UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the quarterly period ended JUNE 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the transition period from __________ to ________
Commission File Number: 1-10646
CENTURA BANKS, INC.
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(Exact name of registrant as specified in its charter)
North Carolina 56-1688522
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(State of Incorporation) (IRS Employer Identification No.)
134 North Church Street, Rocky Mount, North Carolina 27804
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(Address of principal executive office) (Zip Code)
(91) 977-4400
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark has filed all documents and reports required to be filed
by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK, NO PAR VALUE 22,497,498
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(Class of Stock) (Shares outstanding as of July 31, 1996)
Exhibit Index on sequential page number 31.
CENTURA BANKS, INC.
FORM 10-Q
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -
June 30, 1996 and 1995, and December 31, 1995 4
Consolidated Statements of Income -
Three months and six months ended June 30, 1996 and 1995 5
Consolidated Statement of Shareholders' Equity -
Six months ended June 30, 1996 6
Consolidated Statements of Cash Flows -
Six months ended June 30, 1996 and 1995 7
Notes to Consolidated Financial Statements 8-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 28
Item 2. Changes in Securities 28
Item 3. Defaults upon Senior Securities 28
Item 4. Submission of Matters to a Vote of Securities Holders 28
Item 5. Other Information 28
Item 6. Exhibits and Reports on Form 8-K 29
SIGNATURES 30
CENTURA BANKS, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statement of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS
CENTURA BANKS, INC. AND SUBSIDIARY
JUNE 30, DECEMBER 31,
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(In thousands, except share data) 1996 1995 1995
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ASSETS
Cash and due from banks $ 213,693 $ 225,039 $ 261,974
Due from banks, interest-bearing 11,431 8,152 8,295
Investment securities:
Available for sale (cost of $1,080,296, $510,004,
and $991,603, respectively) 1,064,137 505,591 992,043
Held to maturity (market value of $244,884,
$548,938 and $303,662, respectively) 246,765 549,067 300,919
Federal funds sold 21,470 43,690 32,183
Loans 3,829,120 3,593,880 3,710,043
Less allowance for loan losses 56,297 52,282 53,452
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Net loans 3,772,823 3,541,598 3,656,591
Bank premises and equipment 87,599 83,842 83,946
Other assets 213,165 154,816 167,456
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Total assets $ 5,631,083 $ 5,111,795 $ 5,503,407
====================================================================================================
LIABILITIES
Deposits:
Demand, noninterest-bearing $ 645,354 $ 591,391 $ 636,796
Interest-bearing 3,267,497 3,081,551 3,180,825
Time deposits over $100 362,425 374,349 474,798
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Total deposits 4,275,276 4,047,291 4,292,419
Borrowed funds 655,334 367,911 497,717
Long-term debt 233,668 204,677 226,866
Other liabilities 67,931 63,090 77,318
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Total liabilities 5,232,209 4,682,969 5,094,320
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 25,000,000 shares
authorized; none issued - - -
Common stock, no par value
50,000,000 shares authorized; shares issued
and outstanding of 22,499,295, 24,239,246
and 23,126,200, respectively 157,899 222,392 184,188
Common stock acquired by ESOP (467) (611) (539)
Unrealized securities gains (losses), net (9,975) (2,644) 621
Retained earnings 251,417 209,689 224,817
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Total shareholders' equity 398,874 428,826 409,087
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Total liabilities and shareholders' equity $ 5,631,083 $ 5,111,795 $ 5,503,407
====================================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF INCOME
CENTURA BANKS, INC. AND SUBSIDIARY
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
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(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1996 1995 1996 1995
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INTEREST INCOME
Loans, including fees $ 87,178 $ 80,824 $ 172,625 $ 152,948
Investment securities:
Taxable 20,395 14,034 41,226 27,227
Tax-exempt 643 742 1,429 1,528
Short-term investments 305 487 635 701
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Total interest income 108,521 96,087 215,915 182,404
INTEREST EXPENSE
Deposits 38,214 35,428 78,798 64,498
Borrowed funds 8,286 5,110 15,309 9,701
Long-term debt 3,502 3,156 7,122 5,568
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Total interest expense 50,002 43,694 101,229 79,767
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NET INTEREST INCOME 58,519 52,393 114,686 102,637
Provision for loan losses 2,325 2,065 4,325 3,884
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Net interest income after provision for loan losses 56,194 50,328 110,361 98,753
NONINTEREST INCOME
Service charges on deposit accounts 8,486 6,929 16,330 13,426
Credit card and related fees 1,043 970 2,109 1,791
Other service charges, commissions and fees 4,270 2,365 7,816 4,778
Fees for trust services 1,645 1,527 3,291 3,054
Mortgage income 2,768 801 6,065 1,929
Other noninterest income 938 1,901 1,877 3,064
Securities gains (losses), net 676 (696) 1,279 (621)
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Total noninterest income 19,826 13,797 38,767 27,421
NONINTEREST EXPENSE
Personnel 24,653 21,087 48,758 40,750
Occupancy 2,924 2,682 5,834 5,330
Equipment 5,057 2,990 9,436 5,522
Foreclosed real estate losses and related
operating expense 171 73 309 192
Other operating 16,945 14,594 33,171 28,730
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Total noninterest expense 49,750 41,426 97,508 80,524
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Income before income taxes 26,270 22,699 51,620 45,650
Income taxes 9,814 8,247 19,196 16,611
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NET INCOME $ 16,456 $ 14,452 $ 32,424 $ 29,039
==============================================================================================================
NET INCOME PER COMMON SHARE
Primary $ 0.71 $ 0.62 $ 1.39 $ 1.27
Fully diluted 0.71 0.62 1.39 1.27
==============================================================================================================
AVERAGE COMMON SHARES OUTSTANDING
Primary 23,080,022 23,467,497 23,257,200 22,885,446
Fully diluted 23,080,022 23,485,648 23,257,200 22,915,030
==============================================================================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
CENTURA BANKS, INC. AND SUBSIDIARY
SIX MONTHS ENDED JUNE 30, 1996
UNREALIZED
COMMON SECURITIES
COMMON STOCK STOCK GAINS TOTAL
-------------------------------- ACQUIRED (LOSSES), RETAINED SHAREHOLDERS'
SHARES AMOUNT BY ESOP NET EARNINGS EQUITY
--------------- -------------- ----------- ------------- ----------- --------------
(DOLLARS IN THOUSANDS)
BALANCE, DECEMBER 31, 1995 23,126,200 $ 184,188 $ (539) $ 621 $ 224,817 $ 409,087
NET INCOME - - - - 32,424 32,424
COMMON STOCK ISSUED:
STOCK OPTION PLANS 166,414 2,166 - - - 2,166
REDEMPTION OF COMMON STOCK (793,319) (28,455) - - - (28,455)
UNREALIZED SECURITIES LOSSES, NET - - - (10,596) - (10,596)
OTHER - - 72 - 141 213
CASH DIVIDENDS - - - - (5,965) (5,965)
--------------- -------------- ----------- ------------- ----------- --------------
BALANCE, JUNE 30, 1996 22,499,295 $ 157,899 $ (467) $ (9,975) $ 251,417 $ 398,874
=============== ============== ============ ============= ============= ==============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF CASH FLOWS
CENTURA BANKS, INC. AND SUBSIDIARY
FOR THE SIX MONTHS ENDED
JUNE 30,
---------------------------------------------
(Dollars in thousands) 1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 32,424 $ 29,039
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 4,325 3,884
Depreciation and amortization 6,539 4,949
Decrease in deferred income taxes (3,887) (4,865)
Loan fees deferred, net (4,120) (1,264)
Bond premium amortization and discount accretion, net 1,555 649
(Gain) loss on sales of investment securities (1,279) 621
Proceeds from sales of mortgage loans held for sale 226,207 143,501
Originations, net of principal repayments, of mortgage loans held for sale (228,258) (165,772)
Increase in accrued interest receivable (1,463) (4,380)
Increase (decrease) in accrued interest payable (4,202) 5,567
Net (increase) decrease in other assets and liabilities (38,722) 8,669
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Net cash provided by operating activities (10,881) 20,598
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CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (236,214) (271,755)
Purchases of:
Securities available for sale (346,198) (175,820)
Securities held to maturity (36,667) (72,192)
Premises and equipment (8,531) (8,717)
Proceeds from:
Sales of securities available for sale 288,667 133,658
Maturities and issuer calls of securities available for sale 86,713 12,316
Maturities and issuer calls of securities held to maturity 95,148 90,614
Sales of foreclosed real estate 1,393 738
Dispositions of premises and equipment 1,102 1,874
Net (increase) decrease in federal funds sold 10,713 25,975
Cash acquired, net of cash paid, in purchase acquisitions - 14,132
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Net cash used by investing activities (143,875) (249,177)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits (17,143) 99,831
Net increase in short-term borrowings 157,617 75,257
Proceeds from issuance of long-term debt 31,600 84,988
Repayment of long-term debt (24,798) (7,411)
Cash dividends paid (11,377) (8,034)
Proceeds from issuance of common stock, net 2,166 1,537
Redemption of common stock (28,455) (19,401)
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Net cash provided by financing activities 109,610 226,767
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Decrease in cash and cash equivalents (45,145) (1,812)
Cash and cash equivalents at January 1 270,269 235,003
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Cash and cash equivalents at June 30 $ 225,124 $ 233,191
=============== ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the six
months for:
Interest $ 105,431 $ 73,940
Income taxes 21,084 18,749
Noncash transactions:
Loans securitized into mortgage-backed securities 122,982 56,971
Stock issued in purchase acquisitions - 75,793
Unrealized securities gains (losses), net (17,103) 15,521
Other 213 247
Loans transferred to foreclosed property 1,154 691
=============== ================
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Centura Banks, Inc. and Subsidiary
Note 1: Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Centura Banks, Inc. ("Centura") and its wholly-owned subsidiary, Centura Bank
(the "Bank"). The Bank has the following wholly-owned subsidiaries: Centura
Securities, Inc., Centura Insurance Services, Inc., CB Services Corp., CBRM,
Inc., and Pepco, Inc. All significant intercompany transactions are eliminated
in consolidation and all adjustments considered necessary for a fair
presentation of the results for the interim periods presented have been included
(such adjustments are normal and recurring in nature). Operating results for the
three and six month periods ended June 30, 1996 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1996.
