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 June 30, 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 classes
of common stock, as of the latest practicable date.
Common Stock, $5 Par value 20,737,977
(Class of Stock) (Shares outstanding
as of August 1, 1997)
CCB FINANCIAL CORPORATION
FORM 10-Q
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1997, December 31, 1996 and
June 30, 1996 3
Consolidated Statements of Income
Three and Six Months Ended June 30, 1997 and 1996 4
Consolidated Statements of Shareholders' Equity
Six Months Ended June 30, 1997 and 1996 5
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements
Six Months Ended June 30, 1997 and 1996 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 18
Signatures 19
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CCB Financial Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited) (Unaudited)
June 30, December 31, June 30,
1997 1996 1996
Assets:
Cash and due from banks $ 170,302 209,038 219,798
Time deposits in other banks 21,953 62,712 57,434
Federal funds sold and other
short-term investments 125,000 256,380 215,340
Investment securities:
Available for sale 1,136,421 915,178 907,546
Held to maturity (market
values of $86,118,
$88,504 and $80,112) 81,979 84,262 77,846
Loans and lease financing (notes
2 and 4) 3,979,080 3,894,690 3,613,214
Less reserve for loan and
lease losses (note 5) 51,640 50,547 46,857
Net loans and lease financing 3,927,440 3,844,143 3,566,357
Premises and equipment 68,202 68,487 68,750
Other assets (notes 4 and 5) 127,667 118,483 104,862
Total assets $ 5,658,964 5,558,683 5,217,933
Liabilities:
Deposits:
Demand (noninterest-bearing) $ 621,065 609,704 562,908
Savings and NOW accounts 536,398 553,307 522,143
Money market accounts 1,419,735 1,411,625 1,365,132
Jumbo time deposits 383,099 407,850 319,924
Consumer time deposits 1,857,961 1,761,050 1,679,669
Total deposits 4,818,258 4,743,536 4,449,776
Other short-term borrowed funds 113,743 160,189 145,104
Long-term debt 100,399 57,848 61,243
Other liabilities 103,052 101,253 93,853
Total liabilities 5,135,452 5,062,826 4,749,976
Shareholders' equity:
Serial preferred stock. Authorized
5,000,000 shares; none issued -- -- --
Common stock of $5 par value.
Authorized 50,000,000 shares;
15,803,293, 15,749,832
and 15,714,469 shares issued 79,016 78,749 78,572
Additional paid-in capital 101,588 100,249 99,526
Retained earnings 340,225 312,316 289,939
Unrealized gain (loss) on invest-
ment securities available for
sale, net of applicable taxes 2,959 5,281 1,166
Less: Unearned common stock held
by management recognition plans (276) (738) (1,246)
Total shareholders' equity 523,512 495,857 467,957
Total liabilities and
shareholders' equity $ 5,658,964 5,558,683 5,217,933
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30,
1997 1996
(In Thousands Except Per Share Data)
Interest income:
Interest and fees on loans and leases $ 89,706 80,477
Interest and dividends on investment
securities:
U.S. Treasury 8,530 7,358
U.S. Government agencies
and corporations 9,619 5,951
States and political subdivisions
(primarily tax-exempt) 1,212 1,157
Equity and other securities 302 514
Interest on time deposits in other banks 391 699
Interest on federal funds sold and
other short-term investments 1,662 3,684
Total interest income 111,422 99,840
Interest expense:
Deposits 48,151 43,215
Short-term borrowed funds 1,305 1,633
Long-term debt 933 1,074
Total interest expense 50,389 45,922
Net interest income 61,033 53,918
Provision for loan and lease
losses (note 4) 4,200 3,149
Net interest income after provision
for loan and lease losses 56,833 50,769
Other income:
Service charges on deposit accounts 8,172 7,320
Trust and custodian fees 2,043 1,921
Insurance commissions 1,706 1,458
Merchant discount 1,845 1,414
Other service charges and fees 1,325 1,439
Other 2,440 3,003
Investment securities gains 17 32
Investment securities losses (6) (6)
Total other income 17,542 16,581
Other expenses:
Personnel expense 23,490 20,486
Net occupancy expense 2,923 2,896
Equipment expense 2,678 2,456
Other operating expenses 13,247 12,339
Merger-related expense - -
Total other expenses 42,338 38,177
