UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1994
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required)
For the transition period from to
COMMISSION FILE NUMBER 0-12358
CCB FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
North Carolina 56-1347849
(STATE OR OTHER JURISDICTION OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
111 Corcoran Street, Post Office Box 931, Durham, NC 27702
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (919) 683-7777
Securities registered pursuant to Section 12(b) of the Act:
None
Securities issued pursuant to Section 12(g) of the Act:
$5.00 par value Common Stock
(TITLE OF CLASS)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant as of March 1, 1995 was $321,788,475. On March
1, 1995, there were 9,108,895 outstanding shares of the Registrant's $5.00 par
value Common Stock.
DOCUMENT INCORPORATED BY REFERENCE
Portions of the Proxy Statement of Registrant for the Annual Meeting of
Shareholders to be held on April 18, 1995 are incorporated in Part III of this
report.
CROSS REFERENCE INDEX
Part I. Item 1 Business
Description..................................................................................... 3-6
Average Balance Sheets.......................................................................... 9
Net Interest Income Analysis -- Taxable Equivalent Basis........................................ 9
Net Interest Income and Volume/Rate Variance -- Taxable Equivalent Basis........................ 10
Investment Securities Portfolio................................................................. 16
Investment Securities -- Maturity/Yield Schedule................................................ 16
Types of Loans.................................................................................. 14
Maturities and Sensitivities of Loans to Changes in Interest Rates.............................. 15
Nonperforming and Risk Assets................................................................... 19
Loan Loss Experience............................................................................ 20
Average Deposits................................................................................ 10
Maturity Distribution of Large Denomination Time Deposits....................................... 22
Return on Equity and Assets..................................................................... 17
Short-Term Borrowings........................................................................... 37-38
Item 2 Properties...................................................................................... 6
Item 3 Legal Proceedings............................................................................... 6
Item 4 There has been no submission of matters to a vote of shareholders during the quarter ended
December 31, 1994.
Part II. Item 5 Market for the Registrant's Common Stock and Related Shareholder Matters........................ 6
Item 6 Selected Financial Data......................................................................... 25
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations........... 7-26
Item 8 Financial Statements and Supplementary Data
Consolidated Balance Sheets at December 31, 1994 and 1993....................................... 28
Consolidated Statements of Income for each of the years in the three-year period ended December
31, 1994...................................................................................... 29
Consolidated Statements of Shareholders' Equity for each of the years in the three-year period
ended December 31, 1994....................................................................... 30
Consolidated Statements of Cash Flows for each of the years in the three-year period ended
December 31, 1994............................................................................. 31
Notes to Consolidated Financial Statements...................................................... 32-51
Independent Auditors' Report.................................................................... 53
Item 9 There have been no disagreements with accountants on accounting and financial disclosures.
Part III. Item 10 Directors and Executive Officers of the Registrant.............................................. *
Item 11 Executive Compensation.......................................................................... *
Item 12 Security Ownership of Certain Beneficial Owners and Management.................................. *
Item 13 Certain Relationships and Related Transactions.................................................. *
Part IV. Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements (See Item 8 for Reference).
(2) Financial Statement Schedules normally required on Form 10-K are omitted since they are not
applicable.
(3) Exhibits have been filed separately with the Commission and are available upon written
request.
(b) A report on Form 8-K dated November 4, 1994 was filed under Items 5 and 7.
A report on Form 8-K dated November 17, 1994 was filed under Items 5 and 7.
A report on Form 8-K dated December 21, 1994 was filed under Items 5 and 7.
* Information called for by Part III (Items 10 through 13) is incorporated by
reference to the Registrant's Proxy Statement for the 1995 Annual Meeting of
Shareholders filed with the Securities and Exchange Commission.
2
DESCRIPTION OF BUSINESS
REGISTRANT
CCB Financial Corporation (the "Corporation") is a registered bank holding
company headquartered in Durham, North Carolina whose principal business is
providing banking and other financial services through its banking subsidiaries.
The Corporation is the parent holding company of Central Carolina Bank and Trust
Company, a North Carolina-chartered commercial bank; Graham Savings Bank, Inc.,
SSB, a North Carolina-chartered state savings bank; and Central Carolina Bank-
Georgia, a Georgia-chartered special purpose credit card bank (collectively
referred to as the "Subsidiary Banks"). The principal assets of the Corporation
are all of the outstanding shares of common stock of the Subsidiary Banks and
the Corporation's principal sources of revenue are the interest income,
dividends and management fees it receives from the Subsidiary Banks. At December
31, 1994, the Corporation had consolidated assets of approximately $3.5 billion
and was the eighth largest banking organization headquartered in North Carolina.
SUBSIDIARY BANKS
Central Carolina Bank and Trust Company ("CCB") is chartered under the laws
of the state of North Carolina to engage in general banking business. CCB offers
a complete array of services in the commercial and retail banking, savings and
trust fields through 106 offices located in 33 cities and towns in North
Carolina. CCB had approximately $3.2 billion in assets at December 31, 1994 and
was the eighth largest bank in North Carolina. CCB provides a full range of
financial services including accepting deposits, making secured and unsecured
loans, renting safe deposit boxes, performing trust functions for corporations,
employee benefit plans and individuals and providing certain insurance and
brokerage services.
Graham Savings Bank, Inc., SSB ("Graham Savings") is a full-service state
savings bank that provides commercial and retail banking and savings services.
Graham Savings is based in Graham, North Carolina and operates 2 branch offices
in 2 North Carolina cities and towns. During 1994, the Corporation owned CCB
Savings Bank of Lenoir, Inc., SSB ("CCB Savings"), a North Carolina-chartered
state savings bank which was located in Lenoir, North Carolina. CCB Savings
operated 4 branch offices in 3 North Carolina cities and towns. On February 3,
1995, CCB Savings was merged with and into CCB and its branch offices will be
operated as CCB branch offices.
Central Carolina Bank-Georgia ("CCB-Ga.") provides nationwide credit card
services from its headquarters in Columbus, Georgia.
NON-BANK SUBSIDIARIES
CCB has four wholly-owned non-bank subsidiaries: Southland Associates,
Inc., CCBDE, 1st Home Mortgage Acceptance Corporation ("HMAC") and CCB
Investment and Insurance Service Corporation ("CCBIISC"). Southland Associates,
Inc. engages in real estate development. CCBDE is an investment holding company
headquartered in Wilmington, Delaware. HMAC is an issuer of collateralized
mortgage obligations which was acquired through the acquisition of certain
assets and assumption of certain liabilities of 1st Home Federal Savings and
Loan Association, F.A., of Greensboro, North Carolina. CCBIISC engages in the
sale of various annuity and mutual fund products.
COMPETITION
Vigorous competition exists in all major areas where the Corporation is
presently engaged in business. Its Subsidiary Banks compete not only with other
major commercial banks but also with diversified other financial institutions
such as thrift institutions, money market and other mutual funds, mortgage
companies, leasing companies, finance companies and a variety of financial
services and advisory companies. Competitor commercial banks larger than the
Corporation range in size from $4 billion to over $100 billion in total assets,
including assets attributable to affiliates in other states. Consequently, these
competing commercial banks may be able to offer services and products that are
not cost-efficient for the Subsidiary Banks to offer. In addition, the competing
commercial banks have access to greater financial resources that allow higher
lending limits than the Subsidiary Banks'. In addition to in-state competition,
banks in North Carolina have a high degree of competition from out-of-state
financial service companies through the presence of loan production offices and
their North Carolina affiliates.
In recent years, competition between commercial banks, thrift institutions
and credit unions has intensified significantly. Primarily as a result of
legislation aimed at effecting a deregulation of the financial institution
industry, along with other regulatory changes effected by the primary federal
regulators of the various types of financial institutions, the practical
distinctions between a commercial bank and a thrift institution have been almost
totally eliminated.
3
RECENT EVENTS
On November 7, 1994, the Corporation announced that it had entered into a
merger agreement with Security Capital Bancorp of Salisbury, North Carolina, a
$1.2 billion bank holding company. The merger will be effected through a
tax-free exchange of stock and is expected to be consummated in the second
quarter of 1995. See "Pending Merger" in Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 19 to the Consolidated
Financial Statements.
SUPERVISION AND REGULATION
Federal and state legislation and regulation have significantly affected
the operations of financial institutions in the past several years and have
increased competition among commercial banks, savings institutions and other
providers of financial services. In addition, federal legislation has imposed
new limitations on the investment authority of, and higher insurance and
examination assessments on, financial institutions and has made other changes
that may adversely affect the future operations and competitiveness of regulated
financial institutions with other financial intermediaries. The operations of
regulated depository institutions and their holding companies, including the
Corporation and its Subsidiary Banks, will continue to be subject to changes in
applicable statutes and regulations from time to time.
BANK HOLDING COMPANY REGULATION
The Corporation is a bank holding company registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve") under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). As such the Corporation
and its Subsidiary Banks are subject to the supervision, examination and
reporting requirements contained in the BHC Act and the regulations of the
Federal Reserve. The BHC Act requires that a bank holding company obtain the
prior approval of the Federal Reserve before (i) acquiring direct or indirect
ownership or control of more than 5% of the voting shares of any bank, (ii)
taking any action that causes a bank to become a subsidiary of the bank holding
company, (iii) acquiring all or substantially all of the assets of any bank or
(iv) merging or consolidating with any other bank holding company.
Congress has approved legislation which, after September 1995, will permit
adequately capitalized and managed bank holding companies to acquire control of
a bank in any state (the "Interstate Banking Law"). Existing state laws setting
minimum age restrictions on target banks could be retained, so long as the age
requirement does not exceed five years. Acquisitions will be subject to
anti-trust provisions that cap at 10% the portion of the United States' bank
deposits a single bank holding company may control, and cap at 30% the portion
of a state's bank deposits a single bank holding company may control. A state
will have the authority to waive the 30% cap.
Under the Interstate Banking Law, beginning on June 1, 1997, banks will
also be permitted to merge with one another across state lines, subject to
concentration, capital and Community Reinvestment Act requirements and
regulatory approval. A state can authorize mergers earlier than June 1, 1997, or
it can opt out of interstate branching by enacting legislation before June 1,
1997.
Effective with the date of enactment, a state can also choose to permit
out-of-state banks to open new branches within its borders. In addition, if a
state chooses to allow interstate acquisition of branches, then an out-of-state
bank may also acquire branches by merger. Interstate branches that primarily
siphon off deposits without servicing a community's credit needs will be
prohibited. If loans are less than 50% of the average of all institutions in the
state, the branch will be reviewed to see if it is meeting community credit
needs. If it is not, the branch may be required to close and the bank may be
restricted from opening a new branch in the state.
The Interstate Banking Law also modifies the controversial safety and
soundness provisions enacted in 1991 which required the banking regulatory
agencies to write regulations governing such topics as internal controls, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation and fees and whatever else those agencies determined to be
appropriate. The legislation exempts bank holding companies from these
provisions and requires the agencies to write guidelines, as opposed to
regulations, dealing with these areas. It also gives more discretion to the
banking regulatory agencies with regard to prescribing standards for banks'
asset quality, earnings and stock valuation.
The Interstate Banking Law also expands current exemptions from the
requirement that banks be examined on a 12-month cycle. Exempted banks will be
inspected every 18 months. Other provisions address paperwork reduction and
regulatory improvements, small business and commercial real estate loan
securitization, truth-in-lending amendments on high-cost mortgages,
strengthening of the independence of certain financial regulatory agencies,
money laundering, flood insurance
4
reform and extension of certain statutes of limitation. At this time, the
Corporation is unable to predict how the Interstate Banking Law may affect its
operations.
The BHC Act generally prohibits a bank holding company, with certain
exceptions, from engaging in activities other than banking, or managing or
controlling banks or other permissible subsidiaries, and from acquiring or
retaining direct or indirect control of any company engaged in any activities
other than those activities determined by the Federal Reserve to be closely
related to banking, or managing or controlling banks, as to be a proper incident
thereto. In determining whether a particular activity is permissible, the
Federal Reserve must consider whether the performance of such an activity can
reasonably be expected to produce benefits to the public, such as greater
convenience, increased competition or gains in efficiency, that outweigh
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices. Despite
its prior approval, the Federal Reserve has the power to order a bank holding
company or its subsidiaries to terminate any activity or to terminate its
ownership or control of any subsidiary, when it has reasonable cause to believe
that continuation of such activity or such ownership or control constitutes a
serious risk to the financial safety, soundness or stability of any bank
subsidiary of that bank holding company.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve on any extension of credit to the
bank holding company or any of its subsidiaries, investment in the stock or
securities thereof and the acceptance of such stock or securities as collateral
for loans to any borrower. A bank holding company and its subsidiaries are also
prevented from engaging in certain tie-in arrangements in connection with any
extension of credit, lease or sale of property or furnishing of services.
There are a number of obligations and restrictions imposed by law and
regulatory policies on bank holding companies and on their insured depository
institution subsidiaries that are designed to minimize potential loss to
depositors and the FDIC insurance funds in the event the depository institution
becomes in danger of default or in default. In addition, the "cross-guarantee"
provisions of the Federal Deposit Insurance Act requires insured depository
institutions under common control to reimburse the FDIC for any loss suffered by
either the Savings Association Insurance Fund (the "SAIF") or the Bank Insurance
Fund (the "BIF") of the FDIC as a result of the default of a commonly controlled
insured depository institution or for any assistance provided by the FDIC to a
commonly controlled insured depository institution in danger of default.
Management of the Corporation does not expect that any of these provision will
have an impact on the operations of the Corporation or its Subsidiary Banks.
Under the provisions of the North Carolina Bank Holding Company Act of
1984, the Corporation is registered with and subject to regulations of the North
Carolina Commissioner of Banks (the "Commissioner"). In July of 1984, the
General Assembly of North Carolina adopted the North Carolina Regional
Reciprocal Banking Act (the "Reciprocal Act"). The Reciprocal Act permits
banking organization in fourteen southeastern states and the District of
Columbia with similar reciprocal legislation to acquire North Carolina banking
organizations. All of these jurisdictions have enacted similar reciprocal
legislation. As a result of this interstate banking legislation, the Corporation
may become an acquisition target of banking organizations located in those
states with reciprocal agreements. Additionally, the Corporation may pursue the
acquisition of banking organizations located in those same states, although no
such acquisitions are pending or presently contemplated. As a result of the
consolidation in the banking industry and the expansion of the North Carolina
super-regional bank holding companies, the North Carolina General Assembly
enacted legislation during 1993 to terminate the Reciprocal Act on July 1, 1996.
Termination of the Reciprocal Act will allow the acquisition of North Carolina
banking organizations by banking organizations headquartered in any state.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") was designed to reform the banking industry and to promote the
viability of the industry and of the deposit insurance system. The effect of
FDICIA on the Corporation and Subsidiary Banks will not be fully ascertainable
until after all of the provisions are effective and after all of the regulations
are adopted. Among other items, FDICIA tightens bank regulation and modifies the
scope and manner of computing the cost of federal deposit insurance. Under
FDICIA, regulatory supervision is linked to bank capital.
FDICIA reduces the scope of federal deposit insurance. The most significant
change ends the "too big to fail" doctrine under which the government protects
all deposits in most banks, including those exceeding the $100,000 insurance
limit. The FDIC's current ability to reimburse uninsured deposits, those over
$100,000, will be sharply limited after 1994. The Federal Reserve's ability to
finance banks with extended loans from its discount window has been restricted,
beginning in December 1993. In addition, only the best capitalized banks will be
able to offer insured brokered deposits or to insure accounts established under
employee pension plans. The legislation instructed the FDIC to change the way it
assesses banks for deposit insurance, moving from flat premiums to fees that
require banks engaging in risky practices or maintaining levels of capital below
mandated regulatory guidelines to pay higher premiums than conservatively
managed banks.
5
On September 15, 1992, the FDIC announced an increase in the annual deposit
insurance assessment for all covered banks and thrifts, which implemented the
risk-related deposit insurance system required by FDICIA. The new insurance
premiums took effect January 1, 1993. Under the FDIC risk-related deposit
insurance system, each insured depository institution is assigned to one of
three categories, "well capitalized", "adequately capitalized" or
"under-capitalized" as defined in regulations promulgated pursuant to FDICIA by
federal bank regulatory agencies. These categories are subdivided into three
subgroups based upon the FDIC's evaluations of the risk posed by the depository
institution, based in part on examinations by the institution's primary federal
and/or state regulator.
This risk-related system initially resulted in an eight basis point spread
between the highest and lowest deposit insurance premiums. During 1994, the
strongest institutions paid annual deposit insurance premiums of .23% and the
weakest paid .31%. The Subsidiary Banks have been assigned to the highest
classification level and, until the classification level or assessment rate
changes, will be assessed at a rate of $.23 for every $100 of deposits.
Proposals to modify assessment rates for the BIF and/or the SAIF are currently
being discussed by the FDIC.
SUBSIDIARY BANK REGULATION
As a North Carolina-chartered bank, CCB is supervised and regulated by the
North Carolina Banking Commission, the Commissioner and the FDIC. As a North
Carolina-chartered savings bank, Graham Savings is regulated by the
Administrator of the North Carolina Savings Institutions Division and the FDIC.
Deposits in the Subsidiary Banks are insured by the FDIC; the Subsidiary Banks'
deposits are primarily insured by the BIF with the exception of certain deposits
acquired in 1993 through thrift acquisitions which are insured by the SAIF. The
Subsidiary Banks also are subject to numerous state and federal statutes and
regulations which affect their business, activities and operations.
EFFECT OF GOVERNMENTAL POLICIES
The earnings and business of the Corporation are and will be affected by
the policies of various regulatory authorities of the United States, especially
the Federal Reserve. The Federal Reserve, among other functions, regulates the
supply of credit and deals with general economic conditions within the United
States. The instruments of monetary policy employed by the Federal Reserve for
these purposes influence in various ways the overall level of investments,
loans, other extensions of credit and deposits, and the interest rates paid on
liabilities and received on assets.
EMPLOYEE RELATIONS
As of December 31, 1994, the Corporation and its Subsidiary Banks employed
1,538 full-time equivalent employees. The Corporation and its Subsidiary Banks
are not parties to any collective bargaining agreements and employee relations
are considered to be good.
PROPERTIES
The Corporation's principal executive offices are located at 111 Corcoran
Street, Durham, North Carolina in a 17-story office building constructed in
1937. This office building is owned in fee simple by CCB and also serves as the
home office of CCB. A majority of the major staff functions are located therein.
The Corporation's Customer Service Center is a one-story leased building also
located in Durham, North Carolina that has been occupied since 1990. The
Subsidiary Banks operate 112 branch bank locations, approximately 58 of which
are either leased buildings or leased property on which the Subsidiary Banks
have constructed banking offices.
Southland Associates, Inc. owns real estate, other than premises, with a
net book value of approximately $4,881,000 at December 31, 1994. This real
estate consists of various parcels of land that are being developed for
commercial and residential use in the City of Durham and in Durham County, North
Carolina.
LEGAL PROCEEDINGS
See Note 14 to the Consolidated Financial Statements for a discussion of
legal proceedings.
MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
See "Capital Resources" in Management's Discussion and Analysis of
Financial Condition and Results of Operations for the Corporation's stock prices
and dividends paid during 1994 and 1993 and discussion of other shareholder
matters. On January 17, 1995, a dividend of $.34 per share was declared for
payment on April 3, 1995 to shareholders of record as of March 15, 1995.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to provide the reader with a
concise description of the financial condition and changes therein and results
of operations of CCB Financial Corporation (the "Corporation") and its
wholly-owned subsidiaries, Central Carolina Bank and Trust Company ("CCB"), CCB
Savings Bank of Lenoir, Inc., SSB ("CCB Savings"), Graham Savings Bank, Inc.,
SSB ("Graham Savings") and Central Carolina Bank-Georgia (collectively, the
"Subsidiary Banks") for the years ended December 31, 1994, 1993 and 1992. The
consolidated financial statements also include the accounts and results of
operations of CCB's wholly-owned subsidiaries, CCB Investment and Insurance
Service Corporation ("CCBIISC"), CCBDE, 1st Home Mortgage Acceptance Corporation
and Southland Associates, Inc.
During 1993, the Corporation completed the acquisition of three mutual
savings banks and CCB acquired certain assets and assumed certain liabilities of
the Greensboro, North Carolina operations of a savings and loan association
(collectively, the "Acquisitions"). As all of the Acquisitions were accounted
for as purchases, the results of operations of the financial institutions
acquired prior to the dates of acquisition are not included in the consolidated
financial statements. The assets of the Acquisitions totaled $778 million at
their respective acquisition dates. The acquisitions of the mutual savings banks
involved their conversions from mutual savings banks to stock savings banks and
their simultaneous acquisition by the Corporation. In conjunction with these
transactions, the Corporation sold 688,742 shares of its common stock.
Subsequent to acquisition, two of the mutual savings banks were merged to form
CCB Savings. On February 3, 1995, CCB Savings was merged with and into CCB and
its offices will be operated as CCB offices.
This discussion and analysis is intended to complement the audited
financial statements and footnotes and the supplemental financial data and
charts appearing elsewhere in this report, and should be read in conjunction
therewith. This discussion and analysis will focus on the following major areas:
Results of Operations, Financial Position, Capital Resources, Asset Quality,
Liquidity and Interest-Sensitivity and Pending Merger.
