UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended September 30, 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 20,758,369
(Class of Stock) (Shares outstanding
as of November 13, 1997)
CCB FINANCIAL CORPORATION
FORM 10-Q
INDEX
Part 1. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1997, December 31, 1996 and September
30, 1996 3
Consolidated Statements of Income
Three and Nine Months Ended September 30, 1997 and 1996 4
Consolidated Statements of Shareholders' Equity
Three and Nine Months Ended September 30, 1997 and 1996 5
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 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 18
Signatures 19
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CCB Financial Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September December September
30, 31, 30,
1997 1996 1996
Assets:
Cash and due from banks $ 217,669 246,934 234,473
Time deposits in other banks 34,247 99,794 64,414
Federal funds sold and other
short-term investments 185,000 271,290 184,855
Investment securities:
Available for sale 1,370,441 1,267,518 1,387,401
Held to maturity (market
values of $86,118,
$88,504 and $80,112) 81,677 84,262 76,222
Loans and lease financing (notes
2 and 4) 4,975,169 4,745,663 4,598,952
Less reserve for loan and
lease losses (note 5) 66,619 61,257 59,387
Net loans and lease financing 4,908,550 4,684,406 4,539,565
Premises and equipment 84,914 85,793 85,427
Other assets (notes 4 and 5) 144,117 140,209 142,067
Total assets $ 7,026,615 6,880,206 6,714,424
Liabilities:
Deposits:
Demand (noninterest-bearing) $ 699,773 712,888 672,080
Savings and NOW accounts 693,480 705,357 683,772
Money market accounts 1,618,311 1,588,242 1,589,393
Jumbo time deposits 384,696 407,850 339,775
Consumer time deposits 2,444,878 2,327,118 2,244,349
Total deposits 5,841,138 5,741,455 5,529,369
Other short-term borrowed funds 298,024 356,839 425,422
Long-term debt 100,919 58,449 59,647
Other liabilities 125,079 112,012 112,800
Total liabilities 6,365,160 6,268,755 6,127,238
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 103,767 103,170 102,997
Additional paid-in capital 143,304 140,616 139,833
Retained earnings 401,765 361,073 344,389
Unrealized gain on investment
securities available for sale,
net of applicable taxes 12,682 7,330 958
Less: Unearned common stock held
by management recognition plans (63) (738) (991)
Total shareholders' equity 661,455 611,451 587,186
Total liabilities and
shareholders' equity $ 7,026,615 6,880,206 6,714,424
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
September 30,
1997 1996
(In Thousands Except
Per Share Data)
Interest income:
Interest and fees on loans and leases $ 112,131 102,903
Interest and dividends on investment
securities:
U.S. Treasury 7,992 7,505
U.S. Government agencies
and corporations 13,895 13,518
States and political subdivisions
(primarily tax-exempt) 1,208 1,118
Equity and other securities 753 900
Interest on time deposits in
other banks 466 702
Interest on federal funds sold and
other short-term investments 2,487 3,085
Total interest income 138,932 129,731
Interest expense:
Deposits 58,123 53,686
Short-term borrowed funds 3,769 5,609
Long-term debt 1,637 989
Total interest expense 63,529 60,284
Net interest income 75,403 69,447
Provision for loan and lease
losses (note 4) 5,355 5,446
Net interest income after provision
for loan and lease losses 70,048 64,001
Other income:
Service charges on deposit accounts 11,253 10,150
Trust and custodian fees 2,188 1,714
Insurance commissions 2,625 2,151
Merchant discount 1,784 1,418
Other service charges and fees 2,120 1,897
Other 2,899 4,255
Investment securities gains 195 626
Investment securities losses (23) (70)
Total other income 23,041 22,141
Other expenses:
Personnel expense 28,501 26,925
Net occupancy expense 3,731 4,198
Equipment expense 3,129 2,929
Other operating expenses 15,105 29,533
Merger-related expense 16,253 -
Total other expenses 66,719 63,585
Income before income taxes 26,370 22,557
Income taxes 11,062 5,967
Net income $ 15,308 16,590
Income per share $ .74 .80
Weighted average shares outstanding 20,741 20,593
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME, Continued
Nine Months Ended
September 30,
1997 1996
