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, 1996
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 15,065,025
(Class of Stock) (Shares outstanding
as of April 30, 1996)
CCB FINANCIAL CORPORATION
FORM 10-Q
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1996, December 31, 1995 and
March 31, 1995 3
Consolidated Statements of Income
Three Months Ended March 31, 1996 and 1995 4
Consolidated Statements of Shareholders' Equity
Three Months Ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995 6
Notes to Consolidated Financial Statements
Three Months Ended March 31, 1996 and 1995 7
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
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) (Unaudited)
March 31, December 31, March 31,
1996 1995 1995
Assets:
Cash and due from banks $ 190,764,767 189,320,033 173,986,756
Time deposits in other banks 60,731,962 72,131,355 44,442,326
Federal funds sold and other short-
term investments 306,400,000 308,081,862 159,448,000
Investment securities:
Available for sale 874,919,446 961,640,464 762,749,779
Held to maturity (market values
of $80,015,704, $83,060,136
and $242,291,251) 76,081,737 78,091,957 241,636,575
Loans and lease financing (notes 2
and 4) 3,398,693,460 3,345,345,231 3,238,418,983
Less reserve for loan and lease
losses (note 5) 44,218,180 43,577,725 42,430,695
Net loans and lease financing 3,354,475,280 3,301,767,506 3,195,988,288
Premises and equipment 67,306,182 66,977,333 65,593,693
Other assets (notes 4 and 5) 107,308,190 111,775,657 108,720,632
Total assets $5,037,987,564 5,089,786,167 4,752,566,049
Liabilities:
Deposits:
Demand (noninterest-bearing) $ 533,993,954 538,177,666 491,672,748
Savings and NOW accounts 525,658,871 522,556,768 491,679,306
Money market accounts 1,315,294,787 1,309,544,849 1,220,932,335
Jumbo time deposits 250,203,767 294,828,281 297,819,553
Consumer time deposits 1,673,740,972 1,632,303,560 1,601,582,681
Total deposits 4,298,892,351 4,297,411,124 4,103,686,623
Other short-term borrowed funds 128,079,553 177,958,782 75,264,278
Long-term debt 68,936,459 78,992,856 89,383,691
Other liabilities 101,599,314 101,906,402 91,362,324
Total liabilities 4,597,507,677 4,656,269,164 4,359,696,916
Shareholders' equity:
Serial preferred stock. Authorized
5,000,000 shares; none issued -- -- --
Common stock of $5 par value.
Authorized 50,000,000 shares;
15,059,409, 14,960,716, and
14,990,938 shares issued 75,297,045 74,803,580 74,954,690
Additional paid-in capital 90,698,154 89,437,260 92,026,384
Retained earnings 273,296,698 261,245,259 236,005,474
Unrealized gain (loss) on investment
securities available for sale, net
of applicable taxes 2,686,488 9,765,025 (7,407,506)
Less: Unearned common stock held by
management recognition plans (1,498,498) (1,734,121) (2,709,909)
Total shareholders' equity 440,479,887 433,517,003 392,869,133
Total liabilities and
shareholders' equity $5,037,987,564 5,089,786,167 4,752,566,049
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
1996 1995
Interest income:
Interest and fees on loans and leases $ 77,987,215 73,466,291
Interest and dividends on investment
securities:
U.S. Treasury 7,105,708 8,445,796
U.S. Government agencies and
corporations 6,688,821 6,054,291
States and political subdivisions
(primarily tax-exempt) 1,158,900 1,346,118
Equity and other securities 516,092 530,152
Interest on time deposits in other banks 884,027 605,312
Interest on federal funds sold and
other short-term investments 2,678,356 2,418,801
Total interest income 97,019,119 92,866,761
Interest expense:
Deposits 42,264,876 38,720,137
Short-term borrowed funds 866,787 1,415,576
Long-term debt 1,245,641 1,535,024
Total interest expense 44,377,304 41,670,737
Net interest income 52,641,815 51,196,024
Provision for loan and lease losses (note 4) 2,000,000 2,150,000
Net interest income after provision for
loan and lease losses 50,641,815 49,046,024