RESULTS OF OPERATIONS
The Corporation reported record earnings in 1994 as income before
cumulative changes in accounting principles for the year amounted to
$38,478,000, an increase of $9,253,000 or 31.7% over the year ended 1993. Net
income in 1994 increased by $10,624,000 to $38,478,000, a 38.1% increase. Income
before cumulative changes in accounting principles for the year ended December
31, 1993 increased 15.4% over the year ended 1992 to $29,225,000. Net income in
1993 increased from 1992's level by $2,532,000 to $27,854,000. The five-year
compound annual growth rate for net income has been 12.9%.
Primary income per share before cumulative changes in accounting principles
and primary income per share was $4.06 in 1994 compared to $3.50 and $3.33,
respectively, in 1993. Primary income per share was $3.30 in 1992. Table 1
compares the contributions to primary income per share for each income statement
caption for the years ended December 31, 1994, 1993 and 1992 and the respective
change from year to year.
On a fully diluted basis (assuming conversion of the Corporation's
convertible subordinated debentures issued in 1985 which were outstanding until
the second quarter of 1993), income per share before cumulative changes in
accounting principles was $4.06 in 1994 versus $3.41 in 1993, a 19.1% increase.
Fully diluted net income per share in 1994 was $4.06, a 24.9% increase from
1993's $3.25. Fully diluted net income per share in 1992 was $3.10.
The return on average assets before cumulative changes in accounting
principles was 1.16% in 1994 compared to 1.08% and 1.16% in 1993 and 1992,
respectively. Return on average shareholders' equity before cumulative changes
in accounting principles was 14.90%, 13.94% and 14.32% in 1994, 1993 and 1992,
respectively.
NET INTEREST INCOME
Net interest income is one of the major determining factors in a financial
institution's performance as it is its principal source of earnings. Table 2
presents average balance sheets and a net interest income analysis on a taxable
equivalent basis for each of the years in the three-year period ended December
31, 1994.
7
TABLE 1
COMPONENTS OF INCOME PER PRIMARY SHARE
Years Ended December 31 Change from
1994 1993 1992 1994/1993 1993/1992
Interest income $25.49 23.04 22.14 2.45 .90
Interest expense 10.22 8.85 9.22 1.37 (.37)
Net interest income 15.27 14.19 12.92 1.08 1.27
Provision for loan and lease losses .94 .77 .78 .17 (.01)
Net interest income after provision 14.33 13.42 12.14 .91 1.28
Other income 4.27 4.68 4.27 (.41) .41
Other expenses 12.54 12.85 11.56 (.31) 1.29
Income before income taxes and cumulative changes in accounting principles 6.06 5.25 4.85 .81 .40
Income taxes 2.00 1.75 1.55 .25 .20
Income before cumulative changes in accounting principles 4.06 3.50 3.30 .56 .20
Cumulative changes in accounting principles (1) -- (.17) -- .17 (.17)
Net income $ 4.06 3.33 3.30 .73 .03
(1) The cumulative changes in accounting principles reflect the 1993 adoption of
Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions", which resulted in a
one-time net charge of $2,271,234 ($3,736,834 pre-tax) in recognition of the
entire Accumulated Postretirement Benefit Obligation and adoption of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", which resulted in a one-time benefit of $900,000.
................................................................................
As shown in Table 2, the Corporation realized net taxable equivalent
interest income of $149,967,000 in 1994. Average earning assets increased
$581,733,000 in 1994 due primarily to a full year's ownership of the
Acquisitions' assets. Net amortization of mark-to-market adjustments for
acquired loans and deposits had a favorable 5 basis point impact on the net
interest margin. Changes in the mix of earning assets toward higher-earning
loans and lease financing in combination with rising interest rates increased
the yields on earning assets 19 basis points in 1994. This increase was offset
by a 23 basis point increase in the rate of interest-bearing liabilities as
liabilities began to reprice in accordance with increases in interest rates.
Consequently, the interest rate spread fell to 4.27% in 1994 from 1993's 4.31%.
The contribution of free liabilities to the net interest margin rose to 60 basis
points in 1994 from 56 basis points in 1993. As a result of the above factors,
the net interest margin remained at 4.87% for 1994. The overall increase in net
interest income of $28,449,000 was due to net increases in volume of $28,254,000
and net increases in rate of $195,000.
In 1993 the average earning asset base was expanded by $492,370,000 to
$2,496,290,000, a 24.6% increase over 1992's level due primarily to the
Acquisitions. Declines in the interest spreads in 1993 and the effect of the
Acquisitions, whose interest spreads and margins were less than the
Corporation's, resulted in the net interest margin falling to 4.87% from 1992's
5.16%. Net amortization of mark-to-market adjustments for acquired loans and
deposits had a favorable 7 basis point impact on the net interest margin. Yields
on earning assets fell 86 basis points in 1993 which was not entirely offset by
the 68 basis point decrease in the cost of interest-bearing liabilities.
Consequently, the interest rate spread fell to 4.31% in 1993 from 1992's 4.49%.
The contribution of free liabilities fell to 56 basis points in 1993 from 67
basis points in 1992 due primarily to the Acquisitions not having a significant
amount of noninterest-bearing deposits.
Growth in the average earning asset base in the two previous years has
primarily occurred in the loans and lease financing and investment securities
portfolios. Average loans and lease financing increased by $484,732,000 or 26.9%
in 1994 and $314,713,000 or 21.1% in 1993, primarily as a result of the
Acquisitions. Average investment securities increased by $82,635,000 or 15.3% in
1994 and $163,912,000 or 43.5% in 1993. In 1994, the mix in earning assets
shifted slightly due to increased loan demand with loans and lease financing
comprising 74.4% of average earning assets versus 72.2% in 1993. Other than the
1993 Acquisitions, expansion of the earning asset base during the periods
presented has been funded primarily with increases in the deposit base and the
proceeds from the 1993 sale of the Corporation's common stock in a public
offering. Substantially all deposits originate within the Subsidiary Banks'
market areas. Average total deposits increased by approximately $475,083,000 or
20.1% in 1994, while in 1993 the increase was $446,089,000 or 23.3% due
primarily to the Acquisitions.
8
TABLE 2
AVERAGE BALANCES AND NET INTEREST INCOME ANALYSIS
(Taxable Equivalent Basis -- In Thousands) (1)
Years Ended December 31
1994 1993 1992
INTEREST AVERAGE INTEREST AVERAGE INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE
EARNING ASSETS:
Loans and lease financing (2) $2,289,388 199,346 8.71% 1,804,656 155,689 8.63 1,489,943 138,929
U.S. Treasury and U.S. Government
agencies and corporations 540,997 32,875 6.08 459,713 27,400 5.96 307,280 23,090
States and political subdivisions 53,318 5,549 10.41 43,965 5,235 11.91 45,959 5,574
Equity and other securities 29,340 1,966 6.70 37,342 2,344 6.28 23,869 1,625
Federal funds sold and other
short-term investments 136,326 5,778 4.24 132,722 4,135 3.12 136,869 4,906
Time deposits in other banks 28,654 1,428 4.98 17,892 536 3.00 -- --
Total earning assets 3,078,023 246,942 8.02% 2,496,290 195,339 7.83 2,003,920 174,124
NON-EARNING ASSETS:
Cash and due from banks 143,662 132,500 116,591
Premises and equipment 42,608 40,185 35,106
All other assets, net 46,492 25,998 23,835
Total assets $3,310,785 2,694,973 2,179,452
INTEREST-BEARING LIABILITIES:
Savings and time deposits $2,442,150 89,045 3.65% 2,012,108 69,939 3.48 1,613,716 67,232
Federal funds purchased and
securities sold under agreements
to repurchase 36,756 1,136 3.09 29,016 564 1.94 26,525 654
Other short-term borrowed funds 27,667 1,251 4.52 21,116 668 3.16 15,451 483
Long-term debt 77,043 5,543 7.19 36,681 2,650 7.22 27,735 2,268
Total interest-bearing
liabilities 2,583,616 96,975 3.75% 2,098,921 73,821 3.52 1,683,427 70,637
OTHER LIABILITIES AND
SHAREHOLDERS' EQUITY:
Demand deposits 391,384 346,343 298,646
Other liabilities 77,612 40,037 20,510
Shareholders' equity 258,173 209,672 176,869
Total liabilities
and shareholders' equity $3,310,785 2,694,973 2,179,452
NET INTEREST INCOME AND NET
INTEREST MARGIN (3) $149,967 4.87% 121,518 4.87 103,487
INTEREST RATE SPREAD (4) 4.27% 4.31
AVERAGE
YIELD/
RATE
EARNING ASSETS:
Loans and lease financing (2) 9.32
U.S. Treasury and U.S. Government
agencies and corporations 7.51
States and political subdivisions 12.13
Equity and other securities 6.81
Federal funds sold and other
short-term investments 3.58
Time deposits in other banks --
Total earning assets 8.69
NON-EARNING ASSETS:
Cash and due from banks
Premises and equipment
All other assets, net
Total assets
INTEREST-BEARING LIABILITIES:
Savings and time deposits 4.17
Federal funds purchased and
securities sold under agreements
to repurchase 2.47
Other short-term borrowed funds 3.13
Long-term debt 8.18
Total interest-bearing
liabilities 4.20
OTHER LIABILITIES AND
SHAREHOLDERS' EQUITY:
Demand deposits
Other liabilities
Shareholders' equity
Total liabilities
and shareholders' equity
NET INTEREST INCOME AND NET
INTEREST MARGIN (3) 5.16
INTEREST RATE SPREAD (4) 4.49
(1) The taxable equivalent basis is computed using 35% federal and 7.83% state
tax rates in 1994, 35% federal and 7.91% state tax rates in 1993 and 34%
federal and 7.98% state tax rates in 1992 where applicable.
(2) The average loan and lease financing balances include nonaccruing loans and
lease financing. Loan fees of $7,104,000, $8,109,000 and $6,316,000 for
1994, 1993, and 1992, respectively, are included in interest income.
(3) Net interest margin is computed by dividing net interest income by total
earning assets.
(4) Interest rate spread equals the earning asset yield minus the
interest-bearing liability rate.
9
TABLE 3
VOLUME AND RATE VARIANCE ANALYSIS
(Taxable Equivalent Basis -- In Thousands) (1)
Years Ended December 31
1994 1993
VOLUME RATE TOTAL VOLUME RATE
VARIANCE (2) VARIANCE (2) VARIANCE VARIANCE (2) VARIANCE (2)
INTEREST INCOME:
Loans and lease financing $ 42,201 1,456 43,657 27,635 (10,875)
U.S. Treasury and U.S. Government agencies and
corporations 4,915 560 5,475 9,771 (5,461)
States and political subdivisions 8 306 314 (16) (323)
Equity and other securities (534) 156 (378) 861 (142)
Federal funds sold and short-term investments 116 1,527 1,643 (147) (624)
Time deposits in other banks 425 467 892 536 --
Total interest income 47,131 4,472 51,603 38,640 (17,425)
INTEREST EXPENSE:
Savings and time deposits 15,551 3,555 19,106 14,954 (12,247)
Federal funds purchased and securities sold
under agreements to repurchase 178 394 572 58 (148)
Other short-term borrowed funds 244 339 583 180 5
Long-term debt 2,904 (11) 2,893 671 (289)
Total interest expense 18,877 4,277 23,154 15,863 (12,679)
INCREASE (DECREASE) IN NET INTEREST INCOME $ 28,254 195 28,449 22,777 (4,746)
TOTAL
VARIANCE
INTEREST INCOME:
Loans and lease financing 16,760
U.S. Treasury and U.S. Government agencies and
corporations 4,310
States and political subdivisions (339)
Equity and other securities 719
Federal funds sold and short-term investments (771)
Time deposits in other banks 536
Total interest income 21,215
INTEREST EXPENSE:
Savings and time deposits 2,707
Federal funds purchased and securities sold
under agreements to repurchase (90)
Other short-term borrowed funds 185
Long-term debt 382
Total interest expense 3,184
INCREASE (DECREASE) IN NET INTEREST INCOME 18,031
(1) The taxable equivalent basis is computed using 35% federal and 7.83% state
tax rates in 1994, 35% federal and 7.91% state tax rates in 1993 and 34%
federal and 7.98% state tax rates in 1992 where applicable.
(2) The rate/volume variance for each category has been allocated on a
consistent basis between rate and volume variances based on the percentage
of the rate or volume variance to the sum of the absolute value of the two
variances.
................................................................................
TABLE 4
AVERAGE TOTAL DEPOSITS
(In Thousands)
Years Ended December 31
1994 1993 1992
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
SAVINGS AND TIME DEPOSITS:
Savings and NOW accounts $ 407,115 2.23% 358,932 2.12 310,889 2.87
Money market accounts 836,193 3.15 666,261 2.69 547,768 3.46
Time 1,198,842 4.47 986,915 4.50 755,059 5.22
Total savings and time deposits 2,442,150 3.65% 2,012,108 3.48 1,613,716 4.17
DEMAND DEPOSITS 391,384 346,343 298,646
Total deposits $2,833,534 2,358,451 1,912,362
................................................................................
10
OTHER INCOME AND OTHER EXPENSES
Other income consists primarily of service charges on deposit accounts,
trust and custodian fees, insurance commissions, fees and service charges for
various other banking services and accretion of negative goodwill resulting from
the Acquisitions. Increases in other income were experienced in 1994 in
virtually all categories but other operating income and net securities gains.
These increases were due in part to increases in the asset and customer bases
from the Acquisitions. Other income, excluding net securities gains, totaled
$40,107,000 for the year ended 1994, a $3,699,000 increase over 1993. Other
income, excluding net securities gains, totaled $36,408,000 in 1993 and
$30,630,000 in 1992. The five-year compound growth rate for other income was
7.8% at December 31, 1994.
As in prior years, service charges on deposit accounts was the largest
source of other income. These service charges amounted to $19,307,000 in 1994, a
6.0% increase over 1993. Fees and service charges are evaluated periodically to
reflect the costs of providing the services and to consider competitive factors.
Trust and custodian fees rose to $6,852,000 from $6,433,000 in 1993 due to
increased revenues from personal and employee benefit trust services. Trust and
custodian fees totaled $5,862,000 in 1992. Managed assets totaled $1.1 billion
at December 31, 1994.
During 1993, the Corporation began emphasizing the selling of annuity
products through CCB's subsidiary, CCBIISC. Consequently, insurance commissions
rose from $1,642,000 in 1992 to $2,242,000 in 1993 to $2,534,000 in 1994. A new
proprietary mutual fund, the 111 Corcoran Equity Fund, was launched in late 1994
and is being sold by CCBIISC. In 1995, CCBIISC will begin to offer full
brokerage services to customers which will provide another source of noninterest
revenue.
Negative goodwill (the excess of net assets acquired over costs) totaling
$33,552,000 was recorded in the Acquisitions and is being accreted to income
over a ten-year period on a straight-line basis. Accretion of negative goodwill
from the Acquisitions totaled $3,351,000 in 1994, a $2,155,000 increase over
1993.
Other operating income decreased from 1993's level due primarily to
decreases in gains on sales of mortgage loans.
Securities gains, net of losses, of $427,000, $2,652,000 and $2,065,000
were realized in 1994, 1993 and 1992, respectively. After the related income tax
effects, respective net gains amounted to $256,000, $1,588,000 and $1,254,000.
The net securities gains in 1994 were realized primarily through the sales of
U.S. Treasury securities and equity securities with amortized costs of
$81,379,000 and $35,310,000, respectively. The securities sold were included in
the available for sale portfolio. Approximately $1,833,000 of the securities
gains in 1993 were realized through the sales of U.S. Treasury securities with
book values of $39,254,000. Another $116,000 of the 1993 net gains on sales of
investment securities were due to the sales of investment securities, with book
values of $53,322,000, acquired through the Acquisitions that did not fit into
the Corporation's investment securities strategy. The net gains of $2,065,000 in
1992 were realized through the sales of approximately $22,000,000 in higher
coupon Government National Mortgage Association securities. The mortgages
underlying these securities had higher interest rates than those available in
the market, and thus were prepaying at an accelerated rate and at their par
value. In recognition of these conditions, management felt that it was prudent
to sell these securities and recognize the gains before further erosion in value
occurred.
Table 5 presents various operating efficiency ratios for the Corporation
for the prior five years. Noninterest income as a percentage of average assets
in 1994 and 1993 are lower than 1992's level as a result of the rise in average
assets not equating to a proportionate increase in noninterest income. The
noninterest income ratio for 1994 dropped from 1993's level primarily as a
result of the decreases in gains on sales of investment securities and sales of
mortgage loans.
Other expenses in 1994 increased by $13,315,000 or 12.6% over 1993. This
increase was due primarily to a full year of operating expenses for the
Acquisitions' operations. Other expenses in 1993 increased by $17,036,000 or
19.2%, while in 1992 the increase was a more modest 3.6%. The 1993 increase was
primarily due to expenses related to the Acquisitions such as system conversion
and training costs, revamping offices, marketing and other costs to complete the
Acquisitions and amortization of goodwill related to the Acquisitions.
11
TABLE 5
OPERATING EFFICIENCY RATIOS
Years Ended December 31
1994 1993 1992 1991 1990
As a percentage of average assets:
Noninterest income 1.22% 1.45 1.50 1.58 1.49
Personnel expense 1.77 1.98 2.11 2.18 2.01
Occupancy and equipment expense .53 .62 .72 .77 .78
Other operating expense 1.30 1.32 1.23 1.20 1.19
Total noninterest expense 3.60 3.92 4.06 4.15 3.98
Net overhead (noninterest expense less noninterest income) 2.38% 2.47 2.56 2.57 2.49
Noninterest expense as a percentage of net interest income and other income (1) 62.43% 65.77 65.04 66.71 65.93
Average assets per employee (in millions) $ 2.13 1.71 1.56 1.55 1.40
(1) Presented using taxable equivalent net interest income. The taxable
equivalent basis is computed using 35% federal and 7.83% state tax rates in
1994, 35% federal and 7.91% state tax rates in 1993, 34% federal and 7.98%
state tax rates in 1992, 34% federal and 8.06% state tax rates in 1991 and
34% federal and 7% state tax rates in 1990 where applicable.
................................................................................
Personnel expense comprised 49.3% of all other expenses during 1994
compared to 50.6% in 1993 and 52.1% in 1992. Net occupancy and equipment expense
remained relatively stable in absolute dollars from 1993 to 1994 but decreased
significantly as a percent of total other expenses, 14.7% for 1994, 15.8% for
1993 and 17.7% for 1992. Other operating expense increased $7,319,000 in 1994
due in part to increased legal and professional fees of $1,380,000, primarily
from data processing conversions; increased amortization of goodwill from
Acquisitions and other intangible assets of $1,001,000; increased deposit and
other insurance expense of $1,334,000; and, write-downs of real estate acquired
through foreclosure of $1,000,000. As reported in Table 5, total noninterest
expense as a percentage of average assets continued to show favorable
improvement to 3.60% for 1994 from a high of 4.15% in 1991. The Corporation's
efficiency ratio, noninterest expense as a percentage of net interest income and
other income, has improved over the past four years from 66.71% in 1991 to
62.43% in 1994. Management will continue to closely monitor this ratio and
anticipates continuing improvement as cost-containment programs implemented in
1993 continue to show positive results.
INCOME TAXES
Income tax expense was $18,967,000 in 1994, $14,640,000 in 1993 and
$11,915,000 in 1992. The Corporation's effective income tax rate was 33.0%,
33.4% and 32.0% in 1994, 1993 and 1992, respectively. The effective income tax
rate for 1994 is lower than the 1994 combined statutory federal and state tax
rate of 40.1% due to income earned on tax-exempt investments and loans. Deferred
tax assets of $20,968,000 and deferred tax liabilities of $8,900,000 are
recorded on the Consolidated Balance Sheet as of December 31, 1994. The
Corporation has determined that a valuation allowance for the deferred tax
assets is not needed at December 31, 1994.
CUMULATIVE CHANGES IN ACCOUNTING PRINCIPLES
During 1993, the Corporation adopted two accounting standards, Statement of
Financial Accounting Standards ("SFAS") No. 106 and SFAS No. 109, whose impacts
on the financial position and results of operations of the Corporation were
properly recorded as cumulative changes in accounting principles. Upon the
adoption of SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions", the Corporation recorded a one-time charge of $2,271,234
($3,736,834 pre-tax) in recognition of the entire accumulated postretirement
benefit obligation. The Corporation also adopted SFAS No. 109, "Accounting for
Income Taxes", and recorded a favorable one-time benefit of $900,000.
QUARTERLY INCOME STATEMENTS
Income statements for each of the quarters in the five-quarter period ended
December 31, 1994 are included in Table 6. Net interest income increased
steadily during the 1994 periods presented as average earning assets climbed
from $2,992,864,000 for the quarter ended December 31, 1993 to $3,236,019,000
for the quarter ended December 31, 1994. The efficiency ratio for the five
quarters improved from 64.62% for the quarter ended December 31, 1993 to 61.93%
for the last quarter of 1994.
