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
For the fiscal year ended December 31, 1996
[ ] 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 issued pursuant to Section 12(b) of the Act:
$5.00 par value Common Stock New York Stock Exchange
(TITLE OF CLASS) (NAME OF EXCHANGE ON WHICH REGISTERED)
Securities issued pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No
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 voting stock held by non-affiliates of
the Registrant as of March 5, 1997 was $1,059,500,416. On March 5, 1997, there
were 15,769,080 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 15, 1997 ARE INCORPORATED IN PART III OF THIS
REPORT.
CROSS REFERENCE INDEX
PAGE
PART I.
Item 1. Business...................................................................................... 3
Description................................................................................... 3
Average Balance Sheets........................................................................ 12
Net Interest Income Analysis -- Taxable Equivalent Basis...................................... 12
Net Interest Income and Volume/Rate Variance -- Taxable Equivalent Basis...................... 13
Investment Securities Portfolio............................................................... 19
Investment Securities -- Maturity/Yield Schedule.............................................. 19
Types of Loans................................................................................ 18
Maturities and Sensitivities of Loans to Changes in Interest Rates............................ 18
Nonperforming and Risk Assets................................................................. 23
Loan Loss Experience.......................................................................... 24
Average Deposits.............................................................................. 14
Maturity Distribution of Large Denomination Time Deposits..................................... 26
Return on Equity and Assets................................................................... 7
Short-Term Borrowings......................................................................... 41
Item 2. Properties.................................................................................... 6
Item 3. Legal Proceedings............................................................................. 6
Item 4. Submission of Matters to a Vote of Security Holders........................................... 6
PART II.
Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters...................... 6
Item 6. Selected Financial Data....................................................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 9
Item 8. Financial Statements and Supplementary Data................................................... 29
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......... 58
PART III.
Item 10. Directors and Executive Officers of the Registrant............................................ 58
Item 11. Executive Compensation........................................................................ 58
Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 58
Item 13. Certain Relationships and Related Transactions................................................ 58
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............................. 58
PART I.
ITEM 1. 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 ("CCB"), a North Carolina-chartered commercial 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 and
dividends it receives from the Subsidiary Banks. At December 31, 1996, the
Corporation had consolidated assets of approximately $5.4 billion and was the
seventh largest banking organization headquartered in North Carolina.
SUBSIDIARY BANKS
CCB is chartered under the laws of the state of North Carolina to engage in
general banking business. CCB offers commercial and retail banking, savings and
trust services through 156 offices located in 60 cities and towns in North
Carolina. CCB had approximately $5.3 billion in assets at December 31, 1996 and
was the seventh 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. During 1996, the Corporation's subsidiary, Graham Savings
Bank, Inc., SSB, a North Carolina-chartered state savings bank, was merged with
and into CCB and its two branch offices became branch offices of CCB.
Central Carolina Bank-Georgia ("CCB-Ga.") provides nationwide credit card
services from its headquarters in Columbus, Georgia. As of December 31, 1996,
CCB-Georgia had approximately $112.0 million of assets.
Continuing its expansion through acquisitions, the Corporation entered into
an agreement in May 1996 to acquire Salem Trust Bank, a commercial bank with
offices in Winston-Salem and Wilmington, North Carolina and having $165 million
in assets. Salem Trust Bank was merged into CCB on January 31, 1997 and its
operations were merged with and into those of CCB. Additionally, on February 18,
1997 the Corporation announced the execution of a definitive agreement to
acquire American Federal Bank, FSB, Greenville, South Carolina, a federal
savings bank having 40 banking offices located in Northwest South Carolina and
having assets of $1.3 billion. Subject to regulatory and shareholder approvals,
this acquisition is anticipated to be consummated in the third quarter of 1997.
NON-BANK SUBSIDIARIES
CCB has three wholly-owned non-bank subsidiaries: Southland Associates,
Inc., CCBDE, Inc., and CCB Investment and Insurance Service Corporation
("CCBIISC") (collectively, the three subsidiaries are referred to herein as the
"Non-Bank Subsidiaries"). Southland Associates, Inc. engages in real estate
development and is in the process of liquidating its assets through the sale of
its remaining inventory of residential lots. CCBDE, Inc. is an investment
holding company headquartered in Wilmington, Delaware. CCBIISC engages in the
sale of various annuity and mutual fund products. During 1996, CCB's former
subsidiary 1st Home Mortgage Acceptance Corporation ("HMAC") was dissolved after
the early redemption of its collateralized mortgage obligations. HMAC was
acquired in 1993 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.
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 other diversified 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 $6 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.
3
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.
INTERSTATE BANKING AND BRANCHING
Recently enacted federal law permits adequately capitalized and managed
bank holding companies to acquire control of the assets of banks in any state
(the "Interstate Banking Law"). Acquisitions will be subject to anti-trust
provisions that cap at 10% the portion of the total deposits of insured
depository institutions in the United States that a single bank holding company
may control, and generally cap at 30% the portion of the total deposits of
insured depository institutions in a state that a single bank holding company
may control. Under certain circumstances, states have the authority to increase
or decrease the 30% cap, and states may set minimum age requirements of up to
five years on target banks within their borders.
Beginning June 1, 1997, and subject to certain conditions, the Interstate
Banking Law also permits interstate branching by allowing a bank to merge with a
bank located in a different state. A state may accelerate the effective date for
interstate mergers by adopting a law authorizing such transactions prior to June
1, 1997, or it can "opt out" and thereby prohibit interstate branching by
enacting legislation to that effect. The Interstate Banking Law also permits
banks to open new branches or acquire existing branches of banks located in
other states that specifically permit that form of interstate branching.
North Carolina has adopted statutes which, subject to conditions contained
therein, specifically authorize out-of-state bank holding companies and banks to
acquire or merge with North Carolina banks and to establish or acquire branches
in North Carolina. It is anticipated that the Interstate Banking Law will
increase (and, in some instances, has increased) competition within the markets
in which the Corporation now operates, although the extent to which such
competition will increase throughout such markets and the timing of such
increase cannot be predicted.
SUPERVISION AND REGULATION
The business and operations of the Corporation and its Subsidiary Banks are
subject to extensive federal and state governmental regulation and supervision.
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 "BHCA"), and is subject to
supervision and examination by and the regulations and reporting requirements of
the Federal Reserve. Under the BHCA, the activities of the Corporation are
limited to banking, managing or controlling banks, furnishing services to or
performing services for their subsidiaries or engaging in any other activity
which the Federal Reserve determines to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto.
The BHCA prohibits the Corporation from acquiring direct or indirect
control of more than 5% of the outstanding voting stock or substantially all of
the assets of a financial institution, or merging or consolidating with another
bank holding company without prior approval of the Federal Reserve.
Additionally, the BHCA prohibits the Corporation from engaging in, or acquiring
ownership or control of more than 5% of the outstanding voting stock of any
company engaged in a non-banking activity unless such activity is determined by
the Federal Reserve to be so closely related to banking as to be properly
incident thereto. In approving an application by the Corporation to engage in a
non-banking activity, the Federal Reserve must consider whether that 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, decrease or
unfair competition, conflicts of interest or unsound banking practices.
Federal Reserve approval generally must be obtained before any person may
acquire control of a bank holding company. Control is presumed to exist if,
among other things, a person acquired more than 25% of any class of voting stock
of a holding company or if a person acquires more than 10% of any class of
voting stock and the holding company has registered securities under Section 12
of the 1934 Act or the acquirer will be the largest shareholder after the
acquisition.
There are a number of obligations and restrictions imposed by law on a bank
holding company and its insured depository institution subsidiaries that are
designed to minimize potential loss to depositors and the Federal Deposit
Insurance Corporation ("FDIC") insurance funds. For example, if a bank holding
company's insured depository institution subsidiary becomes "undercapitalized",
the bank holding company is required to guarantee (subject to certain limits)
the subsidiary's compliance with the
4
terms of any capital restoration plan filed with its appropriate federal banking
agency. Also, a bank holding company is required to serve as a source of
financial strength to its depository institution subsidiaries and to commit
resources to support such institutions in circumstances where it might not do so
absent such policy. Under the BHCA, the Federal Reserve has the authority to
require a bank holding company to terminate any activity or to relinquish
control of a nonbank subsidiary upon the Federal Reserve's determination that
such activity or control constitutes a serious risk to the financial soundness
and stability of a depository institution subsidiary of the bank holding
company.
Bank holding companies are required to comply with the Federal Reserve's
risk-based capital guidelines which require a minimum ratio of total capital to
risk-weighted assets of 8%. At least half of the total capital is required to be
Tier 1 capital. In addition to the risk-based capital guidelines, the Federal
Reserve has adopted a minimum leverage capital ratio under which a bank holding
company must maintain a level of Tier 1 capital to average total consolidated
assets of at least 3% in the case of a bank holding company which has the
highest regulatory examination rating and is not contemplating significant
growth or expansion. All other bank holding companies are expected to maintain a
leverage capital ratio of at least 1% to 2% above the stated minimum.
As a result of its ownership of a North Carolina-chartered commercial bank,
the Corporation also is registered with and subject to regulation by the North
Carolina Commissioner of Banks (the "Commissioner") under the state's bank
holding company laws.
CCB
CCB is a North Carolina commercial bank and is subject to supervision and
examination by and regulations and reporting requirements of the Commissioner
and the FDIC. CCB is a member of the Federal Home Loan Bank system. CCB is
subject to legal limitations on the amounts of dividends it is permitted to pay.
Prior approval of the Commissioner is required if the total of all dividends
declared by CCB in any calendar year exceeds its net profits (as defined by
statute) for that year combined with its retained net profits (as defined by
statute) for the preceding two calendar years, less any required transfer to
surplus. Insured depository institutions also are prohibited from making capital
distributions, including the payment of dividends, if, after making such
distributions, the institution would become "undercapitalized" (as such term is
defined in the Federal Deposit Insurance Act).
CCB is also subject to capital requirements imposed by the FDIC. Under the
FDIC's regulations, insured institutions that receive the highest rating during
the examination process and are not anticipating or experiencing any significant
growth are required to maintain a minimum leverage ratio of 3% of Tier 1 capital
to average total consolidated assets. All other insured institutions are
required to maintain a minimum ratio of 1% or 2% above the stated minimum, with
a minimum leverage ratio of not less than 4%. The FDIC also requires CCB to have
a ratio of total capital to risk-weighted assets of at least 8%.
Under current federal law, certain transactions between a depository
institution and its affiliates are governed by Section 23A and 23B of the
Federal Reserve Act. An affiliate of a depository institution is any company or
entity that controls, is controlled by or is under common control with the
institution, and, in a holding company context, the parent holding company of a
depository institution and any companies which are controlled by such parent
holding company are affiliates of the depository institution. Generally,
Sections 23A and 23B (i) limit the extent to which a depository institution or
its subsidiaries may engage in covered transactions with any one affiliate, and
(ii) require that such transactions be on terms and under circumstances
substantially the same, or at least as favorable, to the institution or the
subsidiary as those provided to a nonaffiliate.
CCB is subject to various other state and federal laws and regulations,
including state usury laws, laws relating to fiduciaries, consumer credit and
equal credit, fair credit reporting laws and laws relating to branch banking. As
an insured institution, CCB is prohibited from engaging as a principal in
activities that are not permitted for national banks unless (i) the FDIC
determines that the activity would pose no significant risk to the appropriate
deposit insurance fund and (ii) the institution is, and continues to be, in
compliance with all applicable capital standards. Insured institutions also are
prohibited from directly acquiring or retaining any equity investment of a type
or in an amount not permitted for national banks.
INSURANCE ASSESSMENTS
CCB is subject to insurance assessments imposed by the FDIC. Effective
January 1, 1996, the FDIC reduced the Bank Insurance Fund (the "BIF")
assessments, which is the fund insuring CCB's deposits, to a range of 0% to
.27%. The premium reductions did not affect the deposit premiums paid on Savings
Association Insurance Fund ("SAIF") insured deposits. The actual assessment to
be paid by each insured institution is based on the institution's assessment
risk classification, which is determined based on whether the institution is
considered "well capitalized", "adequately capitalized" or "under capitalized",
as such terms have been defined in applicable federal regulations, and whether
the institution is considered by its supervisory agency to be financially sound
or to have supervisory concerns. During 1996, the FDIC imposed a special
assessment on SAIF insured deposits to recapitalize the SAIF. CCB's special
assessment amounted to $7.4 million due to deposits acquired through the
acquisition of
5
thrift institutions in prior years which remain insured by the SAIF. FDIC
insurance premiums for 1997 will be .013% for BIF insured deposits and .0648%
for SAIF insured deposits. Approximately one-third of CCB's deposits are insured
by the SAIF. The insurance premiums will be used to service the interest on the
Financing Corporation's ("FICO") bond obligations. Proposals are currently being
considered by committees of the United States Congress concerning a possible
merger of the SAIF and BIF as well as the merger of the charters of commercial
banks and thrift institutions.
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.
EXECUTIVE OFFICERS OF THE REGISTRANT
All officers of the Corporation are elected or appointed by the board of
directors to hold their offices during the pleasure of the board. At February
28, 1997, the executive officers of the Corporation were as follows:
Has Served as
Executive Officer
Name Age at 12/31/96 Position of the Corporation Since
W.L. Burns, Jr. 69 Chairman of the Board 1968
Ernest C. Roessler 55 Vice Chairman of the Board, 1988
President and Chief Executive Officer
David B. Jordan 60 Vice Chairman of the Board 1995(1)
J. Scott Edwards 50 Executive Vice President 1988
Richard L. Furr 47 Executive Vice President 1988
(1) Prior to May 1995, Mr. Jordan served as Vice Chairman and Chief Executive
Officer of Security Capital Bancorp which was acquired by the Corporation on
May 19, 1995.
EMPLOYEE RELATIONS
As of December 31, 1996, the Corporation and its Subsidiary Banks employed
1,983 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.
ITEM 2. 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 156 branch bank locations, approximately 75 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 $690,000 at December 31, 1996. 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.
ITEM 3. LEGAL PROCEEDINGS
See Note 14 to the Consolidated Financial Statements for a discussion of
legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There has been no submission of matters to a vote of shareholders during
the quarter ended December 31, 1996.
PART II.
ITEM 5. 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 1996 and 1995 and discussion of other shareholder
matters. On January 21, 1997, a dividend of $.42 per share was declared for
payment on April 1, 1997 to shareholders of record as of March 17, 1997.
6
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Corporation's Consolidated Financial Statements and the accompanying notes
presented elsewhere herein. Prior year amounts have been restated to reflect the
1995 merger with Security Capital Bancorp and the three for two stock split
effected in the form of a 50% stock dividend paid October 1, 1992.
SIX YEAR SUMMARY OF SELECTED FINANCIAL DATA
(In Thousands Except Per Share Data)
Years Ended December 31
1996 1995 1994 1993 1992
SUMMARY OF OPERATIONS
Interest income $ 397,764 383,514 309,899 254,912 241,589
Interest expense 181,348 179,404 126,366 101,956 105,766
Net interest income 216,416 204,110 183,533 152,956 135,823
Provision for loan and lease losses 12,800 8,183 9,279 7,106 7,831
Net interest income after provision 203,616 195,927 174,254 145,850 127,992
Other income 62,084 53,267 48,630 46,617 39,570
Net investment securities gains (losses) 505 (978) 357 2,962 2,073
Other expenses (1) 161,438 160,223 147,287 129,452 116,114
Income before income taxes and cumulative changes in
accounting principles 104,767 87,993 75,954 65,977 53,521
Income taxes (2) 34,452 30,133 30,843 21,913 18,238
Income before cumulative changes in accounting
principles 70,315 57,860 45,111 44,064 35,283
Cumulative changes in accounting principles (3) -- -- -- (1,371) --
Net income $ 70,315 57,860 45,111 42,693 35,283
PER SHARE
Income before cumulative changes in accounting
principles:
Primary $ 4.67 3.87 2.94 3.10 2.60
Fully diluted (4) 4.67 3.87 2.94 3.05 2.52
Net income:
Primary 4.67 3.87 2.94 3.00 2.60
Fully diluted (4) 4.67 3.87 2.94 2.95 2.52
Cash dividends 1.60 1.44 1.32 1.24 1.14
Book value 31.71 28.98 24.75 24.43 22.42
Average shares outstanding (000's):
Primary 15,048 14,949 15,354 14,230 13,580
Fully diluted (4) 15,048 14,949 15,354 14,612 14,494
AVERAGE BALANCES
Assets $5,065,598 4,811,108 4,297,775 3,613,333 3,095,352
Loans and lease financing 3,519,615 3,251,613 2,823,525 2,299,599 2,018,812
Earning assets 4,780,292 4,521,780 4,021,814 3,365,274 2,875,280
Deposits 4,324,462 4,148,526 3,676,139 3,137,037 2,687,980
Interest-bearing liabilities 3,991,943 3,824,793 3,376,509 2,820,219 2,412,176
Shareholders' equity 448,654 397,504 382,884 330,679 289,291
SELECTED PERIOD END ASSETS AND LIABILITIES
Assets $5,384,110 5,089,786 4,720,688 4,186,578 3,225,929
Loans and lease financing 3,771,423 3,345,345 3,158,863 2,651,100 2,033,829
Reserve for loan and lease losses 49,022 43,578 41,046 34,190 25,936
Deposits 4,589,535 4,297,411 4,057,680 3,601,227 2,802,141
Shareholders' equity 478,231 433,517 371,151 375,224 306,773
RATIOS
Income before cumulative changes in accounting
principles to:
Average assets 1.39% 1.20 1.05 1.22 1.14
Average shareholders' equity 15.67 14.56 11.78 13.33 12.20
Net income to:
Average assets 1.39 1.20 1.05 1.18 1.14
Average shareholders' equity 15.67 14.56 11.78 12.91 12.20
Net interest margin, taxable equivalent 4.70 4.70 4.75 4.76 4.88
Net loan and lease losses to average loans and lease
financing .21 .17 .17 .20 .25
Dividend payout ratio 34.26 37.21 44.90 41.33 43.85
Five
Year Year
Ended Compound
December 31, Growth
1991 Rate %
SUMMARY OF OPERATIONS
Interest income 269,638 8.1
Interest expense 143,989 4.7
Net interest income 125,649 11.5
Provision for loan and lease losses 9,331 6.5
Net interest income after provision 116,318 11.8
Other income 41,261 8.5
Net investment securities gains (losses) 605 --
Other expenses (1) 110,983 7.8
Income before income taxes and cumulative changes in
accounting principles 47,201 17.3
Income taxes (2) 14,470 18.9
Income before cumulative changes in accounting
principles 32,731 16.5
Cumulative changes in accounting principles (3) -- --
Net income 32,731 16.5
PER SHARE
Income before cumulative changes in accounting
principles:
Primary 2.42 14.1
Fully diluted (4) 2.35 14.7
Net income:
Primary 2.42 14.1
Fully diluted (4) 2.35 14.7
Cash dividends 1.047 8.9
Book value 20.66 8.9
Average shares outstanding (000's):
Primary 13,539 2.1
Fully diluted (4) 14,476 .8
AVERAGE BALANCES
Assets 2,983,978 11.2
Loans and lease financing 1,979,879 12.2
Earning assets 2,766,431 11.6
Deposits 2,584,251 10.8
Interest-bearing liabilities 2,368,185 11.0
Shareholders' equity 265,743 11.0
SELECTED PERIOD END ASSETS AND LIABILITIES
Assets 3,072,968 11.9
Loans and lease financing 1,999,955 13.5
Reserve for loan and lease losses 23,171 16.2
Deposits 2,660,737 11.5
Shareholders' equity 279,992 11.3
RATIOS
Income before cumulative changes in accounting
principles to:
Average assets 1.10
Average shareholders' equity 12.32
Net income to:
Average assets 1.10
Average shareholders' equity 12.32
Net interest margin, taxable equivalent 4.72
Net loan and lease losses to average loans and lease
financing .37
Dividend payout ratio 43.26
7
(1) Other expenses include the levying in 1996 of a $7.4 million special
assessment by the Federal Deposit Insurance Corporation to recapitalize the
Savings Association Insurance Fund. Other expenses also includes
merger-related expense of $10.3 million in 1995 related to the Corporation's
merger with Security Capital and $1.1 million in 1994 related to Security
Capital's acquisition of a savings and loan association. The after-tax
effect of the aforementioned non-recurring expense items was to decrease net
income per share by $.29 per share in 1996, $.49 per share in 1995 and $.04
per share in 1994.
