33,178
Other comprehensive loss -
Unrealized losses on
securities, net of deferred
tax benefit of $2,680 and
reclassification adjustment - - - (4,334) (4,334)
------
Total comprehensive income 28,844
Restricted stock trans-
actions, net 10 74 - - 84
Stock options exercised, net
of shares tendered 255 2,364 - - 2,619
Purchase and retirement
of shares (1,950) (13,559) - - (15,509)
Other transactions, net (406) (2,609) - - (3,015)
Dividends declared ($.29
per share) - - (11,442) - (11,442)
------- ------ ------- ------- -------
Balance March 31, 2000 $ 195,809 15,960 527,828 (18,055) 721,542
======= ====== ======= ======== =======
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2000 and 1999
(Unaudited)
2000 1999
---- ----
(In Thousands)
Operating activities:
Net income $ 33,178 33,753
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, amortization and accretion, net 5,075 5,649
Provision for loan losses 2,097 1,811
Net gain on sales of investment securities (210) (121)
Gains on sales of mortgage loans - (3,478)
Sales of loans held for sale 43,375 393,493
Origination of loans held for sale (49,627) (429,701)
Changes in:
Accrued interest receivable (5,919) (201)
Accrued interest payable 2,898 1,157
Other assets (2,689) (1,900)
Other liabilities 12,441 14,346
Other operating activities, net 86 (2,760)
------ ------
Net cash provided by operating activities 40,705 12,048
------ ------
Investing activities:
Proceeds from:
Maturities and issuer calls of investment
securities held to maturity 3,412 4,827
Sales of investment securities available
for sale 100,813 5,014
Maturities and issuer calls of investment
securities available for sale 44,296 193,138
Sales of mortgage loans - 202,518
Purchases of:
Bank owned life insurance (70,000) -
Investment securities available for sale (203,429) (301,166)
Premises and equipment (5,386) (4,577)
Net originations of loans (220,975) (89,215)
Net cash paid in branch dispositions - (12,200)
------- -------
Net cash used by investing activities (351,269) (1,661)
------- -------
Financing activities:
Net increase in deposit accounts 226,376 101,007
Net increase (decrease) in short-term
borrowed funds 63,933 (37,948)
Proceeds from issuance of long-term debt 162,392 -
Repayments of long-term debt (108,178) (100)
Issuances of common stock from
exercise of stock options, net 2,619 (97)
Purchase and retirement of common stock (15,509) (17,637)
Other equity transactions, net (3,015) (1)
Cash dividends paid (11,442) (10,446)
------ -------
Net cash provided by financing activities 317,176 34,778
------- -------
Net increase in cash and cash equivalents 6,612 45,165
Cash and cash equivalents at beginning of year 400,989 740,451
------- -------
Cash and cash equivalents at end of period $ 407,601 785,616
======= =======
Supplemental disclosures of cash flow
information:
Interest paid during the period $ 73,067 60,992
Income taxes paid (refunded) during the period 39 (376)
Supplemental disclosures of noncash investing
and financing activities:
Change in market value of securities available
for sale, net of deferred tax benefit
of $2,680 and $2,718, respectively (4,334) (4,231)
Transactions pursuant to restricted stock 84 (3)
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Three Months Ended March 31, 2000 and 1999
(Unaudited)
(1) Consolidation and Presentation
The accompanying unaudited consolidated financial statements of CCB
Financial Corporation ("CCB") have been prepared in accordance with
the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the statements
reflect all adjustments necessary for a fair presentation of the
financial position, results of operations and cash flows of CCB on a
consolidated basis, and all such adjustments are of a normal recurring
nature. These financial statements and the notes thereto should be
read in conjunction with CCB's Annual Report on Form 10-K for the year
ended December 31, 1999. Operating results for the three month period
ended March 31, 2000, are not necessarily indicative of the results
that may be expected for the year ending December 31, 2000.
Consolidation
The consolidated financial statements include the accounts and results
of operations of CCB and its wholly-owned subsidiaries, Central
Carolina Bank and Trust Company ("CCB Bank"), American Federal Bank,
FSB ("AmFed") and Central Carolina Bank - Georgia (collectively the
"Subsidiary Banks"). The consolidated financial statements also
include the accounts and results of operations of the wholly-owned
subsidiaries of CCB Bank (CCB Investment and Insurance Service
Corporation; Salem Trust Company; Salem Advisors, Inc., CCBDE, Inc.;
Southland Associates, Inc., Sprunt Insurance Company, LTD and Corcoran
Holdings, Inc. and its subsidiary, Watts Properties, Inc.) and AmFed
(American Service Corporation of S.C.; Mortgage North; AMFEDDE, Inc.;
Finance South, Inc. and McBee Holdings, Inc. and its subsidiary,
Greenville Participations, Inc.). All significant intercompany
accounts are eliminated in consolidation. CCB operates as one
business segment.
