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 September 30, 1995
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 14,952,076
(Class of Stock) (Shares outstanding
as of November 13, 1995)
CCB FINANCIAL CORPORATION
FORM 10-Q
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1995, December 31, 1994 and
September 30, 1994 3
Consolidated Statements of Income
Three Months Ended September 30, 1995 and 1994
and Nine Months Ended September 30, 1995 and 1994 4
Consolidated Statements of Shareholders' Equity
Nine Months Ended September 30, 1995 and 1994 5
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1995 and 1994 6
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 1995 and 1994 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CCB Financial Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30, December 31, September 30,
1995 1994 1994
Assets:
Cash and due from banks $ 181,498,544 204,890,083 175,231,165
Time deposits in other banks 31,429,559 35,852,838 91,520,325
Federal funds sold and other
short-term investments 328,000,000 161,948,000 158,622,000
Investment securities:
Available for sale 879,660,874 766,101,623 789,961,730
Held to maturity (market
values of $85,172,579,
$232,148,439 and
$198,868,498) 81,423,638 244,179,959 200,212,198
Loans and lease financing
(notes 3 and 5) 3,267,536,043 3,158,862,557 3,022,388,690
Less reserve for loan and
lease losses (note 4) 42,533,062 40,599,645 38,994,090
Net loans and lease
financing 3,225,002,981 3,118,262,912 2,983,394,600
Premises and equipment 64,894,996 64,617,815 63,061,048
Other assets (note 5) 110,211,293 124,835,008 123,538,918
Total assets $ 4,902,121,885 4,720,688,238 4,585,541,984
Liabilities:
Deposits:
Demand (non-interest bearing) $ 516,258,581 511,356,573 462,885,415
Savings and NOW accounts 499,916,575 520,080,718 513,229,535
Money market accounts 1,281,673,955 1,209,037,486 1,137,798,086
Jumbo time deposits 291,050,949 257,444,500 224,488,213
Consumer time deposits 1,642,458,662 1,559,761,213 1,573,199,580
Total deposits 4,231,358,722 4,057,680,490 3,911,600,829
Federal funds purchased,
master notes and
securities sold under
agreements to repurchase 63,625,717 45,549,983 41,060,740
Other short-term borrowed
funds 15,800,107 69,266,636 63,506,975
Long-term debt 80,855,574 95,615,336 98,598,429
Other liabilities 95,872,216 81,424,697 86,268,073
Total liabilities 4,487,512,336 4,349,537,142 4,201,035,046
Shareholders' equity:
Serial preferred stock.
Authorized
5,000,000 shares; none issued -- -- --
Common stock of $5 par value.
Authorized 50,000,000 shares;
14,951,952, 14,996,828,
and 15,401,078 shares issued 74,759,760 74,984,140 77,005,390
Additional paid-in capital 89,184,976 92,283,008 105,761,179
Retained earnings 249,866,389 225,499,020 216,005,746
Unrealized gain (loss) on
investment securities
available for sale,
net of applicable taxes 2,854,413 (18,644,387) (11,030,316)
Less: Unearned common stock
held by management
recognition plans (2,055,989) (2,970,685) (3,235,061)
Total shareholders' equity 414,609,549 371,151,096 384,506,938
Total liabilities and
shareholders' equity $ 4,902,121,885 4,720,688,238 4,585,541,984
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30,
1995 1994
Interest income:
Interest and fees on loans and leases $ 76,729,015 62,129,270
Interest and dividends on
investment securities:
U.S. Treasury 7,593,843 8,445,940
U.S. Government agencies
and corporations 5,517,779 4,440,724
States and political subdivisions
(primarily tax-exempt) 1,219,135 1,111,510
Equity and other securities 531,755 511,572
Interest on time deposits in other banks 831,198 389,628
Interest on federal funds sold and
other short-term investments 4,122,100 1,367,101
Total interest income 96,544,825 78,395,745
Interest expense:
Deposits 43,466,931 29,380,913
Federal funds purchased, master notes
and securities sold
under agreements to repurchase 697,378 344,200
Other short-term borrowed funds 234,113 308,954
Long-term debt 1,485,141 1,543,781
Total interest expense 45,883,563 31,577,848
Net interest income 50,661,262 46,817,897
Provision for loan and lease
losses (note 4) 2,027,718 2,422,444
Net interest income after provision
for loan and lease losses 48,633,544 44,395,453
Other income:
Service charges on deposit accounts 6,585,063 5,831,868
Trust and custodian fees 1,559,296 1,809,965
Insurance commissions 841,476 644,065
Merchant discount 1,199,035 982,333
Other service charges and fees 1,037,246 798,731
Other 1,381,036 1,494,198
Investment securities losses, net (4,615) (75,500)
Total other income 12,598,537 11,485,660
Other expenses:
Personnel expense 19,366,429 18,227,470
Net occupancy expense 2,759,764 2,799,973
Equipment expense 2,667,942 2,587,212
Other operating expenses 11,529,775 13,320,037
Merger-related expense - 1,100,000
Total other expenses 36,323,910 38,034,692
Income before income taxes 24,908,171 17,846,421
Income taxes 8,197,800 11,738,502
Net income $ 16,710,371 6,107,919
Income per share $ 1.12 .40
Weighted average shares outstanding 14,921,146 15,391,484
Continued
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME, Continued
Nine Months Ended September 30,
1995 1994
Interest income:
Interest and fees on loans and leases $ 227,018,320 174,294,888
