UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the quarterly period ended March 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the transition period from __________ to ________
Commission File Number: 1-10646
CENTURA BANKS, INC.
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(Exact name of registrant as specified in its charter)
North Carolina 56-1688522
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(State of Incorporation) (IRS Employer Identification No.)
134 North Church Street, Rocky Mount, North Carolina 27804
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(Address of principal executive office) (Zip Code)
(919) 977-4400
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
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.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark has filed all documents and reports required to be filed
by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK, NO PAR VALUE 25,754,732
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(Class of Stock) (Shares outstanding as of April 30, 1997)
Exhibit Index on sequential page number 26.
CENTURA BANKS, INC.
FORM 10-Q
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -
March 31, 1997 and 1996, and December 31, 1996 4
Consolidated Statements of Income -
Three months ended March 31, 1997 and 1996 5
Consolidated Statement of Shareholders' Equity -
Three months ended March 31, 1997 6
Consolidated Statements of Cash Flows -
Three months ended March 31, 1997 and 1996 7
Notes to Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-22
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 23
Item 3. Defaults upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Securities Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
CENTURA BANKS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statement of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS
CENTURA BANKS, INC. AND SUBSIDIARY
March 31, December 31,
(In thousands, except share data) 1997 1996 1996
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ASSETS
Cash and due from banks $ 215,564 $ 223,128 $ 283,224
Due from banks, interest-bearing 11,058 10,259 11,254
Investment securities:
Available for sale (cost of $1,420,540, $1,163,845,
and $1,317,449, respectively) 1,418,066 1,159,149 1,320,074
Held to maturity (market value of $244,906,
$297,604 and $258,052, respectively) 245,361 296,758 257,806
Federal funds sold 10,750 19,087 21,413
Loans 4,140,583 3,882,272 4,109,454
Less allowance for loan losses 58,762 56,483 58,715
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Net loans 4,081,821 3,825,789 4,050,739
Bank premises and equipment 113,552 104,516 112,198
Other assets 280,541 201,659 237,264
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Total assets $ 6,376,713 $ 5,840,345 $ 6,293,972
==============================================================================================================
LIABILITIES
Deposits:
Demand, noninterest-bearing $ 711,467 $ 622,134 $ 721,029
Interest-bearing 3,696,385 3,272,992 3,665,587
Time deposits over $100 340,393 435,543 346,453
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Total deposits 4,748,245 4,330,669 4,733,069
Borrowed funds 745,763 638,222 685,291
Long-term debt 308,519 335,520 310,802
Other liabilities 82,819 90,602 89,575
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Total liabilities 5,885,346 5,395,013 5,818,737
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 25,000,000 shares
authorized; none issued - - -
Common stock, no par value
50,000,000 shares authorized; shares issued
and outstanding of 25,752,174, 25,543,090
and 25,668,524, respectively 189,276 188,261 187,563
Common stock acquired by ESOP (359) (503) (395)
Unrealized securities gains (losses), net (1,649) (2,857) 1,568
Retained earnings 304,099 260,431 286,499
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Total shareholders' equity 491,367 445,332 475,235
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Total liabilities and shareholders' equity $ 6,376,713 $ 5,840,345 $ 6,293,972
==============================================================================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
CENTURA BANKS, INC. AND SUBSIDIARY
Three Months Ended
March 31,
-------------------------------
(Dollars in thousands, except share and per share data) 1997 1996
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INTEREST INCOME
Loans, including fees $ 95,226 $ 90,792
Investment securities:
Taxable 23,515 21,295
Tax-exempt 657 811
Short-term investments 445 406
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Total interest income 119,843 113,304
INTEREST EXPENSE
Deposits 43,185 42,111
Borrowed funds 7,983 7,032
Long-term debt 4,790 5,133
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Total interest expense 55,958 54,276
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NET INTEREST INCOME 63,885 59,028
Provision for loan losses 2,894 2,065
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Net interest income after provision for loan losses 60,991 56,963
NONINTEREST INCOME
Service charges on deposit accounts 9,212 8,042
Credit card and related fees 1,294 1,066
Other service charges, commissions and fees 4,943 3,546
Fees for trust services 1,950 1,646
Mortgage income 2,673 3,363
Other noninterest income 6,007 6,313
Securities gains (losses), net (94) 603
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Total noninterest income 25,985 24,579
NONINTEREST EXPENSE
Personnel 27,757 26,464
Occupancy 3,338 3,093
Equipment 5,165 4,408
Foreclosed real estate losses and related
operating expense 324 138
Other operating 22,449 19,359
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Total noninterest expense 59,033 53,462
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Income before income taxes 27,943 28,080
Income taxes 10,069 10,439
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NET INCOME $ 17,874 $ 17,641
======================================================================================
NET INCOME PER COMMON SHARE
Primary $ 0.68 $ 0.67
Fully diluted 0.68 0.67
======================================================================================
AVERAGE COMMON SHARES OUTSTANDING
Primary 26,287,712 26,177,097
Fully diluted 26,287,712 26,191,058
======================================================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Centura Banks, Inc. and Subsidiary
Three months ended March 31, 1997
Unrealized
Common Securities
Common Stock Stock Gains Total
------------------------------- Acquired (Losses), Retained Shareholders'
Shares Amount by ESOP Net Earnings Equity
--------------- ------------- ----------- ------------ ------------- -------------
(Dollars in thousands)
Balance, December 31, 1996 25,668,524 $ 187,563 $ (395) $ 1,568 $ 286,499 $ 475,235
Net income - - - - 17,874 17,874
Common stock issued under stock option
plans and for stock awards 83,650 1,713 - - - 1,713
Unrealized securities losses, net - - - (3,217) - (3,217)
Other - - 36 - (253) (217)
Cash dividends declared - - - - (21) (21)
--------------- ------------- ----------- ------------ ------------- -------------
Balance, March 31, 1997 25,752,174 $ 189,276 $ (359) $ (1,649) $ 304,099 $ 491,367
=============== ============= =========== ============ ============= =============
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Centura Banks, Inc. and Subsidiary
For the Three Months Ended
March 31
----------- -----------
(Dollars in thousands) 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 17,874 $ 17,641
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 2,894 2,065
Depreciation and amortization 8,008 7,599
Decrease (increase) in deferred income taxes 2,389 (1,604)
Loan fees deferred, net (235) (1,658)
Bond premium amortization and discount accretion, net 663 712
(Gain) loss on sales of investment securities 94 (603)
Loss on sales of foreclosed real estate 134 -
Gain on sales of equipment under lease (1,457) (1,764)