12
TABLE 6
INCOME STATEMENTS FOR FIVE QUARTERS
ENDED DECEMBER 31, 1994
(In Thousands Except Per Share Data)
Three Months Ended
12/31/94 9/30/94 6/30/94 3/31/94 12/31/93
Total interest income $67,080 62,260 58,522 53,869 54,649
Total interest expense 28,528 24,847 22,410 21,190 21,034
Net interest income 38,552 37,413 36,112 32,679 33,615
Provision for loan and lease losses 3,120 2,325 2,223 1,252 1,918
Net interest income after provision 35,432 35,088 33,889 31,427 31,697
Service charges on deposits 5,016 4,820 4,820 4,651 4,970
Trust income 1,856 1,372 1,812 1,812 1,894
Insurance commissions 481 573 687 793 747
Accretion of negative goodwill 825 826 847 853 809
Other 1,978 2,082 1,816 2,187 2,439
Securities gains, net 382 -- 1 44 2,403
Total other income 10,538 9,673 9,983 10,340 13,262
Personnel expense 14,645 14,856 14,384 14,714 14,754
Occupancy and equipment 4,240 4,375 4,246 4,585 4,580
Deposit and other insurance 1,761 1,732 1,731 1,672 1,843
Amortization of intangible assets 643 643 643 643 643
Other 10,028 7,769 8,119 7,496 9,343
Total other expenses 31,317 29,375 29,123 29,110 31,163
Income before income taxes 14,653 15,386 14,749 12,657 13,796
Income taxes 4,516 5,238 5,002 4,211 4,545
Net income $10,137 10,148 9,747 8,446 9,251
Net income per share $ 1.08 1.07 1.02 .89 1.03
................................................................................
FINANCIAL POSITION
At the end of 1994, assets totaled $3,548,186,000, a 8.9% increase over
year-end 1993. Average assets for 1994 were $3,310,785,000 versus $2,694,973,000
in 1993. The five-year compound growth rate for period-end and average assets
was 12.3%. This growth rate was enhanced by the assets acquired through the
Acquisitions of approximately $778 million.
Table 7 shows the year-end breakdown of the major categories of the loans
and lease financing portfolio for the previous five years based upon regulatory
classifications. While outstanding loans and lease financing increased
$349,022,000 over 1993's total, the loan mix at year-end 1994 is generally
consistent with the loan mix at December 31, 1993 as growth was experienced in
all categories. All of the 1994 loan growth was internally generated versus the
$638,353,000 loan growth in 1993 of which $462,330,00 was due to the
Acquisitions. Substantially all loans are made on a secured basis with the
exception of credit card receivables and, with the exception of marketable
mortgage loans, are originated for retention in the Subsidiary Banks'
portfolios. In general, the Subsidiary Banks do not purchase loans or
participate with others in the origination of loans and confine their lending
activities to North Carolina except for credit card receivables which are
offered on a nationwide basis. Lending officers of the Subsidiary Banks
generally consider the cash flow or earnings power of the borrower as the
primary source of repayment and determine on a case-by-case or
product-by-product basis whether to obtain collateral to provide an additional
degree of security. Furthermore, the Subsidiary Banks try to maintain a balance
between commercial and consumer types of lending. The Subsidiary Banks do not
engage in highly leveraged transactions or foreign lending activities. There
were no concentrations of loans exceeding 10% of total loans other than those
categories in Table 7.
13
TABLE 7
LOANS AND LEASE FINANCING
(In Thousands)
As of December 31
1994 1993 1992 1991 1990
Commercial, financial and agricultural $ 450,298 386,204 321,488 343,418 279,617
Real estate -- construction 341,965 220,395 170,641 166,372 173,523
Real estate -- mortgage 1,262,194 1,153,503 682,445 609,816 607,435
Instalment loans to individuals 233,823 201,984 163,996 181,146 190,432
Credit card receivables 190,881 175,485 161,873 119,262 100,960
Lease financing 33,433 25,062 24,241 29,767 33,544
Total gross loans and lease financing 2,512,594 2,162,633 1,524,684 1,449,781 1,385,511
Less: unearned income 4,083 3,144 3,548 4,906 6,221
Total loans and lease financing $2,508,511 2,159,489 1,521,136 1,444,875 1,379,290
................................................................................
Loans in the commercial, financial and agricultural category consist
primarily of short-term and/or floating rate commercial loans made to
medium-sized companies. There is no substantial loan concentration in any one
industry. Real estate-construction loans are primarily made to commercial
developers and residential contractors on a floating rate basis. Cash flow
analyses for each project are analyzed with additional reliance upon collateral
values. Management expects moderate to strong growth in these categories during
1995 as the economy continues to strengthen. See Table 8 for a schedule of
maturities and sensitivities of these loan types to changes in interest rates.
Real estate-mortgage loans consist primarily of loans secured by first or
second deeds of trust on primary residences (67% of total real estate-mortgage
loans). It is the Subsidiary Banks' general policy to primarily retain
adjustable rate first mortgage loans within the portfolio. The remaining portion
(33%) of real estate-mortgage loans are primarily for commercial purposes and
often include the commercial borrower's real property in addition to other
collateral. Management anticipates moderate growth in this category despite the
higher interest rate environment expected for 1995 due to the economic
conditions of the Subsidiary Banks' markets.
Instalment loans to individuals consist primarily of loans secured by
automobiles and other consumer personal property. Lending officers consider the
customer's debt obligations, ability and willingness to repay and general
economic trends in their decision to extend credit. In 1993, the Corporation
emphasized an alliance with a major automobile insurance company and increased
the amount of automobile loans through referrals from the insurance company.
Consequently, outstanding instalment loans increased 23.2% in 1993 over 1992's
level of $163,996,000 and increased to $233,823,000 at year-end 1994.
Credit card receivables have increased steadily during the periods
presented. Products offered within this category include revolving lines of
credit, overdraft protection and traditional credit card services. The
nationwide introduction of a new credit card product in 1993 that has interest
rates lower than many competitors' rates contributed to the increase in credit
card balances outstanding. Management expects continued growth in this line of
business during 1995.
The net leasing portfolio increased 33.4% in 1994 to $33,433,000 due to
restructuring of the leasing department and an emphasis on attracting new
leasing customers. The leasing portfolio is not concentrated in any one line of
business or type of equipment.
14
TABLE 8
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES
IN INTEREST RATES
(In Thousands)
As of December 31, 1994
COMMERCIAL,
FINANCIAL AND REAL ESTATE --
AGRICULTURAL CONSTRUCTION
Due in one year or less $ 188,187 267,040
Due after one year through five years:
Fixed interest rates 108,917 23,364
Floating interest rates 72,014 24,282
Due after five years:
Fixed interest rates 50,564 12,756
Floating interest rates 30,616 14,523
Total $ 450,298 341,965
TOTAL
Due in one year or less 455,227
Due after one year through five years:
Fixed interest rates 132,281
Floating interest rates 96,296
Due after five years:
Fixed interest rates 63,320
Floating interest rates 45,139
Total 792,263
................................................................................
Investment securities decreased 4.1% to $592,118,000 at December 31, 1994
as a result of the previously discussed shift in the earning asset mix toward
higher-earning loans and lease financing. The largest decreases were experienced
in equity securities due to the first quarter 1994 decision to liquidate the
majority of investments in mutual funds (with a resulting loss of $374,000) and
in obligations of U.S. Government agencies and corporations due to significant
maturities and prepayments. Proceeds from these sales, maturities and
prepayments were reinvested in the loan and lease financing portfolio and in
U.S. Treasury securities and obligations of states and political subdivisions,
both of whose income is partially tax-exempt.
Effective January 1, 1994, the Corporation adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". Under this
SFAS, debt and equity securities that have readily determinable fair values are
segregated into three categories for accounting and reporting purposes. Debt and
equity securities that the Corporation has the positive intent and ability to
hold until maturity are classified as held for investment and are reported at
amortized cost. Securities held for investment totaled $82,673,000 or 14.0% of
the total investment securities portfolio at December 31, 1994. Debt and equity
securities that are bought and held principally for the purpose of selling them
in the near term are classified as trading securities and reported at fair
value, with unrealized gains and losses included in earnings. The Corporation
had no trading securities at December 31, 1994 or at any time during 1994. Debt
and equity securities not classified as either held for investment or as trading
securities are classified as available for sale securities and reported at fair
value, with unrealized gains and losses excluded from earnings and reported in a
separate component of shareholders' equity, net of taxes. At December 31, 1994,
securities available for sale totaled $509,445,000 or 86.0% of the total
investment securities portfolio. As SFAS No. 115 cannot be retroactively applied
to prior years' financial statements, there are no changes in previously
recognized unrealized losses on marketable equity securities. Upon adoption of
SFAS No. 115 on January 1, 1994, the Corporation recorded a mark-to-market
adjustment of $9,895,000. Due to changes in the market during 1994, the mark-to-
market for available for sale securities totaled $(19,958,000) at December 31,
1994 and resulted in $12,272,000 being deducted from total shareholders' equity
after applying applicable taxes. The Corporation does not currently anticipate
selling a significant amount of the securities available for sale in the near
future. SFAS No. 115 will cause future fluctuations in shareholders' equity
based on changes in the market values of debt and equity securities classified
as available for sale.
Average deposits rose in 1994 to $2,833,534,000 from $2,358,451,000 in
1993. The largest increases were experienced in money market accounts,
$169,932,000, and retail time deposits, $167,544,000. As a percentage of average
total deposits, interest-bearing deposits were 86.2% in 1994 versus 85.3% in
1993. While demand deposits as a percentage of average total deposits fell to
13.8%, on average they grew $45,041,000 in 1994.
The Corporation's ratio of long-term debt to shareholders' equity decreased
slightly and stood at 30.6% at December 31, 1994 compared to 31.4% and 14.6% at
December 31, 1993 and 1992, respectively. The ratio's increase from 1992 to 1993
was due to the Corporation's 1993 call of its 8.75% convertible subordinated
debentures and its subsequent issuance of $40,000,000 of 6.75% subordinated
notes.
15
TABLE 9
INVESTMENT SECURITIES PORTFOLIO
(In Thousands)
As of December 31
1994 1993 1992
AMORTIZED CARRYING CARRYING MARKET CARRYING MARKET
COST VALUE VALUE VALUE VALUE VALUE
SECURITIES AVAILABLE FOR SALE
U.S. Treasury $325,470 313,094 266,465 275,346 -- --
U.S. Government agencies and corporations 193,932 188,159 242,353 243,368 -- --
Equity securities 10,000 8,192 44,474 44,474 -- --
Total securities available for sale $529,402 509,445 553,292 563,188 -- --
WEIGHTED
AVERAGE
CARRYING YIELD
VALUE (1)
Maturity and Yield Schedule as of December 31, 1994
U.S. Treasury:
Within 1 year $ 38,725 5.71%
After 1 but within 5 years 217,475 6.06
After 5 but within 10 years 56,894 6.61
Total U.S. Treasury 313,094 6.12
U.S. Government agencies and corporations:
Within 1 year 47,967 6.52
After 1 but within 5 years 84,362 5.96
After 5 but within 10 years 37,248 7.23
After 10 years (2) 18,582 9.70
Total U.S. Government agencies and corporations 188,159 6.71
Equity securities 8,192 8.72
Total securities available for sale $509,445 6.39%
................................................................................
As of December 31
1994 1993 1992
CARRYING MARKET CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE VALUE VALUE
SECURITIES HELD FOR INVESTMENT
U.S. Treasury $ -- -- -- -- 264,350 273,389
U.S. Government agencies and corporations -- -- -- -- 124,484 125,382
States and political subdivisions 67,912 67,626 50,341 54,768 43,602 47,816
Other securities 14,761 14,732 13,785 13,785 15,902 15,902
Total securities held for investment $82,673 82,358 64,126 68,553 448,338 462,489
WEIGHTED
AVERAGE
CARRYING YIELD
VALUE (1)
Maturity and Yield Schedule as of December 31, 1994
States and political subdivisions:
Within 1 year $ 4,020 12.77%
After 1 but within 5 years 4,648 8.17
After 5 but within 10 years 20,150 8.88
After 10 years 39,094 7.76
Total states and political subdivisions 67,912 8.42
Other securities 14,761 7.42
Total securities held for investment $82,673 8.24%
(1) The weighted average yield is computed on a taxable equivalent basis using
35% federal and 7.83% state tax rates where applicable.
(2) The amount shown consists primarily of Government National Mortgage
Association securities which have monthly curtailments of principal even
though the final maturity of each security is in excess of 10 years.
16
CAPITAL RESOURCES
The Corporation's capital position has historically been strong as
evidenced by the Corporation's ratio of average shareholders' equity to average
total assets of 7.80%, 7.78% and 8.12% for 1994, 1993 and 1992, respectively.
Further, Table 10 shows that the Corporation and its Subsidiary Banks
significantly exceed the risk-based capital requirements at December 31, 1994:
TABLE 10
CAPITAL RATIOS
As of December 31
REGULATORY
RATIO 1994 1993 MINIMUM
Tier I Capital: 4.00%
Corporation 8.85 % 9.93
CCB 8.48 9.12
Graham Savings 37.70 34.16
CCB Savings 21.60 17.87
CCB-Ga. 23.05 30.42
Total Capital: 8.00
Corporation 11.47 12.86
CCB 10.37 11.21
Graham Savings 39.40 35.90
CCB Savings 23.49 19.67
CCB-Ga. 23.70 31.26
Leverage: 4.00
Corporation 6.97 8.50
CCB 6.84 7.47
Graham Savings 18.53 16.64
CCB Savings 10.21 8.59
CCB-Ga. 36.14 35.35
................................................................................
The Subsidiary Banks also have the highest rating in regards to the FDIC
insurance assessment and, accordingly, pay the lowest deposit insurance premium
at $.23 per $100 of deposits.
The Corporation's primary source of additional equity capital has
historically been the retention of earnings which added $26,054,000, $17,467,000
and $16,541,000 to capital in 1994, 1993 and 1992, respectively. However, during
1993, issuances of common stock, net of repurchases, totaling $43,565,000, were
the primary source of additional equity capital. The common stock proceeds were
derived from the conversion of convertible subordinated debentures and issuances
for the Acquisitions, for restricted stock plans and for a public offering.
Table 11 presents the rate of internal capital growth for the Corporation for
each of the five previous years. This growth rate increased to 10.09% in 1994
from 1993's 8.98%.
TABLE 11
RATE OF INTERNAL CAPITAL GROWTH
Years Ended December 31
1994 1993 (1) 1992 1991 1990
Average assets to average equity
x 12.82 X 12.85 12.32 12.81 13.62
Return on average assets
= 1.16 % 1.08 1.16 1.04 1.03
Return on average shareholders' equity
x 14.90 % 13.94 14.32 13.32 14.00
Earnings retained
= 67.71 % 64.46 65.37 62.77 63.45
Rate of internal capital growth 10.09 % 8.98 9.36 8.36 8.88
(1) Excludes the impact of cumulative changes in accounting principles from the
adoption of SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" and SFAS No. 109, "Accounting for Income Taxes".
17
The Corporation's common stock is traded on The Nasdaq Stock Market under
the symbol CCBF. At December 31, 1994, there were 4,039 shareholders of record
of the Corporation's common stock.
In connection with the proposed merger discussed in "Pending Merger" below,
the Corporation has repurchased and subsequently retired 407,905 shares of its
outstanding common stock at an aggregate purchase price of $15,530,000. The
shares were repurchased through open market transactions.
TABLE 12
STOCK PRICES AND DIVIDENDS
Cash
Prices Dividends
High Low Close Declared
1994
FIRST QUARTER $37.50 32.75 35.00 .32
SECOND QUARTER 40.00 33.25 39.75 .32
THIRD QUARTER 44.50 39.25 43.50 .34
FOURTH QUARTER 44.00 32.75 34.75 .34
1993
First Quarter 41.00 36.00 38.75 .30
Second Quarter 42.50 34.50 36.25 .30
Third Quarter 37.75 35.50 37.25 .32
Fourth Quarter 37.25 32.50 33.25 .32
................................................................................
Dividends have been increased during each of the three previous years from
$1.14 per share in 1992 to $1.24 in 1993 to $1.32 in 1994 and continues the
Corporation's thirty-year trend of annual dividend increases. The dividend
payout ratio equals 32.51%, 37.24% and 34.55% for the years ended 1994, 1993 and
1992, respectively. The Corporation's dividend guideline is to pay approximately
30 to 40% of net income in dividends. Management feels that this policy provides
a reasonable cash return to shareholders and at the same time maintains
sufficient equity to support future growth and expansion.
Capital expenditures for new and improved facilities as well as furniture
and equipment amounted to approximately $6,446,000 in 1994, $6,918,000 in 1993
and $4,860,000 in 1992. There were no significant capital resource commitments
at December 31, 1994 other than the operating lease commitments specified in
Note 14 to the Consolidated Financial Statements.
ASSET QUALITY
Significant improvement was realized in the level of total risk assets at
December 31, 1994 compared to 1993 and in loss experience for the year then
ended. Nonperforming assets (nonaccrual loans and lease financing, other real
estate acquired through loan foreclosure and restructured loans and lease
financing) and risk assets (nonperforming assets plus accruing loans and lease
financing 90 days or more past due) at the end of each of the previous five
years are presented in Table 13. At December 31, 1994, risk assets amounted to
$13,983,000 which is $9,269,000 lower than 1993's level of $23,252,000. Risk
assets to total assets were .39%, .71% and 1.01% at December 31, 1994, 1993 and
1992, respectively. The reserve for loan and lease losses to total risk assets
is 2.24 times at December 31, 1994 compared to 1.16 times and .82 times at
December 31, 1993 and 1992, respectively. Real estate acquired through loan
foreclosures decreased to $3,411,000 at December 31, 1993 from $8,033,000 at
December 31, 1992. Of this $4,622,000 net decrease, sales of the foreclosed
properties totaled approximately $4,484,000. No material losses from the
remaining foreclosures are anticipated at present. In the opinion of management,
all loans and lease financing, where serious doubts exist as to the ability of
borrowers to comply with the present repayment terms, are included in Table 13.
18
TABLE 13
NONPERFORMING AND RISK ASSETS
(In Thousands)
As of December 31
1994 1993 1992 1991 1990
Nonaccrual loans and lease financing (1) $ 9,061 12,975 11,059 17,639 13,507
Other real estate acquired through loan foreclosures 3,411 8,033 9,296 9,904 5,666
Restructured loans and lease financing -- -- 86 143 --
Total nonperforming assets 12,472 21,008 20,441 27,686 19,173
Accruing loans and lease financing 90 days or more past due 1,511 2,244 2,871 4,216 10,323
Total risk assets $13,983 23,252 23,312 31,902 29,496
Ratio of nonperforming assets to:
Loans and lease financing outstanding and other real estate acquired through
loan foreclosures .50% .97 1.34 1.90 1.38
Total assets .35 .64 .88 1.28 .91
Ratio of total risk assets to:
Loans and lease financing outstanding and other real estate acquired through
loan foreclosures .56 1.07 1.52 2.19 2.13
Total assets .39 .71 1.01 1.48 1.40
Reserve for loan and lease losses to total risk assets 2.24X 1.16 .82 .56 .55
(1) For the year ended December 31, 1994, gross interest income that would have
been recorded during the year on the nonaccrual loans and lease financing
listed above, if the loans and lease financing had been current in
accordance with their original terms, would have amounted to approximately
$586,000. Gross interest income included in net income on these nonaccrual
and restructured loans and lease financing amounted to approximately $26,000
for the year ended December 31, 1994. This amount also includes interest
from prior years collected during 1994.
................................................................................
The Corporation's general policy in regards to placing loans and lease
financing in a nonaccrual status is that business credits are placed in a
nonaccrual status when there are doubts regarding the collectibility of
principal or interest or when payment of principal or interest is ninety days or
more past due (unless management determines that the collectibility is not
reasonably considered in doubt).
Table 14 presents a summary of loss experience and the reserve for loan and
lease losses for the previous five years. Loss experience, as measured by net
charge-offs to average loans and lease financing outstanding, has shown
significant improvement during the past two years. This ratio decreased in 1994
to .20% from .24% in 1993 and compares to .32% in 1992. Net charge-offs in the
five-year period ended 1994 occurred primarily in instalment loans to
individuals and in credit card receivables. The out-of-market credit risk from
credit card receivables, which are offered on a nationwide basis, is considered
in the Corporation's review of the adequacy of the reserve for loan and lease
losses.
Provisions for loan and lease losses amounted to $8,920,000, $6,453,000 and
$5,983,000 in 1994, 1993 and 1992, respectively. The provision for loan and
lease losses increased significantly in 1994 due to the $349,000,000 increase in
the loan and lease financing portfolio from year-end 1993. The loan and lease
portfolio increased $638,353,000 in 1993 primarily due to the Acquisitions with
$5,772,000 of reserves recorded through those Acquisitions. Consequently, 1993's
provision increased only $470,000 or 7.9%. As noted in Table 13, the ratio of
the reserve for loan and lease losses to total risk assets has improved
significantly during the periods presented as a result of the Corporation's
credit risk management policies and general improvements in the economy.
However, due to management's historical experience with credit risk cycles, the
Corporation has chosen to keep the reserve for loan and lease losses at a
targeted level of 1.25%. An allocation of the reserve for loan and lease losses
as of the end of the previous five years is presented in Table 15.
In addition to the nonperforming and risk assets disclosed in Table 13,
management believes that an estimated $6,000,000 to $7,000,000 of additional
problem loans may exist, depending upon economic conditions generally and the
particular situations of various of its borrowers whose loans are currently
"performing" in accordance with their contractual terms.
