UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended September 30, 1999
Commission File Number: 0-12358
CCB FINANCIAL CORPORATION
(Exact name of issuer as specified in charter)
North Carolina 56-1347849
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
111 Corcoran Street, Post Office Box 931, Durham, NC 27702
(Address of principal executive offices)
Registrant's telephone number, including area code (919) 683-7777
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's clas
ses of common stock, as of the latest practicable date.
Common Stock, $5 Par value 40,262,020
(Class of Stock) (Shares outstanding as of November 11, 1999)
CCB FINANCIAL CORPORATION
FORM 10-Q
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1999, December 31, 1998 and September 30, 1998 3
Consolidated Statements of Income
Three and Nine Months Ended September 30, 1999 and 1998 4
Consolidated Statements of Shareholders' Equity and
Comprehensive Income
Nine Months Ended September 30, 1999 and 1998 5
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998 6
Notes to Consolidated Financial Statements
As of and for the Nine Months Ended September 30, 1999
and 1998 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CCB Financial Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited) (Unaudited)
September December September
30, 31, 30,
1999 1998 1998
(In Thousands Except Share Data)
Assets:
Cash and due from banks $ 211,508 250,922 253,470
Time deposits in other banks 122,309 59,529 53,073
Federal funds sold and other
short-term investments 62,357 430,000 224,595
Investment securities:
Available for sale (amortized
costs of $1,575,748,
$1,262,476 and $1,252,408) 1,569,094 1,284,198 1,283,103
Held to maturity (market values
of $76,226, $85,277 and
$85,955) 73,633 80,189 80,334
Loans and lease financing (notes
2 and 4) 5,614,657 5,487,337 5,360,547
Less reserve for loan and
lease losses (notes 2 and 3) 74,168 73,182 71,543
Net loans and lease financing 5,540,489 5,414,155 5,289,004
Premises and equipment 104,478 92,770 91,251
Goodwill 23,528 26,241 27,043
Other assets (note 4) 138,498 102,349 105,396
Total assets $ 7,845,894 7,740,353 7,407,269
Liabilities:
Deposits:
Demand (noninterest-bearing) $ 848,848 854,938 820,760
Savings and NOW accounts 786,809 863,920 728,622
Money market accounts 1,894,099 1,784,091 1,776,916
Jumbo time deposits 397,793 452,808 430,970
Consumer time deposits 2,587,291 2,504,007 2,459,721
Total deposits 6,514,840 6,459,764 6,216,989
Short-term borrowed funds 270,047 288,256 235,759
Long-term debt 238,022 216,695 176,220
Other liabilities 111,915 87,744 91,672
Total liabilities 7,134,824 7,052,459 6,720,640
Shareholders' equity (note 5):
Serial preferred stock. Authorized
10,000,000 shares; none issued -- -- --
Common stock of $5 par value.
Authorized 100,000,000 shares;
39,589,796, 40,345,214 and
40,598,757 shares issued 197,949 201,726 202,994
Additional paid-in capital 33,086 73,771 86,788
Retained earnings 484,160 399,066 378,006
Accumulated other comprehensive
income (loss) (4,125) 13,331 18,841
Total shareholders' equity 711,070 687,894 686,629
Total liabilities and
shareholders' equity $ 7,845,894 7,740,353 7,407,269
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months
Ended September 30,
1999 1998
(In Thousands
Except Per Share Data)
Interest income:
Interest and fees on loans
and lease financing $ 118,590 119,402
Interest and dividends on
Investment securities:
U.S. Treasury 5,779 6,546
U.S. Government agencies
and corporations 17,611 12,887
States and political subdivisions
(primarily tax-exempt) 1,071 1,177
Equity and other securities 776 801
Interest on time deposits in other banks 756 690
Interest on federal funds sold
and other short-term investments 1,903 4,199
Total interest income 146,486 145,702
Interest expense:
Deposits 58,157 58,938
Short-term borrowed funds 3,140 2,952
Long-term debt 2,444 2,714
Total interest expense 63,741 64,604
Net interest income 82,745 81,098
Provision for loan and lease
losses (note 3) 3,284 4,778
Net interest income after provision
for loan and lease losses 79,461 76,320
Other income:
Service charges on deposit accounts 15,626 13,919
Trust and custodian fees 2,959 2,392
Sales and insurance commissions 3,281 2,937
Merchant discount 3,002 2,272
Other service charges and fees 1,209 1,264
Secondary marketing and servicing - mortgages 532 3,463
Other operating income 1,940 1,916
Gain on sale of credit card receivables (note 2) - -
Investment securities gains - 406
Investment securities losses - -
Total other income 28,549 28,569
Other expenses:
Personnel expense 34,374 31,507
Net occupancy expense 4,401 4,185
Equipment expense 4,173 3,673
Other operating expense 17,505 19,529
Total other expenses 60,453 58,894
Income before income taxes 47,557 45,995
Income taxes 16,012 15,632
Net income $ 31,545 30,363
Earnings per common share (note 5):
Basic $ .80 .75
Diluted .79 .74
Weighted average shares
outstanding (note 5):
Basic 39,677 40,598
Diluted 40,032 41,083
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME, continued
(Unaudited)
Nine Months Ended
September 30,
1999 1998
(In Thousands Except
Per Share Data)
Interest income:
Interest and fees on loans
and lease financing $ 352,757 351,611
Interest and dividends on
investment securities:
U.S. Treasury 17,538 21,179
U.S. Government agencies
and corporations 46,423 40,291
States and political subdivisions
(primarily tax-exempt) 3,284 3,559
Equity and other securities 2,335 2,344
Interest on time deposits in other banks 1,661 1,495
Interest on federal funds sold
and other short-term investments 11,257 11,430
Total interest income 435,255 431,909
Interest expense:
Deposits 170,662 175,384
Short-term borrowed funds 8,372 9,022
Long-term debt 8,893 7,400
Total interest expense 187,927 191,806
Net interest income 247,328 240,103
Provision for loan and lease
losses (note 3) 10,771 11,564
Net interest income after provision
for loan and lease losses 236,557 228,539
Other income:
Service charges on deposit accounts 45,146 39,749
Trust and custodian fees 9,118 7,455
Sales and insurance commissions 9,453 8,511
Merchant discount 8,818 6,415
Other service charges and fees 4,302 3,719
Secondary marketing and servicing - mortgages 7,834 9,696
