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, 2000 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)
(252) 454-4400
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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 whether the registrant 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 39,683,949
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(Class of Stock) (Shares outstanding as of April 30, 2000)
Exhibit Index on sequential page number 25.
CENTURA BANKS, INC.
FORM 10-Q
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -
March 31, 2000 and 1999, and December 31, 1999 4
Consolidated Statements of Income -
Three months ended March 31, 2000 and 1999 5
Consolidated Statement of Shareholders' Equity -
Three months ended March 31, 2000 6
Consolidated Statements of Cash Flows -
Three months ended March 31, 2000 and 1999 7
Notes to Consolidated Financial Statements 8-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-22
Item 3. Quantitative and Qualitative Disclosures about Market Risk 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 24
Item 3. Defaults upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Securities Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
2
CENTURA BANKS, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statement of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
3
CONSOLIDATED BALANCE SHEETS
CENTURA BANKS, INC. AND SUBSIDIARIES
(UNAUDITED)
MARCH 31, DECEMBER 31,
---------------------------- ------------
(In thousands, except share data) 2000 1999 1999
- ---------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 311,117 $ 328,920 $ 356,416
Due from banks, interest-bearing 31,733 29,804 39,279
Federal funds sold 22,528 8,396 28,686
Investment securities:
Available for sale (cost of $2,619,224, $2,524,167
and $2,794,678, respectively) 2,554,632 2,529,800 2,727,514
Held to maturity (fair value of $52,845,
$112,713 and $114,521, respectively) 52,709 110,065 114,574
Loans 7,594,907 7,245,615 7,528,770
Less allowance for loan losses 97,450 93,821 95,500
- ---------------------------------------------------------------------------------------------------
Net loans 7,497,457 7,151,794 7,433,270
Bank premises and equipment 155,082 161,645 159,300
Other assets 581,355 548,061 527,643
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Total assets $ 11,206,613 $ 10,868,485 $ 11,386,682
===================================================================================================
LIABILITIES
Deposits:
Demand, noninterest-bearing $ 1,174,585 $ 1,154,915 $ 1,136,119
Interest-bearing 5,781,560 5,780,218 5,882,744
Time deposits over $100 796,846 800,539 878,189
- ---------------------------------------------------------------------------------------------------
Total deposits 7,752,991 7,735,672 7,897,052
Borrowed funds 1,478,759 1,243,816 1,601,238
Long-term debt 1,000,168 878,327 904,354
Other liabilities 113,314 149,954 124,303
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Total liabilities 10,345,232 10,007,769 10,526,947
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 39,662,141; 39,819,661;
and 39,496,410, respectively 282,976 301,434 278,689
Common stock acquired by ESOP (14) (71) (28)
Accumulated other comprehensive (loss) income (40,818) 3,460 (42,796)
Retained earnings 619,237 555,893 623,870
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Total shareholders' equity 861,381 860,716 859,735
- ---------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 11,206,613 $ 10,868,485 $ 11,386,682
===================================================================================================
See accompanying notes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF INCOME
CENTURA BANKS, INC. AND SUBSIDIARIES
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------------
(In thousands, except share and per share data) 2000 1999
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INTEREST INCOME
Loans, including fees $ 169,330 $ 155,476
Investment securities:
Taxable 43,676 37,708
Tax-exempt 1,300 1,501
Short-term investments 1,126 511
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Total interest income 215,432 195,196
INTEREST EXPENSE
Deposits 73,252 65,423
Borrowed funds 23,564 17,603
Long-term debt 13,808 10,884
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Total interest expense 110,624 93,910
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NET INTEREST INCOME 104,808 101,286
Provision for loan losses 5,975 7,581
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Net interest income after provision for loan losses 98,833 93,705
NONINTEREST INCOME
Service charges on deposit accounts 15,355 14,994
Credit card and related fees 2,071 1,924
Other service charges, commissions and fees 10,812 9,389
Fees for trust services 2,751 2,439
Mortgage income 3,705 7,751
Other noninterest income 8,430 5,422
Securities (losses) gains, net (14,855) 775
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Total noninterest income 28,269 42,694
NONINTEREST EXPENSE
Personnel 43,766 44,526
Occupancy 6,453 6,315
Equipment 6,148 6,787
Foreclosed real estate losses and related
operating expense 662 437
Merger-related expenses 24,338 6,858
Other operating 29,275 29,527
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Total noninterest expense 110,642 94,450
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Income before income taxes 16,460 41,949
Income taxes 8,425 14,770
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NET INCOME $ 8,035 $ 27,179
===============================================================================
NET INCOME PER COMMON SHARE
Basic $ 0.20 $ 0.68
Diluted 0.20 0.67
================================================================================
AVERAGE COMMON SHARES OUTSTANDING
Basic 39,598,371 39,799,866
Diluted 39,926,443 40,575,764
================================================================================
See accompanying notes to consolidated financial statements.
5
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
CENTURA BANKS, INC. AND SUBSIDIARIES
THREE MONTHS ENDED MARCH 31, 2000
ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS)
COMMON ---------------------------
Common Stock Stock Unrealized Gains/ Minimum Total
----------------------- Acquired Retained (Losses) on Securities Pension Shareholders'
Shares Amount by ESOP Earnings Available for Sale Liability Equity
-------------------------------------------------------------------------------------------
(Dollars in thousands)
BALANCE, DECEMBER 31, 1999 39,496,410 $ 278,689 $ (28) $ 623,870 $ (42,794) $ (2) $ 859,735
Comprehensive Income:
Net income -- -- -- 8,035 -- -- 8,035
Unrealized gains on securities,
net of tax -- -- -- -- 1,978 -- 1,978
-------
Comprehensive Income -- -- -- -- -- -- 10,013
Common stock issued:
Stock option plans and stock awards 160,484 2,606 -- -- -- -- 2,606
Cash dividends declared, $0.32 per share -- -- -- (12,683) -- -- (12,683)
Other 5,247 1,681 14 15 -- -- 1,710
------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2000 39,662,141 $ 282,976 $ (14) $ 619,237 $ (40,816) $ (2) $ 861,381
==========================================================================================
See accompanying notes to consolidated financial statements.
6
CONSOLIDATED STATEMENTS OF CASH FLOWS
CENTURA BANKS, INC. AND SUBSIDIARIES
FOR THE THREE MONTHS ENDED
MARCH 31,
(Dollars in thousands) 2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,035 $ 27,179
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 5,975 7,581
Depreciation on assets under operating leases 1,935 3,458
Depreciation and amortization, excluding depreciation on assets under operating leases 9,107 11,960
Deferred income tax (benefit) expense (4,061) 5,197
Loan fees deferred, net 902 1,301
Bond premium amortization and discount accretion, net 111 2,026
Losses (gains) on sales of investment securities 14,855 (775)
Gain on sales of equipment under lease -- (823)
Proceeds from sales of mortgage loans held for sale 85,014 338,172
Originations, net of principal repayments, of mortgage loans held for sale (72,823) (287,641)
Decrease in accrued interest receivable 2,433 4,988
Increase in accrued interest payable (472) (1,198)
Net change in other assets and other liabilities 20,326 (49,295)
--------- ---------
Net cash provided by operating activities 71,337 62,130
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (85,721) (29,381)
Purchases of:
Securities available for sale (112,730) (255,872)
Securities held to maturity -- (6,608)
Premises and equipment (11,706) (3,358)
Other (80,000) (20,239)
Proceeds from:
Sales of securities available for sale 239,420 82,216
Maturities and issuer calls of securities available for sale 88,504 203,385
Maturities and issuer calls of securities held to maturity 7,158 53,604
Sales of foreclosed real estate 4,433 2,776
Dispositions of premises and equipment 2,340 1,730
Dispositions of equipment used in leasing activities -- 2,055
Cash acquired, net of cash paid, in mergers and acquisitions (1,250) (15,479)
--------- ---------
Net cash provided by investing activities 50,448 14,829
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (144,061) (5,700)
Net decrease in borrowed funds (122,479) (221,301)
Proceeds from issuance of long-term debt 360,500 126,466
Repayment of long-term debt (264,671) (5,840)
Cash dividends paid (12,683) (10,036)
Proceeds from issuance of common stock, net 2,606 1,438
Repurchases of common stock -- (1,240)
--------- ---------
Net cash used by financing activities (180,788) (116,213)
--------- ---------
Decrease in cash and cash equivalents (59,003) (39,254)
Cash and cash equivalents at January 1 424,381 406,374
--------- ---------
Cash and cash equivalents at March 31 $ 365,378 $ 367,120
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the three months for:
Interest $ 111,096 $ 95,108
Income taxes 2,483 12,813
Noncash transactions:
Stock issued in purchase acquisitions and other stock issuances, net 1,681 8,264
Change in unrealized securities gains (losses), net 2,572 (8,265)
Loans transferred to foreclosed property 2,466 2,783
========= =========
See accompanying notes to consolidated financial statements.
7
CENTURA BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include
the accounts of Centura Banks, Inc. ("Centura") and its wholly-owned
subsidiaries, Centura Bank (the "Bank"), Centura Capital Trust I, Triangle
Capital Trust, and NCS Mortgage Lending Company. Centura Bank also has various
wholly-owned subsidiaries. The interim financial statements have been prepared
in conformity with generally accepted accounting principles for interim
financial statements. 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). All prior period
financial information has been restated to include historical information for
companies acquired in transactions accounted for as poolings-of-interests.
The information contained in the consolidated financial statements and
accompanying footnotes in Centura's Annual Report on Form 10-K should be
referenced when reading these unaudited interim financial statements. Operating
results for the three-month period ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000.
Certain items reported in prior periods have been reclassified to
conform to current period presentation. Such reclassifications had no impact on
net income or shareholders' equity.
NOTE 2: MERGERS AND ACQUISITIONS
On February 18, 2000, Centura merged with Triangle Bancorp, Inc.
("Triangle"), a Raleigh, North Carolina based bank holding company in a
transaction accounted for as a pooling-of-interests. Centura issued
approximately 11.4 million shares to effect the combination. Each Triangle
shareholder received 0.45 shares of Centura common stock in exchange for each
Triangle share. Triangle had assets of approximately $2.4 billion and operated
71 locations throughout North Carolina. In connection with this combination,
Centura incurred merger-related charges of $39.4 million during the first
quarter of 2000, of which $15.1 million were securities losses incurred as a
result of restructuring Triangle's investment portfolio. Centura expects to
incur additional merger-related charges ranging between $10.0 million and $20.0
million during the second quarter. Historical financial information presented in
these consolidated financial statements has been restated to include the
accounts and results of operations of Triangle.
The following table summarizes merger-related charges as of March 31,
2000 for the merger with Triangle and also includes merger-related expenses
incurred in connection with the first quarter 1999 merger with First Coastal
Bankshares, Inc.:
- ----------------------------------------------------------------------------------------------------------------
Initial Liability Liability Amount
accrued balance accrued utilized in Remaining
(in thousands) liability 12/31/99 in 2000 2000 Balance
- ----------------------------------------------------------------------------------------------------------------
Severance, change in control and other
employee-related costs $ 770 $ 424 $ 8,055 $ 3,835 $ 4,644
Write-off of unrealizable assets 1,259 200 2,458 2,658 --
Non-employee related contract terminations 2,071 317 741 304 754
Professional costs 1,683 -- 8,596 8,596 --
Other merger-related expenses 1,075 -- 4,488 3,515 973
- ----------------------------------------------------------------------------------------------------------------
Merger-related expenses $ 6,858 $ 941 $24,338 $18,908 $ 6,371
================================================================================================================
8
On March 24, 2000, Centura acquired the loan origination operations of
NCS Mortgage Services, LLC based in Atlanta, Georgia. Assets acquired with the
acquisition totaled approximately $1.0 million and approximately $667,000 of
goodwill was recorded. The business activities are being conducted within a
subsidiary of Centura, NCS Mortgage Lending Company ("NCS"). NCS specializes in
the origination of non-conforming mortgages through independent mortgage brokers
and sells the production in the secondary market.
NOTE 3: NET INCOME PER SHARE
Basic earnings per common share is calculated by dividing net income by
the weighted-average number of common shares outstanding during each period.
Diluted earnings per common share is based on the weighted-average number of
common shares outstanding during each period plus the maximum dilutive effect of
common stock issuable upon exercise of stock options which totaled 328,072
shares and 775,898 shares for the three months ended March 31, 2000 and 1999,
respectively.
NOTE 4: COMMITMENTS AND CONTINGENCIES
Centura Bank is a co-defendant in two actions (the "Staton Cases") in the
Superior Court of Forsyth County, North Carolina, which were filed in 1996 and
have been consolidated for discovery. The plaintiffs are Philip A.R. Staton,
Ingeborg Staton, Mercedes Staton, and trusts created by Ingeborg Staton and
Mercedes Staton. They allege that Centura Bank breached its duties and committed
other violations of law as depository of substantial sums of money allegedly
converted by the personal and financial advisors of the owners of such money and
in connection with the creation of charitable trusts established with a portion
of the funds. No claim for a specific amount of monetary damages was made in the
cases until 1999. Plaintiffs seek compensatory and treble damages in amounts
that are material to Centura and its subsidiaries taken as a whole. Centura and
Centura Bank believe that Centura Bank has meritorious defenses to all claims
asserted in these cases and Centura Bank is defending the cases vigorously. In a
separate and related case, also instituted in 1996 in the Superior Court of
Forsyth County, North Carolina by Piedmont Institute of Pain Management and
three physicians associated with it (the "PIPM Case"), which has been
consolidated for discovery with the Staton Cases, Centura Bank is alleged to
have provided the plaintiffs with false information regarding the establishment
and funding of a medical clinic by failing to exercise reasonable care or
competence in obtaining such information, and to have committed other violations
of law. Plaintiffs seek specific performance or recovery of money damages in an
amount that is material to Centura and its subsidiaries taken as a whole.
