UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the quarterly period ended June 30, 1997
or
[ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the transition period from __________ to ________
Commission File Number: 1-10646
CENTURA BANKS, INC.
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(Exact name of registrant as specified in its charter)
North Carolina 56-1688522
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(State of Incorporation) (IRS Employer Identification No.)
134 North Church Street, Rocky Mount, North Carolina 27804
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(Address of principal executive office) (Zip Code)
(919) 977-4400
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark has filed all documents and reports required to be filed
by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON STOCK, NO PAR VALUE 25,827,978
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(Class of Stock) (Shares outstanding as of July 31, 1997)
<PAGE>
CENTURA BANKS, INC.
FORM 10-Q
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -
June 30, 1997 and 1996, and December 31, 1996 4
Consolidated Statements of Income -
Three months and six months ended June 30, 1997 and 1996 5
Consolidated Statement of Shareholders' Equity -
Six months ended June 30, 1997 6
Consolidated Statements of Cash Flows -
Six months ended June 30, 1997 and 1996 7
Notes to Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-22
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 23
Item 3. Defaults upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Securities Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
<PAGE>
CENTURA BANKS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statement of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS
CENTURA BANKS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
June 30, December 31,
------------------------------------------
(In thousands, except share data) 1997 1996 1996
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<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 243,199 $ 219,946 $ 283,224
Due from banks, interest-bearing 12,188 13,684 11,254
Investment securities:
Available for sale (cost of $1,564,869, $1,094,276,
and $1,317,449, respectively) 1,570,572 1,077,998 1,320,074
Held to maturity (market value of $236,269,
$259,216 and $258,052, respectively) 235,523 261,486 257,806
Federal funds sold 30,017 25,470 21,413
Loans 4,243,868 4,033,351 4,109,454
Less allowance for loan losses 59,206 58,011 58,715
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Net loans 4,184,662 3,975,340 4,050,739
Bank premises and equipment 111,631 107,183 112,198
Other assets 281,236 247,579 237,264
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Total assets $ 6,669,028 $ 5,928,686 $ 6,293,972
============================================================================================================
LIABILITIES
Deposits:
Demand, noninterest-bearing $ 764,390 $ 665,248 $ 721,029
Interest-bearing 3,696,151 3,382,599 3,665,587
Time deposits over $100 360,495 386,356 346,453
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Total deposits 4,821,036 4,434,203 4,733,069
Borrowed funds 863,998 655,334 685,291
Long-term debt 396,702 323,257 310,802
Other liabilities 85,243 81,182 89,575
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Total liabilities 6,166,979 5,493,976 5,818,737
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 25,000,000 shares
authorized; none issued - - -
Common stock, no par value
50,000,000 shares authorized; shares issued
and outstanding of 25,804,633, 25,170,978
and 25,668,524, respectively 188,602 173,294 187,563
Common stock acquired by ESOP (323) (467) (395)
Unrealized securities gains (losses), net 3,609 (10,043) 1,568
Retained earnings 310,161 271,926 286,499
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Total shareholders' equity 502,049 434,710 475,235
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Total liabilities and shareholders' equity $ 6,669,028 $ 5,928,686 $ 6,293,972
============================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
CENTURA BANKS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
(Dollars in thousands, except share and per share data) 1997 1996 1997 1996
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<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 99,001 $ 92,488 $ 194,227 $ 183,280
Investment securities:
Taxable 26,273 20,801 49,788 42,096
Tax-exempt 622 678 1,279 1,489
Short-term investments 370 399 815 805
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Total interest income 126,266 114,366 246,109 227,670
INTEREST EXPENSE
Deposits 44,630 39,742 87,815 81,853
Borrowed funds 10,691 8,293 18,674 15,325
Long-term debt 5,479 5,153 10,269 10,286
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Total interest expense 60,800 53,188 116,758 107,464
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NET INTEREST INCOME 65,466 61,178 129,351 120,206
Provision for loan losses 3,189 2,385 6,083 4,450
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Net interest income after provision for loan losses 62,277 58,793 123,268 115,756
NONINTEREST INCOME
Service charges on deposit accounts 9,632 8,697 18,844 16,739
Credit card and related fees 1,476 1,043 2,770 2,109
Other service charges, commissions and fees 5,399 4,270 10,342 7,816
Fees for trust services 1,950 1,645 3,900 3,291
Mortgage income 2,794 2,824 5,467 6,187
Other noninterest income 5,977 4,678 11,984 10,991
Securities gains (losses), net (32) 676 (126) 1,279
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Total noninterest income 27,196 23,833 53,181 48,412
NONINTEREST EXPENSE
Personnel 27,156 26,764 54,913 53,228
Occupancy 3,443 3,095 6,781 6,188
Equipment 5,300 4,880 10,465 9,288
Foreclosed real estate losses and related
operating expense 398 171 722 309
Other operating 22,699 20,176 45,147 39,535
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Total noninterest expense 58,996 55,086 118,028 108,548
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Income before income taxes 30,477 27,540 58,421 55,620
Income taxes 10,497 10,281 20,567 20,720
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NET INCOME $ 19,980 $ 17,259 $ 37,854 $ 34,900
===========================================================================================================================
NET INCOME PER COMMON SHARE
Primary $ 0.76 $ 0.67 $ 1.44 $ 1.34
Fully diluted 0.76 0.67 1.44 1.34
===========================================================================================================================
AVERAGE COMMON SHARES OUTSTANDING
Primary 26,295,247 25,834,383 26,291,582 26,009,085
Fully diluted 26,312,682 25,840,273 26,302,392 26,014,975
===========================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Centura Banks, Inc. and Subsidiaries
Six months ended June 30, 1997
<TABLE>
<CAPTION>
Common Unrealized
Common Stock Stock Securities Total
------------------------------- Acquired Gains Retained Shareholders'
Shares Amount by ESOP Net Earnings Equity
--------------- ------------- ----------- ------------ ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 25,668,524 $ 187,563 $ (395) $ 1,568 $ 286,499 $ 475,235
Net income - - - - 37,854 37,854
Common stock issued under stock option
plans and for stock awards 136,109 2,508 - - - 2,508
Unrealized securities gains, net - - - 2,041 - 2,041
Other - (1,469) 72 - (253) (1,650)
Cash dividends declared - - - - (13,939) (13,939)
--------------- ------------- ----------- ------------ ------------- -------------
Balance, June 30, 1997 25,804,633 $ 188,602 $ (323) $ 3,609 $ 310,161 $ 502,049
--------------- ------------- ----------- ------------ ------------- -------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Centura Banks, Inc. and Subsidiaries
<TABLE>
<CAPTION>
For the Six Months Ended
June 30
(Dollars in thousands) 1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 37,854 $ 34,900
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 6,083 4,450
Depreciation and amortization 15,814 14,625
Decrease (increase) in deferred income taxes 3,447 (4,418)
Loan fees deferred, net 40 216
Bond premium amortization and discount accretion, net 1,258 1,586
(Gain) loss on sales of investment securities 126 (1,279)
Gain on sales of equipment under lease (2,176) (1,788)
Proceeds from sales of mortgage loans held for sale 180,003 226,207
Originations, net of principal repayments, of mortgage loans held for sale (178,230) (243,892)
Decrease in accrued interest receivable (4,333) (1,463)
Decrease in accrued interest payable (1,330) (4,202)
Net increase in other assets and other liabilities (6,527) (58,618)
------------ -----------
Net cash provided (used) by operating activities 52,029 (33,676)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (144,455) (243,091)
Purchases of:
Securities available for sale (529,660) (350,532)
Securities held to maturity (44,738) (36,667)
Premises and equipment (6,853) (8,565)
Other assets (50,000) -
Proceeds from:
Sales of securities available for sale 201,631 288,627
Maturities and issuer calls of securities available for sale 80,495 98,018
Maturities and issuer calls of securities held to maturity 65,751 95,148
Sales of foreclosed real estate 2,259 1,392
Dispositions of premises and equipment 669 1,033
Disposition of equipment used in leasing activities 3,018 4,493
Net (increase) decrease in federal funds sold (8,604) 8,088
------------ -----------
Net cash used by investing activities (430,487) (142,056)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 87,967 (9,588)
Net increase in short-term borrowings 178,707 157,617
Proceeds from issuance of long-term debt 119,312 73,105
Repayment of long-term debt (33,412) (56,434)
Cash dividends paid (13,393) (11,786)
Proceeds from issuance of common stock, net 1,655 2,244
Redemption of common stock - (28,455)
Other (1,469) -
------------ -----------
Net cash provided by financing activities 339,367 126,703
------------ -----------
Decrease in cash and cash equivalents (39,091) (49,029)
Cash and cash equivalents at January 1 294,478 282,659
------------ -----------
Cash and cash equivalents at June 30 $ 255,387 $ 233,630
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the six
months for:
Interest $ 118,088 $ 111,536
Income taxes 16,049 21,904
Noncash transactions:
Net equity adjustment of merged entity - 818
Loans securitized into mortgage-backed securities - 122,982
Unrealized securities gains (losses) 3,078 (17,222)
Dividends declared, but not yet paid 6,961 -
Other 1,034 213
Loans transferred to foreclosed property 2,636 1,154
============ ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Centura Banks, Inc. and Subsidiaries
Note 1: Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Centura Banks, Inc. ("Centura") and its wholly-owned subsidiaries Centura Bank
(the "Bank") and Centura Capital Trust I. The Bank also has various wholly-owned
subsidiaries. All significant intercompany transactions are eliminated in
consolidation and all adjustments considered necessary for a fair presentation
of the results for the interim periods presented have been included (such
adjustments are normal and recurring in nature). Operating results for the three
and six month periods ended June 30, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997.
Note 2: Mergers and Acquisitions
<TABLE>
<CAPTION>
Acquisition activity for 1996 and the pending activity for 1997 is summarized
below. Data for the completed transactions is as of the date of acquisition.
Institution Acquisition Offices Assets Loans Deposits Shares
Date Issued
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Completed Acquisitions
CLG, Inc. ("CLG") (1) 11/1/96 $ 126 $ 85 $ --- 1,661,970
FirstSouth Bank ("FirstSouth") (1) 10/25/96 4 170 132 150 1,075,559
First Community Bank ("First Community") (2) 8/16/96 4 121 83 99 776,441
Deposit assumption from Essex Savings Bank, FSB 7/26/96 ---- 71 ---- 71 ---
("Essex") (2)
First Commercial Holding Corporation ("FCHC") (1) 2/27/96 8 172 120 140 1,607,564
Pending Acquisitions
Deposit assumption from Branch Banking and Trust 13 312 200 311 NA
Company and United Carolina Bank (2)
Deposit assumption from Nations Bank, N.A. (2) 5 93 55 92 NA
(1) Acquisition accounted for as a pooling-of-interests
(2) Acquisition accounted for as a purchase
</TABLE>
Based in Raleigh, North Carolina, CLG specializes in leasing computer equipment
to companies throughout the United States through offices in Charlotte and
Wilmington, North Carolina, Columbus, Georgia, and Dallas, Texas. CLG operates
as a wholly-owned subsidiary of Centura Bank.
FirstSouth was headquartered in Burlington, North Carolina. This merger was
consummated through the issuance of 0.55 shares of Centura common stock for each
of the outstanding shares of FirstSouth.
First Community was headquartered in Gastonia, North Carolina. First Community
shareholders received 0.96 shares of Centura common stock for each share of
First Community outstanding stock. The purchase price for First Community
exceeded the fair value of net assets acquired by approximately $16 million
which amount was recorded as goodwill. Under a stock repurchase plan approved by
Centura's board of director's, Centura repurchased 100% of the shares issued
relative to the First Community transaction.
First Commercial with headquarters in Asheville, North Carolina was consummated
under an exchange ratio of 0.63.
Centura consummated the assumption of deposit liabilities and the acquisition of
certain deposit-related loans of the Wilmington, Raleigh, and Greensboro
locations of Essex. Centura Bank did not purchase the physical branch offices of
Essex, but consolidated the deposits into existing banking facilities.
On October 1, 1996, Centura completed the cash transaction to purchase 49
percent of First Greensboro Home Equity, Inc. ("First Greensboro"). First
Greensboro, headquartered in Greensboro, North Carolina, is a mortgage and
finance company, operating over 30 offices in 10 states, specializing in
alternative equity lending for homeowners whose borrowing needs are generally
not met by traditional financial institutions. First Greensboro's other
investors retained the controlling interest of the company. Centura recorded
this investment as an other asset and recognizes 49 percent of the net income of
First Greensboro into the earnings stream as required under the equity method of
accounting for investments. The excess of the purchase price over the fair
market value of the net assets acquired is amortized over 20 years as a charge
against earnings of future periods.
For the mergers accounted for under the pooling-of-interests method, all
financial data previously reported prior to date of acquisition has been
restated as though the entities had been combined for all periods presented. CLG
was on a January 31 fiscal year and accordingly the results of operations of CLG
for the one-month period ended January 31, 1996 are included in the consolidated
statement of income for the six months ended June 30, 1996. Total income,
noninterest expenses, and net income of CLG for the month of January 1996 were
$3,703,000, $2,336,000, and $818,000, respectively.
On May 21, 1997, Centura announced that Centura Bank executed an agreement to
purchase 13 banking facilities from United Carolina Bank and Branch Banking and
Trust Company. The banking facilities bring to Centura approximately $311
million of deposits and approximately $200 million of loans. Located primarily
in the eastern and southeastern regions of North Carolina, the locations
complement markets already served by Centura and provide strength to Centura's
market presence in those regions. The 13 offices are located in 10 communities
with two offices in Clinton, Wadesboro and Whiteville and single facilities in
Goldsboro, Rockingham, Chadbourn, Faison, Raeford, Kenansville, and Williamston.
The transaction is expected to close in August 1997.
On July 15, 1997, Centura announced that Centura Bank had entered into an
agreement to purchase five banking facilities from NationsBank, N.A. The offices
are located in the towns of Calabash, Dunn, Harmony, Richlands, and Hertford,
all in North Carolina. Centura expects to add approximately $55 million in loans
and $92 million in deposits. The transaction is anticipated to close in November
1997.
Note 3: Reclassifications
Certain items in the June 30, 1996 consolidated financial statements have been
reclassified to conform with the June 30, 1997 presentation. Such
reclassifications had no impact on net income or shareholders' equity.