Other income:
Service charges on deposit accounts 6,955,169 6,178,027
Trust and custodian fees 1,571,057 1,727,679
Brokerage and insurance commissions 1,173,579 897,293
Merchant discount 1,283,010 1,109,026
Other service charges and fees 1,104,566 1,066,619
Other 2,071,469 2,695,705
Investment securities gains 1,302,957 -
Investment securities losses (1,318,369) (1,326,057)
Total other income 14,143,438 12,348,292
Other expenses:
Personnel expense 20,412,347 19,878,489
Net occupancy expense 2,933,399 2,935,079
Equipment expense 2,608,711 2,619,066
Other operating expenses 11,741,641 13,612,145
Total other expenses 37,696,098 39,044,779
Income before income taxes 27,089,155 22,349,537
Income taxes 9,316,700 7,450,250
Net income $ 17,772,455 14,899,287
Income per share $ 1.18 .99
Weighted average shares outstanding 15,011,702 14,998,166
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Months Ended March 31, 1996 and 1995
(Unaudited)
Unrealized Gain
(Loss) on
Investment
Additional Securities Management Total
Common Paid-In Retained Available Recognition Shareholders'
Stock Capital Earnings for Sale Plans Equity
Balance December 31, 1994 $ 74,984,145 92,283,003 225,499,020 (18,644,387) (2,970,685) 371,151,096
Net income - - 14,899,287 - - 14,899,287
Stock options exercised 11,365 9,149 - - - 20,514
Earned portion of manage-
ment recognition plans - - - - 260,776 260,776
Purchase and retirement of
shares (40,820) (265,768) - - - (306,588)
Cash dividends ($.34 per
share) - - (4,392,833) - - (4,392,833)
Change in unrealized gains
(losses), net of
applicable income taxes - - - 11,236,881 - 11,236,881
Balance March 31, 1995 $ 74,954,690 92,026,384 236,005,474 (7,407,506) (2,709,909) 392,869,133
Balance December 31, 1995 $ 74,803,580 89,437,260 261,245,259 9,765,025 (1,734,121) 433,517,003
Net income - - 17,772,455 - - 17,772,455
Transactions pursuant to
restricted stock plan - 546,476 - - - 546,476
Stock options exercised 493,465 714,418 - - - 1,207,883
Earned portion of manage-
ment recognition plans - - - - 235,623 235,623
Cash dividends ($.38 per
share) - - (5,721,016) - - (5,721,016)
Change in unrealized gains
(losses), net of
applicable income taxes - - - (7,078,537) - (7,078,537)
Balance March 31, 1996 $ 75,297,045 90,698,154 273,296,698 2,686,488 (1,498,498) 440,479,887
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1996 and 1995
(Unaudited)
1996
1995
Operating activities:
Net income $ 17,772,455 14,899,287
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,959,913 2,089,420
Provision for loan and lease losses 2,000,000 2,150,000
Net loss on investment securities 15,412 1,326,057
Net amortization and accretion of
investment securities 1,585,028 1,752,350
Amortization of intangibles and
other assets 1,251,347 632,301
Accretion of negative goodwill (838,953) (838,953)
Decrease (increase) in accrued
interest receivable 937,764 (1,644,907)
Increase in accrued interest payable 1,846,271 230,041
Decrease in other assets 2,433,738 12,761,002
Increase in other liabilities 4,646,423 8,844,811
Vesting of shares held by management
recognition plans 235,623 260,776
Other operating activities (246,499) (42,868)
Net cash provided by operating activities 33,598,522 42,419,317
Investing activities:
Proceeds from maturities and issuer calls
of investment securities held to maturity 2,008,447 3,094,976
Purchases of investment securities held
to maturity - (576,723)
Proceeds from sales of investment
securities available for sale 9,354,571 61,273,791
Proceeds from maturities and issuer
calls of investment securities
available for sale 168,858,641 40,932,818
Purchases of investment securities
available for sale (104,853,540) (83,994,696)
Net originations of loans and
leases receivable (114,330,551) (86,461,831)
Proceeds from sales of loans held for sale 59,032,927 6,055,991
Purchases of premises and equipment (2,288,762) (3,065,298)