(2) During 1996, a tax benefit of $1.5 million ($.10 per share) was recorded for
forgiveness of the recapture of tax bad debt reserves of a former savings
bank subsidiary. During 1994, Security Capital recognized a one-time charge
of approximately $5.6 million ($.37 per share) of deferred tax liabilities
recorded in anticipation of the merger of Security Capital's three savings
subsidiaries into its commercial bank subsidiary.
(3) The cumulative changes in accounting principles reflect the Corporation's
adoption of SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions", which resulted in a one-time net charge of $2.3
million ($3.7 million pre-tax) and adoption of SFAS No. 109, "Accounting for
Income Taxes", which resulted in a one-time benefit of $900,000.
(4) Assumes full conversion of convertible subordinated debentures issued by the
Corporation in 1985. The convertible subordinated debentures were called for
redemption during 1993 and substantially all were converted into the
Corporation's common stock.
8
ITEM 7. 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
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") and Central
Carolina Bank-Georgia (collectively, the "Subsidiary Banks") for the years ended
December 31, 1996, 1995 and 1994. 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, Inc., and Southland Associates, Inc. The discussion and analysis of
financial condition and results of operations should be read in conjunction with
the consolidated financial statements and accompanying notes appearing elsewhere
in this report.
CHANGES IN CORPORATE STRUCTURE
During October 1996, the Corporation's former savings bank subsidiary,
Graham Savings Bank, Inc., SSB ("Graham Savings"), was merged into CCB, the
Corporation's lead bank. Its offices became offices of CCB. In May 1996, four
branch offices located outside of CCB's primary market area were sold to another
North Carolina financial institution. The transaction, which consisted of the
sale of all deposit accounts ($55.8 million) and fixed assets resulted in a
nominal gain. In conjunction with the transaction, goodwill and deposit base
premium were decreased by $2.3 million and $1.7 million, respectively. Also
during 1996, CCB's subsidiary, 1st Home Mortgage Acceptance Corporation ("HMAC")
was dissolved after the redemption of its collateralized mortgage obligations
("CMO's").
On May 19, 1995, the Corporation merged with Security Capital Bancorp
("Security Capital"), a $1.2 billion bank holding company based in Salisbury,
North Carolina (the "Merger"). The Merger was accounted for as a
pooling-of-interests and was effected through a tax-free exchange of stock. Each
share of Security Capital common stock outstanding on the date of the Merger was
converted into .5 shares of the Corporation's common stock. Consequently, the
Corporation issued approximately 5.9 million shares of common stock and cash in
lieu of fractional shares for all of the outstanding shares of Security Capital.
The former offices of Security Capital are operated as offices of CCB. In
accordance with pooling-of-interests accounting, the financial statements of the
Corporation were restated to reflect the Merger as if it had been effective as
of the earliest period presented.
On June 9, 1995, the Corporation acquired and assumed deposit liabilities
totaling $37.5 million of three branches of a North Carolina bank. Deposit base
premium of $2.9 million was recorded as a result of the acquisition; no goodwill
was recorded in the transaction. As the acquisition was accounted for as a
purchase, the results of operations of the branches acquired are included in the
Corporation's results of operations only from the date of acquisition.
During the third quarter of 1994, Security Capital purchased the
outstanding stock of First Federal Savings and Loan Association of Charlotte,
North Carolina ("First Federal") in an acquisition accounted for as a purchase.
First Federal had assets totaling $302 million at acquisition date, including
$135 million of loans. Goodwill of $12.6 million and deposit base premium of
$3.2 million were recorded as part of the acquisition. Concurrent with the
acquisition, First Federal was merged into Security Capital's commercial bank
subsidiary.
See "1997 Mergers" for mergers announced in 1996 and consummated in 1997
and announced in 1997.
PERFORMANCE OVERVIEW
Strong loan growth and a focus on increasing noninterest income while
controlling noninterest expense led to a 21.5% increase in 1996's net income
over 1995's results. Net income in 1996 of $70.3 million, or $4.67 per share,
exceeded 1995's net income of $57.9 million, or $3.87 per share. Returns on
average assets and average shareholders' equity were 1.39% and 15.67%,
respectively, in 1996 compared to 1.20% and 14.56%, respectively, in 1995 and
1.05% and 11.78%, respectively, in 1994. Table 1 compares the contributions to
net income per share for each income statement caption for the years ended
December 31, 1996, 1995 and 1994 and the respective changes from year to year.
9
TABLE 1
COMPONENTS OF INCOME PER SHARE
Years Ended December 31, 1996, 1995 and 1994
Change
From
1996 1995 1994 1996/1995
Net interest income $14.38 13.66 11.95 .72
Provision for loan and lease losses .85 .55 .60 .30
Net interest income after provision 13.53 13.11 11.35 .42
Other income 4.16 3.50 3.19 .66
Other expenses (1) 10.73 10.72 9.59 .01
Income before income taxes 6.96 5.89 4.95 1.07
Income taxes (2) 2.29 2.02 2.01 .27
Net income $ 4.67 3.87 2.94 .80
Change
from
1995/1994
Net interest income 1.71
Provision for loan and lease losses (.05)
Net interest income after provision 1.76
Other income .31
Other expenses (1) 1.13
Income before income taxes .94
Income taxes (2) .01
Net income .93
(1) Other expenses include a $7.4 million special assessment levied by the FDIC
in 1996 to recapitalize the Savings Association Insurance Fund which
decreased net income per share by $.29. Other expenses include
merger-related expense in 1995 of $10.3 million related to the Corporation's
merger with Security Capital and $1.1 million in 1994 related to Security
Capital's acquisition of a savings and loan association. The effect of the
merger-related expense was to decrease net income per share by $.49 in 1995
and $.04 in 1994.
(2) Income taxes for 1996 include a tax benefit of $1.5 million from the
forgiveness of recapture of tax bad debt reserves of a savings bank
subsidiary which increased income by $.10 per share. Income taxes for 1994
include a one-time charge of $5.6 million of deferred tax liabilities
recorded in anticipation of the merger of Security Capital's three savings
bank subsidiaries into its commercial bank subsidiary which decreased income
per share by $.37.
(3) Excluding the impact of the non-recurring items discussed in (1) and (2),
income per share would be $4.86, $4.36 and $3.35 for the years ended
December 31, 1996, 1995 and 1994, respectively.
To facilitate the discussion of the Corporation's results of operations,
Table 2 presents an additional analysis of performance to supplement the
accompanying consolidated statements of income and balance sheets. This
additional analysis should not be viewed as a substitute for the financial
statements presented in accordance with generally accepted accounting principles
which are included elsewhere in this report. There are two primary differences
between the consolidated statements of income and the operating income analysis
that is presented in Table 2. First, certain non-recurring transactions are not
included in noninterest expenses in determining operating income. Second, due to
the format of Table 2, not all line items agree directly to the consolidated
financial statements. Management has presented the additional analysis in the
belief that it is meaningful to understand the results and trends in operating
income separately from non-recurring transactions.
RESULTS OF OPERATIONS
Operating income, defined as income before non-recurring items, increased
12.3% in 1996 as compared to 1995. Operating income per share was $4.86 in 1996
versus 1995's $4.36. Over the past three years, the Corporation has experienced
significant non-recurring items which are described below:
During 1996, the Corporation experienced two non-recurring items. First,
the Federal Deposit Insurance Corporation (the "FDIC") assessed a special
one-time levy (the "FDIC Special Assessment") to recapitalize the Savings
Association Insurance Fund (the "SAIF") which resulted in a special assessment
of $8.4 million for CCB in the third quarter of 1996. During the fourth quarter
of 1996, CCB protested the amount of special assessment levied on certain
portions of the SAIF deposit base and received a $1.0 million reduction in the
assessment. CCB's SAIF deposits resulted from its acquisitions of thrift
institutions in 1993 through 1995. Second, through Congressional legislative
action, the recapture of tax bad debt reserves required upon a savings bank's
conversion to a commercial bank was forgiven. Consequently, a $1.5 million tax
benefit was recorded in the third quarter prior to Graham's merger into CCB (the
"Recapture Tax Benefit").
As previously discussed, the Corporation merged with Security Capital in
1995. To effect the transaction, the Corporation incurred $10.3 million of
merger-related expense which included severance and other employee benefit
costs, costs related to branch closures, system conversion costs and other
transaction-related expenses. In addition, $1.1 million of expense was incurred
in 1994 to effect Security Capital's acquisition of First Federal (collectively
"Merger-Related Expense"). The after-tax effect of the Merger-Related Expense
was $7.3 million for 1995 and $660,000 for 1994.
Also in 1994, Security Capital recognized a one-time charge of $5.6 million
for the recapture of tax bad debt reserves which was recorded in anticipation of
the mergers of its savings bank subsidiaries into its commercial bank subsidiary
(the "Recapture Tax Charge").
10
TABLE 2
SUMMARY OF OPERATIONS
Years Ended December 31, 1996, 1995 and 1994
(In Thousands)
Percentage
Change
From
1996 1995 1994 1996/1995
Net interest income $216,416 204,110 183,533 6.0%
Provision for loan and lease losses 12,800 8,183 9,279 56.4
Net interest income after provision 203,616 195,927 174,254 3.9
Noninterest revenues 62,589 52,289 48,986 19.7
Noninterest expense 154,038 149,890 146,186 2.8
Operating income 112,167 98,326 77,054 14.1
Income tax expense 38,965 33,162 25,683 17.5
Income before non-recurring items 73,202 65,164 51,371 12.3
Non-recurring items:
FDIC Special Assessment (7,400) -- --
Merger-Related Expense -- (10,333) (1,100)
Recapture Tax Charge -- -- (5,600)
Recapture Tax Benefit 1,553 -- --
Decrease in tax expense due to non-recurring items 2,960 3,029 440
(2,887) (7,304) (6,260)
Net income $ 70,315 57,860 45,111 21.5
Income per share before non-recurring items $ 4.86 4.36 3.35 11.5
Net income per share 4.67 3.87 2.94 20.7
Percentage
Change
From
1995/1994
Net interest income 11.2
Provision for loan and lease losses (11.8)
Net interest income after provision 12.4
Noninterest revenues 6.7
Noninterest expense 2.5
Operating income 27.6
Income tax expense 29.1
Income before non-recurring items 26.8
Non-recurring items:
FDIC Special Assessment
Merger-Related Expense
Recapture Tax Charge
Recapture Tax Benefit
Decrease in tax expense due to non-recurring items
Net income 28.3
Income per share before non-recurring items 30.1
Net income per share 31.6
Excluding the effects of the non-recurring items, return on average assets
was 1.45% for 1996 compared to 1.35% for 1995 and return on average
shareholders' equity was 16.32% for 1996 compared to 1995's 16.39%. Return on
average assets was 1.20% and return on average shareholders' equity was 13.46%
for 1994.
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. It is
impacted by the volume, yield/cost and relative mix of both earning assets and
interest-bearing and noninterest-bearing sources of funds. Table 3 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, 1996.
As shown in Table 3, the Corporation realized net taxable equivalent
interest income of $224.2 million in 1996. Average earning asset increases of
$258.5 million in 1996 were due to internal growth. Despite increases in the
volume of both earning assets and interest-bearing liabilities, decreases in the
rate earned on interest-earning assets and rate paid on interest-bearing
liabilities offset to result in a net interest margin of 4.70% for 1996, the
same margin as earned in 1995. The contribution of free liabilities to the net
interest margin rose to 75 basis points in 1996 from 72 basis points in 1995.
The interest rate spread fell 3 basis points to 3.95% for 1996. Increases in
volume of accounts resulted in $16.7 million of additional net interest income
which was partially offset by decreases in rate to result in $11.5 million of
additional net interest income for 1996. See Table 4 for an analysis of the
effects of volume and rate on net interest income.
11
TABLE 3
AVERAGE BALANCES AND NET INTEREST INCOME ANALYSIS
Years Ended December 31, 1996, 1995 and 1994
(Taxable Equivalent Basis -- In Thousands) (1)
1996 1995 1994
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) $3,519,615 322,276 9.16% 3,251,613 305,951 9.41 2,823,525 243,910
U.S. Treasury and U.S. Government
agencies and corporations (3) 872,120 58,988 6.76 869,267 58,521 6.73 908,937 55,872
States and political subdivisions 75,395 6,990 9.28 80,125 7,856 9.81 65,204 6,900
Equity and other securities (3) 27,082 1,993 7.36 30,708 2,180 7.10 36,412 2,311
Federal funds sold and other
short-term investments 229,220 12,485 5.45 239,912 14,696 6.13 149,387 6,464
Time deposits in other banks 56,860 2,844 5.00 50,156 2,937 5.86 38,349 1,900
Total earning assets 4,780,292 405,576 8.49% 4,521,781 392,141 8.67 4,021,814 317,357
NON-EARNING ASSETS:
Cash and due from banks 15,783 167,105 166,445
Premises and equipment 67,255 65,746 62,049
All other assets, net 202,268 56,476 47,467
Total assets $5,065,598 4,811,108 4,297,775
INTEREST-BEARING LIABILITIES:
Savings and time deposits $3,799,403 170,998 4.50% 3,654,420 168,983 4.62 3,222,263 117,408
Short-term borrowed funds 128,677 6,078 4.73 86,045 4,421 5.14 66,878 2,491
Long-term debt 63,863 4,272 6.69 84,328 6,000 7.11 87,368 6,467
Total interest-bearing
liabilities 3,991,943 181,348 4.54% 3,824,793 179,404 4.69 3,376,509 126,366
OTHER LIABILITIES AND
SHAREHOLDERS' EQUITY:
Demand deposits 525,059 494,106 453,876
Other liabilities 99,942 94,705 84,506
Shareholders' equity 448,654 397,504 382,884
Total liabilities and
shareholders' equity $5,065,598 4,811,108 4,297,775
NET INTEREST INCOME AND NET
INTEREST MARGIN (4) $224,228 4.70% 212,737 4.70 190,991
INTEREST RATE SPREAD (5) 3.95% 3.98
1994
Average
Yield/
Rate
EARNING ASSETS:
Loans and lease financing (2) 8.64
U.S. Treasury and U.S. Government
agencies and corporations (3) 6.15
States and political subdivisions 10.58
Equity and other securities (3) 6.35
Federal funds sold and other
short-term investments 4.33
Time deposits in other banks 4.95
Total earning assets 7.89
NON-EARNING ASSETS:
Cash and due from banks
Premises and equipment
All other assets, net
Total assets
INTEREST-BEARING LIABILITIES:
Savings and time deposits 3.64
Short-term borrowed funds 3.72
Long-term debt 7.40
Total interest-bearing
liabilities 3.74
OTHER LIABILITIES AND
SHAREHOLDERS' EQUITY:
Demand deposits
Other liabilities
Shareholders' equity
Total liabilities and
shareholders' equity
NET INTEREST INCOME AND NET
INTEREST MARGIN (4) 4.75
INTEREST RATE SPREAD (5) 4.15
(1) The taxable equivalent basis is computed using 35% federal and 7.75% state
tax rates in 1996 and 1995, and 35% federal and 7.83% state tax rates in
1994 where applicable.
(2) The average loan and lease financing balances include nonaccruing loans and
lease financing. Loan fees of $11.2 million, $10.3 million and $7.6 million
for 1996, 1995 and 1994, respectively, are included in interest income.
(3) The average balances for debt and equity securities exclude the effect of
their mark-to-market adjustment, if any.
(4) Net interest margin is computed by dividing net interest income by total
earning assets.
(5) Interest rate spread equals the earning asset yield minus the
interest-bearing liability rate.
12
TABLE 4
VOLUME AND RATE VARIANCE ANALYSIS
Years Ended December 31, 1996 and 1995
(Taxable Equivalent Basis -- In Thousands) (1)
1996 1995
VOLUME RATE TOTAL Volume
VARIANCE (2) VARIANCE (2) VARIANCE Variance (2)
INTEREST INCOME:
Loans and lease financing $ 24,641 (8,316) 16,325 39,073
U.S. Treasury and U.S. Government agencies and corporations 198 269 467 (2,498)
States and political subdivisions (452) (414) (866) 1,487
Equity and other securities (265) 78 (187) (386)
Federal funds sold and short-term investments (634) (1,577) (2,211) 4,883
Time deposits in other banks 367 (460) (93) 649
Total interest income 23,855 (10,420) 13,435 43,208
INTEREST EXPENSE:
Savings and time deposits 6,518 (4,503) 2,015 17,149
Short-term borrowed funds 2,035 (378) 1,657 828
Long-term debt (1,390) (338) (1,728) (220)
Total interest expense 7,163 (5,219) 1,944 17,757
INCREASE (DECREASE) IN NET INTEREST INCOME $ 16,692 (5,201) 11,491 25,451
1995
Rate Total
Variance (2) Variance
INTEREST INCOME:
Loans and lease financing 22,968 62,041
U.S. Treasury and U.S. Government agencies and corporations 5,147 2,649
States and political subdivisions (531) 956
Equity and other securities 255 (131)
Federal funds sold and short-term investments 3,349 8,232
Time deposits in other banks 388 1,037
Total interest income 31,576 74,784
INTEREST EXPENSE:
Savings and time deposits 34,426 51,575
Short-term borrowed funds 1,102 1,930
Long-term debt (247) (467)
Total interest expense 35,281 53,038
INCREASE (DECREASE) IN NET INTEREST INCOME (3,705) 21,746
(1) The taxable equivalent basis is computed using 35% federal and 7.75% state
tax rates in 1996 and 1995, and 35% federal and 7.83% state tax in 1994
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.
In 1995, the Corporation realized net taxable equivalent interest income of
$212.7 million. Average earning asset increases of $500 million in 1995 were due
to a full year's ownership of First Federal's assets and internal growth.
Changes in the mix of earning assets toward higher-earning loans and lease
financing did not fully offset the rise in rates paid on interest-bearing
liabilities with the result that the net interest margin fell 5 basis points in
1995 from 1994's level. The increased rate paid for interest-bearing liabilities
followed earlier increases in rates earned on interest-earning assets as,
generally, increases in interest rates affect a large percentage of the
Corporation's interest-earning assets immediately while the interest-bearing
liabilities reprice as they mature in subsequent months. Consequently, the
interest rate spread fell to 3.98% in 1995 from 1994's 4.15%. The contribution
of free liabilities to the net interest margin rose to 72 basis points in 1995
from 60 basis points in 1994. The overall increase in net interest income of
$21.7 million was due to increases in volume of $25.4 million offset by
decreases in rate of $3.7 million.