Other operating income 7,941 5,872
Gain on sale of credit card receivables (note 2) 32,837 -
Investment securities gains 532 1,416
Investment securities losses (3) (27)
Total other income 125,978 82,806
Other expenses:
Personnel expense 101,671 94,061
Net occupancy expense 12,792 11,831
Equipment expense 12,353 10,401
Other operating expense 54,455 55,611
Total other expenses 181,271 171,904
Income before income taxes 181,264 139,441
Income taxes 63,881 49,818
Net income $ 117,383 89,623
Earnings per common share (note 5):
Basic $ 2.94 2.18
Diluted 2.91 2.16
Weighted average shares
outstanding (note 5):
Basic 39,954 41,026
Diluted 40,343 41,562
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
Accumulated
Additional Other Management Total
Common Paid-In Retained Compre- Recognition Shareholders'
hensive
Stock Capital Earnings Income Plans Equity
(Loss)
(In Thousands)
<C> <S> <S> <S> <S> <S> <S>
Balance December 31, 1997,
as originally reported $ 103,882 143,784 419,746 13,980 (32) 681,360
Common stock issued in 1998
in two-for-one stock split 103,882 - (103,882) - - -
Balance December 31, 1997,
as restated 207,764 143,784 315,864 13,980 (32) 681,360
Net income - - 89,623 - - 89,623
Other comprehensive income
-Unrealized gains on
securities, net of
deferred tax liability
of $3,103 and
reclassification
adjustment (note 1) - - - 4,861 - 4,861
Total comprehensive income 94,484
Stock options exercised,
net of shares tendered 813 1,469 (402) - - 1,880
Tax benefit from stock
options exercised - 444 - - - 444
Restricted stock transactions 19 281 (10) - - 290
Shares repurchased and
retired (5,601) (59,180) 2,801 - - (61,980)
Earned portion of
management recognition plans - - - - 32 32
Other transactions, net (1) (10) - - - (11)
Cash dividends ($.73
per share) - - (29,870) - - (29,870)
Balance September 30, 1998 $ 202,994 86,788 378,006 18,841 - 686,629
Balance December 31, 1998 $ 201,726 73,771 399,066 13,331 - 687,894
Net income - - 117,383 - - 117,383
Other comprehensive income
-Unrealized losses on
securities, net of
deferred tax benefit
of $10,919 and
reclassification
adjustment (note 1) - - - (17,456) - (17,456)
Total comprehensive income 99,927
Stock options exercised,
net of shares tendered 369 (579) - - - (210)
Restricted stock transactions 6 71 - - - 77
Shares repurchased and
retired (4,152) (40,175) - - - (44,327)
Cash dividends ($.81 per
share) - - (32,289) - - (32,289)
Other transactions, net - (2) - - - (2)
Balance September 30, 1999 $ 197,949 33,086 484,160 (4,125) - 711,070
</TABLE>
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1999 and 1998
(Unaudited)
1999 1998
(In Thousands)
Operating activities:
Net income $ 117,383 89,623
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and
accretion, net 16,898 15,011
Provision for loan and lease losses 10,771 11,564
Net gain on sales of investment
securities (529) (1,389)
Gains on sales of mortgage loans and
credit card receivables 35,808 -
Sales of loans held for sale 458,164 411,945
Origination of loans held for sale (526,940) (448,541)
Changes in:
Accrued interest receivable (6,749) 1,785
Accrued interest payable (411) (901)
Deferred taxes (19,635) -
Other assets 5,240 20,006
Other liabilities 36,809 (7,232)
Other operating activities, net (5,135) (14,600)
Net cash provided by operating
activities 121,674 77,271
Investing activities:
Proceeds from:
Maturities and issuer calls of
investment securities held to maturity 6,621 1,267
Sales of investment securities available
for sale 5,149 36,037
Maturities and issuer calls of investment
securities available for sale 490,178 422,981
Sales of mortgage loans and credit card
receivables 347,714 -
Purchases of:
Investment securities available for sale (813,422) (355,028)
Premises and equipment (21,268) (13,335)
Net originations of loans and leases
receivable (462,677) (234,667)
Net cash paid in branch dispositions (12,200) -
Net cash used by investing
activities (459,905) (142,745)
Financing activities:
Net increase in deposit accounts 67,664 232,392
Net decrease in short-term borrowed funds (18,209) (40,677)
Proceeds from issuance of long-term debt 75,000 76,140
Repayments of long-term debt (53,673) (606)
Issuances of common stock from exercise of
stock options, net (210) 1,880
Purchase and retirement of common stock (44,327) (61,980)
Other equity transactions, net (2) (11)
Cash dividends (32,289) (29,870)
Net cash provided (used) by
financing activities (6,046) 177,268
Net increase (decrease) in cash and cash
equivalents (344,277) 111,794
Cash and cash equivalents at beginning of
year 740,451 419,344
Cash and cash equivalents at end of period $ 396,174 531,138
Supplemental disclosures of cash flow
information:
Interest paid during the period $ 188,338 192,708
Income taxes paid during the period $ 44,483 52,842
Supplemental disclosures of noncash
investing and financing activities:
Change in market value of securities
available for sale, net of deferred
tax benefit of $10,919 and $(3,103),
respectively $ (17,456) 4,861
Restricted stock transactions, net of
deferred tax expense of $484 in 1998 $ 77 290
See accompanying notes to consolidated financial statements.
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
As of and for the Nine Months Ended September 30, 1999 and 1998
(Unaudited)
(1) Consolidation and Presentation
The accompanying unaudited consolidated financial statements of CCB
Financial Corporation (the "Corporation") have been prepared in
accordance with the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
Management, the statements reflect all adjustments necessary for a
fair presentation of the financial position, results of operations and
cash flows of the Corporation on a consolidated basis, and all such
adjustments are of a normal recurring nature. These financial
statements and the notes thereto should be read in conjunction with
the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1998. Operating results for the nine month period ended
September 30, 1999 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999.
Certain amounts for 1998 have been reclassified to conform to the 1999
presentation. These reclassifications have no effect on shareholders'
equity or net income as previously reported.