Net cash provided (used) by
investing activities 17,781,733 (62,740,972)
Financing activities:
Net increase in deposit accounts 1,481,227 46,006,133
Net decrease in short-term
borrowed funds (49,879,229) (39,552,341)
Proceeds from issuance of long-term debt - 3,405,381
Repayments of long-term debt (10,105,641) (9,672,450)
Exercise of stock options 1,207,883 20,514
Purchase and retirement of common stock - (306,588)
Cash dividends (5,721,016) (4,392,833)
Net cash used by financing activities (63,016,776) (4,492,184)
Net decrease in cash and cash equivalents (11,636,521) (24,813,839)
Cash and cash equivalents at January 1 569,533,250 402,690,921
Cash and cash equivalents at March 31 $ 557,896,729 377,877,082
Supplemental disclosure of cash flow information:
Interest paid during the period $ 42,531,033 41,440,696
Income taxes paid during the period 308,284 641,647
Supplemental disclosure of noncash investing activities:
Change in market value of securities available
for sale, net of deferred taxes (benefit) of
$(4,684,142) and $6,676,464, respectively $ (7,078,537) 11,236,881
Loans and lease financing transferred
to other real estate acquired
through loan foreclosure 177,131 162,618
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Three Months Ended March 31, 1996 and 1995
(Unaudited)
(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) Loans and Lease Financing
A summary of loans and lease financing at March 31, 1996 and 1995
follows:
1996 1995
Commercial, financial and $ 533,882,008 487,707,845
agricultural
Real estate-construction 479,254,744 370,671,793
Real estate-mortgage 1,850,533,894 1,869,950,252
Instalment loans to individuals 314,159,369 289,245,185
Credit card receivables 189,041,219 193,055,487
Lease financing 36,775,509 32,524,576
Gross loans and lease financing 3,403,646,743 3,243,155,138
Less unearned income 4,953,283 4,736,155
Total loans and lease financing $ 3,398,693,460 3,238,418,983
Loans held for sale totaled $51,394,000 and $20,860,000 at March 31,
1996 and 1995, respectively, and are reported at the lower of cost or
market.
(3) Reserve for Loan and Lease Losses
Following is a summary of the reserve for loan and lease losses for
the three months ended March 31, 1996 and 1995:
1996 1995
Balance at beginning of year $ 43,577,725 41,045,713
Provision charged to operations 2,000,000 2,150,000
Recoveries of loans and leases
previously charged-off 508,132 422,833
Loan and lease losses charged
to reserve (1,867,677) (1,187,851)
Balance at March 31 $ 44,218,180 42,430,695
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(4) Risk Assets
Following is a summary of risk assets at March 31, 1996 and 1995 (in
thousands):
1996 1995
Nonaccrual loans and lease financing $ 13,283 9,200
Other real estate acquired through
loan foreclosures 2,246 3,869
Accruing loans and lease financing
90 days or more past due 2,768 4,616
Restructured loans and lease financing - 379
Total risk assets $ 18,297 18,064
(5) Mortgage Servicing Rights
Effective January 1, 1996, the Corporation adopted the provisions of
Statement of Financial Accounting Standards No. 122, "Accounting for
Mortgage Servicing Rights, an amendment of SFAS No. 65" ("SFAS No.
122"). SFAS No. 122 provides guidance for the recognition of mortgage
servicing rights ("MSRs") as an asset when a mortgage loan is sold or
securitized and servicing rights retained, regardless of how those
servicing rights were acquired. This eliminates the previously
existing accounting distinction between rights to service mortgage
loans for others that are acquired through loan origination activities
and those acquired through purchase transactions. Impairment of
recorded MSRs is measured periodically by applying current fair value
to each stratum of the disaggregated mortgage-servicing portfolio and
comparing the result to the recorded balance.