(In Thousands Except
Per Share Data)
Interest income:
Interest and fees on loans and leases $ 327,762 300,798
Interest and dividends on investment
securities:
U.S. Treasury 23,861 21,988
U.S. Government agencies
and corporations 41,733 40,170
States and political subdivisions
(primarily tax-exempt) 3,636 3,435
Equity and other securities 2,309 2,481
Interest on time deposits in
other banks 2,232 2,441
Interest on federal funds sold and
other short-term investments 7,435 9,735
Total interest income 408,968 381,048
Interest expense:
Deposits 170,778 159,584
Short-term borrowed funds 11,759 14,480
Long-term debt 3,528 3,376
Total interest expense 186,065 177,440
Net interest income 222,903 203,608
Provision for loan and lease
losses (note 4) 12,904 12,574
Net interest income after provision
for loan and lease losses 209,999 191,034
Other income:
Service charges on deposit accounts 32,965 29,461
Trust and custodian fees 6,091 5,380
Insurance commissions 7,171 5,635
Merchant discount 5,209 4,114
Other service charges and fees 5,669 5,746
Other 11,827 9,974
Investment securities gains 338 1,990
Investment securities losses (94) (1,394)
Total other income 69,176 60,906
Other expenses:
Personnel expense 85,548 78,379
Net occupancy expense 11,726 12,151
Equipment expense 9,457 8,923
Other operating expenses 47,121 59,459
Merger-related expense 17,269 -
Total other expenses 171,121 158,912
Income before income taxes 108,054 93,028
Income taxes 40,375 30,590
Net income $ 67,679 62,438
Income per share $ 3.27 3.02
Weighted average shares outstanding 20,704 20,646
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Nine Months Ended September 30, 1997 and 1996
(Unaudited)
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
American Federal Bank, FSB 10,903 54,529 42,819 1,541 - 109,792
Salem Trust Bank 3,993 6,345 3,270 - - 13,608
Adjustments for pooling-of-
interests (note 2) 12,238 (12,238) - - - -
Balance December 31,
1995, restated 101,938 138,073 307,334 11,306 (1,734) 556,917
Net income - - 62,438 - - 62,438
Stock options exercised 774 1,550 - - - 2,324
Transactions pursuant to
restricted stock plan - 546 - - - 546
Earned portion of management
recognition plans - - - - 743 743
Purchase and retirement of
common stock warrants - (1,172) (4,506) (5,678)
Purchase and retirement
of shares (96) (901) - - - (997)
Conversion of debt
securities 381 1,737 - - - 2,118
Cash dividends ($1.18
per share) - - (20,877) - - (20,877)
Change in unrealized gain
(loss), net of applicable
income taxes - - - (10,348) - (10,348)
Balance September 30, 1996 $ 102,997 139,833 344,389 958 (991) 587,186
Balance December 31, 1996 $ 103,170 140,616 361,073 7,330 (738) 611,451
Net income - - 67,679 - - 67,679
Stock options exercised 572 2,343 - - - 2,915
Transactions pursuant to
restricted stock plan 27 373 - - - 400
Earned portion of management
recognition plans - - - - 675 675
Cash dividends ($1.31
per share) - - (26,987) - - (26,987)
Change in unrealized gain
(loss), net of applicable
income taxes - - - 5,352 - 5,352
Other transactions, net (2) (28) - - - (30)
Balance September 30, 1997 $ 103,767 143,304 401,765 12,682 (63) 661,455
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1997 and 1996
(Unaudited)
1997 1996
(In Thousands)
Operating activities:
Net income $ 67,679 62,438
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and accretion, net 17,227 12,460
Provision for loan and lease losses 12,904 12,574
Net (gain) loss on sales of investment securities (244) (596)
Sale of securitized mortgage loans 25,658 -
Sales of loans held for sale 138,320 156,038
Origination of loans held for sale (132,610) (142,261)
Changes in:
Accrued interest receivable (1,702) (150)
Accrued interest payable 17,032 1,659
Other assets (1,619) (8,839)
Other liabilities (4,030) 9,232
Other operating activities, net (4,214) (3,696)
Net cash provided by operating activities 134,401 98,859
Investing activities:
Proceeds from:
Maturities and issuer calls of investment
securities held to maturity 2,568 24,154
Sales of investment securities available for sale 190,356 50,832
Maturities and issuer calls of investment
securities available for sale 337,426 338,864
Purchases of:
Investment securities held to maturity - (19,771)