Proceeds from sales of mortgage loans held for sale 93,508 98,841
Originations, net of principal repayments, of mortgage loans held for sale (80,010) (114,609)
Decrease in accrued interest receivable 1,167 1,235
Decrease in accrued interest payable (641) (2,468)
Net decrease (increase) in other assets and other liabilities 427 (8,417)
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Net cash provided by operating activities 44,815 (3,030)
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CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (48,722) (90,219)
Purchases of:
Securities available for sale (273,919) (167,698)
Securities held to maturity (32,006) (25,472)
Premises and equipment (3,909) (4,157)
Other (50,000) -
Proceeds from:
Sales of securities available for sale 125,863 97,867
Maturities and issuer calls of securities available for sale 45,758 37,132
Maturities and issuer calls of securities held to maturity 42,901 48,122
Sales of foreclosed real estate 1,011 414
Dispositions of premises and equipment 192 908
Disposition of equipment used in leasing activities 1,708 3,319
Net decrease in federal funds sold 10,663 14,471
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Net cash used by investing activities (180,460) (85,313)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 15,176 (113,122)
Net increase in short-term borrowings 60,472 140,505
Proceeds from issuance of long-term debt 9,682 48,251
Repayment of long-term debt (11,965) (19,317)
Cash dividends paid (6,436) (6,021)
Proceeds from issuance of common stock, net 860 1,304
Redemption of common stock - (12,529)
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Net cash provided by financing activities 67,789 39,071
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Decrease in cash and cash equivalents (67,856) (49,272)
Cash and cash equivalents at January 1 294,478 282,659
----------- ------------
Cash and cash equivalents at March 31 $ 226,622 $ 233,387
=========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the three
months for:
Interest $ 56,599 $ 56,675
Income taxes 556 23,010
Noncash transactions:
Net equity adjustment of merged entity - 818
Loans securitized into mortgage-backed securities - 122,982
Unrealized securities gains (losses), net (5,099) (5,640)
Other 217 177
Loans transferred to foreclosed property 1,483 175
=========== ============
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Centura Banks, Inc. and Subsidiary
Note 1: Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Centura Banks, Inc. ("Centura") and its wholly-owned subsidiary, Centura Bank
(the "Bank"). The Bank has the following wholly-owned subsidiaries: Centura
Securities, Inc., Centura Insurance Services, Inc., CB Services Corp., CBRM,
Inc., Pepco, Inc., Centura SBIC, Inc., and CLG, Inc.. All significant
intercompany transactions are eliminated in consolidation and all adjustments
considered necessary for a fair presentation of the results for the interim
periods presented have been included (such adjustments are normal and recurring
in nature). Operating results for the three month period ended March 31, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
Note 2: Mergers and Acquisitions
Acquisition activity for 1996 is summarized below. Data is as of the date of
acquisition. Centura had no mergers or acquisitions pending as of March 31,
1997.
Institution Acquisition Offices Assets Loans Deposits Shares
Date Issued
(dollars in millions)
CLG, Inc. ("CLG") (1) 11/1/96 $ 126 $ 85 $ --- 1,661,970
FirstSouth Bank ("FirstSouth") (1) 10/25/96 4 170 132 150 1,075,559
First Community Bank ("First Community") (2) 8/16/96 4 121 83 99 776,441
Deposit assumption from Essex Savings Bank, FSB 7/26/96 ---- 71 ---- 71 ---
("Essex")
First Commercial Holding Corporation ("FCHC") (1) 2/27/96 8 172 120 140 1,607,564
(1) Acquisition accounted for as a pooling- of-interests
(2) Acquisition accounted for as a purchase
Based in Raleigh, North Carolina, CLG specializes in leasing computer equipment
to companies throughout the United States through offices in Charlotte and
Wilmington, North Carolina, Columbus, Georgia, and Dallas, Texas. CLG operates
as a wholly-owned subsidiary of Centura Bank.
FirstSouth was headquartered in Burlington, North Carolina. This merger was
consummated through the issuance of 0.55 shares of Centura common stock for each
of the outstanding shares of FirstSouth. First Commercial with headquarters in
Asheville, North Carolina was consummated under an exchange ratio of 0.63.
First Community was headquartered in Gastonia, North Carolina. First Community
shareholders received 0.96 shares of Centura common stock for each share of
First Community outstanding stock. The purchase price for First Community
exceeded the fair value of net assets acquired by approximately $16 million
which amount was recorded as goodwill. Under a stock repurchase plan approved by
Centura's board of director's, Centura repurchased 100% of the shares issued
relative to the First Community transaction.
Centura consummated its assumption of deposit liabilities and the acquisition of
certain deposit-related loans of the Wilmington, Raleigh, and Greensboro
locations of Essex. Centura Bank did not purchase the physical branch offices of
Essex, but consolidated the deposits into existing banking facilities. Centura
recorded as an other asset a $712,000 core deposit intangible which represents
the present value of the difference in costs between the acquired core deposits
and market alternative funding sources
On October 1, 1996, Centura completed the cash transaction to purchase 49
percent of First Greensboro Home Equity, Inc. ("First Greensboro"). First
Greensboro, headquartered in Greensboro, North Carolina, is a mortgage and
finance company, operating over 30 offices in 10 states, specializing in
alternative equity lending for homeowners whose borrowing needs are generally
not met by traditional financial institutions. First Greensboro's other
investors retained the controlling interest of the company. Centura recorded
this investment as an other asset and recognizes 49 percent of the net income of
First Greensboro into the earnings stream as required under the equity method of
accounting for investments. The excess of the purchase price over the fair
market value of the net assets acquired is amortized over 20 years as a charge
against earnings of future periods.
For the mergers accounted for under the pooling-of-interests method, all
financial data previously reported prior to date of acquisition has been
restated as though the entities had been combined for all periods presented. CLG
was on a January 31 fiscal year and accordingly the results of operations of CLG
for the one-month period ended January 31, 1996 are included in the consolidated
statement of income for the three months ended March 31, 1996. Total income,
noninterest expenses, and net income of CLG for the month of January 1996 were
$3,703,000, $2,336,000, and $818,000, respectively.
Note 3: Reclassifications
Certain items in the March 31, 1996 consolidated financial statements have been
reclassified to conform with the March 31, 1997 presentation. Such
reclassifications had no impact on net income or shareholders' equity.
Note 4: Adoption of Statements of Financial Accounting Standards ("SFAS")
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," ("SFAS No.
125") which provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities. Those standards
are based on the consistent application of a financial-components approach that
focuses on control. After a transfer of financial assets, an entity recognizes
the financial and servicing assets it controls and liabilities it has incurred
and derecognizes financial assets it no longer controls and liabilities that
have been extinguished. The statement provides the guidance for distinguishing
sales of financial assets from transfers that are secured borrowings. In
December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125, an amendment of FASB Statement No.