Income before income taxes 32,037 29,173
Income taxes 10,987 10,305
Net income 21,050 18,868
Income per share $ 1.33 1.20
Weighted average shares outstanding 15,803 15,714
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME, continued
Six Months Ended June 30,
1997 1996
(In Thousands Except Per Share Data)
Interest income:
Interest and fees on loans and leases $ 176,398 160,143
Interest and dividends on investment
securities:
U.S. Treasury 15,869 14,483
U.S. Government agencies
and corporations 17,182 12,844
States and political subdivisions
(primarily tax-exempt) 2,428 2,317
Equity and other securities 591 1,035
Interest on time deposits in other banks 1,242 1,583
Interest on federal funds sold and
other short-term investments 4,792 6,650
Total interest income 218,502 199,055
Interest expense:
Deposits 94,815 87,015
Short-term borrowed funds 3,086 2,500
Long-term debt 1,881 2,352
Total interest expense 99,782 91,867
Net interest income 118,720 107,188
Provision for loan and lease
losses (note 4) 5,975 5,282
Net interest income after provision
for loan and lease losses 112,745 101,906
Other income:
Service charges on deposit accounts 15,841 14,307
Trust and custodian fees 3,841 3,595
Insurance commissions 3,569 2,657
Merchant discount 3,425 2,697
Other service charges and fees 2,546 2,862
Other 6,054 5,713
Investment securities gains 138 1,335
Investment securities losses (71) (1,324)
Total other income 35,343 31,842
Other expenses:
Personnel expense 46,691 41,533
Net occupancy expense 5,846 5,892
Equipment expense 5,178 5,111
Other operating expenses 25,598 24,325
Merger-related expense 1,016 -
Total other expenses 84,329 76,861
Income before income taxes 63,759 56,887
Income taxes 22,590 19,863
Net income $ 41,169 37,024
Income per share $ 2.61 2.36
Weighted average shares outstanding 15,777 15,633
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Six Months Ended June 30, 1997 and 1996
(Unaudited)
Unrealized
Gain
(Loss) on
Invest-
ment Total
Additional Securities Management Share-
Common Paid-In Retained Available Recognition holders'
Stock Capital Earnings for Sale Plans Equity
(In Thousands)
Balance December 31, 1995:
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 - - 37,024 - - 37,024
Stock options exercised 609 1,243 - - - 1,852
Transactions pursuant to
restricted stock plan - 546 - - - 546
Earned portion of management
recognition plans - - - - 488 488
Purchase and retirement
of shares (96) (901) - - - (997)
Conversion of debt securities 381 1,737 - - - 2,118
Cash dividends ($.76 per share) - - (11,600) - - (11,600)
Change in unrealized
gain (loss), net of
applicable income taxes - - - (8,599) - (8,599)
Balance June 30, 1996 $ 78,572 99,526 289,939 1,166 (1,246) 467,957
Balance December 31, 1996 $ 78,749 100,249 312,316 5,281 (738) 495,857
Net income - - 41,169 - - 41,169
Stock options exercised 239 951 - - - 1,190
Transactions pursuant to
restricted stock plan 28 388 - - - 416
Earned portion of management
recognition plans - - - - 462 462
Cash dividends ($.84 per share) - - (13,260) - - (13,260)
Change in unrealized
gain (loss), net of
applicable income taxes - - - (2,322) - (2,322)
Balance June 30, 1997 $ 79,016 101,588 340,225 2,959 (276) 523,512
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1997 and 1996
(Unaudited)
1997 1996
(In Thousands)
Operating activities:
Net income $ 41,169 37,024
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and
accretion, net 7,925 5,865
Provision for loan and lease losses 5,975 5,282
Net (gain) loss on sales of
investment securities (67) (11)
Sale of securitized mortgage loans 25,658 -
Sales of loans held for sale 89,370 118,586
Origination of loans held for sale (90,113) (60,796)
Changes in:
Accrued interest receivable (3,641) 1,135
Accrued interest payable 10,942 1,823
Other assets 2,983) 4,490
Other liabilities (6,620) (2,680)
Other operating activities, net (3,251) (670)
Net cash provided by operating
activities 74,364 110,048
Investing activities:
Proceeds from:
Maturities and issuer calls of invest-
ment securities held to maturity 2,272 9,030
Sales of investment securities
available for sale 37,550 14,385
Maturities and issuer calls of invest-
ment securities available for sale 132,852 250,075