Consolidation
The consolidated financial statements include the accounts and results
of operations of the Corporation and its wholly-owned subsidiaries,
Central Carolina Bank and Trust Company ("CCB"), American Federal
Bank, FSB ("AmFed") and Central Carolina Bank - Georgia (collectively
the "Subsidiary Banks"). The consolidated financial statements also
include the accounts and results of operations of the wholly-owned
subsidiaries of CCB (CCB Investment and Insurance Service Corporation;
Salem Trust Company; CCBDE, Inc.; Southland Associates, Inc. and
Corcoran Holdings, Inc. and its subsidiary, Watts Properties, Inc.)
and AmFed (American Service Corporation of S.C.; Mortgage North;
AMFEDDE, Inc.; Finance South, Inc. and McBee Holdings, Inc. and its
subsidiary, Greenville Participations, Inc.). All significant
intercompany accounts are eliminated in consolidation. The
Corporation operates as one business segment.
Earnings Per Share
Basic earnings per share ("EPS") excludes dilution and is computed by
dividing income available to common shareholders by the weighted
average number of common shares outstanding during each period.
Diluted EPS reflects the potential dilution that would have occurred
if securities or other contracts to issue common stock were exercised
or converted into common stock. Diluted EPS is computed by dividing
income available to common shareholders by the weighted average number
of common shares outstanding plus dilutive stock options (as computed
under the treasury stock method) assumed to have been exercised during
each period.
Comprehensive Income
Comprehensive income is the change in the Corporation's equity during
the period from transactions and other events and circumstances from
non-owner sources. Total comprehensive income is comprised of net
income and other comprehensive income.
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(1) Consolidation and Presentation - Continued
The Corporation's "other comprehensive income" for the nine months
ended September 30, 1999 and 1998 and "accumulated other comprehensive
income" as of September 30, 1999 and 1998 are comprised solely of
unrealized gains and losses on certain investments in debt and equity
securities. Other comprehensive income for the nine months ended
September 30, 1999 and 1998 follows (in thousands):
1999 1998
Unrealized holding gains (losses) arising
during period, net of taxes $ (17,139) 5,694
Less reclassification adjustment for 317 833
realized gains, net of taxes
Unrealized gains (losses) on securities,
net of taxes $ (17,456) 4,861
(2) Loans and Lease Financing
A summary of loans and lease financing at September 30, 1999 and 1998
follows (in thousands):
1999 1998
Commercial, financial and agricultural $ 697,724 674,518
Real estate-construction 1,069,544 850,772
Real estate-mortgage 3,179,806 3,096,401
Instalment loans to individuals 548,490 486,568
Revolving credit 56,829 208,343
Lease financing 71,216 50,586
Gross loans and lease financing 5,623,609 5,367,188
Less unearned income 8,952 6,641
Total loans and lease financing $ 5,614,657 5,360,547
During the second quarter of 1999, the Subsidiary Banks sold
$151,342,000 of consumer credit card receivables to MBNA, a large
credit card issuer. As a result of the sale, the Subsidiary Banks
recognized a gain of $32,837,000, net of various contractual exit
fees. The gain on sale increased basic and diluted earnings per share
by $.50 and $.49, respectively. Under an agent bank arrangement, the
Subsidiary Banks will continue to offer consumer credit card products
through MBNA. The Subsidiary Banks retained the commercial credit
card portfolio.
Mortgage loans held for sale totaled $17,439,000 and $62,783,000 at
September 30, 1999 and 1998, respectively, and are reported at the
lower of cost or market. At September 30, 1999, impaired loans
amounted to $14,684,000 compared to $15,766,000 at December 31, 1998
and $16,011,000 at September 30, 1998. The related reserve for loan
and lease losses on these loans amounted to $2,377,000 at September
30, 1999, $2,574,000 at December 31, 1998 and $2,392,000 at September
30, 1998. During the nine months ended September 30, 1999 and 1998,
loans totaling $3,785,000 and $1,973,000, respectively, were
transferred to "other assets" due to loan foreclosure.
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(3) Reserve for Loan and Lease Losses
Following is a summary of the reserve for loan and lease losses for
the nine months ended September 30, 1999 and 1998 (in thousands):
1999 1998
Balance at beginning of year $ 73,182 67,594
Provision charged to operations 10,771 11,564
Decrease from sale of credit card receivables (1,967) -
Recoveries of loans and leases previously charged-off 2,333 1,881
Loan and lease losses charged to reserve (10,151) (9,496)
Balance at end of period $ 74,168 71,543
Net charge-offs to average loans (annualized):
Total .19% .20
Excluding revolving credit .10 .10
Reserve for loan and lease losses to period-end
loans and leases 1.32 1.33
Reserve for loan and lease losses to total risk assets 2.55x 3.28
(4) Risk Assets
Following is a summary of risk assets at September 30, 1999, December
31, 1998, and September 30, 1998 (in thousands):
September 30, December 31, September 30,
1999 1998 1998
Nonaccrual loans and lease financing $ 22,089 16,761 16,936
Other real estate acquired through
loan foreclosures 2,949 791 1,152
Restructured loans and lease financing 714 739 756
Accruing loans and lease financing
90 days or more past due 3,285 5,889 2,987
Total risk assets $ 29,037 24,180 21,831
CCB Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(5) Share and Per Share Data
The following schedule reconciles the numerators and denominators of
the basic and diluted EPS computations for the three and nine months
ended September 30, 1999 and 1998 (in thousands except for per share
data):
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Basic:
Average common shares outstanding 39,677 40,598 39,954 41,026
Net income $ 31,545 30,363 $ 117,383 89,623
Earnings per share $ .80 .75 $ 2.94 2.18
Diluted:
Average common shares outstanding 39,677 40,598 39,954 41,026
Dilutive effect of stock options 355 485 389 536
Total average common shares 40,032 41,083 40,343 41,562
Net income $ 31,545 30,363 $ 117,383 89,623
Earnings per share $ .79 .74 $ 2.91 2.16
(6) Contingencies
Certain legal claims have arisen in the normal course of business,
which, in the opinion of Management and counsel, will have no material
adverse effect on the financial position of the Corporation or its
subsidiaries.