125". For repurchase agreements, dollar-rolls, securities lending and similar
transactions, SFAS No. 127 defers the effective date of SFAS No. 125 to
transfers occurring after December 31, 1997. Transfers that fall under the SFAS
No. 125 guidelines will be reviewed and they could have a material impact on
Centura's consolidated financial statements in future periods.
In accordance with SFAS No. 125, Centura has combined previously recognized
mortgage servicing rights and mortgage excess servicing receivables as mortgage
servicing assets. Centura does not have mortgage excess servicing fees which
require interest-only strip classification.
CENTURA BANKS, INC.
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. For the Three Months Ended March 31, 1997
The following discussion and analysis is presented to assist in the
understanding and evaluation of the financial condition and results of
operations of Centura Banks, Inc. ("Centura"). Centura is a bank holding company
operating in North Carolina.
Much of the financial discussion that follows refers to the impact of Centura's
merger and acquisition activity. See Note 2 of the notes to consolidated
financial statements for detail on the acquisitions. All the financial
institutions acquired were in North Carolina, allowing Centura to leverage upon
its existing market presence, as well as expand into adjacent and complimentary
markets. Centura will continue seeking to acquire healthy thrift and banking
institutions. As evidenced by the fourth quarter 1996 acquisition of CLG and
purchase of the 49 percent interest in First Greensboro, Centura will also
continue to evaluate the feasibility of investing in and acquiring
non-traditional banking services allowed under current regulatory guidelines.
SUMMARY
Centura recorded net earnings of $17.9 million for the three months ended March
31, 1997, an increase of $233,000 or 1.3 percent from the same period in 1996.
Earnings per fully diluted share were $0.68 compared to $0.67 for the prior
period. Specific highlights for the three months of 1997 are as follows:
Return on assets and return on equity for the three month period ending
March 31, 1997 were 1.17 percent and 14.84 percent, respectively, compared
to the 1996 three month period which generated a return on assets of 1.23
percent and an equity return of 15.88 percent.
Taxable equivalent net interest income increased approximately $5.0
million or 8.3 percent over the comparable prior period primarily due to
higher levels of earning assets.
Noninterest income, before securities transactions, increased $2.1 million
to $26.1 million or 8.8 percent over the $24.0 million recorded for the
same period of 1996. Service charges on deposit accounts increased $1.2
million. Insurance and brokerage commissions accounted for $710,000 of the
increase, recording $3.2 million for the three months of 1997. An increase
in the volume of ATM fees contributed to the $687,000 rise in other service
charges.
Average earning assets and average deposits for the first quarter of 1997
increased 7.3 percent and 7.0 percent, respectively, over the comparable
prior year quarter, keeping the average level of external funding sources
to total funding approximately 17 percent for the two periods. The margin
improved 7 basis points as the rates paid for funding declined 15 basis
points.
Nonperforming assets of $26.8 million for March 31, 1997 increased $5.7
million from the same period in 1996, but represented only 0.42 and 0.36
percent of total assets, respectively.
The allowance for loan losses was $58.8 million, representing 1.42 percent
of total loans at March 31, 1997, compared to $56.5 million at March 31,
1996. Charge-off activity generated $2.8 million of net charge-offs, up
from the $652,000 recorded for the first three months of 1996. The
provision for loan losses was $2.9 million for the three months ending
March 31, 1997 versus $2.1 million for the same period of 1996.
Noninterest expense for the three months ended March 31, 1997, increased
over the comparable period in 1996 by 10.4 percent to $59.0 million. The
majority of the increase was seen in personnel and professional fees.
Professional fees included an increase in the usage of consulting services
as Centura strives to identify efficiencies and revenue enhancements.
INTEREST-EARNING ASSETS
Average interest-earning assets for the first quarter of 1997 totaled $5.7
billion representing an increase of $387.4 million or 7.3% from the same period
in 1996. Growth in the loan portfolio has contributed to $287.1 million of this
increase. At March 31, 1997, earning assets were $5.8 billion, up $458.3 million
or 8.5 percent over the level at March 31, 1996. For additional information on
interest-earning assets, refer to Table 3 "Net Interest Income Analysis" and
Table 8 "Net Interest Income and Volume/Rate Analysis".
Loans
During the first quarter of 1997, loans averaged $4.1 billion, an increase of
7.5 percent over the first quarter of 1996. This loan growth has been funded
principally by deposit growth, as well as increased short term borrowings.
Commercial loans averaged $2.3 billion during the quarter and accounted for
$228.7 million of the growth in average loans between the two periods. Average
loans represented approximately 72 percent of average earning assets for each of
the three month periods.
Loans at March 31, 1997, were $4.1 billion, an increase of $258.3 million, or
6.7 percent, compared to $3.9 billion at March 31, 1996, and up $31.1 million
over loans at December 31, 1996. The loan growth between the quarters has
generally been present in all loan categories excluding residential mortgages.
In efforts to strengthen liquidity and reduce exposure to interest rate
fluctuations, Centura securitized $243 million of residential mortgages during
1996 which contributed to the $77.9 million decline in residential mortgages
from March 31, 1996 to March 31, 1997. Table 1 summarizes total loans
outstanding and the mix of loans being held. The commercial portfolio represents
a significant portion of Centura's total loan portfolio, 50.6 percent and 49.1
percent at March 31, 1997 and 1996, respectively. Of these commercial loans,
over 90 percent are secured.
Credit is extended by the Bank almost exclusively to customers in its market
areas of North Carolina. The Bank's loan policies discourage engaging in foreign
lending activities, having exposure in newly established ventures such as high
technology start-up companies or highly speculative real estate development
projects, and participating in highly leveraged transactions. The loan portfolio
is reviewed on an on-going basis to maintain diversification by industry,
minimizing substantial loan concentrations in any one industry.
Loans generated $95.3 million of taxable equivalent interest income for
year-to-date March 31, 1997 compared to $90.9 million for the same period last
year. Increased average loan volume of $287.1 million accounted for $6.7 million
of the increase in the taxable equivalent interest income. A decrease in
interest rates, as evidenced by a 14 basis point decline in the average loan
yield from the previous three months of 1996 to 9.32 percent, negatively
impacted the taxable equivalent interest income by $2.3 million. Approximately
80 percent of the commercial loan portfolio is variable rate, affected by
changes in the prime rate or other various indices.