Growth in the average earning asset base in the previous three years has
primarily occurred in the loans and lease financing portfolio and federal funds
sold and other short-term investments. Following a trend begun in 1995, the mix
in earning assets continued to shift toward loans and lease financing due to
increased loan demand. Loans and lease financing comprised 73.6% of average
earning assets in 1996 compared to 71.9% in 1995. Other than the First Federal
acquisition in 1994, expansion of the earning asset base during the periods
presented has been funded primarily with increases in the deposit base and the
retention of earnings. Substantially all deposits originate within CCB's market
area. Average total deposits increased by approximately $175.9 million or 4.2%
in 1996 and $472 million or 12.9% in 1995.
13
TABLE 5
AVERAGE DEPOSITS
Years Ended December 31, 1996, 1995 and 1994
(In Thousands)
1996 1995 1994
AVERAGE AVERAGE Average Average Average
BALANCE RATE Balance Rate Balnce
SAVINGS AND TIME DEPOSITS:
Savings and NOW accounts $ 518,651 1.57% 492,034 2.43 495,348
Money market accounts 1,348,646 3.82 1,261,315 4.01 1,083,913
Time 1,932,106 5.76 1,901,071 5.65 1,643,002
Total savings and time deposits 3,799,403 4.50% 3,654,420 4.62 3,222,263
DEMAND DEPOSITS 525,059 494,106 453,876
Total deposits $4,324,462 4,148,526 3,676,139
1994
Average
Rate
SAVINGS AND TIME DEPOSITS:
Savings and NOW accounts 2.16
Money market accounts 3.05
Time 4.49
Total savings and time deposits 3.64
DEMAND DEPOSITS
Total deposits
OTHER INCOME AND OTHER EXPENSES
Other income consists primarily of service charges on deposit accounts,
trust and custodian fees, sales and insurance commissions, fees and service
charges for various other banking services provided to customers and accretion
of negative goodwill resulting from prior acquisitions. Other income, excluding
net securities gains or losses, totaled $62.1 million for the year ended 1996, a
$8.8 million increase over 1995. Increases in other income were experienced in
all categories of other income due in part to growth of the asset and customer
bases from acquisitions made during 1993 to 1995. Other income, excluding net
securities gains or losses, totaled $53.3 million in 1995 and $48.6 million in
1994. The five-year compound growth rate for other income was 8.5% at December
31, 1996.
As in prior years, service charges on deposit accounts were the largest
source of other income. These service charges amounted to $29.0 million in 1996,
a 13.5% increase over 1995. The increase was due primarily to growth in the
deposit base, repricing of certain services and the introduction of charges for
foreign (non-CCB customers) ATM use in 1996. 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 $6.7 million in 1996 from $6.3 million in
1995 due to growth in assets managed by the trust department and the
introduction of new employee benefit trust products in 1996. Trust and custodian
fees totaled $7.3 million in 1994. The decrease in fees from 1994 to 1995 was
due to decreased revenues from personal and employee benefit trust services.
Managed assets totaled $1.4 billion at December 31, 1996 and $1.2 billion at
December 31, 1995.
The Corporation offers full brokerage services to customers through an
independent discount brokerage firm which provided $5.0 million of income in
1996, $2.3 million in 1995 and $1.7 million in 1994. Additional noninterest
revenue is provided through the sale of insurance products to banking customers
and by the sale of annuity products through CCB's subsidiary, CCBIISC. Insurance
commissions have decreased in 1995 and 1996 due to a greater focus on brokerage
services. Proprietary mutual funds were launched in late 1994 and are being sold
through CCBIISC. Sales and insurance commissions income totaled $6.0 million in
1996, $3.8 million in 1995 and $4.5 million in 1994.
Negative goodwill (the excess of net assets acquired over costs) totaling
$33.6 million was recorded in connection with acquisitions completed in 1993 and
is being accreted to income over a ten-year period on a straight-line basis.
Accretion of negative goodwill totaled $3.4 million in 1996, 1995 and 1994.
Included in 1996's other operating income are gains of $2.3 million from the
capitalization of mortgage servicing rights. During 1996, the Corporation
adopted Statement of Financial Accounting Standards No. 122, "Accounting for
Mortgage Servicing Rights, an amendment to Statement No. 65" ("SFAS No. 122").
SFAS No. 122 provides guidance for recognition of mortgage servicing rights
("MSR") as an asset when mortgages are sold or securitized and servicing rights
retained, regardless of how those servicing rights were acquired. SFAS No. 122
eliminates the previously existing accounting distinction between rights to
service mortgage loans for others that are acquired through loan origination
activities and those acquired through purchase transactions. Impairment of the
recorded MSR is measured periodically using a current fair value applied to each
stratum of the disaggregated mortgage servicing portfolio. If necessary,
impairment would be recorded on the income statement through adjustment of a MSR
market valuation account. At December 31, 1996, there was no impairment of the
recorded MSR and no adjustment to the MSR valuation account was made during
1996. During 1997, the Corporation will sell the mortgage servicing originated
during 1996
14
and anticipates a small gain on the transaction. Henceforth, all mortgages sold
will be sold with the servicing released. The Corporation has elected to sell
its originated servicing as it did not have the economies of scale that make
mortgage servicing a profitable line of business.
Net securities gains (losses) of $505,000, $(978,000) and $357,000 were
realized in 1996, 1995 and 1994, respectively, through the sale of securities
held in the available for sale portfolio. The net securities gains in 1996 were
realized through the sale of obligations of U. S. Government agencies and
corporations which was offset by losses on marketable equity securities. The net
securities losses in 1995 were primarily realized from sales of obligations of
the U. S. Treasury and U. S. Government agencies and corporations. The net
securities gains in 1994 were realized primarily through the sales of U.S.
Treasury securities and equity securities.
Table 6 presents various operating efficiency ratios for the Corporation for
the prior five years (excluding the impact of non-recurring items). Noninterest
income as a percentage of average assets rose significantly in 1996 due to a
greater focus on increasing noninterest revenue. In addition, the noninterest
income ratio for 1995 and 1994 dropped from 1993's level as a result of the
decreases in gains on sales of investment securities and sales of mortgage
loans.
TABLE 6
OPERATING EFFICIENCY RATIOS
Years Ended December 31
1996 1995 1994 1993 1992
As a percentage of average assets (1):
Noninterest income 1.24% 1.09 1.14 1.37 1.35
Personnel expense 1.64 1.65 1.68 1.85 1.95
Occupancy and equipment expense .43 .44 .50 .55 .62
Other operating expense .97 1.03 1.23 1.18 1.18
Total noninterest expense 3.04 3.12 3.41 3.58 3.75
Net overhead (noninterest expense less noninterest income) 1.80% 2.03 2.27 2.21 2.40
Noninterest expense as a percentage of net interest income and other income (1) (2) 53.71% 56.56 60.92 61.72 63.29
Average assets per employee (in millions) $ 2.60 2.48 2.15 1.83 1.73
(1) Excludes the impact of the FDIC Special Assessment incurred in 1996 and
Merger-Related Expense incurred in 1995 and 1994.
(2) Presented using taxable equivalent net interest income. The taxable
equivalent basis is computed using 35% federal and 7.75% state tax rates in
1996 and 1995, 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.
Other expenses, excluding non-recurring items, rose $4.1 million or 2.8% in
1996 over 1995's level of $149.9 million. This increase was due primarily to
increases in personnel expense. Despite these increases, noninterest expenses
are growing at a slower rate than average assets. As reported in Table 6, total
noninterest expense as a percentage of average assets continued to show
improvement, falling to 3.04% for 1996 from a high of 3.75% in 1992.
The increase in personnel expense was due in part to general wage and
employee benefit increases and higher levels of incentives paid to employees
during promotional campaigns. Within personnel expense, salaries and wages
increased $3.1 million and employee benefits and training increased $800,000.
Despite the $3.9 million increase in personnel expense, average assets per
employee rose from a low of $1.73 million in 1992 to $2.60 million in 1996.
Net occupancy and equipment expense remained stable for the years ended
December 31, 1996 and 1995. The costs of converting acquired branches and
operational systems incurred in 1995 and 1994 are included in Merger-Related
Expense and are excluded from the analysis in Table 6.
Other operating expenses, excluding non-recurring items, decreased by
$566,000 in 1996 or 1.1% from 1995. The most significant decrease in other
operating expenses was the $4.3 million decrease in deposit and other insurance
expense due to the FDIC lowering certain bank deposit insurance premiums from
.23% of deposits to .04% during 1995 and further decreasing the premiums in 1996
(excluding the FDIC Special Assessment). However, the decreased operating
expenses were partially offset by increased professional services fees and
marketing expenses. The $3.1 million increase in professional services fees was
due primarily to the engagement of consultants to review opportunities to earn
additional noninterest revenues or to decrease noninterest expenses through
improvement of operating processes and procedures. Additional marketing expense
of $1.7 million was incurred due to the marketing of the new delivery channels
introduced in 1995 and 1996.
15
For 1995, other operating expenses, excluding non-recurring items,
increased $3.7 million over 1994's level of $146.2 million. The personnel
expense increase of $7.3 million was due in part to a full year of operational
expense from Security Capital's 1994 acquisition of First Federal. Decreases in
FDIC insurance premiums from reduced deposit premium rates totaling $2.4 million
partially offset the increased personnel expense. Amortization of intangible
assets included in other operating expenses increased $1.4 million from 1994's
level due to a full year of amortization of intangible assets recorded in
connection with Security Capital's 1994 acquisition of First Federal. As shown
in Table 6, noninterest expense, excluding non-recurring items, decreased as a
percentage of average assets from 3.41% in 1994 to 3.12% in 1995.
The Corporation's efficiency ratio (noninterest expense as a percentage of
taxable equivalent net interest income and other income) has improved over the
past four years from 63.29% in 1992 to 53.71% in 1996 as disclosed in Table 6.
Management will continue to closely monitor this ratio and anticipates
continuing improvement as revenue-enhancement opportunities are identified and
cost-containment programs are maintained.
INCOME TAXES
Income tax expense was $34.5 million in 1996, $30.1 million in 1995, and
$30.8 million in 1994. The Corporation's effective income tax rates were 32.9%,
34.3%, and 40.6% in 1996, 1995 and 1994, respectively. The Recapture Tax Benefit
had a positive impact on 1996's effective income tax rate. The effective income
tax rates for 1995 and 1994 were negatively impacted by non-deductible
Merger-Related Expense items and the Recapture Tax Charge, respectively.
Deferred tax assets of $21.9 million and deferred tax liabilities of $14.0
million are recorded on the Consolidated Balance Sheets as of December 31, 1996.
The Corporation has determined that a valuation allowance for the deferred tax
assets is not needed at December 31, 1996.
FOURTH QUARTER RESULTS
During the fourth quarter of 1996, the Corporation recorded net income of
$19.2 million or $1.27 per share compared to 1995's fourth quarter results of
$17.1 million or $1.14 per share. Return on average assets was 1.45% in 1996 and
1.37% in 1995; return on average shareholders' equity was 16.44% in 1996
compared to 16.25% in 1995. During the fourth quarter, CCB protested the FDIC
special assessment levied on portions of the SAIF deposit base and was granted a
$1 million decrease from the original levy of $8.4 million. Excluding the
positive impact of this non-recurring item, the returns on average assets and
average shareholders' equity were 1.41% and 15.92%, respectively.
Average assets for the three months ended December 31, 1996 totaled $5.3
billion, a 6.4% increase over the same period in 1995. Average earning assets
increased by approximately the same percentage from $4.7 billion in 1995 to $5.0
billion for the same period in 1996. The net interest margin for the fourth
quarter of 1996 was 4.70%, a 6 basis point increase from 1995's 4.64%.
Noninterest income as a percentage of average assets was 1.25% for the
fourth quarter of 1996 compared to 1995's 1.07%. Noninterest expense as a
percentage of average assets rose from 2.99% for the fourth quarter of 1995 to
3.09% for the same period in 1996. The increase in noninterest expense in the
fourth quarter was due in part to the previously mentioned professional services
fees. The efficiency ratio for these periods in 1996 and 1995 was 54.51% and
55.00%, respectively.
Income statements for each of the quarters in the five-quarter period ended
December 31, 1996 are included in Table 7.
FINANCIAL POSITION
Strong loan growth during 1996 resulted in a 8.2% increase in average loans
and lease financing and a 5.3% increase in average assets. The five-year
compound growth rate for period-end assets was 11.9% and for average assets was
11.2%. This growth rate was enhanced by the approximately $1.1 billion of assets
added through acquisitions during the prior three years.
Table 8 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. Outstanding loans and lease financing increased $426 million
over 1995's total. The loan mix at year-end 1996 varies from the loan mix at
December 31, 1995 primarily due to the mid-year 1996 reclassification of certain
loans from commercial, financial and agricultural loans to real estate-mortgage
($146 million) and real estate-construction ($40 million). Due to system
limitations, loans that were misclassified in prior periods have not been
restated for their correct classification. All of the 1996 loan growth was
internally generated. 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
16
basis and automobile loans which are offered in Georgia and Virginia through
referrals from a major automobile insurance company. Lending officers of the
Subsidiary Banks generally consider the cash flow or earnings power of the
borrower as the primary source of repayment. 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 8.
TABLE 7
INCOME STATEMENTS FOR FIVE QUARTERS ENDED DECEMBER 31, 1996
(In Thousands Except Per Share Data)
Three Months Ended
12/31/96 9/30/96 6/30/96 3/31/96
Total interest income $103,227 99,974 97,544 97,019
Total interest expense 46,915 45,720 44,336 44,377
Net interest income 56,312 54,254 53,208 52,642
Provision for loan and lease losses 3,800 3,850 3,150 2,000
Net interest income after provision 52,512 50,404 50,058 50,642
Service charges on deposits 7,474 7,334 7,282 6,955
Trust income 1,796 1,586 1,783 1,571
Brokerage and insurance commissions 1,811 1,586 1,440 1,174
Accretion of negative goodwill 839 839 839 839
Other operating 4,601 4,655 4,060 3,620
Securities gains (losses), net (5) 499 26 (15)
Total other income 16,516 16,499 15,430 14,144
Personnel 21,828 21,166 19,841 20,412
Occupancy and equipment 5,434 5,469 5,249 5,542
Deposit and other insurance 143 1,064 550 532
Amortization of intangible assets 909 910 909 985
FDIC Special Assessment (refund) (1) (1,000) 8,400 -- --
Other operating 12,465 9,784 10,620 10,226
Total other expenses 39,779 46,793 37,169 37,697
Income before income taxes 29,249 20,110 28,319 27,089
Income taxes (2) 10,085 5,075 9,975 9,317
Net income $ 19,164 15,035 18,344 17,772
Income before non-recurring items per share (3) $ 1.23 1.23 1.22 1.18
Net income per share 1.27 1.00 1.22 1.18
Three
Months
Ended
12/31/95
Total interest income 98,495
Total interest expense 46,463
Net interest income 52,032
Provision for loan and lease losses 2,407
Net interest income after provision 49,625
Service charges on deposits 6,663
Trust income 1,557
Brokerage and insurance commissions 1,118
Accretion of negative goodwill 839
Other operating 3,202
Securities gains (losses), net 4
Total other income 13,383
Personnel 20,259
Occupancy and equipment 4,705
Deposit and other insurance 1,129
Amortization of intangible assets 1,131
FDIC Special Assessment (refund) (1) --
Other operating 9,893
Total other expenses 37,117
Income before income taxes 25,891
Income taxes (2) 8,828
Net income 17,063
Income before non-recurring items per share (3) 1.14
Net income per share 1.14
(1) During the fourth quarter of 1996, CCB contested the FDIC Special
Assessment, as originally levied, which resulted in a $1 million reduction
in the assessment.
(2) Income taxes during the third quarter of 1996 include the Recapture Tax
Benefit.
(3) The net impact of the FDIC Special Assessment and the Recapture Tax Benefit
are excluded.
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 or to any one borrower. 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 the primary decision factor, with
additional reliance upon collateral values. Management expects moderate to
strong growth to continue in these categories during 1997. See Table 9 for a
schedule of maturities and sensitivities of certain loan types to changes in
interest rates.
17
TABLE 8
LOANS AND LEASE FINANCING
(In Thousands)
As of December 31
1996 1995 1994 1993 1992
Commercial, financial and agricultural (1) $ 428,710 530,807 576,589 450,943 390,086
Real estate -- construction (1) 570,450 465,245 356,361 230,480 181,856
Real estate -- mortgage (1) 2,152,021 1,817,045 1,710,028 1,510,647 1,046,961
Instalment loans to individuals 393,927 305,455 288,161 256,086 225,500
Credit card receivables 192,855 194,680 199,224 183,724 171,278
Lease financing 38,323 37,223 33,433 25,062 24,241
Total gross loans and lease financing 3,776,286 3,350,455 3,163,796 2,656,942 2,039,922
Less: unearned income 4,863 5,110 4,933 5,842 6,093
Total loans and lease financing $3,771,423 3,345,345 3,158,863 2,651,100 2,033,829
(1) During 1996, certain loans were reviewed and found to have been improperly
classified as to loan type. Consequently, loans totaling $186 million were
reclassified from commercial, financial and agricultural to real
estate-mortgage ($146 million) and real estate-construction ($40 million).
Real estate-mortgage loans consist primarily of loans secured by first or
second deeds of trust on primary residences (71% of total real estate-mortgage
loans). It is the Subsidiary Banks' general policy to retain adjustable rate
first mortgage loans within the portfolio. The remaining portion (29%) 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 for 1997.
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. Since 1993, the Corporation
has had an alliance with a major automobile insurance company, which, through
referrals from the insurance company, has increased the amount of automobile
loans outstanding. During 1995, CCB signed an agreement to extend the market
area for loan referrals from the automobile insurance company into Virginia.
Credit card products include overdraft protection and traditional credit
card services. The nationwide introduction of a new credit card product in 1993,
which has interest rates lower than many competitors', contributed to the
increase in credit card balances outstanding from 1992's level of $171.2
million. Management expects moderate growth in this line of business during
1997.
The leasing portfolio, net of unearned income, increased 3.5% in 1996 to
$33.5 million. The leasing portfolio is not concentrated in any one line of
business or type of equipment.
TABLE 9
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
(In Thousands)
AS OF DECEMBER 31, 1996
COMMERCIAL,
FINANCIAL AND REAL ESTATE-
AGRICULTURAL CONSTRUCTION
Due in one year or less $ 96,472 20,484
Due after one year through five years:
Fixed interest rates 146,520 125,753
Floating interest rates 132,738 369,485
Due after five years:
Fixed interest rates 13,401 21,534
Floating interest rates 39,579 33,194
Total $ 428,710 570,450
AS OF DECEMBER 31, 1996
TOTAL
Due in one year or less 116,956
Due after one year through five years:
Fixed interest rates 272,273
Floating interest rates 502,223
Due after five years:
Fixed interest rates 34,935
Floating interest rates 72,773
Total 999,160
18
Investment securities decreased 5.9% from year-end 1995 to $979.3 million at
December 31, 1996. Average investment securities totaled 20.4% of total average
earning assets for 1996 versus 21.7% for 1995 as a result of strong loan demand.
Taxable securities remain the primary component of the portfolio.