Investment securities available for sale (516,595) (376,391)
Premises and equipment (6,855) (7,013)
Net originations of loans and leases receivable (396,111) (355,505)
Net cash acquired (paid) in acquisitions
(dispositions) 14,577 (51,273)
Net cash provided (used) by investing activities (374,634) (396,103)
Financing activities:
Net increase in deposit accounts 99,683 163,815
Net decrease in short-term borrowed funds (58,815) 112,480
Proceeds from issuance of long-term debt 50,129 -
Repayments of long-term debt (7,764) (121,466)
Issuances of common stock from exercise
of stock options, net 2,915 2,324
Purchase and retirement of common stock - (997)
Purchase and retirement of common stock warrants - (5,678)
Cash dividends paid (26,987) (20,877)
Other financing transactions, net (30) -
Net cash used by financing activities 59,131 129,601
Net decrease in cash and cash equivalents (181,102) (167,643)
Cash and cash equivalents at beginning of year 618,018 651,385
Cash and cash equivalents at end of period $ 436,916 483,742
Supplemental disclosure of cash flow information:
Interest paid during the period $ 169,033 175,781
Income taxes paid during the period $ 43,928 37,832
Supplemental disclosure of noncash investing
and financing activities:
Securitization of mortgage loans $ 112,648 -
Investments transferred to available for sale - 14,780
Loans transferred to other real estate acquired
through loan foreclosure $ 1,680 1,692
Change in market value of securities available
for sale, net of deferred tax (benefit)
of $3,192 and $(6,726), respectively $ 5,352 (10,348)
Conversion of subordinated debt $ - (2,118)
Restricted stock transactions, net of deferred
taxes of $730 in 1996 $ 400 546
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Nine Months Ended September 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"), American Federal Bank, FSB ("AmFed") and Central Carolina
Bank - Georgia. The consolidated financial statements also include
the accounts and results of operations of the wholly-owned
subsidiaries of CCB: CCB Investment and Insurance Service Corporation,
CCBDE, Inc. and Southland Associates, Inc., and AmFed: American
Service Corporation, Finance South, Mortgage North and AMFEDDE, Inc.
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
mergers 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) Mergers and Acquisitions
On August 1, 1997, the Corporation merged with AmFed, a $1.3 billion
financial institution headquartered in Greenville, South Carolina.
The merger was accounted for as a pooling-of-interests and effected
through a tax-free exchange of stock. Each outstanding share of AmFed
common stock was exchanged for .445 of a share of the Corporation's
common stock. Consequently, the Corporation issued approximately
4,933,000 shares of common stock and cash in-lieu of fractional shares
for all of the outstanding shares of AmFed.
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 outstanding
share of Salem Trust common stock was converted into .36 shares of the
Corporation's common stock. Consequently, the Corporation issued
approximately 680,000 shares of 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 $ 200,670 194,596
American Federal Bank, FSB 50,799 46,374
Salem Trust Bank 6,173 4,221
$ 257,642 245,191
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(2) Mergers and Acquisitions, continued
Year Ended December 31,
1996 1995
Net income:
CCB Financial Corporation $ 70,315 57,860
American Federal Bank, FSB 14,492 16,531
Salem Trust Bank 2,019 1,044
$ 86,826 75,435
(3) Loans and Lease Financing
A summary of loans and lease financing at September 30, 1997 and 1996
follows (in thousands):
1997 1996
Commercial, financial and agricultural $ 667,338 635,154
Real estate-construction 703,595 610,187
Real estate-mortgage 2,860,612 2,448,050
Instalment loans to individuals 501,847 657,785
Credit card receivables 204,695 220,661
Lease financing 42,794 36,980
Gross loans and lease financing 4,980,881 4,608,817
Less unearned income 5,712 9,865
Total loans and lease financing $ 4,975,169 4,598,952
Loans held for sale totaled $19,734,000 and $7,404,000 at September
30, 1997 and 1996, respectively, and are reported at the lower of cost
or market.