The merger of First Commercial Holding Corporation ("FCHC") with and into
Centura was completed February 27, 1996. As this transaction was accounted for
as a pooling-of-interests, all financial data previously reported prior to the
date of merger has been restated as though FCHC had been combined for the
periods presented. For the completed acquisitions accounted for under the
purchase method of accounting, the financial position and results of operations
of each entity acquired were not included in the consolidated financial
statements until the consummation date of the transaction.
Note 2: Acquisitions
Acquisition activity for 1996 and 1995 is summarized below. Data for the
completed acquisitions are as of the date of acquisition:
Institution Acquisition Date Offices Assets Loans Deposits
(dollars in millions)
COMPLETED ACQUISITIONS
First Commercial Holding Corporation ("FCHC") 2/27/96 8 $ 172 $ 120 $ 140
Deposit assumption from Essex Savings Bank, FSB 7/26/96 ---- 71 ---- 71
("Essex") (4)
Cleveland Federal Bank, A Savings Bank ("Cleveland") 3/30/95 2 86 69 74
First Southern Bancorp, Inc. ("First Southern") 6/2/95 8 325 224 266
PENDING ACQUISITIONS
First Community Bank, Gastonia (1)(3) ----- 5 $ 123 $ 82 $ 101
FirstSouth Bank, Burlington (2)(3) ----- 5 178 132 158
Equity interest of 49% in First Greensboro Home ----- ----- ----- ----- -----
Equity, Inc (2).
(1) Consummation of transaction is expected in third quarter of 1996.
Acquisition to be accounted for as a purchase.
(2) Consummation of transaction is expected in fourth quarter of 1996. Merger
to be accounted for as a pooling-of-interests.
(3) Financial data as of June 30, 1996.
(4) Transaction was accounted for as a purchase.
On July 26, 1996, Centura consummated its assumption of deposit liabilities and
the acquisition of certain deposit-related loans of the branch offices operated
by Essex in Greensboro, Raleigh, and Wilmington, North Carolina. Centura did not
open the branch offices of Essex, but consolidated the deposits into existing
Centura branches. Centura paid a 1% deposit premium for the assumed deposits.
Since the transaction was accounted for under the purchase method of accounting
and was consummated after June 30, 1996, the impact of this transaction is
appropriately not included in the consolidated financial statements presented.
On March 30, 1995, Centura consummated its acquisition of Cleveland, a
federally-chartered savings bank headquartered in Shelby, North Carolina, with
and into the Bank. The merger was consummated through the issuance of 3.381
shares of Centura's common stock for each share of outstanding common stock of
Cleveland, or 645,719 shares. The purchase price exceeded the fair value of net
assets acquired by $6.9 million, which amount was recorded as goodwill, included
in other assets on the consolidated balance sheet. Centura's board of directors
approved the repurchase of up to 100 percent of the shares issued to consummate
this transaction.
On June 2, 1995, Centura consummated its acquisition of First Southern, a North
Carolina savings bank holding company headquartered in Asheboro, North Carolina,
with and into Centura. In addition, First Southern Savings Bank, Inc., SSB,
First Southern's wholly-owned North Carolina savings bank subsidiary, was merged
with and into the Bank. Centura issued 2,165,791 shares of common stock for each
of the outstanding shares of First Southern and for each of the shares of First
Southern subject to issuance upon the exercise of options to purchase such
shares. Goodwill of approximately $18.8 million was recorded, representing the
excess of the purchase price over the fair value of net assets acquired.
Centura's board of directors approved the repurchase of up to 100 percent of the
shares issued to consummate this transaction.
On February 27, 1996, Centura consummated its acquisition of FCHC, a Delaware
bank holding company with its principal offices in Asheville, North Carolina,
with and into Centura. In addition, First Commercial Bank, FCHC's wholly owned
North Carolina state bank subsidiary, was merged with and into the Bank. The
merger was consummated through the issuance of .63 shares of Centura's common
stock for each share of outstanding common stock of FCHC or 1,607,564 shares.
Centura's board of directors has approved the repurchase of up to 9.9 percent of
the shares issued. The transaction was accounted for as a pooling-of-interests;
therefore, financial data of Centura previously reported prior to the date of
the merger has been restated to include the accounts of both Centura and FCHC.
On March 20, 1996, Centura and First Community Bank, a North Carolina bank
corporation with its principal headquarters in Gastonia, executed an agreement
to merge First Community with and into Centura Bank. Pursuant to the agreement,
shareholders of First Community will receive .96 shares of Centura common stock
for each share of First Community common stock, subject to possible adjustment
as described in the agreement. Centura's board of directors has approved the
repurchase of up to 100 percent of the shares issued to consummate the
transaction. Assuming satisfaction of certain conditions and requisite
approvals, it is estimated that this merger will occur in the third quarter of
1996.
On April 18, 1996, Centura and FirstSouth Bank announced an agreement to merge.
Centura will acquire all of the capital stock of FirstSouth Bank at an exchange
ratio of .56 shares of its common stock for each issued and outstanding share of
stock of FirstSouth Bank. The acquisition will be accounted for as a pooling.
Centura's board of directors has approved the repurchase of up to 9.9 percent of
the shares issued. It is estimated that this merger will occur in the fourth
quarter of 1996.
On July 11, 1996, Centura announced that it entered into an agreement to
purchase 49 percent of First Greensboro Home Equity, Inc. ("First Greensboro").
First Greensboro, headquartered in Greensboro, North Carolina, is a mortgage
company operating approximately 31 offices in 10 states. The transaction is
expected to be a cash purchase and providing the satisfaction of certain
conditions and regulatory approvals, the anticipated closing is during the
fourth quarter of 1996.
Note 3: Reclassifications
Certain items in the June 30, 1995 consolidated financial statements have been
reclassified to conform with the June 30, 1996 presentation. Such
reclassifications had no impact on net income or shareholders' equity.
Note 4: Adoption of Statements of Financial Accounting Standards ("SFAS")
In March 1995, the Financial Accounting Standards Board (the "FASB") issued SFAS
No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," which establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for those to be disposed of.
This statement requires that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. An impairment loss should be
recognized if the sum of the undiscounted future cash flows is less than the
carrying amount of the asset. Those assets to be disposed of are to be reported
at the lower of the carrying amount or fair value less costs to sell. As
required, Centura adopted the provisions of this statement in the first quarter
of 1996, but the impact of such adoption was immaterial. However, this statement
could have a material impact on Centura's consolidated financial statements in
future periods should an event or changes in circumstances occur in such future
periods, requiring a review by management for impairment.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights, an amendment of FASB Statement No. 65," which provides guidance for
recognition of mortgage servicing rights as an asset when a mortgage loan is
sold or securitized and servicing rights retained, and which requires entities
to measure the impairment of servicing rights based on the difference between
the carrying amount of the servicing rights and their current fair value.
Centura adopted the provisions of the statement effective July 1, 1995.
The FASB published an implementation guide for SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The transition provisions
included in this guide permitted a one-time opportunity for companies to
reconsider their ability and intent to hold securities accounted for under SFAS
No. 115 to maturity, allowing entities a one-time only opportunity to transfer
securities from the held-to-maturity ("HTM") category without "tainting" their
remaining HTM securities. Effective December 31, 1995, management transferred
$243 million of investment securities from the HTM category to the available for
sale category as allowed under the provisions of this implementation guide.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." The statement defines a fair value based method of accounting for
an employee stock option or similar equity instrument and encourages all
entities to adopt that method of accounting for all of their employee stock
compensation plans. It also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). SFAS No. 123 requires that an employer's financial statements
include certain disclosures about stock-based employee compensation arrangements
regardless of the method used to account for them. Entities electing to remain
with the accounting in APB 25 must make pro forma disclosures of net income and,
if presented, earnings per share, as if the fair value based method of
accounting defined in SFAS No. 123 had been applied. The accounting requirements
of this statement are effective for transactions entered into in fiscal years
that begin after December 15, 1995, though they may be adopted on issuance. The
disclosure requirements of this statement are effective for financial statements
for fiscal years beginning after December 15, 1995, or for an earlier fiscal
year for which this statement is initially adopted for recognizing compensation
cost. Pro forma disclosures required for entities that elect to continue to
measure compensation cost using APB 25 must include the effects of all awards
granted in fiscal years that begin after December 15, 1994. Centura has elected
to continue to measure compensation cost using APB 25, and therefore, will make
any appropriate disclosures in its financial statements for the year ending
December 31, 1996, of net income and earnings per share as if the fair value
based method of accounting defined in SFAS No. 123 had been applied. Management
has not yet quantified these pro forma disclosures.
