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, 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 40,606,868
(Class of Stock) (Shares outstanding as of August 11, 1998
see note 5 to consolidated financial statements )
CCB FINANCIAL CORPORATION
FORM 10-Q
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1998, December 31, 1997 and
June 30, 1997 3
Consolidated Statements of Income
Three and Six Months Ended June 30, 1998 and 1997 4
Consolidated Statements of Shareholders' Equity
Six Months Ended June 30, 1998 and 1997 5
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements
Six Months Ended June 30, 1998 and 1997 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 18
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CCB Financial Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited) (Unaudited)
June 30, December 31, June 30,
1998 1997 1997
(In Thousands Except Share Data)
Assets:
Cash and due from banks $ 226,419 277,469 216,492
Time deposits in other banks 55,699 19,875 46,338
Federal funds sold and other
short-term investments 307,000 122,000 125,000
Investment securities:
Available for sale (amortized
costs of $1,297,411,
$1,359,376 and $1,494,154) 1,315,158 1,382,107 1,505,037
Held to maturity (market values
of $85,115, $87,002 and $86,118) 80,562 81,617 81,979
Loans and lease financing (notes 5,217,204 5,093,569 4,854,065
2 and 4)
Less reserve for loan and
lease losses (note 3) 69,645 67,594 63,023
Net loans and lease financing 5,147,559 5,025,975 4,791,042
Premises and equipment 87,668 86,035 85,621
Other assets (note 4) 130,269 143,450 147,400
Total assets $ 7,350,334 7,138,528 6,998,909
Liabilities:
Deposits:
Demand (noninterest-bearing) $ 823,645 740,338 726,131
Savings and NOW accounts 754,044 727,108 691,212
Money market accounts 1,724,431 1,636,683 1,599,563
Jumbo time deposits 418,954 392,435 383,099
Consumer time deposits 2,447,245 2,488,033 2,434,318
Total deposits 6,168,319 5,984,597 5,834,323
Short-term borrowed funds 256,215 276,436 300,246
Long-term debt 176,372 100,686 100,999
Other liabilities 89,154 95,449 114,467
Total liabilities 6,690,060 6,457,168 6,350,035
Shareholders' equity (note 5):
Serial preferred stock. Authorized
10,000,000 shares; none issued -- -- --
Common stock of $5 par value.
Authorized 100,000,000 shares;
40,589,696, 20,776,412
and 20,731,305 shares issued 202,948 103,882 103,657
Additional paid-in capital 88,145 143,784 142,722
Retained earnings 358,220 419,746 396,210
Accumulated other comprehensive
income 10,961 13,980 6,561
Less: Unearned common stock held
by management recognition plans -- (32) (276)
Total shareholders' equity 660,274 681,360 648,874
Total liabilities and
shareholders' equity $ 7,350,334 7,138,528 6,998,909
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended June 30,
1998 1997
(In Thousands Except Per Share Data)
Interest income:
Interest and fees on loans
and lease financing $ 117,097 109,267
Interest and dividends on
investment securities:
U.S. Treasury 7,206 8,530
U.S. Government agencies
and corporations 13,440 15,011
States and political subdivisions
(primarily tax-exempt) 1,187 1,212
Equity and other securities 783 781
Interest on time deposits
in other banks 402 483
Interest on federal funds sold
and other short-term investments 4,447 1,662
Total interest income 144,562 136,946
Interest expense:
Deposits 58,526 57,072
Short-term borrowed funds 3,021 3,572
Long-term debt 2,687 938
Total interest expense 64,234 61,582
Net interest income 80,328 75,364
Provision for loan and lease
losses (note 3) 3,646 4,885
Net interest income after provision
for loan and lease losses 76,682 70,479
Other income:
Service charges on deposit accounts 13,745 11,227
Trust and custodian fees 2,792 2,061
Sales and insurance commissions 3,059 2,203
Merchant discount 2,135 1,844
Other service charges and fees 1,908 1,866
Other operating income 5,508 5,011
Investment securities gains 361 17
Investment securities losses - (6)
Total other income 29,508 24,223
Other expenses:
Personnel expense 32,111 28,495
Net occupancy expense 3,899 3,953
Equipment expense 3,379 3,302
Other operating expense 19,529 16,624
Merger-related expense - -
Total other expenses 58,918 52,374
Income before income taxes 47,272 42,328
Income taxes 17,296 14,847
Net income $ 29,976 27,481
Earnings per common share (note 5):
Basic $ .73 .67
Diluted .72 .66
Weighted average shares
outstanding (note 5):
Basic 40,952 41,421