At September 30, 1997, impaired loans amounted to $10,174,000 compared
to $13,920,000 at September 30, 1996. The related reserve for loan
and lease losses on these loans amounted to $2,225,000 at September
30, 1997 and $2,867,000 at September 30, 1996.
(4) Reserve for Loan and Lease Losses
Following is a summary of the reserve for loan and lease losses for
the nine months ended September 30, 1997 and 1996 (in thousands):
1997 1996
Balance at beginning of year $ 61,257 55,114
Provision charged to operations 12,904 12,574
Recoveries of loans and leases
previously charged-off 2,590 2,206
Loan and lease losses charged to reserve (10,132) (10,507)
Balance at end of period $ 66,619 59,387
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(5) Risk Assets
Following is a summary of risk assets at September 30, 1997 and 1996
(in thousands):
1997 1996
Nonaccrual loans and lease financing $15,032 17,616
Other real estate acquired through
loan foreclosures 2,218 3,135
Restructured loans and leases 798 858
Accruing loans and lease financing
90 days or more past due 3,219 4,223
Total risk assets $21,267 25,832
(6) Mortgage Servicing Rights
A summary of mortgage servicing rights ("MSR") for the nine months
ended September 30, 1997 and 1996 follows (in thousands):
1997 1996
Capitalized MSRs at beginning of year $ 2,889 963
Capitalization of servicing 2,981 1,998
Capitalized servicing sold (2,484) -
Amortization of MSR (743) (297)
Capitalized MSRs at end of period $ 2,643 2,664
Mortgage servicing sold during the first nine months of 1997 resulted
in a nominal gain. The fair value of mortgage servicing rights was
$2,963,000 and $2,773,000 at September 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
September 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.
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"), American Federal Bank, FSB ("AmFed")
and Central Carolina Bank-Georgia ("CCB-Ga.") (collectively "the
Banks"), and the wholly-owned subsidiaries of CCB: CCB Investment and
Insurance Service Corporation ("CCBI"), CCBDE, Inc. and Southland
Associates, Inc. and of AmFed: American Service Corporation, Finance
South, Mortgage North and AMFEDDE, Inc. for the three and nine months
ended September 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. On August 1, 1997, the Corporation effected a merger with
American Federal Bank, FSB, a $1.3 billion financial institution
headquartered in Greenville, South Carolina. The merger was accounted
for as a pooling-of-interests and was effected through a tax-free
exchange of stock. The Corporation's financial statements have been
restated to reflect the mergers as if they had occurred at the
beginning of the earliest period presented. In connection with the
mergers, the Corporation recorded merger-related expense of $17.3
million (or $12.6 million after-tax). With these mergers, the
Corporation exceeded $7 billion in assets and has over 200 branch
offices in a market area that spans 40 counties across the Carolinas.
Results of Operations - Three Months Ended September 30, 1997 and 1996
Net income for the three months ended September 30, 1997 amounted to
$15.3 million, a decrease of $1.3 million from the same period in
1996. Net income per share was $.74 in 1997, a $.06 decrease from the
1996 period. Returns on average assets and average shareholders'
equity in 1997 were .87% and 9.33%, respectively, compared to 1.00%
and 11.44%, respectively, in the 1996 period.
During the third quarters of both 1997 and 1996, the Corporation
experienced significant levels of non-recurring items. In the third
quarter of 1997, the Corporation recorded $11.9 million (after-tax) of
merger-related expense. In the same period of 1996, non-recurring
items included a tax benefit of $1.6 million for the forgiveness of
the recapture of tax bad debt reserves of a former savings bank
subsidiary and a $13.9 million FDIC special assessment to recapitalize
the Savings Association Insurance Fund (collectively $6.9 million
after-tax). Excluding the impact of these non-recurring items results
in earnings per share of $1.31 for the third quarter of 1997 and $1.14
for the same period in 1996.