CENTURA BANKS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996
The following discussion and analysis is presented to assist in the
understanding and evaluation of the financial condition and results of
operations of Centura Banks, Inc. ("Centura"). Centura is a holding company
operating in North Carolina.
Much of the financial discussion that follows refers to the impact of Centura's
merger and acquisition activity. Table 1 provides a summary of this activity for
1995 and for 1996 through June 30, 1996. See also Note 2 of the notes to
consolidated financial statements for additional detail on the acquisitions. All
the financial institutions acquired were in North Carolina, allowing Centura to
leverage upon its existing market presence, as well as expand into adjacent and
complimentary markets. Centura will continue seeking to acquire healthy thrift
and banking institutions. As evidenced by the pending First Greensboro
transaction, Centura will also continue to evaluate the feasibility of investing
in and acquiring non-traditional banking services allowed under current
regulatory guidelines.
The merger of First Commercial Holding Corporation ("FCHC") with and into
Centura Bank was completed February 27, 1996. As this transaction was accounted
for as a pooling-of-interests, all financial data previously reported prior to
the date of merger have been restated as though FCHC had been combined for the
periods presented. The acquisitions completed in 1995 were accounted for under
the purchase method of accounting; accordingly, the financial position and
results of operations of each entity acquired were not included in the
consolidated financial statements until consummation of the purchase.
SUMMARY
Centura recorded net earnings of $32.4 million for the six months ended June 30,
1996, an increase of $3.4 million or 11.7 percent from the same period in 1995.
Earnings per fully diluted share were $1.39 compared to $1.27 for the prior
period. For the second quarter of 1996, earnings increased $2.0 million to $16.5
million compared to the second quarter of 1995. Earnings per fully diluted share
were $.71 compared to $.62 for the prior period. Specific highlights for the six
months of 1996 are as follows:
(Bullet) Higher earning asset levels and an increase in noninterest income
sources accounted for the majority of the increase in earnings
between the two six month periods.
(Bullet) Taxable equivalent net interest income increased $12.6 million
between the six month periods, despite a 38 basis point drop in the
net interest margin to 4.55 percent for the first half of 1996.
(Bullet) The mix of average interest-bearing funding sources changed between
the first six month periods. Interest-bearing deposits, with a lower
cost of funds in the aggregate than external funding sources,
declined to represent only 81.2 percent of interest-bearing
liabilities versus 86.0 percent last year. Average loans with a
higher average yield than securities and short-term investments
declined to represent 72.3 percent of average interest-earning assets
for the first half of 1996 versus 77.2 percent for the comparable
period.
(Bullet) Nonperforming assets continued at low levels of $22.4 million at June
30, 1996, representing only .40 percent of total assets, compared to
$21.2 million, or .41 percent of total assets at June 30, 1995, and
up slightly from $22.1 million at December 31, 1995.
(Bullet) The allowance for loan losses was $56.3 million, representing 1.47
percent of total loans at June 30, 1996, compared to $52.3 million at
June 30, 1995. Net charge-offs, continuing at low levels, were
only .08 percent of average loans, compared to .11 percent for the
first six months of 1995. The provision for loan losses was $4.3
million for the first six months of 1996 versus $3.9 million for the
same period of 1995.
(Bullet) Noninterest income, before securities transactions, increased $9.4
million to $37.5 million or 33.7 percent over the $28.0 million
recorded for the same period of 1995. Service charges on deposit
accounts increased $2.9 million. Insurance and brokerage commissions
accounted for $2.3 million of the increase, recording $5.4 million
for the first six months of 1996. Mortgage income also increased
dramatically, rising to $6.1 million compared to $1.9 million for the
six month period of 1995. A key component was the impact arising from
the increase in the capitalization of mortgage servicing rights.
(Bullet) Noninterest expense for the six months ended June 30, 1996, increased
over the comparable period in 1995 by 21.1 percent to $97.5 million.
The majority of the increase was seen in personnel. Professional fees
included expenses related to the February 1996 acquisition of First
Commercial Holding Corp. Centura continues to support the progress of
technological and product initiatives, evidenced particularly within
equipment expense, which increased $3.9 million between the six month
periods.
INTEREST-EARNING ASSETS
For the six months ended June 30, 1996, average earning assets had increased to
$5.1 billion, an increase of $889 million or 21.1 percent, over the average of
$4.2 billion for the same period in 1995. At June 30, 1996, earning assets were
$5.2 billion, up $473 million or 10.1 percent, over the level at June 30, 1995.
LOANS
Average loan volume increased to $3.7 billion for the first six months of 1996,
up $434 million or 13.3 percent, over the same period in 1995. The loan growth
trend has been present in all loan categories excluding residential mortgages,
and has been funded principally by deposit growth, as well as increased short
and long-term borrowings. Loans declined to represent 72.3 percent of average
earning assets for the six months of 1996, compared to 77.2 percent for the same
period of 1995. This decline was influenced by a slower pace of loan growth
between the two half-year periods, which channeled additional funding sources
into investment securities.
Loans at June 30, 1996, were $3.8 billion, an increase of $235 million, or 6.5
percent, compared to $3.6 billion at June 30, 1995, and up $119 million over
loans at December 31, 1995. Loans of $293 million were acquired in connection
with the Cleveland and First Southern acquisitions (the "1995 acquisitions"),
predominantly in residential mortgage loans. During the first quarter of 1996,
approximately $122 million of residential mortgage loans held in the loan
portfolio were securitized. Loan growth from June 30, 1995 to June 30, 1996 was
10.0 percent without the effect of the securitization of the residential
mortgage loans noted above. Loan growth has been strong in all loan categories.
Table 2 summarizes total loans outstanding and the mix of loans being held.
Residential mortgages decreased as a percent of total loans due to the
securitization of loans mentioned above. Leasing grew 77 percent over the first
six months of last year and continues to grow as a percent of total loans, as
new leasing offices begin to develop new business.
Credit is extended by the Bank almost exclusively to customers in its market
areas of North Carolina. The Bank's loan policies discourage engaging in foreign
lending activities, having exposure in newly established ventures such as high
technology start-up companies or highly speculative real estate development
projects, and participating in highly leveraged transactions. The loan portfolio
is reviewed on an on-going basis to maintain diversification by industry,
minimizing substantial loan concentrations in any one industry.
The growth of the mortgage loan portfolio held by the Bank is managed to reduce
long-term exposure to interest rate risk. The residential mortgage portfolio
generally represents approximately 40 percent of the
loan portfolio, though for 1996, it has declined to 35 percent, in part as a
result of the securitization noted above. The volume of originations was $228
million for the first six months of 1996. Sales of residential mortgage loans
held for sale for the period ending June 30, 1996 were $226 million indicating a
steady turnover process of loans originated for sale. Sales during the
comparable period of 1995 were approximately $144 million. The mortgage loan
portfolio serviced for others grew to $2.1 billion compared to $1.4 billion at
June 30, 1995 and $1.7 billion at December 31, 1995.
Mortgage loan activity also impacts noninterest income. Major components of
mortgage income are net servicing revenues, origination fees, servicing release
premiums, and net gains or losses on the sales of mortgage loans. Mortgage
income in total increased $4.2 million to $6.1 million for the first six months
of 1996 versus $1.9 million for the comparable period last year. With the
increase in the mortgage loan portfolio serviced for others, net servicing
revenue increased to $2.5 million for the first six month period of 1996, a
$707,000 increase over the comparable 1995 period. The sales activity for 1996
versus the comparable period in 1995, generated $911,000 in net marketing
losses, compared to $2.0 million in losses last year. Offsetting the impact of
these net marketing losses were gains recorded as a result of the capitalization
of mortgage servicing rights totaling $3.3 million for the six months of 1996,
compared to $921,000 last year. This increase is in part due to adopting SFAS
No. 122 (see note 4 of the notes to consolidated financial statements) in July
1995.
The commercial loan portfolio represented 50.1 percent of the loan portfolio at
June 30, 1996. Over 90 percent of these loans are secured. Unsecured commercial
loans are generally seasonal in nature (to be repaid in one year or less) and
like secured loans, are supported by current financial statements and cash flow
analyses.
Loans and other assets which were not performing in accordance with their
original terms and past-due loans are discussed under the section "Asset Quality
and Allowance for Loan Losses."
Loans as a percent of average earning assets had been increasing steadily since
the beginning of 1994. However, the loans to earning assets ratio between the
first six month periods decreased to 72.3 percent for 1996 compared to 77.2
percent for 1995. This turn had a negative effect on the net interest margin, as
loans typically earn higher yields than investments. Taxable equivalent interest
income generated by loans increased $19.6 million for the first six months of
1996 to $172.8 million compared to $153.2 million for the same period last year.
Increased average loan volume of $434 million for the first six months of 1996
accounted for a $20.3 million increase in taxable equivalent interest income.