(7) Subsequent Event
On October 1, 1999, the Corporation closed its merger with Stone
Street Bancorp, Inc. ("Stone Street"), headquartered in Mocksville,
North Carolina. Stone Street operated two branches and had $129
million in assets. In connection with the merger, the Corporation
cashed out approximately 18% of the existing Stone Street common stock
and issued approximately 646,000 shares and expects to repurchase
approximately the same number of shares in the open market during the
fourth quarter of 1999. The transaction will be accounted for as a
purchase.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The purpose of this discussion and analysis is to aid in the
understanding and evaluation of financial conditions 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"), American Federal Bank, FSB ("AmFed")
and Central Carolina Bank-Georgia ("CCB-Ga.") (collectively the
"Subsidiary Banks") for the nine months ended September 30, 1999 and
1998. 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"); Salem Trust
Company; CCBDE, Inc.; Southland Associates, Inc. and Corcoran
Holdings, Inc. and its subsidiary, Watts Properties, Inc. AmFed's
wholly-owned subsidiaries are also included in the consolidated
financial statements: American Service Corporation of S.C.; AMFEDDE,
Inc.; Mortgage North; Finance South, Inc. and McBee Holdings, Inc. and
its wholly-owned subsidiary, Greenville Participations, Inc. This
discussion and analysis is intended to complement the unaudited
financial statements and footnotes and the supplemental financial data
appearing elsewhere in this Form 10-Q, and should be read in
conjunction therewith.
This report contains certain forward-looking statements (as defined in
the Private Securities Litigation Reform Act of 1995) related to
anticipated future operating and financial performance, growth
opportunities and growth rates, Year 2000 compliance and other similar
forecasts and statements of expectations. Words such as "expects",
"plans", "estimates", "projects", "objectives" and "goals" and similar
expressions are intended to identify these forward-looking statements.
These forward-looking statements are based on estimates, beliefs and
assumptions made by Management and are not guarantees of future
performance.
Factors that may cause actual results to differ from those expressed
or implied include, but are not limited to, changes in political and
economic conditions, interest rate movements, competitive product and
pricing pressures within the Corporation's markets, success and timing
of business initiatives, technological change, and changes in legal,
regulatory and tax policies.
Readers should also consider information on risks and uncertainties
contained in the discussions of competition, interstate banking and
branching, and supervision and regulation in the Corporation's most
recent report on Form 10-K.
Results of Operations - Three Months Ended September 30, 1999 and 1998
Net income for the three months ended September 30, 1999 amounted to
$31.5 million compared to 1998's $30.4 million. Basic income per
share totaled $.80 in 1999 compared to $.75 in the third quarter of
1998. Returns on average assets and shareholders' equity in 1999 were
1.61% and 17.72%, respectively, compared to 1998's 1.65% and 18.03%.
Net Interest Income
Average Balance Sheets and Net Interest Income Analyses on a taxable
equivalent basis for each of the periods are included in Table 1.
Interest-earning assets increased by $422 million or 6.1% in the 1999
period. The overall yield on earning assets decreased 33 basis points
to 8.11% from 1998's 8.44% due to decreased loan and investment
yields. However, overall decreases in rates earned on assets were
offset by increases in volume; consequently, interest income increased
$2.8 million. The cost of interest-bearing funds decreased by 29
basis points in the 1999 period to 4.15% due primarily
Table 1
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis
Three Months Ended September 30, 1999 and 1998
(Taxable Equivalent Basis-In Thousands) (1)
1999
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans and lease financing (2) $ 5,547,737 120,459 8.63 %
U.S. Treasury and agency
obligations (3) 1,518,345 25,017 6.59
States and political
subdivision obligations 74,184 1,607 8.66
Equity and other securities (3) 46,376 922 7.95
Federal funds sold and other
short-term investments 152,485 1,986 5.17
Time deposits in other banks 57,142 756 5.25
Total earning assets (3) 7,396,269 150,747 8.11
Non-earning assets:
Cash and due from banks 204,001
Premises and equipment 97,122
All other assets, net 79,583
Total assets $ 7,776,975
Interest-bearing liabilities:
Savings and time deposits $ 5,652,583 58,157 4.08 %
Short-term borrowed funds 274,587 3,140 4.54
Long-term debt 171,466 2,444 5.66
Total interest-bearing
liabilities 6,098,636 63,741 4.15
Other liabilities and
shareholders' equity:
Demand deposits 843,932
Other liabilities 128,312
Shareholders' equity 706,095
Total liabilities and
shareholders' equity $ 7,776,975
Net interest income and
net interest margin (4) $ 87,006 4.69 %
Interest rate spread (5) 3.96 %
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis, continued
Three Months Ended September 30, 1999 and 1998
(Taxable Equivalent Basis-In Thousands) (1)
1998
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans and lease financing (2) $ 5,306,203 119,453 8.95 %
U.S. Treasury and agency
obligations (3) 1,180,592 20,785 7.03
States and political
subdivision obligations 80,449 1,764 8.76
Equity and other securities (3) 47,006 946 8.05
Federal funds sold and other
short-term investments 305,420 4,321 5.61
Time deposits in other banks 54,634 691 5.01
Total earning assets (3) 6,974,304 147,960 8.44
Non-earning assets:
Cash and due from banks 196,340
Premises and equipment 89,928
All other assets, net 55,651
Total assets $ 7,316,223
Interest-bearing liabilities:
Savings and time deposits $ 5,353,499 58,938 4.37 %
Short-term borrowed funds 240,564 2,952 4.87
Long-term debt 176,291 2,714 6.12
Total interest-bearing
liabilities 5,770,354 64,604 4.44
Other liabilities and
shareholders' equity:
Demand deposits 785,276
Other liabilities 92,349
Shareholders' equity 668,244
Total liabilities and
shareholders' equity $ 7,316,223
Net interest income and
net interest margin (4) 83,356 4.76 %
Interest rate spread (5) 4.00 %
(1) The taxable equivalent basis is computed using 35% federal and applicable
state tax rates in 1999 and 1998.
(2) The average loan and lease financing balances include non-accruing loans
and lease financing. Loan fees of $3,889,000 and $4,497,000 for 1999
and 1998, 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.
to the lower rates paid for savings and time deposits, 4.08% in 1999
versus 4.37% in 1998. Decreases in interest-bearing liabilities costs
due to lower interest rates paid offset increased volume to result in
a $863,000 decrease in interest costs. The interest rate spread and
net interest margin decreased 4 and 7 basis points to 3.96% and 4.69%,
respectively, compared with one year ago. Net interest income on a
taxable equivalent basis increased $3.7 million or 4.4% over 1998.