Purchases of:
Investment securities held to maturity - (8,735)
Investment securities available for sale (285,688) (210,153)
Premises and equipment (4,074) (4,988)
Net originations of loans and
leases receivable (226,838) (224,809)
Net cash paid in dispositions - (50,926)
Net cash provided (used) by
investing activities (343,926) (226,121)
Financing activities:
Net increase in deposit accounts 74,722 71,736
Net decrease in short-term borrowed funds (46,446) (32,855)
Proceeds from issuance of long-term debt 50,079 -
Repayments of long-term debt (7,598) (17,834)
Issuances of common stock from exercise
of stock options, net 1,190 1,852
Purchase and retirement of common stock - (997)
Cash dividends paid (13,260) (11,600)
Net cash used by financing activities 58,687 10,302
Net decrease in cash and cash equivalents (210,875) (105,771)
Cash and cash equivalents at beginning
of year 528,130 598,343
Cash and cash equivalents at end of period $ 317,255 492,572
Supplemental disclosure of cash flow information:
Interest paid during the period $ 38,451 44,121
Income taxes paid during the period $ 23,213 18,872
Supplemental disclosure of noncash
investing and financing activities:
Securitization of mortgage loans $ 112,648 -
Loans transferred to other real estate
acquired through loan foreclosure $ 731 715
Change in market value of securities
available for sale, net of deferred
tax (benefit)of $(1,457)
and $(5,607), respectively $ (2,322) (8,599)
Conversion of subordinated debt $ - 2,118
Lapse of restrictions on common
stock, net of deferred taxes of $730 $ - 547
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Six Months Ended June 30, 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 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
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(3) Loans and Lease Financing
A summary of loans and lease financing at June 30, 1997 and 1996
follows (in thousands):
1997 1996
Commercial, financial and agricultural $ 516,589 386,515
Real estate-construction 650,963 541,217
Real estate-mortgage 2,188,205 2,122,801
Instalment loans to individuals 401,655 346,387
Credit card receivables 186,487 184,796
Lease financing 40,183 36,232
Gross loans and lease financing 3,984,082 3,617,948
Less unearned income 5,002 4,734
Total loans and lease financing $ 3,979,080 3,613,214
Loans held for sale totaled $14,951,000 and $8,759,000 at June 30,
1997 and 1996, respectively, and are reported at the lower of cost or
market.
At June 30, 1997, impaired loans amounted to $8,430,000 compared to
$15,704,000 at June 30, 1996. The related reserve for loan and lease
losses on these loans amounted to $1,896,000 at June 30, 1997 and
$2,835,000 at June 30, 1996.
(4) Reserve for Loan and Lease Losses
Following is a summary of the reserve for loan and lease losses for
the six months ended June 30, 1997 and 1996 (in thousands):
1997 1996
Balance at beginning of year $ 50,547 44,880
Provision charged to operations 5,975 5,282
Recoveries of loans and leases
previously charged-off 1,199 984
Loan and lease losses charged to reserve (6,081) (4,289)
Balance at end of period $ 51,640 46,857
(5) Risk Assets
Following is a summary of risk assets at June 30, 1997 and 1996 (in
thousands):
1997 1996
Nonaccrual loans and lease financing $ 11,976 11,980
Other real estate acquired through
loan foreclosures 1,023 2,553
Accruing loans and lease financing
90 days or more past due 2,452 4,229
Total risk assets $ 15,451 18,762
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(6) Mortgage Servicing Rights
A summary of mortgage servicing rights ("MSR") for the six months
ended June 30, 1997 and 1996 follows (in thousands):
1997 1996
Capitalized MSRs at beginning of year $ 2,776 916
Capitalization of servicing 2,331 1,462
Capitalized servicing sold (2,484) -
Amortization of MSR (558) (170)
Capitalized MSRs at end of period $ 2,065 2,208
Mortgage servicing sold during the first quarter of 1997 resulted in a
nominal gain. The fair value of mortgage servicing rights was
$2,344,000 and $2,371,000 at June 30, 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 June 30, 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.