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 from the third quarter of 1996 by
$367.0 million or 5.9%. During the third quarter, average loans
increased at an annualized rate of 11.7% over the second quarter of
1997. As in the first and second quarters of 1997, during the third
quarter the mix of interest-earning assets continued to shift from
lower-earning investments and time deposits in other banks to higher-
earning loans compared to the same periods in 1996. In conjunction
with this favorable shift in the mix of earning assets, the overall
yield on earning assets increased 10 basis points to 8.48% from 1996's
yield of 8.38%. The cost of interest-bearing funds increased by 4
basis points in the 1997 period to 4.58%. As a result, the interest
rate spread and net interest margin increased by 6 and 12 basis
points, respectively, to 3.90% and 4.67%. Increased volume of earning
assets was primarily responsible for the $9.4 million increase in
interest income earned in the third quarter of 1997 as earning assets
experienced only modest increases in average yield earned compared to
1996. Increases in savings and time deposit volume was the primary
cause of the $4.4 million increase in deposit expense for the third
quarter of 1997. Net interest income on a taxable equivalent basis
increased by $6.2 million or 8.6% during the 1997 period.
Table 1
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis
Three Months Ended September 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) $ 4,924,014 112,201 9.06 %
U.S. Treasury and agency
obligations (3) 1,356,011 23,324 6.88
States and political subdivision
obligations 81,806 1,811 8.85
Equity and other securities (3) 46,422 898 7.74
Federal funds sold and other
short-term investments 179,993 2,579 5.68
Time deposits in other banks 45,063 466 4.10
Total earning assets (3) 6,633,309 141,279 8.48
Non-earning assets:
Cash and due from banks 181,461
Premises and equipment 85,714
All other assets, net 81,939
Total assets $ 6,982,423
Interest-bearing liabilities:
Savings and time deposits $ 5,116,326 58,123 4.51 %
Short-term borrowed funds 293,878 3,769 5.37
Long-term debt 100,957 1,637 6.48
Total interest-bearing liabilities 5,511,161 63,529 4.58
Other liabilities and shareholders'
equity:
Demand deposits 691,200
Other liabilities 129,074
Shareholders' equity 650,988
Total liabilities and
shareholders' equity $ 6,982,423
Net interest income and net interest
margin (4) $ 77,750 4.67 %
Interest rate spread (5) 3.90 %
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis, Continued
Three Months Ended September 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) $ 4,532,615 103,005 9.05 %
U.S. Treasury and agency
obligations (3) 1,326,516 22,233 6.66
States and political subdivision
obligations 75,622 1,731 9.16
Equity and other securities (3) 55,719 1,015 7.99
Federal funds sold and other
short-term investments 218,814 3,152 5.73
Time deposits in other banks 57,003 703 4.90
Total earning assets (3) 6,266,289 131,839 8.38
Non-earning assets:
Cash and due from banks 188,878
Premises and equipment 85,696
All other assets, net 62,869
Total assets $ 6,603,732
Interest-bearing liabilities:
Savings and time deposits $ 4,802,679 53,685 4.45
Short-term borrowed funds 421,504 5,610 5.53
Long-term debt 59,754 989 6.63
Total interest-bearing liabilities 5,283,937 60,284 4.54
Other liabilities and shareholders'
equity:
Demand deposits 628,358
Other liabilities 114,464
Shareholders' equity 576,973
Total liabilities and
shareholders' equity $ 6,603,732
Net interest income and net interest
margin (4) 71,555 4.55 %
Interest rate spread (5) 3.84 %
(1) The taxable equivalent basis is computed using 35% federal and
applicable state tax rates in 1997 and 1996.
(2) The average loan and lease financing balances include non-accruing
loans and lease financing. Loan fees of $3,012,000 and $2,500,000 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 third quarter of 1997
and 1996 was $5.4 million. However, the 1997 third quarter provision
exceeded the first and second quarter 1997 provisions due to a $1.6
million special provision made for three AmFed credit relationships.
Net 1997 third quarter loan and lease charge-offs amounted to $1.8
million or .14% (annualized) of average loans and lease financing
compared to $3.5 million or .30% (annualized) experienced in the third
quarter of 1996. The net charge-off ratio, excluding credit cards,
totaled .04% (annualized) for 1997 and .15% (annualized) for 1996. The
reserve for loan and lease losses to loans and lease financing
outstanding was 1.34% at September 30, 1997 and 1.29% at September 30,
1996.