Management feels that the reserve for loan and lease losses is adequate to
absorb known and inherent risks in the loans and lease financing portfolio. A
key tool in controlling loan losses is the Corporation's loan grading system
that begins at the
19
inception of the credit relationship. Under this grading system, substantially
all credit relationships greater than $100,000 (excluding residential mortgage
and home equity lines) are assigned grades that direct the timing and intensity
of loan review activity throughout the life of the relationship. All
relationships are reviewed at least annually. Relationships that have the lowest
grade are reviewed each thirty days. Management periodically reviews the
adequacy of the reserve through a model which incorporates the results of credit
reviews, historical loss experience and other factors. Based on this review, the
loan and lease loss reserve is adequate to cover known and inherent losses in
the loan portfolio. The most recent regulatory agency examinations have not
revealed any material problem credits that had not been previously identified;
however, future regulatory examinations may result in the regulatory agencies
requiring additions to the reserve for loan and lease losses based on
information available at the examination date.
TABLE 14
SUMMARY OF LOAN AND LEASE FINANCING LOSS EXPERIENCE AND THE RESERVE FOR LOAN
AND LEASE LOSSES
(In Thousands)
Years Ended December 31
1994 1993 1992 1991 1990
Balance at beginning of year $ 26,963 19,027 17,742 16,234 14,656
Loan and lease losses charged to reserve:
Commercial, financial and agricultural (132) (410) (885) (1,214) (1,117)
Real estate -- construction (567) (412) (255) (552) (99)
Real estate -- mortgage (568) (504) (518) (368) (166)
Instalment loans to individuals (1,648) (1,616) (1,752) (2,695) (2,700)
Credit card receivables (3,121) (2,738) (2,629) (2,132) (1,552)
Lease financing (84) (160) (158) (393) (430)
Total loan and lease losses charged to reserve (6,120) (5,840) (6,197) (7,354) (6,064)
Recoveries of loans and leases previously charged-off:
Commercial, financial and agricultural 108 265 228 214 124
Real estate -- construction 60 59 16 113 --
Real estate -- mortgage 148 87 28 13 22
Instalment loans to individuals 429 486 451 368 382
Credit card receivables 684 596 572 375 438
Lease financing 91 58 204 162 331
Total recoveries of loans and leases previously charged-off 1,520 1,551 1,499 1,245 1,297
Net charge-offs (4,600) (4,289) (4,698) (6,109) (4,767)
Provision charged to operations 8,920 6,453 5,983 7,407 6,345
Reserves related to acquisitions -- 5,772 -- 210 --
Balance at end of year $ 31,283 26,963 19,027 17,742 16,234
Loans and lease financing outstanding at end of year $2,508,511 2,159,489 1,521,136 1,444,875 1,379,290
Ratio of reserve for loan and lease losses to loans and lease
financing outstanding at end of year 1.25% 1.25 1.25 1.23 1.18
Average loans and lease financing $2,289,388 1,804,656 1,489,943 1,408,595 1,331,896
Ratio of net charge-offs of loans and lease financing to average
loans and lease financing .20% .24 .32 .43 .36
................................................................................
20
TABLE 15
ALLOCATION OF THE RESERVE FOR LOAN AND
LEASE LOSSES (1)
(In Thousands)
As of December 31
1994 1993 1992 1991 1990
% OF LOANS % OF LOANS % OF LOANS % OF LOANS % OF LOANS
AMOUNT OF AND LEASES AMOUNT OF AND LEASES AMOUNT OF AND LEASES AMOUNT OF AND LEASES AMOUNT OF AND LEASES
RESERVE IN EACH RESERVE IN EACH RESERVE IN EACH RESERVE IN EACH RESERVE IN EACH
LOAN TYPE ALLOCATED CATEGORY ALLOCATED CATEGORY ALLOCATED CATEGORY ALLOCATED CATEGORY ALLOCATED CATEGORY
Commercial,
financial and
agricultural $ 5,475 18.0% 4,828 17.9 4,019 21.0 4,293 23.8 2,796 20.3
Real estate --
construction 5,005 13.6 4,408 10.2 3,413 11.2 3,327 11.5 3,470 12.6
Real estate --
mortgage 5,944 50.3 5,768 53.3 2,047 44.8 1,829 42.2 1,822 44.0
Instalment
loans to
individuals 3,676 9.3 3,030 9.3 2,460 10.8 2,717 12.5 2,851 13.8
Credit card
receivables 4,229 7.6 3,510 8.1 3,237 10.6 2,385 8.3 2,019 7.3
Lease financing 720 1.2 552 1.2 383 1.6 608 1.7 835 2.0
Unallocated
portion of
reserve 6,234 -- 4,867 -- 3,468 -- 2,583 -- 2,441 --
$31,283 100.0% 26,963 100.0 19,027 100.0 17,742 100.0 16,234 100.0
(1) The allocation of the reserve for loan and lease losses by loan type is
based on management's on-going evaluation of the adequacy of the reserve for
loan and lease losses as referenced above. Since the factors involved in
such evaluation are subject to change, the allocation of the reserve to the
respective loan types is not necessarily indicative of future losses in each
loan type. Additionally, no assurances can be made that the allocation shown
will be indicative of future allocations.
................................................................................
LIQUIDITY AND INTEREST-SENSITIVITY
Liquidity ensures that adequate funds are available to meet deposit
withdrawals, fund loan and capital expenditure commitments, maintain reserve
requirements, pay operating expenses, provide funds for dividends, debt service
and other commitments and operate the organization on an ongoing basis. Funds
are primarily provided by the Bank Subsidiaries through financial resources from
operating activities, expansion of the deposit base, borrowing funds in money
market operations and through the sale or maturity of assets.
Net cash provided by operating activities and deposits from customers have
historically been primary sources of liquidity for the Corporation. Net cash
provided by operating activities amounted to approximately $53,179,000,
$44,318,000 and $52,820,000 in 1994, 1993 and 1992, respectively. Average total
deposits have grown by $475,083,000, $446,089,000 and $107,132,000 during the
three previous years. The majority of the deposit growth was due to the
Acquisitions' which had deposits of $715,112,000 as of their respective
acquisition dates. The full effect of the Acquisitions on the average balances
was not felt until 1994 as the Acquisitions occurred at various dates in 1993.
Average certificates of deposit in denominations of $100,000 or more still
comprise a relatively small percentage of average total deposits, 7.1% in 1994
compared to 1993's 6.6%. These deposits increased on the average $44,383,000
from 1993 to 1994 as they were used to help fund increased loan demand.
Management intentionally keeps the Corporation's reliance on the higher-cost
large certificates of deposit low because of the availability of less expensive
sources of funding and considers them a secondary source of liquidity that can
be obtained as needed.
21
At December 31, 1994, time certificates of deposit in amounts of $100,000
or more were approximately $256,270,000. The following is a remaining maturity
schedule of these deposits (in thousands):
OVER 3 OVER 6
3 MONTHS THROUGH THROUGH
OR LESS 6 MONTHS 12 MONTHS TOTAL
Jumbo deposits $127,994 67,716 60,560 $256,270
................................................................................
The Subsidiary Banks do not rely heavily on borrowing funds in money market
operations such as federal funds purchased or repurchase agreements to provide
liquidity. The Subsidiary Banks have historically been a net seller of federal
funds and only rarely purchase federal funds to meet liquidity requirements.
Correspondent relationships are maintained with several larger banks in order to
have access to federal funds purchases when needed. Also available as liquidity
sources are access to the Federal Reserve discount window and lines of credit
maintained with the Federal Home Loan Bank (the "FHLB"). The Corporation's
average short-term investments net of average short-term borrowings were
$71,903,000, $82,590,000 and $94,893,000 in the years ended December 31, 1994,
1993 and 1992, respectively. Outstanding long-term FHLB advances increased by
$5,404,000 at December 31, 1994 to $26,242,000 compared to $20,838,000 at
December 31, 1993. The FHLB advances were drawn primarily to fund
matched-maturity loans.
Maturities of securities held for investment and sales and maturities of
securities categorized as available for sale are other sources of liquidity.
Securities with carrying values of approximately $90,712,000 mature in 1995. The
available for sale portfolio is comprised of U.S. Treasury securities,
obligations of U.S. Government agencies and corporations and investments in
mutual funds. Securities available for sale will be considered in the
Corporation's asset/liability management strategies and may be sold in response
to changes in interest rates, liquidity needs and/or significant prepayment
risk.
Liquidity at the Parent Company level is provided through cash dividends
from the Subsidiary Banks, the repayment of demand notes payable to the Parent
Company from the Subsidiary Banks and the capacity of the Parent Company to
raise additional funds as needed.
In addition to ensuring adequate liquidity, the Corporation is concerned
with the management of its balance sheet to maintain relatively stable net
interest margins despite changes in the interest rate environment.
Responsibility for both liquidity and interest-sensitivity management rests with
the Corporation's Asset/Liability Management Committee ("ALCO") comprised of
senior management. ALCO reviews the Corporation's interest rate and liquidity
exposures and, based on its view of existing and expected market conditions,
adopts balance sheet strategies that are intended to optimize net interest
income to the extent possible while minimizing the risk associated with
unanticipated changes in interest rates. Determining and monitoring the
appropriate balance between interest-sensitive assets and interest-sensitive
liabilities and the impact on earnings of changes in interest rates is
accomplished through ALCO's use of Gap Analysis and Simulation Analysis.
Gap Analysis measures the interest-sensitivity of assets and liabilities at
a given point in time. The interest-sensitivity of assets and liabilities is
based on the timing of contractual maturities and repricing opportunities.
Prepayments of loans and certain investment securities and early withdrawals of
deposits represent options which may or may not be exercised. Due to the
uncertain nature of these prepayments and early withdrawals, ALCO has chosen to
exclude them from consideration in the review of Gap Analysis. A positive
interest-sensitive gap occurs when interest-sensitive assets exceed
interest-sensitive liabilities. The reverse situation results in a negative gap.
Management feels that an essentially balanced position (+/- 10% of total earning
assets) between interest-sensitive assets and liabilities is necessary in order
to protect against wide fluctuations in interest rates. An analysis of the
Corporation's interest-sensitivity position at December 31, 1994 is presented in
Table 16. At December 31, 1994, the Corporation had a cumulative "negative gap"
(interest-sensitive liabilities exceeding interest-sensitive assets) of
$294,228,000 or 8.93% of total earning assets over a twelve-month horizon. The
ratio of interest-sensitive assets to interest-sensitive liabilities was .86x.
Gap Analysis is a limited measurement tool, however, because it does not
incorporate the interrelationships between interest rates charged or paid,
balance sheet trends and management's reaction in response to interest rate
changes. In addition, a gap analysis model does not consider that changes in
interest rates do not affect all categories of assets and liabilities equally or
simultaneously. Therefore, ALCO uses Gap Analysis as a tool to monitor changes
in the balance sheet structure. To estimate the impact that changes in interest
rates would have on the Corporation's earnings, ALCO uses Simulation Analysis.
Simulation Analysis is performed using a computer-based asset/liability
model which incorporates current portfolio balances and rates, contractual
maturities, repricing opportunities, and assumptions about prepayments, future
interest rates, and future volumes. Using this information, the model calculates
earnings estimates for the Corporation under multiple interest rate scenarios.
To measure the sensitivity of the Corporation's earnings, the results of
multiple simulations, which assume
22
changes in interest rates, are compared to the "base case" simulation, which
assumes no changes in interest rates. The sensitivity of earnings is expressed
as a percentage change in comparison to the "base case" simulation. As a matter
of policy, ALCO has stated that the maximum negative impact to net income from a
positive or negative 1% change in interest rates over a 12-month period should
not exceed 12%. However, ALCO actually manages earnings sensitivity with a
targeted goal of only a 2% to 3% impact on net income. If simulation results
show that earnings sensitivity exceeds the targeted limits, ALCO will adopt
on-balance sheet and/or off-balance sheet strategies to bring earnings
sensitivity within target guidelines.
TABLE 16
INTEREST-SENSITIVITY ANALYSIS (1)
(In Thousands)
As of December 31, 1994
6 MONTH NON-
30 DAY 60 DAY 90 DAY 6 MONTH TO 1 YEAR TOTAL INTEREST
SENSITIVE SENSITIVE SENSITIVE SENSITIVE SENSITIVE SENSITIVE SENSITIVE
EARNING ASSETS:
Time deposits in other banks $ 18,432 -- -- -- 100 18,532 --
Federal funds sold and other
short-term investments 155,000 -- -- -- -- 155,000 --
Investment securities (2) 56,389 6,690 15,032 28,626 39,681 146,418 465,658
Loans and lease financing 813,622 336,143 36,429 109,165 211,297 1,506,656 1,001,855
Total earning assets 1,043,443 342,833 51,461 137,791 251,078 1,826,606 1,467,513
INTEREST-BEARING LIABILITIES:
Savings and NOW accounts 1,159,402 -- -- -- -- 1,159,402 --
Other time deposits 125,456 135,107 116,724 252,698 213,062 843,047 599,253
Federal funds purchased and
securities sold under
agreements to repurchase 41,874 -- -- 400 -- 42,274 --
Other short-term borrowed funds 19,267 25,000 25,000 -- -- 69,267 --
Long-term debt 67 67 67 207 6,436 6,844 70,194
Total interest-bearing
liabilities 1,346,066 160,174 141,791 253,305 219,498 2,120,834 669,447
INTEREST-SENSITIVITY GAP $ (302,623) 182,659 (90,330 ) (115,514 ) 31,580 (294,228)
CUMULATIVE GAP $ (302,623) (119,964 ) (210,294 ) (325,808 ) (294,228 )
CUMULATIVE RATIO OF INTEREST-
SENSITIVE ASSETS TO INTEREST-
SENSITIVE LIABILITIES .78x .92 .87 .83 .86
CUMULATIVE GAP TO TOTAL EARNING
ASSETS (9.19)% (3.64 ) (6.38 ) (9.89 ) (8.93 )
TOTAL
EARNING ASSETS:
Time deposits in other banks 18,532
Federal funds sold and other
short-term investments 155,000
Investment securities (2) 612,076
Loans and lease financing 2,508,511
Total earning assets 3,294,119
INTEREST-BEARING LIABILITIES:
Savings and NOW accounts 1,159,402
Other time deposits 1,442,300
Federal funds purchased and
securities sold under
agreements to repurchase 42,274
Other short-term borrowed funds 69,267
Long-term debt 77,038
Total interest-bearing
liabilities 2,790,281
INTEREST-SENSITIVITY GAP
CUMULATIVE GAP
CUMULATIVE RATIO OF INTEREST-
SENSITIVE ASSETS TO INTEREST-
SENSITIVE LIABILITIES
CUMULATIVE GAP TO TOTAL EARNING
ASSETS
(1) Assets and liabilities that mature in one year or less and/or have interest
rates that can be adjusted during this period are considered
interest-sensitive. The interest-sensitivity position has meaning only as of
the date for which it is prepared.
(2) Investment securities are presented at their amortized cost. The
mark-to-market of $(19,958,000) for available for sale securities is not
included.
................................................................................
Management uses both on- and off-balance sheet strategies to manage the
balance sheet in accordance with their projected interest rate environment. The
most efficient and cost-effective method of on-balance sheet management is
creating desired maturity and repricing streams through the strategic pricing of
interest-earning and interest-bearing on-balance sheet products. ALCO reviews
the interest-earning and interest-bearing portfolios to ensure that the
Corporation has a proper mix of fixed and variable rate products. Emphasis will
continue to be placed on granting loans with short maturities and floating rates
where possible. This strategy increases liquidity and is necessitated by the
continued shortening of maturities and more frequent repricing opportunities of
the Corporation's funding sources. As of year-end, approximately 32.4% of all
loans
23
reprice or mature within 30 days compared to 40.6% at December 31, 1993. See
Table 8 for additional detail regarding loan maturity and sensitivity to changes
in interest rates at December 31, 1994.
Within the Corporation's overall interest rate risk management strategy,
off-balance sheet derivatives are used as a cost-and capital-efficient way to
manage interest rate sensitivity by modifying the repricing or maturity of
on-balance sheet assets or liabilities. As of December 31, 1994, off-balance
sheet management strategies include an interest rate corridor contract, with
purchased and sold interest rate caps of $100,000,000 each, and a $100,000,000
interest rate floor contract. The purpose of entering into the interest rate
corridor contract was to synthetically convert fixed rate assets to floating
rate assets within the strike rates of the contract in a rising interest rate
environment. The interest rate floor contract was subsequently entered into to
provide protection against falling interest rates for a 14-month period after
the expiration of the interest rate corridor contract. Both the corridor
contract and the floor contract are with a major regional commercial bank.
Although off-balance sheet derivative financial instruments do not expose the
Corporation to credit risk equal to the notional amount of the contracts, the
Corporation is exposed to credit risk to the extent of the fair value of the
unrealized gain in the off-balance sheet derivative instrument if the
counterparty fails to perform. The related fair value of the off-balance sheet
derivative financial instruments was $507,000 at December 31, 1994 which
includes $202,000 of unrealized gains over the carrying values of the
derivatives. Credit risk resulting from the counterparty's nonperformance of the
contracts is monitored through routine review of the counterparty's financial
ratings.
TABLE 17
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS (1)
(In Thousands)
As of December 31, 1994
CARRYING AND
ESTIMATED
NOTIONAL STRIKE MATURITY IN FAIR
AMOUNT RATE MONTHS VALUE
ASSET RATE CONVERSIONS:
Interest rate corridor:
Prime cap purchased $ 100,000 6.25 % 6
Prime cap sold 100,000 7.25 6
Carrying amount $ 180
Unrealized gross gain 310
Total 200,000 490
Interest rate floor:
Prime floor purchased 100,000 8.25 20
Carrying amount 125
Unrealized gross loss (108)
Total 100,000 17
Total asset rate conversions $ 300,000 7.25 % 10.67 $ 507
PURPOSE
ASSET RATE CONVERSIONS:
Interest rate corridor:
Converts fixed rate assets to floating
rate
Prime cap purchased
assets within the strike rates of the
contract
Prime cap sold
in a rising interest rate environment
Carrying amount
through simultaneous purchase and
Unrealized gross gain
sale of interest rate caps. Adds to
Total
asset sensitivity.
Interest rate floor:
Prime floor purchased Provides protection against falling
interest
Carrying amount rates for 14-month period after interest
Unrealized gross loss rate corridor expires.
Total
Total asset rate conversions
(1) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management. The Corporation holds no derivative financial
instruments for trading purposes. Carrying amounts are the unamortized
premiums paid. Prime rate is the base rate on corporate loans posted by at
least 75 percent of the nation's 30 largest banks as defined in The Wall
Street Journal. Strike rates are fixed rates set at the time the contract is
executed.
................................................................................
The Corporation has not experienced any liquidity problems in the past nor
are problems anticipated in the future. Reliance will continue to be placed on
the same funding sources, primarily financial resources provided by operating
activities and expansion of the "core" deposit base. Management will continue to
monitor the Corporation's interest-sensitivity position with goals of ensuring
adequate liquidity while at the same time seeking profitable spreads between the
yields on funding uses and the rates paid for funding sources.
SIX YEAR SUMMARY OF SELECTED FINANCIAL DATA
The Six Year Summary of Selected Financial Data appearing in Table 18
provides a summary of the Corporation's operations for the past six years.
Reviewing this schedule and the financial ratios included therein allows the
reader to compare the results of one year with those of other years and to
compare the Corporation's performance with that of other banks and bank holding
companies.