Investment Securities
The investment portfolio at March 31, 1997 was $1.7 billion, up 14.3 percent
from the $1.5 billion at March 31, 1996, and represented 28.6 percent and 27.1
percent of earning assets at March 31, 1997 and 1996, respectively. With deposit
growth between the two periods exceeding that of loans, more funds were deployed
late in the quarter into the investment portfolio, resulting in a slight shift
in the period-end earning-asset mix.
Investments averaged $1.6 billion for the three months ended March 31, 1997, up
7.1 percent from the $1.5 billion for the same period of 1996. For each quarter,
average investments as a percentage of average earning assets were approximately
27 percent.
To preserve liquidity, Centura's investment portfolio consists primarily of
securities for which an active market exists. Accordingly, at March 31, 1997,
approximately 99 percent of the total investment portfolio consisted of
obligations of the US Government and its agencies or investment grade state,
county and municipal securities. Approximately 64 percent of the debt securities
were fixed rate instruments at March 31, 1997.
The classification of securities as held to maturity ("HTM") or as available for
sale ("AFS") is determined at the date of purchase. The HTM investments
represented 15 percent and 20 percent of total investments for March 31, 1997
and 1996, respectively. Centura intends and has the ability to hold such HTM
securities until maturity. At March 31, 1997, the amortized cost of the HTM
portfolio was $244.9 million, which was $455,000 less than its fair value.
Investment securities available for sale (the "AFS portfolio"), representing the
remainder of the investment portfolio, are reported at fair value and will be
used as a part of Centura's asset/liability management strategy and may be sold
in response to changes in interest rates, changes in prepayment risk, the need
to increase regulatory capital and other factors. At March 31, 1997, the
recorded fair value of the AFS portfolio of $1.4 billion was $2.5 million less
than cost, which difference has been recorded, net of tax, as a reduction of
shareholders' equity. At March 31, 1996, the amortized cost of the AFS portfolio
was $4.7 million more than its fair value. Centura's liquidity position remains
strong, alternative funding sources are available, and cash flows are provided
by investment maturities in the AFS and HTM portfolios. This offers Centura
flexibility in its asset/liability management strategies and if necessary,
flexibility to invest and reinvest funds to increase the overall yield earned on
investments.
Net realized losses of $94,000 were generated during the first three months of
1997 from sales and issuer call activity, compared to net realized gains of
$603,000 during the comparable 1996 period.
Investment securities contributed $25.8 million in taxable equivalent interest
income for the period ending March 31, 1997, an increase of $2.2 million over
the $23.5 million earned in the comparable period of 1996. A 15 basis point
improvement in the investment yield accounted for $598,000 of the increase
between the two periods while the average volume increase of $103.6 million
provided an additional $1.6 million of taxable equivalent interest income.
FUNDING SOURCES
Total funding sources averaged $5.6 billion for the first three months of 1997,
a $400.2 million or 7.7 percent increase from the average volume of $5.2 billion
in the comparable 1996 period. Funding sources include total deposits,
short-term borrowings and long-term debt. For additional information on funding
sources refer to Table 3 "Net Interest Income Analysis" and Table 8 "Net
Interest Income and Volume/Rate Analysis".
Deposits
For the three-month period ending March 31, 1997, average total deposits
increased $303.5 million to $4.7 billion, or 7.0 percent over the comparable
1996 period. Product restructuring for money market demand accounts spurred
growth in this type of deposit by over 90 percent. Money markets demand accounts
averaged $692.9 for the quarter ending March 31, 1997 compared to $359.3 million
for the same period last year. The average volume of certificates of deposit
declined $94.7 million, partially due to the shifting of funds into money market
deposits. For additional detail on the average deposit mix, see Table 2.
The deposit base at March 31, 1997 of $4.7 billion was up $417.6 million from
the $4.3 billion level held at March 31, 1996 and consistent with the $4.7
billion held at December 31, 1996. Although the deposit level has shown stagnant
growth from year-end, historical trends indicate that deposits decline in the
first quarter of the year often in response to increased cash needs of
consumers.
Interest expense on deposits increased $1.1 million to $43.2 million for the
three months ending March 31, 1997 versus $42.1 million for the comparable
period of 1996. The change in average volume of deposits was responsible for an
increase of $1.8 million in interest expense (predominantly due to money market
deposits), while the change in the rates paid for interest-bearing deposits
slowed the increase by $730,000.
Other Funding Sources
With relatively equal rates of earning asset and deposit growth between March
31, 1997 and 1996, external funding sources as a percent of total funding
liabilities held constant at approximately 17 percent for each of the three
month periods. The use of both short-term and long-term debt has been in line
with asset/liability strategies. Consequently, short-term borrowed funds
averaged $647.0 million, compared to the $540.0 million average volume for the
period ending March 31, 1996. Interest expense on short-term borrowings
increased by a net $951,000, primarily due to higher volume. The average rate
paid for these funds declined 24 basis points to 5.00 percent. The average
volume of long-term debt, consisting predominantly of FHLB advances, declined
$10.3 million to $309.1 million during the first three months of 1997 compared
to $319.5 million for the comparable prior year three months. Interest expense
on long-term debt decreased by $343,000.
NET INTEREST INCOME AND NET INTEREST MARGIN
As detailed in Table 3, taxable equivalent net interest income for the three
months of 1997 increased by $5.0 million, or 8.3 percent, to $65.6 million, from
$60.6 million in the comparable period of 1996. Table 8 provides a volume/rate
analysis. The $387.4 million increase in average earning assets over the first
quarter of 1996 was responsible for $5.3 million of the increase in taxable
equivalent net interest income. The net impact of the rate environment on net
interest income was a decrease of $312,000. The margin improved 7 basis points
for the period ended March 31, 1997 from the same three-month period of 1996.
Much of the increase in the margin was due to a 15 basis point decrease in the
rates paid for interest-bearing liabilities.
Dollars of net interest income will continue to be a primary component of
Centura's total revenue sources. Taxable equivalent net interest income was 71.6
percent and 71.1 percent of total revenues for March 31, 1997 and 1996,
respectively. The net interest margin may feel downward pressure given the
strong competition for deposits and the corresponding need to utilize other
higher-cost funding sources. In late March of 1997, the Fed Funds target rate
and the prime lending rate increased and accordingly, the net interest margin
may actually benefit from the repricing opportunities within the loan portfolio
given a rising rate environment.
ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was $2.9 million for the three months ending March
31, 1997, up $829,000 compared to $2.1 million for the same period last year.
Net charge-offs for the three months of 1997, were $2.9 million, or an
annualized 0.28 percent of average loans, compared to $652,000, or an annualized
0.07 percent of average loans for the prior year's period. Net charge-offs for
the year ended December 31, 1996 were .18 percent of average loans. Net
charge-offs for commercial loans, leasing, and loans secured by real estate
accounted for $1.7 million of the $2.2 million dollar net charge-off increase
between the periods. Prior charge-off activity was low compared with other
institutions and by the end of 1996 and continuing into 1997 charge-offs were
increasing to levels more consistent with industry averages.
