UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended March 31, 1998
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 20,494,068
(Class of Stock) (Shares outstanding
as of May 13, 1998)
CCB FINANCIAL CORPORATION
FORM 10-Q
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1998, December 31, 1997 and
March 31, 1997 3
Consolidated Statements of Income
Three Months Ended March 31, 1998 and 1997 4
Consolidated Statements of Shareholders' Equity
Three Months Ended March 31, 1998 and 1997 5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements
Three Months Ended March 31, 1998 and 1997 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CCB Financial Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited) (Unaudited)
March December March
31, 31, 31,
1998 1997 1997
(In Thousands Except Share Data)
Assets:
Cash and due from banks $ 237,308 277,469 180,533
Time deposits in other banks 31,173 19,875 68,773
Federal funds sold and other
short-term investments 363,500 122,000 190,000
Investment securities:
Available for sale (amortized
costs of $1,309,501,
$1,359,376 and $1,466,725) 1,330,797 1,382,107 1,464,958
Held to maturity (market values
of $85,774, $87,002 and $85,444) 81,061 81,617 82,152
Loans and lease financing (notes
2 and 4) 5,157,079 5,093,569 4,723,984
Less reserve for loan and
lease losses (note 3) 68,403 67,594 61,364
--------- --------- ---------
Net loans and lease financing 5,088,676 5,025,975 4,662,620
Premises and equipment 86,618 86,035 85,773
Other assets (note 4) 124,928 143,450 144,253
--------- --------- ---------
Total assets $ 7,344,061 7,138,528 6,879,062
========= ========= =========
Liabilities:
Deposits:
Demand (noninterest-bearing) $ 773,043 740,338 698,378
Savings and NOW accounts 758,784 727,108 706,937
Money market accounts 1,710,410 1,636,683 1,604,712
Jumbo time deposits 439,785 392,435 384,742
Consumer time deposits 2,451,353 2,488,033 2,403,835
--------- --------- ---------
Total deposits 6,133,375 5,984,597 5,798,604
Short-term borrowed funds 249,440 276,437 281,149
Long-term debt 175,441 100,686 57,327
Other liabilities 103,287 95,448 121,775
--------- --------- ---------
Total liabilities 6,661,543 6,457,168 6,258,855
--------- --------- ---------
Shareholders' equity:
Serial preferred stock. Authorized
5,000,000 shares; none issued -- -- --
Common stock of $5 par value.
Authorized 50,000,000 shares;
20,648,164, 20,776,412
and 20,694,310 shares issued 103,241 103,882 103,472
Additional paid-in capital 126,860 143,784 141,700
Retained earnings 439,278 419,746 376,693
Accumulated other comprehensive income 13,139 13,980 (1,169)
Less: Unearned common stock held
by management recognition plans -- (32) (489)
------- ------- -------
Total shareholders' equity 682,518 681,360 620,207
------- ------- -------
Total liabilities and
shareholders' equity $ 7,344,061 7,138,528 6,879,062
========= ========= =========
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
1998 1997
(In Thousands Except Per Share Data)
Interest income:
Interest and fees on loans
and lease financing $ 115,111 106,363
Interest and dividends on
investment securities:
U.S. Treasury 7,427 7,339
U.S. Government agencies
and corporations 13,963 12,826
States and political subdivisions
(primarily tax-exempt) 1,195 1,216
Equity and other securities 761 775
Interest on time deposits
in other banks 403 1,283
Interest on federal funds sold
and other short-term investments 2,777 3,288
------- -------
Total interest income 141,637 133,090
------- -------
Interest expense:
Deposits 57,920 55,583
Short-term borrowed funds 3,049 4,418
Long-term debt 1,999 953
------ ------
Total interest expense 62,968 60,954
------ ------
Net interest income 78,669 72,136
Provision for loan and lease
losses (note 3) 3,140 2,664
------ ------
Net interest income after provision
for loan and lease losses 75,529 69,472
------ ------
Other income:
Service charges on deposit accounts 12,085 10,486
Trust and custodian fees 2,271 1,841
Sales and insurance commissions 2,515 2,343
Merchant discount 2,008 1,580
Other service charges and fees 2,029 1,683
Other operating income 3,207 3,918
Investment securities gains 649 126
Investment securities losses (27) (65)
----- -----
Total other income 24,737 21,912
------ ------
Other expenses:
Personnel expense 30,443 28,552
Net occupancy expense 3,747 4,042
Equipment expense 3,349 3,026
Other operating expense 16,553 15,392
Merger-related expense - 1,016
------ ------
Total other expenses 54,092 52,028
------ ------
Income before income taxes 46,174 39,356
Income taxes 16,890 14,466
------ ------
Net income $ 29,284 24,890
====== ======
Earnings per common share:
Basic $ 1.41 1.20
Diluted 1.39 1.19
Weighted average shares outstanding:
Basic 20,769 20,660
Diluted 21,058 20,903
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Months Ended March 31, 1998 and 1997