24
TABLE 18
SIX YEAR SUMMARY OF SELECTED FINANCIAL DATA
(In Thousands Except Per Share Data)
Years Ended December 31
1994 1993 1992 1991 1990
SUMMARY OF OPERATIONS
Interest income $ 241,731 190,689 169,736 186,577 196,201
Interest expense 96,975 73,821 70,637 96,039 110,148
Net interest income 144,756 116,868 99,099 90,538 86,053
Provision for loan and lease losses 8,920 6,453 5,983 7,407 6,345
Net interest income after provision 135,836 110,415 93,116 83,131 79,708
Other income 40,534 39,060 32,695 32,653 29,746
Other expenses 118,925 105,610 88,574 85,502 79,497
Income before income taxes and cumulative changes in accounting
principles 57,445 43,865 37,237 30,282 29,957
Income taxes 18,967 14,640 11,915 8,828 9,440
Income before cumulative changes in accounting principles 38,478 29,225 25,322 21,454 20,517
Cumulative changes in accounting principles (1) -- (1,371) -- -- --
Net income $ 38,478 27,854 25,322 21,454 20,517
PER SHARE (2)
Income before cumulative changes in accounting principles:
Primary $ 4.06 3.50 3.30 2.81 2.70
Fully diluted (3) 4.06 3.41 3.10 2.66 2.56
Net income:
Primary 4.06 3.33 3.30 2.81 2.70
Fully diluted (3) 4.06 3.25 3.10 2.66 2.56
Cash dividends 1.32 1.24 1.14 1.047 .987
Book value 27.60 26.37 24.40 22.23 20.38
Average shares outstanding (000's):
Primary 9,485 8,345 7,664 7,628 7,598
Fully diluted (3) 9,485 8,726 8,578 8,565 8,536
AVERAGE BALANCES
Assets $3,310,785 2,694,973 2,179,452 2,062,153 1,996,695
Loans and lease financing 2,289,388 1,804,656 1,489,943 1,408,595 1,331,896
Earning assets 3,078,023 2,496,290 2,003,920 1,893,055 1,815,883
Deposits 2,833,534 2,358,451 1,912,362 1,805,230 1,750,897
Interest-bearing liabilities 2,583,616 2,098,921 1,683,427 1,614,056 1,557,520
Shareholders' equity 258,173 209,672 176,869 161,010 146,595
SELECTED YEAR END ASSETS AND LIABILITIES
Assets $3,548,186 3,257,643 2,312,218 2,158,196 2,102,248
Loans and lease financing 2,508,511 2,159,489 1,521,136 1,444,875 1,379,290
Reserve for loan and lease losses 31,283 26,963 19,027 17,742 16,234
Deposits 3,032,170 2,816,771 2,028,506 1,885,597 1,845,054
Long-term debt 77,039 78,698 27,746 25,600 25,650
Shareholders' equity 251,390 251,004 189,845 169,847 154,867
RATIOS
Income before cumulative changes in accounting principles to:
Average assets 1.16% 1.08 1.16 1.04 1.03
Average shareholders' equity 14.90 13.94 14.32 13.32 14.00
Net income to:
Average assets 1.16 1.03 1.16 1.04 1.03
Average shareholders' equity 14.90 13.28 14.32 13.32 14.00
Average shareholders' equity to:
Average assets 7.80 7.78 8.12 7.81 7.34
Average deposits 9.11 8.89 9.25 8.92 8.37
Average loans and lease financing to average deposits 80.80 76.52 77.91 78.03 76.07
Net loan and lease losses to average loans and lease financing .20 .24 .32 .43 .36
Dividend payout ratio 32.51 37.24 34.55 37.26 36.56
FIVE
YEAR
COMPOUND
GROWTH
1989 RATE %
SUMMARY OF OPERATIONS
Interest income 188,089 5.1
Interest expense 108,598 (2.2 )
Net interest income 79,491 12.7
Provision for loan and lease losses 4,942 12.5
Net interest income after provision 74,549 12.7
Other income 27,890 7.8
Other expenses 72,068 10.5
Income before income taxes and cumulative changes in accounting
principles 30,371 13.6
Income taxes 9,360 15.2
Income before cumulative changes in accounting principles 21,011 12.9
Cumulative changes in accounting principles (1) -- --
Net income 21,011 12.9
PER SHARE (2)
Income before cumulative changes in accounting principles:
Primary 2.78 7.9
Fully diluted (3) 2.63 9.1
Net income:
Primary 2.78 7.9
Fully diluted (3) 2.63 9.1
Cash dividends .933 7.2
Book value 18.67 8.1
Average shares outstanding (000's):
Primary 7,559 4.6
Fully diluted (3) 8,497 2.2
AVERAGE BALANCES
Assets 1,856,079 12.3
Loans and lease financing 1,244,880 13.0
Earning assets 1,680,223 12.9
Deposits 1,611,033 12.0
Interest-bearing liabilities 1,424,950 12.6
Shareholders' equity 133,220 14.1
SELECTED YEAR END ASSETS AND LIABILITIES
Assets 1,983,812 12.3
Loans and lease financing 1,303,211 14.0
Reserve for loan and lease losses 14,656 16.4
Deposits 1,736,263 11.8
Long-term debt 29,267 21.4
Shareholders' equity 141,886 12.1
RATIOS
Income before cumulative changes in accounting principles to:
Average assets 1.13
Average shareholders' equity 15.77
Net income to:
Average assets 1.13
Average shareholders' equity 15.77
Average shareholders' equity to:
Average assets 7.18
Average deposits 8.27
Average loans and lease financing to average deposits 77.27
Net loan and lease losses to average loans and lease financing .33
Dividend payout ratio 33.56
25
(1) The cumulative changes in accounting principles reflect the 1993 adoption of
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," which resulted in a one-time net charge of $2,271,234 ($3,736,834
pre-tax) in recognition of the entire Accumulated Postretirement Benefit
Obligation and adoption of SFAS No. 109, "Accounting for Income Taxes,"
which resulted in a one-time benefit of $900,000.
(2) Amounts for 1991 and prior years have been restated to give effect to the
three for two stock split effected in the form of a 50% stock dividend paid
October 1, 1992.
(3) Assumes full conversion of convertible subordinated debentures issued in
1985. The convertible subordinated debentures were called for redemption
during 1993 and substantially all were converted into the Corporation's
common stock.
................................................................................
PENDING MERGER
On November 7, 1994, the Corporation announced that it had entered into a
merger agreement with Security Capital Bancorp ("Security Capital") of
Salisbury, North Carolina. Security Capital is a 46 office, $1.2 billion bank
holding company with a significant market presence in the Charlotte, North
Carolina Metropolitan Statistical Area and historically high profitability.
Security Capital's four bank subsidiaries are Security Capital Bank and
OMNIBANK, SSB, both located in Salisbury, North Carolina; Citizens Savings, SSB,
Concord, North Carolina; and Home Savings Bank, SSB, Kings Mountain, North
Carolina. Under the merger agreement, all four bank subsidiaries would be merged
with and into CCB at the date of merger and henceforth would operate as CCB
branch offices.
The merger will be effected through a tax-free exchange of .50 shares of
the Corporation's common stock for each share of Security Capital common stock.
Security Capital had approximately 11,776,000 shares of common stock outstanding
at December 31, 1994. The merger, which will be accounted for as a pooling of
interests, is expected to take place in the second quarter of 1995. The merger
is subject to, among other things, approval by regulatory authorities and
shareholders of both companies. Regulatory authorities have given the requisite
approvals for the merger. The proposed merger will be submitted to the
respective shareholders of the Corporation and Security Capital for approval at
separate meetings on March 16, 1995.
In connection with the Security Capital merger, the Corporation announced
that it anticipated repurchasing up to 9% of the common shares of stock to be
issued in the merger prior to the effective date of the merger. The Corporation
stated that it would repurchase and retire its own common stock or purchase
shares of Security Capital common stock. As of December 31, 1994, the
Corporation had repurchased and retired 407,905 shares of its own common stock
and no shares of Security Capital common stock.
DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board ("FASB") has issued SFAS No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments" which requires disclosure about derivative financial instruments
including futures, forward, swap and option contracts, and other financial
instruments with similar characteristics. It also amends existing requirements
of SFAS No. 105, "Disclosure of Information about Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit
Risk", and SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments". The Corporation adopted SFAS No. 119 as of December 31, 1994 in
accordance with its effective date.
OTHER ACCOUNTING MATTERS
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." SFAS No. 114 prescribes the recognition criterion for
loan impairment and the measurement methods for certain impaired loans whose
terms are modified in troubled debt restructurings. When a loan is impaired, a
creditor must measure impairment based on (1) the present value of the impaired
loan's expected future cash flows discounted at the loan's original effective
interest rate, (2) the observable market price of the impaired loan, or (3) the
fair value of the collateral for a collateral-dependent loan. Any measurement
losses are to be recognized through additions to the allowance for loan losses.
SFAS No. 114 is effective for fiscal years beginning after December 15, 1994,
with the initial adoption required to be reflected prospectively. The FASB also
has issued SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosures," that amends SFAS No. 114 to allow a
creditor to use existing methods for recognizing interest income on an impaired
loan and by requiring additional disclosure about how a creditor recognizes
interest income related to impaired loans. This SFAS is to be implemented
concurrently with SFAS No. 114. At this time, management does not anticipate a
material impact to the financial statements of the Corporation upon adoption of
SFAS No. 114 and SFAS No. 118.
The FASB has issued SFAS No. 116, "Accounting for Contributions Received
and Contributions Made" which establishes accounting standards for contributions
received and contributions made. Contributions received as well as unconditional
promises to give are generally recognized as revenues in the period received at
their fair values. Contributions made as well as unconditional promises to give
are generally recognized as expense in the period made. The SFAS is effective
for fiscal years beginning after December 15, 1994. The Corporation has
anticipated the effect of SFAS No. 116 on its consolidated financial statements
to be immaterial.
26
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27
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993
1994 1993
ASSETS:
Cash and due from banks (note 2) $ 173,154,769 191,332,445
Time deposits in other banks 18,531,964 35,431,738
Federal funds sold and other short-term investments 155,000,000 169,286,165
Investment securities (notes 3, 7, 8 and 9):
Available for sale (market values of $509,444,623 and $563,187,727) 509,444,623 553,292,393
Held for investment (market values of $82,358,439 and $68,553,264) 82,673,102 64,126,134
Loans and lease financing (notes 4, 8 and 9) 2,508,511,286 2,159,489,054
Less reserve for loan and lease losses (note 5) 31,282,853 26,963,334
Net loans and lease financing 2,477,228,433 2,132,525,720
Premises and equipment (notes 6 and 9) 42,909,115 42,597,185
Other assets (note 13) 89,244,399 69,050,959
Total assets $3,548,186,405 3,257,642,739
LIABILITIES:
Deposits:
Demand (noninterest-bearing) $ 430,468,049 421,432,974
Savings and NOW accounts 429,010,106 420,344,480
Money market accounts 948,949,167 778,606,879
Time 1,223,743,218 1,196,386,428
Total deposits 3,032,170,540 2,816,770,761
Federal funds purchased and securities sold under agreements to repurchase (note 7) 42,274,061 25,526,966
Other short-term borrowed funds (note 8) 69,266,636 16,202,362
Long-term debt (note 9) 77,039,067 78,698,073
Other liabilities (notes 10 and 13) 76,045,504 69,440,814
Total liabilities 3,296,795,808 3,006,638,976
SHAREHOLDERS' EQUITY (notes 3, 11 and 15):
Serial preferred stock. Authorized 5,000,000 shares; none issued -- --
Common stock of $5 par value. Authorized 30,000,000 shares; 9,108,895 shares issued in 1994
and 9,517,277 shares issued in 1993 45,544,475 47,586,385
Additional paid-in capital 70,112,344 83,349,012
Retained earnings 150,976,788 124,922,331
Unrealized loss on investment securities available for sale, net of applicable taxes (12,272,325) (835,677)
Less: Unearned common stock held by management recognition plans (2,970,685) (4,018,288)
Total shareholders' equity 251,390,597 251,003,763
Total liabilities and shareholders' equity $3,548,186,405 3,257,642,739
Commitments and contingencies (note 14)
See accompanying notes to consolidated financial statements.
28
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1994, 1993 and 1992
1994 1993
INTEREST INCOME:
Interest and fees on loans and lease financing $199,013,868 155,393,381
Interest and dividends on investment securities:
U.S. Treasury 19,257,811 17,800,627
U.S. Government agencies and corporations 11,078,110 7,504,221
States and political subdivisions (primarily tax-exempt) 3,599,865 3,293,216
Equity and other securities 1,881,528 2,159,050
Interest on time deposits in other banks 1,346,546 535,516
Interest on federal funds sold and other short-term investments 5,552,780 4,003,146
Total interest income 241,730,508 190,689,157
INTEREST EXPENSE:
Deposits 89,044,802 69,938,845
Federal funds purchased and securities sold under agreements to repurchase (note 7) 1,135,520 564,003
Other short-term borrowed funds (note 8) 1,250,520 668,133
Long-term debt (note 9) 5,543,880 2,649,525
Total interest expense 96,974,722 73,820,506
NET INTEREST INCOME 144,755,786 116,868,651
Provision for loan and lease losses (note 5) 8,919,949 6,453,000
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES 135,835,837 110,415,651
OTHER INCOME:
Service charges on deposit accounts 19,306,948 18,207,880
Trust and custodian fees 6,851,725 6,432,684
Insurance commissions 2,534,282 2,241,682
Merchant discount 3,631,770 2,904,160
Other service charges and fees 2,447,336 1,764,429
Accretion of negative goodwill from acquisitions 3,351,399 1,196,260
Other operating 1,983,740 3,660,484
Investment securities gains (note 13) 804,575 2,657,322
Investment securities losses (note 13) (377,779) (5,153)
Total other income 40,533,996 39,059,748
OTHER EXPENSES:
Personnel (note 10) 58,599,689 53,404,550
Net occupancy (note 14) 8,992,615 8,212,255
Equipment (note 14) 8,453,216 8,432,080
Other operating (note 12) 42,879,881 35,561,368
Total other expenses 118,925,401 105,610,253
INCOME BEFORE INCOME TAXES AND CUMULATIVE CHANGES IN ACCOUNTING PRINCIPLES 57,444,432 43,865,146
Income taxes (note 13) 18,966,900 14,640,300
INCOME BEFORE CUMULATIVE CHANGES IN ACCOUNTING PRINCIPLES 38,477,532 29,224,846
Cumulative changes in accounting principles (notes 1, 10 and 13) -- (1,371,234)
NET INCOME $ 38,477,532 27,853,612
INCOME PER SHARE (note 1):
Income before cumulative changes in accounting principles:
Primary $ 4.06 3.50
Fully diluted 4.06 3.41
Net income:
Primary 4.06 3.33
Fully diluted 4.06 3.25
WEIGHTED AVERAGE SHARES OUTSTANDING (note 1):
Primary 9,485,259 8,344,540
Fully diluted 9,485,259 8,726,133
1992
INTEREST INCOME:
Interest and fees on loans and lease financing 138,420,149
Interest and dividends on investment securities:
U.S. Treasury 15,983,306
U.S. Government agencies and corporations 5,407,164
States and political subdivisions (primarily tax-exempt) 3,603,509
Equity and other securities 1,554,631
Interest on time deposits in other banks 4,576
Interest on federal funds sold and other short-term investments 4,762,621
Total interest income 169,735,956
INTEREST EXPENSE:
Deposits 67,231,641
Federal funds purchased and securities sold under agreements to repurchase (note 7) 653,930
Other short-term borrowed funds (note 8) 483,609
Long-term debt (note 9) 2,267,826
Total interest expense 70,637,006
NET INTEREST INCOME 99,098,950
Provision for loan and lease losses (note 5) 5,983,000
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES 93,115,950
OTHER INCOME:
Service charges on deposit accounts 16,624,378
Trust and custodian fees 5,861,593
Insurance commissions 1,642,492
Merchant discount 2,521,930
Other service charges and fees 1,835,621
Accretion of negative goodwill from acquisitions --
Other operating 2,143,546
Investment securities gains (note 13) 2,114,532
Investment securities losses (note 13) (49,463)
Total other income 32,694,629
OTHER EXPENSES:
Personnel (note 10) 46,104,498
Net occupancy (note 14) 7,090,815
Equipment (note 14) 8,580,356
Other operating (note 12) 26,798,388
Total other expenses 88,574,057
INCOME BEFORE INCOME TAXES AND CUMULATIVE CHANGES IN ACCOUNTING PRINCIPLES 37,236,522
Income taxes (note 13) 11,915,000
INCOME BEFORE CUMULATIVE CHANGES IN ACCOUNTING PRINCIPLES 25,321,522
Cumulative changes in accounting principles (notes 1, 10 and 13) --
NET INCOME 25,321,522
INCOME PER SHARE (note 1):
Income before cumulative changes in accounting principles:
Primary 3.30
Fully diluted 3.10
Net income:
Primary 3.30
Fully diluted 3.10
WEIGHTED AVERAGE SHARES OUTSTANDING (note 1):
Primary 7,663,659
Fully diluted 8,557,782
See accompanying notes to consolidated financial statements.
29
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1994, 1993 and 1992
Unrealized
Gain (Loss) on Management Total
Common Additional Retained Investment Securities Recognition Shareholders'
Stock Paid-In Capital Earnings Available for Sale Plans Equity
BALANCE DECEMBER 31, 1991 $25,468,705 40,993,868 103,740,125 (355,734) -- 169,846,964
Net income -- -- 25,321,522 -- -- 25,321,522
Conversion of subordinated
debentures 600,185 3,101,815 -- -- -- 3,702,000
3 for 2 stock split effected in
the form of a 50% stock dividend 12,826,640 -- (12,838,051) -- -- (11,411)
Cash dividends ($1.14 per share) -- -- (8,768,656) -- -- (8,768,656)
Revaluation of marketable equity
securities -- -- -- (245,143) -- (245,143)
BALANCE DECEMBER 31, 1992 38,895,530 44,095,683 107,454,940 (600,877) -- 189,845,276
Net income -- -- 27,853,612 -- -- 27,853,612
Conversion of subordinated
debentures 3,965,390 16,903,532 -- -- -- 20,868,922
Shares issued for acquisitions 3,443,710 17,331,383 -- -- -- 20,775,093
Stock issued pursuant to
restricted stock plan, net of
forfeitures (note 11) 11,155 97,365 -- -- -- 108,520
Common stock issued pursuant to
management recognition plans
(note 11) 590,600 3,789,040 -- -- (4,379,640) --
Earned portion of management
recognition plans (note 11) -- -- -- -- 361,352 361,352
Public offering of shares 2,930,000 15,352,009 -- -- -- 18,282,009
Purchase and retirement of shares (2,250,000) (14,220,000) -- -- -- (16,470,000)
Cash dividends ($1.24 per share) -- -- (10,386,221) -- -- (10,386,221)
Revaluation of marketable equity
securities -- -- -- (234,800) -- (234,800)
BALANCE DECEMBER 31, 1993 47,586,385 83,349,012 124,922,331 (835,677) (4,018,288) 251,003,763
Mark to market adjustment, net of
applicable income taxes (note
3) -- -- -- 6,263,318 -- 6,263,318
BALANCE JANUARY 1, 1994 47,586,385 83,349,012 124,922,331 5,427,641 (4,018,288) 257,267,081
Net income -- -- 38,477,532 -- -- 38,477,532
Transactions pursuant to
restricted stock plan, net
(note 11) (4,910) 237,763 -- -- -- 232,853
Stock options exercised (note 11) 2,525 16,286 -- -- -- 18,811
Earned portion of management
recognition plans (note 11) -- -- -- -- 1,047,603 1,047,603
Purchase and retirement of shares (2,039,525) (13,490,717) -- -- -- (15,530,242)
Cash dividends ($1.32 per share) -- -- (12,423,075) -- -- (12,423,075)
Change in unrealized losses, net
of applicable income taxes
(note 3) -- -- -- (17,699,966) -- (17,699,966)
BALANCE DECEMBER 31, 1994 $45,544,475 70,112,344 150,976,788 (12,272,325) (2,970,685) 251,390,597
See accompanying notes to consolidated financial statements.
30
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1994, 1993, and 1992
1994 1993 1992
OPERATING ACTIVITIES:
Net income $ 38,477,532 27,853,612 25,321,522
Adjustments to reconcile net income to net cash provided from operating
activities:
Depreciation 6,133,942 5,559,420 5,110,859
Provision for loan and lease losses 8,919,949 6,453,000 5,983,000
Net gain on sales of investment securities (426,796) (2,652,169) (2,065,069)
Net amortization and accretion on investment securities 5,528,392 3,788,093 2,272,365
Amortization of intangibles and other assets 3,327,722 1,944,706 760,963
Accretion of negative goodwill (3,351,399) (1,196,260) --
Decrease (increase) in accrued interest receivable (6,334,482) (201,613) 3,137,666
Increase (decrease) in accrued interest payable 1,329,931 (1,405,975) (368,612)
Decrease (increase) in other assets (10,647,028) 2,307,919 10,004,578
Increase in other liabilities 9,189,238 1,397,608 2,662,707
Vesting of shares held by management recognition plans 1,047,603 361,352 --
Other (15,157) 108,520 --
NET CASH PROVIDED BY OPERATING ACTIVITIES 53,179,447 44,318,213 52,819,979
INVESTING ACTIVITIES:
Proceeds from sales of investment securities held for investment -- 3,048,951 34,772,480
Proceeds from sales of investment securities acquired in purchase acquisitions -- 53,438,906 --
Proceeds from maturities and issuer calls of investment securities held for
investment 5,402,984 316,347,564 152,103,814
Purchases of investment securities held for investment (23,968,667) (471,333,220) (256,780,735)
Proceeds from sales of investment securities available for sale 117,181,338 57,708,429 --
Proceeds from maturities and issuer calls of investment securities available for
sale 336,662,197 139,076,025 --
Purchases of investment securities available for sale (434,201,246) (145,508,300) --
Net decrease (increase) in loans and leases receivable (352,782,673) (185,021,225) (80,958,879)
Purchases of premises and equipment (6,445,872) (6,918,292) (4,859,937)
Cash acquired, net of cash paid, in purchase acquisitions -- 173,630,030 --
NET CASH USED BY INVESTING ACTIVITIES (358,151,939) (65,531,132) (155,723,257)
FINANCING ACTIVITIES:
Net increase in deposit accounts 215,399,779 73,454,542 142,909,553
Net increase (decrease) in federal funds purchased and securities sold under
agreements to repurchase 16,747,095 258,709 (2,056,229)
Net increase (decrease) in other short-term borrowed funds 53,064,274 (4,184,213) (9,031,575)
Proceeds from issuance of long-term debt 6,170,662 55,117,878 6,000,000
Repayments of long-term debt (7,838,427) (4,590,646) (151,924)
Issuances of common stock in public offering, net -- 18,282,009 --
Issuances of common stock in acquisitions, net -- 20,775,093 --
Issuances of common stock from exercise of stock options 18,811 -- --
Purchase and retirement of common stock (15,530,242) (16,470,000) --
Cash dividends (12,423,075) (10,386,221) (8,768,656)
Other, net -- -- (11,411)
NET CASH PROVIDED BY FINANCING ACTIVITIES 255,608,877 132,257,151 128,889,758
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (49,363,615) 111,044,232 25,986,480
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR (NOTE 1) 396,050,348 285,006,116 259,019,636
CASH AND CASH EQUIVALENTS AT END OF YEAR (NOTE 1) $ 346,686,733 396,050,348 285,006,116
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the year $ 95,644,791 75,226,481 70,575,941
Income taxes paid during the year $ 21,022,900 15,218,133 12,461,175
See accompanying notes to consolidated financial statements.