Slight decreases in interest rates, as evidenced by a 9 basis point decline in
the average loan yield to 9.31 percent from the previous six months in 1995,
directly impacted the yields on the variable rate portion of the loan portfolio,
decreasing taxable equivalent interest income by an additional $707,000.
Approximately 80 percent of the commercial loan portfolio is variable rate,
affected by changes in the prime rate or other various indices.
INVESTMENT SECURITIES
The investment portfolio at June 30, 1996 was $1.3 billion, up 24.3 percent from
the $1.1 billion at June 30, 1995, and represented 23.3 percent and 20.6 percent
of total assets at June 30, 1996 and 1995, respectively.
On average, investments during the first six months of 1996 were $1.4 billion or
up 48.0 percent from the $940 million for the first half of 1995. As a
percentage of earning assets, average investments increased to 27.3 percent as
compared to 22.7 percent of earning assets, during the comparable period of
1995. Investment securities typically earn lower yields than loans thus
contributing to the decline in the net interest margin between the two periods.
The investment portfolio consists primarily of securities for which an active
market exists. Centura's policy is to invest primarily in securities of the US
Government and its agencies and in high grade municipals so as to minimize any
credit risk in the investment portfolio. At June 30, 1996, approximately
95 percent of the total investment portfolio consisted of obligations of the US
Government and its agencies or investment grade state, county and municipal
securities. The composition of the portfolio was 52 percent mortgage-backed
securities and 36 percent US Government and agencies securities, compared to 36
percent and 48 percent, respectively, at December 31, 1995. Approximately 64
percent of the debt securities was in fixed rate investments at June 30, 1996.
The classification of securities as held to maturity ("HTM") or as available for
sale ("AFS") is determined at the date of purchase. At June 30, 1996, 19 percent
of the total investment portfolio, versus 52 percent for the comparable prior
period, was classified as investment securities held to maturity (the "HTM
portfolio"), which are stated at net amortized cost. This shift between periods
occurred principally due to the transfer of $243 million of the HTM portfolio to
the AFS category at December 31, 1995, as allowed under the provisions of the
implementation guide published by the Financial Accounting Standards Board. See
further description of the guide under note 4 of the notes to consolidated
financial statements. Centura intends and has the ability to hold such HTM
securities until maturity. At June 30, 1996, the amortized cost of the HTM
portfolio was $244.9 million, which was $1.9 million more than its market value.
Investment securities available for sale (the "AFS portfolio"), representing the
remainder of the investment portfolio, are reported at fair value and will be
used as a part of Centura's asset/liability management strategies and may be
sold in response to changes in interest rates, changes in prepayment risk, the
need to increase regulatory capital and other factors. At June 30, 1996, the
recorded fair value of the AFS portfolio of $1.1 billion was $16.2 million less
than cost, which difference has been recorded, net of tax, as a reduction of
shareholders' equity. The increase in market decline between the two six-month
periods was attributable to the change in the mix of securities held, the dollar
size of the AFS portfolio, and increases in intermediate-term interest rates.
Centura's liquidity position remains strong, alternative funding sources are
abundant, and cash flows are provided by the AFS and HTM portfolios. This offers
Centura flexibility in its asset/liability management strategies and if
necessary, flexibility to invest and reinvest funds to increase the overall
yield earned on investments.
Net realized gains of $1.3 million were generated during the first six months of
1996 from sales and issuer call activity, compared to net realized losses of
$621,000 during the comparable 1995 period.
Taxable equivalent interest income contributed in the first six months of 1996
from investment securities was $45.4 million, an increase of $14.5 million over
the $31.0 million earned in the comparable period of 1995. Average taxable
investment securities comprise 26 percent of earning assets for the six months
ended June 30, 1996 compared to 21 percent for the comparable period in 1995.
Accordingly, the taxable equivalent interest income on investment securities
increased $14.5 million with $14.1 million due to the increase in average
volumes of the portfolio, and only $414,000 of the increase was earned from the
rise in the yields earned. As supported by Table 3, the yield on the total
investment portfolio has increased only three basis points from 6.48 percent to
6.51 percent.
FUNDING SOURCES
Total funding sources averaged $5.0 billion for the first six months of 1996, a
$882 million or 21.3 percent increase from the average volume of $4.1 billion in
the comparable 1995 period. Funding sources include total deposits, short-term
borrowings and long-term debt.
DEPOSITS
On average, total deposits increased $556 million to $4.2 billion, or 15.3
percent over the first six months of 1995, in part as a result of the timing of
the 1995 purchase acquisitions. The majority of the increase was in time
deposits which increased on average $516 million for the period ended June 30,
1996 over the comparable period in 1995. As shown in Table 3, the yield on time
deposits increased 33 basis points to 5.53 percent for the first half of 1996
from 5.20 percent for the same period in 1995 thus unfavorably impacting the
cost of deposit funding and ultimately the net interest margin.
Transaction account balances (interest checking and noninterest-bearing demand
deposits) on average increased 10.2 percent and remained relatively stable at 28
percent of total deposits, down slightly from 29.3 percent in the first six
months of 1995. Money market accounts decreased 11.6 percent, savings decreased
6.9 percent and time deposits increased 28 percent over the first half of 1995.
Large denomination time deposits averaged $419 million during the first six
months of 1996, and increased as a percentage of the deposit mix to 10.0 percent
of average total deposits from 8.4 percent last year. This provided an
increasing effect to total interest expense, as such large denomination time
deposits often command higher returns than other deposit sources. In addition,
the mix of money market and savings accounts to average total deposits decreased
for the first six months of 1996 to 15.7 percent compared to 19.9 percent, while
total time deposits increased to 56.3 percent from 50.7 percent. These shifts
also supported an increasing effect to total interest expense, as savings and
money market rates are significantly lower than average time deposit yields, as
evidenced in Table 3.
The deposit base at June 30, 1996 of $4.3 billion was up $228 million from the
$4.0 billion level held at June 30, 1995 and consistent with the $4.3 billion at
December 31, 1995. Deposit growth and mix patterns are affected greatly by the
short-term interest rate environment and competition. While the decline in
short-term rates influenced a decrease in the cost of interest checking, money
market and savings accounts as detailed in Table 3, pricing to meet competitive
pressures for deposit balances in 1996 resulted in a significant increase in the
cost of time deposits, up 33 basis points to 5.53 percent. The total cost of
interest-bearing deposits increased 22 basis points to 4.39 percent for first
six months of 1996, compared to 4.17 percent for the comparable period. Also,
there was a negative effect on the cost of deposits from the 1995 purchase
acquisitions, both of which carried high concentrations of time deposits at
higher rates than Centura.
Interest expense on deposits increased $14.3 million to $78.8 million for the
first six months of 1996 versus $64.5 million for the comparable period of 1995.
The change in average volume of deposits was responsible for an increase of
$13.5 million in interest expense (exclusively due to time deposits), while the
change in the rates paid for interest-bearing deposits caused interest expense
to increase by an additional $786,000. Table 3 details the change in rates paid
by deposit category and the corresponding change in volume.
OTHER FUNDING SOURCES
Average total deposit growth for the first six months of 1996, excluding the
First Southern and Cleveland acquisitions consummated during 1995, was
approximately 8 percent. With internal funding growth lagging earning asset
growth, external funding sources were used more. External funding sources were
18.8 percent of total interest-bearing liabilities for the six months of 1996,
compared to 14.0 percent for the comparable period in 1995. However, the use of
both short-term and long-term debt has been in line with asset/liability
strategies. Consequently, short-term borrowed funds averaged $591.4 million,
compared to the $334.0 million average volume for the period ending June 30,
1995. Interest expense on short-term borrowings increased by a net $5.6 million,
comprised of a $6.8 million increase due to higher volume and a $1.2 million
decline due to lower interest rates. The average rate paid for these funds
declined 65 basis points to 5.21 percent. The average volume of long-term debt,
consisting predominantly of FHLB advances, increased to $242.2 million during
the first six months of 1996 compared to $173.7 million for the comparable prior
six months. Interest expense on long-term debt increased by $1.2 million,
principally due to the higher volume. The average rate paid on long-term debt
decreased 56 basis points to 5.91 percent for the six months ending June 30,
1996.
NET INTEREST INCOME AND NET INTEREST MARGIN
As detailed in Table 3, taxable equivalent net interest income for the first
half of 1996 increased by $12.6 million, or 12.0 percent, to $117.7 million,
from $105.1 million in the comparable period of 1995. Most of the increase in
net interest income was generated due to strong growth in earning assets. The
increase in average earning asset volume of $888.5 million exceeded the rise in
average interest-bearing liabilities
volume of $816.5 million; accordingly, increases in average volumes benefited
the taxable equivalent net interest margin by $12.1 million for the six months
ended June 30, 1996. Changes in the rate environment and in the mix of funding
sources used, caused a reduction in the net interest spread, producing a net
decrease to net interest income of $414,000. More specifically, increases in
loan and investment taxable equivalent income contributed $34.0 million to the
taxable equivalent net interest margin and an increase in interest paid on time
deposits negatively impacted the margin by $17.4 million.