(9) Subsequent Event
On August 1, 1997, the Corporation consummated the merger with
American Federal Bank, FSB ("American Federal"), headquartered in
Greenville, South Carolina. American Federal, which is being operated
as a wholly-owned subsidiary of the Corporation, had 40 banking
offices located in northwest South Carolina and assets of $1.3 billion
as of June 30, 1997. The merger was accounted for as a pooling-of-
interests and accordingly, the Corporation's future historical
consolidated financial statements will be restated to reflect the
accounts and results of operations of American Federal as if the
merger had been effective as of the earliest period presented. In
connection with the merger, .445 shares of the Corporation's common
stock were issued in exchange for each share of American Federal's
outstanding stock, or approximately 4.9 million shares.
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(9) Subsequent Event, continued
The following unaudited pro forma data summarizes the combined results
of operations of the Corporation and American Federal as if the
combination had been consummated on June 30, 1997.
Six Months
Ended June Year Ended December 31
30, 1997 1996 1995 1994
(In Thousands Except Per Share Data)
Total income $315,440 580,006 548,329 454,107
Net interest income after
provision for
loan and leases losses 139,448 253,261 242,301 219,471
Net income 52,372 84,807 74,391 60,642
Earnings per share:
Primary 2.52 4.23 3.71 2.97
Fully diluted 2.52 4.22 3.71 2.97
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 six months ended June 30, 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 June 30, 1997 and 1996
Net income for the three months ended June 30, 1997 amounted to $21.1
million, an increase of $2.2 million from the same period in 1996.
Net income per share was $1.33 in 1997, a $.13 increase from the 1996
period. Returns on average assets and average shareholders' equity in
1997 were 1.52% and 16.72%, respectively, compared to 1.47% and
16.60%, 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 $425.3 million or 8.7% in the
1997 period. During the second quarter, average loans increased at an
annualized rate of 11.5% over the first quarter of 1997 with
commercial loans growing by 16.3% and consumer loans showing 6.4%
growth. In conjunction with the favorable shift in the mix of interest-
earning assets towards higher-earning loans and investments, the
overall yield on earning assets increased 20 basis points to 8.61%
from 1996's 8.41%. The cost of interest-bearing funds increased by 7
basis points in the 1997 period to 4.62%. As a result, the interest
rate spread and net interest margin increased by 13 and 18 basis
points, respectively, to 3.99% and 4.79%. Increased volume of earning
assets and the rate earned on those assets, to a lesser degree, were
responsible for the $11.8 million increase in interest income earned
in the second quarter of 1997. Increases in savings and time deposit
volume was the primary cause of the $4.5 million increase in deposit
expense for the second quarter of June 1997. Net interest income on a
taxable equivalent basis increased by $7.3 million or 13.1% during the
1997 period.
The provision for loan and lease losses for the second quarter of 1997
was $4.2 million compared to $3.1 million in 1996. Net 1997 second
quarter loan and lease charge-offs amounted to $2.7 million or .28%
(annualized) of average loans and lease financing compared to .22%
(annualized) experienced in the second quarter of 1996. The increased
charge-offs in 1997 was due primarily to a $350,000 commercial credit
charge-off and charge-offs in the credit card portfolio as the net
charge-off ratio, excluding credit cards, totaled .14% (annualized)
for 1997 and .11% for 1996. The reserve for loan and lease losses to
loans and lease financing outstanding was 1.30% at June 30, 1997 and
1996.
Other income, excluding investment securities transactions, increased
$976,000 in the second quarter of 1997 to $17.5 million. The increase
was due to the $852,000 increase in service charges on deposit
accounts and the $431,000 increase in merchant discount. The service
charge increase resulted primarily from increased deposit volume and
repricing of certain deposit services based upon the results of
product profitability analyses. The increase in merchant discount is
due in part to seasonal increases in credit card activity. In 1996,
the Corporation realized non-recurring gains totaling $650,000 from
the sale of four branch offices and a former banking office.