TABLE 10
INVESTMENT SECURITIES PORTFOLIO
(In Thousands)
As of December 31
1996 1995 1994
AMORTIZED CARRYING Amortized Carrying Amortized
COST VALUE Cost Value Cost
SECURITIES AVAILABLE FOR SALE
U.S. Treasury $ 434,952 440,120 475,506 485,317 520,082
U.S. Government agencies and corporations 433,833 437,434 440,565 448,033 265,553
Equity securities 19,548 19,548 29,351 28,290 10,066
Total securities available for sale $ 888,333 897,102 945,422 961,640 795,701
1994
Carrying
Value
SECURITIES AVAILABLE FOR SALE
U.S. Treasury 501,734
U.S. Government agencies and corporations 256,077
Equity securities 8,291
Total securities available for sale 766,102
MATURITY AND YIELD SCHEDULE AS OF DECEMBER 31, 1996
WEIGHTED
CARRYING AVERAGE
VALUE YIELD(1)
U.S. Treasury:
Within 1 year $ 140,474 6.34%
After 1 but within 5 years 273,838 6.77
After 5 but within 10 years 25,808 8.04
Total U.S. Treasury 440,120 6.70
U.S. Government agencies and corporations:
Within 1 year 22,341 6.39
After 1 but within 5 years 311,622 7.25
After 5 but within 10 years 100,200 7.27
After 10 years (2) 3,271 7.97
Total U.S. Government agencies and corporations 437,434 7.21
Equity securities 19,548 7.16
Total securities available for sale $ 897,102 6.96%
As of December 31
1996 1995 1994
CARRYING MARKET Carrying Market Carrying
VALUE VALUE Value Value Value
SECURITIES HELD TO MATURITY
U.S. Treasury $ -- -- -- -- 43,622
U.S. Government agencies and corporations -- -- -- -- 96,297
States and political subdivisions 82,238 86,479 76,745 81,714 83,591
Corporate debt and other securities -- -- 1,347 1,346 20,670
Total securities held to maturity $ 82,238 86,479 78,092 83,060 244,180
As of December 31,
1994
Market
Value
SECURITIES HELD TO MATURITY
U.S. Treasury 41,669
U.S. Government agencies and corporations 92,590
States and political subdivisions 83,158
Corporate debt and other securities 20,641
Total securities held to maturity 238,058
MATURITY AND YIELD SCHEDULE AS OF DECEMBER 31, 1995
WEIGHTED
CARRYING AVERAGE
VALUE YIELD(1)
States and political subdivisions:
Within 1 year $ 200 6.32%
After 1 but within 5 years 2,574 9.34
After 5 but within 10 years 35,224 8.46
After 10 years 44,240 8.68
Total securities held to maturity $ 82,238 8.60%
(1) The weighted average yield is computed on a taxable equivalent basis using
35% federal and 7.75% 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.
19
The Corporation segregates debt and equity securities that have readily
determinable fair values into one of 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 to
maturity and are reported at amortized cost. Securities held to maturity totaled
$82.2 million or 8.4% of the total investment securities portfolio at December
31, 1996. 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, 1996 or
1995 or at any time during those years. Debt and equity securities not
classified as either held to maturity or as trading securities are classified as
available for sale securities and are 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, 1996, securities available
for sale totaled $897.1 million, over 90% of the total portfolio. The
mark-to-market adjustment for available for sale securities totaled $8.8 million
in unrealized gains at December 31, 1996 and, after considering applicable
taxes, resulted in a $5.3 million addition to total shareholders' equity. As of
December 31, 1995, the mark-to-market adjustment for available for sale
securities totaled $16.2 million and resulted in a $9.8 million addition to
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. Future fluctuations in shareholders'
equity may occur due to changes in the market values of debt and equity
securities classified as available for sale. The Corporation did not reclassify
any securities between categories during 1996. During 1995, the Corporation
reclassified $139.7 million of investments that Security Capital had accounted
for as held to maturity to available for sale in accordance with the
Corporation's securities classification policies. These securities were marked
to their market value upon their reclassification.
During 1996, average deposits rose to $4.3 billion from $4.1 billion in
1995. The largest increases were experienced in average money market accounts,
$87.3 million, and average retail time deposits, $39.1 million. As a percentage
of average total deposits, interest-bearing deposits remained relatively
constant at 87.9% in 1996 compared to 88.1% in 1995. Demand deposits on average
grew $30.9 million in 1996. As with the rest of the financial institutions
industry, CCB has experienced decreased growth trends in traditional deposits as
consumers elect other investment/savings opportunities. However, as discussed in
Liquidity and Interest-Sensitivity, CCB has other available sources for the
funding of future loan growth if deposit growth remains low.
In October 1995, CCB opened its first in-store banking office within a
newly constructed Harris Teeter supermarket in Wilmington, North Carolina.
During 1996, CCB opened six in-store banking offices within newly constructed
Harris Teeter stores in Cary, Greensboro (3), Raleigh, New Bern and
Winston-Salem, North Carolina. These banking offices have extended hours during
the weekday and are open on weekends and holidays. An additional nine new
in-store banking offices are planned for 1997. CCB anticipates that the in-store
banking offices will serve as a new source of consumer deposits.
The Corporation's ratio of long-term debt to shareholders' equity decreased
to 12.1% at December 31, 1996 from 18.2% at December 31, 1995. During 1996,
HMAC's CMO's, which totaled $8.9 million at December 31, 1995, were redeemed at
par value. During 1995, the Corporation repurchased and retired $7 million of
the $40 million of 6.75% subordinated notes issued during 1993. The early
retirement resulted in a net gain of $800,000.
CAPITAL RESOURCES
The Corporation has had a strong capital position historically as evidenced
by the Corporation's ratio of average shareholders' equity to average total
assets of 8.86% and 8.26% for 1996 and 1995, respectively. Bank holding
companies are required to comply with the Federal Reserve Board's risk-based
capital guidelines which require a minimum ratio of total capital to risk-
weighted assets of 8%. At least half of the total capital is required to be
"Tier 1" capital, principally consisting of common shareholders' equity,
noncumulative perpetual preferred stock, and a limited amount of cumulative
perpetual preferred stock less certain goodwill items. The remainder, "Tier 2"
capital, may consist of a limited amount of subordinated debt, certain hybrid
capital instruments and other debt securities, perpetual preferred stock, and a
limited amount of the general reserve for loan and lease losses. In addition to
the risk-based capital guidelines, the Federal Reserve Board has adopted a
minimum leverage capital ratio under which a bank holding company must maintain
a minimum level of Tier 1 capital to average total consolidated assets of at
least 3% in the case of a bank holding company which has the highest regulatory
examination rating and is not contemplating significant growth or expansion. All
other bank holding companies are expected to maintain a leverage capital ratio
of at least 1% to 2% above the stated minimum.
The Corporation and the Subsidiary Banks continue to maintain higher
capital ratios than required under regulatory guidelines. Table 11 shows that
the Corporation and the Subsidiary Banks significantly exceeded all risk-based
capital requirements at December 31, 1996 and 1995. CCB-Ga.'s leverage ratio
decreased due to higher asset levels without corresponding increases in capital
but still exceeds the risk-based capital requirements.
20
TABLE 11
CAPITAL RATIOS
Regulatory
1996 1995 Minimum
Tier I Capital: 4.00%
Corporation 11.64% 10.41
CCB 11.57 10.72
CCB-Ga. 10.10 7.99
Total Capital: 8.00
Corporation 13.75 12.47
CCB 12.85 12.12
CCB-Ga. 11.35 9.09
Leverage: 4.00
Corporation 8.52 7.89
CCB 8.48 8.12
CCB-Ga. 8.63 33.30
The Subsidiary Banks also have the highest rating in regards to the FDIC
insurance assessment and, accordingly, pay the lowest deposit insurance premium.
The Corporation's primary source of additional equity capital has
historically been the retention of earnings which added $46.2 million, $35.7
million and $27.5 million to capital in 1996, 1995 and 1994, respectively.
However, during 1993, issuances of common stock, net of repurchases, totaling
$39.9 million, were the primary source of additional equity capital. The common
stock proceeds in 1993 were derived from the conversion of convertible
subordinated debentures and issuances of common stock for acquisitions and a
public offering. Table 12 presents the rate of internal capital growth for the
Corporation for each of the five previous years. This growth rate increased to
10.95% in 1996 from 1995's 10.83%.
TABLE 12
RATE OF INTERNAL CAPITAL GROWTH
Years Ended December 31
1996(1) 1995(1) 1994(1) 1993(2)
Average assets to average equity TIMES 11.29X 12.10 11.22 10.93
Return on average assets EQUALS 1.45% 1.35 1.20 1.22
Return on average shareholders' equity TIMES 16.32% 16.39 13.46 13.33
Earnings retained EQUALS 67.08% 66.06 65.76 66.00
Rate of internal capital growth 10.95% 10.83 8.85 8.80
Years Ended December 31
1992
Average assets to average equity TIMES 10.70
Return on average assets EQUALS 1.14
Return on average shareholders' equity TIMES 12.20
Earnings retained EQUALS 64.63
Rate of internal capital growth 7.88
(1) Excludes the impact of non-recurring items, as applicable: for 1996, the
FDIC Special Assessment and the Recapture Tax Benefit; for 1995,
Merger-Related Expense; and for 1994, Merger-Related Expense and the
Recapture Tax Charge.
(2) 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".
Since August 14, 1996, the Corporation's common stock has been traded on
The New York Stock Exchange under the symbol CCB. Prior to that date, the
Corporation's common stock had been traded on The Nasdaq Stock Market under the
symbol CCBF. At December 31, 1996, the Corporation had approximately 6,500
shareholders of record.
In connection with the Merger, the Corporation repurchased and immediately
retired approximately 518,000 shares of its outstanding common stock repurchased
at an aggregate purchase price of $20 million during the period of November 1994
through May 1995. The shares were repurchased through open market transactions.
Approximately 19,000 shares were repurchased at an aggregate purchase price of
$1.0 million and retired during 1996.
21
TABLE 13
STOCK PRICES AND DIVIDENDS
Cash
Prices Dividends
1996 High Low Close Declared
FIRST QUARTER $ 55.75 49.25 50.25 .38
SECOND QUARTER 54.75 49.75 51.25 .38
THIRD QUARTER 55.00 49.50 54.75 .42
FOURTH QUARTER 71.75 54.75 68.25 .42
1995
First Quarter $ 38.75 34.00 38.50 .34
Second Quarter 42.75 38.00 41.75 .34
Third Quarter 51.63 41.75 51.13 .38
Fourth Quarter 56.50 48.50 55.50 .38
Dividends have been increased during each of the three previous years from
$1.32 in 1994 to $1.44 in 1995 and to $1.60 in 1996. The 1996 increase continues
the Corporation's thirty-two year trend of annual dividend increases. Dividends
paid as a percentage of operating earnings (net income excluding non-recurring
items) equaled 32.92%, 33.94% and 34.24% for the years ended 1996, 1995 and
1994, respectively. The Corporation's dividend guideline is to pay approximately
30% to 40% of operating earnings in dividends. Management feels that this
guideline 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 $8.8 million in 1996, $9.9 million in 1995 and $8.6
million in 1994. There were no significant capital resource commitments at
December 31, 1996 other than the operating lease commitments specified in the
notes to the Consolidated Financial Statements. Internally, the Corporation has
budgeted $20 million in 1997 for technological improvements and new or renovated
facilities. In addition, the Corporation is in the midst of a project to
determine the impact of the so-called "millennium problem" on the Corporation's
computer systems. The Corporation is currently analyzing and assembling a list
of both its internally developed and purchased software that utilize embedded
date codes which may experience operational problems when the year 2000 is
reached. The Corporation plans to make modifications to the identified software
during 1997 and 1998 and test the changes in 1999. Currently, the Corporation is
unable to quantify the resources that will have to be committed to modify
software that is not year 2000-compatible.
ASSET QUALITY
Continuing improvement has been realized in the levels of nonperforming and
risk assets over the prior four years. Nonperforming assets (nonaccrual loans
and lease financing, other real estate acquired through loan foreclosures 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 14. At December 31, 1996,
risk assets amounted to $15.8 million, $450,000 lower than 1995's level of $16.2
million. Risk assets to total assets were .29%, .32% and .42% at December 31,
1996, 1995 and 1994, respectively. The reserve for loan and lease losses to risk
assets was 3.11 times at December 31, 1996 compared to 2.69 times and 2.05 times
at December 31, 1995 and 1994, respectively. Real estate acquired through loan
foreclosures decreased to $1.4 million at December 31, 1996 from $10.3 million
at December 31, 1992. 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 14.
22
TABLE 14
NONPERFORMING AND RISK ASSETS
(In Thousands)
AS OF DECEMBER 31
1996 1995 1994 1993 1992
Nonaccrual loans and lease financing (1) $11,271 9,616 10,835 14,548 13,574
Other real estate acquired through loan foreclosures 1,418 2,467 5,115 8,984 10,279
Restructured loans and lease financing -- -- 129 186 565
Total nonperforming assets 12,689 12,083 16,079 23,718 24,418
Accruing loans and lease financing 90 days or more past due 3,066 4,120 3,913 2,664 4,251
Total risk assets $15,755 16,203 19,992 26,382 28,669
Ratio of nonperforming assets to:
Loans and lease financing outstanding and other real estate acquired through
loan foreclosures .34% .36 .51 .90 1.20
Total assets .24 .24 .34 .57 .76
Ratio of total risk assets to:
Loans and lease financing outstanding and other real estate acquired through
loan foreclosures .42 .48 .63 1.00 1.40
Total assets .29 .32 .42 .63 .89
Reserve for loan and lease losses to total risk assets 3.11X 2.69 2.05 1.30 .90
(1) For the years ended December 31, 1996 and 1995, 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
$794,000 in 1996 and $685,000 in 1995. Gross interest income included in net
income on these nonaccrual and restructured loans and lease financing
amounted to approximately $130,000 and $65,000 for the years ended December
31, 1996 and 1995, respectively. The amounts also include interest from
prior years collected during 1996 or 1995.
The Corporation's general nonaccrual policy is to place business credits 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). Generally, instalment loans to individuals and
credit card receivables which are past due more than ninety and 120 days,
respectively, are charged-off.
Table 15 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
improvement during the past five years despite a slight up-swing experienced in
1996. This ratio was stable during 1995 and 1994 at .17% and compares to .21%
for 1996. Net charge-offs in the five-year period ended 1996 occurred primarily
in instalment loans to individuals and 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.
23
TABLE 15
SUMMARY OF LOAN AND LEASE FINANCING LOSS EXPERIENCE
AND THE RESERVE FOR LOAN AND LEASE LOSSES
(In Thousands)
YEARS ENDED DECEMBER 31
1996 1995 1994 1993 1992
BALANCE AT BEGINNING OF YEAR $ 43,578 41,046 34,190 25,936 23,171
Loan and lease losses charged to reserve:
Commercial, financial and agricultural (235) (113) (168) (443) (1,377)
Real estate -- construction (38) (392) (567) (412) (255)
Real estate -- mortgage (629) (294) (767) (787) (636)
Instalment loans to individuals (2,901) (2,284) (1,994) (2,032) (2,166)
Credit card receivables (5,643) (4,030) (3,121) (2,738) (2,629)
Lease financing (166) (71) (84) (160) (158)
Total loan and lease losses charged to reserve (9,612) (7,184) (6,701) (6,572) (7,221)
Recoveries of loans and leases previously charged-off:
Commercial, financial and agricultural 71 100 129 311 495
Real estate -- construction 61 38 60 59 16
Real estate -- mortgage 226 77 224 252 97
Instalment loans to individuals 795 570 590 672 771
Credit card receivables 1,063 733 684 596 572
Lease financing 41 15 91 58 204
Total recoveries of loans and leases previously charged-off 2,257 1,533 1,778 1,948 2,155
Net charge-offs (7,355) (5,651) (4,923) (4,624) (5,066)
Provision charged to operations 12,800 8,183 9,279 7,106 7,831
Reserves related to acquisitions -- -- 2,500 5,772 --
BALANCE AT END OF YEAR $ 49,023 43,578 41,046 34,190 25,936
Loans and lease financing outstanding at end of year $3,771,423 3,345,345 3,158,863 2,651,100 2,033,829
Ratio of reserve for loan and lease losses to loans and lease
financing outstanding at end of year 1.30% 1.30 1.30 1.29 1.28
Average loans and lease financing outstanding $3,519,615 3,251,613 2,823,525 2,299,599 ,018,812
Ratio of net charge-offs of loans and lease financing to average
loans and lease financing .21% .17 .17 .20 .25
Ratio of net charge-offs of loans and lease financing to average
loans and lease financing, excluding credit card receivables .08% .08 .09 .12 .16
Provisions for loan and lease losses amounted to $12.8 million, $8.2 million
and $9.3 million in 1996, 1995 and 1994, respectively. As illustrated in Table
15, the reserve for loan and lease losses increased significantly in 1994 due to
provisions for $372 million of internal loan and lease growth and $2.5 million
of reserves recorded in acquisitions. As disclosed in Table 14, 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. An
allocation of the reserve for loan and lease losses as of the end of the
previous five years is presented in Table 16.
24
TABLE 16
ALLOCATION OF THE RESERVE FOR LOAN AND LEASE LOSSES (1)
(In Thousands)
As of December 31
1996 1995 1994 1993
% OF LOANS % of Loans % of Loans
AMOUNT OF AND LEASES Amount of and Leases Amount of and Leases Amount of
RESERVE IN EACH Reserve in Each Reserve in Each Reserve
ALLOCATED CATEGORY Allocated Category Allocated Category Allocated
Commercial, financial and
agricultural $ 8,752 11.4% 7,780 15.9 7,372 18.3 6,070
Real estate -- construction 6,148 15.1 5,465 13.9 5,005 11.3 4,408
Real estate -- mortgage 15,306 57.1 13,606 54.4 12,923 54.1 10,347
Instalment loans to individuals 6,000 10.4 5,334 9.1 4,724 9.1 4,436
Credit card receivables 5,040 5.1 4,480 5.8 4,229 6.3 3,510
Lease financing 566 .9 503 .9 559 .9 552
Unallocated portion of reserve 7,211 -- 6,410 -- 6,234 -- 4,867
Total $49,023 100.0% 43,578 100.0 41,046 100.0 34,190
As of December 31,
1992
% of Loans % of Loans
and Leases Amount of and Leases
in Each Reserve in Each
Category Allocated Category
Commercial, financial and
agricultural 17.0 4,980 19.2
Real estate -- construction 8.7 3,413 8.9
Real estate -- mortgage 57.0 6,165 51.5
Instalment loans to individuals 9.7 4,290 11.1
Credit card receivables 6.9 3,237 8.4
Lease financing .7 383 .9
Unallocated portion of reserve -- 3,468 --
Total 100.0 25,936 100.0
(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.
Loans are considered impaired if it is probable that the Subsidiary Banks
will be unable to collect all amounts due under the terms of the loan agreement.
The value of the impaired loan is 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 recognized through additions to the allowance for loan losses. At
December 31, 1996 and 1995, impaired loans amounted to $7.7 million and $8.1
million, respectively.
The related reserve for loan and lease losses on these loans amounted to
$2.3 million and $1.3 million at December 31, 1996 and 1995, respectively.
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 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 significant 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.