<PAGE>
Note 4: Long-term debt
At June 30, 1997, long-term debt consisted of the following:
Federal Home Loan Bank advances $224,132
Obligations under capital leases 495
Notes payable secured by lease rentals 71,620
Capital Securities, Series A 100,000
Other 455
Total long-term debt $396,702
In June 1997, Centura Capital Trust I ("CCTI"), a wholly-owned subsidiary of
Centura, issued $100 million of 8.845% Capital Securities, Series A ("Capital
Securities") maturing June 2027. CCTI also issued $3.1 million of common
securities to Centura. CCTI invested the proceeds of $103.1 million, generated
from the Capital Securities and common securities issuances, in 8.845% Junior
Subordinated Deferrable Interest Debentures ("the junior debentures") issued by
Centura, which upon consolidation are eliminated. The junior debentures,
scheduled to mature in June 2027, are the primary assets of CCTI. Centura has
guaranteed the obligations of CCTI under the Capital Securities. For risk-based
capital calculations, the Capital Securities are included as a component of Tier
I capital.
Additional details regarding the other components of long-term debt are more
fully described in the Annual Report Form 10-K for the fiscal year ended
December 31, 1996.
Note 5: Adoption of Statements of Financial Accounting Standards ("SFAS")
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," ("SFAS No.
125") which provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities. Those standards
are based on the consistent application of a financial-components approach that
focuses on control. After a transfer of financial assets, an entity recognizes
the financial and servicing assets it controls and liabilities it has incurred
and derecognizes financial assets it no longer controls and liabilities that
have been extinguished. The statement provides the guidance for distinguishing
sales of financial assets from transfers that are secured borrowings. In
December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125, an amendment of FASB Statement No.
125". For repurchase agreements, dollar-rolls, securities lending and similar
transactions, SFAS No. 127 defers the effective date of SFAS No. 125 to
transfers occurring after December 31, 1997. Transfers that fall under the SFAS
No. 125 guidelines will be recorded as required by this statement.
In accordance with SFAS No. 125, Centura has combined previously recognized
mortgage servicing rights and mortgage excess servicing receivables as mortgage
servicing assets. Centura does not have mortgage excess servicing fees which
require interest-only strip classification.
Note 6: Off-Balance Sheet Derivative Financial Instruments
Off-balance sheet derivative financial instruments, such as interest rate swaps,
interest rate floor and cap arrangements, and interest rate futures and options
contracts, are available to Centura to assist in managing its exposure to
changes in interest rates. Centura has principally utilized interest rate swaps
and interest rate floor and cap arrangements. The fair values of these
off-balance sheet derivative financial instruments are based on dealer quotes
and third party financial models.
Interest rate swaps, floors and caps are accounted for on an accrual basis, and
the net interest differential, including premiums paid, if any, is recognized as
an adjustment to interest income or expense of the related designated asset or
liability. Changes in the fair values of the swaps, floors and caps are not
recorded in the consolidated statements of income because these agreements are
being treated as a synthetic alteration of the designated assets or liabilities.
Centura considers its interest rate swaps to be a synthetic alteration of an
asset or liability as long as (i) the swap is designated with a specific asset
or liability or finite pool of assets or liabilities; (ii) there is high
correlation, at inception and throughout the period of the synthetic alteration,
between changes in the interest income or expense generated by the swap and
changes in the interest income or expense generated by the designated asset or
liability; (iii) the notional amount of the swap is less than or equal to the
principal amount of the designated asset or liability or pools of assets or
liabilities; and (iv) the swap term is less than or equal to the remaining term
of the designated asset or liability or pools of assets or liabilities. The
criteria for consideration of a floor or cap as a synthetic alteration of an
asset or liability are generally the same as those for a swap arrangement.
If the swap, floor or cap arrangements are terminated before their maturity, the
net proceeds received or paid are deferred and amortized over the shorter of the
remaining contract life or the maturity of the designated asset or liability as
an adjustment to interest income or expense. If the designated asset or
liability is sold or matures, the swap agreement is marked to market and the
gain or loss is included with the gain or loss on the sale/maturity of the
designated asset or liability. Changes in the fair value of any undesignated
swaps, floors and caps would be included in other income in the consolidated
statement of income.
<PAGE>
CENTURA BANKS, INC.
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations For the Six Months Ended June 30, 1997
The following discussion and analysis is presented to assist in the
understanding and evaluation of the financial condition and results of
operations of Centura Banks, Inc. ("Centura"). Centura is a bank holding company
operating in North Carolina. Headquartered in Rocky Mount, North Carolina,
Centura has two subsidiaries: Centura Bank ("the Bank") and Centura Capital
Trust I ("CCTI"). Through the Bank and its subsidiaries, Centura seeks to not
only become the primary provider of financial services for each of its customers
but to also deliver the services through convenient channels as evidenced by
Centura Highway telephone banking center, supermarket locations, and home
banking through Quicken, QuickBooks, and Microsoft Money. Described in greater
detail in Note 4 of the notes to the consolidated financial statements for the
period ended June 30, 1997, CCTI is a Delaware business trust formed during the
quarter ended June 30, 1997, primarily for the issuance of $100 million of
Capital Securities, Series A ("Capital Securities").
Much of the financial discussion that follows refers to the impact of Centura's
merger and acquisition activity. See Note 2 of the notes to consolidated
financial statements for detail on the acquisitions. All the financial
institutions acquired were in North Carolina. The branch purchase transactions
expected to close during the last half of 1997 allow Centura to leverage upon
its existing market presence, as well as expand into adjacent and complimentary
markets. Centura will continue seeking to acquire healthy thrift and banking
institutions. As evidenced by the fourth quarter 1996 acquisition of CLG and
purchase of the 49 percent interest in First Greensboro, Centura will also
continue to evaluate the feasibility of investing in and acquiring
non-traditional banking services allowed under current regulatory guidelines.
SUMMARY
Centura recorded net earnings of $37.9 million for the six months ended June 30,
1997, an increase of $3.0 million or 8.5 percent from the same period in 1996.
Earnings per fully diluted share were $1.44 compared to $1.34 for the prior
period. Specific highlights for the six months of 1997 are as follows:
Return on assets was unchanged between the two periods at 1.21 percent.
Return on equity for the six-month period ending June 30, 1997 was 15.43
percent compared to the same period last year which generated a 15.86
percent return. The ratio of shareholders' equity to period-end assets was
7.53 percent, up from 7.33 percent at period end June 30, 1996.
Taxable equivalent net interest income increased approximately $9.9
million or 8.0 percent over the comparable prior period primarily due to
higher levels of average earning assets.
Average earning assets and average deposits for the six-month period of
1997 increased 8.7 percent and 7.8 percent, respectively, over the
comparable prior year period. The margin remained flat at 4.55 percent
between the two periods.
Noninterest income, before securities transactions, increased $6.2 million
to $53.3 million or 13.1 percent over the $47.1 million recorded for the
same period of 1996. Service charges on deposit accounts increased $2.1
million. Insurance and brokerage commissions accounted for $1.3 million of
the earnings improvement while an increase in ATM fees contributed to the
$1.2 million rise in other service charges.
Noninterest expense for the six months ended June 30, 1997, increased over
the comparable period in 1996 by 8.7 percent to $118.0 million.
Professional fees contributed $4.4 million to the increase, primarily for
consulting services to identify efficiencies and revenue enhancements and
outsourcing activities. Personnel expenses and equipment expense increased
$1.7 million and $1.2 million, respectively. The efficiency ratio of 63.38
percent increased 12 basis points over the 63.26 reported in the six-month
period of 1996.
Nonperforming assets of $27.7 million for June 30, 1997 increased $5.3
million from June 30, 1996, but represented only 0.42 percent and 0.38
percent of total assets, respectively.
The allowance for loan losses was $59.2 million, representing 1.40 percent
of total loans at June 30, 1997, compared to $58.0 million and 1.44 percent
at June 30, 1996. Charge-off activity generated $7.3 million of
charge-offs, up from the $3.5 million recorded for the first six months of
1996 while recoveries declined $287,000. The provision for loan losses was
$6.1 million for the six months ending June 30, 1997 versus $4.5 million
for the same period of 1996.
INTEREST-EARNING ASSETS
Average interest-earning assets for the six months ended June 30, 1997 had
increased to $5.8 billion, an increase of $465.3 million or 8.7 percent over the
average of $5.3 billion for the same period in 1996. Growth in the loan
portfolio has contributed $260.7 million of this increase while securities added
$209.5 million. At June 30, 1997, earning assets were $6.1 billion, representing
a $680.2 million or 12.6 percent increase over the level at June 30, 1996. For
additional information on interest-earning assets, refer to Table 3, "Net
Interest Income Analysis", and Table 8, "Net Interest Income and Volume/Rate
Analysis".
Loans
During the first six months of 1997, loans averaged $4.1 billion, an increase of
6.7 percent or $260.7 million over the comparable prior year period. Commercial
loans, the largest segment of the loan portfolio, increased $198.8 million, on
average, between the two periods. The continued integration of CLG, Inc.,
intense sales efforts, and a strong demand for leases in the markets served,
contributed to the $139.4 million increase in average leases over the prior year
period. Centura securitized $243 million of residential mortgages during the
latter part of the second quarter of 1996 which accounted for part of the $120.7
million decline in average residential mortgages for the six months ended June
30, 1997 as compared to the six months ended June 30, 1996. Slow loan growth in
early 1997, impacted the ratio of average loans to average earnings assets which
declined to 71.4 percent from 72.7 percent experienced in the first six months
of 1996.
Loans at June 30, 1997, were $4.2 billion, an increase of $210.5 million, or 5.2
percent, compared to $4.0 billion at June 30, 1996, and up $134.4 million over
loans at December 31, 1996. The loan growth between the periods has generally
been present in all loan categories excluding residential mortgages (due, in
part, to the timing of the securitizations in 1996). Table 1 summarizes total
loans outstanding and the mix of loans being held. The commercial portfolio
represented 50.4 percent and 50.0 percent at June 30, 1997 and 1996,
respectively. Of these commercial loans, over 90 percent are secured.
Credit is extended by the Bank almost exclusively to customers in its market
areas of North Carolina and Virginia. The Bank's loan policies discourage
engaging in foreign lending activities, having exposure in newly established
ventures such as high technology start-up companies or highly speculative real
estate development projects, and participating in highly leveraged transactions.
The loan portfolio is reviewed on an on-going basis to maintain diversification
by industry, minimizing substantial loan concentrations in any one industry.
Loans generated $194.4 million of taxable equivalent interest income for
year-to-date June 30, 1997 compared to $183.5 million for the same period last
year. Increased average loan volume accounted for $12.2 million of the increase
in the taxable equivalent interest income. A three basis point decline in the
average loan yield to 9.36 percent for the six months ended June 30, 1997
negatively impacted the taxable equivalent interest income by $1.3 million.
Approximately 80 percent of the commercial loan portfolio is variable rate,
affected by changes in the prime rate or other various indices.
Investment Securities
The investment portfolio at June 30, 1997 was $1.8 billion, up 34.8 percent from
the $1.3 billion at June 30, 1996, and represented 29.6 percent and 24.8 percent
of earning assets at June 30, 1997 and 1996, respectively. The investment of the
proceeds of the $100 million Capital Securities issuance in June 1997 (described
in greater detail in Note 4 of the notes to the consolidated financial
statements) into investment vehicles contributed to the shift in the period-end
earning-asset mix.
Investments averaged $1.6 billion for the six months ended June 30, 1997, up
14.7 percent from the $1.4 billion for the same period of 1996. Average
investments represented 28.1 percent and 26.6 percent of average earning assets
for the six months ended June 30, 1997 and 1996, respectively.
To preserve liquidity, Centura's investment portfolio consists primarily of
securities for which an active market exists. Accordingly, at June 30, 1997,
approximately 99 percent of the total investment portfolio consisted of
obligations of the US Government and its agencies or investment grade state,
county and municipal securities.
The classification of securities as held to maturity ("HTM") or as available for
sale ("AFS") is determined at the date of purchase. The HTM investments
represented 13.0 percent and 19.5 percent of total investments for June 30, 1997
and 1996, respectively. Centura intends and has the ability to hold such HTM
securities until maturity. At June 30, 1997, the fair value of the HTM portfolio
was $236.3 million, which was $746,000 more than its amortized cost.
Investment securities available for sale (the "AFS portfolio"), representing the
remainder of the investment portfolio, are reported at fair value and will be
used as a part of Centura's asset/liability management strategy and may be sold
in response to changes in interest rates, changes in prepayment risk, the need
to increase regulatory capital and other factors. At June 30, 1997, the recorded
fair value of the AFS portfolio of $1.6 billion was $5.7 million more than cost,
which difference has been recorded, net of tax, as an increase to shareholders'
equity. At June 30, 1996, the fair value of the AFS portfolio was $16.3 million
less than its amortized cost. Centura's liquidity position remains strong,
alternative funding sources are available, and cash flows are provided by
investment maturities in the AFS and HTM portfolios. This offers Centura
flexibility in its asset/liability management strategies and if necessary,
flexibility to invest and reinvest funds to increase the overall yield earned on
investments.
Net realized losses of $126,000 were generated during the first six months of
1997 from sales and issuer call activity, compared to net realized gains of $1.3
million during the comparable 1996 period.
Investment securities contributed $54.6 million in taxable equivalent interest
income for the period ending June 30, 1997, an increase of $8.3 million over the
$46.3 million earned in the comparable period of 1996. An 18 basis point
improvement in the investment yield accounted for $1.5 million of the increase
between the two periods while the average volume increase of $209.5 million
provided an additional $6.8 million of taxable equivalent interest income.
FUNDING SOURCES
Total funding sources averaged $5.7 billion for the first six months of 1997, a
$474.1 million or 9.0 percent increase from the average volume of $5.3 billion
in the comparable 1996 period. Funding sources include total deposits,
short-term borrowings and long-term debt. For additional information on funding
sources refer to Table 3, "Net Interest Income Analysis", and Table 8, "Net
Interest Income and Volume/Rate Analysis".
<PAGE>
Deposits
For the six-month period ending June 30, 1997, average total deposits increased
$340.2 million to $4.7 billion, or 7.8 percent over the comparable 1996 period.
Product restructuring for money market demand accounts spurred growth in this
type of deposit by over 90 percent. Money market demand accounts averaged $719.8
for the six months ended June 30, 1997 compared to $372.2 million for the same
period last year. The average volume of time deposits declined $68.4 million,
partially due to the shifting of funds into money market deposits. For
additional detail on the average deposit mix, see Table 2.
The deposit base at June 30, 1997 of $4.8 billion was up $386.8 million from the
$4.4 billion level held at June 30, 1996 and up slightly from the $4.7 billion
held at December 31, 1996.