The net interest margin for the six months ending June 30, 1996 decreased 38
basis points to 4.55 percent compared to 4.93 percent for the same period last
year as depicted in Table 3. The net interest margin was strongly impacted by
the difference in interest rate environments between the two periods. Earning
assets earned 20 basis points less between the periods, with the average yield
at 8.53 percent compared to 8.73 percent for the half year of 1995. Variable
rate loans, in particular, were influenced by the lower interest rate
environment, contributing strongly to the earning asset yield decline.
Interest-bearing funding sources cost more between the two semi-annual periods,
increasing 14 basis points to 4.58 percent versus 4.44 percent. The increase was
due to the increased cost of time deposits, increasing to 5.53 percent versus
5.20 percent, principally as a result of increased competition for such funds.
As shown in Table 3, the cost of all funding categories, other than time
deposits, declined.
There will continue to be pressure on the net interest margin given the strong
competition for deposits, the corresponding need to utilize other higher-costing
funding sources and given the downward pressure on asset earning power in a
steady to falling rate environment.
ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES
Nonperforming assets continue to be controlled; consequently, additions to the
allowance for loan losses have stabilized. The provision for loan losses was
$4.3 million for the six months ending June 30, 1996, up $441,000 compared to
$3.9 million for the same period of last year. The provision expense exceeded
gross charge-offs by $900,000. Net charge-offs for the first six months of 1996,
continuing at low levels, were $1.5 million, or .08 percent of average loans,
compared to $1.8 million, or .11 percent of average loans for the prior year's
period. Net charge-offs for the year ended December 31, 1995 were .13 percent of
average loans. The allowance for loan losses was $56.3 million at June 30, 1996,
representing 1.47 percent of loans outstanding, compared to $52.3 million, or
1.45 percent of loans outstanding a year ago, and compared to $53.5 million or
1.44 percent of loans outstanding at December 31, 1995. For additional
information with respect to the activity in the allowance for loan losses, see
Table 4 entitled "Analysis of Allowance for Loan Losses".
Nonperforming assets include nonperforming loans (comprised of nonaccrual loans
and restructured loans) and foreclosed property (comprised of property acquired
through foreclosure proceedings or acceptance of deeds-in-lieu of foreclosure).
Nonperforming assets increased to $22.4 million at June 30, 1996 or .40 percent
of total assets at the end of the period. Nonperforming loans accounted for
principally all of the increase in nonperforming assets, representing $19.6
million at June 30, 1996, compared to $17.5 million the same time in 1995, and
were slightly above the $19.3 million at December 31, 1995. Foreclosed property
showed improvement between the June 30 periods, decreasing to $2.7 million at
June 30, 1996 compared to $3.7 million at the end of the second quarter 1995,
and down slightly from the $2.8 million at December 31, 1995. Nonperforming
assets have been controlled as a result of sound lending policy, strong
collection and workout efforts, and close monitoring of commercial real estate
in particular. Table 5, "Nonperforming Assets and Past Due Loans," discloses the
components and balances of nonperforming assets. At June 30, 1996, the allowance
for loan losses is 2.87 times nonperforming loans, down from 2.98 times at June
30, 1995 but up from 2.78 times at December 31, 1995. Based on the current loan
portfolio and levels of current problem assets and potential problem loans,
management believes the allowance for loan losses to be adequate.
Accruing loans past due ninety or more days were $7.1 million, $3.7 million and
$6.1 million at June 30, 1996, June 30, 1995 and December 31, 1995,
respectively, which represented .19 percent, .10 percent and
.17 percent of outstanding loans, respectively. Accrual of interest on loans is
discontinued, and the loans classified as nonaccrual, when management has
serious doubts that additional interest will be collected in a reasonable period
of time.
While nonperforming asset trends have generally been improving since 1992, there
are still exposures. Remaining nonperforming assets may prove to be more
stubborn to resolve. Future writedowns and losses associated with the valuation
or disposition of real estate owned directly affect net earnings. Growth of the
loan portfolio opens opportunity for new problems to develop. Finally, the
impact of ever-changing economic conditions and changes in interest rates and/or
inflation on the operations of Centura's customers is unknown, but gives
opportunity for increased nonperforming asset levels.
POTENTIAL PROBLEM LOANS
In addition to the nonperforming assets and past due loans shown in Table 4,
"Nonperforming Assets and Past Due Loans," management believes that an estimated
$10 to $15 million of additional potential 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.
NONINTEREST INCOME AND EXPENSE
Centura continues to generate most of its total revenue from net interest
income. However, noninterest income revenues are growing at an accelerated rate
compared to the growth in taxable equivalent net interest income. Noninterest
income ("NII") grew $11.3 million, or 41.4 percent, to $38.8 million for the
first six months of 1996. This represents 24.8 percent of the $156.4 million of
total revenues (defined as noninterest income plus taxable equivalent net
interest income) during the period ended June 30, 1996 compared to 20.7 percent
during the comparable period last year. Service charges on deposits increased
$2.9 million to $16.3 million compared to the same period last year, with over
half the increase resulting from additional NSF fees. Although deposit fees are
still the largest single component of total NII, their percentage of the total
continues to decline, comprising 42.1 percent of total NII for the first six
months of 1996 compared to 49.0 percent last year. The continued emphasis on
expanding financial services, primarily brokerage activities, resulted in a $2.3
million increase in insurance and brokerage fees compared to the same period
last year. Total mortgage income for the six-month period of 1996 increased $4.1
million to $6.1 million. Mortgage income is described in detail under
"Interest-earning Assets: Loans."
Centura continues to support the implementation of technology and delivery
channel inititives contributing to the 157 basis point increase in the
efficiency ratio to 62.33 percent for the six months ended June 30, 1996
compared to 60.76 percent for the comparable period last year. Noninterest
expense ("NIE") grew 21.1 percent over the prior six months to $97.5 million for
the first six months of 1996, slower than the 41.4 percent increase in NII. As
expected, the majority of the increases were realized in personnel and equipment
attributable in part to the timing of the 1995 purchase acquisitions. Personnel
expenses increased $8.0 million and equipment $3.9 million for the first six
months of 1996 versus the comparable period for 1995. Professional fees, which
included expenses related to the February 1996 acquisition of First Commercial
Holding Corp., increased $1.7 million to $5.7 million for the first six months
of 1996. Intangibles amortization increased $658,000 between the first six-month
periods as a result of the 1995 purchase acquisitions. Centura's NIE level
benefited from the reduction in FDIC insurance premiums enacted in third quarter
1995, resulting in a $2.2 million decrease to FDIC insurance cost between the
first six-month periods, despite growth to the deposit base between the periods.
While management is committed to keeping costs down, there will be potential for
the efficiency ratio to rise in the future as management furthers the progress
of and completes implementation of its technological and other strategic plans,
and as there is continued downward pressure on the net interest margin.
INCOME TAX EXPENSE
The amount of income tax expense for the first six months of 1996 was $19.2
million compared to $16.6 million in the prior period. The current effective tax
rate is 37.19 percent, up slightly from 36.39 percent at June 30, 1995.
EQUITY AND CAPITAL RESOURCES
Shareholders' equity decreased to $398.9 million at June 30, 1996, compared to
$428.8 million at June 30, 1995. The ratio of shareholders' equity to period-end
assets was 7.08 percent, down from 8.39 percent at the end of June 30, 1995.
Shareholders' equity has decreased over the last year particularly as a result
of the redemption of common stock relative to the 1995 and 1996 acquisitions as
shown in Table 1. Shareholders' equity at June 30, 1996 reflects the redemption
of $28.5 million of common stock during 1996, compared to the redemption of
$19.4 million for the first six months of 1995, all of which is attributable to
merger and acquisition activity, as more further discussed in note 2 to the
consolidated financial statements included herein. Under all repurchase actions,
since inception of the plan in November 1994, Centura has repurchased
approximately 3.1 million shares. The unrealized losses net of tax on securities
available for sale were $10.6 million for the first six months of 1996 compared
to a $9.3 million gain, net of tax, for the comparable period last year.
Centura's common stock is traded on the New York Stock Exchange under the symbol
CBC. At June 30, 1996, Centura had 22,499,295 shares outstanding. Annual cash
dividends have increased consistently and have been paid without interruption
over the past 29 years. Generally, dividends are paid on or about the 15th day
of the final month in the quarter. Cash dividends paid for the first six months
of 1996 were $11.4 million, or $.50 per share, compared to $8.0 million, or $.39
per share, for the comparable period last year. Of the cash dividends paid to
date for 1996, $5.4 million were declared and accrued during the fourth quarter
of 1995.
Centura maintains higher capital ratios than the minimum required by regulatory
guidelines, which has positioned Centura to endure changes in the economy while
providing opportunities for growth, both internally and through additional
acquisitions. At June 30, 1996, Tier 1 capital was $354.3 million and total
capital was $403.1 million. Centura's capital ratios are outlined in Table 6
entitled "Capital Ratios."
As a result of its well-capitalized status (as defined by regulations
promulgated by various federal depository institution regulatory agencies), the
Bank will be assessed at the lowest FDIC insurance premium rate available for
financial institutions under each insurance fund. Centura has deposits insured
under both the FDIC's insurance funds, the Bank Insurance Fund ("BIF") and the
Savings Association Insurance Fund ("SAIF"). The FDIC and other regulatory
agencies have proposed a plan to recapitalize the SAIF, and Congress is
considering the proposed legislation. The proposal includes a provision for a
special one-time assessment on SAIF-assessed deposits. At June 30, 1996,
approximately 35 percent of the Bank's total deposits were insured by the SAIF.