As a result of adopting SFAS No. 122, the Corporation recorded MSRs of
$708,462 with a corresponding increase in the gains on sales of
mortgage loans during the three months ended March 31, 1996. The
origination costs of the mortgage loans were allocated between the
cost of the loans sold and the MSRs. Prior to the adoption of SFAS
No. 122, the Corporation had purchased mortgage servicing rights which
had a carrying value of $916,146 at December 31, 1995.
The following summarizes the impact of adoption of SFAS No. 122 on the
Corporation's accounting policies and disclosures:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mortgage Servicing Rights
Mortgage servicing rights are the rights to service loans for
others ("MSRs") and are included in "other assets" on the
Consolidated Balance Sheet at the lower of their cost or market.
The cost of mortgage loans originated or purchased is allocated
between the cost of the loans and the MSRs.
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(5) Mortgage Servicing Rights, continued
Capitalization of the allocated cost of MSRs occurs when the
underlying loans are sold or securitized. The cost of the MSRs is
amortized in proportion to and over the estimated period of net
servicing revenues.
The Corporation periodically evaluates MSRs for impairment by
estimating the fair value based on a discounted cash flow
methodology. This analysis incorporates current market
assumptions, including discount, prepayment and delinquency rates,
with net cash flows. The predominant characteristics used as the
basis for stratifying MSRs are investor type, product type and
interest rate. If the carrying value of the MSRs exceed the
estimated fair value, a valuation allowance is established.
Changes to the valuation allowance are charged against or credited
to mortgage servicing income and fees up to the original cost of
the MSRs.
MORTGAGE SERVICING RIGHTS
A summary of mortgage servicing rights follows:
Capitalized MSRs at December 31, 1995 $ 916,146
Capitalized during the period 708,462
Amortization during the period (70,476)
Capitalized MSRs at March 31, 1996 $1,554,132
The fair value of servicing for which the Corporation has
capitalized an acquisition cost was $1,611,000 compared to a
carrying value of $1,554,132. Additionally, there is value
associated with servicing originated prior to January 1, 1996 for
which the carrying value is zero. No valuation allowance for
capitalized MSRs was required at March 31, 1996.
(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 the Corporation or its
subsidiaries.
(7) 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 ("HMAC") and Southland Associates, Inc. for the
three months ended March 31, 1996 and 1995. 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. Deposit base premium of $2.9
million was recorded as a result of the acquisition which is being
amortized over 10 years; no goodwill was recorded in the transaction.
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.
Results of Operations - Three Months Ended March 31, 1996 and 1995
Net income for the three months ended March 31, 1996 amounted to $17.8
million, an increase of $2.9 million or 19.3% over the same period in
1995. Net income per share was $1.18 in 1996, a $.19 or 19.2% increase
over the 1995 period. Returns on average assets and average
shareholders' equity were 1.45% and 16.39%, respectively, compared to
1.28% and 16.06%, respectively, in the 1995 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 $219 million or 5.0% over the
three-month 1995 period which was due to internal growth with the
exception of the previously mentioned branch acquisition. Sales and
maturities of higher-earning investment securities without equivalent
yield re-investment opportunities contributed to the yield on interest-
earning assets decreasing from 8.66% in 1995 to 8.55% in 1996. The
mix of interest-earning assets at March 31, 1996 changed slightly from
1995's mix as a result of the aforementioned sales and maturities of
investment securities that were reinvested in short-term investments
as the rate environment provided no incentive to reinvest in longer-
term investment securities. As of March 31, 1996, investment
securities comprised 21% of average earning assets compared to 23% for
1995 and other interest-earning assets absorbed the change. Loans
continued to comprise 72% of earning assets. The cost