31
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts and results of
operations of CCB Financial Corporation (the "Corporation") and its wholly-owned
subsidiaries, Central Carolina Bank and Trust Company ("CCB"), CCB Savings Bank
of Lenoir, Inc., SSB, ("CCB Savings"), Graham Savings Bank, Inc., SSB ("Graham
Savings") and Central Carolina Bank-Georgia (collectively, the "Subsidiary
Banks"). The consolidated financial statements also include the accounts and
results of operations of CCB's wholly-owned subsidiaries, CCB Investment and
Insurance Service Corporation, CCBDE, 1st Home Mortgage Acceptance Corporation
("HMAC") and Southland Associates, Inc. All significant intercompany
transactions and accounts are eliminated in consolidation.
FINANCIAL STATEMENT PRESENTATION
In 1993, the Corporation adopted on a prospective basis two newly effective
accounting standards, Statements of Financial Accounting Standards ("SFAS") No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and
No. 109, "Accounting for Income Taxes". The cumulative impact of adoption of
SFAS No. 106 was to reduce net income by $2,271,234 ($3,736,834 pre-tax), or
$.27 per primary common share and the cumulative impact of adopting SFAS No. 109
was to increase net income by $900,000, or $.10 per primary common share. Prior
years' financial statements were not restated to apply the provisions of either
SFAS. The effects of these changes in accounting principles on operating results
for the years ended December 31, 1994 and 1993, excluding the cumulative effect
of changing methods recognized in 1993, were not material.
Certain accounts included in the 1993 and 1992 financial statements have
been reclassified to conform to the 1994 presentation. Net income and
shareholders' equity of the Corporation previously reported for 1993 and 1992
were not affected by these reclassifications.
For purposes of the Statements of Cash Flows, the Corporation considers
time deposits in other banks, federal funds sold and other short-term
investments to be cash equivalents.
INVESTMENT SECURITIES
The Corporation adopted SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities", on January 1, 1994. SFAS No. 115 addresses the
accounting and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. These
investments are classified in three categories and are accounted for as follows:
(a) debt securities that the Corporation has the positive intent and ability to
hold to maturity are classified as held for investment and reported at amortized
cost; (b) debt and equity securities that are bought and held principally for
the purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and losses included
in earnings; and (c) debt and equity securities not classified as either held
for investment securities or trading securities are classified as available for
sale securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of shareholders'
equity. The Corporation has no securities classified as trading securities. Upon
adoption of SFAS No. 115, the net unrealized gains on investment securities
available for sale, net of taxes, were reported as a separate component of
shareholders' equity. SFAS No. 115 will cause fluctuations in shareholders'
equity based on changes in values of debt and equity securities classified as
available for sale.
Investment securities classified as available for sale will be considered
in the Corporation's asset/liability management strategies and may be sold in
response to changes in interest rates, liquidity needs and/or significant
prepayment risk. The cost of investment securities sold is determined by the
"identified certificate" method.
Included in equity securities available for sale are investments in mutual
funds that were carried at the lower of cost or market prior to the adoption of
SFAS No. 115.
LOAN AND LEASE FINANCING
The loan portfolio is comprised of the following types of loans:
commercial, financial and agricultural; real estate-construction; real
estate-mortgage; instalment loans to individuals and credit card receivables.
The lease portfolio includes rolling stock such as automobiles, trucks and
trailers as well as a broadly diversified base of equipment.
32
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Interest income on loans and lease financing is recorded on the accrual
basis. Accrual of interest on loans and lease financing is discontinued when
management deems that collection of additional interest is doubtful. When
borrowers with loans on a nonaccrual status demonstrate their ability to repay
their loans in accordance with the contractual terms of the notes, the loans are
returned to accrual status. Certain fees and direct loan origination costs are
deferred and amortized as an adjustment of the related loan's yield by a
level-yield method.
RESERVE FOR LOAN AND LEASE LOSSES
The reserve for loan and lease losses is increased by provisions charged to
operating expense and reduced by loans and lease financings charged-off, net of
recoveries. The reserve is maintained at a level considered adequate by
management to provide for known and inherent loan and lease losses based on
management's evaluation of the loan and lease financing portfolio, including
historical loss experience, identified problem loans, volumes and outstandings,
as well as current economic conditions. Additionally, bank regulatory agency
examiners periodically review the loan and lease financing portfolio and may
require the Corporation to charge-off loans and lease financing and/or increase
the reserve for loan and lease losses to reflect their assessment of the
collectibility of loans and lease financing in the portfolio based on available
information at the time of their examination.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed over the estimated lives of the assets on
accelerated and straight-line methods. Leasehold improvements are amortized over
the term of the respective leases or the estimated useful lives of the
improvements, whichever is shorter.
REAL ESTATE HELD FOR SALE AND DEVELOPMENT BY SOUTHLAND ASSOCIATES, INC.
Real estate held for sale and development is valued at the lower of cost,
including interest and other carrying costs, or estimated net realizable value.
A provision for possible losses on this real estate is made when management
determines that the cost of the property exceeds the estimated net realizable
value. A reserve for possible losses on real estate of $500,000 was maintained
at December 31, 1994 and 1993.
OTHER REAL ESTATE
Other real estate acquired through loan foreclosures is valued at the lower
of cost or fair value less estimated cost of sale.
SUBORDINATED NOTES
Underwriting discounts and commissions and issuance expenses of the
subordinated notes are included in other assets on the Consolidated Balance
Sheets. These expenses are being amortized over a ten-year period using the
interest method.
MANAGEMENT RECOGNITION PLANS
The Corporation has two Management Recognition Plans (the "MRPs") designed
to provide an ownership interest in the Corporation through the issuance of
restricted common stock to certain officers and directors of the Subsidiary
Banks as an incentive for those persons to remain with the Subsidiary Banks. The
shares of common stock issued will be earned in instalments over a period of up
to five years and the cost of the shares is being charged to operating expense
over the period the shares are earned. Prior to vesting, each participant
granted shares under the MRPs' may direct the voting of the shares allocated to
the participant and will be entitled to receive any dividends or other
distributions paid on such shares.
INTANGIBLES ARISING FROM ACQUISITIONS
Intangibles arising from acquisitions result from the Corporation paying
amounts in excess of fair value for businesses, core deposits and tangible
assets acquired. Such amounts are being amortized by systematic charges to
income over a period no greater than the estimated remaining life of the assets
acquired or not exceeding the estimated average remaining life of the existing
deposit base assumed (primarily for up to 10 years).
33
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Negative goodwill, included in "other liabilities" on the Consolidated
Balance Sheet, represents the excess of fair value of net assets acquired over
cost after recording the liability for recaptured tax bad debt reserves and
after reducing the basis in noncurrent assets acquired to zero. Negative
goodwill is being accreted into earnings on a straight-line basis over the
estimated periods to be benefited (generally 10 years).
INCOME TAXES
The provision for income taxes is based on income and expense reported for
financial statement purposes after adjustment for permanent differences such as
tax-exempt interest income. Deferred income taxes are provided when there is a
difference between the periods items are reported for financial statement
purposes and when they are reported for tax purposes and are recorded at the
enacted tax rates expected to apply to taxable income in the years in which
these temporary differences are expected to be recovered or settled. Subsequent
changes in tax rates will require adjustment to these assets and liabilities.
RESTRICTED STOCK AND PERFORMANCE UNIT PLANS
The Corporation has Restricted Stock and Performance Unit Plans covering
certain officers of the Corporation and Subsidiary Banks. The market value of
shares issued under the Restricted Stock Plans, along with a provision for the
estimated value of performance units awarded under the Performance Unit Plans,
is being charged to operating expense over five-year periods.
PER SHARE DATA
Primary income per share is computed based on the weighted average number
of common shares outstanding during each period. Fully diluted income per share
is computed based on the weighted average number of common shares outstanding
and common shares issuable upon full conversion of convertible debt (which was
fully converted or redeemed at December 31, 1993). In this computation, interest
expense on convertible debt, net of applicable income taxes, is added back to
income as if the debt was converted into common stock at the beginning of the
period.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial statements include disclosure of fair value information about
financial instruments, whether or not recognized on the balance sheet, for which
it is practicable to estimate that value. In cases where quoted market prices
are not available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the financial instrument. As the fair value of
certain financial instruments and all nonfinancial instruments are not
presented, the aggregate fair value amounts presented do not represent the
underlying value of the Corporation.
DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation uses interest rate corridors and floor contracts for
interest rate risk management. Interest rate corridor and floor contracts are
accounted for on an accrual basis and the net interest differential, including
premiums paid, if any, are recognized as an adjustment to interest income of the
related asset. The Corporation holds no derivative financial instruments for
trading purposes.
(2) RESTRICTIONS ON CASH AND DUE FROM BANKS
The Subsidiary Banks are required to maintain reserve and clearing balances
with the Federal Reserve Bank. These balances are included in "cash and due from
banks" on the Consolidated Balance Sheets. For the reserve maintenance periods
in effect at December 31, 1994 and 1993, the Subsidiary Banks were required to
maintain average reserve and clearing balances of approximately $35,398,000 and
$28,102,000, respectively.
34
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(3) INVESTMENT SECURITIES
Investment securities with amortized costs of approximately $316,825,000 at
December 31, 1994 and $279,225,000 at December 31, 1993 were pledged to secure
public funds on deposit, collateralized mortgage obligations and for other
purposes required by law. The investment securities portfolio is segregated into
securities available for sale and securities held for investment.
SECURITIES AVAILABLE FOR SALE
Securities available for sale are presented on the Consolidated Balance
Sheet at their market value. The amortized cost and approximate market values of
these securities at December 31, 1994 and 1993 were as follows:
1994 1993
AMORTIZED UNREALIZED UNREALIZED MARKET BOOK UNREALIZED UNREALIZED
COST GAINS LOSSES VALUE VALUE GAINS LOSSES
U.S. Treasury $325,470,794 483,111 (12,859,971) 313,093,934 266,465,301 9,249,160 (368,221)
U.S. Government agencies
and corporations 193,932,084 976,416 (6,749,178) 188,159,322 242,353,226 1,392,310 (377,915)
Equity securities 10,000,022 -- (1,808,655) 8,191,367 44,473,866 -- --
Total $529,402,900 1,459,527 (21,417,804) 509,444,623 553,292,393 10,641,470 (746,136)
MARKET
VALUE
U.S. Treasury 275,346,240
U.S. Government agencies
and corporations 243,367,621
Equity securities 44,473,866
Total 563,187,727
Unrealized losses on securities available for sale totaled $19,958,277 and
$835,677 at December 31, 1994 and 1993, respectively, and are included as a
component of shareholders' equity, net of deferred tax benefits of $7,685,952 at
December 31, 1994 and gross of tax benefits at December 31, 1993. In the opinion
of management, the Corporation has no securities which are other than
temporarily impaired. No investment securities were transferred between the held
for investment and available for sale categories during 1994.
During 1994, gross gains and losses from sales of securities available for
sale totaled $782,478 and $377,779, respectively.
Following is a maturity schedule of securities available for sale at
December 31, 1994:
CARRYING
VALUE
Within 1 year $142,571,533
After 1 but within 5 years 252,941,378
After 5 but within 10 years 25,357,800
Subtotal 420,870,711
Mortgage-backed securities 80,382,545
Equity securities 8,191,367
Total securities available for sale $509,444,623
SECURITIES HELD FOR INVESTMENT
The book values and approximate market values of securities held for
investment at December 31, 1994 and 1993 were as follows:
1994 1993
UNREALIZED UNREALIZED MARKET BOOK UNREALIZED UNREALIZED MARKET
BOOK VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE
States and
political
subdivisions $67,912,349 1,552,815 (1,839,350) 67,625,814 50,340,505 4,468,206 (41,076) 54,767,635
Other securities 14,760,753 -- (28,128 ) 14,732,625 13,785,629 -- -- 13,785,629
Total $82,673,102 1,552,815 (1,867,478) 82,358,439 64,126,134 4,468,206 (41,076) 68,553,264
35
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Following is a maturity schedule of securities held for investment at
December 31, 1994:
BOOK MARKET
VALUE VALUE
Within 1 year $ 4,020,861 4,120,812
After 1 but within 5 years 4,648,237 4,745,460
After 5 but within 10 years 20,149,736 20,644,007
After 10 years 39,093,515 38,115,535
Subtotal 67,912,349 67,625,814
Other securities 14,760,753 14,732,625
Total securities held for investment $82,673,102 82,358,439
Gains from calls of securities held for investment during 1994 totaled
$22,097.
(4) LOANS AND LEASE FINANCING
A summary of loans and lease financing at December 31, 1994 and 1993
follows:
1994 1993
Commercial, financial and agricultural $ 450,297,827 386,203,497
Real estate -- construction 341,964,964 220,395,299
Real estate -- mortgage 1,262,194,443 1,153,502,835
Instalment loans to individuals 233,823,002 201,984,672
Credit card receivables 190,881,149 175,484,680
Lease financing 33,432,548 25,062,190
Total gross loans and lease financing 2,512,593,933 2,162,633,173
Less: Unearned income 4,082,647 3,144,119
Total loans and lease financing $2,508,511,286 2,159,489,054
Loans and lease financing of approximately $9,061,000 at December 31, 1994
and $12,975,000 at December 31, 1993 were not accruing interest. Loans with
outstanding balances of $840,000 in 1994, $4,909,000 in 1993 and $4,348,000 in
1992 were transferred from loans to other real estate acquired through
foreclosure. Other real estate acquired through loan foreclosures amounted to
$3,411,000 and $8,033,000 at December 31, 1994 and 1993, respectively, and is
included in other assets on the Consolidated Balance Sheets.
In general, the Subsidiary Banks do not purchase loans or participate with
others in the origination of loans and confine their lending activities to North
Carolina with the exception of credit cards which are available to customers on
a nationwide basis. Substantially all loans are made on a secured basis and,
with the exception of marketable mortgage loans, are originated for retention in
the Subsidiary Banks' portfolios. The Subsidiary Banks do not engage in highly
leveraged transactions or foreign lending activities. The loan portfolios are
well diversified and there are no significant concentrations of credit risk.
During 1994 and 1993, the Subsidiary Banks had loan, lease financing and
deposit relationships with Executive Officers and Directors of the Corporation
and their Associates. In the opinion of management, these loans and lease
financing arrangements do not involve more than the normal risk of
collectibility and are made on terms comparable to other borrowers. Following is
an analysis of these borrowings for the year ended December 31, 1994:
BALANCE AT
BEGINNING NEW BALANCE AT
OF YEAR LOANS REPAYMENTS END OF YEAR
Directors, Executive Officers and Associates $6,632,000 6,984,000 4,226,000 $9,390,000
36
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Loans serviced for the benefit of others totaled approximately
$510,476,000, $432,689,000 and $254,952,000 at December 31, 1994, 1993 and 1992,
respectively.
(5) RESERVE FOR LOAN AND LEASE LOSSES
Following is a summary of the reserve for loan and lease losses:
1994 1993 1992
Balance at beginning of year $26,963,334 19,026,764 17,741,918
Provision charged to operations 8,919,949 6,453,000 5,983,000
Reserves related to acquisitions -- 5,772,729 --
Recoveries of loan and leases previously charged-off 1,519,685 1,551,622 1,499,106
Loan and lease losses charged to reserve (6,120,115) (5,840,781) (6,197,260)
Balance at end of year $31,282,853 26,963,334 19,026,764
(6) PREMISES AND EQUIPMENT
Following is a summary of premises and equipment:
ACCUMULATED
DEPRECIATION
AND NET BOOK
COST AMORTIZATION VALUE
DECEMBER 31, 1994:
Land $ 8,324,292 -- 8,324,292
Buildings 31,635,221 13,214,266 18,420,955
Leasehold improvements 5,510,450 1,957,468 3,552,982
Furniture and equipment 48,519,731 35,908,845 12,610,886
Total premises and equipment $93,989,694 51,080,579 42,909,115
December 31, 1993:
Land $ 8,228,647 -- 8,228,647
Buildings 29,758,805 11,839,761 17,919,044
Leasehold improvements 4,719,037 1,715,985 3,003,052
Furniture and equipment 46,207,519 32,761,077 13,446,442
Total premises and equipment $88,914,008 46,316,823 42,597,185
(7) FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Federal funds purchased generally represent overnight borrowings by the
Subsidiary Banks for temporary funding requirements. The Subsidiary Banks have
not had any federal fund purchases in the prior three years. Securities sold
under agreements to repurchase represent short-term borrowings by the Subsidiary
Banks collateralized by U.S. Treasury and U.S. Government agency and corporation
securities with book and market values of $95,506,000 at December 31, 1994.
Following is a summary of this type of borrowing for the three previous years:
1994 1993 1992
Balance at December 31 $42,274,061 25,526,966 25,268,257
Weighted average interest rate at December 31 4.48% 2.13 3.62
Maximum amount outstanding at any month end during the year $42,842,711 37,265,241 25,268,257
Average daily balance outstanding during the year $36,756,000 29,016,000 26,525,000
Average annual interest rate paid during the year 3.09% 1.94 2.47
37
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(8) OTHER SHORT-TERM BORROWED FUNDS
Other short-term borrowed funds outstanding at December 31, 1994 and 1993
consist of the Subsidiary Banks' treasury tax and loan depository note accounts
(the "TTL accounts"), short-term advances from the Federal Home Loan Bank (the
"FHLB") and proceeds from a short-term credit facility. The TTL accounts, which
total $14,266,636 at December 31, 1994 and $16,202,362 at December 31, 1993, are
payable on demand. Interest on borrowings under this arrangement is payable at
.25% below the weekly federal fund rate as quoted by the Federal Reserve. The
TTL accounts are collateralized by various investment securities with book
values of $29,000,000 and market values of $28,080,200 at December 31, 1994.
Interest expense on the TTL accounts amounted to $297,550, $386,487 and $439,312
in 1994, 1993 and 1992, respectively.
Short-term FHLB advances total $50,000,000 at December 31, 1994. The
short-term FHLB advances were drawn under CCB's $600 million FHLB line of credit
which was established in 1994. The short-term FHLB advances are secured by a
blanket collateral agreement on CCB's mortgage loan portfolio and bear interest
at rates ranging from 5.21% to 5.79%. Interest expense on the short-term FHLB
advances totaled $928,708 in 1994. No short-term FHLB advances were outstanding
at December 31, 1993.
The Corporation has an unsecured $30 million line of credit with a
commercial bank which expires on October 31, 1995 and on which the Corporation
pays no commitment fee. At December 31, 1994, the amount drawn upon this line of
credit totaled $5 million, the maximum outstanding during 1994, and bears
interest at an adjustable rate which was 6.99% at December 31, 1994. Interest
expense on the credit facility totaled $24,262 during 1994. Outstanding during
1993 was another short-term credit facility which was drawn upon a $30 million
line of credit from a commercial bank with outstandings of up to $23 million and
bearing interest at 4.70%. Proceeds from the 1993 borrowed funds were primarily
contributed as equity capital by the Corporation to its Subsidiary Banks. There
were no outstanding balances on this line of credit at December 31, 1993 and it
expired in June 1994.
(9) LONG-TERM DEBT
Following is a summary of long-term debt at December 31, 1994 and 1993:
1994 1993
Mortgages payable and other notes payable with interest rates of 8% to 9% $ 180,323 214,589
Federal Home Loan Bank advances maturing through 2014 26,242,477 20,837,705
Collateralized mortgage obligations 10,616,267 17,645,779
6.75% Subordinated notes issued in 1993 and maturing on December 1, 2003 40,000,000 40,000,000
Total long-term debt $77,039,067 78,698,073
Mortgages payable are collateralized by premises with an approximate book
value of $494,000 at December 31, 1994. The FHLB long-term advances are at fixed
rates of 3.00% to 8.63% and are collateralized by liens on first mortgage loans
with book values not less than the outstanding principal balance of the
obligations. The FHLB long-term advances were drawn primarily to fund
matched-maturity loans.
In connection with the acquisition of certain assets and assumption of
certain liabilities of a thrift institution, the Corporation assumed the
liabilities of HMAC including collateralized mortgage obligations (the "CMO's")
of which $10,616,267 are outstanding at December 31, 1994. The CMO's are
collateralized by FNMA mortgage-backed securities, short-term investments and
time deposits in other banks of approximately $11,854,000 at December 31, 1994
and bear a contractual 11% interest rate, payable quarterly. The CMO's have a
stated maturity of February 1, 2016 and are redeemable after February 1, 1996
subject to certain restrictions at the option of HMAC. Since the rate of payment
of principal will depend on the rate of payment (including prepayments) of the
mortgage-backed securities, the actual maturity could occur significantly
earlier than its stated maturity.
In 1993, the Corporation issued $40 million of 6.75% subordinated notes due
December 1, 2003. Interest on the notes is payable semi-annually on June 1 and
December 1 beginning June 1, 1994. The notes are not redeemable prior to
maturity and there is no sinking fund. The notes are unsecured and subordinated
to all present and future senior indebtedness of the Corporation.