Table 1
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis
Three Months Ended June 30, 1997 and 1996
(Taxable Equivalent Basis - In Thousands) (1)
1997
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans and lease financing (2) $ 3,915,707 89,779 9.19 %
U.S. Treasury and agency
obligations (3) 1,123,218 19,603 6.98
States and political
subdivision obligations 82,077 1,816 8.85
Equity and other securities (3) 16,960 303 7.14
Federal funds sold and other
short-term investments 119,073 1,689 5.69
Time deposits in other banks 30,234 391 5.19
Total earning assets (3) 5,287,269 113,581 8.61
Non-earning assets:
Cash and due from banks 147,865
Premises and equipment 69,037
All other assets, net 62,407
Total assets $ 5,566,578
Interest-bearing liabilities:
Savings and time deposits $ 4,195,645 48,151 4.60 %
Short-term borrowed funds 115,064 1,305 4.55
Long-term debt 56,195 933 6.65
Total interest-bearing
liabilities 4,366,904 50,389 4.62
Other liabilities and
shareholders' equity:
Demand deposits 587,462
Other liabilities 107,408
Shareholders' equity 504,804
Total liabilities and
shareholders' equity $ 5,566,578
Net interest income and net
interest margin (4) $ 63,192 4.79 %
Interest rate spread (5) 3.99 %
Table 1, con't
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis
Three Months Ended June 30, 1997 and 1996
(Taxable Equivalent Basis - In Thousands) (1)
1996
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans and lease financing (2) $ 3,559,250 80,627 9.10 %
U.S. Treasury and agency
obligations (3) 870,657 14,398 6.62
States and political
subdivision obligations 77,285 1,793 9.28
Equity and other securities (3) 28,503 527 7.40
Federal funds sold and other
short-term investments 271,926 3,748 5.54
Time deposits in other banks 54,389 699 5.17
Total earning assets (3) 4,862,010 101,792 8.41
Non-earning assets:
Cash and due from banks 169,181
Premises and equipment 70,158
All other assets, net 52,916
Total assets $ 5,154,265
Interest-bearing liabilities:
Savings and time deposits $ 3,862,106 43,215 4.50 %
Short-term borrowed funds 133,497 1,633 4.92
Long-term debt 64,227 1,074 6.69
Total interest-bearing
liabilities 4,059,830 45,922 4.55
Other liabilities and
shareholders' equity:
Demand deposits 537,057
Other liabilities 100,088
Shareholders' equity 457,290
Total liabilities and
shareholders' equity $ 5,154,265
Net interest income and net
interest margin (4) 55,870 4.61 %
Interest rate spread (5) 3.86 %
(1) The taxable equivalent basis is computed using 35% federal tax
rates in 1997 and 1996 and state tax rates of 7.50% and 7.75% in 1997
and 1996, respectively, where applicable.
(2) The average loan and lease financing balances include non-accruing
loans and lease financing. Loan fees of $1,979,000 and $2,443,000 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.
Other expenses increased in the 1997 period by $4.2 million. The
increase is largely explained by the increase in personnel expense
which increased $3.0 million from 1996's level. The increase was due
to general salary increases, a larger workforce due to alternative
delivery initiatives and a higher level of incentives paid for
performance-based compensation. Despite the increased personnel
expense, a comparison of assets per employee shows continuing
improvement from $2.61 million of assets per employee at June 30, 1996
to $2.69 million per employee at June 30, 1997.
As a result of the aforementioned changes, net overhead (noninterest
expense less noninterest income) as a percentage of average assets,
excluding the impact of merger-related expense, increased to 1.78%
for the three months ended June 30, 1997 from 1.69% for the same
period in 1996. The increase was primarily due to the 9 basis point
increase in personnel expense as a percentage of average assets.
Despite the unfavorable increase in net overhead, the Corporation's
efficiency ratio (noninterest expense as a percentage of taxable
equivalent net interest income and other income), excluding the impact
of merger-related expense, improved from 52.69% for the three months
ended June 30, 1996 to 52.44% for the same period in 1997. The
improvement in the efficiency ratio resulted primarily from the
improved interest margin as previously discussed.
The following schedule presents noninterest income and expense as a
percentage of average assets for the three months ended June 30, 1997
and 1996.
1997 1996
Noninterest income 1.26 % 1.29
Personnel expense 1.69 1.60
Occupancy and equipment expense .40 .42
Other operating expense (1) .95 .96
Noninterest expense 3.04 2.98
Net overhead 1.78 % 1.69
_______________________________
(1) Excludes merger-related expense of $1.0 million in 1997.