Given the rate identified in the initial proposal for BIF-insured banks with
SAIF-assessed deposits, Centura estimates that the special assessment on a
pre-tax basis would be approximately $9.6 million. Centura, however, is not able
to predict the timing or exact amount of any SAIF special assessment that might
be required. Centura has not and will not accrue a liability for the potential
special assessment until the period in which any proposed legislation is
enacted. If and when such legislation is enacted, the liability will be accrued
and a charge will be recorded in operating expense in the period that includes
the enactment date.
LIQUIDITY AND INTEREST RATE RISK MANAGEMENT
Liquidity is the ability to raise funds through attracting new deposits,
borrowing funds, issuing new capital or selling assets. Liquidity is managed
through the selection of the asset mix and the maturity mix of liabilities. As
part of this process, funding needs and alternatives are continually evaluated.
Centura's liquidity is provided by its portfolio of investment securities,
interest income from investment securities,
principal and interest payments on loans, turnover of mortgage loans held for
sale, core deposits generated through the normal customer base or through
acquisitions, the retention of earnings, and the borrowing of additional funds
if the need arises. Deposits and other funding sources are used to fund loans
and investments, meet deposit withdrawals and maintain reserve requirements.
The Bank has multiple funding sources that could be used to increase liquidity
and provide additional financial flexibility. These sources consist primarily of
established federal funds lines with major banks totaling approximately $1.4
billion, and the ability to borrow approximately $500 million from the Federal
Home Loan Bank ($196 million outstanding to FHLB at June 30, 1996). The Bank
also has the ability to issue debt up to a maximum of $300 million under a
registered offering by the Bank for unsecured bank notes due from 30 days to 15
years from the date of issue. Each bank note would be a direct, unconditional
and unsecured general obligation solely of the Bank and would not be an
obligation of or guaranteed by Centura. Interest rate and maturity terms would
be negotiated between the Bank and the purchaser, within certain parameters set
forth in the offering circular. The bank note program began to be used in the
first quarter of 1995. At June 30, 1996 there was $60.3 million outstanding
under the bank notes. In January 1995, Centura obtained a two-year unsecured
line of credit of $35 million bearing a variable interest rate, which is being
used as needed to assist in funding the share repurchase actions related to the
1995 and 1996 acquisitions. The credit line was subsequently increased to a
total maximum of $60 million. There was $52 million outstanding under this line
of credit at June 30, 1996; there was nothing outstanding at June 30, 1995.
The investment and loan portfolios are the primary types of earning assets for
Centura. While the investment portfolio is structured with minimum credit
exposure to Centura, the loan portfolio is the primary asset subject to credit
risk. Credit risk is controlled and monitored through the use of lending
standards, thorough review of potential borrowers and on-going review of
performing loans.
Centura's Asset/Liability Management Committee's objective is to control
Centura's interest rate risk. The Committee monitors and adjusts Centura's
exposure to interest rates based on corporate policy and expected market
conditions and utilizes computer simulation models to determine the effect on
Centura's net interest income under various interest rate assumptions.
Traditional interest sensitivity gap analyses do not adequately measure a
corporation's exposure to changes in interest rates as those analyses do not
incorporate the interrelationships between interest rates charged or paid,
balance sheet trends, changes in prepayments and management actions. Each of
these factors can affect Centura's actual earnings. One of Centura's computer
simulation models incorporates these factors and projects income over a 12-month
horizon under a variety of higher and lower interest rate environments. The
other model evaluates the discounted market value of equity given various
movements in interest rates.
Using the models as guides, the June 30, 1996 balance sheet is considered
slightly liability-sensitive and would be expected to benefit from lower
interest rates. Centura is operating within the exposure guidelines approved by
management, which prescribes that changes in net interest income after tax
should approximate changes in the cost of capital. Management of Centura
believes that Centura is currently positioned to react quickly to changes in
interest rates.
Table 8 entitled "Interest Sensitivity Analysis" illustrates Centura's interest
sensitivity gap for assets and liabilities held at June 30, 1996. As mentioned
above, this type of gap analysis is appropriate only for review of Centura's
interest sensitivity position at a point in time, and the indicated results on
the net interest margin should not be projected into the future.
Off-balance sheet derivative financial instruments, such as interest rate swaps,
interest rate floor and cap arrangements and interest rate futures and option
contracts ("swaps, floors, caps, futures and options," respectively), are
available to Centura to assist in managing interest rate risks. Centura has
principally used interest rate swaps. Swaps are used to reduce interest rate
risk with the objective of stabilizing net interest income over time. Floors are
used to protect certain designated variable rate financial instruments from the
downward effects of their repricing in the event of a decreasing rate
environment. Caps are used
to protect certain designated financial instruments from the negative repricing
effects of an increasing rate environment. Options provide the right, but not
the obligation, to put or call securities back to another third party at an
agreed upon price under the specific terms of each agreement. Table 7 entitled
"Off-Balance Sheet Derivative Financial Instruments" summarizes Centura's
off-balance sheet derivative financial instruments at June 30, 1996.
Management is not aware of any events that are reasonably likely to have a
material effect on Centura's liquidity, capital resources or operations. In
addition, management is not aware of any regulatory recommendations which, if
implemented, would have a material effect on Centura.
SECOND QUARTER RESULTS
Net income for the second quarter of 1996 was $16.5 million, up $2.0 million or
13.9 percent over the prior year quarter. For the second quarter of 1996,
earnings per fully diluted share were $.71 compared to $.62 for second quarter
1995. Despite a 24 basis point decline in the net interest margin, taxable
equivalent net interest income increased 11.8 percent or $6.3 million to $60.0
million for the three months ended June 30, 1996. Growth in volumes accounted
for $5.3 million of the increase, while the impact of interest rate changes
accounted for a $1.0 million increase. Average earning assets grew 17.7 percent
to $5.1 billion for second quarter 1996 compared to $4.4 billion for second
quarter 1995. Accordingly, taxable equivalent interest income benefited $15.0
million from the increase in volume and was negatively impacted by $2.3 million
due to the decline in the average earning asset yield, down 34 basis points to
8.50 percent for the three months ended June 30, 1996. Interest expense for the
three months ended June 30, 1996 increased $6.3 million to $50.0 million. The
increase in volume of interest-bearing funding sources for the current quarter
contributed $9.7 million to the increase in interest expense, while declines in
the rates paid on such funding sources mitigated the volume effects, by
decreasing interest expense by $3.4 million. Interest-bearing liability rates
for all categories declined from those experienced during the second quarter of
1995, resulting in a cost of funds of 4.50 percent for the three months ended
June 30, 1996 versus 4.67 percent for the same period last year.
As net charge-offs continued at low levels and despite moderate average loan
growth of 10.6 percent, the provision expense for the second quarter was $2.3
million versus $2.1 million for the second quarter of 1995. Gross charge-offs
were relatively unchanged at $2.1 million for the three months ended June 30,
1996 and $1.9 million for the three months ended June 30, 1995. Recoveries
between the periods increased $502,000 to $1.3 million for June 30, 1996. Net
charge-offs to average loans were .09 percent for the second quarter of 1996
compared to .14 percent for the same period last year.
Noninterest income ("NII") for the second quarter of 1996 increased $6.0 million
to $19.8 million from the comparable period last year. As expected, the majority
of the change occurred in service charges on deposit fees, brokerage and
insurance commissions, and mortgage income. In accordance with Centura's
strategic intent to increase NII sources, insurance and brokerage commissions
nearly doubled to $2.9 million for the three months ending June 30, 1996. The
$2.0 million increase in mortgage income for the second quarter of 1996 was
principally due to gains recorded upon capitalization of mortgage servicing
rights. Service charges on deposits increased $1.6 million to $8.5 million.
Noninterest expense ("NIE") grew 20.1 percent over the second quarter of 1995 to
$49.8 million for the three months ended June 30, 1996 compared to $41.4 million
for the three months ended June 30, 1995. Salaries and benefits increased $3.6
million for the second quarter of 1996 partly due to the timing of the 1995
acquisitions. Equipment increased $2.1 million and professional fees were up
$1.1 million as Centura continues to pursue its technology and delivery channel
initiatives. As discussed in the previous sections, the decrease in the FDIC
premium reduced NIE by $1.2 million between the second quarter periods. With the
compression of the margin and the increase in NIE exceeding the increase in NII,
the efficiency ratio grew to 62.35 percent for second quarter 1996 versus 61.44
percent for second quarter 1995.
CURRENT ACCOUNTING ISSUES
As required, Centura adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," in the first quarter of 1996. SFAS No.
122, "Accounting for Mortgage Servicing Rights, an amendment of FASB Statement
No. 65," was adopted July, 1995. See Note 4 to the consolidated financial
statements for information regarding the adoption of SFAS No. 123, "Accounting
for Stock-Based Compensation," as well as for information related to the
adoption of SFAS No. 121 and 122.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities. Those standards are based on
the consistent application of a financial-components approach that focuses on
control. After a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and liabilities it has incurred and
derecognizes financial assets it no longer controls and liabilities that have
been extinguished. The Statement provides the guidance for distinguishing sales
of financial assets from transfers that are secured borrowings. The Statement is
effective for transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996 and is to be applied
prospectively. Earlier or retroactive adoption of this Statement is not
permitted. Centura has not determined what effect, if any, this statement will
have on its consolidated financial statements.