Diluted 41,498 41,875
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME, continued
(Unaudited)
Six Months Ended June 30,
1998 1997
(In Thousands Except Per Share Data)
Interest income:
Interest and fees on loans
and lease financing 232,208 215,632
Interest and dividends on
investment securities:
U.S. Treasury 14,633 15,869
U.S. Government agencies
and corporations 27,403 27,837
States and political subdivisions
(primarily tax-exempt) 2,382 2,428
Equity and other securities 1,544 1,556
Interest on time deposits
in other banks 805 1,766
Interest on federal funds sold
and other short-term investments 7,224 4,948
Total interest income 286,199 270,036
Interest expense:
Deposits 116,446 112,655
Short-term borrowed funds 6,070 7,990
Long-term debt 4,686 1,891
Total interest expense 127,202 122,536
Net interest income 158,997 147,500
Provision for loan and lease
losses (note 3) 6,786 7,549
Net interest income after provision
for loan and lease losses 152,211 139,951
Other income:
Service charges on deposit accounts 25,830 21,713
Trust and custodian fees 5,063 3,902
Sales and insurance commissions 5,574 4,546
Merchant discount 4,143 3,424
Other service charges and fees 3,937 3,549
Other operating income 8,715 8,929
Investment securities gains 1,010 143
Investment securities losses (27) (71)
Total other income 54,245 46,135
Other expenses:
Personnel expense 62,554 57,047
Net occupancy expense 7,646 7,995
Equipment expense 6,728 6,328
Other operating expense 36,082 32,016
Merger-related expense - 1,016
Total other expenses 113,010 104,402
Income before income taxes 93,446 81,684
Income taxes 34,186 29,313
Net income 59,260 52,371
Earnings per common share (note 5):
Basic 1.43 1.27
Diluted 1.42 1.25
Weighted average shares
outstanding (note 5):
Basic 41,244 41,372
Diluted 41,805 41,840
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Six Months Ended June 30, 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 - - 52,371 - - 52,371
Stock options exercised,
net of shares tendered 460 1,717 - - - 2,177
Transactions pursuant to
restricted stock plan 28 388 - - - 416
Earned portion of manage-
ment recognition plans - - - - 462 462
Cash dividends ($.42
per share) - - (17,233) - - (17,233)
Change in unrealized gain
(loss), net of applicable
income taxes - - - (768) - (768)
Balance June 30, 1997 $ 103,657 142,722 396,210 6,561 (276) 648,874
Balance December 31, 1997 $ 103,882 143,784 419,746 13,980 (32) 681,360
Net income - - 59,260 - - 59,260
Stock options exercised,
net of shares tendered 297 1,090 - - - 1,387
Tax benefit from stock
options exercised - 444 - - - 444
Transactions pursuant to
restricted stock plan (2) 36 - - - 34
Shares repurchased and
retired (2,702) (57,200) - - - (59,902)
Earned portion of manage-
ment recognition plans - - - - 32 32
Other transactions, net (1) (9) - - - (10)
Cash dividends ($.47
per share) - - (19,312) - - (19,312)
Stock dividend paid (note 5) 101,474 - (101,474) - - -
Change in unrealized gain
(loss), net of applicable
income taxes - - - (3,019) - (3,019)
Balance June 30, 1998 $ 202,948 88,145 358,220 10,961 - 660,274
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1998 and 1997
(Unaudited)
1998 1997
(In Thousands)
Operating activities:
Net income $ 59,260 52,371
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and accretion, net 10,130 11,644
Provision for loan and lease losses 6,786 7,549
Net (gain) loss on sales of investment
securities (983) (72)
Sale of securitized mortgage loans at par - 25,658
Sales of loans held for sale 273,297 89,385
Origination of loans held for sale (291,696) (91,625)
Changes in:
Accrued interest receivable 662 (4,093)
Accrued interest payable (287) 10,978
Deferred taxes payable - (164)
Other assets 19,879 (2,297)
Other liabilities (5,296) (6,002)
Other operating activities, net (9,685) (5,274)
Net cash provided by operating activities 62,067 88,058
Investing activities:
Proceeds from:
Maturities and issuer calls of investment
securities held to maturity 1,045 2,272
Sales of investment securities available
for sale 31,399 38,695
Maturities and issuer calls of investment
securities available for sale 214,476 171,380
Purchases of:
Investment securities available for sale (186,037) (341,036)
Premises and equipment (6,923) (5,071)
Net originations of loans and leases
receivable (107,603) (265,063)
Net cash acquired (paid) in acquisitions
(dispositions) - 16,877
Net cash used by investing activities (53,643) (381,946)
Financing activities:
Net increase in deposit accounts 183,722 92,869
Net decrease in short-term borrowed funds (20,221) (56,593)
Proceeds from issuance of long-term debt 76,140 50,079
Repayments of long-term debt (454) (7,599)
Issuances of common stock from exercise
of stock options, net 1,387 2,177
Purchase and retirement of common stock (59,902) -
Other equity transactions, net (10) -
Cash dividends paid (19,312) (17,233)
Net cash provided by financing activities 161,350 63,700
Net increase (decrease) in cash and
cash equivalents 169,774 (230,188)
Cash and cash equivalents at beginning of year 419,344 618,018
Cash and cash equivalents at end of period $ 589,118 387,830
Supplemental disclosures of cash flow
information:
Interest paid during the period $ 127,488 111,558
Income taxes paid during the period $ 36,297 29,288
Supplemental disclosures of noncash investing
and financing activities:
Change in market value of securities available
for sale, net of deferred tax benefit of
$1,965 and $472, respectively $ (3,019) (768)
Transactions pursuant to restricted stock plan
and stock option plan, net of deferred tax
expense of $484 in 1998 $ 34 416
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Six Months Ended June 30, 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 six month period ended
June 30, 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,
Salem Trust Company, 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.
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 would have occurred
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 common shares outstanding plus dilutive
stock options (as computed under the treasury stock method) assumed to
have been exercised during each period.
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 six months ended June 30, 1998 and 1997
and "accumulated other comprehensive income" as of June 30, 1998 and
1997 are comprised solely of unrealized gains and losses on certain
investments in debt and equity securities. Total comprehensive income
for the six months ended June 30, 1998 and 1997 amounted to
$56,241,000 and $51,603,000, respectively.
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(2) Loans and Lease Financing
A summary of loans and lease financing at June 30, 1998 and 1997
follows (in thousands):
1998 1997
Commercial, financial and agricultural $ 668,698 786,053
Real estate-construction 784,036 681,108
Real estate-mortgage 3,023,743 2,646,236
Instalment loans to individuals 492,012 519,433
Revolving credit 206,215 186,487
Lease financing 48,916 40,183
Gross loans and lease financing 5,223,620 4,859,500
Less unearned income 6,416 5,435
Total loans and lease financing $ 5,217,204 4,854,065
Mortgage loans held for sale totaled $46,287,000 and $14,951,000 at
June 30, 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 June 30, 1998, impaired loans amounted to $14,799,000 compared to
$9,317,000 at June 30, 1997. The related reserve for loan and lease
losses on these loans amounted to $2,573,000 at June 30, 1998 and
$2,398,000 at June 30, 1997. During the six months ended June 30,
1998 and 1997, loans totaling $1,234,000 and $1,246,000, 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 six months ended June 30, 1998 and 1997 (in thousands):
1998 1997
Balance at beginning of year $ 67,594 61,257
Provision charged to operations 6,786 7,549
Recoveries of loans and leases
previously charged-off 1,308 1,411
Loan and lease losses charged to reserve (6,043) (7,194)
Balance at end of period $ 69,645 63,023
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(4) Risk Assets
Following is a summary of risk assets at June 30, 1998 and 1997 (in
thousands):
1998 1997
Nonaccrual loans and lease financing $14,976 15,322
Other real estate acquired through
loan foreclosures 1,000 1,968
Restructured loans and lease financing 769 810
Accruing loans and lease financing
90 days or more past due 2,795 2,452
Total risk assets $19,540 20,552
(5) Share and Per Share Data
On July 21, 1998, the Corporation's Board of Directors approved a two-
for-one stock split to be effected in the form of a 100% common stock
dividend for each outstanding share. The stock dividend will be
issued on October 1, 1998, to shareholders of record as of September
15, 1998. Shares outstanding as of June 30, 1998 and all per share
data have been adjusted for the impact of the stock dividend.
(6) Contingencies
Certain legal claims have arisen in the normal course of business,
which, in the opinion of management and counsel, will have no material
adverse effect on the financial position of the Corporation or its
subsidiaries.
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, Salem Trust Company,
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 six months ended June
30, 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.
On July 21, 1998, the Corporation's Board of Directors approved a two-
for-one stock split to be effected in the form of a 100% common stock
dividend for each outstanding share. The stock dividend will be
issued on October 1, 1998, to shareholders of record as of September
15, 1998. The following discussion and accompanying unaudited
financial statements have been restated to include the impact of the
stock dividend.
Results of Operations - Three Months Ended June 30, 1998 and 1997
Net income for the three months ended June 30, 1998 amounted to $30.0
million, an increase of $2.5 million from the same period in 1997.
Basic income per share was $.73 in 1998, a $.06 or 9.0% increase from
the 1997 period. Returns on average assets and shareholders' equity
in 1998 were 1.65% and 17.92%, respectively, compared to 1.60% and
17.61%, respectively, in the 1997 period. During the second quarter
of 1997, AmFed sold substantially all of the assets of its subsidiary
Finance South, Inc., a consumer finance operation, resulting in a gain
of $2.3 million ($1.4 million after-tax). Excluding the impact of
this gain, basic income per share totaled $.63 and returns on average
assets and shareholders' equity were 1.52% and 16.73%, 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 $421.7 million or 6.5% in the
1998 period. The overall yield on earning assets decreased 8 basis
points to 8.46% from 1997's 8.54%. The cost of interest-bearing funds
decreased by 7 basis points in the 1998 period to 4.47%. Consequently,
the interest rate spread and net interest margin each decreased 1
basis point to 3.99% and 4.76%, respectively, compared with one year
ago. Net interest income on a taxable equivalent basis increased by
$4.9 million or 6.4%.
Decreases in the rates earned on commercial and mortgage loans were
the primary cause as the yield on loans dropped 14 basis points from
the 1997 level of 9.16%. The impact from the drop in loan yield was
partially offset by the increased yield earned on the investment
securities portfolio, 7.14% in 1998 versus 6.97% in 1997. The rate
paid on interest-bearing liabilities was primarily impacted by the 9
basis point improvement on rates paid for savings and time deposits,
4.40% in 1998 versus 4.49% in 1997.
The provision for loan and lease losses for the second quarter of 1998
was $3.6 million compared to $4.9 million in 1997. The reserve for
loan and lease losses to loans and lease financing outstanding
Table 1
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis
Three Months Ended June 30, 1998 and 1997
(Taxable Equivalent Basis - In Thousands) (1)
1998
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans and lease financing (2) $ 5,205,732 117,155 9.02 %
U.S. Treasury and agency
obligations (3) 1,260,137 22,053 7.00
States and political subdivision
obligations 80,882 1,776 8.79
Equity and other securities (3) 46,980 928 7.90
Federal funds sold and other
short-term investments 325,336 4,562 5.62
Time deposits in other banks 36,846 401 4.37
Total earning assets (3) 6,955,913 146,875 8.46
Non-earning assets:
Cash and due from banks 200,518
Premises and equipment 87,468
All other assets, net 54,210
Total assets $ 7,298,109
Interest-bearing liabilities:
Savings and time deposits $ 5,338,386 58,526 4.40 %
Short-term borrowed funds 247,858 3,021 4.89
Long-term debt 176,023 2,687 6.12
Total interest-bearing liabilities 5,762,267 64,234 4.47
Other liabilities and shareholders' equity:
Demand deposits 766,378
Other liabilities 98,516
Shareholders' equity 670,948
Total liabilities and
shareholders' equity $ 7,298,109
Net interest income and net
interest margin (4) $ 82,641 4.76 %
Interest rate spread (5) 3.99 %
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis, continued
Three Months Ended June 30, 1998 and 1997
(Taxable Equivalent Basis - In Thousands) (1)
1997
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans and lease financing (2) $ 4,784,218 109,341 9.16 %
U.S. Treasury and agency
obligations (3) 1,463,156 25,016 6.84
States and political subdivision
obligations 82,077 1,816 8.85
Equity and other securities (3) 48,288 938 7.77
Federal funds sold and other
short-term investments 119,074 1,689 5.69
Time deposits in other banks 37,362 483 5.18
Total earning assets (3) 6,534,175 139,283 8.54
Non-earning assets:
Cash and due from banks 180,819
Premises and equipment 86,002
All other assets, net 67,774
Total assets $ 6,868,770
Interest-bearing liabilities:
Savings and time deposits $ 5,093,699 57,072 4.49 %
Short-term borrowed funds 281,539 3,572 5.36
Long-term debt 56,796 938 6.61
Total interest-bearing liabilities 5,432,034 61,582 4.54
Other liabilities and shareholders' equity:
Demand deposits 686,227
Other liabilities 124,736
Shareholders' equity 625,773
Total liabilities and
shareholders' equity $ 6,868,770
Net interest income and net
interest margin (4) $ 77,701 4.77 %
Interest rate spread (5) 4.00 %
(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 $4,318,000 and $3,795,000 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.
was 1.33% at June 30, 1998 compared to 1997's 1.30%. Net 1998
quarterly loan and lease charge-offs amounted to $2.4 million or .19%
(annualized) of average loans and lease financing compared to .27%
(annualized) in the second quarter of 1997. The higher charge-off
ratio in 1997 was due primarily to a $350,000 commercial credit charge-
off and higher charge-offs in the revolving credit portfolio. The net
charge-off ratio excluding revolving credit totaled .09% for 1998 and
.14% for 1997. Annualized net charge-offs of revolving credit
improved from 1997's 3.06% to 1998's 2.59%.
Other income, excluding investment securities transactions and the
$2.3 million gain on the sale of a subsidiary discussed previously,
increased $7.2 million or 33.0% in the second quarter of 1998 to $29.1
million. This increase is partially explained by a $3.0 million
increase in the Corporation's secondary mortgage income due to
increased mortgage originations. In addition, there was a $2.5
million increase in service charges on deposit accounts. The service
charge increase resulted primarily from increased deposit volumes and
repricing of certain deposit services based upon the results of
product profitability analyses. Trust and custodian fees increased
$731,000 due to growth in assets managed and the strength in the
financial markets. Sales and insurance commissions increased $856,000
from 1997 due to a higher volume of brokerage transactions and also
the strength of the financial markets.
Other expenses increased in the 1998 period by $6.5 million or 12.5%.
This is partially explained by a $3.6 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 $2.9 million with corresponding increases
in employee benefits and payroll taxes. In addition, professional
services fees and data processing expense increased $1.2 million due
in part from expenses attributable to the Year 2000 project (discussed
in "Financial Condition"). Marketing expense increased $305,000 from
1997 primarily due to promotional expenses in connection with certain
loan product offerings.
As a result of the aforementioned changes, net overhead (noninterest
expense less noninterest income) as a percentage of average assets
decreased to 1.61% for the three months ended June 30, 1998 from 1.77%
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) improved slightly from 52.57% for
the three months ended June 30, 1997 to 52.54% for the same period in
1998.
The following schedule presents noninterest income and expense as a
percentage of average assets, excluding non-recurring items, for the
three months ended June 30, 1998 and 1997.
1998 1997
Noninterest income 1.62 % 1.28 (1)
Personnel expense 1.76 1.66
Occupancy and equipment expense .40 .42
Other operating expense 1.07 .97
Noninterest expense 3.23 3.05
Net overhead 1.61 % 1.77
_______________________________
(1) Excludes $2.3 million (pre-tax) gain on the sale of a
subsidiary in 1997.
The effective income tax rate was 36.6% in 1998 compared to 35.1% in
the same period of 1997.
Results of Operations - Six Months Ended June 30, 1998 and 1997
Net income for the six months ended June 30, 1998 amounted to $59.3
million, an increase of $6.9 million from the same period in 1997.
Basic income per share was $1.43 in 1998, a $.16 or 12.6% increase
from the 1997 period. Returns on average assets and shareholders'
equity in 1998 were 1.65% and 17.66%, respectively, compared to 1.54%
and 17.02%, respectively, in the 1997 period. Merger-related expense
incurred during the first quarter of 1997 totaled $792,000 after-tax
or $.02 per basic share. The previously discussed gain on the sale of
a subsidiary during the second quarter of 1997, resulted in a gain of
$1.4 million after-tax or $.04 per share. Excluding the impact of
these non-recurring items, returns on average assets and shareholders'
equity for the six months ended June 30, 1997 would have been 1.52%
and 16.83%, 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 $353.9 million or 5.4% in the
1998 period. Due primarily to a favorable shift in the mix of
interest-earning assets towards loans (75.2% of interest-earning
assets in 1998 versus 73.2% in 1997), the overall yield on earning
assets increased to 8.51% from 1997's 8.46%. The cost of interest-
bearing funds decreased by 6 basis points in the 1998 period to 4.49%.
As a result of these favorable changes, the interest rate spread and
net interest margin increased by 11 and 12 basis points, respectively,
to 4.02% and 4.78%. Net interest income on a taxable equivalent basis
increased by $11.7 million or 7.7%.
The provision for loan and lease losses for the first six months of
1998 was $6.8 million compared to $7.5 million in 1997. Net charge-
offs as a percentage of average loans were .18% in 1998 and .24% in
1997 (annualized). Excluding revolving credit net charge-offs, the
ratios drop to .08% and .11% (annualized), respectively. Revolving
credit net charge-offs have improved from 1997's 3.25% to the 2.60%
experienced in 1998.
Other income, excluding investment securities transactions and the
previously discussed gain on the sale of a subsidiary, increased $9.5
million or 21.7% in the first six months of 1998 to $53.3 million.
The increase was due primarily to a $4.1 million increase in service
charges on deposit accounts. The deposit service charge increase
resulted primarily from increased deposit volume. Other increases over
1997's levels included trust and custodian fees ($1.2 million), sales
and insurance commissions ($1.0 million) and merchant discount
($719,000).
Other expenses, excluding the previously discussed 1997 merger-related
expense of $1.0 million, increased in the 1998 period by $9.6 million
or 9.3%. This is partially explained by the increase in personnel
expense which increased $5.5 million from 1997's level. As discussed
previously, the increase was due to general salary increases and a
larger workforce with corresponding increases in employee benefits and
payroll taxes. Additional smaller increases were recognized for
professional services fees, data processing, printing and office
supplies and telecommunications expenses.
As a result of the aforementioned changes, net overhead as a
percentage of average assets, excluding the impact of the 1997 non-
recurring items, improved to 1.64% for the six months ended June 30,
1998 from 1.76% for the same period in 1997. The Corporation's
efficiency ratio, excluding the impact of the 1997 non-recurring
items, improved from 52.81% for the six months ended June 30,
Table 2
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis
Six Months Ended June 30, 1998 and 1997
(Taxable Equivalent Basis - In Thousands) (1)
1998
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans and lease financing (2) $ 5,169,357 232,327 9.05 %
U.S. Treasury and agency
obligations (3) 1,276,477 44,872 7.04
States and political subdivision
obligations 81,025 3,563 8.80
Equity and other securities (3) 46,526 1,826 7.85
Federal funds sold and other
short-term investments 265,830 7,432 5.64
Time deposits in other banks 35,428 805 4.58
Total earning assets (3) 6,874,643 290,825 8.51
Non-earning assets:
Cash and due from banks 203,958
Premises and equipment 87,076
All other assets, net 65,972
Total assets $ 7,231,649
Interest-bearing liabilities:
Savings and time deposits $ 5,311,457 116,446 4.42 %
Short-term borrowed funds 249,628 6,070 4.91
Long-term debt 153,270 4,686 6.16
Total interest-bearing liabilities 5,714,355 127,202 4.49
Other liabilities and shareholders' equity:
Demand deposits 741,333
Other liabilities 99,128
Shareholders' equity 676,833
Total liabilities and
shareholders' equity $ 7,231,649
Net interest income and net
interest margin (4) $ 163,623 4.78 %
Interest rate spread (5) 4.02 %
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis, continued
Six Months Ended June 30, 1998 and 1997
(Taxable Equivalent Basis - In Thousands) (1)
1997
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans and lease financing (2) $ 4,775,107 215,778 9.09 %
U.S. Treasury and agency
obligations (3) 1,362,339 46,388 6.81
States and political subdivision
obligations 82,216 3,638 8.85
Equity and other securities (3) 48,488 1,871 7.72
Federal funds sold and other
short-term investments 184,909 5,028 5.48
Time deposits in other banks 67,668 1,766 5.26
Total earning assets (3) 6,520,727 274,469 8.46
Non-earning assets:
Cash and due from banks 172,374
Premises and equipment 86,124
All other assets, net 77,762
Total assets $ 6,856,987
Interest-bearing liabilities:
Savings and time deposits $ 5,064,428 112,655 4.49 %
Short-term borrowed funds 318,809 7,990 5.05
Long-term debt 57,446 1,891 6.58
Total interest-bearing liabilities 5,440,683 122,536 4.55
Other liabilities and shareholders' equity:
Demand deposits 673,800
Other liabilities 122,179
Shareholders' equity 620,325
Total liabilities and
shareholders' equity $ 6,856,987
Net interest income and net
interest margin (4) $ 151,933 4.66 %
Interest rate spread (5) 3.91 %
(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 $7,924,000 and $6,816,000 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.
1997 to 51.87% for the same period in 1998. The improvement in both
of these ratios indicates that the Corporation's revenues are
increasing faster than its expenses.
The following schedule presents noninterest income and expense as a
percentage of average assets, excluding non-recurring items, for the
six months ended June 30, 1998 and 1997.
1998 1997
Noninterest income 1.51 % 1.29 (1)
Personnel expense 1.74 1.68
Occupancy and equipment expense .40 .43
Other operating expense 1.01 .94 (1)
Noninterest expense 3.15 3.05
Net overhead 1.64 % 1.76
_______________________________
(1) Excludes merger-related expense of $1.0 million and the $2.3
million gain on the sale of a subsidiary in 1997.
The effective income tax rate was 36.6% in 1998 compared to 35.9% in
the same period of 1997.
Financial Condition
Total assets have increased $351.4 million since June 30, 1997 due
solely to internal growth. The majority of the increase occurred in
interest-earning assets. Average assets have increased from $6.9
billion for the six months ended June 30, 1997 to $7.2 billion for the
six months ended June 30, 1998. At June 30, 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 $19.5 million or .37% of
outstanding loans and lease financing and foreclosed real estate.