(Unaudited)
Accumulated
Other Management
Additional Compre- Recog- Total
Common Paid-In Retained hensive nition Shareholders'
Stock Capital Earnings Income Plans Equity
(In Thousands)
Balance December 31, 1996: $ 103,169 140,617 361,072 7,329 (738) 611,449
Net income - - 24,890 - - 24,890
Stock options exercised,
net of shares tendered 303 1,083 - - - 1,386
Earned portion of manage-
ment recognition plans - - - - 249 249
Cash dividends ($.42
per share) - - (9,269) - - (9,269)
Change in unrealized gain
(loss), net of applic-
able income taxes - - - (8,498) - (8,498)
------- ------- ------- ------ ---- -------
Balance March 31, 1997 $ 103,472 141,700 376,693 (1,169) (489) 620,207
======= ======= ======= ====== ===== =======
Balance December 31, 1997 $ 103,882 143,784 419,746 13,980 (32) 681,360
Net income - - 29,284 - - 29,284
Stock options exercised,
net of shares tendered 168 287 - - - 455
Transactions pursuant to
restricted stock plan (4) (48) - - - (52)
Shares repurchased and
retired (805) (17,155) - - - (17,960)
Earned portion of manage-
ment recognition plans - - - - 32 32
Other transactions, net - (8) - - - (8)
Cash dividends ($.47
per share) - - (9,752) - - (9,752)
Change in unrealized gain
(loss), net of applic-
able income taxes - - - (841) - (841)
------- ------- ------- ------ ----- -------
Balance March 31, 1998 $ 103,241 126,860 439,278 13,139 - 682,518
======= ======= ======= ====== ===== =======
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1998 and 1997
(Unaudited)
1998 1997
(In Thousands)
Operating activities:
Net income $ 29,284 24,890
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and accretion, net 4,726 5,762
Provision for loan and lease losses 3,140 2,664
Net (gain) loss on sales of investment
securities (622) (61)
Sale of securitized mortgage loans at par - 25,658
Sales of loans held for sale 106,490 48,335
Origination of loans held for sale (93,844) (47,108)
Changes in:
Accrued interest receivable 1,848 (2,032)
Accrued interest payable 187 6,652
Other assets 18,035 646
Other liabilities 8,631 7,612
Other operating activities, net (3,111) (2,044)
------- -------
Net cash provided by operating activities 74,764 70,974
------- -------
Investing activities:
Proceeds from:
Maturities and issuer calls of investment
securities held to maturity 550 2,104
Sales of investment securities available
for sale 19,747 11,905
Maturities and issuer calls of investment
securities available for sale 106,135 95,287
Purchases of:
Investment securities available for sale (77,031) (208,124)
Premises and equipment (3,183) (2,470)
Net originations of loans and leases
receivable (77,617) (120,808)
-------- ---------
Net cash used by investing activities (31,399) (222,106)
-------- ---------
Financing activities:
Net increase in deposit accounts 148,779 57,150
Net decrease in short-term borrowed funds (26,997) (75,690)
Proceeds from issuance of long-term debt 75,000 79
Repayments of long-term debt (245) (1,236)
Issuances of common stock from exercise
of stock options, net 455 1,386
Purchase and retirement of common stock (17,960) -
Other equity transactions, net (8) -
Cash dividends paid (9,752) (9,269)
------- --------
Net cash provided (used) by
financing activities 169,272 (27,580)
-------- --------
Net increase (decrease) in cash and cash
equivalents 212,637 (178,712)
Cash and cash equivalents at beginning of year 419,344 618,018
------- --------
Cash and cash equivalents at end of period $ 631,981 439,306
======= =======
Supplemental disclosures of cash flow
information:
Interest paid during the period $ 62,781 54,302
Income taxes paid during the period $ 2,668 1,411
Supplemental disclosures of noncash investing
and financing activities:
Change in market value of securities available
for sale, net of deferred tax benefit of
$594 and $5,393, respectively $ (841) (8,498)
Lapse of restrictions on common stock $ (52) -
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Three Months Ended March 31, 1998 and 1997
(Unaudited)
(1) Consolidation and Presentation
The accompanying unaudited consolidated financial statements of CCB
Financial Corporation (the "Corporation") have been prepared in
accordance with the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, the statements reflect all adjustments necessary for a
fair presentation of the financial position, results of operations and
cash flows of the Corporation on a consolidated basis, and all such
adjustments are of a normal recurring nature. These financial
statements and the notes thereto should be read in conjunction with
the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1997. Operating results for the three month period ended
March 31, 1998, are not necessarily indicative of the results that may
be expected for the year ending December 31, 1998.