The FASB also issues exposure drafts for proposed statements of financial
accounting standards. Such exposure drafts are subject to comment from the
public, to revisions by the FASB, and to final issuance by the FASB as
statements of financial accounting standards. Management considers the effect of
any proposed statements on Centura and monitors the status of changes to issued
exposure drafts and to proposed effective dates.
TABLE 1
- --------------------------------------------------------------------------------
ACQUISITIONS ACTIVITY - 1996 AND 1995
Accounting Acquisition Total Assets
Institution Method Date Acquired
- --------------------------------------------------------------------------------------------------------------
Completed:
First Commercial Holding Corp., Asheville Pooling 02/27/96 $172 million
Branch purchases from Essex Savings Bank (3) Purchase 07/26/96 71 million
First Southern Bancorp, Inc., Asheboro Purchase 06/02/95 325 million
Cleveland Federal Bank, A Savings Bank, Shelby Purchase 03/30/95 86 million
Pending:
First Community Bank, Gastonia Purchase (1) $123 million
FirstSouth Bank, Burlington Pooling (2) 178 million
Equity interest of 49% in First Greensboro Home Equity, Inc. (2) (4)
- --------------------------------------------------------------------------------------------------------------
(1) Consummation of transaction is expected in third quarter of 1996.
(2) Consummation of transaction is expected in fourth quarter of 1996.
(3) Represents assumption of deposits of three specified Essex branch locations
in North Carolina.
(4) Accounting method is expected to be the equity method for investments.
(See Note 2 to consolidated financial statements for additional information)
TABLE 2
- -------------------------------------------------------------------------------
LOANS
June 30, 1996 June 30, 1995 December 31, 1995
------------- -------------- -----------------
(Dollars in thousands) Balance % of Total Balance % of Total Balance % of Total
- ------------------------------------------------------------------------------------------------------------------
Commercial, financial and agricultural $715,301 18.7% $647,209 18.0% $631,116 17.0%
Commercial mortgage 740,911 19.3 687,593 19.1 717,321 19.3
Real estate construction 463,473 12.1 381,159 10.6 419,845 11.3
--------------------------------------------------------------------------
Commercial loan portfolio 1,919,685 50.1 1,715,961 47.7 1,768,282 47.6
Consumer 255,401 6.7 234,805 6.5 260,235 7.0
Residential mortgage 1,341,518 35.0 1,449,685 40.4 1,445,011 39.0
Leases 266,566 7.0 150,458 4.2 196,136 5.3
Other 45,950 1.2 42,971 1.2 40,379 1.1
- -----------------------------------------------------------------------------------------------------------------
Total loans $3,829,120 100.0% $3,593,880 100.0% $3,710,043 100.0%
=================================================================================================================
Residential mortgage servicing
portfolio for others $2,084,000 $1,372,000 $1,723,000
=================================================================================================================
TABLE 3
- --------------------------------------------------------------------------------
NET INTEREST INCOME ANALYSIS - TAXABLE EQUIVALENT BASIS
CENTURA BANKS, INC. AND SUBSIDIARY
SIX MONTHS ENDED Six months ended
JUNE 30, 1996 June 30, 1995
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST AVERAGE Interest Average
AVERAGE INCOME/ YIELD/ Average Income/ Yield/
(Dollars in thousands) BALANCE EXPENSE RATE Balance Expense Rate
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Loans $ 3,691,366 $ 172,816 9.31% $ 3,257,121 $ 153,190 9.40%
Taxable securities 1,346,564 43,245 6.42 906,373 28,788 6.35
Tax-exempt securities 47,735 2,193 9.19 49,680 2,191 8.82
Short-term investments 23,719 635 5.30 20,888 701 6.67
------------- -------- ------------- --------
Interest-earning assets, gross 5,109,384 218,889 8.53 4,234,062 184,870 8.73
Net unrealized gain (loss) on available
for sale securities (2,419) (15,644)
Other assets, net 401,157 353,536
------------- -------------
Total assets $ 5,508,122 $ 4,571,954
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking $ 589,298 $ 5,575 1.90% $ 545,736 $ 6,377 2.36%
Money market 354,268 5,184 2.94 400,923 6,509 3.27
Savings 302,414 3,151 2.10 324,711 4,075 2.53
Time 2,360,435 64,888 5.53 1,844,361 47,537 5.20
------------- -------- ------------- --------
Total interest-bearing deposits 3,606,415 78,798 4.39 3,115,731 64,498 4.17
Borrowed funds 591,355 15,309 5.21 334,016 9,701 5.86
Long-term debt 242,197 7,122 5.91 173,675 5,568 6.47
------------- -------- ------------- --------
Interest-bearing liabilities 4,439,967 101,229 4.58 3,623,422 79,767 4.44
Demand, noninterest-bearing 585,911 520,694
Other liabilities 74,713 61,803
Shareholders' equity 407,531 366,035
------------- -------------
Total liabilities and
shareholder's equity $ 5,508,122 $ 4,571,954
============= =============
Interest rate spread 3.95% 4.29%
Net yield on interest-
earning assets $ 5,109,384 $ 117,660 4.55% $ 4,234,062 $ 105,103 4.93%
============= ======== ============= ========
Taxable equivalent adjustment $ 2,974 $ 2,466
======== ========
TABLE 3, CONTINUED
- -------------------------------------------------------------------------------
NET INTEREST INCOME ANALYSIS - TAXABLE EQUIVALENT BASIS
CENTURA BANKS, INC. AND SUBSIDIARY
THREE MONTHS ENDED Three months ended
JUNE 30, 1996 June 30, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST AVERAGE Interest Average
AVERAGE INCOME/ YIELD/ Average Income/ Yield/
(Dollars in thousands) BALANCE EXPENSE RATE Balance Expense Rate
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Loans $ 3,754,884 $ 87,270 9.25% $ 3,395,950 $ 80,948 9.48%
Taxable securities 1,330,929 21,400 6.43 910,991 14,866 6.53
Tax-exempt securities 43,383 999 9.21 48,102 1,017 8.46
Short-term investments 22,937 305 5.26 27,390 487 7.03
--------------- ------------- ----------- ----------
Interest-earning assets, gross 5,152,133 109,974 8.50 4,382,433 97,318 8.84
Net unrealized gain (loss) on available
for sale securities (8,067) (11,405)
Other assets, net 408,389 370,972
--------------- -----------
Total assets $ 5,552,455 $ 4,742,000
=============== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking $ 580,552 $ 2,551 1.77% $ 542,177 $ 3,156 2.33%
Money market 365,774 2,727 3.00 391,105 3,309 3.39
Savings 302,078 1,525 2.03 324,857 2,130 2.63
Time 2,332,244 31,411 5.42 1,957,796 26,833 5.50
--------------- ------------- ----------- ----------
Total interest-bearing deposits 3,580,648 38,214 4.29 3,215,935 35,428 4.42
Borrowed funds 642,692 8,286 5.19 342,152 5,110 5.99
Long-term debt 245,894 3,503 5.73 192,132 3,156 6.59
--------------- ------------- ----------- ----------
Interest-bearing liabilities 4,469,234 50,003 4.50 3,750,219 43,694 4.67
Demand, noninterest-bearing 607,324 538,990
Other liabilities 73,005 65,315
Shareholders' equity 402,892 387,476
--------------- -----------
Total liabilities and
shareholder's equity $ 5,552,455 $ 4,742,000
=============== ===========
Interest rate spread 4.00% 4.17%
Net yield on interest-
earning assets $ 5,152,133 $ 59,971 4.60% $ 4,382,433 $ 53,624 4.84%
=============== ============= =========== ==========
Taxable equivalent adjustment $ 1,452 $ 1,231
============= ==========
TABLE 4
- --------------------------------------------------------------------------------
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
At and for the six months At and for the year ended
ended June 30, ended December 31,
(Dollars in thousands) 1996 1995 1995
- -------------------------------------------------------------------------------------------------------------
Allowance for loan losses at beginning of period $ 53,452 46,701 46,701
Allowance for acquired financial institution --- 3,460 3,460
Provision for loan losses 4,325 3,884 7,709
Loans charged off (3,425) (3,152) (8,232)
Recoveries on loans previously charged off 1,945 1,389 3,814
- -------------------------------------------------------------------------------------------------------------
Net charge-offs (1,480) (1,763) (4,418)
- -------------------------------------------------------------------------------------------------------------
Allowance for loan losses at end of period $ 56,297 52,282 53,452
=============================================================================================================
Loans at period-end $ 3,829,120 3,593,880 3,710,043
Average loans 3,691,366 3,257,121 3,460,353
Nonperforming loans 19,613 17,541 19,260
Allowance for loan losses to loans at period-end 1.47% 1.45 1.44
Net charge-offs to average loans 0.08% 0.11 0.13
Allowance for loan losses to nonperforming loans 2.87x 2.98 2.78
=============================================================================================================
TABLE 5
- --------------------------------------------------------------------------------
NONPERFORMING ASSETS AND PAST DUE LOANS
June 30, December 31,
----------------------- --------------
(Dollars in thousands) 1996 1995 1995
- --------------------------------------------------------------------------------
Nonaccrual loans $ 18,785 17,119 18,306
Restructured loans 828 422 954
-------------------------------------
Nonperforming loans 19,613 17,541 19,260
Foreclosed property 2,744 3,666 2,823
- --------------------------------------------------------------------------------
Total nonperforming assets $ 22,357 21,207 22,083
================================================================================
Nonperforming assets to:
Loans and foreclosed property 0.%8 0.59 0.59
Total assets 0.40 0.41 0.40
================================================================================
Accruing loans past due ninety days $ 7,130 3,744 6,130
================================================================================
TABLE 6
- --------------------------------------------------------------------------------
CAPITAL RATIOS
Tier I Capital Total Capital Tier I Leverage
June 30, 1996 9.08% 10.33% 6.43%
December 31, 1995 9.65 10.90 6.67
June 30, 1995 10.91 12.16 8.00
Minimum requirement 4.00 8.00 3.00-5.00
TABLE 7
- -------------------------------------------------------------------------------
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate swap agreements at June 30, 1996 are summarized below:
Weighted Average
Weighted Average Rate Remaining Estimated
Notional During the Quarter Contractual Fair Value
Amount Received Paid Term (Years) Gain (Loss)
- ----------------------------------------------------------------------------------------------------
(Dollars in thousands)
INTEREST RATE SWAPS
Corporation pays fixed rates $ 260,000 5.63% 6.40% 1.7 $ ($1,326)
Corporation pays variable rates 70,000 6.73% 5.58% 4.9 617
-------- -----------
Total interest rate swaps $ 330,000 $ (709)
======== ===========
Interest rate cap and floor agreements at June 30, 1996 are summarized below:
Weighted Average
Remaining Estimated
Notional Average Current Index Contractual Carrying Fair Value
Amount Rate * Rate Term (Years) Value Gain (Loss)
- -----------------------------------------------------------------------------------------------
Interest Rate Floors $ 150,000 5.83% 5.58% 3.2 $ 379 $ 1,102
========= =============
Interest Rate Caps $ 26,000 7.39% 5.58% 6.6 $ 763 $ 912
========= ========== =============
* Average rate represents the average of the strike rates above or below which
Centura will receive payments on the outstanding cap or floor agreements.