Interest expense on deposits increased $6.0 million to $87.8 million for the six
months ending June 30, 1997 versus $81.9 million for the comparable period of
1996. The change in average volume of deposits was responsible for the increase
of $4.7 million in interest expense (predominantly due to money market
deposits), while the change in the rates paid for interest-bearing deposits
contributed $1.3 million to the increase.
Other Funding Sources
External funding sources as a percent of total funding liabilities held
relatively unchanged between the two six month periods at approximately 18
percent and 17 percent, respectively, for the six month periods ending June 30,
1997 and 1996. The use of both short-term and long-term debt has been in line
with asset/liability strategies. Consequently, short-term borrowed funds
averaged $729.7 million, compared to the $591.4 million average volume for the
period ending June 30, 1996. Interest expense on short-term borrowings increased
by a net $3.3 million, primarily due to higher volume. The average rate paid for
these funds declined 12 basis points to 5.09 percent. The average amount of
long-term debt, consisting predominantly of FHLB advances, declined $4.5 million
to $321.1 million for the first six months of 1997 compared to $325.6 million
for the comparable prior year six months. The issuance of the $100 million of
Capital Securities that occurred in June 1997 had more impact on period-end
debt. Long-term debt at June 30, 1997 was $396.7 million as compared with $310.8
million for December 31, 1996, representing an $85.9 million increase.
NET INTEREST INCOME AND NET INTEREST MARGIN
As detailed in Table 3, taxable equivalent net interest income for the six
months of 1997 increased by $9.9 million, or 8.0 percent, to $133.0 million,
from $123.2 million in the comparable period of 1996. Table 8 provides a
volume/rate analysis. The $465.3 million increase in average earning assets was
responsible for $10.8 million of the increase in taxable equivalent net interest
income while the rate environment's impact was a decrease of $890,000.
The yield on average earning assets for the two six-month periods was 8.59
percent while the average cost of funding was 4.63 percent for the period ended
June 30, 1997, down 2 basis points from the prior year period. The most dramatic
change in rates paid for funding was in money market accounts. The new money
market account introduced in late 1996 carried a rate that was more reflective
of market rates than the traditional Centura money market. Accordingly, the
average costs of the money market deposits increased 119 basis points. The net
interest margin was flat from period to period at 4.55 percent.
ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was $6.1 million for the six months ending June
30, 1997, up $1.6 million compared to $4.5 million for the same period last
year. Net charge-offs for the six months of 1997 and 1996 were $5.6 million and
$1.5 million, respectively, and $7.2 million for the year ended December 31,
1996. Net charge-offs as a percent of average loans, on an annualized basis were
0.27 percent, 0.08 percent and 0.18 percent for June 30, 1997 and 1996 and
December 31, 1996, respectively. Commercial loans, loans secured by real estate,
and leasing net charge-offs of $1.9 million, $954,000, and $914,000,
respectively, accounted for a majority of the $4.1 million net charge-off
increase. Net charge-off activity for 1996 and 1997 has moved in a manner more
consistent with the industry.
The allowance for loan losses was $59.2 million at June 30, 1997, representing
1.40 percent of loans outstanding, compared to $58.0 million, or 1.44 percent of
loans outstanding at June 30, 1996, and compared to $58.7 million or 1.43
percent of loans outstanding at December 31, 1996. Based on the current loan
portfolio and levels of current problem assets and potential problem loans,
management believes the allowance for loan losses to be adequate. For additional
information with respect to the activity in the allowance for loan losses, see
Table 4 entitled "Analysis of Allowance for Loan Losses".
Table 5, "Nonperforming Assets and Past Due Loans," discloses the components and
balances of nonperforming assets. Nonperforming assets increased to $27.7
million at June 30, 1997 or 0.42 percent of total assets at the end of the
period. Nonperforming assets were $22.5 million at June 30, 1996, or 0.38
percent of total assets. At December 31, 1996, nonperforming assets were $22.9
million or 0.36 percent of total assets. Nonaccruals for loans secured by real
estate and leases have increased from June 30, 1996 by $2.2 million and $1.8
million, respectively. Accruing loans past due ninety or more days were $9.1
million, $7.9 million and $8.9 million at June 30, 1997, June 30, 1996 and
December 31, 1996, respectively, which represented 0.21 percent, 0.20 percent
and 0.22 percent of outstanding loans, respectively. At June 30, 1997, the
allowance for loan losses was 2.47 times nonperforming loans, down from 2.95
times at June 30, 1996 and 3.06 times at December 31, 1996.
During 1997, Centura management has reviewed and continues to review existing
credit polices and has reinforced the commitment to credit quality. On an
absolute basis, nonperforming assets have increased corresponding to increased
loan growth. Management evaluates the loan portfolio by sector and credit
quality analysis. Management believes that an estimated $10 to $15 million of
additional nonperforming and past due loans and leases may exist which are
currently "performing" in accordance with their contractual terms. The impact of
ever-changing economic conditions and changes in interest rates and/or inflation
on the operations of Centura's customers is evaluated in the assessment of
overall portfolio credit quality.
NONINTEREST INCOME AND EXPENSE
Noninterest income ("NII") increased $4.8 million, or 9.9 percent, to $53.2
million for the six months ended June 30, 1997. Service charges on deposits
increased $2.1 million. The increase was driven principally by non-sufficient
funds ("NSF") charges due to rate increases in September 1996 and May 1997. The
continued emphasis on expanding financial services, primarily brokerage
activities, resulted in a $1.3 million increase in insurance and brokerage fees
compared to the same period last year. Other deposit fees increased $1.2 million
between the two periods primarily due to an increase in ATM fees assessed to
non-Centura customers using Centura ATMs. Mortgage income (composed of servicing
revenues, origination fees, servicing release premiums, and net gains or losses
on the sales of mortgage loans) for the six-month period of 1997 declined to
$5.5 million from $6.2 million for the comparable period in 1996. Centura's 49
percent investment in First Greensboro, which occurred in October 1996,
generated $1.0 million in other NII. Sales activity of investment securities
realized a net loss of $126,000, compared to $1.3 million in net gains realized
during the first six-months of 1996.
Noninterest expense ("NIE") increased 8.7 percent, or $9.5 million over the
prior year six months to $118.0 million. Personnel expenses, the largest
component of noninterest expense, contributed $1.7 million to this increase.
With full-time equivalents declining slightly between the periods, the increase
was principally in incentive expense due to favorable results relative to
performance criteria. The first six months of 1997 carried the lease expense and
the equipment depreciation associated with the eleven in-store locations opened
in the last six months of 1996 and the four opened the first half of 1997. Thus,
equipment and occupancy expenses increased $1.8 million. The reduction in the
rates of federal deposit insurance premiums that began in late 1996 was
responsible for a $1.2 million decline in other operating NIE. Professional fees
increased $4.4 million for the first six months of 1997, due in part, to the
outsourcing of Centura's proof operations in mid-1996 and services for computer
support and maintenance. Expenses for consulting services have also contributed
to the increase in professional fees as Centura strives to identify and
implement operating efficiencies and cost savings.
The efficiency ratio for the period ended June 30, 1997 was 63.38 percent, as
compared to the 63.26 percent recorded for the same period in 1996. Expense
growth and total revenue sources, defined as taxable equivalent net interest
income plus noninterest income, increased at 8.7 and 8.5 percent, respectively,
over the prior year six-months. During 1997, Centura has streamlined the branch
network and has begun to emphasize customer profitability and market data to
assist and re-focus front-line representatives to customer retention and
portfolio maintenance as well as new business generation. Resources continue to
be utilized to generate nontraditional income sources as evidenced by growth in
securities commission, insurance commissions and trust fees.
INCOME TAX EXPENSE
The amount of income tax expense for the six months of 1997 was $20.6 million
compared to $20.7 million in the prior period. The current effective tax rate is
35.20 percent, down from the 37.25 percent at June 30, 1996.
EQUITY AND CAPITAL RESOURCES
Shareholders' equity increased to $502.0 million at June 30, 1997, compared to
$434.7 million at June 30, 1996. The change in equity between the two periods
was influenced by earnings, payment of dividends and the timing of the stock
repurchases relative to the 1996 acquisitions. There have been no shares
repurchased for the six months ended June 30, 1997. Shareholder's equity at June
30, 1997 reflects a $1.5 million settlement related to a stock buyback
transaction that occurred in late 1996. Shareholder's equity also included
unrealized gains, net of tax, on securities available for sale of $3.6 million
at June 30, 1997 compared to a $10.0 million unrealized loss, net of tax, for
the comparable period last year. The ratio of shareholders' equity to period-end
assets was 7.53 percent, up from 7.33 percent at period end June 30, 1996.
Centura's common stock is traded on the New York Stock Exchange under the symbol
CBC. At June 30, 1997, Centura had 25,804,633 shares outstanding. Cash dividends
paid for the six months of 1997 were $13.4 million, or $0.52 per share, compared
to $11.8 million, or $0.50 per share, for the comparable period last year. Cash
dividends of $6.4 million for the first quarter 1997 were declared and accrued
during the fourth quarter of 1996. Third quarter 1997 dividends totaling $7.0
million were declared and accrued during the second quarter 1997.
Centura maintains higher regulatory capital ratios than the minimum required by
regulatory guidelines, which has positioned Centura to endure changes in the
economy while providing opportunities for growth, both internally and through
additional acquisitions. At June 30, 1997, Tier 1 capital was $530.6 million and
total capital was $555.7 million. At June 30, 1997, Centura had the requisite
capital levels to qualify as well-capitalized. Centura's capital ratios are
outlined in Table 6 entitled "Capital Ratios." The June 30, 1997 ratios reflect
the issuance of the trust securities (described in detail in the following
section) which qualify as Tier I capital under the risk-based capital
guidelines.
<PAGE>
LIQUIDITY AND INTEREST RATE RISK MANAGEMENT
Liquidity is the ability to raise funds through attracting new deposits,
borrowing funds, issuing new capital or selling assets. Liquidity is managed
through the selection of the asset mix and the maturity mix of liabilities. As
part of this process, funding needs and alternatives are continually evaluated.
Centura's liquidity is provided by its portfolio of investment securities,
interest income from investment securities, principal and interest payments on
loans, turnover of mortgage loans held for sale, core deposits generated through
the normal customer base or through acquisitions, brokered certificates of
deposit, the retention of earnings, and the borrowing of additional funds if the
need arises. Deposits and other funding sources are used to fund loans and
investments, meet deposit withdrawals and maintain reserve requirements.
The Bank has multiple funding sources that could be used to increase liquidity
and provide additional financial flexibility. These sources consist primarily of
established federal funds lines with major banks and the ability to borrow from
the Federal Home Loan Bank. Centura also has an unsecured line of credit of $60
million. There was $40 million outstanding under this line of credit at June 30,
1997; there was $52 million outstanding at June 30, 1996.
Long-term debt at June 30, 1997 included $100 million of fixed-rate, thirty-year
Capital Securities issued in June 1997 by Centura Capital Trust I ("CCTI"), a
consolidated subsidiary. CCTI issued $3.1 million of common securities to the
Holding Company of Centura. CCTI invested the proceeds of $103.1 million,
generated from the Capital Securities and common securities issuances, in
fixed-rate Junior Subordinated Deferrable Interest Debentures ("the junior
debentures") issued by Centura. The junior debentures, scheduled to mature in
June 2027, are the primary assets of CCTI. Centura has guaranteed the
obligations of CCTI under the Capital Securities. For risk-based capital
calculations, the Capital Securities are included as a component of Tier I
capital.
The investment and loan portfolios are the primary types of earning assets for
Centura. While the investment portfolio is structured with minimum credit
exposure to Centura, the loan portfolio is the primary asset subject to credit
risk. Credit risk is controlled and monitored through the use of lending
standards, thorough review of potential borrowers and on-going review of
performing loans.
Centura's Asset/Liability Management Committee's objective is to control
Centura's interest rate risk. The Committee monitors and adjusts Centura's
exposure to interest rates based on corporate policy and expected market
conditions and utilizes a computer simulation model to determine the effect on
Centura's net interest income and the effect on the market value of Centura's
equity under various interest rate assumptions. Traditional interest sensitivity
gap analyses indicate that Centura's net interest income would benefit from a
rising rate environment. However, gap and other traditional interest sensitivity
analyses do not adequately measure a corporation's exposure to changes in
interest rates as those analyses do not incorporate the interrelationships
between interest rates charged or paid, balance sheet trends, changes in
prepayments and management actions. The results of gap analysis are appropriate
only for a point in time and should not be projected into the future because
each of the factors listed above can affect Centura's actual earnings. Centura's
computer simulation model incorporates these factors and projects income over a
12-month horizon under a variety of higher and lower interest rate environments.
This analysis shows that as interest rates increase, Centura will experience an
increase in net interest income.
Using the market value of equity approach, a change in interest rates will have
very little effect on the market value of Centura's equity. Centura is operating
within the exposure guidelines approved by management, which prescribes that
changes in net interest income after tax should approximate changes in the cost
of capital and the market value of equity should not be materially affected by a
change in interest rates. Management of Centura believes that Centura is
currently positioned to react appropriately to changes in interest rates under
these guidelines.
Off-balance sheet derivative financial instruments, such as interest rate swaps,
interest rate floor and cap arrangements and interest rate futures and option
contracts ("swaps, floors, caps, futures and options," respectively), are
available to Centura to assist in managing interest rate risks. Centura has
principally used interest rate swaps. Swaps are used to reduce interest rate
risk with the objective of stabilizing net interest income over time. Floors are
used to protect certain designated variable rate financial instruments from the
downward effects of their repricing in the event of a decreasing rate
environment. Caps are used to protect certain designated financial instruments
from the negative repricing effects of an increasing rate environment. Options
provide the right, but not the obligation, to put or call securities back to
another third party at an agreed upon price under the specific terms of each
agreement. Table 7 entitled "Off-Balance Sheet Derivative Financial Instruments"
summarizes Centura's off-balance sheet derivative financial instruments at June
30, 1997.
Management is not aware of any events that are reasonably likely to have a
material effect on Centura's liquidity, capital resources or operations. In
addition, management is not aware of any regulatory recommendations which, if
implemented, would have a material effect on Centura.
SECOND QUARTER RESULTS
Net income for the second quarter of 1997 was $20.0 million or 15.8 percent over
the prior year quarter. Earnings per share of $0.76 represented a 9 cent
increase over the $0.67 for the second quarter of 1996. Return on average assets
improved 5 basis points to 1.24 percent while the return on average equity of
16.0 percent was up 16 basis points over the prior year quarter.