The effective income tax rate was 34.3% in 1997 compared to 35.3% in
the same period of 1996.
Results of Operations - Six Months Ended June 30, 1997 and 1996
Net income for the six months ended June 30, 1997 amounted to $41.2
million, an increase of $4.1 million from the same period in 1996.
Net income per share was $2.61 in 1997, a $.25 per share or 10.6%
increase from the 1996 period. Returns on average assets and average
shareholders' equity in 1997 were 1.50% and 16.56%, respectively,
compared to 1.45% and 16.42%, respectively, in the 1996 period. Salem
Trust merger-related expense incurred during the first quarter of 1997
totaled $792,000 after-tax or $.05 per share. Excluding the impact of
the merger-related expense, returns on average assets and average
equity for the six months ended June 30, 1997 would have been 1.53%
and 16.88%, respectively.
Average Balance Sheets and Net Interest Income Analyses on a taxable
equivalent basis for each of the periods are included in Table 2.
Interest-earning assets increased by $438.1 million or 9.1% in the
1997 period. Despite a 7 basis point drop in the yield on loans,
increased yields on investments and other earning assets and the mix
of earning assets resulted in a 6 basis point increase in the yield on
earning assets. Higher rates paid on money market accounts, retail
certificates of deposit and jumbo certificates of deposit resulted in
a 6 basis point increase in the rates paid on interest-bearing
deposits. The increases in yield on interest-earnings assets and
rates paid on interest-bearing deposits resulted in a flat interest
rate spread compared to 1996. Due to an increased free liability
contribution, the net interest margin rose 6 basis points to 4.68%
compared to 1996's 4.62%.
Table 2
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis
Six Months Ended June 30, 1997 and 1996
(Taxable Equivalent Basis - In Thousands) (1)
1997
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans and lease financing (2) $ 3,910,557 176,544 9.09 %
U.S. Treasury and agency
obligations (3) 1,030,108 35,693 6.93
States and political
subdivision obligations 82,216 3,638 8.85
Equity and other securities (3) 16,836 591 7.02
Federal funds sold and other
short-term investments 179,123 4,872 5.48
Time deposits in other banks 48,031 1,242 5.21
Total earning assets (3) 5,266,871 222,580 8.50
Non-earning assets:
Cash and due from banks 144,010
Premises and equipment 69,005
All other assets, net 64,947
Total assets $ 5,544,833
Interest-bearing liabilities:
Savings and time deposits $ 4,171,650 94,815 4.58 %
Short-term borrowed funds 134,446 3,086 4.63
Long-term debt 56,845 1,881 6.62
Total interest-bearing
liabilities 4,362,941 99,782 4.61
Other liabilities and
shareholders' equity:
Demand deposits 574,283
Other liabilities 106,259
Shareholders' equity 501,350
Total liabilities and
shareholders' equity $ 5,544,833
Net interest income and net
interest margin (4) $ 122,798 4.68 %
Interest rate spread (5) 3.89 %
Table 2, con't
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis
Six Months Ended June 30, 1997 and 1996
(Taxable Equivalent Basis - In Thousands) (1)
1996
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans and lease financing (2) $ 3,518,278 160,463 9.16 %
U.S. Treasury and agency
obligations (3) 890,762 29,551 6.63
States and political
subdivision obligations 76,993 3,589 9.32
Equity and other securities (3) 29,312 1,062 7.25
Federal funds sold and other
short-term investments 250,758 6,782 5.44
Time deposits in other banks 62,629 1,583 5.08
Total earning assets (3) 4,828,732 203,030 8.44
Non-earning assets:
Cash and due from banks 164,554
Premises and equipment 69,800
All other assets, net 61,080
Total assets $ 5,124,166
Interest-bearing liabilities:
Savings and time deposits $ 3,870,473 87,015 4.52 %
Short-term borrowed funds 105,611 2,500 4.76
Long-term debt 70,150 2,352 6.70
Total interest-bearing
liabilities 4,046,234 91,867 4.56
Other liabilities and
shareholders' equity:
Demand deposits 521,158
Other liabilities 103,278
Shareholders' equity 453,496
Total liabilities and
shareholders' equity $ 5,124,166
Net interest income and net
interest margin (4) 111,163 4.62 %
Interest rate spread (5) 3.88 %
(1) The taxable equivalent basis is computed using 35% federal tax
rates in 1997 and 1996 and state tax rates of 7.50% and 7.75% in 1997
and 1996, respectively, where applicable.