Interest and dividends on
investment securities:
U.S. Treasury 23,573,075 25,896,512
U.S. Government agencies
and corporations 17,445,300 11,587,190
States and political subdivisions
(primarily tax-exempt) 3,859,936 3,213,739
Equity and other securities 1,593,211 1,694,110
Interest on time deposits in other banks 2,156,814 1,205,272
Interest on federal funds sold and
other short-term investments 9,372,406 3,748,489
Total interest income 285,019,062 221,640,200
Interest expense:
Deposits 124,879,958 82,110,394
Federal funds purchased, master notes
and securities sold
under agreements to repurchase 1,835,844 761,131
Other short-term borrowed funds 1,668,552 441,964
Long-term debt 4,556,438 4,726,023
Total interest expense 132,940,792 88,039,512
Net interest income 152,078,270 133,600,688
Provision for loan and lease
losses (note 4) 5,776,326 6,069,306
Net interest income after provision
for loan and lease losses 146,301,944 127,531,382
Other income:
Service charges on deposit accounts 18,936,983 17,323,423
Trust and custodian fees 4,786,706 6,530,724
Insurance commissions 2,684,343 2,286,937
Merchant discount 3,461,431 2,796,771
Other service charges and fees 2,947,767 2,590,887
Other 7,071,070 4,768,471
Investment securities gains (losses), net (981,822) (25,324)
Total other income 38,906,478 36,271,889
Other expenses:
Personnel expense 59,038,973 53,524,636
Net occupancy expense 8,338,102 8,282,876
Equipment expense 7,886,293 7,783,901
Other operating expenses 37,510,063 37,592,287
Merger-related expense 10,332,596 1,100,000
Total other expenses 123,106,027 108,283,700
Income before income taxes 62,102,395 55,519,571
Income taxes 21,305,095 24,293,548
Net income $ 40,797,300 31,226,023
Income per share $ 2.73 2.03
Weighted average shares outstanding 14,947,700 15,379,756
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Nine Months Ended September 30, 1995 and 1994
Unrealized
Gain
(Loss) on
Investment Total
Additional Securities Management Share-
Common Paid-In Retained Available Recognition holders'
Stock Capital Earnings for Sale Plans Equity
Balance December 31, 1993
CCB Financial Corporation $ 47,586,385 83,349,012 124,922,331 (835,677) (4,018,288) 251,003,763
Security Capital Bancorp 51,167,130 - 73,053,169 - - 124,220,299
Adjustments for pooling-
of-interests (21,960,035) 21,960,035 - - - -
Balance December 31,
1993, Restated 76,793,480 105,309,047 197,975,500 (835,677) (4,018,288) 375,224,062
Mark to market adjustment,
net of applicable
income taxes - - - 10,299,318 - 10,299,318
Balance January 1, 1994 76,793,480 105,309,047 197,975,500 9,463,641 (4,018,288) 385,523,380
Net income - - 31,226,023 - - 31,226,023
Stock options exercised 216,400 211,782 - - - 428,182
Transactions pursuant to
restricted stock
plan, net (4,490) 240,350 - - - 235,860
Earned portion of
management
recognition plans - - - - 783,227 783,227
Cash dividends ($.98
per share) - - (13,195,777) - - (13,195,777)
Change in unrealized
losses, net of appli-
cable income taxes - - - (20,493,957) - (20,493,957)
Balance September 30, 1994 $ 77,005,390 105,761,179 216,005,746 (11,030,316) (3,235,061) 384,506,938
Balance December 31, 1994 $ 74,984,140 92,283,008 225,499,020 (18,644,387) (2,970,685) 371,151,096
Net income - - 40,797,300 - - 40,797,300
Stock options exercised 326,440 783,398 - - - 1,109,838
Earned portion of
management recognition
plans - - - - 914,696 914,696
Purchase and retirement
of shares (550,820) (3,881,430) - - - (4,432,250)
Cash dividends ($1.06
per share) - - (16,429,931) - - (16,429,931)
Change in unrealized
losses, net of appli-
cable income taxes - - - 21,498,800 - 21,498,800
Balance September 30, 1995 $ 74,759,760 89,184,976 249,866,389 2,854,413 (2,055,989) 414,609,549
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1995 and 1994
1995 1994
Operating activities:
Net income $ 40,797,300 31,226,023
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 6,514,978 6,065,262
Provision for loan and lease losses 5,776,326 6,069,306
Net loss on sales of
investment securities 981,822 25,324
Net amortization and accretion on
investment securities 4,575,718 5,917,563
Amortization of intangibles and
other assets 4,002,397 2,487,970
Accretion of negative goodwill (2,516,858) (2,525,993)
Decrease in accrued interest receivable 228,563 31,739
Increase in accrued interest payable 4,721,677 3,980,961
Decrease in other assets 8,679,522 12,882,197
Increase (decrease) in other
liabilities 6,318,882 (748,505)
Decrease in deferred taxes payable (635,095) (2,228,838)
Vesting of shares held by management
recognition plans 914,696 783,227
Transactions pursuant to restricted
stock plan, net - 235,860
Other 106,523 7,671
Net cash provided by operating activities 80,466,451 64,209,767
Investing activities:
Proceeds from maturities and issuer calls
of investment securities held to maturity 11,705,251 6,112,903
Purchases of investment securities held
to maturity (8,307,078) (94,306,878)
Proceeds from sales of investment
securities available for sale 143,102,969 116,778,688
Proceeds from maturities and issuer
calls of investment securities
available for sale 114,626,981 451,107,068
Purchases of investment securities
available for sale (183,015,465) (432,892,442)