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 Subsidiary Banks 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 $91.7 million, $99.3
million and $106.3 million in 1996, 1995 and 1994, respectively. Average total
deposits have grown by $176.9 million, $472.4 million and $539.1 million during
the three previous years. The majority of the deposit growth in 1994 was due to
the First Federal acquisition which had deposits of $250.9 million as of the
acquisition date. Average certificates of deposit in denominations of $100,000
or more still comprise a relatively small percentage of average total deposits,
6.4% in 1996 versus 6.9% in 1995. These deposits decreased on the average $8.0
million from 1995 to 1996. Management intentionally keeps the Corporation's
reliance on the higher-cost
25
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.
At December 31, 1996, time certificates of deposit in amounts of $100,000
or more were $343.2 million compared to $294.8 million at December 31, 1995. The
following is a remaining maturity schedule of these deposits at December 31,
1996
(in thousands):
Over 6
Over 3 Through
3 Months Through 12
or Less 6 Months Months Total
Jumbo deposits $163,071 98,832 81,251 $343,154
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 purchased federal funds to meet liquidity requirements.
Correspondent relationships are maintained with several larger banks to be able
to purchase federal funds when needed. Also available as liquidity sources are
access to the Federal Reserve discount window and a $600 million line of credit
maintained with the Federal Home Loan Bank (the "FHLB") which is secured by a
blanket collateral agreement on CCB's mortgage loan portfolio. The Corporation's
average short-term investments, net of average short-term borrowings, were
$100.5 million, $153.9 million and $82.5 million in the years ended December 31,
1996, 1995 and 1994, respectively. Outstanding long-term FHLB advances decreased
by $7.7 million during 1996 to $24.7 million. 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 $163.0 million mature in 1997. The available
for sale portfolio is comprised of U.S. Treasury securities, obligations of U.S.
Government agencies and corporations and equity securities. 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 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, 1996 is presented in
Table 17. At December 31, 1996, the Corporation had a cumulative "negative gap"
(interest-sensitive liabilities exceeding interest-sensitive assets) of $188
million or 3.73% of total earning assets over a twelve-month horizon. The ratio
of interest-sensitive assets to interest-sensitive liabilities was .93x. 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.
26
TABLE 17
INTEREST-SENSITIVITY ANALYSIS (1)
(In Thousands)
As of December 31, 1996
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 $ 62,612 -- -- -- 100 62,712 --
Federal funds sold and other
short-term investments 235,000 -- -- -- -- 235,000 --
Investment securities (2) 48,944 17,733 5,393 38,330 88,473 198,873 771,698
Loans and lease financing 997,460 490,830 56,278 157,534 317,301 2,019,403 1,752,020
Total earning assets 1,344,016 508,563 61,671 195,864 405,874 2,515,988 2,523,718
INTEREST-BEARING LIABILITIES:
Savings deposits 785,375 430,040 -- -- -- 1,215,415 710,780
Other time deposits 173,924 160,909 135,223 401,211 453,101 1,324,368 745,159
Short-term borrowed funds 109,251 -- 50,000 -- -- 159,251 --
Long-term debt 78 78 1,079 3,237 482 4,954 52,894
Total interest-bearing liabilities 1,068,628 591,027 186,302 404,448 453,583 2,703,988 1,508,833
INTEREST-SENSITIVITY GAP $ 275,388 (82,464) (124,631) (208,584) (47,709) (188,000)
CUMULATIVE GAP $ 275,388 192,924 68,293 (140,291) (188,000)
CUMULATIVE RATIO OF
INTEREST-SENSITIVE ASSETS TO
INTEREST-SENSITIVE LIABILITIES 1.26x 1.12 1.04 .94 .93
CUMULATIVE GAP TO TOTAL EARNING
ASSETS 5.46% 3.83 1.36 (2.78) (3.73)
As of December 31, 1996
Total
EARNING ASSETS:
Time deposits in other banks 62,712
Federal funds sold and other
short-term investments 235,000
Investment securities (2) 970,571
Loans and lease financing 3,771,423
Total earning assets 5,039,706
INTEREST-BEARING LIABILITIES:
Savings deposits 1,926,195
Other time deposits 2,069,527
Short-term borrowed funds 159,251
Long-term debt 57,848
Total interest-bearing liabilities 4,212,821
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 adjustment of $8,769,000 for available for sale securities is
not included.
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 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%, which was achieved in 1996.
ALCO actually manages earnings sensitivity, however, 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.
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 26.5% of all
loans reprice or mature within 30 days. See Table 9 for additional detail
regarding loan maturity and sensitivity to changes in interest rates at December
31, 1996.
Within the Corporation's overall interest rate risk management strategy,
off-balance sheet derivatives have been and may be used in the future as a cost-
and capital-efficient way to manage interest rate sensitivity by modifying the
repricing or maturity of
27
on-balance sheet assets or liabilities. As of December 31, 1996, the Corporation
did not have any off-balance sheet derivative financial instruments nor did it
hold any such financial instruments during 1996. Although off-balance sheet
derivative financial instruments would not expose the Corporation to credit risk
equal to the notional amount of the contracts, the Corporation would be exposed
to credit risk to the extent of the fair value of the unrealized gain (if any)
in the off-balance sheet derivative instrument if the counterparty failed to
perform. Credit risk resulting from a counterparty's nonperformance of any
contracts would be monitored through routine review of the counterparty's
financial ratings.
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.
1997 MERGERS
On January 31, 1997, the Corporation consummated its acquisition of Salem
Trust Bank, a $165 million bank headquartered in Winston-Salem, North Carolina
("Salem Trust"). The transaction, which was accounted for as a
pooling-of-interests, resulted in the Corporation issuing .36 shares of its
common stock (or 680,160 shares) in a tax-free exchange for each outstanding
share of Salem Trust.
On February 18, 1997, the Corporation announced the signing of a definitive
agreement to acquire American Federal Bank, FSB ("American Federal")
headquartered in Greenville, South Carolina. American Federal has 40 banking
offices located in northwest South Carolina and assets of $1.3 billion. The
transaction, which is to be accounted for as a pooling-of-interests, will result
in the issuance of .445 shares of the Corporation's common stock in exchange for
each outstanding share of American Federal or approximately 5 million shares of
the Corporation's stock. The acquisition is anticipated to be consummated in the
third quarter of 1997 subject to the completion of due diligence and receipt of
shareholder and regulatory approval.
OTHER ACCOUNTING MATTERS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("SFAS No. 125") in June
1996. SFAS No. 125 includes guidance for assessing isolation of transferred
assets and for accounting for transfers of items including: transfers of partial
interests, servicing of financial assets, securitizations, transfers of
sales-type and direct financing lease receivables, securities lending
transactions, repurchase agreements, loan syndications and participations and
extinguishments of liabilities. SFAS No. 125 uses a financial-components
approach to develop accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. Under the
financial-components approach, after a transfer of financial assets, an entity
would recognize all financial assets and servicing it controls and liabilities
it has incurred and would derecognize financial assets when control has been
surrendered and liabilities when extinguished. SFAS No. 125 also provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. SFAS No. 125 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
after December 31, 1996 and is to be applied prospectively.
In December 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125, an Amendment to FASB Statement No.
125" ("SFAS No. 127"). SFAS No. 127 delays the implementation of certain
provisions of SFAS No. 125 because the changes required to be made to
information systems and accounting processes to allow compliance with certain
provisions of SFAS No. 125 could not reasonably be expected to be made in time
for adoption on January 1, 1997. As a result of SFAS No. 127, SFAS No. 125
guidance on transactions involving secured borrowings and collateral, repurchase
agreements, dollar-roll, securities lending and similar transactions has been
deferred until January 1, 1998. The impact from the Corporation's adoption of
SFAS No. 125, as amended by SFAS No. 127, is anticipated to be immaterial to the
Corporation's financial statements.
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) The following audited consolidated financial statements and related
documents are set forth in this Annual Report on Form 10-K on the pages
indicated:
Page
CCB Financial Corporation and Subsidiaries:
Consolidated Balance Sheets at December 31, 1996 and 1995........................................................ 30
Consolidated Statements of Income for each of the years in the three-year period ended December 31, 1996......... 31
Consolidated Statements of Shareholders' Equity for each of the years in the three-year period ended December 31,
1996........................................................................................................... 32
Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 1996..... 33
Notes to Consolidated Financial Statements....................................................................... 34
Report of Management Regarding Responsibility for Financial Statements.............................................. 56
Independent Auditors' Report........................................................................................ 57
(b) The following supplementary data is set forth in this Annual Report on Form 10-K on the page indicated:
Quarterly Financial Data.......................................................................................... 53
29
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
(In Thousands)
ASSETS:
Cash and due from banks (note 3) $ 201,521 189,320
Time deposits in other banks 62,712 72,131
Federal funds sold 185,000 248,082
Other short-term investments 50,000 60,000
Investment securities (notes 4, 8 and 9):
Available for sale (amortized costs of $888,333 and $945,422) 897,102 961,640
Held to maturity (market values of $86,479 and $83,060) 82,238 78,092
Loans and lease financing (notes 5, 8 and 9) 3,771,423 3,345,345
Less reserve for loan and lease losses (note 6) 49,023 43,578
Net loans and lease financing 3,722,400 3,301,767
Premises and equipment (notes 7 and 9) 66,646 66,977
Other assets (notes 5 and 13) 116,491 111,777
Total assets $5,384,110 5,089,786
LIABILITIES:
Deposits:
Demand (noninterest-bearing) $ 593,812 538,178
Savings and NOW accounts 551,379 522,557
Money market accounts 1,374,816 1,309,545
Jumbo time deposits (note 8) 343,154 294,828
Time (note 8) 1,726,373 1,632,303
Total deposits 4,589,534 4,297,411
Short-term borrowed funds (note 8) 159,251 177,959
Long-term debt (note 9) 57,848 78,993
Other liabilities (notes 10 and 13) 99,246 101,906
Total liabilities 4,905,879 4,656,269
SHAREHOLDERS' EQUITY (notes 4, 11 and 15):
Serial preferred stock. Authorized 5,000,000 shares; none issued -- --
Common stock of $5 par value. Authorized 50,000,000 shares; 15,082,128 and 14,960,716 shares issued in
1996 and 1995, respectively 75,411 74,804
Additional paid-in capital 90,812 89,437
Retained earnings 307,465 261,245
Unrealized gain on investment securities available for sale, net of applicable taxes 5,281 9,765
Less: Unearned common stock held by management recognition plans (738) (1,734)
Total shareholders' equity 478,231 433,517
Total liabilities and shareholders' equity $5,384,110 5,089,786
Commitments and contingencies (note 14)
See accompanying notes to consolidated financial statements.
30
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
(In Thousands Except Per Share Data)
INTEREST INCOME:
Interest and fees on loans and lease financing $321,696 305,165 243,577
Interest and dividends on investment securities:
U.S. Treasury 28,605 30,702 34,783
U.S. Government agencies and corporations 25,916 23,384 16,833
States and political subdivisions (primarily tax-exempt) 4,522 5,071 4,458
Equity and other securities 1,949 2,125 2,227
Interest on time deposits in other banks 2,844 2,937 1,781
Interest on federal funds sold and other short-term investments 12,232 14,130 6,240
Total interest income 397,764 383,514 309,899
INTEREST EXPENSE:
Deposits 170,998 168,983 117,408
Short-term borrowed funds (note 8) 6,078 4,421 2,490
Long-term debt (note 9) 4,272 6,000 6,468
Total interest expense 181,348 179,404 126,366
NET INTEREST INCOME 216,416 204,110 183,533
Provision for loan and lease losses (note 6) 12,800 8,183 9,279
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES 203,616 195,927 174,254
OTHER INCOME:
Service charges on deposit accounts 29,045 25,600 23,452
Trust and custodian fees 6,736 6,344 7,284
Sales and insurance commissions 6,011 3,802 4,502
Merchant discount 6,116 4,666 3,864
Accretion of negative goodwill from acquisitions 3,356 3,356 3,351
Other operating 10,820 9,499 6,176
Investment securities gains 2,015 944 811
Investment securities losses (1,510) (1,922) (454)
Total other income 62,589 52,289 48,986
OTHER EXPENSES:
Personnel (note 10) 83,247 79,298 71,990
Net occupancy (note 14) 11,630 10,730 11,202
Equipment (note 14) 10,064 10,199 10,290
Other operating (note 12) 56,497 59,996 53,804
Total other expenses 161,438 160,223 147,286
INCOME BEFORE INCOME TAXES 104,767 87,993 75,954
Income taxes (note 13) 34,452 30,133 30,843
NET INCOME $ 70,315 57,860 45,111
NET INCOME PER SHARE $ 4.67 3.87 2.94
WEIGHTED AVERAGE SHARES OUTSTANDING 15,048 14,949 15,354
See accompanying notes to consolidated financial statements.
31
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
Unrealized
Additional Gain (Loss) on Management
Common Paid-In Retained Investment Securities Recognition
Stock Capital Earnings Available for Sale Plans
(In Thousands)
BALANCE DECEMBER 31, 1993 $76,793 105,309 197,976 (835) (4,018)
Mark to market adjustment, net of applicable income
taxes (note 4) -- -- -- 10,299 --
BALANCE JANUARY 1, 1994 76,793 105,309 197,976 9,464 (4,018)
Net income -- -- 45,111 -- --
Transactions pursuant to restricted stock plan, net
(note 11) (5) 238 -- -- --
Stock options exercised (note 11) 235 227 -- -- --
Earned portion of management recognition plans (note
11) -- -- -- -- 1,048
Purchase and retirement of shares (2,039) (13,491) -- -- --
Cash dividends ($1.32 per share) -- -- (17,588) -- --
Change in unrealized gains (losses), net of
applicable income taxes (note 4) -- -- -- (28,108) --
BALANCE DECEMBER 31, 1994 74,984 92,283 225,499 (18,644) (2,970)
Net income -- -- 57,860 -- --
Stock options exercised (note 11) 374 1,063 -- -- --
Earned portion of management recognition plans (note
11) -- -- -- -- 1,236
Purchase and retirement of shares (550) (3,881) -- -- --
Cash dividends ($1.44 per share) -- -- (22,114) -- --
Change in unrealized gains (losses), net of
applicable income taxes (note 4) -- -- -- 28,409 --
Other transactions, net (4) (28) -- -- --
BALANCE DECEMBER 31, 1995 74,804 89,437 261,245 9,765 (1,734)
Net income -- -- 70,315 -- --
Transactions pursuant to restricted stock plan, net
(notes 10 and 11) 20 728 -- -- --
Stock options exercised, net of shares tendered
(note 11) 683 1,548 -- -- --
Earned portion of management recognition plans (note
11) -- -- -- -- 996
Purchase and retirement of shares (96) (901) -- -- --
Cash dividends ($1.60 per share) -- -- (24,095) -- --
Change in unrealized gains (losses), net of
applicable income taxes (note 4) -- -- -- (4,484) --
BALANCE DECEMBER 31, 1996 $75,411 90,812 307,465 5,281 (738)
Total
Shareholders'
Equity
BALANCE DECEMBER 31, 1993 375,225
Mark to market adjustment, net of applicable income
taxes (note 4) 10,299
BALANCE JANUARY 1, 1994 385,524
Net income 45,111
Transactions pursuant to restricted stock plan, net
(note 11) 233
Stock options exercised (note 11) 462
Earned portion of management recognition plans (note
11) 1,048
Purchase and retirement of shares (15,530)
Cash dividends ($1.32 per share) (17,588)
Change in unrealized gains (losses), net of
applicable income taxes (note 4) (28,108)
BALANCE DECEMBER 31, 1994 371,152
Net income 57,860
Stock options exercised (note 11) 1,437
Earned portion of management recognition plans (note
11) 1,236
Purchase and retirement of shares (4,431)
Cash dividends ($1.44 per share) (22,114)
Change in unrealized gains (losses), net of
applicable income taxes (note 4) 28,409
Other transactions, net (32)
BALANCE DECEMBER 31, 1995 433,517
Net income 70,315
Transactions pursuant to restricted stock plan, net
(notes 10 and 11) 748
Stock options exercised, net of shares tendered
(note 11) 2,231
Earned portion of management recognition plans (note
11) 996
Purchase and retirement of shares (997)
Cash dividends ($1.60 per share) (24,095)
Change in unrealized gains (losses), net of
applicable income taxes (note 4) (4,484)
BALANCE DECEMBER 31, 1996 478,231
See accompanying notes to consolidated financial statements.
32
CCB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995, and 1994
1996 1995 1994
(In Thousands)
OPERATING ACTIVITIES:
Net income $ 70,315 57,860 45,111
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 8,098 7,960 8,124
Provision for loan and lease losses 12,800 8,183 9,279
Net (gain) loss on sales of investment securities (505) 978 (357)
Net amortization and accretion on investment securities 5,868 6,012 7,895
Amortization of intangibles and other assets 3,807 5,374 3,679
Accretion of negative goodwill (3,356) (3,356) (3,351)
Sales of loans held for sale 178,307 216,057 150,463
Origination of loans held for sale (180,294) (219,336) (131,776)
Change in deferred income taxes (1,553) (9,339) 4,660
Decrease (increase) in accrued interest receivable (324) (1,383) (9,337)
Increase (decrease) in accrued interest payable 4,027 7,968 2,712
Decrease (increase) in other assets (9,703) 7,954 21,651
Increase (decrease) in other liabilities 3,559 14,183 (3,220)
Vesting of shares held by management recognition plans 996 1,236 1,048
Other operating activities, net (380) (1,029) (323)
NET CASH PROVIDED BY OPERATING ACTIVITIES 91,662 99,322 106,258
INVESTING ACTIVITIES:
Proceeds from maturities and issuer calls of investment securities held to maturity 9,972 14,964 9,464
Purchases of investment securities held to maturity (14,004) (8,238) (141,689)
Proceeds from sales of investment securities available for sale 66,017 150,844 188,611
Proceeds from maturities and issuer calls of investment securities available for sale 365,001 186,785 428,285
Purchases of investment securities available for sale (379,405) (334,978) (475,611)
Net originations of loans and leases receivable (434,938) (190,439) (408,914)
Purchases of premises and equipment (8,757) (9,880) (8,572)
Net cash acquired (paid) in acquisitions (dispositions) (50,926) 33,954 31,182
NET CASH USED BY INVESTING ACTIVITIES (447,040) (156,988) (377,244)
FINANCING ACTIVITIES:
Net increase in deposit accounts 347,946 202,359 205,382
Net increase (decrease) in short-term borrowed funds (18,708) 63,142 71,323
Proceeds from issuance of long-term debt -- 4,230 20,040
Repayments of long-term debt (21,299) (20,115) (23,159)
Issuances of common stock from exercise of stock options, net 2,231 1,437 462
Purchase and retirement of common stock (997) (4,431) (15,530)
Cash dividends (24,095) (22,114) (17,588)
NET CASH PROVIDED BY FINANCING ACTIVITIES 285,078 224,508 240,930
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (70,300) 166,842 (30,056)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR (NOTE 1) 569,533 402,691 432,747
CASH AND CASH EQUIVALENTS AT END OF YEAR (NOTE 1) $ 499,233 569,533 402,691
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the year $ 177,322 171,436 123,654
Income taxes paid during the year $ 37,755 36,982 27,982
See accompanying notes to consolidated financial statements.