The allowance for loan losses was $58.8 million at March 31, 1997, representing
1.42 percent of loans outstanding, compared to $56.5 million, or 1.45 percent of
loans outstanding a year ago, and compared to $58.7 million or 1.43 percent of
loans outstanding at December 31, 1996. Based on the current loan portfolio and
levels of current problem assets and potential problem loans, management
believes the allowance for loan losses to be adequate. For additional
information with respect to the activity in the allowance for loan losses, see
Table 4 entitled "Analysis of Allowance for Loan Losses".
Table 5, "Nonperforming Assets and Past Due Loans," discloses the components and
balances of nonperforming assets. Nonperforming assets increased to $26.8
million at March 31, 1997 or 0.42 percent of total assets at the end of the
period. Nonperforming assets were $21.1 million at March 31, 1996, or 0.36
percent of total assets. At December 31, 1996, nonperforming assets were $22.9
million or 0.36 percent of total assets. Nonaccruals for loans secured by real
estate, commercial loans, and leases have increased from March 31, 1996 to $1.0
million, $2.5 million, and $1.7 million, respectively. Accruing loans past due
ninety or more days were $11.1 million, $6.4 million and $8.9 million at March
31, 1997, March 31, 1996 and December 31, 1996, respectively, which represented
0.27 percent, 0.17 percent and 0.22 percent of outstanding loans, respectively.
At March 31, 1997, the allowance for loan losses was 2.58 times nonperforming
loans, down from 3.06 times at March 31, 1996 and December 31, 1996.
During the first quarter of 1997, Centura management reviewed existing credit
polices and reinforced its commitment to credit quality. However, the historical
growth of the loan portfolio opens opportunity for new problems to develop.
Management believes that an estimated $10 to $15 million of additional
nonperforming and past due loans may exist, depending upon particular situations
of various of its borrowers whose loans are currently "performing" in accordance
with their contractual terms. The impact of ever-changing economic conditions
and changes in interest rates and/or inflation on the operations of Centura's
customers is unknown, but gives opportunity for increased nonperforming asset
levels.
NONINTEREST INCOME AND EXPENSE
Noninterest income ("NII") increased $1.4 million, or 5.7 percent, to $26.0
million for the first three months of 1997. Service charges on deposits
increased $1.2 million, principally due to NSF charges. The continued emphasis
on expanding financial services, primarily brokerage activities, resulted in a
$710,000 increase in insurance and brokerage fees compared to the same period
last year. Other deposit fees increased $687,000 between the two periods
primarily due to an increase in ATM fees assessed to non-Centura customers using
Centura ATMs. Mortgage income (composed of servicing revenues, origination fees,
servicing release premiums, and net gains or losses on the sales of mortgage
loans) for the three-month period of 1997 declined to $2.7 million from $3.4
million for the comparable period in 1996. The sales activity the first quarter
of 1997 generated $761,000 in net marketing gains, down $721,000 from the gains
recorded during the first quarter of 1996.
The efficiency ratio for the three months ended March 31, 1997 was 64.47
percent, up from 62.80 percent for the same period in 1996. Compared to the
fourth quarter of 1996, the efficiency ratio improved 62 basis points. The
up-front costs associated with Centura's delivery channel, technology, and
product initiatives such as establishing in-store locations have contributed to
the rise in the efficiency ratio during 1996 but efficiencies and revenue
benefits are expected to be realized from these investments in 1997.
Noninterest expense ("NIE") increased 10.4 percent, or $5.6 million over the
prior year three months to $59.0 million. Personnel expenses, the largest
component of noninterest expense, contributed $1.3 million to this increase
principally due to the timing (1) of the First Community acquisition and (2) of
the openings of the Hannaford in-store locations. First quarter of 1997 carried
the expenses for the eleven in-store locations opened in the last six months of
1996 and four opened during the first quarter of 1997. In an effort to maintain
flexibility with changing technology, Centura rents most of its equipment. As a
result, rental expense accounted for most of the $757,000 increase in equipment
expense. Professional fees increased $1.8 million for the first quarter of 1997,
due in part, to the outsourcing of Centura's proof operations in mid 1996 and
services for computer support and maintenance. Expenses for consulting services
have also contributed to the increase in professional fees as Centura strives to
identify operating efficiencies in efforts to curb expense growth.
INCOME TAX EXPENSE
The amount of income tax expense for the three months of 1997 was $10.1 million
compared to $10.4 million in the prior period. The current effective tax rate is
36.03 percent, down from the 37.18 percent at March 31, 1996.
EQUITY AND CAPITAL RESOURCES
Shareholders' equity increased to $491.4 million at March 31, 1997, compared to
$445.3 million at March 31, 1996. The change in equity between the two periods
was influenced by earnings, payment of dividends and the timing of the stock
repurchases relative to the 1996 acquisitions. For 1996, Centura repurchased 1.2
million shares at an average price of $36.77 per share for a total of $45.5
million. Shareholders' equity at March 31, 1996 reflects the redemption of
common stock at an aggregate purchase price of $12.5 million. There have been no
shares repurchased during the first quarter of 1997. The ratio of shareholders'
equity to period-end assets was 7.71 percent, up from 7.63 percent at period end
March 31, 1996. The unrealized losses, net of tax, on securities available for
sale were $1.6 million at March 31, 1997 compared to a $2.9 million unrealized
gain, net of tax, for the comparable period last year.
Centura's common stock is traded on the New York Stock Exchange under the symbol
CBC. At March 31, 1997, Centura had 25,752,174 shares outstanding. Cash
dividends paid for the three months of 1997 were $6.4 million, or $.25 per
share, compared to $6.0 million, or $.25 per share, for the comparable period
last year. The cash dividends paid for 1997, were declared and accrued during
the fourth quarter of 1996.
Centura maintains higher capital ratios than the minimum required by regulatory
guidelines, which has positioned Centura to endure changes in the economy while
providing opportunities for growth, both internally and through additional
acquisitions. At March 31, 1997, Tier 1 capital was $423.8 million and total
capital was $447.7 million. At March 31, 1997, Centura had the requisite capital
levels to qualify as well-capitalized. Centura's capital ratios are outlined in
Table 6 entitled "Capital Ratios."
LIQUIDITY AND INTEREST RATE RISK MANAGEMENT
Liquidity is the ability to raise funds through attracting new deposits,
borrowing funds, issuing new capital or selling assets. Liquidity is managed
through the selection of the asset mix and the maturity mix of liabilities. As
part of this process, funding needs and alternatives are continually evaluated.