38
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Maturities of long-term debt are as follows:
TOTAL
Year Ending December 31 MATURITIES
1995 $ 6,883,108
1996 898,112
1997 936,195
1998 844,629
1999 756,721
Thereafter 66,720,302
Total $77,039,067
In 1993, the remainder of the Corporation's 8.75% convertible subordinated
debentures issued in 1985, totaling $21,150,00, were converted into 793,828
shares of common stock and $148,000 of debentures were redeemed for cash as a
result of voluntary conversions and a full redemption call by the Corporation.
(10) EMPLOYEE BENEFIT PLANS
PENSION PLAN
The Corporation has a noncontributory, defined benefit pension plan
covering substantially all full-time employees. The pension plan, which makes
provisions for early and delayed retirement as well as normal retirement,
provides participants with retirement benefits based on credited years of
service and an average salary for the five consecutive years within the last ten
years preceding normal retirement that will produce the highest average salary.
In 1994, the Corporation contributed $2,330,302 to the pension plan. The
Corporation made no contributions to its pension plan for the two previous years
due to full funding limitations imposed by federal tax laws. The Corporation's
pension expense components for the years ended December 31, 1994, 1993 and 1992
are shown below:
1994 1993 1992
Service cost of benefits earned during the period $ 1,870,901 1,514,809 1,604,524
Interest cost on projected benefit obligation 2,391,381 2,107,404 2,003,964
Return on pension plan assets 619,557 (2,561,883) (2,466,973)
Net amortization and deferral (3,607,400) (518,854) (495,153)
Net pension expense $ 1,274,439 541,476 646,362
At December 31, 1994, pension plan assets consist primarily of corporate
stocks and bonds including 12,750 shares of the Corporation's common stock. All
plan assets are held and administered by CCB in a trust fund. The funded status
of the Corporation's pension plan and the amounts included in other liabilities
on the Consolidated Balance Sheets at December 31, 1994, 1993 and 1992 are shown
below:
39
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
[CAPTION]
December 31
1994 1993 1992
Actuarial present value of accumulated benefit obligations:
Vested $24,075,163 22,064,288 18,285,354
Nonvested 273,466 307,788 257,628
Accumulated benefit obligation $24,348,629 22,372,076 18,542,982
Pension plan assets at fair value (primarily listed stocks and bonds) $33,919,863 33,170,510 32,637,992
Projected benefit obligation 34,205,856 33,543,534 28,682,902
Pension plan assets in excess of (less than) projected benefit obligation (285,993) (373,024) 3,955,090
Unrecognized prior service costs 1,136,015 2,354,648 --
Unrecognized net gain (2,904,795) (3,706,016) (5,032,877)
Unrecognized net excess pension plan assets at transition (847,089) (1,126,923) (1,232,052)
Pension liabilities recorded in acquisitions -- (1,106,410) --
Accrued pension expense $(2,901,862) (3,957,725) (2,309,839)
Assumptions used in computing the actuarial present value of the projected
benefit obligation were as follows:
Discount rate 8.00% 7.25 8.00
Rate of increase in compensation level of employees 6.00% 5.50 6.50
Expected long-term rate of return on pension plan assets 8.00% 8.00 8.00
SAVINGS AND PROFIT SHARING PLANS
The Corporation has a Retirement Savings Plan covering substantially all
employees with one year's service. Under the plan, employee contributions are
partially matched by the Corporation. In addition, the Corporation may make
discretionary contributions to the plan. Total expense under this plan was
$1,476,825, $706,379, and $624,989 in 1994, 1993 and 1992, respectively.
Prior to 1994, the Corporation had an Employee Stock Ownership Plan
covering substantially all employees with one year's service. Total expense
under this plan amounted to $580,711 and $525,000 in 1993 and 1992,
respectively. During 1993, this plan was merged into the Retirement Savings
Plan.
STOCK OPTIONS, RESTRICTED STOCK AND OTHER INCENTIVE PLANS
See Note 11 for additional information about the Corporation's stock option
plans and restricted stock plans.
In 1994, the Corporation adopted the Long-Term Incentive Plan which was
designed to attract, retain and motivate key employees as well as to provide a
competitive reward for achieving longer-term goals, provide balance to
short-term incentive awards, and reinforce a one-company perspective. Under this
plan, performance-based stock and cash incentives and other equity-based
incentives will be awarded. A maximum of 500,000 shares of the Corporation's
common stock are available for award under this plan. As of December 31, 1994, a
total of 55,840 stock options to purchase shares of the Corporation's common
stock had been awarded and these options vest ratably over a three-year period.
No other awards have been made under this plan.
During 1993, the Corporation adopted nonstatutory and incentive stock
option plans for certain of the Subsidiary Banks. The stock options were granted
to the directors and certain officers of the applicable Subsidiary Banks
entitling them to purchase shares of the Corporation's common stock. The options
are earned and exercisable over a period of up to 10 years.
The Corporation had a Restricted Stock Plan in effect until December 31,
1993 which was designed to provide long-term incentive compensation to certain
officers of the Corporation and its subsidiaries. Total expense under this plan
was $258,011, $374,331 and $362,751 in 1994, 1993 and 1992, respectively.
Restrictions on shares remaining under this plan will lapse in 1996.
40
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
During 1993, the Corporation adopted MRPs covering certain officers and
directors of the Subsidiary Banks. Shares of the Corporation's common stock
awarded under the MRPs vest over periods of up to five years. A participant
becomes fully vested in the event of the participant's death or disability.
Total expense under the MRPs was $1,494,595 and $463,237 for 1994 and 1993,
respectively.
The Corporation has a Performance Unit Plan, which operates in conjunction
with the Restricted Stock Plan, covering certain senior officers of the
Corporation and its subsidiaries. Under this plan, eligible participants have
been awarded performance units with a target value of $100 each. At December 31,
1994, a total of 7,513 units were outstanding and will be deemed earned if and
to the extent the Corporation and its subsidiaries meet profit objectives
established by the Board of Directors. Total expense under this plan was
$132,600, $340,600 and $422,796 for 1994, 1993 and 1992, respectively.
CCB has a Management Performance Incentive Plan covering certain officers.
The total award is based on a percentage of base salary of the eligible
participants and financial performance of the Corporation as compared to certain
targets established by the Corporation's Board of Directors. Total expense under
this plan was $1,605,316, $1,000,000 and $742,033 in 1994, 1993 and 1992,
respectively.
POSTRETIREMENT HEALTH AND LIFE INSURANCE PLAN
The Corporation maintains a defined dollar benefit plan which provides
postretirement health and life insurance for all employees who retire after page
55 with ten years of service. As discussed in Note 1, effective January 1, 1993,
the Corporation adopted SFAS No. 106 which requires the recognition of the
accumulated obligation for the Corporation's health care and life insurance
plans as well as the periodic costs of providing these coverages for retirees.
Prior to the adoption of SFAS No. 106, the costs of providing these coverages
were expensed as paid.
The following table sets forth the plan's funded status and the amounts
included in other liabilities on the Corporation's Consolidated Balance Sheets
at December 31, 1994 and 1993:
[CAPTION]
December 31
1994 1993
Actuarial present value of accumulated postretirement benefit obligation:
Retirees $ 3,402,000 2,951,700
Active employees -- fully eligible 533,500 641,120
Active employees -- not fully eligible 1,208,500 1,104,880
Accumulated postretirement benefit obligation 5,144,000 4,697,700
Plan assets at fair value -- --
Accumulated postretirement benefit obligation in excess of plan assets (5,144,000) (4,697,700)
Liabilities assumed in acquisitions -- (60,500)
Unrecognized net losses 855,778 805,329
Accrued postretirement benefit expense $(4,288,222) (3,952,871)
The accumulated postretirement benefit obligations at December 31, 1994 and
1993 were determined using the following assumptions:
Rate of return on plan assets N/A N/A
Discount rate 8.00% 7.25
Rate of increase in health care costs:
Current year 10.00% 16.00
Next year 9.00% 14.00
1999 and later 5.00% 6.00
41
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Net periodic postretirement benefit expense charged to operations for the
years ended December 31, 1994 and 1993 included the following components:
1994 1993
Service cost of benefits earned during the period $146,519 77,079
Interest cost on accumulated benefit obligation 389,375 336,315
Net amortization and deferral 94,070 --
Net postretirement benefit expense $629,964 413,394
A 1% increase in the assumed health care trend rates would result in a
$32,143 increase in net periodic postretirement benefits expense and a $443,348
increase in the accumulated postretirement benefit obligation.
Total expense in providing these benefits was $196,753 in 1992.
The Corporation adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits" on January 1, 1994. SFAS No. 112 requires accrual of a
liability for all types of benefits paid to former or inactive employees after
employment but before retirement. Benefits subject to this accounting
pronouncement include salary continuation, supplemental unemployment benefits,
severance benefits, disability-related benefits (including workers'
compensation) and continuation of such benefits as health care and life
insurance coverage. The result of adoption of SFAS No. 112 is immaterial to the
Corporation's results of operations and financial position.
(11) COMMON AND PREFERRED STOCK
Under various stock option plans adopted by the Corporation, options may be
periodically granted to directors, officers and other key personnel at a price
not less than the fair market value of the shares at the date of grant. Options
granted under the various plans must be exercised over the applicable exercise
period or they will be forfeited. The exercise periods for options granted under
the various plans are determined at the date of grant and are for periods no
longer than 10 years.
Under the Long-Term Incentive Plan adopted in 1994, a total of 55,840 stock
options to purchase shares of the Corporation's common stock had been awarded as
of December 31, 1994 and 18,595 of these options were fully vested at that date.
The remainder of the stock options awarded under this plan vest over a two-year
period. During 1993, the Corporation adopted nonstatutory and incentive stock
option plans covering directors and certain officers of certain of the
Subsidiary Banks which allow the participants to purchase 128,771 shares of the
Corporation's common stock. The stock options are earned and exercisable over a
period of up to 10 years.
The following table summarizes stock option transactions during 1994 and
1993:
OPTION OPTION PRICE AGGREGATE
SHARES PER SHARE AMOUNT
Granted in 1993 and outstanding at December 31, 1993 128,771 $36.98-37.76 $4,794,369
Granted 55,840 33.50-38.75 1,879,408
Exercised (505) 37.25 (18,811 )
Forfeited (1,593) 36.98-37.25 (58,960 )
Outstanding at December 31, 1994 182,513 $33.50-38.75 $6,596,006
Exercisable at December 31, 1994 123,320
Stock awarded under the Restricted Stock Plan and MRPs are subject to
certain restrictions over a five-year period, during which time the holder is
entitled to full voting rights and dividend privileges. Under the Restricted
Stock Plan for certain officers of the Corporation and its subsidiaries, a
maximum of 300,000 shares of the Corporation's common stock was available for
award. At December 31, 1994, a total of 44,044 restricted shares remain
outstanding under this plan with restrictions lapsing in 1996. The plan expired
on December 31, 1993 and no further grants will be awarded under the plan. Under
MRPs, 118,120 shares of the Corporation's common stock were awarded to directors
and certain officers of certain of the Subsidiary Banks. The shares will be
earned in installments over a period of up to five years. During 1994,
restrictions
42
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
lapsed on 33,099 shares and 982 shares were forfeited. These lapses and
forfeitures resulted in $237,763 of additions to additional paid-in capital, net
of $315,995 of deferred tax benefits.
The Corporation is authorized to issue up to 5,000,000 shares of serial
preferred stock. No shares of preferred stock have been issued or are
outstanding at December 31, 1994 or 1993.
For use in connection with the Rights Plan dated February 26, 1990 between
the Corporation and CCB (the "Rights Plan"), the Corporation's Board of
Directors has established a series of preferred stock designated as Series A
Junior Participating Preferred Stock ("Series A Preferred Stock") consisting of
200,000 shares and having certain special rights for purposes of dividends and
other distributions, voting, dissolution and liquidation, and in connection with
certain mergers of the Corporation.
Under the Rights Plan, one Right was distributed during 1990 to the
Corporation's shareholders for each of their shares of the Corporation's common
stock. Under the Rights Plan, each new share of common stock issued after the
date of the Rights Plan also has attached to it one Right. Each Right will be
evidenced by the certificate evidencing the common share to which it relates and
will be transferred with such common share. The surrender for transfer of any
share certificate also will constitute the transfer of the Rights related
thereto. The Rights will become exercisable if any person or group commences a
tender or exchange offer which would result in their becoming the beneficial
owner of 15 percent or more of the Corporation's common stock or announces
publicly their beneficial ownership of 15 percent or more of the Corporation's
common stock. Each right (other than rights owned by such person or group) will
entitle its holder to purchase one one-hundredth of a share of the Series A
Preferred Stock having economic and voting terms similar to those of one share
of the Corporation's common stock for an exercise price of $100. In the
alternative (and subject to certain exceptions), each right (other than rights
owned by such person or group) will entitle its holder to purchase, for an
exercise price of $100, a number of shares of the Corporation's common stock
having a market value of twice the exercise price or, unless any person or group
acquires beneficial ownership of more than 50 percent of the Corporation's
common stock, the Corporation's Board of Directors may, at its option, exchange
for each outstanding Right (other than Rights owned by such person or group) one
share of common stock, or a number of shares of Serial A Preferred Stock having
voting rights equivalent to one share of common stock, for all or part of the
outstanding Rights.
If the Corporation is acquired in a merger or other business combination,
each Right will entitle the holder (other than rights owned by such acquirer) to
purchase securities of the surviving company having a market value equal to
twice the exercise price of the Right.
The Rights are subject to adjustment if certain events occur and they will
expire on February 26, 2000, if not redeemed or terminated sooner.
(12) SUPPLEMENTARY INCOME STATEMENT INFORMATION
Following is a breakdown of the components of "other operating" expenses on
the Consolidated Statements of Income:
[CAPTION]
Years Ended December 31
1994 1993 1992
Advertising $ 3,112,824 2,963,640 1,869,255
External data processing services 2,961,386 3,471,662 2,941,880
Deposit and other insurance 6,801,554 5,467,950 4,206,198
Postage and freight 2,194,007 2,148,492 1,956,201
Printing and office supplies 2,622,812 2,905,644 1,946,594
Telecommunications 3,042,238 2,636,093 2,147,137
Legal and professional fees 4,341,119 2,960,605 3,103,380
Amortization of intangible assets 2,571,839 1,570,374 211,130
All other 15,232,102 11,436,908 8,416,613
Total other operating expenses $42,879,881 35,561,368 26,798,388
43
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(13) INCOME TAXES
As discussed in Note 1, the Corporation adopted SFAS No. 109 on January 1,
1993 and reported the cumulative effect of that change in method of accounting
for income taxes, a benefit of $900,000, in the Consolidated Statement of
Income. Prior years' financial statements were not restated to apply the
provisions of SFAS No. 109. The Corporation previously used the asset and
liability method under SFAS No. 96, "Accounting for Income Taxes", which
recognized deferred tax assets and liabilities for all events that had been
recognized in the financial statements. The future tax consequences of
recovering assets or settling liabilities at their financial statement carrying
amounts were considered in calculating deferred taxes. Generally, SFAS No. 96
prohibited consideration of any other future events in calculating deferred
taxes.
The components of income tax expense are as follows:
1994 1993 1992
TAXES CURRENTLY PAYABLE:
Federal $17,320,000 14,337,300 11,855,000
State 1,532,900 1,238,000 1,255,000
Total current tax expense 18,852,900 15,575,300 13,110,000
DEFERRED INCOME TAX (BENEFIT):
Federal 94,000 (894,000) (926,000)
State 20,000 (41,000) (269,000)
Total deferred tax expense (benefit) 114,000 (935,000) (1,195,000)
Total income tax expense $18,966,900 14,640,300 11,915,000
A reconciliation of income tax expense to the amount computed by
multiplying income before income taxes by the statutory federal income tax rate
follows:
AMOUNT % OF PRETAX INCOME
1994 1993 1992 1994 1993 1992
Tax expense at statutory rate on income before income taxes $20,106,000 15,353,000 12,660,000 35.0% 35.0 34.0
State taxes, net of federal benefit 1,009,000 778,000 651,000 1.8 1.8 1.8
Increase (reduction) in taxes resulting from:
Tax-exempt interest on investment securities and loans (1,188,200) (1,098,000) (1,253,000) (2.1) (2.5) (3.4)
Other, net (959,900) (392,700) (143,000) (1.7) (.9) (.4)
Income tax expense $18,966,900 14,640,300 11,915,000 33.0% 33.4 32.0
The related income tax expense on net securities gains was $171,000,
$1,064,000 and $811,500 in 1994, 1993 and 1992, respectively.
At December 31, 1994 and 1993, the Corporation recorded net deferred tax
assets of $12,068,000 and $4,496,000, respectively, which are included in other
assets on the Consolidated Balance Sheets. A valuation allowance will be
provided when it is more likely than not that some portion of the deferred tax
asset will not be realized. Taxes paid during the carryback period exceed the
Corporation's recorded net deferred tax asset. In management's opinion, it is
more likely than not that the results of future operations will generate
sufficient taxable income to realize the deferred tax assets. Consequently,
management has determined that a valuation allowance for deferred tax assets is
not required at December 31, 1994. The sources and tax effects of cumulative
temporary differences that give rise to significant portions of the net deferred
tax assets at December 31, 1994 and 1993 are shown below:
44
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1994 1993
Deferred tax assets:
Reserve for loan losses $ 7,187,000 5,545,000
Unrealized losses on investment securities available for sale 7,686,000 --
Postretirement benefits 1,691,000 1,559,000
Pension expense 1,226,000 1,649,000
Deferred compensation 737,000 725,000
Purchase accounting adjustment on deposit rates 839,000 1,610,000
Other 1,602,000 1,673,000
Total gross deferred assets 20,968,000 12,761,000
Deferred tax liabilities:
Lease financing 1,528,000 2,103,000
Intangible assets 2,503,000 3,057,000
Deferred loan fees and costs 1,709,000 1,385,000
Other 3,160,000 1,720,000
Total gross deferred liabilities 8,900,000 8,265,000
Net deferred tax asset $12,068,000 4,496,000
(14) COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK
COMMITMENTS AND CONTINGENCIES
The Subsidiary Banks lease certain real property and equipment under
long-term operating leases expiring at various dates to 2013. Total rental
expense amounted to $4,250,361 in 1994, $4,769,433 in 1993 and $4,818,710 in
1992.
A summary of noncancellable, long-term lease commitments at December 31,
1994 follows:
[CAPTION]
TYPE OF PROPERTY
REAL TOTAL
YEAR ENDING DECEMBER 31 PROPERTY EQUIPMENT COMMITMENTS
1995 $ 2,648,109 1,205,700 3,853,809
1996 2,497,634 972,500 3,470,134
1997 2,440,041 601,200 3,041,241
1998 2,264,162 132,100 2,396,262
1999 1,907,247 -- 1,907,247
Thereafter 20,816,154 -- 20,816,154
Total lease commitments $32,573,347 2,911,500 35,484,847
Generally, real estate taxes, insurance, and maintenance expenses are
obligations of the Subsidiary Banks. It is expected that in the normal course of
business, leases that expire will be renewed or replaced by leases on other
properties; thus, it is anticipated that future minimum lease commitments will
not be less than the amounts shown for 1995.
Certain legal claims have arisen in the normal course of business in which
the Corporation and certain of its Subsidiary Banks have been named as
defendants. Although the amount of any ultimate liability with respect to such
matters cannot be determined, in the opinion of management and counsel, any such
liability will have no material effect on the Corporation's financial position
or results of operations.
Commitments to extend credit are agreements to lend to customers as long as
there is no violation of any condition established in the contract. These
commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of these commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Each customer's credit
worthiness is evaluated
45
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
on a case-by-case basis and collateral is obtained if deemed necessary. At
December 31, 1994 and 1993, the Subsidiary Banks had commitments to extend
credit of approximately $807,938,000 and $764,029,000. These amounts include
unused credit card receivable and home mortgage equity lines of $239,421,000 and
$138,006,000, respectively, at December 31, 1994 and $291,224,000 and
$123,032,000, respectively, at December 31, 1993.
Standby letters of credit are commitments issued by the Subsidiary Banks to
guarantee the performance of a customer to a third party. The Subsidiary Banks
had approximately $19,751,000 and $13,533,000 in outstanding standby letters of
credit at December 31, 1994 and 1993.
OFF-BALANCE SHEET RISK
The Subsidiary Banks are parties to financial instruments with off-balance
sheet risk in the normal course of business to meet the financial needs of their
customers and to reduce their own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit, standby
letters of credit and interest rate contracts. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amounts recognized in the Consolidated Balance Sheets. The contract or notional
amount of these instruments reflects the extent of involvement that the
Subsidiary Banks have in classes of financial instruments.
The Subsidiary Banks use the same credit policies in making commitments to
extend credit and in issuing standby letters of credit that are used for
on-balance sheet instruments. The Corporation's exposure to credit loss for
commitments to extend credit and standby letters of credit in the event of the
other party's nonperformance is represented by the contract amount of the
instrument and is essentially the same as that involved in extensions of loans
with collateral being obtained if deemed necessary.
For interest rate contracts, the contract or notional amounts do not
represent exposure to credit loss. Potential credit risk on these contracts
arises from the counterparty's inability to meet the terms of the contract.
Management considers the credit risk of these contracts to be minimal and
manages this risk through routine review of the counterparty's financial
ratings.