33
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") and Central
Carolina Bank-Georgia ("CCB-Ga.") (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, Inc. and Southland Associates, Inc. During 1996, the
Corporation's subsidiary, Graham Savings Bank, Inc., SSB ("Graham Savings"),
merged with and into CCB and CCB's subsidiary, 1st Home Mortgage Acceptance
Corporation ("HMAC") was dissolved. All significant intercompany transactions
and accounts are eliminated in consolidation.
CCB provides a full range of banking services to individual and corporate
customers through its North Carolina-based branch network. CCB-Ga. is a special
purpose bank that provides nationwide credit card services. The Subsidiary Banks
are subject to competition from other financial entities and are subject to the
regulations of certain Federal and state agencies and undergo periodic
examinations by those regulatory agencies.
Certain amounts for prior years have been reclassified to conform to the
1996 presentation. These reclassifications have no effect on shareholders'
equity or net income as previously reported.
FINANCIAL STATEMENT PRESENTATION
In preparing the financial statements, management of the Corporation is
required to make estimates and assumptions that affect the reported balances of
assets and liabilities as of the date of the balance sheet and income and
expenses for the periods presented. Actual results could differ from those
estimates.
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 classifies its investment securities in one of the three
following categories: (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 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 or trading are classified as available for sale 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 had no
securities classified as trading securities. The net unrealized gains or losses
on securities available for sale, net of taxes, are reported as a separate
component of shareholders' equity. Changes in market values of securities
classified as available for sale will cause fluctuations in shareholders'
equity. Unrealized losses on securities held to maturity due to fluctuations in
fair value are recognized when it is determined that an other than temporary
decline in value has occurred.
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. Premium amortization and discount accretion are
computed using the interest method.
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.
Interest income on loans and lease financing is recorded on the accrual
basis. Accrual of interest on loans and lease financing (including impaired
loans) is discontinued when management deems that collection of additional
interest is doubtful. Interest received on nonaccrual loans and impaired loans
is generally applied against principal or may be reported as interest income
depending on management's judgment as to the collectibility of principal. When
borrowers with loans on a nonaccrual status
34
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
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
expense and reduced by loan and lease financing charge-offs, 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 on
current economic conditions. While management uses the best information
available on which to base estimates, future adjustments to the allowance may be
necessary if economic conditions, particularly in the Subsidiary Banks' markets,
differ substantially from the assumptions used by management. 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.
For all specifically reviewed loans for which it is probable that the
Subsidiary Banks will be unable to collect all amounts due according to the
terms of the loan agreement, the Subsidiary Banks determine a value at either
the present value of expected cash flows discounted at the loan's effective
interest rate, or if more practical, the market price or value of the
collateral. If the resulting value of the impaired loan is less than the
recorded balance, impairment is recognized by creating a valuation allowance for
the difference and recognizing a corresponding bad debt expense.
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.
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.
MORTGAGE SERVICING RIGHTS
The Corporation adopted Statement of Financial Accounting Standards No.
122, "Accounting for Mortgage Servicing Rights, an amendment to Statement No.
65" ("SFAS No. 122") on January 1, 1996. SFAS No. 122 provides guidance for
recognition of mortgage servicing rights ("MSRs") as an asset when a mortgage
loan is sold or securitized and servicing rights are retained, regardless of how
those servicing rights were acquired. MSRs are the rights to service loans for
others and are included in "other assets" on the Consolidated Balance Sheets at
the lower of their cost or market. The cost of mortgage loans originated or
purchased is allocated between the cost of the loans and the MSRs.
Capitalization of the allocated cost of MSRs occurs when the underlying loans
are sold or securitized. The cost of the MSRs is amortized in proportion to and
over the estimated period of net servicing revenues.
The Corporation periodically evaluates MSRs for impairment by estimating
the fair value based on a discounted cash flow methodology. This analysis
incorporates current market assumptions, including discount, prepayment and
delinquency rates, with net cash flows. The predominant characteristics used as
the basis for stratifying MSRs are investor type, product type and interest
rate. If the carrying value of the MSRs exceed the estimated fair value, a
valuation allowance is established. Changes to the valuation allowance are
charged against or credited to mortgage servicing income and fees up to the
original cost of the MSRs.
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 financial
institutions acquired by the Corporation as an incentive for those persons to
remain with the Subsidiary Banks. The shares of common stock issued are
35
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
being 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 remaining life of the existing deposit
base assumed (primarily for up to 10 years).
Negative goodwill, included in "other liabilities" on the Consolidated
Balance Sheets, represents the excess of fair value of net assets acquired over
cost 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.
INCENTIVE AND PERFORMANCE UNIT PLANS
The Corporation has incentive and related performance unit plans covering
certain officers of the Corporation and Subsidiary Banks. The market value of
shares issued under the incentive plans and the estimated value of awards under
the performance unit plans are being charged to operating expense over periods
of up to three years.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), was issued in October 1995 and
adopted by the Corporation on January 1, 1996. SFAS No. 123 prescribes
accounting and reporting standards for all stock-based compensation plans,
including employee stock plans, restricted stock and stock appreciation rights.
SFAS No. 123 defines a "fair value based method" of accounting for employee
stock options and encourages all entities to adopt that method of accounting for
all of their employee stock compensation plans. However, it also allows entities
to continue to measure compensation for those plans using the "intrinsic value
based method" under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25").
Under the fair value based method, compensation cost is measured at the
grant date of the option based on the value of the award and is recognized over
the service period, which is usually the vesting period. Under the intrinsic
value based method, compensation cost is the excess, if any, of the quoted
market price of the stock at grant date or other measurement date over the
amount an employee must pay to acquire the stock. Most of the Corporation's
stock options have no intrinsic value at grant date, and under APB No. 25 no
compensation cost is recognized for them. Compensation cost is recognized for
other types of stock-based compensation plans under APB No. 25, including plans
with variable, usually performance-based, features.
Beginning in 1996, SFAS No. 123 requires that an employer's financial
statements include certain disclosures about stock-based compensation
arrangements regardless of the method used to account for them. An employer that
continues to apply the accounting provisions of APB No. 25 must disclose pro
forma amounts that reflect the difference between compensation cost, if any,
included in net income and the related cost measured by the fair value based
method, including tax effects, that would have been recognized in the income
statement if the fair value based method had been used. The Corporation has
elected to continue to measure compensation for stock-based compensation plans
under APB No. 25 and provides the required pro forma disclosures in Note 11.
PER SHARE DATA
Income per share is computed based on the weighted average number of common
shares outstanding during each period.
36
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial statements include disclosure of fair values 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 may use off-balance sheet derivative contracts for interest
rate risk management. These 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 does
not utilize derivative financial instruments for trading purposes and did not
have any off-balance sheet derivative contracts outstanding at December 31, 1996
or 1995.
(2) MERGER CONSUMMATED IN 1995
On May 19, 1995, the Corporation consummated its merger (the "Merger") with
Security Capital Bancorp ("Security Capital"), a $1.2 billion bank holding
company based in Salisbury, North Carolina. The Merger was accounted for as a
pooling-of-interests and was effected through a tax-free exchange of stock. Each
share of Security Capital common stock outstanding on the date of the Merger was
converted into .5 shares of the Corporation's common stock. Consequently, the
Corporation issued approximately 5,890,000 shares of common stock and cash in
lieu of fractional shares for all of the outstanding shares of Security Capital.
The former offices of Security Capital are operating as offices of CCB. In
accordance with pooling-of-interests accounting, in the year of merger, prior
period consolidated financial statements were restated to combine the accounts
of the Corporation and Security Capital for all periods reported. In connection
with the Merger, the Corporation incurred merger-related expense of $10,333,000
during 1995. This expense included severance and other employee benefit costs,
costs related to branch closures, system conversion costs and other
transaction-related expenses. The after-tax effect of the merger-related expense
was approximately $7,300,000 for 1995.
(3) RESTRICTIONS ON CASH AND DUE FROM BANKS
CCB is 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, 1996 and 1995, CCB was required to maintain average reserve and
clearing balances of approximately $22,703,000 and $2,052,000, respectively. The
increase in the reserve requirement at December 31, 1996 was due to increases in
the levels of noninterest-bearing deposits and other transaction accounts.
(4) INVESTMENT SECURITIES
Investment securities with amortized costs of approximately $317,576,000 at
December 31, 1996 and $377,104,000 at December 31, 1995 were pledged to secure
public funds on deposit, repurchase agreements, collateralized mortgage
obligations and for other purposes required by law. The investment securities
portfolio is segregated into securities available for sale and securities held
to maturity.
37
(4) INVESTMENT SECURITIES -- Continued
SECURITIES AVAILABLE FOR SALE
Securities available for sale are presented on the Consolidated Balance
Sheets at their market value. The amortized cost and approximate market values
of these securities at December 31, 1996 and 1995 were as follows:
1996 1995
AMORTIZED UNREALIZED UNREALIZED MARKET Amortized Unrealized
COST GAINS LOSSES VALUE Cost Gains
(In Thousands)
U.S. Treasury $ 434,952 5,781 (613) 440,120 475,506 10,187
U.S. Government agencies and corporations 379,206 3,837 (533) 382,510 367,511 6,369
Mortgage-backed securities 54,627 633 (336) 54,924 73,054 1,974
Equity securities 19,548 -- -- 19,548 29,351 --
Total $ 888,333 10,251 (1,482) 897,102 945,422 18,530
1995
Unrealized Market
Losses Value
U.S. Treasury (376) 485,317
U.S. Government agencies and corporations (683) 373,197
Mortgage-backed securities (192) 74,836
Equity securities (1,061) 28,290
Total (2,312) 961,640
Equity securities include CCB's required investment in stock of the Federal
Home Loan Bank (the "FHLB") which totaled $19,307,000 at December 31, 1996 and
1995.
Net unrealized gains (losses) on securities available for sale totaled
$8,769,000, $16,218,000 and $(29,600,000) at December 31, 1996, 1995 and 1994,
respectively, and are included as a component of shareholders' equity, net of
deferred tax (liabilities) benefits of $(3,488,000), $(6,453,000) and
$10,956,000 at December 31, 1996, 1995 and 1994, respectively. In the opinion of
management, the Corporation has no securities which are other than temporarily
impaired. Approximately $139,657,000 of investment securities that Security
Capital had classified as held to maturity were transferred to the available for
sale category during 1995 in accordance with the Corporation's investment
securities classification policies. These securities were marked to their market
value as of the date of the reclassification.
Gross gains and losses from sales of investment securities available for
sale totaled $1,875,000 and $1,510,000, respectively, in 1996, totaled $911,000
and $1,919,000, respectively, in 1995 and totaled $788,000 and $454,000,
respectively, in 1994.
Following is a maturity schedule of securities available for sale at
December 31, 1996:
AMORTIZED CARRYING
COST VALUE
(In Thousands)
Within 1 year $ 148,810 149,216
After 1 but within 5 years 560,014 565,771
After 5 but within 10 years 105,334 107,644
Subtotal 814,158 822,631
Mortgage-backed securities 54,627 54,923
Equity securities 19,548 19,548
Total securities available for sale $ 888,333 897,102
SECURITIES HELD TO MATURITY
The book values and approximate market values of securities held to
maturity at December 31, 1996 and 1995 were as follows:
1996 1995
BOOK UNREALIZED UNREALIZED MARKET Book Unrealized
VALUE GAINS LOSSES VALUE Value Gains
(In Thousands)
States and political subdivisions $82,238 4,276 (35) 86,479 76,745 5,002
Corporate debt and other securities -- -- -- -- 1,347 --
Total $82,238 4,276 (35) 86,479 78,092 5,002
1995
Unrealized Market
Losses Value
States and political subdivisions (33) 81,714
Corporate debt and other securities (1) 1,346
Total (34) 83,060
38
(4) INVESTMENT SECURITIES -- Continued
Following is a maturity schedule of securities held to maturity at December
31, 1996:
BOOK MARKET
VALUE VALUE
(In Thousands)
Within 1 year $ 200 201
After 1 but within 5 years 2,574 2,677
After 5 but within 10 years 35,224 37,213
After 10 years 44,240 46,388
Total securities held to maturity $82,238 86,479
Gains from calls of securities held to maturity totaled $140,000 during
1996, $33,000 during 1995 and $23,000 during 1994. Losses from calls of
securities held to maturity during 1995 totaled $3,000.
(5) LOANS AND LEASE FINANCING
A summary of loans and lease financing at December 31, 1996 and 1995
follows:
1996 1995
(In Thousands)
Commercial, financial and agricultural $ 428,710 530,807
Real estate -- construction 570,450 465,245
Real estate -- mortgage 2,152,021 1,817,045
Instalment loans to individuals 393,927 305,455
Credit card receivables 192,855 194,680
Lease financing 38,323 37,223
Total gross loans and lease financing 3,776,286 3,350,455
Less: Unearned income 4,863 5,110
Total loans and lease financing $3,771,423 3,345,345
After an internal review performed during 1996, certain loans were
reclassified from the commercial, financial and agricultural loan category to
real estate-mortgage ($146 million) and real estate-construction ($40 million).
Due to system limitations, loans that may have been misclassified in 1995 have
not been restated.
Loans and lease financing of $11,271,000 and $9,616,000 at December 31,
1996 and 1995, respectively, were not accruing interest. Loans with outstanding
balances of $1,634,000 in 1996, $1,876,000 in 1995 and $1,963,000 in 1994 were
transferred from loans to other real estate acquired through loan foreclosure.
Other real estate acquired through loan foreclosures amounted to $1,418,000 and
$2,467,000 at December 31, 1996 and 1995, respectively, and is included in
"other assets" on the Consolidated Balance Sheets.
The following is an analysis of interest income related to loans and lease
financing on nonaccrual status for the years ended December 31, 1996, 1995 and
1994:
1996 1995 1994
(In Thousands)
Interest income that would have been recognized if the loans had been current at original contractual
rates $794 685 585
Amount recognized as interest income 130 66 26
Difference $664 619 559
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 and certain instalment loans which are available in Georgia
and Virginia. 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. Loans held for sale totaled $14,936,000 and
$19,908,000 at December 31, 1996 and 1995, respectively. 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.
39
(5) LOANS AND LEASE FINANCING -- Continued
At December 31, 1996, the carrying value of loans considered to be impaired
totaled $7,708,000. The related reserve for loan losses on the impaired loans
totaled $2,304,000. The average carrying value of impaired loans was $8,597,000
during the year ended December 31, 1996. Gross interest income on the impaired
loans, included in net income, totaled $231,000 during 1996. At December 31,
1995, impaired loans totaled $8,148,000 and their related reserve for loan
losses totaled $1,327,000. The average carrying value of impaired loans was
$10,194,000 during 1995 and gross interest income recorded on impaired loans
totaled $504,000.
During 1996 and 1995, 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, 1996 (in
thousands):
Balance at
Beginning New
of Year Loans Repayments
Directors, Executive Officers and Associates $ 11,971 7,976 6,611
Balance at
End of Year
Directors, Executive Officers and Associates $13,336
Loans serviced for the benefit of others totaled $1.1 billion at December
31, 1996 and 1995 and $825 million at December 31, 1994. Mortgage servicing fees
totaled $3,108,000 in 1996, $2,506,000 in 1995 and $2,124,000 in 1994. Mortgage
servicing rights totaled $2,776,000 and $916,000 at December 31, 1996 and 1995,
respectively, and are included in "other assets" on the Consolidated Balance
Sheets. The fair value of mortgage servicing rights was $3,005,000 at December
31, 1996 and $916,000 at December 31, 1995. Additionally, there is value
associated with servicing originated prior to January 1, 1996 for which the
carrying value is zero. No valuation allowance for capitalized mortgage
servicing rights was required at December 31, 1996. The following table
summarizes the changes in mortgage servicing rights during 1996 and 1995:
1996 1995
(In Thousands)
Balance at beginning of year $ 916 1,073
Capitalized mortgage servicing rights 2,267 --
Amortization (407) (157)
Balance at end of year $2,776 916
Certain real estate-mortgage loans are pledged as collateral for advances
from the FHLB as set forth in Note 9.
(6) RESERVE FOR LOAN AND LEASE LOSSES
Following is a summary of the reserve for loan and lease losses:
1996 1995 1994
(In Thousands)
Balance at beginning of year $43,578 41,046 34,190
Provision charged to operations 12,800 8,183 9,279
Reserves related to acquisitions -- -- 2,500
Recoveries of loan and leases previously charged-off 2,257 1,533 1,778
Loan and lease losses charged to reserve (9,612) (7,184) (6,701)
Balance at end of year $49,023 43,578 41,046
40
(7) PREMISES AND EQUIPMENT
Following is a summary of premises and equipment:
Accumulated
Depreciation Net
and Book
Cost Amortization Value
(In Thousands)
DECEMBER 31, 1996:
Land $ 13,165 -- 13,165
Buildings 55,373 26,470 28,903
Leasehold improvements 7,433 2,567 4,866
Furniture and equipment 74,804 55,092 19,712
Total premises and equipment $150,775 84,129 66,646
December 31, 1995:
Land $ 13,154 -- 13,154
Buildings 58,573 26,555 32,018
Leasehold improvements 6,169 2,202 3,967
Furniture and equipment 68,575 50,737 17,838
Total premises and equipment $146,471 79,494 66,977
(8) TIME DEPOSITS AND SHORT-TERM BORROWED FUNDS
Maturities of time deposits are as follows:
Total
Year Ending December 31 Maturities
(In Thousands)
1997 $1,315,198
1998 574,858
1999 100,833
2000 78,346
2001 and thereafter 292
Total time deposits $2,069,527
Short-term borrowed funds outstanding at December 31, 1996 and 1995
consisted of the following:
1996 1995
(In Thousands)
FHLB short-term advances $ 50,000 100,000
Master notes 84,867 16,720
Treasury tax and loan depository note account 14,585 16,009
Securities sold under agreements to repurchase 9,799 45,230
Total short-term borrowed funds $159,251 177,959
The short-term FHLB advances were drawn under CCB's $600 million FHLB line
of credit and are secured by a blanket collateral agreement on CCB's mortgage
loan portfolio. Master note borrowings are unsecured obligations of the
Corporation which mature daily. The master notes bore a weighted average
interest rate of 4.33% at December 31, 1996. The treasury tax and loan
depository note account is payable on demand and is collateralized by various
investment securities with book values of $29,555,000 and market values of
$29,701,000 at December 31, 1996. Interest on borrowings under this arrangement
is payable at .25% below the weekly federal fund rate as quoted by the Federal
Reserve.
41
(8) TIME DEPOSITS AND SHORT-TERM BORROWED FUNDS -- Continued
The following table presents certain information for securities sold under
agreements to repurchase. These short-term borrowings by CCB are collateralized
by U.S. Treasury and U.S. Government agency and corporation securities with
carrying and market values of $73,379,000 at December 31, 1996. The securities
collateralizing the short-term borrowings have been delivered to a third-party
custodian for safekeeping. Following is a summary of this type of borrowing for
the three previous years:
1996 1995 1994
(In Thousands)
Balance at December 31 $ 9,799 45,230 45,550
Weighted average interest rate at December 31 4.36% 4.62 4.48
Maximum amount outstanding at any month end during the year $14,631 45,230 45,932
Average daily balance outstanding during the year $ 7,675 6,788 39,211
Average annual interest rate paid during the year 4.22% 4.95 3.16
The Corporation has an unsecured $30 million line of credit with a
commercial bank. No draws were outstanding as of December 31, 1996 or 1995 and
the maximum outstanding during 1995 was $5,000,000. No draws were outstanding
during 1996. Interest expense on the draws from the line of credit totaled
$2,000 during 1995 and $24,262 during 1994.