Table 1
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis
Three Months Ended March 31, 1996 and 1995
(Taxable Equivalent Basis-In Thousands) (1)
1996
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans and lease financing (2) $ 3,368,565 78,157 9.32 %
U.S. Treasury and agency
obligations (3) 894,822 14,921 6.67
States and political
subdivision obligations 76,302 1,794 9.41
Equity and other securities (3) 29,806 530 7.11
Federal funds sold and other
short-term investments 207,991 2,745 5.31
Time deposits in other banks 70,869 884 5.02
Total earning assets (3) 4,648,355 99,031 8.55
Non-earning assets:
Cash and due from banks 155,661
Premises and equipment 67,567
All other assets, net 69,527
Total assets $ 4,941,110
Interest-bearing liabilities:
Savings and time deposits $ 3,754,909 42,264 4.53 %
Short-term borrowed funds 77,490 866 4.50
Long-term debt 73,954 1,247 6.73
Total interest-bearing liabilities 3,906,353 44,377 4.57
Other liabilities and
shareholders' equity:
Demand deposits 493,909
Other liabilities 104,703
Shareholders' equity 436,145
Total liabilities and
shareholders' equity $ 4,941,110
Net interest income and net
interest margin (4) $ 54,654 4.71 %
Interest rate spread (5) 3.98 %
Continued
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis, Continued
Three Months Ended March 31, 1996 and 1995
(Taxable Equivalent Basis-In Thousands) (1)
1995
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans and lease financing (2) $ 3,193,844 73,652 9.31 %
U.S. Treasury and agency
obligations (3) 926,881 15,688 6.77
States and political
subdivision obligations 82,575 2,085 10.09
Equity and other securities (3) 30,739 544 7.08
Federal funds sold and other
short-term investments 156,624 2,544 6.59
Time deposits in other banks 38,600 646 6.78
Total earning assets (3) 4,429,263 95,159 8.66
Non-earning assets:
Cash and due from banks 162,379
Premises and equipment 65,569
All other assets, net 47,998
Total assets $ 4,705,209
Interest-bearing liabilities:
Savings and time deposits $ 3,578,862 38,720 4.39 %
Short-term borrowed funds 107,026 1,418 5.38
Long-term debt 88,084 1,533 6.96
Total interest-bearing liabilities 3,773,972 41,671 4.48
Other liabilities and
shareholders' equity:
Demand deposits 466,311
Other liabilities 88,628
Shareholders' equity 376,298
Total liabilities and
shareholders' equity $ 4,705,209
Net interest income and net
interest margin (4) $ 53,488 4.84 %
Interest rate spread (5) 4.18 %
(1) The taxable equivalent basis is computed using 35% federal and
7.75% state tax rates in 1996 and 1995 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 $3,098,000 and $2,057,000 for
1996 and 1995, 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.
- -----------------------------------
of interest-bearing funds increased slightly, from 4.48% in 1995 to
4.57% in 1996. This increase was due to retail certificates of deposit
and Individual Retirement Accounts maturing and repricing at higher
interest rates. The effect of increases in these accounts' rates were
partially offset by decreases in the rates of all other deposit
categories. Due to these factors, the net interest margin fell 13
basis points to 4.71% and the interest rate spread narrowed to 3.98%
for the three months ended March 31, 1996 from 1995's 4.84%. Net
interest income on a taxable equivalent basis increased $1,166,000 or
2.2%.
The provision for loan and lease losses for the first quarter of 1996
was $2 million compared to $2.1 million in 1995. The reserve for loan
and lease losses to loans and lease financing outstanding was 1.30% at
March 31, 1996 and 1.31% at March 31, 1995. Net 1996 loan and lease
charge-offs amounted to $1.4 million or .16% (annualized) of average
loans and lease financing compared to .10% (annualized) in 1995.
While this ratio has increased in the current period, it compares
favorably to our peer banks.
Other income, excluding investment securities transactions, increased
$485,000 in the first quarter of 1996 to $14.2 million. The increase
was due primarily to a $777,000 increase in service charges on deposit
accounts resulting from increased deposit volume and the adoption of a
new accounting standard as discussed below which resulted in
additional income of $708,000. In the 1995 period, the Corporation
recognized gains of $800,000 from the repurchase and retirement of
subordinated notes; no such activity occurred in 1996.
Effective January 1, 1996, the Corporation adopted the provisions of
Statement of Financial Accounting Standards No. 122, "Accounting for
Mortgage Servicing Rights, an amendment of SFAS No. 65" ("SFAS No.
122"). SFAS No. 122 provides guidance for the recognition of mortgage
servicing rights ("MSRs") as an asset when a mortgage loan is sold or
securitized and servicing rights retained, regardless of how those
servicing rights were acquired. As a result of adopting SFAS No. 122,
the Corporation recorded MSRs of $708,000 with a corresponding
increase in the gains on sales of mortgage loans during the three
months ended March 31, 1996.
During the first quarter of 1996, the Corporation recognized
securities losses of $1.3 million due to the mark-down of a marketable
equity security whose market value impairment was considered other
than temporary. The Corporation also recognized gains of $1.3 million
from the sale of investment securities classified as available for
sale. Approximately $978,000 of the gain was realized through the
sale of investment securities held by CCB's HMAC subsidiary which is
in the process of being liquidated.
Other expenses in the 1996 period decreased by $1.3 million or 3.5%
from 1995. The decrease was due to a $1.9 million decrease in deposit
insurance expense resulting from the Federal Deposit Insurance
Corporation lowering certain bank deposit insurance premiums from .23%
of deposits in 1995 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 $10.5 million. This amount assumes an assessment of
.75% on approximately $1.4 billion of deposits the Corporation has
insured by the Savings Association Insurance Fund. These deposits
have been acquired through various acquisitions during the three
previous years. The largest other expense category, personnel
expense, increase only 2.7% from 1995's level of $19.9 million. A
comparison of assets per employee shows continuing improvement from
$2.35 million of assets per employee at March 31, 1995 to $2.56
million per employee at March 31, 1996.
As a result of the aforementioned changes, net overhead (noninterest
expense less noninterest income) as a percentage of average assets
decreased to 1.92% for the three months ended March 31, 1996 from
2.30% for the same period in 1995. The Corporation's efficiency ratio
(noninterest expense as a percentage of taxable equivalent net
interest income and other income) dramatically improved from 59.31%
for the three months ended March 31, 1995 to 54.79% for the same
period in 1996. The improvement in both of these ratios indicates that
the Corporation's revenues are increasing faster than its expenses.
The following schedule presents noninterest income and expense as a
percentage of average assets for the three months ended March 31, 1996
and 1995.
1996 1995
Noninterest income (1) 1.15 % 1.06
Personnel expense 1.66 1.71
Occupancy and equipment expense .45 .48
Other operating expense .96 1.17
Noninterest expense 3.07 3.36
Net overhead 1.92 % 2.30
(1) Includes net gains (losses) on investment securities sales.
_______________________________
The effective income tax rate was 34.4% in 1996 compared to 33.3% in
the same period of 1995.
Financial Condition
Total assets have decreased slightly, 1.0%, from year-end 1995 but
have increased $285.4 million since March 31, 1995 due primarily to
internal growth. The majority of the increase occurred in interest-
earning assets. Average assets have increased from $4.8 billion for
the year ended December 31, 1995 to $4.9 billion for the three months
ended March 31, 1996 and compare to $4.7 billion for the three months
ended March 31, 1995.
At March 31, 1996, 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 $18,297,000 or .54% of outstanding loans and lease
financing and foreclosed real estate. This compares to approximately
$18,064,000 or .55% at March 31, 1995. The increase in risk assets
was due primarily to the transfer of one credit to the nonaccrual
status and was not due to a general deterioration of the loan
portfolio as the other components of risk assets experienced decreases
from their December 1995 levels. The reserve for loan and lease
losses to risk assets was 2.42x at March 31, 1996 compared to 2.69x at
December 31, 1995 and 2.35x at March 31, 1995.
CCB opened its first in-store bank in a new Harris Teeter supermarket
in Wilmington, North Carolina during the fourth quarter of 1995 which
was followed by three more such facilities in Cary, Greensboro and
Winston-Salem, North Carolina during the first quarter of 1996.