Centura's liquidity is provided by its portfolio of investment securities,
interest income from investment securities, principal and interest payments on
loans, turnover of mortgage loans held for sale, core deposits generated through
the normal customer base or through acquisitions, brokered certificates of
deposit, the retention of earnings, and the borrowing of additional funds if the
need arises. Deposits and other funding sources are used to fund loans and
investments, meet deposit withdrawals and maintain reserve requirements.
The Bank has multiple funding sources that could be used to increase liquidity
and provide additional financial flexibility. These sources consist primarily of
established federal funds lines with major banks totaling approximately $1.3
billion, and the ability to borrow approximately $500 million from the Federal
Home Loan Bank ($227 million outstanding to FHLB at March 31, 1997). The Bank
also has the ability to issue debt up to a maximum of $300 million under an
offering by the Bank to institutional investors of unsecured bank notes due from
30 days to 15 years from the date of issue. Each bank note would be a direct,
unconditional and unsecured general obligation solely of the Bank and would not
be an obligation of or guaranteed by Centura. Interest rate and maturity terms
would be negotiated between the Bank and the purchaser, within certain
parameters set forth in the offering circular. Centura also has an unsecured
line of credit of $60 million. There was $40 million outstanding under this line
of credit at March 31, 1997; there was $39 million outstanding at March 31,
1996.
The investment and loan portfolios are the primary types of earning assets for
Centura. While the investment portfolio is structured with minimum credit
exposure to Centura, the loan portfolio is the primary asset subject to credit
risk. Credit risk is controlled and monitored through the use of lending
standards, thorough review of potential borrowers and on-going review of
performing loans.
Centura's Asset/Liability Management Committee's objective is to control
Centura's interest rate risk. The Committee monitors and adjusts Centura's
exposure to interest rates based on corporate policy and expected market
conditions and utilizes a computer simulation model to determine the effect on
Centura's net interest income and the effect on the market value of Centura's
equity under various interest rate assumptions. Traditional interest sensitivity
gap analyses indicate that Centura's net interest income would benefit from a
rising rate environment. However, gap and other traditional interest sensitivity
analyses do not adequately measure a corporation's exposure to changes in
interest rates as those analyses do not incorporate the interrelationships
between interest rates charged or paid, balance sheet trends, changes in
prepayments and management actions. The results of gap analysis are appropriate
only for a point in time and should not be projected into the future because
each of the factors listed above can affect Centura's actual earnings. Centura's
computer simulation model incorporates these factors and projects income over a
12-month horizon under a variety of higher and lower interest rate environments.
This analysis shows that as interest rates increase, Centura will experience an
increase in net interest income.
Using the market value of equity approach, a change in interest rates will have
very little effect on the market value of Centura's equity. Centura is operating
within the exposure guidelines approved by management, which prescribes that
changes in net interest income after tax should approximate changes in the cost
of capital and the market value of equity should not be materially affected by a
change in interest rates. Management of Centura believes that Centura is
currently positioned to react appropriately to changes in interest rates under
these guidelines.
Off-balance sheet derivative financial instruments, such as interest rate swaps,
interest rate floor and cap arrangements and interest rate futures and option
contracts ("swaps, floors, caps, futures and options," respectively), are
available to Centura to assist in managing interest rate risks. Centura has
principally used interest rate swaps. Swaps are used to reduce interest rate
risk with the objective of stabilizing net interest income over time. Floors are
used to protect certain designated variable rate financial instruments from the
downward effects of their repricing in the event of a decreasing rate
environment. Caps are used to protect certain designated financial instruments
from the negative repricing effects of an increasing rate environment. Options
provide the right, but not the obligation, to put or call securities back to
another third party at an agreed upon price under the specific terms of each
agreement. Table 7 entitled "Off-Balance Sheet Derivative Financial Instruments"
summarizes Centura's off-balance sheet derivative financial instruments at March
31, 1997.
Management is not aware of any events that are reasonably likely to have a
material effect on Centura's liquidity, capital resources or operations. In
addition, management is not aware of any regulatory recommendations which, if
implemented, would have a material effect on Centura.
CURRENT ACCOUNTING ISSUES
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share" (SFAS No.
128") which provides standards for computing and presenting earnings per share
("EPS") for entities with publicly held common stock or potential common stock.
It requires the dual presentation of basic EPS (defined as income available to
common stockholders divided by the weighted-number of common shares outstanding
for the period) and diluted EPS on the face of the income statement. 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
and is similar to current fully-diluted EPS calculations. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods and requires restatement for all prior-periods
of EPS data presented. Early adoption is not permitted.
In February 1997, the FASB issued SFAS No. 129 "Disclosure of Information About
Capital Structure" which eliminates the exemption of nonpublic entities from
certain disclosure requirements of APB Opinion No. 15 "Earnings Per Share". This
statement should have no effect on Centura's consolidated financial statements.
In July 1996, the Emerging Issues Task Force provided guidance concerning the
costs for modifications to computer software to accommodate the year 2000. The
costs of the modifications should be treated as regular maintenance and repair
and be charged to expense as incurred. Centura's computer systems are generally
based on two digit years and will need this additional programming to recognize
the start of a new century. Management currently estimates that the costs of
this additional programming ranges from $6-$8 million with a project horizon of
two to three years.
The FASB also issues exposure drafts for proposed statements of financial
accounting standards. Such exposure drafts are subject to comment from the
public, to revisions by the FASB, and to final issuance by the FASB as
statements of financial accounting standards. Management considers the effect of
any proposed statements on Centura and monitors the status of changes to issued
exposure drafts and to proposed effective dates.