Other income, excluding investment securities transactions, increased
$1.3 million in the third quarter of 1997 to $22.9 million. The
increase was primarily due to a $1.1 million increase in service
charges on deposit accounts which resulted from increased deposit
volume.
Other expenses increased in the 1997 period by $3.1 million. Other
expenses for the 1997 period include $16.2 million of merger-related
expense. Such expenses included severance and other employee benefit
costs, costs related to excess facilities, systems conversion costs
and other restructuring and transaction-related expenses. Included in
the other expenses for the third quarter of 1996 is the $13.9 million
special assessment levied by the FDIC to recapitalize the Savings
Association Insurance Fund. Excluding the impact of these two items,
other expense from third quarter 1996 to 1997 remained relatively flat
at only an $800,000 increase.
Excluding the impact of the merger-related expense and FDIC special
assessment, net overhead (noninterest expense less noninterest income)
as a percentage of average assets, decreased to 1.56% for the three
months ended September 30, 1997 from 1.66% for the same period in
1996. The decrease was due to decreases in occupancy and equipment
expense and other operating expense; personnel expense as a
percentage of average assets was flat quarter to quarter. 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 and the FDIC special assessment,
improved from 53.00% for the three months ended September 30, 1996 to
50.07% for the same period in 1997. The improvement in the efficiency
ratio resulted primarily from the improved interest margin as
previously discussed and the containment of costs despite rising
volume of assets.
The following schedule presents noninterest income and expense as a
percentage of average assets for the three months ended September 30,
1997 and 1996.
1997 1996
Noninterest income 1.31 % 1.33
Personnel expense 1.62 1.62
Occupancy and equipment expense .39 .43
Other operating expense (1) .86 .94
Noninterest expense 2.87 2.99
Net overhead 1.56 % 1.66
_______________________________
(1) Excludes merger-related expense of $16.2 million in 1997 and FDIC
special assessment of $13.9 million in 1996.
The effective income tax rate was a higher than normal 41.9% in 1997
due to certain non-deductible merger-related expense. For the same
period of 1996, the effective income tax rate was a lower than normal
26.4% due to a $1.6 million tax benefit recorded for forgiveness of
the recapture of tax bad debt reserves of a former savings bank
subsidiary.
Results of Operations - Nine Months Ended September 30, 1997 and 1996
Net income for the nine months ended September 30, 1997 amounted to
$67.7 million, an increase of $5.2 million from the same period in
1996. Net income per share was $3.27 in 1997, a $.25 per share or
8.3% increase from the 1996 period. Returns on average assets and
average shareholders' equity in 1997 were 1.31% and 14.35%,
respectively, compared to 1.28% and 14.67%, respectively, in the 1996
period.
Non-recurring items recognized during the nine months ended September
30, 1997 were merger-related expense totaling $12.6 million (after-
tax) and $1.4 million of gain (after-tax) generated from the sale of
an AmFed subsidiary. The net effect of these two items was to
decrease 1997 earnings per share by $.54. Non-recurring items
recognized during the same period of 1996 were the previously
discussed FDIC special assessment and forgiveness of tax bad debt
recapture. The after-tax net effect of these two items was to decrease
1996 earnings per share by $.34.
Average Balance Sheets and Net Interest Income Analyses on a taxable
equivalent basis for each of the nine-month periods are included in
Table 2. Interest-earning assets increased by $395.6 million or 6.4%
in the 1997 period. Despite a 6 basis point drop in the yield on
loans, increased yields on investments and other earning assets and a
favorable shift in the mix of earning assets resulted in a 7 basis
point increase in the yield on earning assets. The increases in yield
on interest-earnings assets and flat rate paid on interest-bearing
liabilities resulted in a 7 basis point increase in the interest rate
spread compared to 1996. Due to an increased free liability
contribution, the net interest margin rose 13 basis points to 4.67%
compared to 1996's 4.54%.