Net increase in loans and
leases receivable (114,240,758) (251,698,384)
Purchases of premises and equipment (6,352,159) (4,957,125)
Cash acquired, net of cash paid, in
purchase acquisitions 33,954,159 31,182,000
Net cash used by investing activities (8,526,100) (178,674,170)
Financing activities:
Net increase in deposit accounts 136,306,254 59,302,068
Net increase in federal funds purchased,
master notes and securities sold under
agreements to repurchase 18,075,734 15,533,774
Net decrease in other short-term
borrowed funds (53,466,529) 45,540,613
Proceeds from issuance of long-term debt 4,230,381 12,637,047
Repayments of long-term debt (19,096,666) (13,155,362)
Exercise of stock options 1,109,838 428,182
Purchase and retirement of common stock (4,432,250) -
Cash dividends (16,429,931) (13,195,777)
Net cash provided by financing activities 66,296,831 107,090,545
Net increase (decrease) in cash and
cash equivalents 138,237,182 (7,373,858)
Cash and cash equivalents at January 1 402,690,921 432,747,348
Cash and cash equivalents at September 30 $ 540,928,103 425,373,490
Supplemental disclosure of cash flow information:
Interest paid during the period $ 128,219,115 31,609,587
Income taxes paid during the period 27,120,947 19,882,200
Supplemental disclosure of noncash
investing activities:
Investments transferred to available
for sale $ 159,336,349 329,799,000
Loans and lease financing transferred
to other real estate acquired
through loan foreclosure 3,842,909 1,588,567
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 1995 and 1994
(1) Consolidation
The consolidated financial statements include the accounts and results
of operations of CCB Financial Corporation (the "Corporation") and its
wholly-owned subsidiaries, Central Carolina Bank and Trust Company
("CCB"), Graham Savings Bank, Inc., SSB and Central Carolina Bank -
Georgia. The consolidated financial statements also include the
accounts and results of operations of CCB Investment and Insurance
Service Corporation, Southland Associates, Inc., CCBDE and 1st Home
Mortgage Acceptance Corporation, wholly-owned subsidiaries of CCB.
All significant intercompany accounts are eliminated in consolidation.
(2) Merger and Acquisition
On May 19, 1995, the Corporation merged with Security Capital Bancorp
("Security Capital"), a $1.2 billion bank holding company based in
Salisbury, North Carolina. The merger was accounted for as a pooling-
of-interests and was effected through a tax-free exchange of stock.
Each share of Security Capital common stock outstanding on the merger
date was converted into .5 shares of the Corporation's common stock.
Consequently, the Corporation issued approximately 5.9 million shares
of common stock and cash in lieu of fractional shares for all of the
outstanding shares of Security Capital. The former offices of Security
Capital will operate as offices of CCB.
In accordance with the accounting for poolings-of-interests, the
financial statements of the Corporation have been restated to reflect
the merger as if it had been effective as of the earliest period
presented. Separate results of operations of the combining entities
are as follows (in thousands):
Three Months Ended March 31,
1995 1994
Net interest income
after provision for
loan and lease losses:
CCB Financial Corporation $ 38,244 31,427
Security Capital Bancorp 10,802 8,678
$ 49,046 40,105
Net income:
CCB Financial Corporation $ 11,030 8,446
Security Capital Bancorp 3,869 3,461
$ 14,899 11,907
The net interest income after provision for loan and lease losses for
Security Capital has been adjusted from amounts previously reported to
reflect certain reclassifications from noninterest income and expense
to interest income and expense, in accordance with policies followed
by the Corporation.
On June 9, 1995, the Corporation assumed the deposit liabilities of
three branches of a North Carolina bank. Deposit liabilities assumed
totaled $37,500,000. Deposit base premium of $2,987,000 was recorded
as a result of the acquisition which will be amortized on a straight-
line basis over 10 years; no goodwill was recorded in the transaction.
As the acquisition was accounted for as a purchase, the results of
operations of the branches acquired are included in the Corporation's
results of operations only from the date of acquisition. The branch
acquisitions are not material to the financial position or net income
of the Corporation and pro forma information is not deemed necessary.
(3) Loans and Lease Financing
A summary of loans and lease financing at September 30, 1995 and 1994
follows:
1995 1994
Commercial, financial and
agricultural $ 515,765,831 447,040,322
Real estate-construction 444,348,922 329,059,429
Real estate-mortgage 1,786,423,734 1,750,122,746
Instalment loans to individuals 302,843,440 275,648,596
Credit card receivables 188,147,480 192,157,425
Lease financing 34,811,564 33,432,409
Gross loans and lease financing 3,272,340,971 3,027,460,927
Less unearned income 4,804,928 5,072,237
Total loans and lease financing $ 3,267,536,043 3,022,388,690
At September 30, 1995, impaired loans amounted to $5,052,000. The
related reserve for loan and lease losses on these loans amounted to
$2,410,000 at September 30, 1995.