With the Federal Reserves' two 25 basis point increases in the federal
funds rate during 1999 and its current "upward bias" on interest
rates, the market will continue to watch for any inflationary pressure
that could result in additional interest rate increases. The U.S.
economy continues to grow at a robust pace with full employment, high
consumer confidence and spending, rising commodity prices and record
low consumer saving rates. Management anticipates continued upward
pressure on interest rates during the remainder of 1999.
Provision for Loan and Lease Losses
The provision for loan and lease losses for the third quarter of 1999
was $3.3 million compared to $4.8 million in 1998. The reserve for
loan and lease losses to loans and lease financing outstanding was
1.32% at September 30, 1999 compared to 1998's 1.33%. Annualized net
charge-offs as a percentage of average loans were .14% in 1999 and
.22% in 1998. Excluding revolving credit net charge-offs, the ratios
drop to .07% and .12%, respectively. Annualized revolving credit net
charge-offs during the third quarter of 1999 were 6.70% compared to
2.57% experienced in 1998. The Subsidiary Banks sold all non-
delinquent consumer credit card receivables in the second quarter of
1999. During the third quarter, the majority of the delinquent credit
card receivables were written-off which resulted in the higher net
charge-off ratio for revolving credit.
Noninterest Income and Expense
Other income, excluding investment securities transactions, increased
1.4% in the third quarter of 1999 to $28.5 million. The Subsidiary
Banks realized a $1.7 million increase in service charges on deposit
accounts from increased deposit volumes and higher revenues from
commercial services. Merchant discount increased $730,000 from 1998
due to increased volume of business and changes in the pricing
structure. These increases were offset by a decline in income from
secondary marketing and servicing of mortgage loans to $532,000 in the
third quarter of 1999, from $3.5 million in the third quarter of 1998.
This decline was primarily from a change in the mix of originations
and fewer originations and refinances in third quarter 1999's higher
interest rate environment.
Other expenses increased in the 1999 period by $1.6 million or 2.6%.
This is partially explained by a $2.9 million increase in personnel
expense from 1998's level due to general salary increases and a larger
workforce. Average assets per employee increased from $2.67 million
at September 30, 1998 to $2.76 million at September 30, 1999.
Occupancy and equipment increased $716,000 due to growth of the
Subsidiary Banks' operations and improvements in technology and
infrastructure. Other operating expenses decreased $1.9 million due
to declines in advertising expense and professional services.
As a result of the aforementioned changes, net overhead (noninterest
expense less noninterest income) as a percentage of average assets
decreased to 1.61% for the three months ended September 30, 1999 from
1.65% for the same period in 1998. The Corporation's efficiency ratio
(noninterest expense as a percentage of taxable equivalent net
interest income and other income) improved from 52.62% for the three
months ended September 30, 1998 to 52.31% for the same period in 1999.
The improvement in this ratio indicates that the Corporation's
revenues are increasing faster than its expenses.
The following schedule presents noninterest income and expense as a
percentage of average assets for the three months ended September 30,
1999 and 1998.
1999 1998
Noninterest income 1.46 % 1.55
Personnel expense 1.75 1.71
Occupancy and equipment expense .43 .43
Other operating expense .89 1.06
Noninterest expense 3.07 3.20
Net overhead 1.61 % 1.65
The effective income tax rate was 33.7% in 1999 compared to 34.0% in
the same period of 1998.
Results of Operations - Nine Months Ended September 30, 1999 and 1998
In the past several years, the credit card industry has experienced
rapid consolidation resulting in the evolution of large, specialized
credit card companies that are able to provide superior levels of
service and diverse product offerings. While the Subsidiary Banks'
credit card products have been very competitive in the marketplace,
they only comprised approximately 3% of the total loan and lease
portfolio and have not kept pace with the growth levels experienced in
the other segments of the portfolio. In addition, this segment of the
portfolio has historically experienced the highest levels of charge-
offs. Consequently, Management determined that it was prudent to sell
its consumer credit card receivables to MBNA effective June 30, 1999.
The sale freed up capital which can be redeployed in other growth
initiatives, will improve the Corporation's overall credit quality and
will allow Management to focus on businesses that will create more
value for customers and shareholders. Under an agent bank
arrangement, the Subsidiary Banks will continue to offer customers
credit card products, using the CCB name, through MBNA. CCB will
continue to offer business credit cards in its markets and has
retained its existing portfolio of business credit card receivables.
Net income for the nine months ended September 30, 1999 amounted to
$117.4 million which resulted in basic earnings per share of $2.94 in
1999 compared to 1998's $89.6 million or $2.18 basic earnings per
share. Included in net income is the previously discussed $19.9
million (after-tax) credit card gain. Excluding the credit card gain,
basic earnings per share were $2.44 which was a $.26 or 11.9% increase
over the 1998 nine-month period. Excluding the credit card gain,
returns on average assets and shareholders' equity in 1999 were 1.69%
and 18.73%, respectively, compared to 1.65% and 17.78%, respectively,
in the 1998 period.
Net Interest Income
Average Balance Sheets and Net Interest Income Analyses on a taxable
equivalent basis for each of the periods are included in Table 2.
Interest-earning assets increased by $446.9 million or 6.5% in the
1999 period. The overall yield on earning assets decreased to 8.12%
from 1998's 8.48% due to the lower interest rate environment
experienced during most of the first nine months of 1999. The cost of
interest-bearing funds decreased by 35 basis points in the 1999 period
to 4.12% from 4.47% in 1998. Despite the drop in the cost of funds,
the net interest margin decreased 6 basis points from 1998 and the
interest rate spread decreased 1 basis point to 4.00%. Net interest
income on a taxable equivalent basis increased by $12.7 million or
5.1%.