TABLE 1
- --------------------------------------------------------------------------------
LOANS
March 31, 1997 March 31, 1996 December 31, 1996
(Dollars in thousands) Balance % of Total Balance % of Total Balance % of Total
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial, financial and agricultural $ 748,453 18.1% $ 690,582 17.8% $ 743,477 18.1%
Commercial mortgage 808,620 19.5 759,280 19.6 806,721 19.6
Real estate construction 536,829 13.0 455,953 11.7 524,246 12.8
------------------------------------------------------------------------------------------
Commercial loan portfolio 2,093,902 50.6 1,905,815 49.1 2,074,444 50.5
Consumer 269,422 6.5 264,864 6.8 274,733 6.7
Residential mortgage 1,290,437 31.1 1,368,314 35.2 1,291,036 31.4
Leases 441,568 10.7 302,399 7.8 420,240 10.2
Other 45,254 1.1 40,880 1.1 49,001 1.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans $4,140,583 100.0% $3,882,272 100.0% $4,109,454 100.0%
====================================================================================================================================
Residential mortgage servicing
portfolio for others $2,302,000 $1,862,000 $2,245,000
====================================================================================================================================
TABLE 2
- --------------------------------------------------------------------------------
AVERAGE DEPOSIT MIX FOR THE THREE MONTHS ENDED
March 31, 1997 March 31, 1996
(Dollars in thousands) Balance % of Total Balance % of Total
- ------------------------------------------------------------------------------------------------------------------
Demand, noninterest bearing $ 657,971 14.1% $ 602,728 13.7%
Interest checking 640,054 13.7 608,738 14.0
Money market 692,894 15.0 359,291 8.3
Savings 289,531 6.2 311,501 7.2
- ------------------------------------------------------------------------------------------------------------------
Time deposits:
Certificates of deposit less than 100K 1,736,938 37.3 1,697,499 39.0
Certificates of deposit greater than 100K 346,930 7.4 477,225 11.0
IRA 293,087 6.3 296,884 6.8
- ------------------------------------------------------------------------------------------------------------------
Total time deposits 2,376,955 51.0 2,471,608 56.8
- ------------------------------------------------------------------------------------------------------------------
Total average deposits $ 4,657,405 100.0% $ 4,353,866 100.0%
==================================================================================================================
TABLE 3
- --------------------------------------------------------------------------------
NET INTEREST INCOME ANALYSIS - TAXABLE EQUIVALENT BASIS
Centura Banks, Inc. and Subsidiary
Three months ended Three months ended
March 31, 1997 March 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
(Dollars in thousands) Balance Expense Rate Balance Expense Rate
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Loans $ 4,107,133 $ 95,327 9.32% $ 3,820,022 $ 90,891 9.46%
Taxable securities 1,505,254 24,764 6.58 1,391,300 22,310 6.41
Tax-exempt securities 45,356 999 8.81 55,683 1,219 8.76
Short-term investments 32,975 445 5.40 35,135 406 4.57
----------- -------- ----------- --------
Interest-earning assets, gross 5,690,718 121,535 8.57 5,302,140 114,826 8.62
Net unrealized gain (loss) on available
for sale securities 2,065 3,224
Other assets, net 491,935 446,070
----------- -----------
Total assets $ 6,184,718 $ 5,751,434
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking $ 640,054 $ 2,810 1.78% $ 608,738 $ 3,069 2.03%
Money market 692,894 6,952 4.07 359,291 2,594 2.90
Savings 289,531 1,417 1.98 311,501 1,687 2.18
Time 2,376,955 32,006 5.46 2,471,608 34,761 5.66
----------- -------- ----------- --------
Total interest-bearing deposits 3,999,434 43,185 4.38 3,751,138 42,111 4.52
Borrowed funds 646,995 7,983 5.00 540,018 7,032 5.24
Long-term debt 309,112 4,790 6.28 319,450 5,133 6.46
----------- -------- ----------- --------
Interest-bearing liabilities 4,955,541 55,958 4.58 4,610,606 54,276 4.73
Demand, noninterest-bearing 657,971 602,728
Other liabilities 82,597 91,270
Shareholders' equity 488,609 446,830
----------- -----------
Total liabilities and
shareholder's equity $ 6,184,718 $ 5,751,434
=========== ===========
Interest rate spread 3.99% 3.89%
Net yield on interest-
earning assets $ 5,690,718 $ 65,577 4.58% $ 5,302,140 $ 60,550 4.51%
=========== ======== ========= =======
Taxable equivalent adjustment $ 1,692 $ 1,522
======== =======
TABLE 4
- --------------------------------------------------------------------------------
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
At and for the three months At and for the year ended
ended March 31, December 31,
(Dollars in thousands) 1997 1996 1996
- ------------------------------------------------------------------------------------------------------------------
Allowance for loan losses at beginning of period $ 58,715 $ 55,070 $ 55,070
Allowance for acquired financial institutions --- --- 1,240
Provision for loan losses 2,894 2,065 9,596
Loans charged off (3,617) (1,312) (10,408)
Recoveries on loans previously charged off 770 660 3,217
- ------------------------------------------------------------------------------------------------------------------
Net charge-offs (2,847) (652) (7,191)
- ------------------------------------------------------------------------------------------------------------------
Allowance for loan losses at end of period $ 58,762 $ 56,483 $ 58,715
==================================================================================================================
Loans at period-end $ 4,140,583 $ 3,882,272 $ 4,109,454
Average loans 4,107,133 3,820,022 4,014,391
Nonperforming loans 22,767 18,471 19,210
Allowance for loan losses to loans at period-end 1.42% 1.45% 1.43%
Net charge-offs to average loans 0.28 0.07 0.18
Allowance for loan losses to nonperforming loans 2.58x 3.06x 3.06x
==================================================================================================================
TABLE 5
- --------------------------------------------------------------------------------
NONPERFORMING ASSETS AND PAST DUE LOANS
March 31, December 31,
------------------------ -----------------
(Dollars in thousands) 1997 1996 1996
- -----------------------------------------------------------------------------------------
Nonaccrual loans $ 22,767 $ 17,440 $ 18,713
Restructured loans --- 1,031 497
------------------------------------------------
Nonperforming loans 22,767 18,471 19,210
Foreclosed property 4,001 2,633 3,663
- -----------------------------------------------------------------------------------------
Total nonperforming assets $ 26,768 $ 21,104 $ 22,873
=========================================================================================
Nonperforming assets to:
Loans and foreclosed property 0.65% 0.54% 0.56%
Total assets 0.42 0.36 0.36
=========================================================================================
Accruing loans past due ninety days $ 11,055 $ 6,578 $ 8,916
=========================================================================================
TABLE 6
- --------------------------------------------------------------------------------
CAPITAL RATIOS
Tier I Capital Total Capital Tier I Leverage
March 31, 1997 9.19% 10.44% 6.39%
December 31, 1996 9.48 10.02 6.56
March 31, 1996 9.96 11.21 6.88
Minimum requirement 4.00 8.00 3.00-5.00
TABLE 7
- --------------------------------------------------------------------------------
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate swap agreements at March 31, 1997 are summarized below:
Weighted Average
Weighted Average Rate Remaining Estimated
Notional During the Quarter Contractual Fair Value
Amount Received Paid Term (Years) Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
INTEREST RATE SWAPS
Corporation pays fixed rates $ 197,500 5.81% 6.54% 1.1 $ (615)
Corporation pays variable rates 125,000 6.65% 5.62% 4.5 (1,163)
--------------- ------------
Total interest rate swaps $ 322,500 $ (1,778)
=============== ============
Interest rate cap and floor agreements at March 31, 1997 are summarized below:
Weighted Average
Remaining
Notional Average Current Index Contractual Carrying Estimated
Amount Rate * Rate Term (Years) Value Fair Value
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Rate Floors $ 180,000 5.87% 5.77% 2.5 $ 761 $ 723
============ =========
Interest Rate Caps $ 26,000 7.39% 5.77% 5.8 $ 744 $ 738
=============== ============ =========
* Average rate represents the average of the strike rates above or below which
Centura will receive payments on the outstanding cap or floor agreements.