(9) LONG-TERM DEBT
Following is a summary of long-term debt at December 31, 1996 and 1995:
1996 1995
(In Thousands)
Mortgage payable at 9%, collateralized by bank premises $ 128 145
Federal Home Loan Bank advances maturing through 2014 24,735 36,990
6.75% subordinated notes 32,985 32,985
Collateralized mortgage obligations -- 8,873
Total long-term debt $57,848 78,993
The FHLB long-term advances are primarily 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. Interest
on the FHLB long-term advances totaled $1,951,000 in 1996, $2,657,000 in 1995
and $2,253,000 in 1994.
In 1993, the Corporation issued $40,000,000 of 6.75% subordinated notes due
December 1, 2003. Interest on the notes is payable semi-annually on June 1 and
December 1. 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. During 1995, the Corporation repurchased
and extinguished $7,015,000 of the subordinated notes with a resulting gain of
$880,000. Interest on the subordinated notes totaled $2,226,000 in 1996,
$2,249,000 in 1995 and $2,700,000 in 1994.
In connection with the acquisition of certain assets and assumption of
certain liabilities of a savings and loan association, the Corporation assumed
the liabilities of HMAC including collateralized mortgage obligations (the
"CMO's") which were collateralized by FNMA mortgage-backed securities,
short-term investments and time deposits in other banks and bore a contractual
11% interest rate, payable quarterly. The CMO's were redeemed at par value on
February 1, 1996, the earliest available redemption date.
Maturities of long-term debt are as follows:
Total
Year Ending December 31 Maturities
(In Thousands)
1997 $ 4,855
1998 869
1999 783
2000 838
2001 896
Thereafter 49,607
Total $ 57,848
42
(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 1996, 1995 and 1994, the Corporation contributed $2,928,000, $680,000 and
$2,330,000 to the pension plan. On July 1, 1995, Security Capital's
noncontributory pension plan was merged with and into the Corporation's pension
plan.
The pension expense components for the years ended December 31, 1996, 1995
and 1994 are shown below:
1996 1995 1994
(In Thousands)
Service cost of benefits earned during the period $2,845 2,343 2,306
Interest cost on projected benefit obligation 3,551 3,335 2,987
Return on pension plan assets (8,178) (8,074) 286
Net amortization and deferral 4,008 4,396 (3,767)
Gain on curtailment -- (176) --
Net pension expense $2,226 1,824 1,812
At December 31, 1996, pension plan assets consist primarily of corporate
stocks and bonds including 23,150 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, 1996 and 1995
are shown below:
December 31,
1996 1995
(In Thousands)
Actuarial present value of accumulated benefit obligations:
Vested $41,823 35,932
Nonvested 427 403
Accumulated benefit obligation $42,250 36,335
Pension plan assets at fair value (primarily listed stocks and bonds) $57,544 48,512
Projected benefit obligation 52,803 53,196
Pension plan assets in excess of (less than) projected benefit obligation 4,741 (4,684)
Unrecognized prior service costs, includes impact of plan amendments 2,957 692
Unrecognized net (gain) loss (9,962) 1,350
Unrecognized net excess pension plan assets at transition (642) (965)
Accrued pension expense $(2,906) (3,607)
Assumptions used in computing the actuarial present value of the projected
benefit obligation were as follows:
Discount rate 7.75% 7.25
Rate of increase in compensation level of employees 6.00% 6.00
Expected long-term rate of return on pension plan assets 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
$2,069,000, $2,056,000 and $1,896,000 in 1996, 1995 and 1994, respectively.
STOCK OPTIONS, RESTRICTED STOCK AND OTHER INCENTIVE PLANS
See Note 11 for additional information about the Corporation's stock option
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
43
(10) EMPLOYEE BENEFIT PLANS -- Continued
awards, and reinforce a one-company perspective. Under this plan,
performance-based stock and cash incentives and other equity-based incentives
can 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, 1996, a total of
138,304 stock options to purchase shares of the Corporation's common stock and
4,000 restricted shares of the Corporation's common stock had been awarded. The
options vest ratably over a three-year period and the restricted shares vest
ratably over a two-year period. No other awards have been made under this plan.
During 1993, the Corporation adopted nonstatutory and incentive stock
option plans as part of the acquisition of financial institutions by the
Corporation. The stock options were granted to the directors and certain
officers of the acquired financial institutions 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 continued in effect Security
Capital's nonstatutory and incentive stock option plans in force at the date of
the Merger. The stock options under these plans were granted to directors and
certain officers of Security Capital's subsidiary banks and entitled them to
purchase shares of common stock at an exercise price equal to the fair market
value of the stock on the date of grant. The options granted under these plans
were exercisable for periods of up to ten years and certain of the stock options
included vesting provisions of up to five years. All stock options outstanding
at the time of the Merger were converted into options to acquire common stock of
the Corporation and became fully vested. No additional options have been granted
under the Security Capital option plans.
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 $115,000, $236,000, and $258,000 in 1996, 1995 and 1994, respectively.
Restrictions on shares remaining under this plan lapsed in 1996. 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 $996,000, $1,701,00 and $1,495,000 for 1996, 1995 and 1994,
respectively.
The Corporation has a Performance Unit Plan, which operates in conjunction
with the Restricted Stock Plan and the Long-Term Incentive Plan, covering
certain senior officers of the Corporation and its subsidiaries. Under this
plan, eligible participants have been awarded performance units which have a
value in range from $0 to $200 each with a target value of $100 each. At
December 31, 1996, a total of 15,470 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 over the three-year period
ended December 31, 1998. Total expense under this plan was $1,087,000, $497,000,
and $133,000 for 1996, 1995 and 1994, 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 $2,524,000, $2,653,000 and $1,605,000 in 1996, 1995 and 1994,
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 age
55 with ten years of service. The Corporation is required to recognize 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.
44
(10) EMPLOYEE BENEFIT PLANS -- Continued
The following table sets forth the plan's funded status and the amounts
included in "other liabilities" on the Consolidated Balance Sheets at December
31, 1996 and 1995:
December 31
1996 1995
(In Thousands)
Actuarial present value of accumulated postretirement benefit obligation:
Retirees $ 4,140 3,791
Active employees -- fully eligible 1,000 885
Active employees -- not fully eligible 1,900 1,200
Accumulated postretirement benefit obligation 7,040 5,876
Plan assets at fair value -- --
Accumulated postretirement benefit obligation in excess of plan assets (7,040) (5,876)
Unrecognized net losses 1,985 1,309
Accrued postretirement benefit expense $(5,055) (4,567)
The accumulated postretirement benefit obligations at December 31, 1996 and
1995 were determined using discount rates of 7.75% for 1996 and 7.25% for 1995.
Net periodic postretirement benefit expense charged to operations for the
years ended December 31, 1996, 1995 and 1994 included the following components:
1996 1995 1994
(In Thousands)
Service cost of benefits earned during the period $214 126 147
Interest cost on accumulated benefit obligation 471 412 389
Net amortization and deferral 127 34 94
Net postretirement benefit expense $812 572 630
The health care trend rate was projected to be 8.00% for 1996, 7.00% for
1997 and gradually decrease to 5.00% for 1999 and thereafter. A 1% increase in
the assumed health care trend rates would result in a $32,000 increase in net
periodic postretirement benefits expense and a $442,000 increase in the
accumulated postretirement benefit obligation.
(11) SHAREHOLDERS' EQUITY
STOCK OPTIONS AND RESTRICTED 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.
The Corporation has elected to follow APB No. 25 and related
interpretations in accounting for its employee stock options as permitted under
SFAS No. 123. In accordance with APB No. 25, no compensation expense is
recognized by the Corporation when stock options are granted because the
exercise price of the Corporation's stock options equals the market price of the
underlying stock on the date of grant. Had compensation cost for the
Corporation's stock option plans been determined consistent with SFAS No. 123,
the Corporation's net income and net income per share would not have been
materially different than reported. The effects of applying SFAS No. 123 in 1996
are not necessarily indicative of future amounts.
The average fair value of options granted approximated $11.41 in 1996 and
$8.66 in 1995. The fair values of the 1996 and 1995 option grants are estimated
on the date of the grants using the Black-Scholes option-pricing model with the
following weighted-average assumptions: dividend yield of 2.3%, expected
volatility of 20.26%, risk-free interest rate of 6.15% and an expected average
life of five years. A summary of the Corporation's stock option activity and
related information for the years ended December 31 follows:
45
(11) SHAREHOLDERS' EQUITY -- Continued
Outstanding
Weighted
Average Exercisable
Option Exercise Option
Shares Price Shares
At December 31, 1993 332,314 $21.35
Granted 91,340 31.24
Exercised (47,020) 9.83
Forfeited (1,593) 37.01
At December 31, 1994 375,041 25.14 315,848
Granted 55,470 36.75
Exercised (74,842) 19.28
Forfeited (826) 43.49
At December 31, 1995 354,843 28.14 266,010
Granted 60,140 50.06
Exercised (145,057) 18.44
Exchanged for cash value (130) 33.50
Forfeited (1,044) 33.33
At December 31, 1996 268,752 $38.26 164,095
Execisable
Weighted
Average
Exercise
Price
At December 31, 1993
Granted
Exercised
Forfeited
At December 31, 1994 $23.27
Granted
Exercised
Forfeited
At December 31, 1995 $25.48
Granted
Exercised
Exchanged for cash value
Forfeited
At December 31, 1996 $34.34
Exercise prices for options outstanding as of December 31, 1996 ranged from
$7.12 to $50.06. The following table summarizes information about the
Corporation's stock options outstanding at December 31, 1996:
Options Outstanding Options Exercisable
Weighted Weighted
Average Weighted Average
Range of Number Years Average Number Exercise
Exercise Prices of Options Remaining Exercise Price of Options Price
$7.12 5,452 2.25 $ 7.12 5,452 $ 7.12
$27.25 to $33.50 48,687 6.71 30.80 48,687 30.80
$36.63 to $38.75 154,473 7.87 37.11 109,956 37.26
$50.06 60,140 9.25 50.06 -- --
$7.12 to $50.06 268,752 7.85 $38.26 164,095 $ 34.34
During 1996, certain participants of the various stock option plans
tendered 8,422 shares of the Corporation's common stock with a market value of
$442,000 to exercise outstanding options and other participants elected to
receive cash payments of $3,000 in lieu of exercising their options.
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. The plan expired on December 31, 1993, no further grants will be awarded
under the plan and there are no outstanding restricted shares as of December 31,
1996 as all restrictions lapsed in 1996 which contributed $548,000 to
shareholders' equity. 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 MRP shares will be earned in installments over a period of
up to five years. During 1996, restrictions lapsed on 24,742 shares which
increased shareholders' equity by $996,000.
During 1996, 4,000 shares of the Corporation's common stock were awarded as
restricted stock under the Long-Term Incentive Plan. The restricted stock award
was recorded at its fair value of $200,000 on the date of grant.
PREFERRED STOCK
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 were
outstanding at December 31, 1996 or 1995.
46
(11) SHAREHOLDERS' EQUITY -- Continued
RIGHTS PLAN
The Corporation adopted a Rights Agreement (the "Rights Agreement") which
provides for a plan (the "Rights Plan"). For use in connection with the Rights
Plan dated February 26, 1990 between the Corporation and CCB, the Corporation's
Board of Directors has established a series of preferred stock designated as
Series A Junior Participating Preferred Stock ("Series A Preferred") 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. No shares of Series A Preferred have
been issued.
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. Also under the Rights Plan, after the date of the Rights Agreement and
before the earlier of the "Distribution Date" (as defined below) or the date of
redemption or expiration of the Rights, each new share of common stock issued
after the date of the Rights Plan also has attached to it one Right.
The Rights currently are not exercisable, but may become so in the future
on a date (the "Distribution Date") which is 20 business days after (i) a public
announcement that any person or group has become an "Acquiring Person" by
acquiring beneficial ownership of 15% or more of the outstanding common stock of
the Corporation, or (ii) the date of commencement by any person of, or the
announcement by any person of his intention to commence, a tender or exchange
offer which would result in his becoming an Acquiring Person. However, after the
time any person becomes an Acquiring Person, all Rights held by or transferred
to such person (or any associate or affiliate of such person) shall be void and
of no effect.
Until the Distribution Date, each Right will be evidenced by the
certificate evidencing the common share to which it relates and may be
transferred only with such common share, and the surrender for transfer of any
common share certificate also will constitute the transfer of the Rights related
thereto. After the Distribution Date, separate certificates evidencing each
Right will be distributed to the record holders of the common stock to which
such Rights are attached, and each such Right may then be exercised to purchase
.01 of a share of Series A Preferred for a price of $100 (the "Purchase Price")
(all as adjusted from time to time as described in the Rights Agreement). In the
alternative (and subject to certain exceptions), after any person becomes an
Acquiring person (i) each Right may be exercised to purchase the number of
shares of the Corporation's common stock equal to the result obtained by
multiplying the then current Purchase Price by the number of Series A Preferred
interests covered by the Right, and dividing that product by 50% of the market
price of a share of the Corporation's common stock, or (ii) unless the Acquiring
Person has become the beneficial owner of more than 50% of the outstanding
common stock, the Corporation's Board of Directors at its option may exchange
one share of the Corporation's common stock, or a number of shares of Series A
Preferred 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 or
if 50% of its consolidated assets or earning power is sold, each Right will
entitle the holder, other than the Acquiring Person, to purchase securities of
the surviving company having a market value equal to twice the exercise price of
the Right.
The Rights will expire on February 26, 2000, and may be redeemed by the
Corporation at any time prior to the acquisition by a person or group of 15% or
more the outstanding common stock at a price of $.01 per Right.
REGULATORY MATTERS
The Corporation and the Subsidiary Banks are subject to risk-based capital
guidelines requiring minimum capital levels based on the perceived risk of
assets and off-balance sheet instruments. As required by the Federal Deposit
Insurance Corporation Improvement Act, the federal bank regulatory agencies have
jointly issued rules which implement a system of prompt corrective action for
financial institutions. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, there are minimum ratios of capital to
weighted risk assets. The capital amounts and classifications are also subject
to qualitative judgments by the regulators about components, risk weightings and
other factors. Failure to meet minimum capital requirements can initiate certain
mandatory and possibly discretionary actions by regulators that, if undertaken
could have a material effect on the Corporation's consolidated financial
statements.
For capital adequacy, the amounts and ratios are set forth in the table
below. Tier I capital consists of common equity less goodwill and certain other
intangible assets, and excludes the equity impact of adjusting available for
sale securities to market value. The remainder of Total Capital is Tier II
capital which includes subordinated notes and a limited amount of loan loss
reserves, as defined according to regulatory guidelines. Balance sheet assets
and the credit equivalent amount of off-balance sheet items per regulatory
guidelines are assigned to broad risk categories and a category risk weight is
then applied. Management
47
(11) SHAREHOLDERS' EQUITY -- Continued
believes that as of December 31, 1996, the Corporation and the Subsidiary Banks
meet all capital adequacy requirement to which they are subject.
As of December 31, 1996 (the most recent notification), the Federal Deposit
Insurance Corporation ("FDIC") categorized the Subsidiary Banks as
well-capitalized under the regulatory framework for prompt corrective action. To
be categorized as well-capitalized, the Subsidiary Banks must meet minimum
ratios for total risk-based, Tier 1 risk-based, and Tier I leverage (the ratio
of Tier I capital to average assets) as set forth in the following table. There
are no conditions or events since the notification that management believes have
changed the Subsidiary Banks' category.
The risk-based capital and leverage ratios for CCB and CCB-Ga. are
presented below. The capital ratios for the Corporation do not materially differ
from those presented for CCB.
CCB-Ga. as of December
CCB as of December 31, 31,
1996 1995 1996 1995
(In Thousands)
Tier 1 capital $ 443,709 400,068 8,338 7,296
Total capital 492,541 451,991 9,376 8,301
Risk weighted assets 3,834,057 3,730,304 82,590 91,309
Adjusted quarterly average assets 5,232,473 4,929,860 96,602 21,913
Risk-based capital ratios:
Tier 1 capital to risk weighted assets
Actual 11.57% 10.72 10.10 7.99
Regulatory minimum 4.00 4.00 4.00 4.00
Well-capitalized under prompt corrective action provisions 6.00 6.00 6.00 6.00
Total capital to risk weighted assets
Actual 12.85 12.12 11.35 9.09
Regulatory minimum 8.00 8.00 8.00 8.00
Well-capitalized under prompt corrective action provisions 10.00 10.00 10.00 10.00
Leverage ratio
Actual 8.48 8.12 8.63 33.30
Regulatory minimum 4.00 4.00 4.00 4.00
Well-capitalized under prompt corrective action provisions 5.00 5.00 5.00 5.00
(12) SUPPLEMENTARY INCOME STATEMENT INFORMATION
Following is a breakdown of the components of "other operating" expenses on
the Consolidated Statements of Income:
1996 1995 1994
(In Thousands)
Advertising $ 5,741 4,014 3,494
External data processing services 3,621 3,430 3,737
FDIC special assessment 7,400 -- --
Deposit and other insurance 2,024 7,096 9,032
Postage and freight 2,884 3,060 2,731
Printing and office supplies 4,124 3,645 3,415
Telecommunications 3,943 3,538 3,533
Legal and professional fees 6,074 2,998 5,419
Amortization of intangible assets 3,714 4,258 2,876
Merger-related -- 10,333 1,100
All other 16,972 17,624 18,467
Total other operating expenses $56,497 59,996 53,804
The FDIC special asessment was levied by the FDIC in the third quarter of
1996 to recapitalize the Savings Association Insurance Fund. CCB's original
assessment was $8,400,000; during the fourth quarter of 1996, CCB successfully
contested a portion of the assessment levied and received a $1,000,000 refund.
The merger-related expense incurred in 1995 resulted from the Security
Capital merger. The merger-related expense incurred in 1994 resulted from
Security Capital's acquisition of a savings and loan association.
48
(13) INCOME TAXES
The components of income tax expense for the years ended December 31, 1996,
1995 and 1994 are as follows:
1996 1995 1994
(In Thousands)
Taxes currently payable:
Federal $34,513 35,704 24,144
State 3,250 3,768 2,039
Total current tax expense 37,763 39,472 26,183
Deferred income tax (benefit):
Federal (2,611) (7,429) 4,104
State (700) (1,910) 556
Total deferred tax expense (benefit) (3,311) (9,339) 4,660
Total income tax expense $34,452 30,133 30,843
Income tax expense for 1996 was favorably impacted by Congressional
legislation enacted in 1996 that repealed the tax bad debt reserve method for
thrift institutions and froze the amount of such reserves existing at December
31, 1987. Under the Internal Revenue Code of 1986, thrift institutions had been
allowed a special bad debt deduction related to additions to tax bad debt
reserves established for the purpose of absorbing losses. A reduction of such
reserves for purposes other than bad debt losses created income for tax purposes
only, which was subject to the then current corporate income tax rates. Deferred
tax liabilities totaling $1,553,000 had been previously recorded for Graham
Savings' tax bad debt reserves. Due to the 1996 Congressional legislation, a
federal income tax benefit of $1,358,000 and a state income tax benefit of
$195,000 were recorded related to the Graham Savings' tax bad debt reserves,
which can only be recaptured in certain remote circumstances. In 1994, as a
result of a change in tax accounting method to the specific charge-off method
for bad debts, Security Capital recorded additional federal income tax expense
of $4,906,000 and additional state income tax expense of $694,000 to provide
current and deferred tax liabilities for all thrift bad debt reserves.