Table 2
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis
Nine Months Ended September 30, 1999 and 1998
(Taxable Equivalent Basis-In Thousands) (1)
1999
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans and lease financing (2) $ 5,498,089 358,117 8.70 %
U.S. Treasury and agency
obligations (3) 1,373,053 68,371 6.64
States and political
subdivision obligations 75,895 4,926 8.65
Equity and other securities (3) 46,656 2,772 7.92
Federal funds sold and other
short-term investments 318,359 11,719 4.92
Time deposits in other banks 43,283 1,661 5.13
Total earning assets (3) 7,355,335 447,566 8.12
Non-earning assets:
Cash and due from banks 209,469
Premises and equipment 95,303
All other assets, net 70,237
Total assets $ 7,730,344
Interest-bearing liabilities:
Savings and time deposits $ 5,628,440 170,662 4.05 %
Short-term borrowed funds 257,711 8,372 4.34
Long-term debt 200,833 8,893 5.92
Total interest-bearing
liabilities 6,086,984 187,927 4.12
Other liabilities and
shareholders' equity:
Demand deposits 839,826
Other liabilities 107,760
Shareholders' equity 695,774
Total liabilities and
shareholders' equity $ 7,730,344
Net interest income and net
interest margin (4) $ 259,639 4.71 %
Interest rate spread (5) 4.00 %
CCB FINANCIAL CORPORATION
Average Balances and Net Interest Income Analysis, continued
Nine Months Ended September 30, 1999 and 1998
(Taxable Equivalent Basis-In Thousands) (1)
1998
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning assets:
Loans and lease financing (2) $ 5,215,474 351,782 9.01 %
U.S. Treasury and agency
obligations (3) 1,244,164 65,656 7.03
States and political
subdivision obligations 80,831 5,327 8.78
Equity and other securities (3) 46,688 2,772 7.92
Federal funds sold and other
short-term investments 279,339 11,761 5.63
Time deposits in other banks 41,897 1,495 4.77
Total earning assets (3) 6,908,393 438,793 8.48
Non-earning assets:
Cash and due from banks 201,391
Premises and equipment 88,037
All other assets, net 62,329
Total assets $ 7,260,150
Interest-bearing liabilities:
Savings and time deposits $ 5,325,626 175,384 4.40 %
Short-term borrowed funds 246,574 9,022 4.89
Long-term debt 161,028 7,400 6.13
Total interest-bearing
liabilities 5,733,228 191,806 4.47
Other liabilities and
shareholders' equity:
Demand deposits 756,142
Other liabilities 96,842
Shareholders' equity 673,938
Total liabilities and
shareholders' equity $ 7,260,150
Net interest income and net
interest margin (4) $ 246,987 4.77 %
Interest rate spread (5) 4.01 %
(1) The taxable equivalent basis is computed using 35% federal and applicable
state tax rates in 1999 and 1998.
(2) The average loan and lease financing balances include non-accruing loans
and lease financing. Loan fees of $13,128,000 and $12,421,000 for
1999 and 1998, 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.
Provision for Loan and Lease Losses
The provision for loan and lease losses for the first nine months of
1999 was $10.8 million compared to $11.6 million in 1998. Annualized
net charge-offs as a percentage of average loans were .19% in 1999 and
.20% in 1998. Excluding revolving credit net charge-offs, the ratio
drops to .10% in both 1999 and 1998. Annualized revolving credit net
charge-offs during the first nine months of 1999 were 3.26% compared
to the 2.59% experienced in 1998. Credit card loans had a
significantly higher net charge-off rate than other loan types and it
is anticipated that total net charge-offs will decline in future
quarters.
Noninterest Income and Expense
Other income, excluding investment securities transactions, the
previously discussed credit card gain and a $1.1 million first quarter
1999 branch sale gain, increased $10.1 million or 12.4% in the first
nine months of 1999. The increase was due primarily to a $5.4 million
increase in service charges on deposit accounts from increased deposit
volume and pricing structure changes. Other increases over 1998's
levels included trust and custodian fees ($1.7 million) due to
increased volume of trust assets managed and merchant discount ($2.4
million) due to increased volume and pricing structure.
Other expenses increased in the 1999 period by $9.4 million or 5.4%.
This is partially explained by the increase in personnel expense which
increased $7.6 million from 1998's level. The increase was due to
general salary increases and a larger workforce with corresponding
increases in employee benefits and payroll taxes. Occupancy and
equipment increased $2.9 million due to growth of the Subsidiary
Banks' operations and improvements in technology and infrastructure.
As a result of the aforementioned changes, net overhead as a
percentage of average assets, excluding the impact of the credit card
gain, improved to 1.52% for the nine months ended September 30, 1999
from 1.63% for the same period in 1998. The Corporation's efficiency
ratio, excluding the impact of the credit card gain, improved from
52.12% for the nine months ended September 30, 1998 to 51.37% for the
same period in 1999. The improvement in both of these ratios
indicates that the Corporation's revenues are increasing faster than
its expenses.
The following schedule presents noninterest income and expense as a
percentage of average assets, excluding the credit card gain, for the
nine months ended September 30, 1999 and 1998.
1999 1998
Noninterest income 1.61 % 1.53
Personnel expense 1.76 1.73
Occupancy and equipment expense .43 .41
Other operating expense .94 1.02
Noninterest expense 3.13 3.16
Net overhead 1.52 % 1.63
The effective income tax rate was 35.2% in 1999 compared to 35.7%
in the same period of 1998.
Financial Condition
Total assets have increased $438.6 million or 5.9% since September 30,
1998 with the majority of the increase occurring in interest-earning
assets. Average assets have increased from $7.3 billion for the
quarter ended September 30, 1998 to $7.8 billion for the quarter ended
September 30, 1999 and compared to $7.5 billion for the three months
ended December 31, 1998.
In addition to recurring sales of mortgage production, during the
first quarter of 1999 the Corporation sold approximately $200 million
in seasoned mortgage loans into the secondary market. Adjusting for
the first quarter loan sale and the sale of credit card receivables in
the second quarter of 1999, average loans and leases grew 12% in the
third quarter of 1999 over the year-ago quarter. Average deposits
grew 5.8% to $6.5 billion during the third quarter of 1999 over the
comparable quarter in 1998.
At September 30, 1999, risk assets (consisting of nonaccrual loans and
lease financing, foreclosed real estate, restructured loans and lease
financing and accruing loans 90 days or more past due) amounted to $29
million or .51% of outstanding loans and lease financing and
foreclosed real estate. This compares to $21.8 million or .41% at
September 30, 1998. The reserve for loan and lease losses to risk assets
was 2.55x at September 30, 1999 compared to 3.03x at December 31, 1998 and
3.28x at September 30, 1998. The decrease in reserve coverage resulted from
an increase in nonperforming assets of $7 million in the third quarter of
1999 over the comparable quarter in 1998. The majority of this increase
resulted from two unrelated loans, both of which are secured by
commercial real estate. Management expects to receive all principal
and the majority of interest payments on both loans over a reasonable
period of time.