Centura and Centura Bank believe Centura Bank has meritorious defenses to all
claims asserted in this case and Centura Bank is defending the case vigorously.
In 1999, Ingeborg Staton, Mercedes Staton and trusts created by Ingeborg Staton
and Mercedes Staton filed a motion to amend their complaint in the Staton Cases
to add allegations of fraudulent concealment, violation of the Bank Bribery Act
and negligent supervision of employees. Centura Bank filed a response opposing
the proposed amendments. The movants thereupon filed a new action (the "1999
Case") in Forsyth County, North Carolina Superior Court asserting those claims
against Centura Bank, certain of its named current and former officers and
persons described as "one or more John Does and one or more Jane Does" who are
identified in the complaint as current or former directors of the Bank. By
consent of the parties, the 1999 Case has been consolidated with the Staton
Cases and the PIPM Case. Centura and Centura Bank believe that Centura Bank has
meritorious defenses to all claims asserted in this case and Centura Bank
intends to defend it vigorously. Management does not believe that Centura or
Centura Bank has liability with respect to these cases, and accordingly, is
unable to estimate a range of loss.
Various other legal proceedings against Centura and its subsidiaries have
arisen from time to time in the normal course of business. Management believes
liabilities arising from these proceedings, if any, will have no material
adverse effect on the financial position or results of operations of Centura or
its subsidiaries.
9
NOTE 5: SEGMENT INFORMATION
Refer to Centura's Annual Report on Form 10-K for the year ended
December 31, 1999 for information with respect to Centura's policies for
defining and accounting for its segments. Financial information by segment for
the three months ended March 31, 2000 and 1999 is as follows:
2000
------------------------------------------------------------------------------------------
(In thousands) RETAIL TREASURY OTHER TOTAL ADJUSTMENTS CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------------
Interest income $ 146,603 $ 57,378 $ 7,658 $ 211,639 $3,793 (A) $ 215,432
Interest expense 75,349 29,190 862 105,401 5,223 (A) 110,624
Funds transfer pricing allocation 18,960 (22,581) (3,375) (6,996) 6,996 (B) --
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 90,214 5,607 3,421 99,242 5,566 104,808
Provision for loan losses 3,141 -- 902 4,043 1,932 (C) 5,975
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 87,073 5,607 2,519 95,199 3,634 98,833
Noninterest income 27,648 167 9,862 37,677 (9,408)(A) 28,269
Noninterest expense 73,226 2,564 8,956 84,746 25,896 (A) 110,642
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 41,495 3,210 3,425 48,130 (31,670) 16,460
Income tax expense/(benefit) 17,927 (841) (1,507) 15,579 (7,154)(C) 8,425
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 23,568 $ 4,051 $ 4,932 $ 32,551 $(24,516) $ 8,035
===========================================================================================================================
Period-end assets $ 6,676,100 $ 3,244,240 $ 240,291 $ 10,160,631 $1,045,982 (D) $ 11,206,613
1999
---------------------------------------------------------------------------------------------
(In thousands) RETAIL TREASURY OTHER TOTAL ADJUSTMENTS CONSOLIDATED
- -------------------------------------------------------------------------------------------------------------------------------
Interest income $ 129,419 $ 53,920 $ 9,377 $ 192,716 $2,480 (A) $ 195,196
Interest expense 66,904 25,301 1,278 93,483 427 (A) 93,910
Funds transfer pricing allocation 20,764 (19,553) (5,228) (4,017) 4,017 (B) --
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income 83,279 9,066 2,871 95,216 6,070 101,286
Provision for loan losses 4,665 -- 1,176 5,841 1,740 (C) 7,581
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 78,614 9,066 1,695 89,375 4,330 93,705
Noninterest income 31,982 3,218 11,700 46,900 (4,206)(A) 42,694
Noninterest expense 70,719 6,079 9,354 86,152 8,298 (A) 94,450
- -------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 39,877 6,205 4,041 50,123 (8,174) 41,949
Income tax expense 7,566 1,208 2,336 11,110 3,660 (C) 14,770
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 32,311 $ 4,997 $ 1,705 $ 39,013 $(11,834) $ 27,179
===============================================================================================================================
Period-end assets $ 6,152,379 $ 3,202,411 $ 547,716 $ 9,902,506 $965,979 (D) $ 10,868,485
- ----------------
(A) Reconciling item reflects adjustments that are necessary to reconcile to
consolidated totals, including merger-related charges.
(B) Reconciling item relates to the elimination of funds transfer pricing
credits and charges.
(C) Reconciling item adjusts balances from cash basis to accrual method of
accounting.
(D) Reconciling item relates to assets not allocated to segments including
premises and equipment, cash and due from banks, and certain other assets.
10
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, 2000
This document contains forward-looking statements about Centura Banks,
Inc. ("Centura"). These statements can be identified by the use of words such as
"expect," "may," "could," "intend," "estimate," or "anticipate." These
forward-looking statements reflect current views, but are based on assumptions
and are subject to risks, uncertainties and other factors. Those factors
include, but are not limited to, the following: (i) expected cost savings from
completed mergers may not be fully realized or costs or difficulties related to
the integration of the businesses of Centura and merged institutions may be
greater than expected, (ii) deposit attrition, customer loss, or revenue loss
following completed mergers may be greater than expected, (iii) competitive
pressure in the banking industry may increase significantly, (iv) changes in the
interest rate environment may reduce margins, (v) general economic conditions,
either nationally or regionally, may be less favorable than expected, resulting
in, among other things, credit quality deterioration, (vi) changes may occur in
the regulatory environment, (vii) changes may occur in business conditions and
inflation, and (viii) changes may occur in the securities markets.
The following discussion and analysis is presented to assist in the
understanding and evaluation of the financial condition and results of
operations of Centura. Centura is a bank holding company operating in North
Carolina, South Carolina and Virginia. Through Centura Bank and its
subsidiaries, Centura seeks to not only become the primary provider of financial
services for each of its customers but to also deliver the services through
convenient channels as evidenced by the Centura Highway telephone banking
center, supermarket locations, and home banking through leading online money
management packages.
Centura's common stock is traded on the New York Stock Exchange under
the symbol CBC.
EARNINGS SUMMARY
Net income for the three months ended March 31, 2000 totaled
$36.0 million or $0.90 per diluted share, excluding merger-related charges of
$39.4 million incurred as a result of the February 18, 2000 merger with Triangle
Bancorp, Inc. ("Triangle"). Included in the merger-related charges were $15.1
million in losses on securities sales incurred as a result of restructuring
Triangle's investment portfolio. Net income for the comparable period in 1999
was $32.6 million or $0.80 per diluted share, excluding merger-related charges
of $8.4 million incurred in connection with the combination of First Coastal
Bankshares, Inc. ("First Coastal") and Centura on March 26, 1999. The merger
charges incurred in connection with the First Coastal merger included $1.5
million of additional provision expense recorded to align the allowance for loan
loss factors between the two entities. Including merger-related charges, net
income and diluted earnings per share were $8.0 million and $0.20, respectively,
for the three months ended March 31, 2000 compared with $27.2 million and $0.67,
respectively, for the three months ended March 31, 1999. Other key factors
responsible for Centura's results of operations are discussed throughout
Management's Discussion and Analysis below.
INTEREST-EARNING ASSETS
Interest-earning assets, net, consisting primarily of loans and
investment securities, averaged $10.4 billion for the three months ended March
31, 2000, an increase of $451.7 million or 4.5 percent over the average balance
for the first quarter of 1999. Growth in the commercial loan portfolio accounted
for the majority of the increase as discussed below. Period-end interest-earning
assets at March 31, 2000 and 1999 were $10.3 billion and $9.9 billion,
respectively, an increase of 3.4 percent.
For additional information on average interest-earning assets, refer to
the discussion below, Table 3, "Net Interest Income Analysis-Taxable Equivalent
Basis," and Table 8, "Net Interest Income and Volume/Rate Analysis, Taxable
Equivalent Basis."
11
LOANS
Loans represent the largest component of interest-earning assets. Loans
ended the period at $7.6 billion, up 4.8 percent over the period end balance of
$7.2 billion at March 31, 1999. The period end balance reflects required
divestitures of approximately $32.0 million divested in connection with the
merger with Triangle. Subsequent to March 31, 2000 an additional $46.0 million
in loans were divested.
The average loan portfolio grew during the first quarter of 2000, up
4.1 percent over the prior year comparable period. Table 1 provides a summary of
the loan portfolio and mix percentages as of March 31, 2000, March 31, 1999 and
December 31, 1999. Average loan growth was driven primarily by volume generated
in the commercial loan portfolio. On average, commercial loans increased $388.1
million between the two three-month periods. Consumer loans (equity lines,
installment loans, and other credit line loans) were higher, on average, by
$222.1 million or 13.9 percent over the prior year period. The leasing
portfolio, on average, declined $164.5 million, driven by the continued
decreased emphasis on the product and normal amortization. The residential
mortgage portfolio, reflecting reduced volumes from rising interest rates,
declined $148.4 million.
The loan portfolio yielded 8.94 percent for the first quarter of 2000
compared with 8.62 percent for the first quarter of 1999, an increase of 32
basis points. A combination of changes in the portfolio mix to higher yielding
products and rising interest rates contributed to this increase.
INVESTMENT SECURITIES
The investment portfolio provides Centura with a source of earnings and
liquidity. The investment portfolio consists predominantly of securities of the
US Government and its agencies and other high grade, fixed income securities. At
March 31, 2000 and 1999, investment securities totaled $2.6 billion. The
investment portfolio averaged $2.8 billion for the period, growing 4.3 percent
or $113.4 million over the comparable period for 1999.
The available for sale ("AFS") investment portfolio is 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 manage
regulatory capital and other factors. This portfolio is carried at fair value
with unrealized gains or losses recorded, net of tax, in accumulated other
comprehensive income. At March 31, 2000, AFS investments had a market value of
$2.6 billion, up $24.8 million compared with 1999. Included in the market value
of the AFS portfolio are unrealized losses of $64.6 million, $40.8 million net
of tax. Rising interest rates during 1999 and two prime rate increases during
the first quarter of 2000 contributed to these losses.
The held to maturity ("HTM") investment portfolio declined $57.4
million between comparable periods totaling $52.7 million at March 31, 2000.
This decline primarily resulted from scheduled maturities in the portfolio and
management's election under Statement of Financial Accounting Standards No. 115
("SFAS 115") to transfer $55.4 million from the HTM portfolio acquired with the
Triangle merger to the AFS portfolio. Unrealized losses on the transferred
securities of $708,000 were recorded as a separate component of equity on the
date of transfer. Also in connection with the Triangle merger, Centura incurred
losses of $15.1 million on sales of investment securities as a result of
restructuring Triangle's investment portfolio. This restructuring was in
response to the current interest rate environment and to conform the interest
rate risk position of the Triangle investment portfolio to the overall risk
position of Centura.
12
FUNDING SOURCES
Funding sources include deposits, short-term borrowings and long-term
debt. Funding sources averaged $9.3 billion for the three-month period ended
March 31, 2000, increasing $523.7 million over the $8.7 billion averaged for the
three months ended March 31, 1999.
DEPOSITS
Total deposits, whose major categories include money market accounts,
savings accounts, individual retirement accounts, time deposits and transaction
accounts, ended the period at $7.8 billion and averaged $7.8 billion for the
first three months of 2000. At and for the period ended March 31, 1999, total
deposits were $7.7 billion and $7.6 billion on average, respectively. Deposits
divested in connection with the Triangle merger on February 18, 2000 and
subsequent to March 31, 2000 totaled approximately $170.0 million and $137.0
million, respectively.
Table 2 details average balances for the deposit portfolio and the mix
of deposits for the three months ended March 31, 2000 and 1999. On average,
money market accounts grew $198.6 million or 13.1 percent while certificates of
deposit grew $140.4 million or 4.4 percent. This growth was somewhat offset by a
decline of $97.4 million or 25.8 percent in savings accounts, $23.2 million or
2.4 percent in interest checking accounts and $22.6 million or 4.9 percent in
individual retirement accounts. Changes in the portfolio mix, combined with
rising interest rates, contributed to an increase in funding costs for the
deposit portfolio of 32 basis points between periods to yield 4.39 percent for
the first quarter.
OTHER FUNDING SOURCES
Management continues to utilize alternative funding sources in addition
to traditional deposits to fund balance sheet growth. Alternative short-term
borrowed funds principally include Federal funds purchased, securities sold
under repurchase agreements and master notes. On average, short-term borrowed
funds increased $192.5 million to total $1.6 billion at March 31, 2000.
Period-end short-term borrowings totaled $1.5 billion and $1.2 billion at March
31, 2000 and 1999, respectively. The growth of Federal funds purchased of $246.0
million drove this increase. The cost of funds for short-term debt increased 82
basis points to 5.68 percent when comparing first quarter 2000 with first
quarter 1999, a result of the increased utilization of higher cost Federal funds
purchased and rising interest rates.