Earnings Per Share
Basic earnings per share ("EPS") excludes dilution and is computed by
dividing net income available to common shareholders by the weighted
average number of common shares outstanding during each 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. Diluted EPS is computed by dividing
income available to common shareholders by the weighted average number
of common shares outstanding plus dilutive stock options (as computed
under the treasury stock method) assumed to have been exercised during
the period.
Comprehensive Income
Comprehensive income is the change in CCB's equity during the
period from transactions and other events and circumstances from
non-owner sources. Total comprehensive income is comprised of
net income and other comprehensive income (loss). CCB's "other
comprehensive income (loss)" for the three month periods ended
March 31, 2000 and 1999 and "accumulated other comprehensive
income (loss)" as of March 31, 2000 and 1999 are comprised solely
of unrealized gains and losses, net of taxes, on certain
investments in debt and equity securities.
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(1) Consolidation and Presentation - Continued
Other comprehensive loss for the three months ended March 31, 2000 and
1999 follows (in thousands):
2000 1999
---- ----
Unrealized holding losses arising
during period, net of tax $ (4,208) (4,158)
Less reclassification adjustment for net
realized gains, net of tax 126 73
------- ------
Unrealized losses on securities, net
of applicable income taxes $ (4,334) (4,231)
====== ======
(2) Loans
A summary of loans at March 31, 2000 and 1999 follows (in thousands):
2000 1999
---- ----
Commercial, financial
and agricultural $ 688,930 715,721
Real estate-construction 1,253,538 965,694
Real estate-mortgage 3,502,382 2,999,630
Instalment loans to individuals 574,007 496,200
Revolving credit 59,221 205,636
Lease financing 85,516 57,477
--------- ---------
Gross loans 6,190,385 5,413,567
Less unearned income 11,015 7,309
--------- ---------
Total loans $ 6,179,370 5,406,258
========= =========
Mortgage loans held for sale totaled $14,676,000 and $45,084,000 at
March 31, 2000 and 1999, respectively, and are reported at the lower
of cost or market. At March 31, 2000, impaired loans amounted to
$17,001,000 compared to $8,903,000 at December 31, 1999 and
$17,622,000 at March 31, 1999. The related reserve for loan losses on
these loans amounted to $3,456,000 at March 31, 2000, $1,897,000 at
December 31, 1999 and $3,101,000 at March 31, 1999. During the three
months ended March 31, 2000 and 1999, loans totaling $267,000 and
$477,000, respectively, were transferred to "other assets" due to loan
foreclosure.
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(3) Reserve for Loan Losses
Following is a summary of the reserve for loan losses for the three
months ended March 31, 2000 and 1999 (in thousands):
2000 1999
---- ----
Balance at beginning of period $ 77,266 73,182
Provision charged to operations 2,097 1,811
Recoveries of loans previously charged-off 721 708
Loan losses charged to reserve (1,907) (3,608)
------ ------
Balance at end of period $ 78,177 72,093
====== ======
(4) Risk Assets
Following is a summary of risk assets at March 31, 2000, December 31,
1999, and March 31, 1999 (in thousands):
March 31, December 31, March 31,
2000 1999 1999
---- ---- ----
Nonaccrual loans $ 24,745 15,950 18,231
Other real estate acquired
through loan foreclosures 1,654 2,872 649
Restructured loans 2,241 2,251 736
Accruing loans 90 days or
more past due 3,478 3,555 3,722
------ ------ ------
Total risk assets $ 32,118 24,628 23,338
====== ====== ======
(5) Per Share Data
The following schedule reconciles the numerators and denominators of
the basic and diluted EPS computations for the three months ended
March 31, 2000 and 1999 (in thousands except per share data):
2000 1999
---- ----
Basic EPS:
Average common shares outstanding 39,468 40,237
Net income $33,178 33,753
Earnings per share .84 .84
====== ======
Diluted EPS:
Average common shares outstanding 39,733 40,655
Net income $33,178 33,753
Earnings per share .84 .83
====== ======
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(6) Contingencies
Certain legal claims have arisen in the normal course of business,
which, in the opinion of management and counsel, will have no material
adverse effect on the financial position of CCB or its subsidiaries.
(7) Pending Merger
On March 20, 2000, CCB announced a definitive agreement for a merger
with National Commerce Bancorporation ("NCBC"), a $6.8 billion bank
holding company headquartered in Memphis, Tennessee. Under the terms
of the definitive agreement, NCBC would be the surviving company and
CCB shareholders would receive 2.45 shares of NCBC common stock for
each share of CCB common stock. The transaction is proposed to be
accounted for as a pooling-of-interests. The acquisition is subject
to approval by various regulatory agencies and the shareholders of CCB
and NCBC and is tentatively scheduled to be completed in the third
quarter of 2000.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The purpose of this discussion and analysis is to aid in the
understanding and evaluation of financial conditions and changes
therein and results of operations of CCB Financial Corporation (
"CCB") and its wholly-owned subsidiaries, Central Carolina Bank and
Trust Company ("CCB Bank"), American Federal Bank, FSB ("AmFed") and
Central Carolina Bank-Georgia ("CCB-Ga.") (collectively the
"Subsidiary Banks") as of and for the three months ended March 31,
2000 and 1999. The consolidated financial statements also include the
accounts and results of operations of CCB Bank's wholly-owned
subsidiaries: CCB Investment and Insurance Service Corporation
("CCBI"); Salem Trust Company; Salem Advisors, Inc.; CCBDE, Inc.;
Southland Associates, Inc.; Sprunt Insurance Company, LTD and Corcoran
Holdings, Inc. and its subsidiary, Watts Properties, Inc. AmFed's
wholly-owned subsidiaries are also included in the consolidated
financial statements: American Service Corporation of S.C.; AMFEDDE,
Inc.; Mortgage North; Finance South, Inc. and McBee Holdings, Inc. and
its wholly-owned subsidiary, Greenville Participations, Inc. This
discussion and analysis is intended to complement the unaudited
financial statements and footnotes and the supplemental financial data
appearing elsewhere in this Form 10-Q, and should be read in
conjunction therewith.
This report contains certain forward-looking statements (as defined in
the Private Securities Litigation Reform Act of 1995) related to
anticipated future operating and financial performance, growth
opportunities and growth rates, and other similar forecasts and
statements of expectations. Words such as "expects", "plans",
"estimates", "projects", "objectives" and "goals" and similar
expressions are intended to identify these forward-looking statements.
These forward-looking statements are based on estimates, beliefs and
assumptions made by management and are not guarantees of future
performance.
Factors that may cause actual results to differ from those expressed
or implied include, but are not limited to, changes in political and
economic conditions, interest rate movements, competitive product and
pricing pressures within CCB's markets, success and timing of business
initiatives, technological change, and changes in legal, regulatory
and tax policies.
Readers should also consider information on risks and uncertainties
contained in the discussions of competition, interstate banking and
branching, and supervision and regulation in CCB's most recent report
on Form 10-K.
Results of Operations - Three Months Ended March 31, 2000 and 1999
Net income for the three months ended March 31, 2000 amounted to $33.2
million compared to 1999's $33.8 million. First quarter 1999 income
included a branch sale gain of approximately $1.1 million and a gain
on the sale of mortgage loans with principal balances of approximately
$200 million. Basic income per share totaled $.84 in 2000 and the
first quarter of 1999. Diluted income per share amounted to $.84 and
$.83 for the respective periods. Annualized returns on average assets
and shareholders' equity were 1.61% and 18.42%, respectively, in 2000
compared to 1999's 1.78% and 19.86%.
Net Interest Income
Average Balance Sheets and Net Interest Income Analyses on a taxable
equivalent basis for each of the periods are included in Table 1.
Growth of $544.2 million or 7.5% in the interest-earning asset base
over the prior period was substantially offset by a significant
tightening of the interest rate spread by 29 basis points to 3.69%.
Tightening of the interest rate spread was primarily caused by the
higher interest rate environment experienced in the last two quarters
of 1999 and into the current quarter. From the third quarter of 1999
Table 1
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis
Three Months Ended March 31, 2000 and 1999
(Taxable Equivalent Basis-In Thousands) (1)
2000
-----------------------------
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans (2) $ 6,064,826 130,877 8.67 %
U.S. Treasury and agency obligations (3) 1,559,996 26,758 6.86
States and political subdivision
obligations 71,307 1,530 8.59
Equity securities and other securities (3) 49,378 995 8.06
Federal funds sold and other short-term
investments 28,515 449 6.34
Time deposits in other banks 66,205 1,065 6.47
--------- ------- ----
Total earning assets (3) 7,840,227 161,674 8.28
------- ----
Non-earning assets:
Cash and due from banks 217,144
Premises and equipment 114,896
All other assets, net 127,336
---------
Total assets $ 8,299,603
=========
Interest-bearing liabilities:
Savings and time deposits $ 5,897,538 65,263 4.45 %
Other short-term borrowed funds 381,663 5,147 5.49
Long-term debt 370,006 5,556 6.05
--------- ------ ----
Total interest-bearing liabilities 6,649,207 75,966 4.59
------ ----
Other liabilities and shareholders' equity:
Demand deposits 826,173
Other liabilities 99,666
Shareholders' equity 724,557
---------
Total liabilities and shareholders'
equity $ 8,299,603
=========
Net interest income and net interest
margin (4) $ 85,708 4.38 %
====== ====
Interest rate spread (5) 3.69 %
====
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis
Three Months Ended March 31, 2000 and 1999, continued
(Taxable Equivalent Basis-In Thousands) (1)
1999
-------------------------------
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans (2) $ 5,424,018 117,419 8.76 %
U.S. Treasury and agency obligations (3) 1,232,462 20,770 6.74
States and political subdivision
obligations 78,312 1,703 8.69
Equity securities and other securities (3) 47,161 929 7.88
Federal funds sold and other short-term
investments 472,695 5,622 4.82
Time deposits in other banks 41,383 504 4.94
--------- ------- ----
Total earning assets (3) 7,296,031 146,947 8.13
------- ----
Non-earning assets:
Cash and due from banks 222,738
Premises and equipment 93,833
All other assets, net 63,362
---------
Total assets $ 7,675,964
=========
Interest-bearing liabilities:
Savings and time deposits $ 5,598,192 56,236 4.07 %
Other short-term borrowed funds 244,873 2,549 4.22
Long-term debt 216,618 3,330 6.22
--------- ------ ----
Total interest-bearing liabilities 6,059,683 62,115 4.15
------ ----
Other liabilities and shareholders' equity:
Demand deposits 829,826
Other liabilities 97,154
Shareholders' equity 689,301
---------
Total liabilities and shareholders'
equity $ 7,675,964
=========
Net interest income and net interest
margin (4) 84,832 4.68 %
====== ====
Interest rate spread (5) 3.98 %
====
(1) The taxable equivalent basis is computed using 35% federal and
applicable state tax rates in 2000 and 1999.
(2) The average loan balances include non-accruing loans. Loan fees
of $3,521,000 and $4,536,000 for 2000 and 1999, respectively, are
included in interest income.
(3) The average balances for debt and equity securities exclude the
effect of their mark-to-market adjustment, if any.
(4) Net interest margin is computed by dividing net interest income by
total earning assets.
(5) Interest rate spread equals the earning asset yield minus the
interest-bearing liability rate.
to March 31, 2000, the Federal Reserve Bank increased the discount
rate four times, each time by 25 basis points. As the discount rate
generally affects other interest rates, CCB's prime rate has risen
from 7.75% at March 31, 1999 to 8.50% at December 31, 1999 and ended
at 9.00% at March 31, 2000. With our balance sheet being liability
sensitive, in times of rising interest rates, we feel the effect of
higher costs of interest-bearing liabilities sooner than increases in
yield from earning assets. Another contributing factor was an
unfavorable shift in the mix of funding as growth occurred almost
entirely in higher cost sources of deposits and other funding. As a
result of the above factors, the net interest margin declined 30 basis
points to 4.38% and net interest income only increased by $876,000 or
1%. Management expects additional increases in short-term interest
rates in 2000 as the Federal Reserve acts to combat inflationary
pressures which will put further pressure on our interest rate spread
and net interest margin.
Provision for Loan Losses
The provision for loan losses during the first quarter of 2000 was
$2.1 million compared to $1.8 million in the first quarter of 1999.
Net loan charge-offs were .08% (annualized) and .22% (annualized) for
the respective periods. Net charge-offs have declined significantly
since the late second quarter 1999 sale of consumer credit card
receivables. For the first two quarters of 1999, net charge-offs of
credit card receivables amounted to approximately 34% of all loan
charge-offs while portfolio balances approximated less than 3% of
total loan outstandings. Due to the significant decreases in net
charge-offs, the composition of risk assets and the estimated level of
probable losses inherent in the loan portfolio, the reserve for loan
losses to loans outstanding was reduced from 1.33% at March 31, 1999
and 1.30% at December 31, 1999 to 1.27% at March 31, 2000. See
Financial Condition for a discussion of risk assets.
Noninterest Income and Expense
Other income, excluding investment securities transactions and the
previously mentioned branch sale gain and gain on the sale of mortgage
loans in 1999, increased $1.7 million or 5.6% in the first quarter of
2000 to $31.6 million. We had a $1.6 million increase in service
charges on deposit accounts. The service charge increase resulted
primarily from increased deposit volumes and repricing of certain
deposit services based upon the results of product profitability
analyses and competitive analysis. Sales and insurance commissions
increased $1.3 million primarily due to an increase in brokerage fees.
Merchant discount increased $798,000 from 1999. Trust and custodian
fees increased $227,000 due to growth in assets managed. With the
rise in mortgage loan interest rates beginning in 1999 and continuing
into 2000, the volume of mortgage originations dropped significantly.
Consequently, mortgage operations income for 2000 amounted to $1
million compared to 1999's $4.4 million.
Other expenses increased in the 2000 period by $1.8 million or 3.1%.
This is partially explained by a $1.3 million increase in personnel
expense from 1999's level. The increase was due to general salary
increases and a larger workforce. Average assets per employee has
improved from $2.79 million in March 1999 to $2.97 million in March
2000. Occupancy and equipment increased $913,000 due to general
growth of CCB's operations.
As a result of the aforementioned changes, net overhead (noninterest
expense less noninterest income) as a percentage of average assets
decreased to 1.41% for the three months ended March 31, 2000 from
1.45% for the same period in 1999. CCB's efficiency ratio
(noninterest expense as a percentage of taxable equivalent net
interest income and other income) was 51.92% for the three months
ended March 31, 2000 and 50.67% for the 1999 period. The following
schedule presents noninterest income and expense as a percentage of
average assets for the three months ended March 31, 2000 and 1999.
2000 1999
---- ----
Noninterest income 1.54% 1.69
---- ----
Personnel expense 1.65 1.74
Occupancy and equipment expense .44 .44
Other operating expense .86 .96
---- ----
Noninterest expense 2.95 3.14
---- ----
Net overhead 1.41% 1.45
==== ====
The effective income tax rate was 34% in 2000 compared to 34.9% in the
same period of 1999. Tax planning strategies adopted in 1998 and 1999
caused the decline in the effective tax rate.
Financial Condition
Total assets have increased $746.3 million since March 31, 1999 with
the majority of the increase in interest-earning assets. Average
assets have increased from $7.7 billion for the quarter ended March
31, 1999 to $8.3 billion for the quarter ended March 31, 2000.
At March 31, 2000, risk assets (consisting of nonaccrual loans,
foreclosed real estate, restructured loans and accruing loans 90 days
or more past due) amounted to $32.1 million or .52% of outstanding
loans and foreclosed real estate. This compares to $23.3 million or
.43% at March 31, 1999. The majority of the increase resulted from
three unrelated loans, two of which are secured by commercial real
estate. We expect to collect substantially all of the principal on
the three loans. The reserve for loan losses to risk assets was 2.43x
at March 31, 2000 compared to 3.14x at December 31, 1999 and 3.09x at
March 31, 1999.
CCB's capital position has historically been strong as evidenced by
the ratio of average shareholders' equity to average total assets of
8.73% and 8.98% for the three months ended March 31, 2000 and 1999,
respectively. Since 1998, we have been purchasing and retiring our
common shares as part of capital management. We repurchased and
retired 390,000 shares of common stock during 2000 and 1,509,634
shares during the year ended December 31, 1999. The average cost of
the shares repurchased was $39.77 and $49.68 per share for 2000 and
1999, respectively. CCB's book value per share increased from $17.21
at March 31, 1999 to $18.42 at March 31, 2000, a 7% increase.
The unrealized losses on investment securities available for sale, net
of applicable tax benefit, increased $4.3 million from December 31,
1999 to result in an after-tax unrealized loss at March 31, 2000 of
$18.1 million. As of March 31, 2000, unrealized losses on investment
securities available for sale, net of applicable tax benefits, lowered
book value per share by $.47.
On April 18, 2000, CCB's Board of Directors declared a quarterly cash
dividend of $.29 per common share. The dividend is payable July 3,
2000, to shareholders of record as of June 15, 2000.
Bank holding companies are required to comply with the Federal
Reserve's risk-based capital guidelines requiring a minimum
leverage ratio relative to total assets and minimum capital
ratios relative to risk-adjusted assets. The minimum leverage
ratio is 3% but may be raised from 100 to 200 basis points based
on an individual bank's regulatory examination rating and growth
profile. The minimum risk-adjusted capital ratios are 4% for
Tier I capital and 8% for total capital. CCB and the Subsidiary
Banks continue to maintain higher capital ratios than required
under regulatory guidelines. The following table discloses CCB's
components of capital, risk-adjusted asset information and
capital ratios (in thousands).
As of March 31,
2000 1999
---- ----
Tier I capital $ 712,426 652,178
Tier II capital:
Allowable loan loss reserve 78,177 70,203
Subordinated debt 19,791 26,388
Other - 507
------- -------
Total capital $ 810,394 749,276
======= =======
Risk-adjusted assets $ 6,459,569 5,614,386
Average regulatory assets 8,263,930 7,645,321
Tier I capital ratio 11.03 % 11.62
Total capital ratio 12.55 13.35
Leverage ratio 8.62 8.53
The Subsidiary Banks also have the highest rating in regards to
the FDIC insurance assessment and, accordingly, pay the lowest
deposit insurance premium.
AFB Merger
During the second quarter of 2000, we anticipate merging AFB into CCB.
All AFB branches will become CCB branches. As part of the merger,
some AFB subsidiaries may be dissolved or merged into existing CCB
Bank subsidiaries for operational efficiencies. Job loss from the
merger is anticipated to be minimal.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk reflects the risk of economic loss resulting from adverse
changes in market price and interest rates. This risk of loss can be
reflected in diminished current market values and/or reduced potential
net interest income in future periods.
CCB's market risk arises primarily from interest rate risk inherent in
its lending and deposit-taking activities. The structure of CCB's
loan and deposit portfolios is such that a significant rise or decline
in interest rates may adversely impact net market values and net
interest income. CCB does not maintain a trading account nor is CCB
subject to currency exchange risk or commodity price risk.
Responsibility for monitoring interest rate risk rests with the
Asset/Liability Management Committee ("ALCO"), comprised of senior
management. ALCO regularly reviews CCB's interest rate risk position
and adopts balance sheet strategies that are intended to optimize net
interest income while maintaining market risk within a set of Board-
approved guidelines. Emphasis will continue to be placed on granting
loans with short maturities and floating rates where possible. This
strategy increases liquidity and is necessitated by the continued
shortening of maturities and more frequent repricing opportunities of
CCB's funding sources. Management will continue to monitor CCB's
interest rate risk position to minimize the adverse impact on earnings
caused by changes in interest rates.
As of March 31, 2000, management believes that there have been no
significant changes in market risk as disclosed in CCB's Annual Report
on Form 10-K for the year ended December 31, 1999. Management
believes that it has accomplished its objective to avoid material
negative changes in net income resulting from changes in interest
rates.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
Exhibit 27 Financial Data Schedule as of March 31, 2000.
(b). Reports on Form 8-K
A Current Report on Form 8-K dated February 1, 2000 was
filed under Items 5 and 7 announcing the approval of a
continuance of CCB's stock repurchase plan.
A Current Report on Form 8-K dated March 17, 2000, as
amended, was filed under Items 5 and 7 announcing the adoption
of a definitive agreement to merge with National Commerce
Bancorporation.
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.
CCB FINANCIAL CORPORATION
Registrant
Date: May 11, 2000 /s/ ERNEST C. ROESSLER
Ernest C. Roessler
Chairman, President and
Chief Executive Officer
Date: May 11, 2000 /s/ SHELDON M. FOX
Sheldon M. Fox
Executive Vice President and
Chief Financial Officer
Date: May 11, 2000 /s/ W. HAROLD PARKER, JR.
W. Harold Parker, Jr.
Senior Vice President and
Controller
(Chief Accounting Officer)