The Corporation's capital position has historically been strong as
evidenced by the Corporation's ratio of average shareholders' equity
to average total assets of 9.00% and 9.28% for the nine months ended
September 30, 1999 and 1998, respectively. Under a previously
announced stock repurchase plan, the Corporation has repurchased and
retired 830,319 shares of its common stock during 1999 and 1,391,300
shares during the year ended December 31, 1998. The average cost of
the shares repurchased was $53.39 and $55.06 per share for 1999 and
1998, respectively. Approximately 656,000 shares remain to be
repurchased under the current authorized plan. Book value per share
increased from $16.91 at September 30, 1998 to $17.96 at September 30,
1999, a 6.2% increase.
Due to generally higher interest rates in 1999, unrealized gains on
investment securities available for sale, net of applicable taxes,
decreased $17.5 million from December 31, 1998. The available for
sale portfolio is comprised of U.S. Government and Agency securities
and mortgage-backed securities. As of September 30, 1999, unrealized
losses on investment securities available for sale, net of applicable
taxes, totaled $4.1 million compared to September 30, 1998's $18.8
million net unrealized gains.
On October 19, 1999, the Board of Directors of the Corporation
declared a quarterly cash dividend on common stock of $.29 per share
payable January 3, 2000 to shareholders of record as of December 15,
1999. The Corporation has increased its annual cash dividend for 35
consecutive years.
Bank holding companies are required to comply with the Federal Reserve
Board's risk-based capital guidelines that 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 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 at September
30, 1999 as indicated below. CCB-Ga.'s capital ratios are
significantly higher at September 30, 1999 due to the sale of the
majority of its assets (credit card receivables) without returning
excess capital to the Parent Company. It is anticipated that CCB-Ga.
will be dissolved during the fourth quarter of 1999.
September 30, Regulatory
Ratio 1999 1998 Minimums
Tier 1 Capital 4.00%
Corporation 11.76% 11.45
CCB 11.25 10.82
AmFed 14.03 14.86
CCB-Ga. 169.70 18.11
Total Capital 8.00
Corporation 13.46 13.30
CCB 12.42 12.01
AmFed 15.31 16.17
CCB-Ga. 171.13 19.40
Leverage 4.00
Corporation 8.91 8.74
CCB 8.72 8.27
AmFed 9.27 10.43
CCB-Ga. 56.17 13.51
Year 2000 Issue
The Corporation has completed its project to assess and correct the
impact of the "Year 2000 Issue" and is now operating under Clean
Management procedures to ensure Year 2000 compliant systems remain
compliant. The Year 2000 Issue resulted from many computer programs
having been written using two digit dates rather than four to define
the applicable year. Historically, the first two digits were
eliminated to save memory. Since in such systems there is no
accommodation for the full four-digit year, a serious problem may
occur when "00" is used to identify the Year 2000. For these systems,
it is not only impossible to distinguish 2000 from 1900 but it also
becomes difficult to calculate the passage of time between preceding
or succeeding years and the Year 2000. This error could result in
system failure or miscalculations causing disruption of operations,
including, among other things, an inability to process customer
transactions, properly accrue interest income and expense or engage in
normal business activities. In addition, non-information technology
("non-IT") systems such as security alarms, elevators, telephones,
etc. may be subject to a Year 2000 malfunction due to their dependence
upon computer technology for proper operation. As described, the Year
2000 Issue presents a number of challenges to financial institutions'
management; correction of Year 2000 Issues has been and will continue
to be costly and complex for the entire industry.
The Corporation began discussing the Year 2000 Issue more than two
years ago and adopted a Year 2000 Strategic Project Plan to address
the issue. The Corporation's Year 2000 plan follows guidelines
outlined by the Federal Financial Institutions Examination Council
("FFIEC"). The FFIEC requires all financial institutions to develop
plans with five critical phases: awareness, assessment, renovation,
validation and implementation.
- - The awareness phase defined the Year 2000 Issue and the potential
challenges associated with the date change.
- - The assessment phase consisted of an evaluation of the size and
complexity of ensuring that the Corporation will be ready for the Year
2000. During the assessment phase, the Corporation determined that it
would be required to modify a significant portion of its software and
replace certain software and hardware so that its computer systems
will properly utilize dates beyond December 31, 1999.
- - During the renovation phase, system upgrades were implemented and
applicable hardware was replaced. The renovation of all major
software applications was completed in early September 1998. A new
Year 2000-ready mainframe computer was put into production during mid-
January 1999.
- - The validation phase involved testing all computer systems. Even
if software had been tested by the vendor and certified Year 2000-
ready, the Corporation's Year 2000 project team re-tested and
validated all software to ensure compatibility with the Corporation's
information systems environment. Testing of mission critical systems
was completed in March 1999. This consisted of performing tests on
the mainframe hardware, operating system, and application software; PC
and server hardware and software; data and telecommunications systems;
and non-IT systems. All non-mission critical system testing and
replacement of non-mission critical personal computers was completed
by June 1999. Further testing of hardware and software acquired or
modified since initial testing was completed will be done in the
remainder of 1999 as part of Clean Management.
- - Finally, the implementation phase involved incorporating Year
2000-ready systems into the day-to-day operations of the Corporation.
This phase was completed by June 1999. During the fourth quarter of
1999, the Year 2000 project team will continue to monitor Year 2000-
ready tested systems and ensure Year 2000-readiness is maintained.
From October 1999 through January 2000, only critical or regulatory
required programming changes will be allowed by Management. These
changes will be tested for Year 2000 compliance before being put into
production in accordance with Clean Management policies.