The net interest margin of 4.52 percent declined 6 basis points between the
quarters as did the interest rate spread of 3.93 percent. Interest income,
taxable equivalent, for the quarter ending June 30, 1997 was $128.3 million, up
$12.5 million or 10.8% over the second quarter of 1996. Growth in average
earning assets was responsible for $10.6 million of the increase while the rate
environment contributed $1.9 million. Average earning assets increased $542.0
million to $5.9 billion for the second quarter 1997, with average loans
increasing $233.8 million and average investments rising $315.6 million. The
average yield on earning assets rose 7 basis points to 8.62 percent with yields
generally increasing for all categories. Total interest expense of $60.8 million
for the three months ending June 30, 1997, increased $7.6 million or 14.3
percent over the prior year quarter. The rates paid for these funds also
increased to 4.69 percent from 4.56 percent experienced in the second quarter
1996. The $493.2 million average growth in interest-bearing funding sources was
responsible for $5.1 million of the interest expense increase while the rate
environment accounted for $2.5 million. Average deposits for the quarter ending
June 30, 1997 and 1996 were $4.7 billion and $4.3 billion, respectively.
Noninterest-bearing deposits were approximately 14 percent of average deposits
for each of the quarters. Short-term funding sources, consisting primarily of
federal funds purchased, master notes, and repurchase agreements increased
$168.8 million.
Net charge-offs for the second quarter of 1997 were $2.7 million, up $1.9
million from the prior year quarter and represented 0.26 percent of average
loans. Net charge-offs of $857,000 represented 0.09 percent of average loans for
the second quarter 1996. Gross charge-offs rose $1.5 million while recoveries
declined $397,000. Provision for loan losses increased $804,000 to $3.2 million.
Noninterest income ("NII") increased $3.4 million to $27.2 million. As expected,
the majority of the increase occurred in service charge on deposit accounts,
insurance and brokerage commissions, and other service charges and fees. Fees
for non-sufficient funds accounted for principally all of the $935,000 increase
in service charges. The surcharge related to ATM transactions was responsible
for most of the $505,000 change in other service charges and fees. Credit card
activities and insurance and brokerage commissions increased $433,000 and
$624,000, respectively over the second quarter of 1996. Other NII increased $2.0
million principally from earnings related to Centura's 49 percent investment in
First Greensboro (consummated October 1, 1996). Rent associated with operating
lease activities declined $663,000 from the second quarter 1996. Securities
sales generated $32,000 of net losses during the second quarter 1997 while net
gains of $676,000 were recorded during the prior year quarter.
The efficiency ratio improved by 139 basis points between the quarters to 62.32
percent. Noninterest expenses ("NIE") for the quarter ending June 30, 1997 were
$59.0 million, up 7.1 percent from the $55.1 million recorded for the quarter
ending June 30, 1996. Increase in incentive expense was primarily responsible
for the $392,000 increase in personnel expenses. Timing of expenditures for
consulting services and the charges related to outsourcing the proof operations
accounted for the $2.6 million increase in professional fees. Marketing
expenses for the second quarter of 1997 were $698,000 more than the $1.4 million
recorded for the prior year quarter. Equipment expense and occupancy
expense increased $420,000 and $348,000, respectively. Lower FDIC deposit
insurance rates for 1997 resulted in a decline in other operating expenses by
$518,000. Other operating expenses also decreased by $471,000 related to
depreciation on equipment used in leasing activities.
CURRENT ACCOUNTING ISSUES
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share" ("SFAS No.
128") which provides standards for computing and presenting earnings per share
("EPS") for entities with publicly held common stock or potential common stock.
It requires the dual presentation of basic EPS (defined as income available to
common stockholders divided by the weighted-number of common shares outstanding
for the period) and diluted EPS on the face of the income statement. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
and is similar to current fully-diluted EPS calculations. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods and requires restatement for all prior-periods
of EPS data presented. Early adoption is not permitted although the effect on
Centura's consolidated financial statements is not expected to be material.
In February 1997, the FASB issued SFAS No. 129 "Disclosure of Information About
Capital Structure" which eliminates the exemption of nonpublic entities from
certain disclosure requirements of APB Opinion No. 15 "Earnings Per Share". This
statement should have no effect on Centura's consolidated financial statements.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income"
("SFAS No. 130") which establishes standards for reporting and display of
comprehensive income and its components in a full set of financial statements.
Comprehensive income is defined as the change in equity during a period for
non-owner transactions and is divided into net income and other comprehensive
income. Other comprehensive income includes revenues, expenses, gains, and
losses that are excluded from earnings under current accounting standards. This
statement does not change or modify the reporting or display in the income
statement. SFAS No. 130 is effective for interim and annual periods beginning
after December 15, 1997 although early adoption is permitted. Comparative
financial statements provided for earlier periods are required to be reclassed
to reflect the application of this statement.
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). The statement requires
management to report selected financial and descriptive information about
reportable operating segments. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
Generally, disclosures are required for segments internally identified to
evaluate performance and resource allocation. SFAS No. 131 is effective for
financial statements for periods beginning after December 15, 1997. In the
initial year of application, comparative information for earlier periods is to
be restated, if it is practical to do so. SFAS No. 131 does not have to be
applied to interim financial statements in the initial year of application, but,
comparative information must be provided for interim periods in the second year
of application.
In July 1996, the Emerging Issues Task Force provided guidance concerning the
costs for modifications to computer software to accommodate the year 2000. The
costs of the modifications should be treated as regular maintenance and repair
and be charged to expense as incurred. Centura's computer systems are generally
based on two digit years and will need this additional programming to recognize
the start of a new century. Management currently estimates that the costs of
this additional programming ranges from $6-$8 million with a project horizon of
two to three years.
The FASB also issues exposure drafts for proposed statements of financial
accounting standards. Such exposure drafts are subject to comment from the
public, to revisions by the FASB, and to final issuance by the FASB as
statements of financial accounting standards. Management considers the effect of
any proposed statements on Centura and monitors the status of changes to issued
exposure drafts and to proposed effective dates.
<PAGE>
TABLE 1
- --------------------------------------------------------------------------------
LOANS
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996 December 31, 1996
(Dollars in thousands) Balance % of Total Balance % of Total Balance % of Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 782,962 18.4% $ 761,062 18.9% $ 743,477 18.1%
Commercial mortgage 809,192 19.1 776,436 19.3 806,721 19.6
Real estate construction 545,810 12.9 475,979 11.8 524,246 12.8
-------------------------------------------------------------------------------------------
Commercial loan portfolio 2,137,964 50.4 2,013,477 50.0 2,074,444 50.5
Consumer 272,878 6.4 266,055 6.6 274,733 6.7
Residential mortgage 1,320,128 31.1 1,368,806 33.9 1,291,036 31.4
Leases 472,031 11.1 338,998 8.4 420,240 10.2
Other 40,867 1.0 46,015 1.1 49,001 1.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans $4,243,868 100.0% $4,033,351 100.0% $4,109,454 100.0%
====================================================================================================================================
Residential mortgage servicing
portfolio for others $2,425,000 $2,084,000 $2,245,000
====================================================================================================================================
</TABLE>
<PAGE>
TABLE 2
- --------------------------------------------------------------------------------
AVERAGE DEPOSIT MIX FOR THE SIX MONTHS ENDED
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
(Dollars in thousands) Balance % of Total Balance % of Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Demand, noninterest bearing $ 671,295 14.3% $ 616,886 14.1%
Interest checking 631,584 13.5 600,909 13.8
Money market 719,839 15.4 372,213 8.6
Savings 287,868 6.1 311,914 7.2
- ------------------------------------------------------------------------------------------------------------------------
Time deposits:
Certificates of deposit less than 100K 1,732,188 36.9 1,711,945 39.3
Certificates of deposit greater than 100K 353,952 7.5 441,794 10.2
IRA 294,920 6.3 295,738 6.8
- ------------------------------------------------------------------------------------------------------------------------
Total time deposits 2,381,060 50.7 2,449,477 56.3
- ------------------------------------------------------------------------------------------------------------------------
Total average deposits $ 4,691,646 100.0% $ 4,351,399 100.0%
========================================================================================================================
</TABLE>
<PAGE>
TABLE 3
- --------------------------------------------------------------------------------
NET INTEREST INCOME ANALYSIS - TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
Six months ended Six months ended
June 30, 1997 June 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
(Dollars in thousands) Balance Expense Rate Balance Expense Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans $ 4,148,198 $ 194,428 9.36% $ 3,887,501 $ 183,471 9.39%
Taxable securities 1,588,788 52,616 6.62 1,374,122 44,059 6.41
Tax-exempt securities 43,958 1,947 8.86 51,136 2,253 8.81
Short-term investments 29,601 814 5.47 34,418 861 4.95
----------- -------- ----------- --------
Interest-earning assets, gross 5,810,545 249,805 8.59 5,347,177 230,644 8.59
Net unrealized gain (loss) on available
for sale securities (492) (2,457)
Other assets, net 510,040 455,162
----------- -----------
Total assets $ 6,320,093 $ 5,799,882
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking $ 631,584 $ 5,436 1.74% $ 600,909 $ 5,667 1.90%
Money market 719,839 14,784 4.14 372,213 5,459 2.95
Savings 287,868 2,836 1.99 311,914 3,273 2.11
Time 2,381,060 64,759 5.48 2,449,477 67,454 5.54
----------- ------- ----------- --------
Total interest-bearing deposits 4,020,351 87,815 4.40 3,734,513 81,853 4.41
Borrowed funds 729,707 18,674 5.09 591,355 15,325 5.21
Long-term debt 321,129 10,269 6.36 325,614 10,286 6.35
----------- ------- ----------- --------
Interest-bearing liabilities 5,071,187 116,758 4.63 4,651,482 107,464 4.65
Demand, noninterest-bearing 671,295 616,886
Other liabilities 82,759 88,920
Shareholders' equity 494,852 442,594
----------- -----------
Total liabilities and
shareholder's equity $ 6,320,093 $ 5,799,882
=========== ===========
Interest rate spread 3.96% 3.94%
Net yield on interest-
earning assets $ 5,810,545 $ 133,047 4.55% $ 5,347,177 $ 123,180 4.55%
=========== ======= =========== ========
Taxable equivalent adjustment $ 3,696 $ 2,974
======= ========
</TABLE>
<PAGE>
TABLE 3, continued
- --------------------------------------------------------------------------------
NET INTEREST INCOME ANALYSIS - TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
Three months ended Three months ended
June 30 1997 June 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
(Dollars in thousands) Balance Expense Rate Balance Expense Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans $ 4,188,811 $ 99,102 9.41% $ 3,954,978 $ 92,580 9.31%
Taxable securities 1,671,405 27,851 6.67 1,356,942 21,805 6.43
Tax-exempt securities 42,576 948 8.91 46,590 1,034 8.88
Short-term investments 26,264 369 5.56 33,702 399 4.68
---------- -------- ---------- -------
Interest-earning assets, gross 5,929,056 128,270 8.62 5,392,212 115,818 8.55
Net unrealized gain (loss) on available
for sale securities (3,021) (8,137)
Other assets, net 527,946 464,255
---------- ----------
Total assets $ 6,453,981 $ 5,848,330
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking $ 623,208 $ 2,626 1.69% $ 593,079 $ 2,597 1.76%
Money market 746,488 7,832 4.21 385,134 2,865 2.99
Savings 286,222 1,419 1.99 312,328 1,586 2.04
Time 2,385,121 32,753 5.51 2,427,348 32,694 5.42
---------- ------- ---------- -------
Total interest-bearing deposits 4,041,039 44,630 4.43 3,717,889 39,742 4.30
Borrowed funds 811,510 10,691 5.21 642,692 8,293 5.19
Long-term debt 333,013 5,479 6.51 331,778 5,153 6.25
---------- ------- ---------- -------
Interest-bearing liabilities 5,185,562 60,800 4.69 4,692,359 53,188 4.56
Demand, noninterest-bearing 684,472 631,045
Other liabilities 82,920 86,568
Shareholders' equity 501,027 438,358
---------- ----------
Total liabilities and
shareholder's equity $ 6,453,981 $ 5,848,330
========== ==========
Interest rate spread 3.93% 3.99%
Net yield on interest-
earning assets $ 5,929,056 $ 67,470 4.52% $ 5,392,212 $ 62,630 4.58%
========== ======= ========== =======
Taxable equivalent adjustment $ 2,004 $ 1,452
======= =======
</TABLE>
<PAGE>
TABLE 4
- --------------------------------------------------------------------------------
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
At and for the six months At and for the year ended
ended June 30, ended December 31,
(Dollars in thousands) 1997 1996 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance for loan losses at beginning of period $ 58,715 $ 55,070 $ 55,070
Allowance for acquired financial institutions --- --- 1,240
Provision for loan losses 6,083 4,450 9,596
Loans charged off (7,256) (3,460) (10,408)
Recoveries on loans previously charged off 1,664 1,951 3,217
- ------------------------------------------------------------------------------------------------------------------------------
Net charge-offs (5,592) (1,509) (7,191)
- ------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses at end of period $ 59,206 $ 58,011 $ 58,715
==============================================================================================================================
Loans at period-end $ 4,243,868 $ 4,033,351 $ 4,109,454
Average loans 4,148,198 3,887,501 4,014,391
Nonperforming loans 24,001 19,673 19,210
Allowance for loan losses to loans at period-end 1.40% 1.44% 1.43%
Net charge-offs to average loans 0.27 0.08 0.18
Allowance for loan losses to nonperforming loans 2.47x 2.95x 3.06x
==============================================================================================================================
</TABLE>
<PAGE>
TABLE 5
- --------------------------------------------------------------------------------
NONPERFORMING ASSETS AND PAST DUE LOANS
<TABLE>
<CAPTION>
June 30, December 31,
-------------------------- -------------
(Dollars in thousands) 1997 1996 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans $ 24,001 $ 18,845 $ 18,713
Restructured loans --- 828 497
--------------------------------------------------
Nonperforming loans 24,001 19,673 19,210
Foreclosed property 3,739 2,793 3,663
- -------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 27,740 $ 22,466 $ 22,873
=========================================================================================================================
Nonperforming assets to:
Loans and foreclosed property 0.65% 0.56% 0.56%
Total assets 0.42 0.38 0.36
=========================================================================================================================
Accruing loans past due ninety days $ 9,060 $ 7,937 $ 8,916
=========================================================================================================================
</TABLE>
<PAGE>
TABLE 6
- --------------------------------------------------------------------------------
CAPITAL RATIOS
Tier I Capital Total Capital Tier I Leverage
June 30, 1997 11.98% 12.55% 8.31%
December 31, 1996 9.48 10.02 6.56
June 30, 1996 9.38 10.64 6.71
Minimum requirement 4.00 8.00 3.00-5.00
TABLE 7
- --------------------------------------------------------------------------------
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
Interest rate swap agreements at June 30, 1997 are summarized below:
Weighted Average
Weighted Average Rate Remaining Estimated
Notional During the Quarter Contractual Fair Value
Amount Received Paid Term (Years) Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST RATE SWAPS
Corporation pays fixed rates $ 157,500 5.78% 6.55% 1.0 $ (1,143)
Corporation pays variable rates 155,000 6.84% 5.68% 9.2 108
------- -------
Total interest rate swaps $ 312,500 $ (1,035)
======= =======
Interest rate cap and floor agreements at June 30, 1997 are summarized below:
Weighted Average
Remaining
Notional Average Current Index Contractual Carrying Estimated
Amount Rate * Rate Term (Years) Value Fair Value
- ------------------------------------------------------------------------------------------------------------------
Interest Rate Floors $ 230,000 5.78% 5.78% 2.8 $ 1,063 $ 1,158
====== ========
Interest Rate Caps $ 26,000 7.39% 5.77% 5.6 $ 712 $ 497
======== ====== ========
* Average rate represents the average of the strike rates above or below which
Centura will receive payments on the outstanding cap or floor agreements.