At June 30, 1996 Centura had two put options totaling 150 ten-year Treasury
futures contracts. Each contract represents a $100,000 notional amount and gives
Centura the right but not the obligation to exercise the respective contract.
Cumulatively at June 30, 1996, the options had a carrying value of $13,000 and
an estimated fair value of $65,000.
TABLE 8
INTEREST SENSITIVITY ANALYSIS
Centura Banks, Inc. and Subsidiary
As of June 30, 1996
------------------------------------------------------------------------------------
1-30 31-60 61-90 91-180 181-365 Total Under Total Over
(thousands) Days Days Days Days Days One Year One Year Total
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS
Loans $2,136,484 $ 97,827 $ 95,422 $ 187,264 $ 322,443 $2,839,440 $ 989,680 $3,829,120
Investment securities 39,747 47,024 46,545 109,595 218,436 461,347 849,555 1,310,902
Other short-term investments 32,901 -- -- -- -- 32,901 -- 32,901
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $2,209,132 $ 144,851 $ 141,967 $ 296,859 $ 540,879 $3,333,688 $1,839,235 $5,172,923
Notional amount of interest rate swaps 75,000 65,000 80,000 40,000 -- 260,000 70,000 330,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets and
off-balance sheet financial instruments 2,284,132 209,851 221,967 336,859 540,879 3,593,688 1,909,235 5,502,923
====================================================================================================================================
INTEREST-BEARING LIABILITIES
Time deposits over $100 $ 100,982 $ 32,921 $ 34,168 $ 57,579 $ 88,627 $ 314,277 $ 48,148 $ 362,425
All other deposits (1) 1,550,242 135,098 109,007 350,983 636,310 2,781,640 485,857 3,267,497
Short-term borrowed funds 441,334 71,000 61,000 57,000 25,000 655,334 -- 655,334
Long-term debt 92,464 86,600 27,000 -- 4,500 210,564 23,104 233,668
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $2,185,022 $ 325,619 $ 231,175 $ 465,562 $ 754,437 $3,961,815 $ 557,109 $4,518,924
Notional amount of interest rate swaps 10,000 50,000 20,000 85,000 -- 165,000 165,000 330,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities and
off-balance sheet financial instruments 2,195,022 375,619 251,175 550,562 754,437 4,126,815 722,109 4,848,924
====================================================================================================================================
Interest sensitivity gap per period $ 89,110 $(165,768) $ (29,208)$(213,703)$(213,558) $ (533,127)
Cummulative interest sensitivity gap 89,110 (76,658) (105,866) (319,569) (533,127)
Cumulative ratio of interest-sensitive
assets to interest-sensitive liabilities 1.04x 0.97x 0.96x 0.91x 0.87x
(1) Not all core deposits are immediately repriceable and, therefore, they are
spread based on actual maturity. Noninterest-bearing deposit accounts are
excluded.
(2) Expected maturities may differ from contractual maturities because issuers
or borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties. Deposit run-off is estimated based on
historical information and market analysis. The aging of mortgage-backed
securities is based on their weighted average maturities at June 30, 1996
and median market prepayment rates.
CENTURA BANKS, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Securities Holders Registrant's
Annual Meeting of Shareholders was held April 17, 1996:
1)All of the nominees for Director listed under the caption "Election of
Directors" in the Registrant's Proxy Statement dated March 13, 1996
were duly elected Directors of the Registrant. Seventy three percent of
the outstanding shares were voted. Of the 16,793,880 shares that voted,
each director received at least 16,646,876 shares, or 99.1%, in favor.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
Exhibit Exhibit
No. Description of Exhibit Referenc
4.1 Excerpts from Centura's Articles of Incorporation and
Bylaws relating to rights of holders of Registrant's capital stock 4.1 (1)
4.2 Specimen certificate of Centura common stock 4.2 (2)
27 Financial Data Schedule Filed herewith
(1)Included as the identified exhibit in Centura Banks, Inc. Form 2-4
dated March 8, 1990, as amended by amendment No. 1 dated May 14, 1990,
and incorporated herein by reference.
(2)Included as the identified exhibit in Centura Banks, Inc. Annual
Report on Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference.
(b) Reports on Form 8-K -
1)A report on Form 8-K dated April 3, 1996 was filed under Item 5, Other
Events, indicating the Registrant's announcement on April 3, 1996 of
earnings for the three months ended March 31, 1996.
2)A report on Form 8-K dated April 16, 1996 was filed under Item 2,
Acquisition or Disposition of Assets to announce that the Registrant
entered into an agreement on April 11, 1996 to assume the deposits and
deposit related loans of three offices of Essex Savings Bank, F.S.B..
The closing of this transaction is expected to occur during early July
1996.
3)A report on Form 8-K dated April 18, 1996 was filed under Item 2,
Acquisition or Disposition of Assets to announce that the Registrant
reached an agreement on April 17, 1996 to merge with FirstSouth Bank of
Burlington, North Carolina. The companies expect to complete the
transaction in the third quarter of 1996.
4)A report on Form 8-K dated May 17, 1996 was filed under Item 2,
Acquisition or Disposition of Assets to provide pro forma financial
information to security holders and investors as of and for the three
months ended March 31, 1996 and for the year ended December 31, 1995
which gives effect to the affiliation with the Registrant of First
Community Bank of Gastonia, North Carolina presented under the purchase
method of accounting and as of and for the three months ended March 31,
1996 and for the three-year period ended December 31, 1995 which gives
effect to the affiliation with the Registrant of FirstSouth Bank of
Burlington, North Carolina presented under the pooling-of-interests
method of accounting.
5)A report on Form 8-K dated May 22, 1996 was filed under Item 5, Other
Events, to announce that the Registrant entered into an agreement with
Hannaford Brothers Company , one of the nation's largest food
retailers, to open 33 full-service financial centers in Hannaford
stores in the Southeast.
6)A report on Form 8-K dated June 14, 1996 was filed under Item 2,
Acquisition or Disposition of Assets, to announce that the Registrant
entered into an agreement to purchase 49 percent of First Greensboro
Home Equity, Inc., a mortgage company with its principal headquarters
in Greensboro, North Carolina. The closing of this transaction was
expected to occur in August of 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized:
CENTURA BANKS, INC.
Registrant
Date: August 13, 1996 By: /s/Frank L. Pattillo
--------------------
Frank L. Pattillo
Senior Executive Vice President
and Chief Financial Officer
CENTURA BANKS, INC.
EXHIBIT INDEX
Sequential
Exhibit Description of Exhibit Page No.
- ------------------------------------------------------------------------------------------------------
4.1 Excerpts from Centura's Articles of Incorporation and Bylaws
relating to rights of holders of Registrant's capital stock *(1)
4.2 Specimen certificate of Centura common stock *(2)
*Incorporated by reference from the following documents as noted:
(1)Included as the identified exhibit in Centura Banks, Inc. Form 2-4
dated March 8, 1990, as amended by amendment No. 1 dated May 14, 1990,
and incorporated herein by reference.
(2)Included as the identified exhibit in Centura Banks, Inc. Annual
Report on Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference.