19
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, 1997
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 clas
ses of common stock, as of the latest practicable date.
Common Stock, $5 Par value 15,786,460
(Class of Stock) (Shares outstanding
as of May 1, 1997)
CCB FINANCIAL CORPORATION
FORM 10-Q
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1997, December 31, 1996 and
March 31, 1996 3
Consolidated Statements of Income
Three Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Shareholders' Equity
Three Months Ended March 31, 1997 and 1996 5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements
Three Months Ended March 31, 1997 and 1996 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)
March 31, December 31, March 31,
1997 1996 1996
(In Thousands Except Share Data)
Assets:
Cash and due from banks $ 144,637 209,038 196,280
Time deposits in other banks 42,771 62,712 60,732
Federal funds sold and other short-
term investments 190,000 256,380 338,610
Investment securities:
Available for sale (amortized costs of
$1,116,512, $906,409 and $883,644) 1,112,702 915,178 888,101
Held to maturity (market values of
$85,444, $88,504 and $82,040) 82,152 84,262 78,106
Loans and lease financing (notes 3 and 5) 3,855,249 3,894,690 3,509,008
Less reserve for loan and lease
losses (note 4) 50,135 50,547 45,653
Net loans and lease financing 3,805,114 3,844,143 3,463,355
Premises and equipment 68,647 68,487 69,193
Other assets (notes 5 and 6) 122,059 118,483 108,725
Total assets $5,568,082 5,558,683 5,203,102
Liabilities:
Deposits:
Demand (noninterest-bearing) $ 593,843 609,704 548,221
Savings and NOW accounts 553,016 553,307 527,748
Money market accounts 1,425,921 1,411,625 1,357,541
Jumbo time deposits 384,742 407,850 305,034
Consumer time deposits 1,830,801 1,761,050 1,707,441
Total deposits 4,788,323 4,743,536 4,445,985
Short-term borrowed funds 112,617 160,189 128,352
Long-term debt 56,726 57,848 71,054
Other liabilities 107,681 101,253 103,263
Total liabilities 5,065,347 5,062,826 4,748,654
Shareholders' equity:
Serial preferred stock. Authorized
5,000,000 shares; none issued - - -
Common stock of $5 par value. Authorized
50,000,000 shares; 15,783,920,
15,749,832 and 15,643,377 shares issued 78,920 78,749 78,217
Additional paid-in capital 100,912 100,249 98,254
Retained earnings 325,808 312,316 276,789
Unrealized gain (loss) on investment
securities available for sale,
net of applicable taxes (2,416) 5,281 2,686
Less: Unearned common stock held by
management recognition plans (489) (738) (1,498)
Total shareholders' equity 502,735 495,857 454,448
Total liabilities and
shareholders' equity $5,568,082 5,558,683 5,203,102
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
1997 1996
(In Thousands Except Per Share Data)
Interest income:
Interest and fees on loans and leases $ 87,065 80,204
Interest and dividends on investment
securities:
U.S. Treasury 7,339 7,125
U.S. Government agencies
and corporations 7,563 6,893
States and political subdivisions
(primarily tax-exempt) 1,216 1,159
Equity and other securities 288 521
Interest on time deposits in other banks 852 884
Interest on federal funds sold and
other short-term investments 3,131 2,966
Total interest income 107,454 99,752
Interest expense:
Deposits 46,664 43,800
Short-term borrowed funds 1,781 867
Long-term debt 948 1,277
Total interest expense 49,393 45,944
Net interest income 58,061 53,808
Provision for loan and lease
losses (note 4) 1,775 2,133
Net interest income after provision
for loan and lease losses 56,286 51,675
Other income:
Service charges on deposit accounts 7,669 6,987
Trust and custodian fees 1,798 1,674
Insurance commissions 1,863 1,199
Merchant discount 1,580 1,283
Other service charges and fees 1,221 1,424
Other 3,240 2,171
Investment securities gains 121 1,303
Investment securities losses (65) (1,318)
Total other income 17,427 14,723
Other expenses:
Personnel expense 23,201 21,047
Net occupancy expense 2,923 2,996
Equipment expense 2,500 2,655
Other operating expenses 12,351 11,986
Merger-related expense 1,016 -
Total other expenses 41,991 38,684
Income before income taxes 31,722 27,714
Income taxes 11,603 9,558
Net income $ 20,119 18,156
Income per share $ 1.28 1.16
Weighted average shares outstanding 15,764 15,585
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Months Ended March 31, 1997 and 1996
(Unaudited)
Unrealized
Gain
(Loss) on
Investment
Additional Securities Management Total
Common Paid-In Retained Available Recognition Shareholders'
Stock Capital Earnings for Sale Plans Equity
(In Thousands)
CCB Financial Corporation $ 74,804 89,437 261,245 9,765 (1,734) 433,517
Salem Trust Bank 3,993 6,345 3,270 - - 13,608
Adjustments for pooling-of-
interests (note 2) (1,119) 1,119 - - - -
Balance December 31, 1995,
restated 77,678 96,901 264,515 9,765 (1,734) 447,125
Net income - - 18,156 - - 18,156
Stock options exercised 539 807 - - - 1,346
Transactions pursuant to
restricted stock plan - 546 - - - 546
Earned portion of management
recognition plans - - - - 236 236
Cash dividends ($.38 per share) - - (5,882) - - (5,882)
Change in unrealized gain
(loss), net of applicable
income taxes - - - (7,079) - (7,079)
Balance March 31, 1996 $ 78,217 98,254 276,789 2,686 (1,498) 454,448
Balance December 31, 1996 $ 78,749 100,249 312,316 5,281 (738) 495,857
Net income - - 20,119 - - 20,119
Stock options exercised 171 663 - - - 834
Earned portion of management
recognition plans - - - - 249 249
Cash dividends ($.42 per share) - - (6,627) - - (6,627)
Change in unrealized gain
(loss), net of applicable
income taxes - - - (7,697) - (7,697)
Balance March 31, 1997 $ 78,920 100,912 325,808 (2,416) (489) 502,735
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1997 and 1996
(Unaudited)
1997 1996
(In Thousands)
Operating activities:
Net income $20,119 18,156
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, amortization and accretion 4,014 2,845
Provision for loan and lease losses 1,775 2,133
Net (gain) loss on sales of investment securities (56) 16
Sale of securitized mortgage loans at par 25,658 -
Sales of loans held for sale 49,058 59,033
Origination of loans held for sale (47,108) (90,223)
Changes in:
Accrued interest receivable (1,678) 774
Accrued interest payable 6,764 1,625
Other assets 1,034 3,544
Other liabilities 4,167 4,618
Other operating activities, net (1,541) (343)
Net cash provided by operating activities 62,206 2,178
Investing activities:
Proceeds from:
Maturities and issuer calls of investment securities
held to maturity 2,104 1,972
Sales of investment securities available for sale 10,761 9,355
Maturities and issuer calls of investment securities
available for sale 76,730 183,114
Purchases of:
Investment securities held to maturity - (1,964)
Investment securities available for sale (186,363) (114,736)
Premises and equipment (2,303) (2,322)
Net originations of loans and leases receivable (104,122) (28,192)
Net cash provided (used) by investing activities (203,193) 47,227
Financing activities:
Net increase in deposit accounts 44,787 12,123
Net decrease in short-term borrowed funds (47,572) (49,607)
Proceeds from issuance of long-term debt 79 -
Repayments of long-term debt (1,236) (10,106)
Issuances of common stock from exercise of stock
options, net 834 1,346
Cash dividends paid (6,627) (5,882)
Net cash used by financing activities (9,735) (52,126)
Net decrease in cash and cash equivalents (150,722) (2,721)
Cash and cash equivalents at beginning of year 528,130 598,343
Cash and cash equivalents at end of period 377,408 595,622
Supplemental disclosure of cash flow information:
Interest paid during the period 42,629 44,319
Income taxes paid during the period 311 592
Supplemental disclosure of noncash investing and
financing activities:
Securitization of mortgage loans 112,648 -
Loans transferred to other real estate acquired
through loan foreclosure 731 177
Change in market value of securities available for
sale, net of deferred tax (benefit)
of $(4,882) and $(4,684), respectively (7,697) (7,079)
Lapse of restrictions on common stock - 546
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Three Months Ended March 31, 1997 and 1996
(Unaudited)
(1) Consolidation and Presentation
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") and Central Carolina Bank - Georgia. The consolidated
financial statements also include the accounts and results of
operations of CCB Investment and Insurance Service Corporation, CCBDE,
Inc. and Southland Associates, Inc., wholly-owned subsidiaries of CCB.
All significant intercompany accounts are eliminated in consolidation.
The Corporation adopted Statement of Financial Accounting Standards
No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" ("SFAS No. 125") on January 1,
1997. The implementation of this SFAS No. 125 did not have a material
impact on the accompanying consolidated financial statements.
In addition to the restatement of prior year financial data for the
merger discussed in Note 2, certain amounts for prior years have been
reclassified to conform to the 1997 presentation. These
reclassifications have no effect on net income or shareholders' equity
as previously reported.
(2) Merger and Acquisition
On January 31, 1997, the Corporation merged with Salem Trust Bank
("Salem Trust"), a $165 million bank based in Winston-Salem, 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
Salem Trust common stock outstanding on the merger date was converted
into .36 shares of the Corporation's common stock. Consequently, the
Corporation issued approximately 680,000 shares of the Corporation's
common stock and cash in lieu of fractional shares for all of the
outstanding shares of Salem Trust.
In accordance with the accounting for poolings-of-interest, 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):
Year Ended December 31,
1996 1995
Net interest income after
provision for loan and lease
losses:
CCB Financial Corporation $ 202,402 194,596
Salem Trust Bank 6,173 4,221
$ 208,575 198,817
Net income:
CCB Financial Corporation $ 70,315 57,860
Salem Trust Bank 2,020 1,044
$ 72,335 58,904
Net interest income after provision for loan and leases losses for the
Corporation and Salem Trust has been adjusted from amounts previously
reported to reflect certain reclassifications between interest income
and expense and noninterest income and expense.
(3) Loans and Lease Financing
A summary of loans and lease financing at March 31, 1997 and 1996
follows (in thousands):
1997 1996
Commercial, financial and agricultural $ 556,222 501,925
Real estate-construction 620,249 495,696
Real estate-mortgage 2,115,239 1,921,424
Instalment loans to individuals 395,782 314,159
Credit card receivables 186,918 189,684
Lease financing 40,168 36,776
Gross loans and lease financing 3,860,282 3,513,961
Less unearned income 5,032 4,953
Total loans and lease financing $ 3,855,249 3,509,008
Loans held for sale totaled $13,375,000 and $51,394,000 at March 31,
1997 and 1996, respectively, and are reported at the lower of cost or
market.
At March 31, 1997, impaired loans amounted to $9,920,000 compared to
$9,135,000 at March 31, 1996. The related reserve for loan and lease
losses on these loans amounted to $2,582,000 at March 31, 1997 and
$1,377,000 at March 31, 1996.
(4) 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, 1997 and 1996 (in thousands):
1997 1996
Balance at beginning of year $ 50,547 44,880
Provision charged to operations 1,775 2,133
Recoveries of loans and leases previously
charged-off 626 508
Loan and lease losses charged to reserve (2,813) (1,868)
Balance at end of period $ 50,135 45,653
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(5) Risk Assets
Following is a summary of risk assets at March 31, 1997 and 1996 (in
thousands):
1997 1996
Nonaccrual loans and lease financing $ 13,553 13,283
Other real estate acquired through
loan foreclosures 1,600 2,246
Accruing loans and lease financing
90 days or more past due 3,209 2,768
Total risk assets $ 18,362 18,297
(6) Mortgage Servicing Rights
A summary of mortgage servicing rights ("MSR") for the three months ended
March 31, 1997 and 1996 follows (in thousands):
1997 1996
Capitalized MSRs at beginning of year $ 2,776 916
Capitalization of servicing 1,745 708
Capitalized servicing sold (1,950) -
Amortization of MSR (188) (70)
Capitalized MSRs at end of period $ 2,383 1,554
Mortgage servicing sold during the three months ended March 31, 1997
resulted in a nominal gain. The fair value of mortgage servicing
rights was $2,426,000 and 1,611,000 at March 31, 1997 and 1996,
respectively. Additionally, there is value associated with servicing
originated prior to January 1, 1996 for which the carrying value is
zero in accordance with the accounting standards in effect at the
time. No valuation allowance for capitalized MSRs was required at
March 31, 1997 or 1996.
(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 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") and Central Carolina Bank-Georgia ("CCB-
Ga.") (collectively "the Banks"), and CCB's wholly-owned subsidiaries,
CCB Investment and Insurance Service Corporation ("CCBI"), CCBDE, Inc.
and Southland Associates, Inc. for the three months ended March 31,
1997 and 1996. 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 January 31, 1997, the Corporation effected a merger with Salem
Trust Bank ("Salem Trust"), a $165 million bank headquartered in
Winston-Salem, North Carolina. The merger was accounted for as a
pooling-of-interests and was effected through a tax-free exchange of
stock. Merger-related expense of $1.0 million (or $792,000 after-tax)
was recorded at the date of merger.
Results of Operations - Three Months Ended March 31, 1997 and 1996
Income before merger-related expense amounted to $20.9 million for the
three months ended March 31, 1997 compared to 1996's $18.2 million.
Income per share before merger-related expense totaled $1.33 in 1997
compared to $1.16 in the first quarter of 1996. Returns before merger-
related expense on average assets and shareholders' equity were 1.54%
and 17.03%, respectively, in 1997 compared to 1996's 1.43% and 16.24%.
Merger-related expense incurred during 1997's first quarter totaled
$792,000 after-tax. Net income for the three months ended March 31,
1997 amounted to $20.1 million, an increase of $1.9 million from the
same period in 1996. Net income per share was $1.28 in 1997, a $.12
increase from the 1996 period. Returns on average assets and average
shareholders' equity in 1997 were 1.48% and 16.39%, respectively,
compared to 1.43% and 16.24%, respectively, in the 1996 period.
Average Balance Sheets and Net Interest Income Analyses on a taxable
equivalent basis for each of the periods are included in Table 1.
Interest-earning assets increased by $450.8 million or 9.4% in the
1997 period. Despite a favorable shift in the mix of interest-earning
assets towards loans (74% of interest-earning assets in 1997 versus
72% in 1996), the overall yield on earning assets declined to 8.42%
from 1996's 8.52%. The cost of interest-bearing funds increased by 1
basis point in the 1997 period to 4.59% and as a result the interest
rate spread and net interest margin declined by 11 and 6 basis points,
respectively, to 3.83% and 4.61%. As a result of the narrower
interest rate spread and net interest margin, net interest income on a
taxable equivalent basis only increased by $4.2 million or 7.4%.
Table 1
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis
Three Months Ended March 31, 1997 and 1996
1997
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans and lease financing (2) $3,905,349 87,139 9.02%
U.S. Treasury and agency obligations (3) 935,965 16,090 6.88
States and political subdivision obligations 82,357 1,822 8.85
Equity and other securities (3) 16,708 288 6.90
Federal funds sold and other short-term
investments 239,840 3,183 5.38
Time deposits in other banks 66,026 852 5.23
Total earning assets (3) 5,246,245 109,374 8.42
Non-earning assets:
Cash and due from banks 140,113
Premises and equipment 68,972
All other assets, net 67,514
Total assets $5,522,844
Interest-bearing liabilities:
Savings and time deposits $4,147,388 46,664 4.56%
Short-term borrowed funds 154,043 1,781 4.69
Long-term debt 57,502 948 6.60
Total interest-bearing liabilities 4,358,933 49,393 4.59
Other liabilities and shareholders' equity:
Demand deposits 560,958
Other liabilities 105,096
Shareholders' equity 497,857
Total liabilities and shareholders'
equity $5,522,844
Net interest income and net interest margin (4) $59,981 4.61%
Interest rate spread (5) 3.83%
Continued
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis, Continued
Three Months Ended March 31, 1997 and 1996
1996
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans and lease financing (2) 3,477,305 80,374 9.28
U.S. Treasury and agency obligations (3) 910,865 15,152 6.65
States and political subdivision obligations 76,701 1,796 9.37
Equity and other securities (3) 30,124 535 7.10
Federal funds sold and other short-term
investments 229,589 3,033 5.31
Time deposits in other banks 70,869 884 5.02
Total earning assets (3) 4,795,453 101,774 8.52
Non-earning assets:
Cash and due from banks 159,928
Premises and equipment 69,442
All other assets, net 69,244
Total assets 5,094,067
Interest-bearing liabilities:
Savings and time deposits 3,878,841 43,800 4.54
Short-term borrowed funds 77,725 867 4.49
Long-term debt 76,072 1,277 6.71
Total interest-bearing liabilities 4,032,638 45,944 4.58
Other liabilities and shareholders' equity:
Demand deposits 505,259
Other liabilities 106,469
Shareholders' equity 449,701
Total liabilities and shareholders'
equity 5,094,067
Net interest income and net interest margin (4) 55,830 4.67
Interest rate spread (5) 3.94
__________________________________
(1) The taxable equivalent basis is computed using 35% federal and
7.50% in 1997 and 35% federal and 7.75% state tax rates in 1996 where
applicable.