(2) The average loan and lease financing balances include non-accruing
loans and lease financing. Loan fees of $4,172,000 and $4,880,000 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 six months of
1997 was $6.0 million compared to $5.3 million in 1996. The higher
provision was recorded in 1997 due to the loan growth experienced in
the first six months of 1997 and higher levels of charge-offs. Net
charge-offs as a percentage of average loans were .25% in 1997 and
.19% in 1996 (annualized). Excluding credit card net charge-offs, the
ratios drop to .09% and .08% (annualized), respectively.
Other income, excluding investment securities transactions, increased
$3.4 million in the first six months of 1997 to $35.3 million. The
increase was due primarily to the $1.5 million increase in service
charges on deposit accounts and the $1.4 million increase in income
from mortgage banking operations. The deposit service charge increase
resulted primarily from increased deposit volume. The increase in
mortgage banking income resulted from gains on sales of mortgage loans
and mortgage servicing. Other increases over 1996's levels included
brokerage sales and insurance commissions ($912,000) and merchant
discount ($728,000). As previously mentioned, $650,000 of one-time
gains on disposals of branches and former banking offices experienced
in 1996 were not present in 1997.
Other expenses, excluding the previously discussed non-recurring
merger-related expense of $1.0 million, increased in the 1997 period
by $6.5 million. The increase is primarily explained by the increase
in personnel expense which increased $5.2 million from 1996's level.
As discussed previously, the increase was due to general salary
increases, a larger workforce due to alternative delivery initiatives
and more emphasis on incentive-based compensation. Additional smaller
increases were recognized for telecommunications, postage and freight
and general insurance expenses.
As a result of the aforementioned changes, net overhead as a
percentage of average assets, excluding the impact of merger-related
expense, decreased to 1.74% for the six months ended June 30, 1997
from 1.76% for the same period in 1996. The Corporation's efficiency
ratio, excluding the impact of merger-related expense, improved from
53.75% for the six months ended June 30, 1996 to 52.68% 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 six months ended June 30, 1997
and 1996.
1997 1996
Noninterest income 1.29 % 1.25
Personnel expense 1.70 1.63
Occupancy and equipment expense .40 .43
Other operating expense (1) .93 .95
Noninterest expense 3.03 3.01
Net overhead 1.74 % 1.76
_______________________________
(1) Excludes merger-related expense of $1.0 million in 1997.
The effective income tax rates were 35.4% in 1997 and 34.9% in 1996.
Non-deductible merger-related expense resulted in the higher effective
tax rate experienced in the first six months of 1997.
Financial Condition
Total assets have increased $441 million since June 30, 1996 due
solely to internal growth. The majority of the increase occurred in
interest-earning assets. Average assets have increased from $5.1
billion for the six months ended June 30, 1996 to $5.5 billion for the
six months ended June 30, 1997.
At June 30, 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 $15.4 million or .39% of outstanding loans and lease
financing and foreclosed real estate. This compares to approximately
$18.8 million or .52% at June 30, 1996. Decreases in foreclosed real
estate and accruing loans over ninety days past due were responsible
for the improved ratio. The reserve for loan and lease losses to risk
assets was 3.34x at June 30, 1997 compared to 3.21x at December 31,
1996 and 2.50x at June 30, 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 9.04% and 8.85% for the six months ended
June 30, 1997 and 1996, respectively. Increases in this ratio since
June 30, 1996 are due primarily to the retention of earnings. Book
value per share increased from $29.78 at June 30, 1996 to $33.13 at
June 30, 1997, an 11.2% increase. The unrealized gains on investment
securities available for sale, net of applicable taxes, decreased $2.3
million from December 31, 1996 in conjunction with declines in the
financial markets to result in an unrealized gain at June 30, 1997 of
$3.0 million.
The Corporation has increased its annual cash dividends consistently
over the past 33 years. On July 15, 1997, the Board of Directors of
the Corporation declared a regular quarterly dividend of $.47 payable
on October 1, 1997 to shareholders of record September 15, 1997.
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 June 30, 1997.