During 1993, CCB entered into a corridor interest rate contract with a
major regional commercial bank (the "Counterparty") to manage interest rate
risk. A corridor interest rate contract involves the simultaneous purchase and
sale of interest rate caps. The interest rate caps each have a notional amount
of $100,000,000 and were entered into for a two-year period expiring July 1,
1995. The 72 basis point fee on the corridor contract is being amortized over
the life of the contract as an adjustment to interest income. The purpose of
entering into the corridor contract was to synthetically convert fixed rate
assets to floating rate assets within the strike rates of the contract in a
rising interest rate environment. Higher interest rates in 1994 created a
favorable position for CCB on the interest rate corridor contract. On August 29,
1994, CCB entered into an interest rate floor contract with the same
Counterparty to provide protection against falling interest rates for a period
of fourteen months after the interest rate corridor contract expires. The
interest rate floor contract has a notional amount of $100,000,000, was entered
into for a two-year period beginning August 29, 1994, and the 14.5 basis point
fee is being amortized over the life of the contract as an adjustment to
interest income. Due to the structure of the corridor and interest rate floor
contracts, there are no future cash payment requirements for the Corporation.
The net impact of the contracts on operating results was to increase pre-tax
earnings by $295,000 or a 1 basis point favorable impact on the net interest
margin for the year ended December 31, 1994.
(15) DIVIDEND RESTRICTIONS
Certain restrictions exist regarding the ability of the Subsidiary Banks to
transfer funds to the Corporation in the form of cash dividends. In addition to
restrictions under the General Statutes of North Carolina, there are regulatory
capital requirements which must be met by the Subsidiary Banks. Under these
requirements, the Subsidiary Banks have approximately $88,428,000 in retained
earnings at December 31, 1994 that can be transferred to the Corporation in the
form of cash dividends. Total dividends declared by the Subsidiary Banks to the
Corporation in 1994 were $9,560,000.
As a result of the above requirements, consolidated net assets of the
Subsidiary Banks amounting to approximately $220,606,000 at December 31, 1994
were restricted from transfer to the Corporation.
46
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(16) CCB FINANCIAL CORPORATION (PARENT COMPANY)
CCB Financial Corporation's principal asset is its investment in its
Subsidiary Banks and its principal source of income is dividends from its
Subsidiary Banks. The Parent Company's Condensed Balance Sheets at December 31,
1994 and 1993 and the related Condensed Statements of Income and Cash Flows for
the years ended December 31, 1994, 1993 and 1992 are as follows:
[CAPTION]
December 31
1994 1993
BALANCE SHEETS
Cash and short-term investments $ 490,709 2,761,648
Notes receivable from subsidiaries 21,940,000 33,265,000
Investments in bank subsidiaries 279,242,828 261,761,943
Other assets 3,601,814 3,553,520
Total assets $305,275,351 301,342,111
Short-term borrowed funds $ 5,000,000 --
Subordinated notes 40,000,000 40,000,000
Other liabilities 8,884,754 10,338,348
Total liabilities 53,884,754 50,338,348
Shareholders' equity 251,390,597 251,003,763
Total liabilities and shareholders' equity $305,275,351 301,342,111
[CAPTION]
Years Ended December 31
1994 1993 1992
INCOME STATEMENTS
Dividends from bank subsidiaries $ 9,560,000 10,150,000 6,900,000
Interest income 2,869,841 1,231,674 2,431,551
Management fees 748,325 957,646 60,504
Total operating income 13,178,166 12,339,320 9,392,055
Interest expense 2,724,262 1,334,951 2,127,517
Other operating expenses 893,904 854,369 364,538
Total operating expenses 3,618,166 2,189,320 2,492,055
Income before income taxes 9,560,000 10,150,000 6,900,000
Income taxes -- -- --
Income before equity in undistributed net income of bank subsidiaries 9,560,000 10,150,000 6,900,000
Equity in undistributed net income of bank subsidiaries 28,917,532 17,703,612 18,421,522
Net income $38,477,532 27,853,612 25,321,522
47
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
[CAPTION]
Years Ended December 31
1994 1993 1992
STATEMENTS OF CASH FLOWS
Net cash provided by operating activities $ 9,105,714 14,820,528 5,570,782
Investment in acquired subsidiaries -- (39,675,291) --
Investment in existing subsidiaries -- (19,000,000) --
Net (increase) decrease in loans to subsidiaries 11,325,000 (6,730,000) 1,690,000
Net cash provided (used) by investing activities 11,325,000 (65,405,291) 1,690,000
Increase (decrease) in master notes -- -- (2,729,827)
Increase (decrease) in short-term borrowed funds 5,000,000 -- --
Public offering of common stock and subordinated notes, net -- 58,390,529 --
Issuances of common stock in acquisitions, net -- 20,775,093 --
Purchase and retirement of common stock (15,530,242) (16,470,000) --
Cash dividends (12,423,075) (10,386,221) (8,768,656)
Other, net 251,664 -- --
Net cash provided (used) by financing activities (22,701,653) 52,309,401 (11,498,483)
Net increase (decrease) in cash and short-term investments (2,270,939) 1,724,638 (4,237,701)
Cash and short-term investments at beginning of year 2,761,648 1,037,010 5,274,711
Cash and short-term investments at end of year $ 490,709 2,761,648 1,037,010
48
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(17) QUARTERLY FINANCIAL DATA (UNAUDITED)
Following is a summary of the consolidated quarterly financial data for the
years ended December 31, 1994 and 1993 (in thousands except per share data):
1994 1993
4TH QTR. 3RD QTR. 2ND QTR. 1ST QTR. 4TH QTR. 3RD QTR. 2ND QTR.
Interest income $ 67,080 62,260 58,522 53,869 54,649 50,459 45,157
Interest expense 28,528 24,847 22,410 21,190 21,034 19,176 17,895
Net interest income 38,552 37,413 36,112 32,679 33,615 31,283 27,262
Provision for loan and lease losses 3,120 2,325 2,223 1,252 1,918 1,835 1,700
Net interest income after provision for
loan and lease losses 35,432 35,088 33,889 31,427 31,697 29,448 25,562
Other income 10,538 9,673 9,983 10,340 13,262 9,649 8,181
Other expenses 31,317 29,375 29,123 29,110 31,163 28,441 23,772
Income before income taxes and cumulative
changes in accounting principles 14,653 15,386 14,749 12,657 13,796 10,656 9,971
Income taxes 4,516 5,238 5,002 4,211 4,545 3,676 3,328
Income before cumulative changes in
accounting principles 10,137 10,148 9,747 8,446 9,251 6,980 6,643
Cumulative changes in accounting
principles (notes 1, 10 and 13) -- -- -- -- -- -- --
Net income $ 10,137 10,148 9,747 8,446 9,251 6,980 6,643
Income per share (note 1):
Income before cumulative changes in
accounting principles:
Primary $ 1.08 1.07 1.02 .89 1.03 .83 .83
Fully diluted 1.08 1.07 1.02 .89 1.03 .83 .78
Net income:
Primary 1.08 1.07 1.02 .89 1.03 .83 .83
Fully diluted 1.08 1.07 1.02 .89 1.03 .83 .78
1ST QTR.
Interest income 40,424
Interest expense 15,716
Net interest income 24,708
Provision for loan and lease losses 1,000
Net interest income after provision for
loan and lease losses 23,708
Other income 7,968
Other expenses 22,234
Income before income taxes and cumulative
changes in accounting principles 9,442
Income taxes 3,091
Income before cumulative changes in
accounting principles 6,351
Cumulative changes in accounting
principles (notes 1, 10 and 13) (1,371)
Net income 4,980
Income per share (note 1):
Income before cumulative changes in
accounting principles:
Primary .81
Fully diluted .77
Net income:
Primary .64
Fully diluted .61
(18) FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosure of fair value estimates of on- and off-balance sheet financial
instruments is required under SFAS No. 107. Certain financial instruments and
all non-financial instruments are excluded from its disclosure requirements.
Fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business. Significant
assets and liabilities that are not considered financial instruments include
premises and equipment, intangible assets, negative goodwill, the trust
department and mortgage banking operations. In addition, the tax ramifications
resulting from the realization of the unrealized gains and losses of the
financial instruments would have a significant impact on the fair value
estimates presented and have not been considered in any of the fair value
estimates. Estimated fair values of certain on-and off-balance sheet financial
instruments of the Corporation at December 31, 1994 and 1993 are presented below
(in thousands):
49
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1994 1993
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
Financial assets:
Cash, time deposits in other banks and other short-term investments $ 346,687 346,687 396,050 396,050
Investment securities 592,118 591,803 617,419 631,741
Loans 2,479,161 -- 2,137,570 --
Reserve for loan losses (30,990) -- (26,744) --
Net loans 2,448,171 2,441,189 2,110,826 2,147,997
Total financial assets $3,386,976 3,379,679 3,124,295 3,175,788
Financial liabilities:
Deposits $3,032,171 3,023,320 2,816,771 2,826,100
Securities sold under agreements to repurchase 42,274 42,274 25,527 25,527
Short-term borrowings 69,267 69,267 16,202 16,202
Long-term debt 77,039 70,273 78,698 74,394
Total financial liabilities $3,220,751 3,205,134 2,937,198 2,942,223
Off-balance sheet financial instruments:
Interest rate corridor $ 180 490 540 362
Interest rate floor 125 17 -- --
Fair value estimations are made at a point in time based on relevant market
information and the characteristics of the on-and off-balance financial
instruments being valued. The estimated fair value presented does not represent
the gain or loss that could result if the Corporation chose to liquidate all of
its holdings of a financial instrument. Because no market exists for a large
portion of the Corporation's financial instruments, fair value estimates are
based on management's judgments about future expected loss experience, current
economic conditions, the risk characteristics of the individual financial
instruments and other factors. Accordingly, these estimates are subjective in
nature and involve a high degree of judgment and cannot be determined with a
high degree of precision. Changes in assumptions and/or the methodology used
could significantly impact the fair values presented above.
FINANCIAL ASSETS
The fair value of cash, time deposits in other banks and other short-term
investments is equal to their carrying value due to the nature of those
instruments. The fair value of investment securities is based on published
market values and is calculated based upon the number of trading units of the
financial instrument times its market price. The fair value of net loans is
based on the discounting of scheduled cash flows through estimated maturity
using market rates and management's judgment about the credit risk inherent in
the different segments of the loan portfolio. Estimates of maturity, except for
residential mortgage loans, are based on the stated term of the loan or the
Corporation's estimates of prepayments considering current economic and lending
conditions. Estimates of maturity for residential mortgage loans are based on
prepayments estimated by secondary market sources.
FINANCIAL LIABILITIES
The fair value of noninterest-bearing deposits, savings and NOW accounts
and money market accounts is the amount payable on demand at December 31, 1994
and 1993. The fair value of time deposits is estimated based on the discounted
value of contractual cash flows using the currently offered rate for deposits
with similar remaining maturities. Securities sold under agreements to
repurchase and short-term borrowings are generally due within 90 days, and,
accordingly, the carrying amount of these instruments is considered to be a
reasonable approximation of their fair value. The estimated fair value of
long-term debt is based on market rates for similar issues.
50
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The fair value of the interest rate corridor and interest rate floor are
based on quotes from an outside source considering current economic conditions
and the interest rates and maturities of the contracts. The estimated fair value
of commitments to extend credit and standby letters of credit are equal to their
carrying value due to the majority of these off-balance sheet instruments having
relatively short terms to maturity and being written at variable rates.
The carrying amounts of commitments to extend credit and standby letters of
credit are comprised of unamortized fee income, if any. These amounts are not
material to the Corporation. The carrying amounts are reasonable estimates of
the fair value of these off-balance sheet financial instruments due to their
maturity and repricing terms.
(19) PENDING MERGER
On November 7, 1994, the Corporation announced that it had entered into a
definitive agreement to merge with Security Capital Bancorp ("Security Capital")
of Salisbury, North Carolina. Security Capital is a $1.2 billion bank holding
company operating 46 offices located in the south central and western Piedmont
regions of North Carolina. Under the terms of the definitive agreement, the
Corporation will issue .50 shares of its common stock in exchange for each share
of common stock of Security Capital in a tax-free exchange. Security Capital had
approximately 11,776,000 shares of common stock outstanding at December 31,
1994. The merger will be accounted for as a pooling of interests. The
transaction, which is subject to, among other things, approval by regulatory
authorities and shareholders of both companies, is expected to be completed
during the second quarter of 1995.
51
REPORT OF MANAGEMENT REGARDING RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the content of the financial information
included in this annual report. The financial statements from which the
financial information has been drawn are prepared in accordance with generally
accepted accounting principles. Other information in this report is consistent
with the financial statements.
In meeting its responsibility, management relies on the system of internal
accounting control and related control systems. Elements of these systems
include selection and training of qualified personnel, establishment and
communication of accounting and administrative policies and procedures,
appropriate segregation of responsibilities, and programs of internal audits.
These systems are designed to provide reasonable assurance that financial
records are reliable for preparing financial statements and maintaining
accountability for assets, and that assets are safeguarded against unauthorized
use or disposition. Such assurance cannot be absolute because of inherent
limitations in any system of internal control. The concept of reasonable
assurance recognizes that the cost of a system of internal control should not
exceed the benefit derived and that the evaluation of such cost and benefit
necessarily requires estimates and judgments.
KPMG Peat Marwick LLP, independent auditors, audited the Corporation's
consolidated financial statements in accordance with generally accepted auditing
standards. These standards include a study and evaluation of internal control
for the purpose of establishing a basis for reliance thereon relative to the
determination of the scope of their audits.
The voting members of the Corporation's Audit Committee of the Board of
Directors consist solely of outside Directors. The Audit Committee meets
periodically with management, the Corporation's internal auditors and the
independent auditors to discuss audit, financial reporting, and related matters.
KPMG Peat Marwick LLP and the internal auditors have direct access to the Audit
Committee.
/s/ ERNEST C. ROESSLER /S/ W. HAROLD PARKER, JR.
ERNEST C. ROESSLER W. HAROLD PARKER, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER SENIOR VICE PRESIDENT AND CONTROLLER
January 17, 1995
52
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
CCB Financial Corporation
We have audited the consolidated balance sheets of CCB Financial
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CCB
Financial Corporation and subsidiaries at December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994 in conformity with generally accepted
accounting principles.
On January 1, 1994, the Corporation adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". On January 1, 1993, the Corporation
adopted the provisions of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", and SFAS No. 109, "Accounting for
Income Taxes".
/s/ KPMG PEAT MARWICK LLP
Raleigh, North Carolina
January 17, 1995
53
DESCRIPTION OF EXHIBITS
Amended and Restated Agreement of Combination among Registrant, Security Capital
Bancorp and New Security Capital, Inc.
Copy of Articles of Incorporation of Registrant, as restated and amended
Copy of Bylaws of Registrant, as amended
Rights Agreement dated February 26, 1990 between Registrant and Central Carolina
Bank and Trust Company
Form of Indenture dated as of November 1, 1993, between Registrant and Wachovia
Bank of North Carolina, N.A., Trustee, pursuant to which Registrant's
Subordinated Notes are issued and held
Description of Management Performance Incentive Plan of Central Carolina Bank
and Trust Company
Performance Unit Plan of Registrant
Restricted Stock Plan of Registrant
Employment Agreement and Deferred Compensation Agreement by and between
Registrant, Central Carolina Bank and Trust Company (as successor to Republic
Bank & Trust Company) and John B. Stedman
1993 Management Recognition Plan for CCB Savings Bank of Lenoir, Inc., SSB
1993 Nonstatutory Stock Option Plan for CCB Savings Bank of Lenoir, Inc., SSB
Amendment No. 1 to 1993 Nonstatutory Stock Option Plan for CCB Savings Bank of
Lenoir, Inc., SSB
1993 Incentive Stock Option Plan of Registrant
Long-Term Incentive Plan of Registrant
Subsidiaries of Registrant
Consent of KPMG Peat Marwick LLP
Financial Data Schedule
Registrant's Proxy Statement to Shareholders for the 1995 Annual Meeting of
Shareholders
COPIES OF EXHIBITS ARE AVAILABLE UPON WRITTEN REQUEST TO W. HAROLD
PARKER, JR., SENIOR VICE PRESIDENT AND CONTROLLER OF CCB FINANCIAL CORPORATION
54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CCB FINANCIAL CORPORATION
By: /S/ ERNEST C. ROESSLER
ERNEST C. ROESSLER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: March 14, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ ERNEST C. ROESSLER President and Director (Chief Executive March 14, 1995
ERNEST C. ROESSLER Officer)
Director March , 1995
J. HARPER BEALL, III
/s/ JAMES B. BRAME, JR. Director March 14, 1995
JAMES B. BRAME, JR.
Director March , 1995
TIMOTHY B. BURNETT
/s/ W. L. BURNS, JR. Director March 14, 1995
W. L. BURNS, JR.
/s/ ARTHUR W. CLARK Director March 14, 1995
ARTHUR W. CLARK
Director March , 1995
KINSLEY VAN R. DEY, JR.
/s/ FRANCES HILL FOX Director March 14, 1995
MRS. FRANCES HILL FOX
/s/ T. E. HAIGLER, JR. Director March 14, 1995
T. E. HAIGLER, JR.
Director March , 1995
EDWARD S. HOLMES
/s/ OWEN G. KENAN Director March 14, 1995
OWEN G. KENAN
Director March , 1995
EUGENE J. MCDONALD
Director March , 1995
HAMILTON W. MCKAY, JR., M.D.
/s/ ERIC B. MUNSON Director March 14, 1995
ERIC B. MUNSON
Director March , 1995
JOHN B. STEDMAN
Director March , 1995
H. ALLEN TATE, JR.
/s/ PHAIL WYNN, JR. Director March 14, 1995
DR. PHAIL WYNN, JR.
/s/ W. HAROLD PARKER, JR. Senior Vice President and Controller (Chief March 14, 1995
W. HAROLD PARKER, JR. Accounting Officer)
EXHIBIT INDEX
EXHIBIT NUMBER
PER ITEM 601
OF EXHIBIT NO. IN
REGULATION S-K THIS FORM 10-K
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession.
a. Amended and Restated Agreement of Combination among Registrant,
Security Capital Bancorp and New Security Capital, Inc. is
incorporated herein by reference from Appendix A of the Registrant's
Registration Statement No. 33-57005 on Form S-4.
(3) Articles of Incorporation and Bylaws.
a. Registrant's Articles of Incorporation as restated and amended. 3(A)
b. Registrant's Bylaws as amended on April 20, 1993 is incorporated by
reference from Exhibit 3(B) of Registrant's Annual Report on Form
10-K for the year ended December 31, 1993.
(4) Instruments defining the rights of security holders, including
indentures.
a. Rights Agreement dated February 26, 1990 between Registrant and
Central Carolina Bank and Trust Company is incorporated herein by
reference from Exhibit 4 of Registrant's Current Report on Form 8-K
dated February 16, 1990.
b. Form of indenture dated November 1, 1993 between Registrant and
Wachovia Bank of North Carolina, N.A., Trustee, pursuant to which
Registrant's Subordinated Notes are issued and held is incorporated
herein by reference from Exhibit 4.2 of the Registrant's Registration
Statement No. 33-50793 on Form S-3.
(10) Material contracts.
a. Description of Management Performance Incentive Plan of Central
Carolina Bank and Trust Company is incorporated herein by reference
from Registrant's 1988 Annual Report on Form 10-K.
b. Performance Unit Plan of Registrant is incorporated herein by
reference from Registrant's 1983 Annual Report on Form 10-K.
c. Restricted Stock Plan of Registrant is incorporated herein by
reference from Registrant's 1984 Annual Report on Form 10-K.
d. Employment Agreement and Deferred Compensation Agreement by and
between Registrant, Central Carolina Bank and Trust Company (as
successor to Republic Bank & Trust Company) and John B. Stedman are
incorporated herein by reference from pages A-25 through A-33 of
Registrant's Registration Statement No. 33-7118, dated July 9, 1986,
on Form S-4.
e. 1993 Management Recognition Plan for CCB Savings Bank of Lenior,
Inc., SSB is incorporated herein by reference from Exhibit 28 of
Registrant's Registration Statement No. 33-61268 on Form S-8.
f. 1993 Nonstatutory Stock Option Plan for CCB Savings Bank of Lenoir,
Inc., SSB is incorporated herein by reference from Exhibit 28 of
Registrant's Registration Statement No. 33-61272 on Form S-8.
g. Amendment No. 1 to the 1993 Nonstatutory Stock Option Plan for CCB
Savings Bank of Lenoir, Inc., SSB is incorporated herein by reference
from Exhibit 10(G) of Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993.
h. 1993 Incentive Stock Option Plan of Registrant is incorporated herein
by reference from Exhibit 28 of Registrant's Registration Statement
No. 33-61270 on Form S-8.
i. Long-Term Incentive Plan of Registrant is incorporated herein by
reference from Exhibit 99 of Registrant's Registration Statement No.
33-54645 on Form S-8.
EXHIBIT NUMBER
PER ITEM 601
OF EXHIBIT NO. IN
REGULATION S-K THIS FORM 10-K
(13) Annual Report to security holders, Form 10-Q or quarterly report to Submitted in
security holders. paper format
for
informational
purposes
(21) Subsidiaries of Registrant.
A listing of the direct and indirect subsidiaries of Registrant is
included in Note 1 to the Consolidated Financial Statements of
Registrant included in this Form 10-K.
(23) Consents of experts and counsel.
Consent of KPMG Peat Marwick LLP. 23
(27) Financial Data Schedule. 27
(99) Additional exhibits.
Proxy Statement for 1995 Annual Meeting of Shareholders on April 18, Not Required to
1995. be Refiled