Consolidation
The consolidated financial statements include the accounts and results
of operations of the Corporation and its wholly-owned subsidiaries,
Central Carolina Bank and Trust Company ("CCB"), American Federal
Bank, FSB ("AmFed") and Central Carolina Bank - Georgia (collectively
the "Subsidiary Banks"). 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 of S.C., Mortgage North, AMFEDDE, Inc. and Finance
South, Inc.). All significant intercompany accounts are eliminated in
consolidation.
Accounting Policies
Effective January 1, 1998, the Corporation adopted the provisions of
SFAS No. 129, "Disclosure of Information about Capital Structure".
The Statement establishes standards for disclosing information about
an entity's capital structure. Adoption of the provisions of this
Statement will not have a material impact on the consolidated
financial statements as the Corporation is already meeting the
disclosure requirements of SFAS No. 129.
The Corporation also adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income", on January 1, 1998. This Statement
establishes standards for reporting comprehensive income and its
components in a full set of general purpose financial statements. The
objective of the Statement is to report a measure of all changes in
equity of an enterprise that result from transactions and other
economic events during the period other than transaction with owners.
Comprehensive income is divided into net income and other
comprehensive income. Adoption of this Statement will not change
total shareholders' equity as previously reported. In accordance with
the provisions of SFAS No. 130, comparative financial statements
presented for earlier periods have been reclassified to reflect the
provisions of this Statement.
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(1) Consolidation and Presentation - Continued
The following discussion summarizes the impact of adoption of SFAS No.
130 on the Corporation's accounting policies and disclosures:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Comprehensive Income
Comprehensive income is the change in the Corporation's equity
during the period from transactions and other events and
circumstances from non-owner sources. Comprehensive income is
divided into net income and other comprehensive income. The
Corporation's "other comprehensive income" for the three months
ended March 31, 1998 and 1997 and "accumulated other compre-
hensive income" as of March 31, 1998 and 1997 are comprised
solely of unrealized gains and losses on certain investments in
debt and equity securities. Total comprehensive income for the
three months ended March 31, 1998 and 1997 amounted to
$28,443,000 and $16,392,000, respectively.
The Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information"
in July 1997. SFAS No. 131 establishes standards for the way that
public business enterprises report information about operating
segments in shareholder reports. The Statement also establishes
standards for related disclosures about products and services,
geographic areas, and major customers. In the initial year of
application, SFAS No. 131 does not have to be applied to interim
financial statements. Generally, financial information is required to
be reported on the basis that it is used internally for evaluating
segment performance and deciding how to allocate resources to
segments. The Corporation will adopt the provisions of SFAS No. 131
for its financial statements for the year ending December 31, 1998.
However, as the Corporation does not internally divide its operations
into discrete segments, adoption of this Statement should not materially
impact its financial statements.
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 132,
"Employer's Disclosures about Pensions and Other Postretirement
Benefits". This Statement amends the disclosures required for pension
and other postretirement benefit plans; the methods of measurement and
recognition for such plans remain unchanged. SFAS No. 132 is
effective for fiscal years beginning after December 31, 1997. The
Corporation will present the required disclosures in its financial
statements for the year ended December 31, 1998.
Earnings Per Share
Basic earnings per share ("EPS") excludes dilution and is computed by
dividing income available to common shareholders by the weighted
average number of common shares outstanding during each period.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock. The Corporation's diluted EPS is
computed by dividing income available to common shareholders by the
weighted average number of
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(1) Consolidation and Presentation - Continued
common shares outstanding plus dilutive stock options (as computed
under the treasury stock method) assumed to have been exercised during
each period.