At June 30, 1997 Centura had two put options totaling 35 ten-year Treasury
futures contracts. Each contract represents a $100,000 notional amount and gives
Centura the right but not the obligation to exercise the respective contract.
Cumulatively at June 30, 1997, the options had a carrying value of $17,700 and
an estimated fair value of $8,800.
</TABLE>
<PAGE>
TABLE 8
- --------------------------------------------------------------------------------
NET INTEREST INCOME AND VOLUME/RATE ANALYSIS - TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
Six months ended
June 30, 1997 and 1996
- --------------------------------------------------------------------------------
Income/ Variance
Expense Attributable to
(Dollars in thousands) Variance Volume Rate
- -----------------------------------------------------------------------------------
INTEREST INCOME
<S> <C> <C> <C>
Loans $ 10,957 $ 12,227 ($1,270)
Taxable securities 8,557 7,070 1,487
Tax-exempt securities (306) (318) 12
Short-term investments (47) (127) 80
--------- ------- -------
Total interest income 19,161 18,852 309
INTEREST EXPENSE Interest-bearing deposits:
Interest checking (231) 280 (511)
Money market 9,325 6,527 2,798
Savings (437) (244) (193)
Time (2,695) (1,868) (827)
--------- -------- -------
Total interest-bearing deposits 5,962 4,695 1,267
Borrowed funds 3,349 3,543 (194)
Long-term debt (17) (143) 126
-------- -------- -------
Total interest expense 9,294 8,095 1,199
-------- -------- -------
Net interest income $ 9,867 $ 10,757 ($890)
The change in interest due to both rate and volume has been allocated
proportionately to volume variance and rate variance based on the relationship
of the absolute dollar change in each.
</TABLE>
<PAGE>
TABLE 8, continued
- --------------------------------------------------------------------------------
NET INTEREST INCOME AND VOLUME/RATE ANALYSIS - TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
Three months ended
June 30, 1997 and 1996
- --------------------------------------------------------------------------------
Income/ Variance
Expense Attributable to
(Dollars in thousands) Variance Volume Rate
- --------------------------------------------------------------------------------
INTEREST INCOME
<S> <C> <C> <C>
Loans $ 6,522 $ 5,523 $ 999
Taxable securities 6,046 5,214 832
Tax-exempt securities (86) (89) 3
Short-term investments (30) (97) 67
-------- -------- ------
Total interest income 12,452 10,551 1,901
INTEREST EXPENSE Interest-bearing deposits:
Interest checking 29 129 (100)
Money market 4,967 3,456 1,511
Savings (167) (130) (37)
Time 59 (574) 633
-------- -------- ------
Total interest-bearing deposits 4,888 2,881 2,007
Borrowed funds 2,398 2,221 177
Long-term debt 326 19 307
-------- -------- ------
Total interest expense 7,612 5,121 2,491
-------- -------- ------
Net interest income $ 4,840 $ 5,430 ($590)
The change in interest due to both rate and volume has been allocated
proportionately to volume variance and rate variance based on the relationship
of the absolute dollar change in each.
</TABLE>
<PAGE>
CENTURA BANKS, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The following represents the legal matter first reported in Form 10-Q for the
quarterly period ended June 30, 1994.
On May 13, 1994, seven individuals claiming to have been depositors of
First Savings Bank of Forest City, SSB ("First Savings") filed suit in Wake
County, North Carolina, Superior Court against the Registrant, Centura
Bank, the North Carolina Savings Institutions Division ("NCSID"), and six
individuals who were directors of First Savings at the time of the
acquisition of that institution by the Registrant and Centura Bank through
a merger/conversion transaction in October 1993 (the "Acquisition").
Plaintiffs' complaint alleges, among other things, that the individual
defendants violated their fiduciary duties as directors of First Savings in
connection with the Acquisition by allegedly receiving excessive benefits
as part of that transaction; that the Registrant and Centura Bank acted in
concert with the individual defendants in that regard, as a result of which
it is alleged that "the assets of First Savings were wrongfully
transferred"; and that the NCSID acted in violation of law in approving the
Acquisition. Plaintiffs sought (i) certification of the suit as a class
action; (ii) a judgment ordering the individual defendants, the Registrant,
and Centura Bank to pay to plaintiffs and members of the class the
difference between the fair market value of First Savings as of the date of
the Acquisition and the value of benefits paid to depositors in the
Acquisition; (iii) punitive damages in an unspecified amount; and (iv) in
the event damages are not awarded, entry of an order declaring the
Acquisition to be "illegal, void and reversed." Management of the
Registrant believes that the suit is without merit and intends to defend
vigorously.
On March 2, 1995, claims against NCSID were severed from claims against the
six individuals who were directors of First Savings, the Registrant and
Centura Bank, and accordingly, such claims are now the subject of two
separate proceedings.
On October 31, 1995, the Wake County Superior Court reversed the decision
of the NCSID Administrator denying plaintiffs' request for a hearing on the
issue of whether the NCSID should have approved the Acquisition and
remanded the action to the NCSID for such a hearing. The Registrant and
NCSID appealed this decision, which appeal was dismissed by the North
Carolina Court of Appeals. A hearing has not yet been scheduled by the
NCSID.
The civil damage action was certified as a class action on March 4, 1996,
and on March 26, 1996, was assigned to the Special Superior Court for
Complex Business Litigation. Registrant, and the former First Savings
directors moved for summary judgment, which motion was heard by the court
on January 8, 1997. Management is of the view that the Registrant should
have no financial liability as a result of this litigation and,
accordingly, no liability has been recorded.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
<PAGE>
Item 4. Submission of Matters to a Vote of Securities Holders Registrant's
Annual Meeting of Shareholders was held April 16, 1997:
1) All of the nominees for Director listed under the caption
"Election of Directors" in the Registrant's Proxy Statement dated
March 12, 1997 were duly elected Directors of the Registrant.
Eighty-one percent of the outstanding shares were voted. Of the
20,803,805 shares that voted, each director received at least
20,096,242 shares, or 96.6% in favor.
2) Amendment to the Centura Banks, Inc. Omnibus Equity Compensation
Plan to add an individual participant limit on the amount of
certain awards available under the Plan was voted on. Of the
20,803,805 shares voted, 96.5% voted in favor.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
Exhibit Exhibit
No. Description of Exhibit Reference
4.1 Excerpts from Centura's Articles of Incorporation and
Bylaws relating to rights of holders of Registrant's
capital stock 4.1 (1)
4.2 Specimen certificate of Centura common stock 4.2 (2)
10.1 Centura Banks, Inc. Omnibus Equity Compensation Plan as
Amended and Restated Effective April 16, 1997
27 Financial Data Schedule - included in the electronically
filed document as required.
(1)Included as the identified exhibit in Centura Banks, Inc. Form 2-4
dated March 8, 1990, as amended by amendment No. 1 dated May 14, 1990,
and incorporated herein by reference.
(2)Included as the identified exhibit in Centura Banks, Inc. Annual
Report on Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference.
(b) Reports on Form 8-K -
1)A report on Form 8-K dated April 3, 1997 was filed under Item 5, Other
Events, indicating the Registrant's announcement on April 3, 1997 of
earnings for the three months ended March 31, 1997.
2)A report on Form 8-K dated May 21, 1997 was filed under Item 5, Other
Events, indicating the Registrant has reached an agreement to purchase
13 banking offices, with approximately $311 million of deposits and
$200 million of loans, from Branch Banking and Trust Company and United
Carolina Bank.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized:
CENTURA BANKS, INC.
Registrant
Date: August 13, 1997 By: /s/Steven J. Goldstein
----------------------
Steven J. Goldstein
Chief Financial Officer
<PAGE>
CENTURA BANKS, INC.
EXHIBIT INDEX
Sequential
Exhibit Description of Exhibit Page No.
- --------------------------------------------------------------------------------
4.1 Excerpts from Centura's Articles of Incorporation and Bylaws
relating to rights of holders of Registrant's capital stock *(1)
4.2 Specimen certificate of Centura common stock *(2)
10.1 Centura Banks, Inc. Omnibus Equity Compensation Plan as
amended and Restated Effective April 16, 1997
27 Financial Data Schedule **
*Incorporated by reference from the following documents as noted:
(1)Included as the identified exhibit in Centura Banks, Inc. Form 2-4
dated March 8, 1990, as amended by amendment No. 1 dated May 14, 1990,
and incorporated herein by reference.
(2)Included as the identified exhibit in Centura Banks, Inc. Annual
Report on Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference.
** Included in the electronically-filed document as required
COPIES OF EXHIBITS ARE AVAILABLE UPON WRITTEN REQUEST TO STEVEN GOLDSTEIN, CHIEF
FINANCIAL OFFICER OF CENTURA BANKS, INC.
<PAGE>
CENTURA BANKS, INC.
OMNIBUS EQUITY COMPENSATION PLAN
TABLE OF CONTENTS
ARTICLE I - GENERAL PROVISIONS............................................ 1
ARTICLE II - DEFINITIONS.................................................. 2
ARTICLE III - ADMINISTRATION.............................................. 7
ARTICLE IV - INCENTIVE STOCK OPTIONS...................................... 13
ARTICLE V - NONQUALIFIED STOCK OPTIONS.................................... 16
ARTICLE VI - STOCK APPRECIATION RIGHTS.................................... 17
ARTICLE VII - INCIDENTS OF STOCK OPTIONS AND STOCK RIGHTS................. 19
ARTICLE VIII - RESTRICTED STOCK........................................... 22
ARTICLE IX - DEFERRED STOCK............................................... 25
ARTICLE X - STOCK AWARDS.................................................. 28
ARTICLE XI - PERFORMANCE SHARES........................................... 29
ARTICLE XII - OTHER STOCK-BASED AWARDS.................................... 31
ARTICLE XIII - ACCELERATION EVENTS........................................ 33
ARTICLE XIV - AMENDMENT AND TERMINATION................................... 36
ARTICLE XV - MISCELLANEOUS PROVISIONS..................................... 37
<PAGE>
CENTURA BANKS, INC.
OMNIBUS EQUITY COMPENSATION PLAN
ARTICLE I - GENERAL PROVISIONS
1.1 The Plan is designed for the benefit of the directors, executives
and key employees of the Corporation and its Subsidiaries; to
attract and retain for the Corporation and its Subsidiaries
personnel of exceptional ability; to motivate such personnel
through added incentives to make a maximum contribution to greater
profitability; to develop and maintain a highly competent
management team; and to be competitive with other companies with
respect to executive compensation.
1.2 Awards under the Plan may be made to Participants in the form of
(i) Incentive Stock Options; (ii) Nonqualified Stock Options; (iii)
Stock Appreciation Rights; (iv) Restricted Stock; (v) Deferred
Stock; (vi) Stock Awards; (vii) Performance Shares; (viii) Other
Stock-Based Awards; and (ix) other forms of equity-based
compensation as may be provided and are permissible under this Plan
and the law.
1.3 The Plan shall be effective November 20, 1990 (the "Effective
Date"), as amended and restated effective April 21, 1993, and
further amended and restated effective April 16, 1997, subject to
the approval of Section 3.16 of the Plan by a majority of the votes
cast on the issue by the holders of the Corporation's Common Stock
at the first meeting of stockholders at which directors are to be
elected that occurs after December 31, 1996.
<PAGE>
ARTICLE II - DEFINITIONS
DEFINITIONS. Except where the context otherwise indicates, the following
definitions apply:
2.1 "Acceleration Event" means the occurrence of an event defined
in Article XIII of the Plan.
2.2 "Act" means the Securities Exchange Act of 1934, as now in
effect or as hereafter amended. (All citations to sections
of the Act or rules thereunder are to such sections or rules
as they may from time to time be amended or renumbered.)
2.3 "Agreement" means the written agreement evidencing each Award
granted to a Participant under the Plan.
2.4 "Award" means an award granted to a Participant in accordance
with the provisions of the Plan, including, but not limited to,
a Stock Option, Stock Right, Restricted or Deferred Stock,
Stock Award, Performance Share, Other Stock-Based Award, or any
combination of the foregoing.
2.5 "Board" means the Board of Directors of the Corporation.
2.6 "Board-Approved Change in Control" shall have the meaning set forth
in Section 13.3 of the Plan.
2.7 "Change in Control" shall have the meaning set forth in Section
13.2 of the Plan.
2.8 "Change in Control Price" shall have the meaning set forth in
Section 13.9 of the Plan.
2.9 "Code" means the Internal Revenue Code of 1986, as now in
effect or as hereafter amended. (All citations to sections
of the Code are to such sections as they may from time to time
be amended or renumbered.)
2.10 "Committee" means the Compensation Committee or such other
committee as may be appointed by the Board to administer this Plan
pursuant to Article III. Committee members may also be appointed
for such limited purposes as may be provided by the Board.
2.11 "Corporation" means Centura Banks, Inc., a North Carolina
corporation structured as a registered bank holding company
under the Bank Holding Company Act of 1956, as now in effect or
as hereafter amended, and its successors and assigns.
"Corporation" also means Centura Banks, Inc. and its
Subsidiaries, unless the context clearly indicates otherwise.
2.12 "Deferral Period" means the period commencing on the date an Award
of Deferred Stock is granted and ending on such date as the
Committee shall determine.
2.13 "Deferred Stock" means the stock awarded under Article IX of the
Plan.
2.14 "Disability" means disability as determined under procedures
established by the Committee or in any Award.
2.15 "Discount Stock Options" means the Nonqualified Stock Options which
provide for an exercise price of less than the Fair Market Value of
the Stock at the date of the Award.
2.16 "Early Retirement" means retirement from active employment with the
Corporation or any Subsidiary, with the express consent of the
Committee, pursuant to the early retirement provisions established
by the Committee or in any Award.
2.17 "Effective Date" shall have the meaning set forth in Section 1.3 of
the Plan.
2.18 "Elective Deferral Period" shall have the meaning set forth in
Section 9.3 of the Plan.
2.19 "Eligible Participant" means any director, executive or key
employee of the Corporation or its Subsidiaries, as shall be
determined by the Committee, as well as any other person whose
participation the Committee determines is in the best interest of
the Corporation, subject to limitations as may be provided by the
Code, the Act or the Committee. For purposes of Article IV and
Incentive Stock Options that may be granted hereunder, the term
"Eligible Participant" shall be limited to an executive or other
key employee meeting the qualifications for receipt of an Incentive
Stock Option under the provisions of Section 422 of the Code.
2.20 "ERISA" means the Employee Retirement Income Security Act of
1974, as now in effect or as hereafter amended.
2.21 "Fair Market Value" means, with respect to any given day, the
closing price of the Stock reported on the New York Stock Exchange
for such day, or if the Stock was not traded on the New York Stock
Exchange on such day, then on the next day on which the Stock was
traded, all as reported by such source as the Committee may select.
The Committee may establish an alternative method of determining
Fair Market Value.
2.22 "Incentive Stock Option" means a Stock Option granted under
Article IV of the Plan, and as defined in Section 422 of the Code.
2.23 "Limited Stock Appreciation Rights" means a Stock Right which is
exercisable only in the event of a Change in Control and/or a
Potential Change in Control, as described in Section 6.8 of this
Plan, which provides for an amount payable solely in cash, equal to
the excess of the Stock Appreciation Right Fair Market Value of a
share of Stock on the day the Stock Right is surrendered over the
price at which a Participant could exercise a related Stock Option
to purchase the share of Stock.
2.24 "Nonqualified Stock Option" means a Stock Option granted under
Article V of the Plan.
2.25 "Normal Retirement" means retirement from active employment with
the Corporation or any Subsidiary on or after age 65, or pursuant
to such other requirements as may be established by the Committee
or in any Award.
2.26 "Option Grant Date" means, as to any Stock Option, the latest of:
(a) the date on which the Committee grants the Stock Option to
the Participant;
(b) the date the Participant receiving the Stock Option
becomes an employee of the Corporation or its
Subsidiaries, to the extent employment status is a
condition of the grant or a requirement of the Code or the
Act; or
(c) such other date (other than the dates described in (i)
and (ii) above) as the Committee may designate.
2.27 "Other Stock-Based Award" means an Award under Article XII of the
Plan that is valued in whole or in part by reference to, or is
otherwise based on, Stock.
2.28 "Participant" means an Eligible Participant to whom an Award of
equity-based compensation has been granted and who has entered into
an Agreement evidencing the Award.
2.29 "Performance Share" means an Award under Article XI of the Plan of
a unit valued by reference to a designated number of shares of
Stock, which value may be paid to the Participant by delivery of
such property as the Committee shall determine, including, without
limitation, cash, Stock, or any combination thereof, upon
achievement of such Performance Objectives during the Performance
Period as the Committee shall establish at the time of such Award
or thereafter.
2.30 "Performance Objectives" shall have the meaning set forth in
Article XI of the Plan.
2.31 "Performance Period" shall have the meaning set forth in Article XI
of the Plan.
2.32 "Potential Change in Control" shall have the meaning set forth in
Section 13.4 of the Plan.
2.33 "Plan" means the Centura Banks, Inc. Omnibus Equity
Compensation Plan, as amended and restated effective April 16,
1997, and as further amended from time to time.
2.34 "Restricted Stock" means an Award of Stock under Article VIII of
the Plan, which Stock is issued with the restriction that the
holder may not sell, transfer, pledge, or assign such Stock and
with such other restrictions as the Committee, in its sole
discretion, may impose (including, without limitation, any
restriction on the right to vote such Stock, and the right to
receive any cash dividends), which restrictions may lapse
separately or in combination at such time or times, in installments
or otherwise, as the Committee may deem appropriate.
2.35 "Restriction Period" means the period commencing on the date an
Award of Restricted Stock is granted and ending on such date as the
Committee shall determine.
2.36 "Retirement" means Normal or Early Retirement.
2.37 "Stock" means shares of Common Stock of the Corporation, as
may be adjusted pursuant to the provisions of Section 3.11.
2.38 "Stock Appreciation Right" means a Stock Right, as described in
Article VI of this Plan, which provides for an amount payable in
Stock and/or cash, as determined by the Committee, equal to the
excess of the Fair Market Value of a share of Stock on the day the
Stock Right is exercised over the price at which the Participant
could exercise a related Stock Option to purchase the share of
Stock.
2.39 "Stock Appreciation Right Fair Market Value" means a value
established by the Committee for the exercise of a Stock
Appreciation Right or a Limited Stock Appreciation Right.
2.40 "Stock Award" means an Award of Stock granted in payment of
compensation, as provided in Article X of the Plan.
2.41 "Stock Option" means an Award under Article IV or V of the Plan of
an option to purchase Stock. A Stock Option may be either an
Incentive Stock Option or a Nonqualified Stock Option.
2.42 "Stock Right" means an Award under Article VI of the Plan. A
Stock Right may be either a Stock Appreciation Right or a Limited
Stock Appreciation Right.
2.43 "Subsidiary" or "Subsidiaries" means:
(a) for the purpose of an Incentive Stock Option, any
corporation (other than the Corporation) in an unbroken
chain of corporations beginning with the Corporation if,
at the time of the granting of the Option, each of the
corporations other than the last corporation in the
unbroken chain owns stock possessing fifty percent (50%)
or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain;
and
(b) for the purposes of all other types of equity-based
compensation provided for under the Plan, any corporation
(or partnership, joint venture, limited liability company,
or other enterprise) of which the Corporation owns or
controls, directly or indirectly, fifty percent (50%) or
more of the outstanding shares of stock normally entitled
to vote for the election of directors (or comparable
equity participation and voting power).
2.44 "Termination of Employment" means the discontinuance of employment
of a Participant with the Corporation or its Subsidiaries for any
reason other than a Transfer. The determination of whether a
Participant has discontinued employment shall be made by the
Committee in its discretion. In determining whether a Termination
of Employment has occurred, the Committee may provide that service
as a consultant or service with a business enterprise in which the
Corporation has a significant ownership interest shall be treated
as employment with the Corporation. The Committee shall have the
discretion, exercisable either at the time the Award is granted or
at the time the Participant terminates employment, to establish as
a provision applicable to the exercise of one or more Awards that
during the limited period of exercisability following Termination
of Employment, the Award may be exercised not only with respect to
the number of shares of Stock for which it is exercisable at the
time of the Termination of Employment but also with respect to one
or more subsequent installments for which the Award would have
become exercisable had the Termination of Employment not occurred.
2.45 "Transfer" means a change of employment of a Participant
within the group consisting of the Corporation and its
Subsidiaries.
<PAGE>
ARTICLE III - ADMINISTRATION
3.1 This Plan shall be administered by the Committee. Members of the
Committee may vote on any matters affecting the administration of
the Plan or the grant of Awards pursuant to the Plan, except that
no such member shall act upon the granting of an Award to himself
or herself, but any such member may be counted in determining the
existence of a quorum at any meeting of the Committee or Board
during which action is taken with respect to the granting of an
Award to such member. The Committee, in its discretion, may
delegate to one or more of its members such of its powers as it
deems appropriate. The Committee also may limit the power of any
member to the extent necessary to comply with Rule 16b-3 under the
Act or any other law. Members of the Committee shall be appointed
originally, and as vacancies occur, by the Board, to serve at the
pleasure of the Board. The Board may serve as the Committee, if by
the terms of the Plan all Board members are otherwise eligible to
serve on the Committee.
3.2 The Committee shall meet at such times and places as it determines.
A majority of its members shall constitute a quorum, and the
decision of a majority of those present at any meeting at which a
quorum is present shall constitute the decision of the Committee. A
memorandum signed by all of its members shall constitute the
decision of the Committee without necessity, in such event, for
holding an actual meeting.
3.3 The Committee shall have the exclusive right to interpret, construe
and administer the Plan, to select the persons who are eligible to
receive an Award, and to act in all matters pertaining to the
granting of an Award and the contents of the Agreement evidencing
the Award, including, without limitation, the determination of the
number of Stock Options, Stock Rights, shares of Stock or
Performance Shares subject to an Award and the form, terms,
conditions and duration of each Award, and any amendment thereof
consistent with the provisions of the Plan. All acts,
determinations and decisions of the Committee made or taken
pursuant to grants of authority under the Plan or with respect to
any questions arising in connection with the administration and
interpretation of the Plan, including the severability of any and
all of the provisions thereof, shall be conclusive, final and
binding upon all Participants, Eligible Participants and their
beneficiaries.
3.4 The Committee may adopt such rules, regulations and procedures
of general application for the administration of this Plan, as it
deems appropriate.
3.5 Without limiting the foregoing Sections 3.1, 3.2, 3.3 and 3.4, and
notwithstanding any other provisions of the Plan, the Committee is
authorized to take such action as it determines to be necessary or
advisable, and fair and equitable to Participants, with respect to
an Award in the event of an Acceleration Event as defined in
Article XIII. Such action may include, but shall not be limited to,
establishing, amending or waiving the forms, terms, conditions and
duration of an Award and the Award Agreement, so as to provide for
earlier, later, extended or additional times for exercise or
payments, differing methods for calculating payments, alternate
forms and amounts of payment, an accelerated release of
restrictions or other modifications. The Committee may take such
actions pursuant to this Section 3.5 by adopting rules and
regulations of general applicability to all Participants or to
certain categories of Participants, by including, amending or
waiving terms and conditions in an Award and the Award Agreement,
or by taking action with respect to individual Participants.
3.6 The aggregate number of shares of Stock which are subject to an
Award under the Plan shall be one million five hundred thousand
(1,500,000) shares, plus four percent (4%) of any increase, other
than any increase due to Awards under this Plan or any other
similar plan of the Corporation, in the number of authorized and
issued shares of Stock above the number of authorized and
outstanding shares as of the Effective Date. Such shares of Stock
shall be made available from authorized and unissued shares of the
Corporation.
(a) If, for any reason, any shares of Stock or Performance
Shares awarded or subject to purchase under the Plan are
not delivered or purchased, or are reacquired by the
Corporation, for reasons including, but not limited to,
a forfeiture of Restricted Stock or termination,
expiration or cancellation of a Stock Option, Stock Right
or Performance Share, or any other termination of an
Award without payment being made in the form of Stock
(whether or not Restricted Stock), such shares of Stock
or Performance Shares shall not be charged against the
aggregate number of shares of Stock available for Award
under the Plan, and shall again be available for Award
under the Plan.
(b) For all purposes under the Plan, each Performance Share
awarded shall be counted as one share of Stock subject to
an Award.
(c) To the extent a Stock Right granted in connection with a
Stock Option is exercised without payment being made in
the form of Stock (whether or not Restricted Stock), the
shares of Stock which otherwise would have been issued
upon the exercise of such related Stock Option shall not
be charged against the aggregate number of shares of Stock
subject to an Award under the Plan, and shall again be
available for Award under the Plan.
3.7 Each Award granted under the Plan shall be evidenced by a
written Award Agreement. Each Award Agreement shall be subject
to and incorporate (by reference or otherwise) the applicable
terms and conditions of the Plan, and any other terms and
conditions (not inconsistent with the Plan) required by the
Committee.
3.8 The Corporation shall not be required to issue or deliver any
certificates for shares of Stock prior to:
(a) the listing of such shares on any stock exchange on which
the Stock may then be listed; and
(b) the completion of any registration or qualification of
such shares of Stock under any federal or state law, or
any ruling or regulation of any government body which the
Corporation shall, in its discretion, determine to be
necessary or advisable.
3.9 All certificates for shares of Stock delivered under the Plan shall
also be subject to such stop-transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations,
and other requirements of the Securities and Exchange Commission,
any stock exchange upon which the Stock is then listed and any
applicable federal or state laws, and the Committee may cause a
legend or legends to be placed on any such certificates to make
appropriate reference to such restrictions. In making such
determination, the Committee may rely upon an opinion of counsel
for the Corporation.
3.10 Subject to the restrictions on Restricted Stock, as provided in
Article VIII of the Plan and in the Restricted Stock Award
Agreement, each Participant who receives an Award of Restricted
Stock shall have all of the rights of a stockholder with respect to
such shares of Stock, including the right to vote the shares to the
extent, if any, such shares possess voting rights and receive
dividends and other distributions. Except as provided otherwise in
the Plan or in an Award Agreement, no Participant awarded a Stock
Option, Stock Right, Deferred Stock, Stock Award or Performance
Share shall have any right as a stockholder with respect to any
shares of Stock covered by his or her Stock Option, Stock Right,
Deferred Stock, Stock Award or Performance Share prior to the date
of issuance to him or her of a certificate or certificates for such
shares of Stock.
3.11 If any reorganization, recapitalization, reclassification, stock
split-up, stock dividend, or consolidation of shares of Stock,
merger or consolidation of the Corporation or its Subsidiaries or
sale or other disposition by the Corporation or its Subsidiaries of
all or a portion of its assets, any other change in the
Corporation's or its Subsidiaries' corporate structure, or any
distribution to stockholders other than a cash dividend results in
the outstanding shares of Stock, or any securities exchanged
therefor or received in their place, being exchanged for a
different number or class of shares of Stock or other securities of
the Corporation, or for shares of Stock or other securities of any
other corporation; or new, different or additional shares or other
securities of the Corporation or of any other corporation being
received by the holders of outstanding shares of Stock, then
equitable adjustments shall be made by the Committee in:
(a) the limitation of the aggregate number of shares of Stock
that may be awarded as set forth in Sections 3.6, 3.16,
and 4.1(e) (to the extent permitted under Section 422 of
the Code) of the Plan;
(b) the number and class of Stock that may be subject to
an Award, and which have not been issued or transferred
under an outstanding Award;
(c) the purchase price to be paid per share of Stock under
outstanding Stock Options and the number of shares of
Stock to be transferred in settlement of outstanding Stock
Rights; and
(d) the terms, conditions or restrictions of any Award and
Award Agreement, including the price payable for the
acquisition of Stock; provided, however, that all
adjustments made as the result of the foregoing in respect
of each Incentive Stock Option shall be made so that such
Stock Option shall continue to be an Incentive Stock
Option, as defined in Section 422 of the Code.