June 30, Regulatory
Ratio 1997 1996 Minimums
Tier 1 Capital 4.00%
Corporation 12.01% 11.87
CCB 12.10 11.81
CCB-Ga. 11.16 11.13
Total Capital 8.00
Corporation 14.06 14.02
CCB 13.33 13.13
CCB-Ga. 12.44 12.39
Leverage 4.00
Corporation 8.94 8.54
CCB 8.90 8.48
CCB-Ga. 9.58 9.41
Merger with American Federal Bank, FSB
On August 1, 1997, the Corporation consummated its merger with
American Federal Bank, FSB ("American Federal") of Greenville, South
Carolina. American Federal, which is being operated as a wholly-owned
subsidiary of the Corporation, had 40 banking offices located in
northwest South Carolina and assets of $1.3 billion as of June 30,
1997. American Federal's net income for the first six months of 1997
totaled $11.2 million compared to $8.8 million for the same period in
1996. The results for 1997 included a non-recurring gain of $1.4
million (after-tax) in connection with the disposition of a
subsidiary. In accordance with the terms of the agreement, the
Corporation issued .445 shares of its common stock in exchange for
each share of American Federal in the tax-free exchange transaction or
approximately 4.9 million shares. The acquisition has been accounted
for as a pooling-of-interests. The Corporation's future financial
statements will be restated to reflect the impact of the merger as if
it had occurred at the beginning of the earliest period presented.
The combined company will have $7 billion in assets and over 200
branch offices in a market area that spans 40 counties across the
Carolinas.
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 computation of 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 weighted average
common shares outstanding. Diluted EPS is computed similarly to
"fully diluted" EPS under existing accounting rules. Dual
presentation of basic and diluted EPS is required for complex capital
structures. SFAS No. 128 is effective for financial statements issued
for periods ending after December 15, 1997; earlier application is not
permitted but restatement of prior years' EPS is required. Under the
provisions of SFAS No. 128, basic earnings per share for the period
ended June 30, 1997 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.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting
presentation of comprehensive income and its components in a full set
of general purpose financial statements. SFAS No. 130 does not
address issues relating to recognition or measurement for
comprehensive income and its components. The provisions of the
Statement are effective for fiscal years beginning after December 15,
1997. Earlier application is permitted. If comparative financial
statements are provided for earlier periods, those financial
statements shall be reclassified to reflect application of the
provisions of SFAS No. 130. Management does not expect that adoption
of this pronouncement will have a material effect on the consolidated
financial statements.
Also during June 1997, the FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and related Information". This
Statement requires that public business enterprises report certain
information about operating segments in complete sets of financial
statements and in condensed financial statements of interim periods.
It also requires that public business enterprises report certain
information about their products and services, the geographic areas in
which they operate and their major customers. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997 with
earlier application encouraged. Management does not expect the
adoption of this Statement to have a material effect on the
consolidated financial statements.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
Exhibit 3 - Amended Articles of Incorporation.
Exhibit 22 - Report regarding matters submitted to vote of
security holders.
(b). Reports on Form 8-K:
A report on Form 8-K dated April 21, 1997 was filed under
Items 5 and 7 to file American Federal Bank, FSB's Annual
Report on Form 10-K which was previously filed with the
Office of Thrift Supervision.
A report on Form 8-K dated April 21, 1997 was filed under
Items 5 and 7 to file (i) American Federal's Current Report
on Form 8-K which was previously filed with the Office of
Thrift Supervision, (ii) first quarter earnings' releases for
the Corporation and American Federal and (iii) the
Corporation's press release regarding the regular first
quarter dividend.
A report on Form 8-K dated May 13, 1997 was filed under Items
5 and 7 to file American Federal's Quarterly Report on Form
10-Q which was previously filed with the Office of Thrift
Supervision.
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: August 8, 1997 /s/ ERNEST C. ROESSLER
Ernest C. Roessler
President and Chief Executive
Officer
Date: August 8, 1997 /s/ ROBERT L. SAVAGE, JR.
Robert L. Savage, Jr.
Senior Vice President and
Chief Financial Officer
Date: August 8, 1997 /s/ W. HAROLD PARKER, JR.
W. Harold Parker, Jr.
Senior Vice President and
Controller
(Chief Accounting Officer)