At March 31, 1997 Centura had two put options totaling 50 ten-year Treasury
futures contracts. Each contract represents a $100,000 notional amount and gives
Centura the right but not the obligation to exercise the respective contract.
Cumulatively at March 31, 1997, the options had a carrying value of $50,000 and
an estimated fair value of $227,000.
TABLE 8
- -------------------------------------------------------------------- -----------
NET INTEREST INCOME AND VOLUME/RATE ANALYSIS - TAXABLE EQUIVALENT BASIS
Centura Banks, Inc. and Subsidiary
Three months ended
March 31, 1997 and 1996
- ---------------------------------------------------------------------------------------
Income/ Variance
Expense Attributable to
(Dollars in thousands) Variance Volume Rate
- ---------------------------------------------------------------------------------------
INTEREST INCOME
Loans $ 4,436 $ 6,705 ($2,269)
Taxable securities 2,454 1,863 591
Tax-exempt securities (220) (227) 7
Short-term investments 39 (26) 65
------------- ----------- -----------
Total interest income 6,709 8,315 (1,606)
INTEREST EXPENSE Interest-bearing deposits:
Interest checking (259) 152 (411)
Money market 4,358 3,070 1,288
Savings (270) (114) (156)
Time (2,755) (1,304) (1,451)
------------- ----------- -----------
Total interest-bearing deposits 1,074 1,804 (730)
Borrowed funds 951 1,335 (384)
Long-term debt (343) (163) (180)
------------- ----------- -----------
Total interest expense 1,682 2,976 (1,294)
------------- ----------- -----------
Net interest income $ 5,027 $ 5,339 ($312)
============= =========== ===========
The change in interest due to both rate and volume has been allocated
proportionately to volume variance and rate variance based on the relationship
of the absolute dollar change in each.
CENTURA BANKS, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The following represents the legal matter first reported in Form 10-Q for the
quarterly period ended June 30, 1994.
On May 13, 1994, seven individuals claiming to have been depositors of
First Savings Bank of Forest City, SSB ("First Savings") filed suit in Wake
County, North Carolina, Superior Court against the Registrant, Centura
Bank, the North Carolina Savings Institutions Division ("NCSID"), and six
individuals who were directors of First Savings at the time of the
acquisition of that institution by the Registrant and Centura Bank through
a merger/conversion transaction in October 1993 (the "Acquisition").
Plaintiffs' complaint alleges, among other things, that the individual
defendants violated their fiduciary duties as directors of First Savings in
connection with the Acquisition by allegedly receiving excessive benefits
as part of that transaction; that the Registrant and Centura Bank acted in
concert with the individual defendants in that regard, as a result of which
it is alleged that "the assets of First Savings were wrongfully
transferred"; and that the NCSID acted in violation of law in approving the
Acquisition. Plaintiffs sought (i) certification of the suit as a class
action; (ii) a judgment ordering the individual defendants, the Registrant,
and Centura Bank to pay to plaintiffs and members of the class the
difference between the fair market value of First Savings as of the date of
the Acquisition and the value of benefits paid to depositors in the
Acquisition; (iii) punitive damages in an unspecified amount; and (iv) in
the event damages are not awarded, entry of an order declaring the
Acquisition to be "illegal, void and reversed." Management of the
Registrant believes that the suit is without merit and intends to defend
vigorously.
On March 2, 1995, claims against NCSID were severed from claims against the
six individuals who were directors of First Savings, the Registrant and
Centura Bank, and accordingly, such claims are now the subject of two
separate proceedings.
On October 31, 1995, the Wake County Superior Court reversed the decision
of the NCSID Administrator denying plaintiffs' request for a hearing on the
issue of whether the NCSID should have approved the Acquisition and
remanded the action to the NCSID for such a hearing. The Registrant and
NCSID appealed this decision, which appeal was dismissed by the North
Carolina Court of Appeals. A hearing has not yet been scheduled by the
NCSID.
The civil damage action was certified as a class action on March 4, 1996,
and on March 26, 1996, was assigned to the Special Superior Court for
Complex Business Litigation. Registrant, and the former First Savings
directors moved for summary judgment, which motion was heard by the court
on January 8, 1997. Management is of the view that the Registrant should
have no financial liability as a result of this litigation and,
accordingly, no liability has been recorded.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Securities Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
Exhibit Exhibit
No. Description of Exhibit Reference
4.1 Excerpts from Centura's Articles of Incorporation and
Bylaws relating to rights of holders of Registrant's
capital stock 4.1 (1)
4.2 Specimen certificate of Centura common stock 4.2 (2)
27 Financial Data Schedule - included in the electronically
filed document as required.
(1)Included as the identified exhibit in Centura Banks, Inc. Form 2-4
dated March 8, 1990, as amended by amendment No. 1 dated May 14, 1990,
and incorporated herein by reference.
(2)Included as the identified exhibit in Centura Banks, Inc. Annual
Report on Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference.
(b) Reports on Form 8-K -
1)A report on Form 8-K dated January 6, 1997 was filed under Item 5,
Other Events, indicating the Registrant's announcement on January 6,
1997 of earnings for the year ended December 31, 1996.
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:
CENTURA BANKS, INC
Registrant
Date: May 13, 1997 By: /s/Steven J. Goldstein
----------------------
Steven J. Goldstein
Chief Financial Officer
CENTURA BANKS, INC.
EXHIBIT INDEX
Sequential
Exhibit Description of Exhibit Page No.
- --------------------------------------------------------------------------------
4.1 Excerpts from Centura's Articles of Incorporation and Bylaws
relating to rights of holders of Registrant's capital stock *(1)
4.2 Specimen certificate of Centura common stock *(2)
27 Financial Data Schedule **
*Incorporated by reference from the following documents as noted:
(1)Included as the identified exhibit in Centura Banks, Inc. Form 2-4
dated March 8, 1990, as amended by amendment No. 1 dated May 14, 1990,
and incorporated herein by reference.
(2)Included as the identified exhibit in Centura Banks, Inc. Annual
Report on Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference.
** Included in the electronically-filed document as required