3.12 In addition to such other rights of indemnification as they may
have as directors or as members of the Committee, the members of
the Committee shall be indemnified by the Corporation against
reasonable expenses, including attorney's fees, actually and
necessarily incurred in connection with the defense of any action,
suit or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any
Award granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by
independent legal counsel selected by the Corporation) or paid by
them in satisfaction of a judgment or settlement in any such
action, suit or proceeding, except as to matters as to which the
Committee member has been negligent or engaged in misconduct in the
performance of his duties; provided, that within sixty (60) days
after institution of any such action, suit or proceeding, a
Committee member shall in writing offer the Corporation the
opportunity, at its own expense, to handle and defend the same.
3.13 The Committee may require each person purchasing shares of Stock
pursuant to a Stock Option or other Award under the Plan to
represent to and agree with the Corporation in writing that he is
acquiring the shares of Stock without a view to distribution
thereof. The certificates for such shares of Stock may include any
legend which the Committee deems appropriate to reflect any
restrictions on transfer.
3.14 The Committee shall be authorized to make adjustments in a
performance based criteria or in the terms and conditions of other
Awards in recognition of unusual or nonrecurring events affecting
the Corporation (or any Subsidiary, if applicable) or its financial
statements or changes in applicable laws, regulations or accounting
principles. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award
Agreement in the manner and to the extent it shall deem desirable
to carry it into effect. In the event the Corporation (or any
Subsidiary, if applicable) shall assume outstanding employee
benefit awards or the right or obligation to make future such
awards in connection with the acquisition of another corporation or
business entity, the Committee may, in its discretion, make such
adjustments in the terms of Awards under the Plan as it shall deem
appropriate.
3.15 The Committee shall have full power and authority to determine
whether, to what extent and under what circumstances, any Award
shall be canceled or suspended. In particular, but without
limitation, all outstanding Awards to any Participant shall be
canceled if (a) the Participant, without the consent of the
Committee, while employed by the Corporation or any Subsidiary or
after termination of such employment, becomes associated with,
employed by, renders services to, or owns any interest in (other
than any nonsubstantial interest, as determined by the Committee),
any business that is in competition with the Corporation or with
any business in which the Corporation and/or its Subsidiaries have
a substantial interest as determined by the Committee; or (b) is
terminated for cause as determined by the Committee.
3.16 Subject to the limitations of Section 3.6, and pursuant to the
requirements of section 162(m) of the Code and the regulations
promulgated thereunder, and to the extent required thereunder, the
maximum number of shares of Stock with respect to which an Award or
Awards of Stock Options and/or Stock Rights under the Plan may be
granted during any calendar year to any employee shall be fifty
thousand (50,000) shares; provided, however, that if the number of
shares of Stock with respect to which an Award or Awards of Stock
Options and/or Stock Rights under the Plan are granted during a
calendar year to any employee is less than fifty thousand (50,000)
shares, or if no Award of Stock Options and/or Stock Rights under
the Plan is granted during any calendar year to such employee, then
the amount of such shortfall shall be carried forward and added to
the maximum number of shares of Stock with respect to which an
Award or Awards of Stock Options and/or Stock Rights under the Plan
may be granted in a subsequent calendar year to such employee.
<PAGE>
ARTICLE IV - INCENTIVE STOCK OPTIONS
4.1 Each provision of this Article IV and of each Incentive Stock
Option granted hereunder shall be construed in accordance with the
provisions of Section 422 of the Code, and any provision hereof
that cannot be so construed shall be disregarded. Incentive Stock
Options shall be granted only to Eligible Participants, each of
whom may be granted one or more such Incentive Stock Options at
such time or times determined by the Committee following the
Effective Date until November 20, 2000, subject to the following
conditions:
(a) The Incentive Stock Option price per share of Stock shall
be set in the Award Agreement, but shall not be less than
one hundred percent (100%) of the Fair Market Value of the
Stock at the time of the Option Grant Date.
(b) The Incentive Stock Option and its related Stock Right,
if any, may be exercised in full or in part from time to
time within ten (10) years from the Option Grant Date,
or such shorter period as may be specified by the
Committee in the Award; provided, that in any event, the
Incentive Stock Option and related Stock Right shall lapse
and cease to be exercisable upon, or within such period
following, a Termination of Employment as shall have been
determined by the Committee and as specified in the
Incentive Stock Option Award Agreement or its related
Stock Right Award Agreement; provided, however, that
such period following a Termination of Employment
shall not exceed three (3) months unless employment
shall have terminated:
(i) as a result of death or Disability, in which
event, such period shall not exceed one year
after the date of death or Disability; and
(ii) as a result of death, if death shall have occurred
following a Termination of Employment and while
the Incentive Stock Option or Stock Right was
still exercisable, in which event, such period
shall not exceed one year after the date of death;
provided, further, that such period following a
Termination of Employment shall in no event extend the
original exercise period of the Incentive Stock Option or
any related Stock Right.
(c) The aggregate Fair Market Value, determined as of the
Option Grant Date, of the shares of Stock with respect to
which Incentive Stock Options are first exercisable during
any calendar year by any Eligible Participant shall not
exceed one hundred thousand dollars ($100,000); provided,
however, to the extent permitted under Section 422 of the
Code:
(i) if a Participant's employment is terminated by
reason of death, Disability or Retirement and the
portion of any Incentive Stock Option that is
otherwise exercisable during the post-termination
period applied without regard to the one hundred
thousand dollar ($100,000) limitation contained in
Section 422 of the Code is greater than the
portion of such option that is immediately
exercisable as an Incentive Stock Option during
such post-termination period under Section 422,
such excess shall be treated as a Nonqualified
Stock Option; and
(ii) if the exercise of an Incentive Stock Option is
accelerated by reason of an Acceleration Event,
any portion of such Award that is not exercisable
as an Incentive Stock Option by reason of the one
hundred thousand dollar ($100,000) limitation
contained in Section 422 of the Code shall be
treated as a Nonqualified Stock Option.
(d) Incentive Stock Options shall be granted only to an
Eligible Participant who, at the time of the Option Grant
Date, does not own stock possessing more than 10% of the
total combined voting power of all classes of stock of the
Corporation; provided, however, the foregoing restriction
shall not apply if at the time of the Option Grant Date
the option price is at least one hundred ten percent
(110%) of the Fair Market Value of the Stock subject to
the Incentive Stock Option and such Incentive Stock Option
by its terms is not exercisable after the expiration of
five (5) years from the Option Grant Date.
(e) Subject to the limitations of Section 3.6, the maximum
number of shares of Stock subject to Incentive Stock
Option Awards shall be one hundred thousand (100,000).
(f) The Committee may adopt any other terms and conditions
which it determines should be imposed for the Incentive
Stock Option to qualify under Section 422 of the Code, as
well as any other terms and conditions not inconsistent
with this Article IV as determined by the Committee.
4.2 The Committee may at any time offer to buy out for a payment
in cash, Stock, Deferred Stock or Restricted Stock an Incentive
Stock Option previously granted, based on such terms and
conditions as the Committee shall establish and communicate to the
Participant at the time that such offer is made.
4.3 If the Incentive Stock Option Award Agreement so provides, the
Committee may require that all or part of the shares of Stock to be
issued upon the exercise of an Incentive Stock Option shall take
the form of Deferred or Restricted Stock, which shall be valued on
the date of exercise, as determined by the Committee, on the basis
of the Fair Market Value of such Deferred Stock or Restricted Stock
determined without regard to the deferral limitations and/or
forfeiture restrictions involved.
<PAGE>
ARTICLE V - NONQUALIFIED STOCK OPTIONS
5.1 One or more Stock Options may be granted as Nonqualified Stock
Options to Eligible Participants to purchase shares of Stock at
such time or times determined by the Committee, following the
Effective Date, subject to the terms and conditions set forth in
this Article V.
5.2 The Nonqualified Stock Option price per share of Stock shall be
established in the Award Agreement and may be less than one
hundred percent (100%) of the Fair Market Value at the time of
the grant,
or at such later date as the Committee shall determine.
5.3 The Nonqualified Stock Option and its related Stock Right, if any,
may be exercised in full or in part from time to time within such
period as may be specified by the Committee or in the Award
Agreement; provided, that, in any event, the Nonqualified Stock
Option and the related Stock Right shall lapse and cease to be
exercisable upon, or within such period following, Termination of
Employment as shall have been determined by the Committee and as
specified in the Nonqualified Stock Option Award Agreement or Stock
Right Award Agreement; provided, however, that such period
following Termination of Employment shall not exceed three (3)
months unless employment shall have terminated:
(a) as a result of Retirement or Disability, in which event,
such period shall not exceed one year after the date of
Retirement or Disability, or within such longer period as
the Committee may specify; and
(b) as a result of death, or if death shall have occurred
following a Termination of Employment and while the
Nonqualified Stock Option or Stock Right was still
exercisable, in which event, such period may exceed one
year after the date of death, as provided by the Committee
or in the Award Agreement.
5.4 The Nonqualified Stock Option Award Agreement may include
any other terms and conditions not inconsistent with this
Article V or in Article VII, as determined by the Committee.
<PAGE>
ARTICLE VI - STOCK APPRECIATION RIGHTS
6.1 A Stock Appreciation Right may be granted to an Eligible
Participant in connection with an Incentive Stock Option or a
Nonqualified Stock Option granted under Article IV or Article V of
this Plan, or may be granted independent of any related Stock
Option.
6.2 A related Stock Appreciation Right shall entitle a holder of a
Stock Option, within the period specified for the exercise of the
Stock Option, to surrender the unexercised Stock Option (or a
portion thereof) and to receive in exchange therefor a payment in
cash or shares of Stock having an aggregate value equal to the
amount by which the Fair Market Value of each share of Stock
exceeds the Stock Option price per share of Stock, times the number
of shares of Stock under the Stock Option, or portion thereof,
which is surrendered.
6.3 Each related Stock Appreciation Right granted hereunder shall be
subject to the same terms and conditions as the related Stock
Option, including limitations on transferability, if any, and shall
be exercisable only to the extent such Stock Option is exercisable
and shall terminate or lapse and cease to be exercisable when the
related Stock Option terminates or lapses. The grant of Stock
Appreciation Rights related to Incentive Stock Options must be
concurrent with the grant of the Incentive Stock Options. With
respect to Nonqualified Stock Options, the grant either may be
concurrent with the grant of the Nonqualified Stock Options, or in
connection with Nonqualified Stock Options previously granted under
Article V, which are unexercised and have not terminated or lapsed.
6.4 The Committee shall have sole discretion to determine in each case
whether the payment with respect to the exercise of a Stock
Appreciation Right will be in the form of all cash, all Stock, or
any combination thereof. If payment is to be made in Stock, the
number of shares of Stock shall be determined based on the Fair
Market Value of the Stock on the date of exercise. If the Committee
elects to make full payment in Stock, no fractional shares of Stock
shall be issued and cash payments shall be made in lieu of
fractional shares.
6.5 The Committee shall have sole discretion as to the timing of any
payment made in cash, Stock, or a combination thereof, upon
exercise of Stock Appreciation Rights. Payment may be made in a
lump sum, in annual installments or may be otherwise deferred; and
the Committee shall have sole discretion to determine whether any
deferred payments may bear amounts equivalent to interest or cash
dividends.
6.6 Upon exercise of a Stock Appreciation Right, the number of shares
of Stock subject to exercise under any related Stock Option shall
automatically be reduced by the number of shares of Stock
represented by the Stock Option or portion thereof which is
surrendered.
6.7 The Committee, in its sole discretion, may also provide that, in
the event of a Change in Control and/or a Potential Change in
Control, the amount to be paid upon the exercise of a Stock
Appreciation Right or Limited Stock Appreciation Right shall be
based on the Change in Control Price, subject to such terms and
conditions as the Committee may specify at grant.
6.8 In its sole discretion, the Committee may grant Limited Stock
Appreciation Rights under this Article VI. Limited Stock
Appreciation Rights become exercisable only in the event of a
Change in Control and/or a Potential Change in Control, subject to
such terms and conditions as the Committee, in its sole discretion,
may specify at grant. Such Limited Stock Appreciation Rights shall
be settled solely in cash. A Limited Stock Appreciation Right shall
entitle the holder of the related Stock Option to surrender such
Stock Option, or any portion thereof, to the extent unexercised in
respect of the number of shares of Stock as to which such Limited
Stock Appreciation Right is exercised, and to receive a cash
payment equal to the difference between (a) the Stock Appreciation
Right Fair Market Value (at the date of surrender) of a share of
Stock for which the surrendered Stock Option or portion thereof is
then exercisable, and (b) the price at which a Participant could
exercise a related Stock Option to purchase the share of Stock.
Such Stock Option shall, to the extent so surrendered, thereupon
cease to be exercisable. A Limited Stock Appreciation Right shall
be subject to such further terms and conditions as the Committee
shall, in its sole discretion, deem appropriate.
<PAGE>
ARTICLE VII - INCIDENTS OF STOCK OPTIONS AND STOCK RIGHTS
7.1 Each Stock Option and Stock Right shall be granted subject to such
terms and conditions, if any, not inconsistent with this Plan, as
shall be determined by the Committee, including any provisions as
to continued employment as consideration for the grant or exercise
of such Stock Option or Stock Right and any provisions which may be
advisable to comply with applicable laws, regulations or rulings of
any governmental authority.
7.2 An Incentive Stock Option and its related Stock Right, if any,
shall not be transferable by the Participant other than by will or
by the laws of descent and distribution, and shall be exercisable
during the lifetime of the Participant only by him or by his
guardian or legal representative. A Nonqualified Stock Option and
its related Stock Right, if any, shall be subject to the
transferability and exercisability restrictions of the immediately
preceding sentence unless otherwise determined by the Committee, in
its sole discretion, and set forth in the applicable Award
Agreement. Nonqualified Stock Options and their related Stock
Rights, if any, granted prior to the effectiveness of this Section
may be amended to provide for their transferability to the extent,
if any, determined by the Committee, in its sole discretion.