This compares to $20.6 million or .42% at June 30, 1997. Decreases in
nonaccrual loans and lease financing and foreclosed real estate were
responsible for the improved ratio. The reserve for loan and lease
losses to risk assets was 3.56x at June 30, 1998 compared to 3.20x at
December 31, 1997 and 3.07x at June 30, 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 9.36% and 9.05% for the six months ended
June 30, 1998 and 1997, respectively. Increases in this ratio since
June 30, 1997 are due primarily to the retention of earnings. Under a
previously announced stock repurchase plan, the Corporation has
repurchased and retired 1,080,600 shares of its common stock during
the period March 2, 1998 through June 30, 1998. The average cost of
the shares repurchased was $55.44 per share for a total cost of $59.9
million. Book value per share increased from $15.65 at June 30, 1997
to $16.27 at June 30, 1998, a 4.0% increase.
The unrealized gains on investment securities available for sale, net
of applicable taxes, decreased $3.0 million from December 31, 1997 to
result in an after-tax unrealized gain at June 30, 1998 of $11.0
million. As of June 30, 1998, unrealized gains on investment
securities available for sale, net of applicable taxes, added $.27 per
share to book value.
On July 21, 1998, the Corporation's Board of Directors increased the
quarterly cash dividend on common stock by 10.6% to a post-split level
of $.26 per share. On a pre-split basis, the quarterly cash dividend
per share would equal $.52, up from $.47. The dividend is payable
October 1, 1998, to shareholders of record as of September 15, 1998.
The Corporation has now increased its annual cash dividend for 34
consecutive years.
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, 1998 as
indicated below:
June 30, Regulatory
Ratio 1998 1997 Minimums
Tier 1 Capital 4.00%
Corporation 11.40% 12.35
CCB 11.04 12.10
AmFed 14.44 14.10
CCB-Ga. 16.60 11.16
Total Capital 8.00
Corporation 13.26 14.27
CCB 12.22 13.33
AmFed 15.69 15.35
CCB-Ga. 17.89 12.44
Leverage 4.00
Corporation 8.50 8.91
CCB 8.21 8.90
AmFed 10.11 8.80
CCB-Ga. 12.60 9.58
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 regulatory agencies have conducted a review of the
Corporation's Year 2000 conversion efforts and no adverse 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 currently estimated at $4.8
million, of which $2.2 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. Estimated costs for the Year 2000 project were increased
by $602,000 during the second quarter of 1998. The original estimate
for new hardware and software was increased by $188,000 due to
replacing more branch office computers than anticipated. The
remaining increase of $414,000 is for implementation and testing.
Federal regulatory agencies are requiring testing to be done earlier
than originally forecasted causing more expense for outside
programmers. The agencies also are requiring more documentation
pertaining to business risks and contingency planning, for example,
what plans the Corporation and Subsidiary Banks have for major vendors
and loan and deposit customers whose financial conditions may be
adversely impacted by the Year 2000 Issue. During the first six
months of 1998, the Corporation incurred $615,000 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 current 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
certain custody, escrow, and employee benefit accounts of Florida-
based customers. All regulatory approvals were received and the
transaction was closed during 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 June 30, 1998, Management believes that there have been no
significant changes in market risk as disclosed in the Corporation's
Annual Report on Form 10-K for the year ended December 31, 1997.
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 3 Amended Articles of Incorporation.
Exhibit 22 Report regarding matters submitted to vote of
security holders.
Exhibit 27.1 Financial Data Schedule as of June 30,
1998.
Exhibit 27.2 Restated Financial Data Schedule as of June
30, 1997.
(b). Reports on Form 8-K
No reports on Form 8-K were filed in the second quarter.
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 12, 1998 /s/ ERNEST C. ROESSLER
Ernest C. Roessler
Chairman, President and
Chief Executive Officer
Date: August 12, 1998 /s/ ROBERT L. SAVAGE, JR.
Robert L. Savage, Jr.
Senior Vice President and
Chief Financial Officer
Date: August 12, 1998 /s/ W. HAROLD PARKER, JR.
W. Harold Parker, Jr.
Senior Vice President and
Controller
(Chief Accounting Officer)