The provision for loan and lease losses for the first nine months of
1997 was $12.9 million compared to $12.6 million in 1996. The higher
provision was recorded in 1997 due to the loan growth experienced in
1997 and the previously discussed third quarter special provision of
$1.6 million. Net charge-offs as a percentage of average loans were
.21% in 1997 and .25% in 1996 (annualized). Excluding credit card net
charge-offs, the ratios drop to .08% and .11% (annualized),
respectively.
Other income, excluding investment securities transactions, increased
$8.6 million in the first nine months of 1997 to $68.9 million. The
increase was due primarily to a $3.5 million increase in service
charges on deposit accounts due to the higher volume of deposit
accounts; an increase in sales and insurance commissions of $1.5
million and the previously discussed gain on sale of an AmFed
subsidiary of $2.3 million (pre-tax).
After excluding the merger-related expense and FDIC special assessment
from 1997 and 1996's other expenses, that expense category increased
by $8.8 million from 1996 to 1997. The increase is primarily
explained by the increase in personnel expense which increased $7.2
million from 1996's level. 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 in other expenses were recognized for telecommunications,
general insurance and postage and freight. These increases were
largely offset by lower FDIC insurance premiums which caused deposit
insurance expense to drop $2.0 million from 1996's level of $3.9
million.
As a result of the aforementioned changes, net overhead as a
percentage of average assets, excluding the impact of the previously
discussed non-recurring items, decreased to 1.68% for the nine months
ended September 30, 1997 from 1.72% for the same period in 1996. The
Corporation's efficiency ratio, excluding the impact of the non-
recurring items, improved from 53.55% for the nine months ended
September 30, 1996 to 51.88% for the same period in 1997. The
improvement in both of these ratios indicates that the Corporation's
revenues are increasing faster than its expenses.
Table 2
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis
Nine Months Ended September 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) $ 4,825,288 327,979 9.08 %
U.S. Treasury and agency
obligations (3) 1,360,206 69,712 6.84
States and political subdivision
obligations 82,078 5,449 8.85
Equity and other securities (3) 47,792 2,769 7.73
Federal funds sold and other
short-term investments 183,252 7,607 5.55
Time deposits in other banks 60,051 2,232 4.97
Total earning assets (3) 6,558,667 415,748 8.46
Non-earning assets:
Cash and due from banks 178,251
Premises and equipment 85,945
All other assets, net 76,395
Total assets $ 6,899,258
Interest-bearing liabilities:
Savings and time deposits $ 5,081,917 170,778 4.49 %
Short-term borrowed funds 310,408 11,759 5.32
Long-term debt 72,109 3,528 6.52
Total interest-bearing liabilities 5,464,434 186,065 4.55
Other liabilities and shareholders'
equity:
Demand deposits 679,664
Other liabilities 124,502
Shareholders' equity 630,658
Total liabilities and
shareholders' equity $ 6,899,258
Net interest income and net interest
margin (4) $ 229,683 4.67 %
Interest rate spread (5) 3.91 %
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis, Continued
Nine Months Ended September 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) $ 4,401,716 301,221 9.14 %
U.S. Treasury and agency
obligations (3) 1,332,808 65,553 6.56
States and political subdivision
obligations 76,532 5,320 9.27
Equity and other securities (3) 47,336 2,738 7.71
Federal funds sold and other
short-term investments 240,032 9,933 5.53
Time deposits in other banks 64,612 2,441 5.05
Total earning assets (3) 6,163,036 387,206 8.39
Non-earning assets:
Cash and due from banks 198,003
Premises and equipment 86,724
All other assets, net 70,013
Total assets $ 6,517,776
Interest-bearing liabilities:
Savings and time deposits $ 4,771,476 159,583 4.47 %
Short-term borrowed funds 366,815 14,480 5.49
Long-term debt 70,954 3,376 6.35
Total interest-bearing liabilities 5,209,245 177,439 4.55
Other liabilities and shareholders'
equity:
Demand deposits 622,946
Other liabilities 117,176
Shareholders' equity 568,409
Total liabilities and
shareholders' equity $ 6,517,776
Net interest income and net interest
margin (4) 209,767 4.54 %
Interest rate spread (5) 3.84 %
(1) The taxable equivalent basis is computed using 35% federal and
applicable state tax rates in 1997 and 1996.