(4) Reserve for Loan and Lease Losses
Following is a summary of the reserve for loan and lease losses for
the nine months ended September 30, 1995 and 1994:
1995 1994
Balance at beginning of year $ 40,599,645 34,189,965
Provision charged to operations 5,776,326 6,069,306
Reserves related to acquisitions - 1,954,007
Recoveries of loans and leases
previously charged-off 1,175,300 1,613,266
Loan and lease losses charged
to reserve (5,018,209) (4,832,454)
Balance at September 30 $ 42,533,062 38,994,090
(5) Risk Assets
Following is a summary of risk assets at September 30, 1995 and 1994 (in
thousands):
1995 1994
Nonaccrual loans and lease financing $ 10,103 12,501
Other real estate acquired through
loan foreclosures 2,935 7,459
Accruing loans and lease financing
90 days or more past due 2,516 2,188
Restructured loans and lease financing - 69
Total risk assets $ 15,554 22,217
(6) Deposit Insurance Premium Expense
During the third quarter of 1995, the Federal Deposit Insurance
Corporation ("FDIC") lowered certain bank deposit insurance premiums
from .23% of deposits to .04%. The effect of this reduction was to
decrease deposit insurance premium expense for the third quarter of
1995 by $1,693,000 from the $2,377,000 recorded in the second quarter
of 1995 and the $2,207,000 recorded in the third quarter of 1994.
Deposit insurance premium expense is included in other operating
expenses. The positive impact of the premium reduction will be
tempered somewhat by possible future special assessment(s) on banks to
help fund the thrift deposit insurance fund. At present, the
Corporation anticipates a special one-time assessment of approximately
$12,000,000. This amount assumes an assessment of .85% on
approximately $1.4 billion of deposits that the Corporation has insured by
the Savings Association Insurance Fund. These deposits have been
acquired through various acquisitions during the three previous years.
(7) 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 or results of
operations of the Corporation or its subsidiaries.
(8) Management Opinion
The financial statements in this report are unaudited. In the
opinion of management, all adjustments (none of which were other
than normal accruals) necessary for a fair presentation of the
financial position and results of operations for the periods
presented have been included.
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 (the
"Corporation") and its wholly-owned subsidiaries, Central Carolina
Bank and Trust Company ("CCB"), Graham Savings Bank, Inc., SSB
("Graham Savings") and Central Carolina Bank-Georgia ("CCB-Ga.")
(collectively "the Banks"), and CCB's wholly-owned subsidiaries, CCB
Investment and Insurance Service Corporation, CCBDE, 1st Home
Mortgage Acceptance Corporation and Southland Associates, Inc. for
the three and nine months ended September 30, 1995 and 1994. 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.
On May 19, 1995, the Corporation effected a merger with Security
Capital Bancorp ("Security Capital"), a $1.2 billion bank-holding
company headquartered in Salisbury, North Carolina. The merger was
accounted for as a pooling-of-interests and was effected through a
tax-free exchange of stock. In accordance with accounting
principles for poolings-of-interests, the financial statements of
the Corporation have been restated to reflect the effect of the
merger as if it had occurred at the beginning of the earliest period
presented. On June 9, 1995, the Corporation assumed the deposit
liabilities of three branch offices of a North Carolina bank. This
$37.5 million transaction was accounted for as a purchase and the
results of operations of the branches acquired are only included in
the Corporation's results of operations from the date of
acquisition.
On September 23, 1994, Security Capital acquired a financial
institution with assets totaling $302,163,000 including net loans of
$135,819,000 and deposits of $250,929,000. As a result of the
acquisition, intangible assets of $16,861,000 were recorded which
are being amortized over periods of 10 to 20 years. This
transaction was accounted for as a purchase and the results of
operations of the financial institution acquired is only included in
the Corporation's results of operations from the date of
acquisition.
Results of Operations - Three Months Ended September 30, 1995 and 1994
Operating income, herein defined as income before non-recurring
merger-related expense and expense related to tax bad debt
recapture, totaled $16,710,000 in 1995 compared to $12,368,000 in
1994. Operating income per share was $1.12 for the third quarter of
1995 compared to $.81 for the same period in 1994. Returns before
merger-related expense and expense related to tax bad debt recapture
on average assets and average shareholders' equity were 1.37% and
16.40%, respectively, compared to 1.16% and 12.66% in the 1994
period. Net income for the three month period amounted to
$16,710,000, an increase of $10,602,000 or 173.6%. Net income per
share was $1.12 in 1995, a $.72 increase over the 1994 period.
Returns on average assets and average shareholders' equity were
1.37% and 16.40%, respectively, compared to .57% and 6.25%,
respectively, in the 1994 period.
Average Balance Sheets and Net Interest Income Analyses on a taxable
equivalent basis for each of the periods are included in Table 1.
Average earning assets increased by $565,158,000 or 14.2% over the
three-month 1994 period which was due in part to internal growth and
to Security Capital's financial institution purchase in the third
quarter of 1994. Increases in interest rates and outstanding volume
of interest-earning assets contributed equally to the yield on
interest-earning assets increasing from 8.05% in 1994 to 8.65% in
1995. The mix of interest-earning assets at September 30, 1995 was
stable compared to the mix at September 30, 1994 with loans
comprising 71% of earning assets. The cost of interest-bearing
funds increased significantly, from 3.77% in 1994 to 4.76% in 1995,
due primarily to increases in rate as deposits repriced as a result
of earlier increases in market interest rates. In addition,
Security Capital has historically had narrower margins than the
Corporation because of its heavier reliance on certificates of
deposit for funding earning assets. Due to these factors, the net
interest margin fell 27 basis points to 4.63% and the interest rate
spread narrowed to 3.89% for the three months ended September 30,
1995. Net interest income on a taxable equivalent basis increased
$4,062,000 or 8.3%.