(2) The average loan and lease financing balances include non-accruing
loans and lease financing. Loan fees of $2,488,000 and $2,908,000 for
1997 and 1996, 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.
The provision for loan and lease losses for the first quarter of 1997
was $1.8 million compared to $2.1 million in 1996. Despite the loan
growth experienced in the first quarter of 1997, a lower than normal
provision was recorded due to the securitization of $139 million of
mortgage loans. Of the $139 million in securities, $26 million were
sold at par and the remaining $113 million were transferred to the
available for sale investment portfolio. The reserve for loan and
lease losses to loans and lease financing outstanding was 1.30% at
March 31, 1997 and 1996. Net 1997 quarterly loan and lease charge-
offs amounted to $2.2 million or .23% (annualized) of average loans
and lease financing which exceeded the .16% (annualized) experienced
in the first quarter of 1996, but was comparable to the .22%
experienced during the second through the fourth quarter of 1996. The
increased dollar level of charge-offs in 1997 was due primarily to
charge-offs in the credit card portfolio as the net charge-off ratio,
excluding credit cards, totaled .05% (annualized) for both 1997 and
1996.
Other income, excluding investment securities transactions, increased
$2.6 million in the first quarter of 1997 to $17.4 million. The
increase was due primarily to $1.1 million of income related to the
previously mentioned securitization and sale of mortgages and a
$682,000 increase in service charges on deposit accounts. The service
charge increase resulted primarily from increased deposit volume and
repricing of certain deposit services based upon the results of
product profitability analysis. Brokerage and insurance commissions
increased $664,000 from 1996 as the Corporation continued emphasizing
investment services provided through CCBI's association with a
registered securities broker-dealer.
Other expenses, excluding the previously discussed non-recurring
merger-related expense of $1.0 million, increased in the 1996 period
by $2.3 million. The increase is almost wholly explained by the
increase in personnel expense which increased $2.2 million from 1996's
level. The increase was due to general salary increases and a larger
workforce which had the combined effect of increasing salary expense
by $1.6 million with corresponding increases in employee benefits and
payroll taxes. Despite the increased personnel expense, a comparison
of assets per employee shows continuing improvement from $2.59 million
of assets per employee at March 31, 1996 to $2.73 million per employee
at March 31, 1997.
As a result of the aforementioned changes, net overhead (noninterest
expense less noninterest income) as a percentage of average assets
decreased to 1.72% for the three months ended March 31, 1997 from
1.90% for the same period in 1996. The Corporation's efficiency ratio
(noninterest expense as a percentage of taxable equivalent net
interest income and other income) significantly improved from 54.83%
for the three months ended March 31, 1996 to 52.93% for the same
period in 1997. The improvement in both of these ratios, both of
which were calculated excluding the impact of merger-related expense,
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, 1997
and 1996.
1997 1996
Noninterest income 1.28 % 1.16
Personnel expense 1.70 1.66
Occupancy and equipment expense .39 .45
Other operating expense (1) .91 .95
Noninterest expense 3.00 3.06
Net overhead 1.72 % 1.90
_______________________________
(1) Excludes merger-related expense of $1.0 million in 1997.
The effective income tax rate was 36.6% in 1997 compared to 34.5% in
the same period of 1996. Non-deductible merger-related expense
resulted in the higher effective tax rate experienced in 1997.
Financial Condition
Total assets have increased $365.0 million since March 31, 1996 due
solely to net internal growth. The majority of the increase occurred
in interest-earning assets. Average assets have increased from $5.1
billion for the quarter ended March 31, 1996 to $5.5 billion for the
quarter ended March 31, 1997 and compare to $5.4 billion for the three
months ended December 31, 1996.