(2) Loans and Lease Financing
A summary of loans and lease financing at March 31, 1998 and 1997
follows (in thousands):
1998 1997
Commercial, financial and agricultural $ 740,788 682,354
Real estate-construction 766,627 688,620
Real estate-mortgage 2,966,948 2,383,212
Instalment loans to individuals 498,365 694,452
Revolving credit 203,324 186,918
Lease financing 45,422 40,168
--------- ---------
Gross loans and lease financing 5,163,040 4,734,158
Less unearned income 5,961 10,174
--------- ---------
Total loans and lease financing $ 5,157,079 4,723,984
========= =========
Mortgage loans held for sale totaled $42,687,000 and $13,375,000 at
March 31, 1998 and 1997, respectively, and are reported at the lower
of cost or market. During the first quarter of 1997, the Subsidiary
Banks securitized $138,306,000 of mortgage loans of which $112,648,000
were retained in the available for sale portfolio at March 31, 1997
and the remainder were sold at par. The retained securitized loans
were sold during the third quarter of 1997 at a nominal gain.
At March 31, 1998, impaired loans amounted to $15,432,000 compared to
$11,052,000 at March 31, 1997. The related reserve for loan and lease
losses on these loans amounted to $2,754,000 at March 31, 1998 and
$3,241,000 at March 31, 1997. During the three months ended March 31,
1998 and 1997, loans totaling $579,000 and $731,000, respectively,
were transferred to "other assets" due to loan foreclosure.
(3) Reserve for Loan and Lease Losses
Following is a summary of the reserve for loan and lease losses for
the three months ended March 31, 1998 and 1997 (in thousands):
1998 1997
Balance at beginning of year $ 67,594 61,257
Provision charged to operations 3,140 2,664
Recoveries of loans and leases
previously charged-off 590 725
Loan and lease losses charged to reserve (2,921) (3,282)
------- -------
Balance at end of period $ 68,403 61,364
======= =======
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(4) Risk Assets
Following is a summary of risk assets at March 31, 1998 and 1997 (in
thousands):
1998 1997
Nonaccrual loans and lease financing $ 17,571 17,942
Other real estate acquired through
loan foreclosures 975 2,201
Restructured loans and lease financing 772 821
Accruing loans and lease financing
90 days or more past due 2,982 3,209
------- -------
Total risk assets $ 22,300 24,173
======= =======
(5) 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.
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
"Subsidiary Banks"), and CCB's wholly-owned subsidiaries, CCB
Investment and Insurance Service Corporation, CCBDE, Inc. and
Southland Associates, Inc. and AmFed's wholly-owned subsidiaries,
American Service Corporation of S.C., Mortgage North, AMFEDDE, Inc.,
and Finance South, Inc. for the three months ended March 31, 1998 and
1997. 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.
Results of Operations - Three Months Ended March 31, 1998 and 1997
Net income for the three months ended March 31, 1998 amounted to $29.3
million compared to 1997's $24.9 million. Basic income per share
totaled $1.41 in 1998 compared to $1.20 in the first quarter of 1997.
Returns on average assets and shareholders' equity were 1.66% and
17.39%, respectively, in 1998 compared to 1997's 1.47% and 16.42%.
Merger-related expense incurred during 1997 totaled $792,000 after-tax
and related to the Corporation's acquisition of Salem Trust Bank.
Excluding the impact of the merger-related expense, basic income per
share totaled $1.24 and returns on average assets and shareholders'
equity were 1.52% and 16.94%, respectively.
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 $285.3 million or 4.4% in the
1998 period. Due primarily to a favorable shift in the mix of
interest-earning assets towards loans (75.6% of interest-earning
assets in 1998 versus 73.2% in 1997), the overall yield on earning
assets increased to 8.55% from 1997's 8.39%. The cost of interest-
bearing funds decreased by 3 basis points in the 1998 period to 4.51%.
As a result of these favorable changes, the interest rate spread and
net interest margin increased by 19 and 20 basis points, respectively,
to 4.04% and 4.79%. Net interest income on a taxable equivalent basis
increased by $6.8 million or 9.1%.
The provision for loan and lease losses for the first quarter of 1998
was $3.1 million compared to $2.7 million in 1997. The reserve for
loan and lease losses to loans and lease financing outstanding was
1.33% at March 31, 1998 compared to 1997's 1.30%. Net 1998 quarterly
loan and lease charge-offs amounted to $2.3 million or .18%
(annualized) of average loans and lease financing compared to .22%
(annualized) in the first quarter of 1997. Annualized net charge-offs
of revolving credit (credit card and check protection) improved from
1997's 3.44% to 1998's 2.60%.
Other income, excluding investment securities transactions, increased
$2.3 million or 10.4% in the first quarter of 1998 to $24.1 million.
The increase was due primarily to a $1.6 million increase in service
charges on deposit accounts. The service charge increase resulted
primarily from increased deposit volume and repricing of certain
deposit services based upon the results of product profitability
analysis. Other service charges and fees increased $346,000 and trust
income increased $430,000 from 1997.
Table 1
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis
Three Months Ended March 31, 1998 and 1997
1998
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans and lease financing (2) $ 5,132,578 115,172 9.07 %
U.S. Treasury and agency
obligations (3) 1,292,999 22,819 7.05
States and political subdivision
obligations 81,169 1,787 8.80
Equity and other securities (3) 46,066 898 7.79
Federal funds sold and other
short-term investments 205,663 2,871 5.66
Time deposits in other banks 33,995 403 4.81
--------- ------- ----
Total earning assets (3) 6,792,470 143,950 8.55
Non-earning assets:
Cash and due from banks 207,437
Premises and equipment 86,679
All other assets, net 77,865
-------
Total assets $ 7,164,451
=========
Interest-bearing liabilities:
Savings and time deposits $ 5,284,230 57,920 4.45 %
Other short-term borrowed funds 251,418 3,049 4.91
Long-term debt 130,264 1,999 6.19
-------- ------ ----
Total interest-bearing liabilities 5,665,912 62,968 4.51
--------- ------ ----
Other liabilities and shareholders' equity:
Demand deposits 716,009
Other liabilities 99,746
Shareholders' equity 682,784
-------
Total liabilities and
shareholders' equity $ 7,164,451
==========
Net interest income and net
interest margin (4) $ 80,982 4.79 %
====== ====
Interest rate spread (5) 4.04 %
====
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis, continued
Three Months Ended March 31, 1998 and 1997
1997
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans and lease financing (2) $ 4,765,895 106,437 9.03 %
U.S. Treasury and agency
obligations (3) 1,263,504 21,372 6.78
States and political subdivision
obligations 82,357 1,822 8.85
Equity and other securities (3) 45,588 933 7.66
Federal funds sold and other
short-term investments 251,476 3,339 5.39
Time deposits in other banks 98,311 1,283 5.29
--------- ------- ----
Total earning assets (3) 6,507,131 135,186 8.39
Non-earning assets:
Cash and due from banks 172,374
Premises and equipment 86,124
All other assets, net 79,444
----------
Total assets $ 6,845,073
==========
Interest-bearing liabilities:
Savings and time deposits $ 5,034,831 55,583 4.48 %
Other short-term borrowed funds 356,493 4,418 5.27
Long-term debt 58,103 953 6.56
--------- ------ ----
Total interest-bearing liabilities 5,449,427 60,954 4.54
-------- ------ ----
Other liabilities and shareholders' equity:
Demand deposits 661,236
Other liabilities 119,594
Shareholders' equity 614,816
----------
Total liabilities and
shareholders' equity $ 6,845,073
==========
Net interest income and net
interest margin (4) $ 74,232 4.59 %
===== ====
Interest rate spread (5) 3.85 %
====
(1) The taxable equivalent basis is computed using 35% federal and
applicable state tax rates in 1998 and 1997.
(2) The average loan and lease financing balances include non-accruing
loans and lease financing. Loan fees of $3,607,000 and $3,021,000 for
1998 and 1997, 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, excluding 1997's previously discussed pre-tax merger-
related expense of $1.0 million, increased in the 1998 period by $3.1
million or 6.0%. This is partially explained by a $1.9 million
increase in personnel expense from 1997's level. The increase was due
to general salary increases and a larger workforce which had the
combined effect of increasing salary expense by $1.0 million with
corresponding increases in employee benefits and payroll taxes.
As a result of the aforementioned changes, net overhead (noninterest
expense less noninterest income) as a percentage of average assets
decreased to 1.66% for the three months ended March 31, 1998 from
1.72% for the same period in 1997. The Corporation's efficiency ratio
(noninterest expense as a percentage of taxable equivalent net
interest income and other income) significantly improved from 53.06%
for the three months ended March 31, 1997 to 51.17% for the same
period in 1998. The improvement in these ratios, both of which were
calculated excluding the impact of merger-related expense, indicates
that the Corporation's revenues are increasing faster than its
expenses.
The following schedule presents noninterest income and expense as a
percentage of average assets for the three months ended March 31, 1998
and 1997.
1998 1997
Noninterest income 1.40 % 1.30
---- ----
Personnel expense 1.72 1.69
Occupancy and equipment expense .40 .42
Other operating expense (1) .94 .91
Noninterest expense 3.06 3.02
---- ----
Net overhead 1.66 % 1.72
==== ====
_____________________
(1) Excludes merger-related expense of $1.0 million in 1997.
The effective income tax rate was 36.6% in 1998 compared to 36.8% in
the same period of 1997.
Financial Condition
Total assets have increased $465.0 million since March 31, 1997 due
solely to internal growth. The majority of the increase occurred in
interest-earning assets. Average assets have increased from $6.8
billion for the quarter ended March 31, 1997 to $7.2 billion for the
quarter ended March 31, 1998 and compared to $7.1 billion for the
three months ended December 31, 1997.
At March 31, 1998, 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 $22.3 million or .43% of outstanding loans and lease
financing and foreclosed real estate. This compares to approximately
$24.2 million or .51% at March 31, 1997. All categories of risk
assets decreased from the levels experienced at March 31, 1997 due to
the favorable economic conditions found in the Subsidiary Banks'
market areas. Nonaccrual loans have increased $1.5 million from year-
end 1997 primarily due to one large nonaccrual relationship. The
reserve for loan and lease losses to risk assets was 3.07x at March
31, 1998 compared to 3.20x at December 31, 1997 and 2.54x at March 31,
1997.
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 9.53% and 8.98% for the three months ended
March 31, 1998 and 1997, respectively. Increases in this ratio since
March 31, 1997 are due primarily to the retention of earnings.
The unrealized gains on investment securities available for sale, net
of applicable taxes, decreased $841,000 from December 31, 1997 to
result in an after-tax unrealized gain at March 31, 1998 of $13.1
million.
The Corporation has increased its annual cash dividends consistently
over the past 33 years. On April 21, 1998, the Board of Directors of
the Corporation declared a regular quarterly dividend of $.47 payable
on July 1, 1998 to shareholders of record June 15, 1998. Book value
increased 10.3% to $33.05 per share at March 31, 1998 from 1997's
level of $29.97. As of March 31, 1998, unrealized gains on investment
securities available for sale, net of applicable taxes, added $.63 per
share to book value.
On February 25, 1998, the Board of Directors authorized a stock
repurchase program of up to 500,000 shares. During the quarter ended
March 31, 1998, 160,900 shares were purchased at an average price of
$111.62 for a total cost of $17,960,000. These shares were retired
upon purchase.
Bank holding companies are required to comply with the Federal Reserve
Board's risk-based capital guidelines which require a minimum ratio of
total capital to risk-weighted assets of 8%. At least half of the
total capital is required to be "Tier 1" capital, principally
consisting of common shareholders' equity, noncumulative perpetual
preferred stock, and a limited amount of cumulative perpetual
preferred stock less certain goodwill items. The remainder, "Tier 2
capital", may consist of a limited amount of subordinated debt,
certain hybrid capital instruments and other debt securities,
perpetual preferred stock, and a limited amount of the general reserve
for loan and lease losses. In addition to the risk-based capital
guidelines, the Federal Reserve has adopted a minimum leverage capital
ratio under which a bank holding company must maintain a minimum level
of Tier 1 capital to average total consolidated assets of at least 3%
in the case of a bank holding company which has the highest regulatory
examination rating and is not contemplating significant growth or
expansion. All other bank holding companies are expected to maintain
a leverage capital ratio of at least 1% to 2% above the stated
minimum.
The Corporation and the Banks continue to maintain higher capital
ratios than required under regulatory guidelines at March 31, 1998.
March 31, Regulatory
Ratio 1998 1997 Minimums
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Tier 1 Capital 4.00%
Corporation 11.97% 12.20
CCB 10.90 12.05
AmFed 14.07 13.56
CCB-Ga. 14.45 10.82
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Total Capital 8.00
Corporation 13.84 14.14
CCB 12.07 13.29
AmFed 15.32 14.81
CCB-Ga. 15.73 12.10
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Leverage 4.00
Corporation 8.96 8.63
CCB 8.16 8.66
AmFed 9.52 8.29
CCB-Ga. 11.33 7.82
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Year 2000 Issue
The Corporation is in the process of assessing and correcting the
impact of the "Year 2000 Issue". The Year 2000 Issue resulted from
many computer programs having been written using two digit dates
rather than four to define the applicable year. This will make it
impossible to distinguish 2000 from 1900 and difficult to calculate
the passage of time. The Corporation will utilize both internal and
external resources to modify or replace and test software for Year
2000 modifications. The Corporation anticipates that its critical
applications will be modified or replaced by the end of 1998 which
will allow testing and any subsequent modifications to be completed in
1999. Federal regulators have conducted a review of the Corporation's
Year 2000 conversion efforts and no criticism was made on the progress-
to-date or its anticipated schedule to complete the Year 2000 project.
The total cost of the Year 2000 project is estimated at $4.1 million,
of which $2 million is attributable to the purchase of new software
and hardware which will be capitalized. The remainder of the cost
will be expensed as incurred over the next two years and is not
expected to have a material effect on the Corporation's results of
operations. During the first quarter of 1998, the Corporation incurred
$185,000 of non-capitalizable expense attributable to the Year 2000
project. Total non-capitalizable expense incurred prior to 1998 was
less than $75,000.
The costs of the Year 2000 project and the date on which the
Corporation plans to complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of
certain resources, third-party modification plans and other factors.
However, there can be no guarantee that these estimates will be
achieved at the cost disclosed or within the timeframe anticipated.
Trust Business Acquired
On March 10, 1998, the Corporation announced that it had entered into
a definitive agreement to acquire from NationsBank Corporation the
rights to portions of the institutional trust business of the former
Barnett Banks of Florida. This acquisition involves the transfer of
approximately $3 billion in assets from 450 custody, escrow and
employee benefit accounts of Florida-based customers. The transaction
is subject to regulatory approval and is tentatively scheduled to be
completed in the second quarter of 1998.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk reflects the risk of economic loss resulting from adverse
changes in market price and interest rates. This risk of loss can be
reflected in diminished current market values and/or reduced potential
net interest income in future periods.
The Corporation's market risk arises primarily from interest rate risk
inherent in its lending and deposit-taking activities. The structure
of the Corporation's loan and deposit portfolios is such that a
significant decline in interest rates may adversely impact net market
values and net interest income. The Corporation does not maintain a
trading account nor is the Corporation subject to currency exchange
risk or commodity price risk. Responsibility for monitoring interest
rate risk rests with the Asset/Liability Management Committee ("ALCO")
which is comprised of senior management. ALCO regularly reviews the
Corporation's interest rate risk position and adopts balance sheet
strategies that are intended to optimize net interest income while
maintaining market risk within a set of Board-approved guidelines.
As of March 31, 1998, Management believes that it has accomplished its
objective to avoid material negative changes in net income resulting
from changes in interest rates.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
Exhibit 27.1 Financial Data Schedule as of March 31, 1998.
Exhibit 27.2 Restated Financial Data Schedule as of March 31,
1997.
(b). Reports on Form 8-K:
A report on Form 8-K dated January 12, 1998 was filed under
Items 5 and 7 reporting the employment and amended and
restated change of control agreements with the Registrant's
three executive officers.
A report on Form 8-K dated February 25, 1998 was filed
under Items 5 and 7 reporting a stock repurchase plan of up
to 500,000 shares.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CCB FINANCIAL CORPORATION
Registrant
Date: May 14, 1998 /s/ ERNEST C. ROESSLER
Ernest C. Roessler
Chairman, President and
Chief Executive Officer
Date: May 14, 1998 /s/ ROBERT L. SAVAGE, JR.
Robert L. Savage, Jr.
Senior Vice President and
Chief Financial Officer
Date: May 14, 1998 /s/ W. HAROLD PARKER, JR.
W. Harold Parker, Jr.
Senior Vice President and
Controller
(Chief Accounting Officer)