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
1996 1995 1994 1996 1995 1994
(In Thousands)
Tax expense at statutory rate on income before income taxes $36,669 30,798 26,585 35.0% 35.0 35.0
State taxes, net of federal benefit 1,658 1,208 1,686 1.6 1.4 2.2
Increase (reduction) in taxes resulting from:
Tax law change regarding thrift bad debt reserve recapture (1,358) -- -- (1.3) -- --
Thrift bad debt reserve recapture -- -- 4,906 -- -- 6.5
Tax-exempt interest on investment securities and loans (1,633) (1,943) (1,435) (1.6) (2.2) (1.9)
Other, net (884) 70 (899) (.8) .1 (1.2)
Income tax expense $34,452 30,133 30,843 32.9% 34.3 40.6
49
(13) INCOME TAXES -- Continued
At December 31, 1996 and 1995, the Corporation had recorded net deferred
tax assets of $7,807,000 and $1,530,000, 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. 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. In addition, taxes paid during the carryback
period exceed the Corporation's recorded net deferred tax asset. Consequently,
management has determined that a valuation allowance for deferred tax assets was
not required at December 31, 1996 and 1995. The sources and tax effects of
cumulative temporary differences that give rise to significant portions of the
net deferred tax assets at December 31, 1996 and 1995 are shown below:
1996 1995
(In Thousands)
Deferred tax assets:
Reserve for loan losses $15,183 9,857
Postretirement benefits 2,024 1,828
Deferred compensation 2,290 2,089
Other 2,358 2,703
Total gross deferred tax assets 21,855 16,477
Deferred tax liabilities:
Intangible assets 2,157 2,742
Deferred loan fees and costs 2,445 1,282
Premises and equipment 2,153 1,935
FHLB dividends 1,756 1,756
Unrealized gains on investment securities available for sale 3,488 6,454
Mortgage servicing rights gain 820 --
Other 1,229 778
Total gross deferred liabilities 14,048 14,947
Net deferred tax asset $ 7,807 1,530
(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 2009. Total rental
expense amounted to $4,571,000 in 1996, $4,557,000 in 1995 and $4,430,000 in
1994.
A summary of noncancellable, long-term lease commitments at December 31,
1996 follows:
Type of Property
Real Total
Year Ending December 31 Property Equipment Commitments
(In Thousands)
1997 $ 2,925 680 3,605
1998 2,688 515 3,203
1999 2,306 242 2,548
2000 2,018 -- 2,018
2001 1,776 -- 1,776
Thereafter 17,372 -- 17,372
Total lease commitments $ 29,085 1,437 30,522
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 1997.
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.
50
(14) COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK -- Continued
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 on a case-by-case basis and collateral, primarily real
estate or business assets, is generally obtained. At December 31, 1996 and 1995,
the Subsidiary Banks had commitments to extend credit of approximately $1.1
billion and $886 million. These amounts include unused credit card receivable
and home mortgage equity lines of $392 million and $260 million, respectively,
at December 31, 1996 and $280 million and $215 million, respectively, at
December 31, 1995.
Standby letters of credit are commitments issued by the Subsidiary Banks to
guarantee the performance of a customer to a third party. The standby letters of
credit are generally secured by non-depreciable assets. The Subsidiary Banks had
approximately $27 million and $24 million in outstanding standby letters of
credit at December 31, 1996 and 1995.
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 that are used for on-balance sheet instruments. For standby
letters of credit, the Subsidiary Banks use a more strict credit policy due to
the nature of the 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. The Subsidiary Banks had no interest rate contracts at December 31,
1996 or 1995.
(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 $201,852,000 in retained
earnings at December 31, 1996 that can be transferred to the Corporation in the
form of cash dividends. Total dividends declared by the Subsidiary Banks to the
Corporation in 1996 were $30,000,000.
As a result of the above requirements, consolidated net assets of the
Subsidiary Banks amounting to approximately $313,332,000 at December 31, 1996
were restricted from transfer to the Corporation.
51
(16) CCB FINANCIAL CORPORATION (PARENT COMPANY)
CCB Financial Corporation's principal asset is the investment in its
Subsidiary Banks and its principal source of income is dividends from the
Subsidiary Banks. The Parent Company's Condensed Balance Sheets at December 31,
1996 and 1995 and the related Condensed Statements of Income and Cash Flows for
the years ended December 31, 1996, 1995 and 1994 are as follows:
BALANCE SHEETS
December 31
1996 1995
(In Thousands)
Cash and short-term investments $ 94,195 18,496
Note receivable from subsidiary 10,000 10,000
Investment securities 215 --
Loans 53,042 50,001
Less reserve for loan losses 690 650
Net loans 52,352 49,351
Investments in subsidiaries 485,644 449,542
Other assets 9,424 6,354
Total assets $651,830 533,743
Master notes $ 84,867 16,720
Notes payable to subsidiary 44,200 40,000
Subordinated notes 32,985 32,985
Other liabilities 11,547 10,521
Total liabilities 173,599 100,226
Shareholders' equity 478,231 433,517
Total liabilities and shareholders' equity $651,830 533,743
INCOME STATEMENTS
Years Ended December 31
1996 1995 1994
(In Thousands)
Dividends from subsidiaries $30,000 38,100 9,560
Interest income 8,010 4,271 2,870
Other income 5 883 --
Management fees -- -- 748
Total operating income 38,015 43,254 13,178
Interest expense 7,342 4,527 2,724
Provision for loan losses 40 650 --
Merger-related expense -- 2,761 --
Management fees 150 120 --
Other operating expenses 898 756 894
Total operating expenses 8,430 8,814 3,618
Income before income taxes 29,585 34,440 9,560
Income taxes (145) (314) --
Income before equity in undistributed net income of subsidiaries 29,730 34,754 9,560
Equity in undistributed net income of subsidiaries 40,585 23,106 35,551
Net income $70,315 57,860 45,111
52
(16) CCB FINANCIAL CORPORATION (PARENT COMPANY) -- Continued
STATEMENTS OF CASH FLOWS
Years Ended December 31
1996 1995 1994
(In Thousands)
Net cash provided by operating activities $ 29,469 35,494 14,270
Investment in subsidiaries -- 976 --
Purchase of investment securities (215) -- --
Net increase in loans (3,041) (50,001) --
Net decrease in loans to subsidiaries -- 11,940 11,325
Net cash provided (used) by investing activities (3,256) (37,085) 11,325
Increase (decrease) in master notes 68,147 16,720 --
Increase (decrease) in short-term borrowed funds -- (5,000) 5,000
Proceeds from issuance of debt to subsidiaries 4,200 40,000 --
Repurchase and extinguishment of subordinated notes -- (7,015) --
Purchase and retirement of common stock (997) (4,432) (15,530)
Cash dividends (24,095) (22,114) (17,588)
Other, net 2,231 1,437 252
Net cash provided (used) by financing activities 49,486 19,596 (27,866)
Net increase (decrease) in cash and short-term investments 75,699 18,005 (2,271)
Cash and short-term investments at beginning of year 18,496 491 2,762
Cash and short-term investments at end of year $ 94,195 18,496 491
(17) QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized consolidated quarterly financial data for the years ended
December 31, 1996 and 1995 follows:
1996 1995
4TH 3RD 2ND 1ST 4TH 3RD 2ND
QTR. QTR. QTR. QTR. QTR. QTR. QTR.
(In Thousands Except for Per Share Data)
Interest income $103,227 99,974 97,544 97,019 98,495 96,545 95,607
Interest expense 46,915 45,720 44,336 44,377 46,463 45,884 45,386
Net interest income 56,312 54,254 53,208 52,642 52,032 50,661 50,221
Provision for loan and lease losses 3,800 3,850 3,150 2,000 2,407 2,027 1,599
Net interest income after provision for loan and
lease losses 52,512 50,404 50,058 50,642 49,625 48,634 48,622
Other income 16,516 16,499 15,430 14,144 13,383 12,598 13,960
Other expenses 39,779 46,793 37,169 37,697 37,117 36,324 47,737
Income before income taxes 29,249 20,110 28,319 27,089 25,891 24,908 14,845
Income taxes 10,085 5,075 9,975 9,317 8,828 8,198 5,657
Net income $ 19,164 15,035 18,344 17,772 17,063 16,710 9,188
Net income per share $ 1.27 1.00 1.22 1.18 1.14 1.12 .62
1995
1ST
QTR.
Interest income 92,867
Interest expense 41,671
Net interest income 51,196
Provision for loan and lease losses 2,150
Net interest income after provision for loan and
lease losses 49,046
Other income 12,348
Other expenses 39,045
Income before income taxes 22,349
Income taxes 7,450
Net income 14,899
Net income per share .99
53
(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, intangibles 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, 1996 and 1995 are presented below
(in thousands):
1996 1995
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
Financial assets:
Cash, time deposits in other banks and other short-term investments $ 499,233 499,233 569,533 569,533
Investment securities 979,340 983,581 1,039,732 1,044,701
Loans 3,737,891 -- 3,312,944 --
Reserve for loan losses (48,544) -- (43,075) --
Net loans 3,689,347 3,741,507 3,269,869 3,331,144
Total financial assets $5,167,920 5,224,321 4,879,134 4,945,378
Financial liabilities:
Deposits $4,589,534 4,599,582 4,297,411 4,303,581
Short-term borrowings 159,251 159,251 177,959 177,959
Long-term debt 57,848 56,604 78,993 79,182
Total financial liabilities $4,806,633 4,815,437 4,554,363 4,560,722
Fair value estimations are made at a point in time based on relevant market
information and the characteristics of the on- and off-balance sheet 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 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, 1996
and 1995. 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. 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 quoted market rates for the same or
similar issues or is based on the market rates for debt of the same remaining
maturities.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
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
54
(18) FAIR VALUE OF FINANCIAL INSTRUMENTS -- Continued
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) SUBSEQUENT EVENTS
On January 31, 1997, the Corporation consummated the merger with Salem
Trust Bank ("Salem Trust"), a $165 million bank headquartered in Winston-Salem,
North Carolina. Under the terms of the merger agreement, the Corporation issued
.36 of a share of the Corporation's common stock for each share of Salem Trust
outstanding or approximately 680,000 shares of the Corporation's common stock.
This business combination was accounted for as a pooling-of-interests
combination, and accordingly, the Corporation's historical consolidated
financial statements presented in future reports will be restated to include the
accounts and results of operations of Salem Trust.
The following unaudited pro forma data summarizes the combined results of
operations of the Corporation and Salem Trust as if the combination had been
consummated on December 31, 1996.
1996 1995 1994
(In Thousands Except Per Share
Data)
Total income $474,099 446,068 364,852
Net interest income after provision for loan and lease losses 209,825 200,148 177,127
Net income 72,335 58,904 45,914
Earnings per share:
Primary 4.61 3.79 2.91
Fully diluted 4.61 3.77 2.90
On February 18, 1997, the Corporation announced the signing of a definitive
agreement to acquire American Federal Bank, FSB ("American Federal")
headquartered in Greenville, South Carolina. American Federal has 40 banking
offices located in northwest South Carolina and assets of $1.3 billion as of
December 31, 1996. The transaction, which is to be accounted for as a
pooling-of-interests, will result in the issuance of .445 shares of the
Corporation's common stock in exchange for each share of American Federal's
outstanding or approximately 5 million shares of the Corporation's stock. The
acquisition is anticipated to be consummated in the third quarter of 1997
subject to the completion of due diligence and receipt of shareholder and
regulatory approvals.
55
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.
ERNEST C. ROESSLER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
W. HAROLD PARKER, JR.
SENIOR VICE PRESIDENT AND CONTROLLER
January 21, 1997
56
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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 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".
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Raleigh, North Carolina
January 21, 1997
57
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL AND
ACCOUNTING DISCLOSURE
There have been no disagreements with accountants on accounting and
financial disclosures.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated herein by reference to
CCB Financial Corporation's definitive Proxy Statement dated March 12, 1997 (the
"Proxy Statement"), pages 7 to 8, under the heading "Proposal 3. Election of
Directors" or appears under the heading "Executive Officers of the Registrant"
in Part I. of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
the Proxy Statement, pages 9 to 14, under the headings "Compensation Committee
Report", "Executive Compensation", "Pension Plan" and "Change in Control and
Employment Arrangements".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to
the Proxy Statement, pages 2 to 4, under the heading "Amount and Nature of
Beneficial Ownership of Voting Securities".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to
the Proxy Statement, page 16, under the heading "Transactions with Management".
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. and 2.
The financial statements and supplementary data listed in the index set
forth in Item 8 of this report are filed as part of this report.
All schedules are omitted because of the absence of the conditions under
which they are required or because the required information is included in the
financial statements or related notes.
(a) 3.
Exhibits are listed in the Exhibit Index beginning on page 59 of this
report.
(b) Reports on Form 8-K:
A report on Form 8-K dated October 4, 1996 was filed under Item 5 reporting
the merger of Graham Savings Bank, Inc., SSB, into Central Carolina Bank and
Trust Company.
A report on Form 8-K dated November 21, 1996 was filed under Items 5 and 7
reporting the postponement of the Special Meeting of shareholders of Salem Trust
Bank due to re-negotiation between the Registrant and Salem Trust Bank.
58
DESCRIPTION OF EXHIBITS
Amended Agreement of Combination among Registrant, Central Carolina Bank and
Trust Company and
Salem Trust Bank
Amended and Restated Articles of Incorporation of Registrant
Amended and Restated Bylaws of Registrant
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 Bank of
New York as successor to 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
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
Security Capital Omnibus Stock Ownership and Long-Term Incentive Plan, as
assumed by the Registrant
Omni Capital Group, Inc. 1988 Incentive Stock Option Plan, as assumed by the
Registrant
Salem Trust Bank 1986 Incentive Stock Option Plan, as assumed by the Registrant
Change of Control Agreement between Central Carolina Bank and Trust Company and
Ernest C. Roessler
Change of Control Agreement between Central Carolina Bank and Trust Company and
Richard L. Furr
Change of Control Agreement between Central Carolina Bank and Trust Company and
J. Scott Edwards
Amended and Restated Employment Agreement by and between Registrant, Central
Carolina Bank and Trust Company and David B. Jordan
Amended and Restated Employment Agreement by and between Registrant, Central
Carolina Bank and Trust Company and Lloyd G. Gurley
Subsidiaries of Registrant
Consent of KPMG Peat Marwick LLP
Financial Data Schedule
Registrant's Proxy Statement to Shareholders for the 1997 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
59
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 11, 1997
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 March 11, 1997
ERNEST C. ROESSLER (Chief Executive Officer)
/s/ JOHN M. BARNHARDT Director March 11, 1997
JOHN M. BARNHARDT
Director March , 1997
J. HARPER BEALL, III
Director March , 1997
JAMES B. BRAME, JR.
Director March , 1997
TIMOTHY B. BURNETT
/s/ W. L. BURNS, JR. Chairman of Board of Directors March 11, 1997
W. L. BURNS, JR.
/s/ EDWARD S. HOLMES Director March 11, 1997
EDWARD S. HOLMES
Director March , 1997
BONNIE MCELVEEN-HUNTER
/s/ DAVID B. JORDAN Director March 11, 1997
DAVID B. JORDAN
Director March , 1997
OWEN G. KENAN
60
SIGNATURE TITLE DATE
/s/ EUGENE J. MCDONALD Director March 11, 1997
EUGENE J. MCDONALD
Director March , 1997
HAMILTON W. MCKAY, JR., M.D.
Director March , 1997
GEORGE J. MORROW
/s/ ERIC B. MUNSON Director March 11, 1997
ERIC B. MUNSON
Director March , 1997
MILES J. SMITH, JR.
/s/ JIMMY K. STEGALL Director March 11, 1997
JIMMY K. STEGALL
/s/ H. ALLEN TATE, JR. Director March 11, 1997
H. ALLEN TATE, JR.
/s/ JAMES L. WILLIAMSON Director March 11, 1997
JAMES L. WILLIAMSON
/s/ DR. PHAIL WYNN, JR. Director March 11, 1997
DR. PHAIL WYNN, JR.
/s/ W. HAROLD PARKER, JR. Senior Vice President and Controller March 11, 1997
W. HAROLD PARKER, JR. (Chief Accounting Officer)
61
EXHIBIT INDEX
Exhibit Number
per Item 601 of Exhibit No. in
Regulation S-K Description this Form 10-K
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession.
a. Amended Agreement of Combination among Registrant, Central Carolina
Bank and Trust Company and Salem Trust Bank is incorporated herein
by reference from Appendix A of the Registrant's Registration
Statement No. 333-12437 on Form S-4.
(3) Articles of Incorporation and Bylaws.
a. Registrant's Amended and Restated Articles of Incorporation are
incorporated herein by reference from Exhibit 3 of Registrant's Form
8-K dated May 19, 1995.
b. Registrant's Amended and Restated Bylaws are incorporated by
reference from Exhibit 3 of Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996.
(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 26, 1990.
b. Form of indenture dated November 1, 1993 between Registrant and Bank
of New York as successor to 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. 1993 Management Recognition 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.
c. 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. 33-61268 on Form S-8.
d. 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.
e. 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.
f. 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.
g. Security Capital Omnibus Stock Ownership and Long-Term Incentive
Plan, as assumed by the Registrant, is incorporated herein by
reference from Exhibit 99 of Registrant's Registration Statement No.
33-61791 on Form S-8.
h. Omni Capital Group, Inc. 1988 Incentive Stock Option Plan, as
assumed by the Registrant, is incorporated herein by reference from
Exhibit 99 of Registrant's Registration Statement No. 33-61797 on
Form S-8.
Exhibit Number
per Item 601 of Exhibit No. in
Regulation S-K Description this Form 10-K
i. Salem Trust Bank 1986 Incentive Stock Option Plan, as assumed by the
Registrant, is incorporated herein by reference from Exhibit 99 of
Registrant's Registration Statement No. 333-22031 on Form S-8.
j. Change of Control Agreement dated July 17, 1995 between Central
Carolina Bank and Trust Company and Ernest C. Roessler is
incorporated herein by reference from Exhibit 10.1 of Registrant's
Form 8-K dated July 17, 1995.
k. Change of Control Agreement dated July 17, 1995 between Central
Carolina Bank and Trust Company and Richard L. Furr is incorporated
herein by reference from Exhibit 10.2 of Registrant's Form 8-K dated
July 17, 1995.
l. Change of Control Agreement dated July 17, 1995 between Central
Carolina Bank and Trust Company and J. Scott Edwards is incorporated
herein by reference from Exhibit 10.3 of Registrant's Form 8-K dated
July 17, 1995.
m. Amended and Restated Employment Agreement by and between Registrant,
Central Carolina Bank and Trust Company and David B. Jordan dated
May 19, 1995 is incorporated herein by reference from Exhibit 10.1
of Registrant's Form 8-K dated May 19, 1995.
n. Amended and Restated Employment Agreement by and between Registrant,
Central Carolina Bank and Trust Company and Lloyd G. Gurley dated
May 19, 1995 is incorporated herein by reference from Exhibit 10.3
of Registrant's Form 8-K dated May 19, 1995.
(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 1997 Annual Meeting of Shareholders on April 15, Not Required to
1997. be Refiled