The provision for loan and lease losses for the third quarter of
1995 was $2,027,000, compared to $2,422,000 in 1994, due to
improvements in the economy and the Corporation's lower level of
nonperforming assets. The reserve for loan and lease losses to loans
and lease financing outstanding was 1.30% at September 30, 1995 and
1.29% at September 30, 1994. Net 1995 loan and lease charge-offs
amounted to $1,774,000 or .22% (annualized) of average loans and
lease financing compared to .13% (annualized) in 1994.
Other income increased $1,113,000 in the third quarter of 1995 to
$12,598,000 compared to 1994's $11,485,000. The increase was due in
part to a $753,000 increase in service charges on deposit accounts
resulting from increased deposit volume, a $217,000 increase in
merchant discount from increased volume, and increases in net
securities gains of $71,000. Trust income decreased from 1994's
level of $1,810,000 to $1,560,000 due to a more conservative
Table 1
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis
Three Months Ended September 30, 1995 and 1994
(Taxable Equivalent Basis-In Thousands) (1)
1995
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans and lease financing (2) $ 3,245,804 76,940 9.42 %
U.S. Treasury and agency
obligations (3) 837,628 14,184 6.77
States and political
subdivision obligations 79,149 1,890 9.55
Equity and other securities (3) 30,693 545 7.11
Federal funds sold and other
short-term investments 286,252 4,313 5.98
Time deposits in other banks 55,897 740 5.25
Total earning assets (3) 4,535,423 98,612 8.65
Non-earning assets:
Cash and due from banks 172,426
Premises and equipment 64,895
All other assets, net 56,517
Total assets $ 4,829,261
Interest-bearing liabilities:
Savings and time deposits $ 3,669,221 43,467 4.70 %
Federal funds purchased, master
notes and securities sold under
agreements to repurchase 57,817 696 4.79
Other short-term borrowed funds 17,016 236 5.46
Long-term debt 82,049 1,485 7.24
Total interest-bearing liabilities 3,826,103 45,884 4.76
Other liabilities and
shareholders' equity:
Demand deposits 502,538
Other liabilities 96,441
Shareholders' equity 404,179
Total liabilities and
shareholders' equity $ 4,829,261
Net interest income and net
interest margin (4) $ 52,728 4.63 %
Interest rate spread (5) 3.89 %
Continued
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis, Continued
Three Months Ended September 30, 1995 and 1994
(Taxable Equivalent Basis-In Thousands) (1)
1994
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans and lease financing (2) $ 2,836,946 62,217 8.72 %
U.S. Treasury and agency
obligations (3) 885,862 13,951 6.30
States and political
subdivision obligations 65,414 1,720 10.52
Equity and other securities (3) 30,402 526 6.92
Federal funds sold and other
short-term investments 121,030 1,416 4.64
Time deposits in other banks 30,611 414 5.37
Total earning assets (3) 3,970,265 80,244 8.05
Non-earning assets:
Cash and due from banks 164,777
Premises and equipment 60,603
All other assets, net 48,340
Total assets $ 4,243,985
Interest-bearing liabilities:
Savings and time deposits $ 3,167,065 29,381 3.68
Federal funds purchased, master
notes and securities sold under
agreements to repurchase 40,536 344 3.37
Other short-term borrowed funds 26,476 309 4.63
Long-term debt 85,689 1,544 7.19
Total interest-bearing liabilities 3,319,766 31,578 3.77
Other liabilities and
shareholders' equity:
Demand deposits 450,175
Other liabilities 86,484
Shareholders' equity 387,560
Total liabilities and
shareholders' equity $ 4,243,985
Net interest income and net
interest margin (4) $ 48,666 4.90 %
Interest rate spread (5) 4.28 %
(1) The taxable equivalent basis is computed using 35% federal and 7.75%
state tax rates in 1995 and 35% federal and 7.83% state tax rates in 1994
where applicable. All amounts prior to June 30, 1995 are restated for CCB
Financial Corporation's May 19, 1995 merger with Security Capital Bancorp
which was accounted for as a pooling-of-interests.
(2) The average loan and lease financing balances include non-accruing
loans and lease financing. Loan fees of $2,726,000 and $1,931,000 for
1995 and 1994, 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.
estimation of trust revenues and a decrease in trust assets managed.
The following schedule presents noninterest income and expense,
excluding merger-related expense, as a percentage of average assets
for the three months ended September 30, 1995 and 1994:
1995 1994
Noninterest income (1) 1.04 % 1.07
Personnel expense 1.59 1.70
Occupancy and equipment expense .45 .50
Other operating expense .95 1.25
Noninterest expense 2.99 3.45
Net overhead 1.95 % 2.38
(1) Includes net gains (losses) on investment securities sales.
Other expenses, excluding merger-related expense, in the 1995 period
increased by $611,000 or only 1.7% from the 1994 period. The largest
increases were experienced in personnel expense and amortization of
intangible assets. The increase in personnel expense was due in part
to growth from Security Capital's 1994 acquisition of a financial
institution. Despite the $1,139,000 increase in personnel expense, a
comparison of assets per employee shows improvement from $2.07 million
of assets per employee at September 30, 1994 to $2.49 million per
employee at September 30, 1995. Amortization of intangible assets
increased $489,000 over 1994's level due to intangible assets
recognized in the aforementioned Security Capital financial
institution acquisition. Deposit insurance expense decreased
$1,693,000 from the second quarter of 1995 and $1,523,000 from the
third quarter of 1994 due to the Federal Deposit Insurance Corporation
lowering certain bank deposit insurance premiums from .23% of deposits
to .04%. The positive impact of the premium reduction will be
tempered somewhat by possible future special assessment(s) on banks to
help fund the thrift deposit insurance fund. At present, the
Corporation anticipates a special one-time assessment of approximately
$12,000,000. This amount assumes an assessment of .85% on
approximately $1.4 billion of deposits that the Corporation has insured by
the Savings Association Insurance Fund. These deposits have been
acquired through various acquisitions during the three previous years.
As a result of the above changes, net overhead (noninterest expense,
excluding merger-related expense, less noninterest income) as a
percentage of average assets decreased to 1.95% for the three months
ended September 30, 1995 from 2.38% for the same period in 1994. The
Corporation's efficiency ratio (noninterest expense, excluding merger-
related expense, as a percentage of taxable equivalent net interest
income and other income) dramatically improved from 61.40% for the
three months ended September 30, 1994 to 55.60% for the same period in
1995. The improvements were due to continued implementation of cost-
saving strategies and efficiencies.
During the third quarter of 1994, the Corporation recognized
$1,100,000 of merger-related expense from Security Capital's financial
institution acquisition. The total was comprised of severance and
other employee benefit costs, professional fees, marketing and
discontinued contracts. The after-tax effect of the merger-related
expense was $660,000 or $.04 per share.
Income taxes for the quarter ended September 30, 1994 included a one-
time charge of approximately $5,600,000 of deferred tax liabilities
recorded in anticipation of the merger of Security Capital's three
savings bank subsidiaries into its commercial bank subsidiary. Income
per share was decreased by $.37 for the quarter. The effective income
tax rate was 32.9% in 1995 compared to 34.4% in the same period of
1994 excluding the tax bad debt recapture.
Results of Operations - Nine Months Ended September 30, 1995 and 1994
Operating income, as previously defined, totaled $48,101,000 for the
nine months ended September 30, 1995 compared to $37,486,000 for the
same period in 1994. Operating income per share was $3.22 for the
nine months ended September 30, 1995 compared to $2.44 for 1994.
Returns of income before merger-related expense and expense related to
tax bad debt recapture on average assets and average shareholders'
equity were 1.35% and 16.44%, respectively, compared to 1.20% and
13.07% in the 1994 period. Net income for the nine months ended
September 30, 1995 amounted to $40,797,000, a increase of $9,571,000
or 30.7% from the same period in 1994. Income per share was $2.73 in
1995, a $.70 increase from the 1994 period. Returns of net income on
average assets and average shareholders' equity were 1.14% and 13.95%,
respectively, compared to 1.00% and 10.89% in the 1994 period.
Average Balance Sheets and Net Interest Income Analyses on a taxable
equivalent basis for each of the nine month periods are included in
Table 2. Average earning assets increased by $567,658,000 or 14.5%
over the 1994 period which was due to internal growth and to Security
Capital's aforementioned acquisition of a financial institution
consummated in the third quarter of 1994. For interest-earning
assets, increases in the outstanding volume of those assets
contributed $36,410,000 to the increase in interest income and
increases in rate contributed $28,198,000. In addition, the mix of
earning assets from September 1994 to September 1995 shifted from
lower-yielding investment securities to higher-yielding loans due to
improved loan demand as loans comprised 72% of average earning assets
at September 30, 1995 versus 70% for the same period in 1994. For
Table 2
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis
Nine Months Ended September 30, 1995 and 1994
(Taxable Equivalent Basis-In Thousands) (1)
1995
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans and lease financing (2) $ 3,234,469 227,611 9.40 %
U.S. Treasury and agency
obligations (3) 872,546 44,379 6.78
States and political
subdivision obligations 80,672 5,980 9.88
Equity and other securities (3) 30,712 1,634 7.10
Federal funds sold and other
short-term investments 211,308 9,811 6.21
Time deposits in other banks 47,613 2,157 6.06
Total earning assets (3) 4,477,320 291,572 8.70
Non-earning assets:
Cash and due from banks 169,596
Premises and equipment 65,618
All other assets, net 54,982
Total assets $ 4,767,516
Interest-bearing liabilities:
Savings and time deposits $ 3,621,787 124,880 4.61 %
Federal funds purchased, master
notes and securities sold under
agreements to repurchase 50,434 1,836 4.87
Other short-term borrowed funds 37,974 1,669 5.87
Long-term debt 85,700 4,556 7.09
Total interest-bearing liabilities 3,795,895 132,941 4.68
Other liabilities and
shareholders' equity:
Demand deposits 487,950
Other liabilities 92,579
Shareholders' equity 391,092
Total liabilities and
shareholders' equity $ 4,767,516
Net interest income and net
interest margin (4) $ 158,631 4.73 %
Interest rate spread (5) 4.02 %
(CONTINUED)
Table 2
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis, Continued
Nine Months Ended September 30, 1995 and 1994
(Taxable Equivalent Basis-In Thousands) (1)
1994
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans and lease financing (2) $ 2,734,650 174,476 8.52 %
U.S. Treasury and agency
obligations (3) 903,122 40,574 5.99
States and political
subdivision obligations 61,982 4,972 10.70
Equity and other securities (3) 38,318 1,764 6.14
Federal funds sold and other
short-term investments 133,197 3,894 3.91
Time deposits in other banks 38,393 1,284 4.47
Total earning assets (3) 3,909,662 226,964 7.75
Non-earning assets:
Cash and due from banks 163,037
Premises and equipment 61,501
All other assets, net 44,768
Total assets $ 4,178,968
Interest-bearing liabilities:
Savings and time deposits $ 3,129,410 82,110 3.51 %
Federal funds purchased, master
notes and securities sold under
agreements to repurchase 37,019 761 2.75
Other short-term borrowed funds 16,361 442 3.61
Long-term debt 85,087 4,726 7.40
Total interest-bearing liabilities 3,267,877 88,039 3.60
Other liabilities and
shareholders' equity:
Demand deposits 444,390
Other liabilities 83,247
Shareholders' equity 383,455
Total liabilities and
shareholders' equity $ 4,178,969
Net interest income and net
interest margin (4) $ 138,925 4.74 %
Interest rate spread (5) 4.15 %
(1) The taxable equivalent basis is computed using 35% federal and 7.75%
state tax rates in 1995 and 35% federal and 7.83% state tax rates in 1994
where applicable. All amounts prior to June 30, 1995 are restated for CCB
Financial Corporation's May 19, 1995 merger with Security Capital Bancorp
which was accounted for as a pooling-of-interests.
(2) The average loan and lease financing balances include non-accruing
loans and lease financing. Loan fees of $7,323,000 and $5,804,000 for
1995 and 1994, 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.
interest-bearing liabilities, the increase in rates paid on deposits
accounted for two-thirds of the increase in interest expense. The
combination of these factors resulted in the net interest margin
remaining stable at 4.73%, a one basis point drop from 1994. The
interest rate spread fell 13 basis points to 4.02% for 1995 due to
deposits beginning to reprice after earlier increases in interest
rates. Net interest income on a taxable equivalent basis increased
$19,706,000 or 14.2% from 1994's level.
The provision for loan and lease losses decreased to $5,776,000 from
$6,069,000 in 1994 due to improvements in the economy which have
resulted in improvements in the loan portfolio and lower levels of
nonperforming assets. Net 1995 loan and lease charge-offs amounted to
$3,843,000 or .16% (annualized) of average loans and lease financing,
the same percentage as in 1994.
Other income increased $2,634,000 during the first nine months of 1995
to $38,906,000 compared to 1994's $36,272,000. The increase was due
in part to a $1,614,000 increase in service charges on deposit
accounts resulting from increased deposit volume and other operating
income increases including a $500,000 gain on the sale of a Security
Capital nonbank subsidiary, a $880,000 gain on the early retirement of
a portion of the Corporation's subordinated debentures, and a $610,000
increase in gains on sales in the secondary market of originated
mortgage loans. Trust income decreased during this same period from
1994's level due to a more conservative estimation of trust income and
a decline in assets managed by the Trust Department. Insurance
commissions increased $397,000 over 1994's level and are expected to
continue increasing as CCB has expanded its arrangement with a
national insurance firm to obtain automobile financing referral
business through their agents in the southern part of Virginia. This
expansion will add approximately 200 agents in addition to the agents
in previously contracted areas in North Carolina and Georgia. Net
losses on sales of securities (primarily U.S. Treasury and agency
obligations) totaling $982,000 were incurred during 1995 primarily due
to the Corporation repositioning the securities portfolio in
anticipation of the combined entities.
Other expenses, excluding merger-related expense, in the 1995 period
increased by a modest $5,589,000 or 5.2% from the 1994 period. As
discussed previously, increases were experienced in personnel expense
due in part to Security Capital's 1994 acquisition of a financial
institution. Amortization of intangible assets increased $1,198,000
during the 1995 period due primarily to intangible assets recorded in
Security Capital's financial institution acquisition. Merger-related
expense of $10,333,000 was incurred during the second quarter of 1995
from the Corporation's merger with Security Capital. As previously
discussed, merger-related expense of $1,100,000 were recorded from
Security Capital's financial institution acquisition. The effective
income tax rate for the nine months was 34.3% in 1995 compared to
44.0% in the same period of 1994. The effective tax rate for 1995 was
higher than would be anticipated due to non-deductible merger-related
expense and the 1994 effective tax rate was higher than would be
anticipated due to the previously discussed expense related to tax bad
debt recapture.
Financial Condition
Total assets have increased slightly, 3.8%, from year-end 1994 but
have increased $316,579,000 since September 30, 1994 due to the
previously mentioned acquisition in 1995 of three branches of a
North Carolina bank and internal growth. Virtually all of the
increase occurred in interest-earning assets. Average assets have
increased from $4,297,775,000 for the year ended December 31, 1994
to $4,829,261,000 for the three months ended September 30, 1995 and
compared to $4,243,985,000 for the three months ended September 30,
1994.
During the second quarter of 1995, $139,657,000 of investments that
Security Capital had classified as held to maturity were reclassified
as available for sale in response to the repositioning of the
Corporation's earning assets portfolio after the merger. These
securities were marked to their market value as of the date of
reclassification. During the first quarter of 1994, $329,799,000 of
securities previously classified as held to maturity were reclassified
as available for sale upon Security Capital's January 1, 1994 adoption
of Statement of Financial Accounting Standard No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("FAS 115"). The
Corporation adopted this Standard as of December 31, 1993.
At September 30, 1995, risk assets (consisting of nonaccrual loans
and lease financing, foreclosed real estate, restructured loans and
lease financing and accruing loans 90 days or more past due)
amounted to approximately $15,554,000 or .48% of outstanding loans
and lease financing and foreclosed real estate. This compares to
approximately $19,992,000 or .63% and $22,217,000 or .73% at
December 31, 1994 and September 30, 1994, respectively. The reserve
for loan and lease losses to risk assets was 2.73x at September 30,
1995 compared to 2.03x at December 31, 1994 and 1.76x at September
30, 1994. Risk assets are at their lowest level since 1989.
On October 18, 1995, CCB opened its first in-store bank in a new
Harris Teeter supermarket in Wilmington, North Carolina. In the
next several months, CCB anticipates opening four additional banks
in new Harris Teeter stores in Cary, Greensboro (2), and Winston-
Salem, North Carolina.
The Corporation's capital position has historically been strong as
evidenced by the Corporation's ratios of average shareholders'
equity to average total assets of 8.37% and 9.13% for the three
months ended September 30, 1995 and 1994, respectively. The 1995
ratio decreased from the prior year's due in part to the
Corporation's repurchase and retirement of $19,962,000 of common
stock during the period from the fourth quarter of 1994 through the
second quarter of 1995. The Corporation's stock repurchase program
was completed during May 1995 with a total of 518,069 shares being
repurchased and retired during the period November 1994 through May
1995.
The unrealized gain on investment securities available for sale,
net of applicable taxes, increased $21,499,000 from December 31,
1994 to September 30, 1995 in conjunction with improvements in the
financial markets.
The Corporation has increased its annual cash dividends consistently
over the past 31 years, increasing to $.38 per share for the three
months ended September 30, 1995 from $.34 per share for the same period
in 1994. On October 17, 1995, the Board of Directors of the Corporation
declared a dividend of $.38 payable on January 2, 1996 to shareholders
of record December 15, 1995. Book value increased 11.1% to $27.73 per
share at September 30, 1995 from 1994's level of $24.97.
Bank holding companies are required to comply with the Federal Reserve
Board's risk-based capital guidelines which require a minimum ratio of
total capital to risk-weighted assets of 8%. At least half of the total
capital is required to be "Tier 1" capital, principally consisting of
common shareholders' equity, noncumulative perpetual preferred stock,
and a limited amount of cumulative perpetual preferred stock less
certain goodwill items. The remainder, "Tier 2 capital", may consist of
a limited amount of subordinated debt, certain hybrid capital
instruments and other debt securities, perpetual preferred stock, and a
limited amount of the general reserve for loan and lease losses. In
addition to the risk-based capital guidelines, the Federal Reserve has
adopted a minimum leverage capital ratio under which a bank holding
company must maintain a minimum level of Tier 1 capital to average total
consolidated assets of at least 3% in the case of a bank holding company
which has the highest regulatory examination rating and is not
contemplating significant growth or expansion. All other bank holding
companies are expected to maintain a leverage capital ratio of at least
1% to 2% above the stated minimum.
The Corporation and the Banks continue to maintain higher capital
ratios than required under regulatory guidelines. The chart below
shows that the Corporation and the Banks significantly exceed all
risk-based capital requirements at September 30, 1995. Graham
Savings' capital ratios decreased significantly from 1994's levels
due to a return of capital to the Corporation in the form of a
dividend but Graham Savings' capital ratios still exceed the risk-
based capital requirements.
September 30, Regulatory
Ratio 1995 1994 Minimums
Tier 1 Capital 4.00%
Corporation 10.39% 11.46%
CCB 10.53 13.38
Graham Savings 19.20 35.06
CCB-Ga. 25.82 21.15
Total Capital 8.00
Corporation 12.48 13.77
CCB 12.27 14.56
Graham Savings 20.93 36.75
CCB-Ga. 26.50 21.78
Leverage 4.00
Corporation 7.80 8.08
CCB 7.88 7.76
Graham Savings 9.47 17.43
CCB-Ga. 40.49 18.46
Accounting Matters
The Financial Accounting Standards Board ("FASB") has approved a one-
time opportunity, without penalty of violating the requirements of FAS
115, for all financial institutions to reclassify their investment
securities portfolios as to trading, available for sale and held to
maturity categories. Management of the Corporation is currently
reviewing the Corporation's investments and the details of the FASB
announcement and determining its potential impact, if any, on net income
and financial position of the Corporation.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
None
(b). Reports on Form 8-K
None
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: November 14, 1995 /S/ Ernest C. Roessler
Ernest C. Roessler
President and Chief Executive Officer
Date: November 14, 1995 /S/ W. Harold Parker, Jr.
W. Harold Parker, Jr.
Senior Vice President and Controller
(Chief Accounting Officer)