At March 31, 1997, 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 $18.4 million or .48% of outstanding loans and lease
financing and foreclosed real estate. This compares to approximately
$18.3 million or .52% at March 31, 1996. Decreases in nonaccrual
loans and leases and foreclosed real estate was offset by increases in
accruing loans over ninety days past due. The reserve for loan and
lease losses to risk assets was 2.73x at March 31, 1997 compared to
3.21x at December 31, 1996 and 2.50x at March 31, 1996.
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 9.01% and 8.83% for the three months ended
March 31, 1997 and 1996, respectively. Increases in this ratio since
March 31, 1996 are due primarily to the retention of earnings.
The unrealized gains on investment securities available for sale, net
of applicable taxes, decreased $7.7 million from December 31, 1996 in
conjunction with declines in the financial markets to result in an
unrealized loss at March 31, 1997 of $2.4 million.
The Corporation has increased its annual cash dividends consistently
over the past 32 years. On April 15, 1997, the Board of Directors of
the Corporation declared a regular quarterly dividend of $.42 payable
on July 1, 1997 to shareholders of record June 16, 1997. Book value
increased 9.6% to $31.85 per share at March 31, 1997 from 1996's level
of $29.05. The previously mentioned decline in the unrealized gain
(loss) on investment securities available for sale, net of applicable
taxes, decreased book value by $.15 per share.
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 at March 31, 1997.
March 31, Regulatory
Ratio 1997 1996 Minimums
Tier 1 Capital 4.00%
Corporation 11.93% 11.00
CCB 12.05 11.45
CCB-Ga. 10.82 4.74
Total Capital 8.00
Corporation 14.01 13.13
CCB 13.29 12.97
CCB-Ga. 12.10 5.35
Leverage 4.00
Corporation 8.71 8.24
CCB 8.66 8.31
CCB-Ga. 7.82 8.67
Proposed Merger
On February 18, 1997, the Corporation announced that it had entered
into a definitive agreement to acquire American Federal Bank, FSB
("American Federal") headquartered in Greenville, South Carolina.
American Federal has 40 banking offices located in northwest South
Carolina and assets of $1.3 billion as of December 31, 1996. Under
the terms of the agreement, the Corporation will issue .445 shares of
its common stock in exchange for each share of American Federal in a
transaction designed to qualify as a tax-free exchange. The
acquisition will be accounted for as a pooling-of-interests. The
acquisition, which among other things, is subject to regulatory
approval and approval by the Corporation's shareholders and American
Federal's shareholders, is tentatively scheduled to be consummated
early in the third quarter of 1997.
Accounting Issues
In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, "Earnings Per Share", which establishes standards
for computing and presenting earnings per share. SFAS No. 128
simplifies the standards for computing earnings per share ("EPS") by
replacing the presentation of "primary" earnings per share with a
presentation of "basic" EPS. Basic EPS excludes dilution and is
computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period.
SFAS No. 128 also requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with complex
capital structures. Diluted EPS is computed similarly to "fully
diluted" EPS under existing accounting rules. SFAS No. 128 is
effective for financial statements issued for periods ending after
December 15, 1997; earlier application is not permitted. Restatement
of prior years' EPS is also required by SFAS No. 128. Assuming that
SFAS No. 128 had been implemented, basic earnings per share would not
have differed materially from those disclosed in the accompanying
consolidated statements of income.
In February 1997, the FASB also issued SFAS No. 129, "Disclosure of
Information about Capital Structure". The Statement establishes
standards for disclosing information about an entity's capital
structure. The Statement is effective for the Corporation's financial
statements as of September 30, 1998. The Corporation does not
anticipate that the implementation of this Statement will have a
material impact on the consolidated financial statements.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
(b). Reports on Form 8-K:
A report on Form 8-K dated January 31, 1997 was filed under
Items 5 and 7 reporting the consummation of the merger with
Salem Trust Bank.
A report on Form 8-K dated February 17, 1997 was filed
under Items 5 and 7 reporting the signing of a definitive
agreement to acquire American Federal Bank, FSB.
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 12, 1997 /s/ ERNEST C. ROESSLER
Ernest C. Roessler
President and Chief
Executive Officer
Date: May 12, 1997 /s/ ROBERT L. SAVAGE, JR.
Robert L. Savage, Jr.
Senior Vice President and
Chief Financial Officer
Date: May 12, 1997 /s/ W. HAROLD PARKER, JR.
W. Harold Parker, Jr.
Senior Vice President and
Controller
(Chief Accounting Officer)