In addition to ensuring the proper operation of its systems, the
Corporation is also monitoring the remediation efforts of third-party
entities whose own Year 2000 disruptions would impact the
Corporation's operations. The costs to assess the impact of third
parties' remediation efforts are included in the Corporation's total
Year 2000 project costs and estimates. The project team identified
the vendors whose operations were deemed mission critical to the
Corporation's operations and contacted those vendors regarding their
progress in correcting their Year 2000 Issues. In addition, the
project team initiated communication with the Corporation's major
customers to determine the extent of their Year 2000 preparedness. As
most corporate customers depend on computer systems for normal
operations, a disruption in their business could result in potentially
significant financial difficulties. In the loan and deposit areas,
major customers of $1 million or more were identified and evaluated
for risk to the Corporation. Also, the project team reviewed certain
issuers of debt securities held in the investment securities portfolio
as well as federal funds counter-parties. In the Trust area, the
project team reviewed certain issuers of debt and equity securities
held as managed investment assets. Finally, financial institutions
such as the Subsidiary Banks exchange large volumes of date-sensitive
data electronically between other financial institutions, clearing
houses, customers and regulatory agencies. Testing and due diligence
of mission critical third-party entities was completed in March 1999
and testing and due diligence of non-mission critical third parties
was completed in June 1999. Based on these reviews of critical
vendors, major customers and other major counter-parties, at present
Management feels that there is not an inordinate amount of risk that
would require the establishment of any special reserves for the Year
2000 Issue. However, there can be no guarantee that the systems of
other companies on which the Corporation's systems rely will be timely
converted, or that a failure to convert by another company, or a
conversion that is incompatible with the Corporation's systems, will
not have an adverse effect on the Corporation's financial condition
and results of operations.
The Corporation has a contingency plan that outlines emergency
response procedures that meet regulatory guidelines. The goal of the
contingency plan is to facilitate the resumption of business in the
event there is a disruption of critical systems necessary to operate.
Contingency plans include alternative power sources, off-site
processing, etc. The FFIEC's contingency planning guidelines required
the completion of organizational planning guidelines and business
impact analysis by March 31, 1999. The Corporation completed its
organizational planning guidelines and business impact analysis in
October 1998. FFIEC guidelines further required that the development
and validation of the business resumption contingency plans be
completed by June 30, 1999. The Corporation's contingency plans
include consideration of the most reasonably likely worst-case
scenario. Development and validation of the contingency plans and
independent review and verification of the contingency plans by the
Corporation's internal auditors were completed in February 1999. The
last contingency planning requirement, developing detailed Year 2000
rollover event plans, was completed during the second quarter of 1999.
While the Corporation's project team was monitoring the progress of
the Year 2000 plan, consulting firms were also being used to keep
track of the readiness program. A Year 2000 independent consulting
services group was overseeing the Year 2000 Project Management Office
on an on-going basis. In addition, the Corporation retained the
services of another independent consulting firm to review its Year
2000 readiness plans. As the Corporation and its Subsidiary Banks are
regulated by federal and state banking regulatory agencies, they are
required to comply with those agencies' Year 2000 modification
schedules. Federal regulatory agencies periodically reviewed the
Corporation's Year 2000 conversion efforts and the Corporation met all
Year 2000 deadlines set by the regulators.
The total cost of the Year 2000 project is currently estimated at $5.6
million, of which $2.3 million is attributable to the purchase of
capitalizable software and hardware. Since the second quarter of 1999,
estimated costs for the Year 2000 project have increased by $300,000.
The majority of the increase was due to additional marketing materials
for customer awareness. During the first nine months of 1999, the
Corporation incurred $886,000 of non-capitalizable expense
attributable to the Year 2000 project. Total non-capitalizable
expense during 1998 was $2.2 million and total non-capitalizable
expense incurred prior to 1998 was less than $75,000. The remainder of
the cost will be expensed as incurred through 1999 and is not expected
to have a material effect on the Corporation's results of operations.
The costs of the Year 2000 project are based on Management's best
estimates, which were derived utilizing numerous assumptions of future
events including the continued availability of certain resources,
third-party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved at the cost
disclosed.
Management presently believes that with its modifications to existing
software and conversions to new software and hardware and the
successful completion of third-party remediation efforts, the Year
2000 Issue will be mitigated. However, despite the Corporation's best
efforts, disruptions in operations could occur and could have a
material adverse impact on the Corporation's financial condition and
results of operations.
Stone Street Bancorp Acquisition
On October 1, 1999, the Corporation closed its merger with Stone
Street, headquartered in Mocksville, North Carolina. Stone Street
operated two branches and had $129 million in assets. In connection
with the merger, the Corporation cashed out approximately 18% of the
existing Stone Street common stock and issued approximately 646,000
shares and expects to repurchase approximately the same number of
shares in the open market during the fourth quarter of 1999. The
transaction will be accounted for as a purchase.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk reflects the risk of economic loss resulting from adverse
changes in market price and interest rates. This risk of loss can be
reflected in diminished current market values and/or reduced potential
net interest income in future periods.
The Corporation's market risk arises primarily from interest rate risk
inherent in its lending and deposit-taking activities. The structure
of the Corporation's loan and deposit portfolios is such that a
significant increase or decline in interest rates may adversely impact
net market values and net interest income. The Corporation does not
maintain a trading account nor is the Corporation subject to currency
exchange risk or commodity price risk. Responsibility for monitoring
interest rate risk rests with the Asset/Liability Management Committee
("ALCO") which is comprised of senior management. ALCO regularly
reviews the Corporation's interest rate risk position and adopts
balance sheet strategies that are intended to optimize net interest
income while maintaining market risk within a set of Board-approved
guidelines.
As of September 30, 1999, Management believes that there have been no
significant changes in market risk as disclosed in the Corporation's
Annual Report on Form 10-K for the year ended December 31, 1998.
Management believes that it is accomplishing its objective to avoid
material negative changes in net income resulting from changes in
interest rates.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
Exhibit 27 Financial Data Schedule as of September 30, 1999.
(b). Reports on Form 8-K
No reports on Form 8-K were filed in the third quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CCB FINANCIAL CORPORATION
Registrant
Date: November 12, 1999 /s/ ERNEST C. ROESSLER
Ernest C. Roessler
Chairman, President and
Chief Executive Officer
Date: November 12, 1999 /s/ SHELDON M. FOX
Sheldon M. Fox
Executive Vice President and
Chief Financial Officer
Date: November 12, 1999 /s/ W. HAROLD PARKER, JR.
W. Harold Parker, Jr.
Senior Vice President and
Controller
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000714612
<NAME> CCB FINANCIAL CORPORATION
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0
0
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</TABLE>