Long-term debt consists predominantly of FHLB advances, Capital
Securities and subordinated bank notes and averaged $901.5 million for the
period ended March 31, 2000 compared with $766.0 million for 1999's first
quarter. At the end of March 31, 2000 and 1999, long-term debt was $1.0 billion
and $878.3 million, respectively. An increase of $156.6 million in FHLB
borrowings offset by a $32.1 million decrease in notes payable as a result of
selling CLG, Inc. ("CLG"), Centura's technology leasing subsidiary in the third
quarter of 1999, attributed to the increase. The cost of funds increased 38
basis points to 6.06 for the quarter ended March 31, 2000 compared to 1999. The
increase in cost of funds is attributable to repricing variable rate debt
combined with rising interest rates.
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income for the three months ended March 31, 2000 and 1999
was $104.8 million and $101.3 million, respectively. On a taxable equivalent
basis, net interest income increased $3.6 million to $107.7 million from $104.1
million the prior year. As shown in Table 8, Net Interest Income and Volume/Rate
Analysis, the increase in net interest income, taxable equivalent, was driven by
volume variances which contributed $2.6 million to the increase whereas rate
variances added $1.1 million.
13
The net interest margin, taxable equivalent, for the first quarter of
2000 was 4.07 percent, a decline of 10 basis points from the prior year
comparable quarter. The margin was negatively affected by changes in the
portfolio mix of loans and funding sources and continued strong loan growth
funded with higher cost short-term borrowings.
ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES (AFLL)
As of March 31, 2000 and 1999, the AFLL was $97.5 million and $93.8
million, respectively, or 1.29 percent and 1.31 percent, respectively, of total
loans outstanding. The AFLL continues to adequately cover nonperforming loans,
providing coverage at 3.01 times and 2.28 times the nonperforming loan balance
at March 31, 2000 and 1999, respectively.
Total nonperforming assets ("NPA's"), including nonperforming loans
("NPL's") and foreclosed properties, were $37.2 million at March 31, 2000,
improving $11.4 million from March 31, 1999's balance of $48.5 million. As a
percentage of total assets, NPA's were 0.33 percent and 0.45 percent at March
31, 2000 and 1999, respectively. The improvement in the NPA balance was
primarily attributed to declines of $6.2 million, $1.8 million, $1.1 million and
$2.7 million in loans secured by real estate, commercial and agricultural loans,
leases, and other real estate owned, respectively.
Net charge-offs for the period also improved from first quarter 1999,
totaling $4.0 million, an improvement of $2.2 million. Net charge-offs to
average loans were 0.22 percent and 0.36 percent at March 31, 2000 and 1999,
respectively. Commercial and industrial net charge-offs accounted for the
majority of the decline, decreasing $2.4 million for the current period compared
with first quarter 1999. Commercial and industrial net charge-offs included a
recovery of $1.3 million related to the Pluma credit which was charged-off
during 1999. Net charge-offs in the loans secured by real estate category grew
$594,000. The remaining difference was spread throughout various loan
categories.
The amount provided for the AFLL included in the first quarter 2000
results of operations totaled $6.0 million compared with $7.6 million recorded
in the first quarter of 1999. Of the amount recorded in first quarter 1999, $1.5
million related to the merger with First Coastal Bankshares, Inc. for which
additional provision expense was recorded to align the allowance for loan loss
factors between the two entities.
Management believes the AFLL is adequate based upon its current
judgment, evaluation, and analysis of the loan portfolio. Centura continuously
monitors overall credit quality and manages its credit processes, including
loans in past due and nonaccrual status. The AFLL represents management's
estimate of an amount adequate to provide for probable incurred losses in the
loan portfolio. However, there are risks of additional losses that cannot be
quantified precisely or attributed to particular loans or classes of loans.
Because those risks include general economic trends as well as conditions
affecting individual borrowers, management's judgment of the AFLL is necessarily
approximate and imprecise. The AFLL is also subject to regulatory examinations
and determinations as to adequacy, which may take into account such factors as
the methodology used to calculate the AFLL and the size of the AFLL in
comparison to peer banks identified by the regulatory agencies. No assurances
can be given that the ongoing evaluation of the loan portfolio in light of
economic conditions and other factors then prevailing will not require
significant future additions to the AFLL, thus adversely affecting the operating
results of Centura.
In addition to nonperforming assets and past due loans shown in Table
5, management has identified approximately $35.0 million in loans that are
currently performing in accordance with contractual terms that management
believes may become nonperforming during the remaining term of the loan.
14
NONINTEREST INCOME AND EXPENSE
Noninterest income for the three months ended March 31, 2000, excluding
gains and losses on sales of investment securities, totaled $43.1 million, up
$1.2 million from the $41.9 million earned for the three months ended March 31,
1999. As a percentage on total revenues (defined as the sum of net interest
income, taxable equivalent plus noninterest income), noninterest income was 28.6
percent and 28.7 percent for the three months ended March 31, 2000 and 1999,
respectively. Including gains and losses on sales of investment securities,
noninterest income was $28.3 million and $42.7 million for the quarters ended
March 31, 2000 and 1999, respectively. Sales of investment securities resulted
in net realized losses of $14.9 million for the first quarter of 2000 compared
with net realized gains of $775,000 in the first quarter of 1999. Included in
the first quarter 2000 net realized losses were $15.1 million of securities
losses related to restructuring the investment portfolio acquired in the
Triangle merger.
Service charges on deposit accounts, comprising approximately 36.0
percent of noninterest income before gains and losses on sales of investment
securities, continues to be the largest component of noninterest income. Service
charges on deposits for the current period grew $361,000 over 1999, with
nonsufficient funds fees ("NSF") accounting for the increase. NSF fees were
raised in the second quarter of 1999 to make Centura's NSF pricing competitive
with its peers. Mortgage income declined $4.0 million from first quarter 1999.
Mortgage loan origination fees and loan sale income, unfavorably affected by
rising interest rates, declined $1.8 million and $2.2 million, respectively.
Operating lease income, directly impacted by the third quarter 1999 sale of CLG,
declined $1.1 million between first quarter 1999 and 2000. Brokerage commissions
for first quarter 2000 were up 28.0 percent or $944,000 over 1999's first
quarter. Broker loan fees declined $445,000.
Included in current period noninterest income are gains of $5.5 million
received on the sale of branches required to be divested as a result of the
merger with Triangle. This gain was approximately equal to the reduction in net
interest income from Triangle's investment portfolio.
Excluding merger-related expenses of $24.3 million and $6.9 million for
the three months ended March 31, 2000 and 1999, respectively, noninterest
expenses declined $1.3 million from the first quarter of 1999. Personnel related
expenses were down $760,000, primarily as a result of a decline in sales
commissions paid. Marketing and equipment expenses declined $818,000 and
$639,000, respectively. Professional fees, which included fees paid for Year
2000 remediation during 1999, declined $798,000. Increases in noninterest
expenses were realized in office supplies and fees for outsourced services of
$621,000 and $410,000, respectively. The remaining difference was spread across
various other noninterest expense categories.
INCOME TAX EXPENSE
Income tax expense recorded for the three months ended March 31, 2000
was $8.4 million compared to $14.8 million in the prior year period. For the
first quarter of 2000, certain merger-related charges were not tax deductible,
resulting in an effective tax rate of 51.18 percent. This compares with an
effective tax rate of 35.21 percent for the three months ended March 31, 1999.
EQUITY AND CAPITAL RESOURCES
Shareholders' equity as of March 31, 2000 was $861.4 million compared
to $860.7 million at March 31, 1999. The change in equity between the two
periods was influenced by the retention of earnings, the exercise of stock
options and changes in unrealized gains or losses on securities available for
sale. Additionally, Centura paid dividends of $12.7 million in the first
quarter. Unrealized losses on available for sale securities, net of tax, were
$40.8 million at March 31, 2000. This compares with unrealized gains of $3.5
million in the year before. The ratio of shareholders' equity to period-end
assets was 7.69 percent and 7.92 percent at March 31, 2000 and 1999,
respectively.
15
Centura's capital ratios are greater than minimums required by
regulatory guidelines. It is Centura's intent to maintain an optimal capital and
leverage mix within the regulatory framework while providing a basis for future
growth. At March 31, 2000, Centura had the required capital levels to qualify as
well capitalized with total capital of $1.1 billion and Tier 1 capital of $891.5
million. See Table 6 for a summary of Centura's capital ratios.
LIQUIDITY
Centura's liquidity management objective is to meet maturing debt
obligations, fund loan commitments and deposit withdrawals, and manage
operations on a cost-effective basis. Management believes that sufficient
resources are available to meet Centura's liquidity objective through its debt
maturity structure, holdings of liquid assets, and access to the capital markets
through a variety of funding vehicles.
Centura's traditional funding sources include established Federal funds
lines with major banks, advances from the FHLB, proceeds from matured
investments, principal repayments on loans, and core deposit growth. Centura
also has an unsecured bank note facility for institutional investors. In
addition, Centura accepts Eurodeposits, has a master note commercial paper
facility, and offers brokered CD's.
Management is not aware of any events or uncertainties 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 pending
regulatory developments or proposals, which, if implemented, would have a
material effect on Centura.
ASSET/LIABILITY AND INTEREST RATE RISK MANAGEMENT
Market risk is the risk of loss from adverse changes in market prices
and rates. Centura's market risk primarily stems from interest rate risk, the
potential economic loss due to future changes in interest rates, which is
inherent in lending and deposit gathering activities. Centura's objective is to
manage the mix of interest-sensitive assets and liabilities to minimize interest
rate risk and stabilize the net interest margin and the market value of equity
while optimizing profit potential.
Centura's Asset/Liability Management Committee seeks to maintain a
general balance between interest-sensitive assets and liabilities to insulate
net interest income and shareholders' equity from significant adverse changes in
market interest rates. Mismatches in interest rate repricings of assets and
liabilities arise from the interaction of customer business needs and Centura's
discretionary asset and liability management activities. Exposure to changes in
the level and direction of interest rates is managed by adjusting the
asset/liability mix through the use of various interest rate risk management
products, including derivative financial instruments.
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 an integral part of Centura's interest rate risk management
activities. Centura has principally utilized interest rate swaps. Swaps are used
to manage interest rate risk, reduce funding costs, and allow Centura to utilize
diversified funding sources. 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 a third party at an agreed upon price under
the specific terms of each agreement. Table 7, "Off-Balance Sheet Derivative
Financial Instruments", summarizes Centura's off-balance sheet derivative
financial positions at March 31, 2000. On-balance sheet and off-balance sheet
financial instruments are managed on an integrated basis as part of Centura's
overall asset/liability management function. The value of any single component
of the on-balance sheet or off-balance sheet position should not be viewed
independently.
16
CURRENT ACCOUNTING ISSUES
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"). The statement addresses accounting and reporting requirements for
derivative instruments and for hedging activities. SFAS 133 requires that all
derivatives be recognized as either assets or liabilities in the consolidated
balance sheet and that those instruments be measured at fair value. If certain
conditions are met, a derivative may be designated as a hedge of exposure to
changes in fair value of an asset or liability, exposure to variable cashflows
of a forecasted transaction or exposure of foreign currency denominated
forecasted transactions. The accounting for changes in the fair value of a
derivative depends on the intended use of the derivatives and its resulting
designation. In June 1999, the FASB issued SFAS No. 137 "Accounting for
Derivative Instruments and Hedging Activities- Deferral of the Effective Date of
FASB 133." This Statement defers the effective date of SFAS 133 for one year.
SFAS 133, as amended, is now effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. Management is in the process of evaluating
the impact of adopting SFAS 133. Centura anticipates adopting this Statement on
January 1, 2001.
17
TABLE 1
- --------------------------------------------------------------------------------
LOAN PORTFOLIO
March 31, 2000 March 31, 1999 December 31, 1999
----------------------------------------------------------------------------------------
(Dollars in thousands) BALANCE % OF TOTAL Balance % of Total Balance % of Total
- -------------------------------------------------------------------------------------------------------------------------------
Commercial, financial and agricultural $1,899,802 25.0% $1,362,956 18.8% $1,759,546 23.4%
Commercial mortgage 1,436,028 18.9 1,669,772 23.1 1,554,234 20.6
Real estate construction 972,232 12.8 898,807 12.4 942,719 12.5
----------------------------------------------------------------------------------------
Commercial loan portfolio 4,308,062 56.7 3,931,535 54.3 4,256,499 56.5
Consumer 582,213 7.7 547,362 7.6 587,590 7.8
Residential mortgage 2,325,724 30.6 2,234,979 30.8 2,301,054 30.6
Leases 272,986 3.6 437,520 6.0 292,672 3.9
Other 105,922 1.4 94,219 1.3 90,955 1.2
- -------------------------------------------------------------------------------------------------------------------------------
Total loans $7,594,907 100.0% $7,245,615 100.0% $7,528,770 100.0%
===============================================================================================================================
Residential mortgage servicing
portfolio for others $3,016,000 $3,460,000 $3,153,000
===============================================================================================================================
TABLE 2
- --------------------------------------------------------------------------------
AVERAGE DEPOSIT MIX FOR THE THREE MONTHS ENDED
MARCH 31, 2000 March 31, 1999
----------------------------------------------------------------
(Dollars in thousands) BALANCE % OF TOTAL Balance % of Total
- ---------------------------------------------------------------------------------------------------------------
Demand, noninterest bearing $ 1,105,151 14.1 % $ 1,117,106 14.6 %
Interest checking 944,339 12.1 967,563 12.7
Money market 1,712,843 21.9 1,514,200 19.8
Savings 281,046 3.6 378,493 5.0
- ---------------------------------------------------------------------------------------------------------------
Time deposits:
Certificates of deposit < $100,000 2,496,500 31.9 2,423,526 31.7
Certificates of deposit > $100,000 844,135 10.8 776,693 10.2
IRA 435,203 5.6 457,801 6.0
- ------------------------------------------------------------------------------------------------------------
Total time deposits 3,775,838 48.3 3,658,020 47.9
- ---------------------------------------------------------------------------------------------------------------
Total average deposits $ 7,819,217 100.0 % $ 7,635,382 100.0 %
===============================================================================================================
18
TABLE 3
- --------------------------------------------------------------------------------
NET INTEREST INCOME ANALYSIS - TAXABLE EQUIVALENT BASIS
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
----------------------------------------------------------------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
(DOLLARS IN THOUSANDS) BALANCE EXPENSE RATE BALANCE EXPENSE RATE
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
Loans $ 7,547,933 $ 169,729 8.94% $ 7,251,050 $ 155,709 8.62%
Taxable securities 2,746,862 45,537 6.63 2,534,844 39,472 6.24
Tax-exempt securities 101,663 1,970 7.75 115,087 2,308 8.02
Short-term investments 85,991 1,126 5.18 44,590 511 5.46
-------------- ---------- ------------- ----------
Interest-earning assets, gross 10,482,449 218,362 8.29 9,945,571 198,000 7.99
Net unrealized (losses) gains on
available for sale securities (74,441) 10,783
Other assets, net 925,008 911,567
-------------- -------------
Total assets $ 11,333,016 $ 10,867,921
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking $ 944,339 $ 3,268 1.39% $ 967,563 $ 2,872 1.20%
Money market 1,712,843 18,413 4.32 1,514,200 14,170 3.80
Savings 281,046 1,022 1.46 378,493 1,567 1.68
Time 3,775,838 50,549 5.38 3,658,020 46,814 5.19
-------------- ---------- ------------- ----------
Total interest-bearing deposits 6,714,066 73,252 4.39 6,518,276 65,423 4.07
Borrowed funds 1,641,051 23,564 5.68 1,448,578 17,603 4.86
Long-term debt 901,461 13,808 6.06 766,044 10,884 5.68
-------------- ---------- ------------- ----------
Interest-bearing liabilities 9,256,578 110,624 4.78 8,732,898 93,910 4.34
Demand, noninterest-bearing 1,105,151 1,117,106
Other liabilities 111,192 158,862
Shareholders' equity 860,095 859,055
-------------- -------------
Total liabilities and
shareholder's equity $ 11,333,016 $ 10,867,921
============== =============
Interest rate spread 3.51% 3.65%
Net yield on interest-
earning assets $ 10,482,449 $ 107,738 4.07% $ 9,945,571 $ 104,090 4.17%
============== ========== ============= ===========
Taxable equivalent adjustment $ 2,930 $ 2,804
========== ===========
19
TABLE 4
- --------------------------------------------------------------------------------
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
AT AND FOR THE THREE MONTHS AT AND FOR THE YEAR ENDED
ENDED MARCH 31, ENDED DECEMBER 31,
---------------------------------------------------------------------
(Dollars in thousands) 2000 1999 1999
- --------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses at beginning of period $ 95,500 $ 91,894 $ 91,894
Allowance related to loans sold and subsidiary sale - - (556)
Allowance for acquired loans - 605 605
Provision for loan losses 5,975 7,581 40,828
Loans charged off (6,515) (7,226) (41,044)
Recoveries on loans previously charged off 2,490 967 3,773
- --------------------------------------------------------------------------------------------------------------------------
Net charge-offs (4,025) (6,259) (37,271)
- --------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses at end of period $ 97,450 $ 93,821 $ 95,500
==========================================================================================================================
Loans at period-end $ 7,594,907 $ 7,245,615 $7,528,770
Average loans 7,547,933 7,251,050 7,356,342
Nonperforming loans 32,372 41,071 29,415
Allowance for loan losses to total loans (1) 1.29 % 1.31 % 1.28 %
Net charge-offs to average loans (2) 0.22 0.36 0.52
Allowance for loan losses to nonperforming loans 3.01 X 2.28 x 3.25 x
==========================================================================================================================
(1) Excludes mortgage loans held for sale of $29.0 million, $109.5 million, and
$86.5 million at March 31, 2000, March 31, 1999 and December 31, 1999,
respectively.
(2) Excludes mortgage loans held for sale, on average, of $67.9 million and
$127.7 million for the three months ended March 31, 2000 and 1999,
respectively, and $99.8 million for the year ended December 31, 1999.
TABLE 5
- --------------------------------------------------------------------------------
NONPERFORMING ASSETS AND PAST DUE LOANS
MARCH 31, DECEMBER 31,
-----------------------------------------
(Dollars in thousands) 2000 1999 1999
- ------------------------------------------------------------------------------------------
Nonaccrual loans $ 32,372 $ 41,071 $ 29,415
Foreclosed property 4,789 7,473 6,421
- ----------------------------------------------------------------------------------------
Total nonperforming assets $ 37,161 $ 48,544 $ 35,836
==========================================================================================
Nonperforming assets to:
Loans and foreclosed property (1) 0.49 % 0.68 % 0.48 %
Total assets 0.33 0.45 0.31
==========================================================================================
Accruing loans past due ninety days or greater $ 11,887 $ 18,535 $ 14,366
==========================================================================================
(1) Excludes mortgage loans held for sale of $29.0 million, $109.5 million, and
$86.5 million at March 31, 2000, March 31, 1999 and December 31, 1999,
respectively.
20
TABLE 6
- --------------------------------------------------------------------------------
CAPITAL RATIOS
Tier I Capital Total Capital Tier I Leverage
-------------- ------------- ---------------
MARCH 31, 2000 10.4 % 12.6 % 7.9 %
December 31, 1999 10.3 12.8 7.9
March 31, 1999 10.1 12.7 7.7
Minimum requirement 4.0 8.0 3.0-5.0
TABLE 7
- -------------------------------------------------------------------------------
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate swap agreements at March 31, 2000 are summarized below:
Weighted Average Rate Weighted Avg.
During the Quarter Remaining Estimated
Notional --------------------- Contractual Fair Value
(Dollars in thousands) Amount Received Paid Term (Years) Gain (Loss)
- ----------------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS
Corporation pays fixed/receives floating $ 482,219 6.10% 5.86% 2.3 $ 11,269
Corporation pays variable/receives fixed 561,000 6.08% 6.02% 4.4 (13,680)
---------------------------------------------------------------
Total interest rate swaps $ 1,043,219 $ (2,411)
===============================================================
Interest rate cap and floor agreements at March 31, 2000 are summarized below:
Weighted Average
Remaining Estimated
Notional Average Current Index Contractual Carrying Fair Value
(Dollars in thousands) Amount Rate * Rate Term (Years) Value Gain (Loss)
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE FLOORS
LIBOR $ 80,000 5.69% 6.29% 1.8 $ 316 $ 32
Constant Maturity Swap Rate 125,000 5.20% 7.30% 3.5 - 114
-------------------------------------------------------------------------------------
$ 205,000 $ 316 $ 146
=====================================================================================
INTEREST RATE CAPS
LIBOR $ 22,000 7.00% 6.29% 3.5 $ 349 $ 432
Constant Maturity Swap Rate 125,000 6.94% 7.30% 3.5 - (2,779)
-------------------------------------------------------------------------------------
$ 147,000 $ 349 $ (2,347)
=====================================================================================
* Average rate represents the average of the strike rates above or below
which Centura will receive payments on the outstanding cap or floor
agreements.