Management believes that the in-store banks will provide opportunities
to attract new customers and increase availability to current
customers as the in-store banks are open during non-traditional
banking hours.
During the first quarter of 1996, CCB's subsidiary, HMAC, called its
outstanding collateralized mortgage obligations ("CMO's") which
totaled $8.9 million at December 31, 1995. In conjunction with the
call of the CMO's, HMAC sold the investment securities that secured
the CMO's at a gain of $978,000. HMAC is in the process of being
liquidated and should be dissolved during the second quarter of 1996
without additional impact on earnings.
The Corporation's capital position has historically been strong as
evidenced by the Corporation's ratio of average shareholders' equity
to average total assets of 8.83% and 8.00% for the three months ended
March 31, 1996 and 1995, respectively. The 1995 ratio is lower than
the Corporation's historical levels due in part to the Corporation's
repurchase and retirement of $19,962,000 (518,069 shares) of common
stock during the period from the fourth quarter of 1994 through the
second quarter of 1995. Increases in this ratio since March 31, 1995
are due to the retention of earnings.
The unrealized gain on investment securities available for sale, net
of applicable taxes, decreased $7.1 million from December 31, 1995 in
conjunction with declines in the financial markets due to higher
interest rates.
The Corporation has increased its annual cash dividends consistently
over the past 31 years, increasing to $.38 per share for the three
months ended March 31, 1996 from $.34 per share for the same period in
1995. On April 16, 1996, the Board of Directors of the Corporation
declared a dividend of $.38 payable on July 1, 1996 to shareholders of
record June 17, 1996. Book value increased 11.6% to $29.25 per share
at March 31, 1996 from March 31, 1995's level of $26.21.
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 following
schedule shows that the Corporation and the Banks significantly exceed
all risk-based capital requirements at March 31, 1996.
March 31 Regulatory
Ratio 1996 1995 Minimums
Tier 1 Capital 4.00%
Corporation 10.95% 10.53
CCB 11.26 10.58
Graham Savings 20.41 18.45
CCB-Ga. 4.74 23.22
Total Capital 8.00
Corporation 13.05 12.72
CCB 12.72 12.40
Graham Savings 22.02 20.24
CCB-Ga. 5.35 23.86
Leverage 4.00
Corporation 8.21 7.78
CCB 8.23 7.80
Graham Savings 10.41 9.42
CCB-Ga. 8.67 36.98
Accounting Issues
The Corporation adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation ("SFAS No. 123") on
January 1, 1996 which establishes a fair value method of accounting
for such compensation plans. Stock-based compensation plans include
all arrangements by which employees receive shares of stock or other
equity instruments of the employer or in which an entity issues its
equity instruments to acquire goods or services from nonemployees.
Under SFAS No. 123, these types of transactions must be accounted for
based on the fair value of the consideration received or the fair
value of the equity instrument issued, whichever is more reliably
measured. While SFAS No. 123 encourages all entities to adopt the
fair value method of accounting, it does allow an entity to continue
to measure the compensation cost of stock compensation plans using the
intrinsic value based method of accounting prescribed by APB Opinion
No. 25, "Accounting for Stock Issued to Employees". Most fixed stock
option plans (the most common type of stock compensation plan) have no
intrinsic value at grant date, and under APB Opinion No. 25 no
compensation cost is recognized. Entities electing to continue using
the guidance under APB Opinion No. 25 must make pro forma disclosures
of net income and earnings per share as if the fair value method of
accounting proscribed by SFAS No. 123 had been applied. The
Corporation intends to continue measuring stock compensation expense
under APB Opinion No. 25.
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: May 13, 1996 /S/ Ernest C. Roessler
Ernest C. Roessler
President and Chief Executive Officer
Date: May 13, 1996 /S/ W. Harold Parker, Jr.
W. Harold Parker, Jr.
Senior Vice President and
Controller
(Chief Accounting Officer)