(2) The average loan and lease financing balances include non-accruing
loans and lease financing. Loan fees of $9,828,000 and $8,563,000 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 following schedule presents noninterest income and expense as a
percentage of average assets for the nine months ended September 30,
1997 and 1996.
1997 1996
Noninterest income (1) 1.30 % 1.25
Personnel expense 1.66 1.61
Occupancy and equipment expense .41 .43
Other operating expense (2) .91 .93
Noninterest expense 2.98 2.97
Net overhead 1.68 % 1.72
_______________________________
(1) Excludes gain on sale of subsidiary of $2.3 million in 1997.
(2) Excludes merger-related expense of $17.3 million in 1997 and FDIC
special assessment of $13.9 million in 1996.
The effective income tax rates were 37.4% in 1997 and 32.9% in 1996.
Non-deductible merger-related expense resulted in the higher effective
tax rate experienced in the first nine months of 1997. The effective
tax rate for 1996 was impacted by the $1.6 million tax benefit
recorded for forgiveness of tax bad debt recapture.
Financial Condition
The Corporation's assets exceeded the $7 billion mark during the third
quarter of 1997. Excluding the $14 million of assets sold in
connection with the sale of an AmFed subsidiary, total assets have
increased $326 million since September 30, 1996. This growth was
internally generated and the majority of the increase occurred in
interest-earning assets. Average assets have increased from $6.5
billion for the nine months ended September 30, 1996 to $6.9 billion
for the same period in 1997.
At September 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 $21.3 million or .43% of outstanding loans and lease
financing and foreclosed real estate. This compares to approximately
$25.8 million or .56% at September 30, 1996. Decreases in all
categories of risk assets were responsible for the improved ratio. The
reserve for loan and lease losses to risk assets was 3.13x at
September 30, 1997 compared to 2.30x at September 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 9.14% and 8.72% for the nine months ended
September 30, 1997 and 1996, respectively. Increases in this ratio
since September 30, 1996 are due primarily to the retention of
earnings. Book value per share increased from $28.51 at September 30,
1996 to $31.87 at September 30, 1997, an 11.8% increase. The
unrealized gains on investment securities available for sale, net of
applicable taxes, increased $5.4 million from December 31, 1996 in
conjunction with improvement in the financial markets to result in an
unrealized gain at September 30, 1997 of $12.7 million.
The Corporation has increased its cash dividends annually over the
past 33 years. On October 21, 1997, the Board of Directors of the
Corporation declared a regular quarterly dividend of $.47 payable
January 2, 1998 to shareholders of record December 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 September 30,
1997.
September 30, Regulatory
Ratio 1997 1996 Minimums
Tier 1 Capital 4.00%
Corporation 11.95% 11.91
CCB 11.95 11.71
AmFed 12.42 12.47
CCB-Ga. 11.91 11.13
Total Capital 8.00
Corporation 13.85 13.88
CCB 13.16 13.04
AmFed 13.67 13.72
CCB-Ga. 13.20 12.39
Leverage 4.00
Corporation 8.88 8.32
CCB 8.95 8.54
AmFed 8.51 7.20
CCB-Ga. 10.15 9.41
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 September 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 financial statements issued
for periods ending after December 15, 1997. 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 22 - Report regarding matters submitted to vote of
security holders.
(b). Reports on Form 8-K:
A report on Form 8-K dated August 1, 1997 was filed under
Items 2 and 7 to announce the completion of the merger with
American Federal Bank, FSB and to file the required financial
statements of businesses acquired.
A report on Form 8-K dated September 30, 1997 was filed under
Item 5 to announce the increase in merger-related expenses
from the levels previously estimated and disclosed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CCB FINANCIAL CORPORATION
Registrant
Date: November 13, 1997 /s/ ERNEST C. ROESSLER
Ernest C. Roessler
President and Chief Executive Officer
Date: November 13, 1997 /s/ ROBERT L. SAVAGE, JR.
Robert L. Savage, Jr.
Senior Vice President and
Chief Financial Officer
Date: November 13, 1997 /s/ W. HAROLD PARKER, JR.
W. Harold Parker, Jr.
Senior Vice President and Controller
(Chief Accounting Officer)