21
TABLE 8
- --------------------------------------------------------------------------------
NET INTEREST INCOME AND VOLUME/RATE ANALYSIS
TAXABLE EQUIVALENT BASIS
Three months ended
March 31, 2000 and 1999
------------------------------
Variance
Income/ Attributable to
Expense -------------------
(Dollars in thousands) Variance Volume Rate
- --------------------------------------------------------------------------
INTEREST INCOME
Loans $ 14,020 $ 6,515 $ 7,505
Taxable securities 6,065 3,422 2,643
Tax-exempt securities (338) (262) (76)
Short-term investments 615 533 82
- --------------------------------------------------------------------------
Total interest income 20,362 10,208 10,154
INTEREST EXPENSE Interest-bearing deposits:
Interest checking 396 (70) 466
Money market 4,243 1,988 2,255
Savings (545) (370) (175)
Time 3,735 1,536 2,199
- --------------------------------------------------------------------------
Total interest-bearing deposits 7,829 3,084 4,745
Borrowed funds 5,961 2,518 3,443
Long-term debt 2,924 2,028 896
- --------------------------------------------------------------------------
Total interest expense 16,714 7,630 9,084
- --------------------------------------------------------------------------
Net interest income $ 3,648 $ 2,578 $ 1,070
==========================================================================
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.
22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in Centura's exposure to market risk
since December 31, 1999 as described in Item 7A of Centura's Annual Report on
Form 10-K for the year ended December 31, 1999. Mergers accounted for as
pooling-of-interests did not materially impact Centura's market risk.
23
CENTURA BANKS, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Centura Bank is a co-defendant in two actions (the "Staton Cases") in the
Superior Court of Forsyth County, North Carolina, which were filed in 1996 and
have been consolidated for discovery. The plaintiffs are Philip A.R. Staton,
Ingeborg Staton, Mercedes Staton, and trusts created by Ingeborg Staton and
Mercedes Staton. They allege that Centura Bank breached its duties and committed
other violations of law as depository of substantial sums of money allegedly
converted by the personal and financial advisors of the owners of such money and
in connection with the creation of charitable trusts established with a portion
of the funds. No claim for a specific amount of monetary damages was made in the
cases until 1999. Plaintiffs seek compensatory and treble damages in amounts
that are material to Centura and its subsidiaries taken as a whole. Centura and
Centura Bank believe that Centura Bank has meritorious defenses to all claims
asserted in these cases and Centura Bank is defending the cases vigorously. In a
separate and related case, also instituted in 1996 in the Superior Court of
Forsyth County, North Carolina by Piedmont Institute of Pain Management and
three physicians associated with it (the "PIPM Case"), which has been
consolidated for discovery with the Staton Cases, Centura Bank is alleged to
have provided the plaintiffs with false information regarding the establishment
and funding of a medical clinic by failing to exercise reasonable care or
competence in obtaining such information, and to have committed other violations
of law. Plaintiffs seek specific performance or recovery of money damages in an
amount that is material to Centura and its subsidiaries taken as a whole.
Centura and Centura Bank believe Centura Bank has meritorious defenses to all
claims asserted in this case and Centura Bank is defending the case vigorously.
In 1999, Ingeborg Staton, Mercedes Staton and trusts created by Ingeborg Staton
and Mercedes Staton filed a motion to amend their complaint in the Staton Cases
to add allegations of fraudulent concealment, violation of the Bank Bribery Act
and negligent supervision of employees. Centura Bank filed a response opposing
the proposed amendments. The movants thereupon filed a new action (the "1999
Case") in Forsyth County, North Carolina Superior Court asserting those claims
against Centura Bank, certain of its named current and former officers and
persons described as "one or more John Does and one or more Jane Does" who are
identified in the complaint as current or former directors of the Bank. By
consent of the parties, the 1999 Case has been consolidated with the Staton
Cases and the PIPM Case. Centura and Centura Bank believe that Centura Bank has
meritorious defenses to all claims asserted in this case and Centura Bank
intends to defend it vigorously. Management does not believe that Centura or
Centura Bank has liability with respect to these cases, and accordingly, is
unable to estimate a range of loss.
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
24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Exhibit
No. Description of Exhibit Reference
-------------------------------------------------------------------------------------------
3.1 Restated Articles of Incorporation of Centura Banks, Inc. 3.1 (A)
3.2 Bylaws of Centura Banks, Inc., as amended 3.2 (B)
4.1 Excerpts from Centura's Articles of Incorporation and Bylaws relating
to rights of holders of Registrant's capital stock. 4.1 (A)
4.2 Specimen certificate of Centura common stock. 4.2 (C)
27.1 Financial Data Schedule - included in the electronically filed document
as required.
27.2 Financial Data Schedule- (Restated for pooling-of-interests with Triangle
Bancorp, Inc.) included in the electronically filed document as required.
-------------------------------------------------------------------------------------------
(A) 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) Included as the identified exhibit in Centura Banks, Inc. Annual
Report on Form 10-K for the year ended December 31, 1999 and
incorporated herein by reference.
(C) Included as the identified exhibit in Centura Banks, Inc. Form S-4
dated March 8, 1990, as amended by amendment No. 1 dated May 14,
1990, and incorporated herein by reference.
(b) Reports on Form 8-K:
(1) A report on Form 8-K dated January 11, 2000 was filed under Item 5,
Other Events, indicating Centura's announcement on January 11, 2000 of
earnings for the quarter and year ended December 31, 1999.
(2) A report on Form 8-K dated February 18, 2000 was filed under Item 2 and
7, Acquisition or Disposition of Assets and Financial Statements and
Exhibits indicating the completion of the acquisition of Triangle
Bancorp, Inc. as of the close of business on February 18, 2000.
(3) A report on Form 8-K/A dated March 17, 2000 was filed under Item 4,
Changes in Registrant's Certifying Accountant, indicating Centura's
decision to retain PricewaterhouseCoopers LLP as its independent public
accountants and dismiss KPMG LLP.
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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.
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Registrant
Date: May 15, 2000 By: /s/ Steven J. Goldstein
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Steven J. Goldstein
Chief Financial Officer
26