7.3 Shares of Stock purchased upon exercise of a Stock Option shall be
paid for in such amounts, at such times and upon such terms as
shall be determined by the Committee, subject to limitations set
forth in the Stock Option Award Agreement. Without limiting the
foregoing, the Committee may establish payment terms for the
exercise of Stock Options which permit the Participant to deliver
shares of Stock (or other evidence of ownership of Stock
satisfactory to the Corporation) with a Fair Market Value equal to
the Stock Option price as payment.
7.4 No cash dividends shall be paid on shares of Stock subject to
unexercised Stock Options. The Committee may provide, however, that
a Participant to whom a Stock Option has been granted which is
exercisable in whole or in part at a future time for shares of
Stock shall be entitled to receive an amount per share equal in
value to the cash dividends, if any, paid per share on issued and
outstanding Stock, as of the dividend record dates occurring during
the period between the date of the grant and the time each such
share of Stock is delivered pursuant to exercise of such Stock
Option or the related Stock Right. Such amounts (herein called
"dividend equivalents") may, in the discretion of the Committee,
be:
(a) paid in cash or Stock either from time to time prior to,
or at the time of the delivery of, such Stock, or upon
expiration of the Stock Option if it shall not have been
fully exercised; or
(b) converted into contingently credited shares of Stock (with
respect to which dividend equivalents may accrue) in such
manner, at such value, and deliverable at such time or
times, as may be determined by the Committee.
Such Stock (whether delivered or contingently credited) shall be
charged against the limitations set forth in Section 3.6.
7.5 The Committee, in its sole discretion, may authorize payment
of interest equivalents on dividend equivalents which are payable
in cash at a future time.
7.6 In the event of death or Disability, the Committee, with the
consent of the Participant or his legal representative, may
authorize payment, in cash or in Stock, or partly in cash and
partly in Stock, as the Committee may direct, of an amount equal to
the difference at the time between the Fair Market Value of the
Stock subject to a Stock Option and the Option price in
consideration of the surrender of the Stock Option.
7.7 If a Participant is required to pay to the Corporation an amount
with respect to income and employment tax withholding obligations
in connection with exercise of a Nonqualified Stock Option, and/or
with respect to certain dispositions of Stock acquired upon the
exercise of an Incentive Stock Option, the Committee, in its
discretion and subject to such rules as it may adopt, may permit
the Participant to satisfy the obligation, in whole or in part, by
making an irrevocable election that a portion of the total Fair
Market Value of the shares of Stock subject to the Nonqualified
Stock Option and/or with respect to certain dispositions of Stock
acquired upon the exercise of an Incentive Stock Option, be paid in
the form of cash in lieu of the issuance of Stock and that such
cash payment be applied to the satisfaction of the withholding
obligations. The amount to be withheld shall not exceed the
statutory minimum Federal and State income and employment tax
liability arising from the Stock Option exercise transaction.
7.8 The Committee may permit the voluntary surrender of all or a
portion of any Stock Option granted under the Plan to be
conditioned upon the granting to the Participant of a new Stock
Option for the same or a different number of shares of Stock as the
Stock Option surrendered, or may require such voluntary surrender
as a condition precedent to a grant of a new Stock Option to such
Participant. Subject to the provisions of the Plan, such new Stock
Option shall be exercisable at the same price, during such period
and on such other terms and conditions as are specified by the
Committee at the time the new Stock Option is granted. Upon
surrender, the Stock Options surrendered shall be canceled and the
shares of Stock previously subject to them shall be available for
the grant of other Stock Options.
<PAGE>
ARTICLE VIII - RESTRICTED STOCK
8.1 Restricted Stock Awards may be made to certain Participants as an
incentive for the performance of future services that will
contribute materially to the successful operation of the
Corporation and its Subsidiaries. Awards of Restricted Stock may be
made either alone, in addition to or in tandem with other Awards
granted under the Plan and/or cash payments made outside of the
Plan.
8.2 With respect to Awards of Restricted Stock, the Committee shall:
(a) determine the purchase price, if any, to be paid for such
Restricted Stock, which may be equal to or less than par
value and may be zero, subject to such minimum
consideration as may be required by applicable law;
(b) determine the length of the Restriction Period;
(c) determine any restrictions applicable to the
Restricted Stock such as service or performance,
other than those set forth in this Article VIII;
(d) determine if the restrictions shall lapse as to all shares
of Restricted Stock at the end of the Restriction Period
or as to a portion of the shares of Restricted Stock in
installments during the Restriction Period; and
(e) determine if dividends and other distributions on the
Restricted Stock are to be paid currently to the
Participant or withheld by the Corporation or its
Subsidiaries for the account of the Participant.
8.3 Awards of Restricted Stock must be accepted within a period
of sixty (60) days (or such shorter periods as the Committee
may specify at grant) after the Award date, by executing a
Restricted Stock Award Agreement and paying whatever price
(if any) is required.
The prospective recipient of a Restricted Stock Award shall not
have any rights with respect to such Award, unless such recipient
has executed a Restricted Stock Award Agreement and has delivered a
fully executed copy thereof to the Committee, and has otherwise
complied with the applicable terms and conditions of such Award.
8.4 Except when the Committee determines otherwise, or as otherwise
provided in the Restricted Stock Award Agreement, if a Participant
terminates employment with the Corporation or its Subsidiaries for
any reason before the expiration of the Restriction Period, all
shares of Restricted Stock still subject to restriction shall be
forfeited by the Participant and shall be reacquired by the
Corporation.
8.5 Except as otherwise provided in this Article VIII, no shares
of Restricted Stock received by a Participant shall be sold,
exchanged, transferred, pledged, hypothecated or otherwise
disposed of during the Restriction Period.
8.6 To the extent not otherwise provided in a Restricted Stock
Award Agreement, in cases of death, Disability or Retirement or
in cases of special circumstances, the Committee, if it finds
that a waiver would be appropriate, may elect to waive any or all
remaining restrictions with respect to such Participant's
Restricted Stock.
8.7 In the event of hardship or other special circumstances of a
Participant whose employment with the Corporation or any Subsidiary
is involuntarily terminated (other than for cause), the Committee
may waive in whole or in part any or all remaining restrictions
with respect to any or all of the Participant's Restricted Stock,
based on such factors and criteria as the Committee may deem
appropriate.
8.8 The certificates representing shares of Restricted Stock may
either:
(a) be held in custody by the Corporation until the
Restriction Period expires or until restrictions thereon
otherwise lapse, and the Participant shall deliver to the
Corporation a stock power endorsed in blank relating to
the Restricted Stock; and/or
(b) be issued to the Participant and registered in the name of
the Participant, and shall bear an appropriate restrictive
legend and shall be subject to appropriate stop-transfer
orders.
8.9 Except as provided in this Article VIII, a Participant receiving a
Restricted Stock Award shall have, with respect to the shares of
Restricted Stock covered by any Award, all of the rights of a
shareholder of the Corporation, including the right to vote the
shares, to the extent, if any, such shares possess voting rights,
and the right to receive any dividends; provided, however, the
Committee may require that any dividends on such shares of
Restricted Stock shall be automatically deferred and reinvested in
additional Restricted Stock subject to the same restrictions as the
underlying Award, or may require that dividends and other
distributions on Restricted Stock shall be withheld by the
Corporation or its Subsidiaries for the account of the Participant.
The Committee shall determine whether interest shall be paid on
amounts withheld, the rate of any such interest, and the other
terms applicable to such withheld amounts.
8.10 If and when the Restriction Period expires without a prior
forfeiture of the Restricted Stock subject to such Restriction
Period, unrestricted certificates for such shares shall be
delivered to the Participant.
8.11 In order to better ensure that Award payments actually reflect the
performance of the Corporation and its Subsidiaries and the service
of the Participant, the Committee may provide, in its sole
discretion, for a tandem performance-based or other Award designed
to guarantee a minimum value, payable in cash or Stock to the
recipient of a Restricted Stock Award, subject to such performance,
future service, deferral and other terms and conditions as may be
specified by the Committee.
<PAGE>
ARTICLE IX - DEFERRED STOCK
9.1 Shares of Deferred Stock (together with cash dividend equivalents,
if so determined by the Committee) may be issued either alone or in
addition to other Awards granted under the Plan in the discretion
of the Committee. The Committee shall determine the individuals to
whom, and the time or times at which, such Awards will be made, the
number of shares to be awarded, the price (if any) to be paid by
the recipient of a Deferred Stock Award, the time or times within
which such Awards may be subject to forfeiture, and all other
conditions of the Awards. The Committee may condition Awards of
Deferred Stock upon the attainment of specified performance goals
or such other factors or criteria as the Committee may determine.
9.2 Deferred Stock Awards shall be subject to the following terms and
conditions:
(a) Subject to the provisions of this Plan and the applicable
Award Agreement, Deferred Stock Awards may not be sold,
transferred, pledged, assigned or otherwise encumbered
during the Deferral Period. At the expiration of the
Deferral Period (or the Elective Deferral Period defined
in Section 9.3), share certificates shall be delivered to
the Participant, or his legal representative, in a number
equal to the number of shares of Stock covered by the
Deferred Stock Award.
Based on service, performance and/or such other factors or
criteria as the Committee may determine, the Committee,
however, at or after grant, may accelerate the vesting of
all or any part of any Deferred Stock Award and/or waive
the deferral limitations for all or any part of such
Award.
(b) Unless otherwise determined by the Committee, amounts
equal to any dividends that would have been payable during
the Deferral Period with respect to the number of shares
of Stock covered by a Deferred Stock Award if such shares
of Stock had been outstanding shall be automatically
deferred and deemed to be reinvested in additional
Deferred Stock, subject to the same deferral limitations
as the underlying Award.
(c) Except to the extent otherwise provided in this Plan or in
the applicable Award Agreement, upon Termination of
Employment during the Deferral Period for a given Award,
the Deferred Stock covered by such Award shall be
forfeited by the Participant; provided, however, the
Committee may provide for accelerated vesting in the event
of Termination of Employment due to death, Disability or
Retirement, or in the event of hardship or other special
circumstances as the Committee deems appropriate.
(d) The Committee may require that a designated percentage of
the total Fair Market Value of the shares of Deferred
Stock held by one or more Participants be paid in the form
of cash in lieu of the issuance of Stock and that such
cash payment be applied to the satisfaction of the federal
and state income and employment tax withholding
obligations that arise at the time the Deferred Stock
becomes free of all restrictions. The designated
percentage shall be equal to the income and employment tax
withholding rate in effect at the time under federal and
applicable state laws.
(e) The Committee may provide one or more Participants subject
to the mandatory cash payment with an election to receive
an additional percentage of the total value of the
Deferred Stock in the form of a cash payment in lieu of
the issuance of Deferred Stock. The additional percentage
shall not exceed the difference between fifty percent
(50%) and the designated percentage cash payment.
(f) The Committee may impose such further terms and conditions
on partial cash payments with respect to Deferred Stock as
it deems appropriate.
9.3 A Participant may elect to further defer receipt of Deferred Stock
for a specified period or until a specified event (the "Elective
Deferral Period"), subject in each case to the Committee's approval
and to such terms as are determined by the Committee. Subject to
any exceptions adopted by the Committee, such election must
generally be made at least twelve (12) months prior to completion
of the Deferral Period for the Deferred Stock Award in question (or
for the applicable installment of such an Award).
9.4 Each Award shall be confirmed by, and subject to the terms of, a
Deferred Stock Award Agreement.
9.5 In order to better ensure that the Award actually reflects the
performance of the Corporation or its Subsidiaries and the service
of the Participant, the Committee may provide, in its sole
discretion, for a tandem performance-based or other Award designed
to guarantee a minimum value, payable in cash or Stock to the
recipient of a Deferred Stock Award, subject to such performance,
future service, deferral and other terms and conditions as may be
specified by the Committee.
<PAGE>
ARTICLE X - STOCK AWARDS
10.1 A Stock Award shall be granted only in payment of compensation that
has been earned or as compensation to be earned, including, without
limitation, compensation awarded concurrently with or prior to the
grant of the Stock Award.
10.2 For the purposes of this Plan, in determining the value of a Stock
Award, all shares of Stock subject to such Stock Award shall be
valued at not less than one hundred percent (100%) of the Fair
Market Value of such shares of Stock on the date such Stock Award
is granted, regardless of whether or when such shares of Stock are
issued or transferred to the Participant and whether or not such
shares of Stock are subject to restrictions which affect their
value.
10.3 Shares of Stock subject to a Stock Award may be issued or
transferred to the Participant at the time the Stock Award is
granted, or at any time subsequent thereto, or in installments from
time to time, as the Committee shall determine. If any such
issuance or transfer shall not be made to the Participant at the
time the Stock Award is granted, the Committee may provide for
payment to such Participant, either in cash or shares of Stock,
from time to time or at the time or times such shares of Stock
shall be issued or transferred to such Participant, of amounts not
exceeding the dividends which would have been payable to such
Participant in respect of such shares of Stock (as adjusted under
Section 3.11) if such shares of Stock had been issued or
transferred to such Participant at the time such Stock Award was
granted. Any issuance payable in shares of Stock under the terms of
a Stock Award may, at the discretion of the Committee, be paid in
cash on each date on which delivery of shares of Stock would
otherwise have been made, in an amount equal to the Fair Market
Value on such date of the shares of Stock which would otherwise
have been delivered.
10.4 A Stock Award shall be subject to such terms and conditions,
including, without limitation, restrictions on the sale or other
disposition of the Stock Award or of the shares of Stock issued or
transferred pursuant to such Stock Award, as the Committee shall
determine; provided, however, that upon the issuance or transfer of
shares pursuant to a Stock Award, the Participant, with respect to
such shares of Stock, shall be and become a shareholder of the
Corporation fully entitled to receive dividends, to vote, to the
extent, if any, such shares possess voting rights, and to exercise
all other rights of a shareholder except to the extent otherwise
provided in the Stock Award. Each Stock Award shall be evidenced by
a written Award Agreement in such form as the Committee shall
determine.
<PAGE>
ARTICLE XI - PERFORMANCE SHARES
11.1 Awards of Performance Shares may be made to certain Participants as
an incentive for the performance of future services that will
contribute materially to the successful operation of the
Corporation and its Subsidiaries. Awards of Performance Shares may
be made either alone, in addition to or in tandem with other Awards
granted under the Plan and/or cash payments made outside of the
Plan.
11.2 With respect to Awards of Performance Shares, which may be issued
for no consideration or such minimum consideration as is required
by applicable law, the Committee shall:
(a) determine and designate from time to time those
Participants to whom Awards of Performance Shares are to
be made;
(b) determine the performance period (the "Performance
Period") and/or performance objectives (the "Performance
Objectives") applicable to such Awards;
(c) determine the form of settlement of a Performance Share;
and
(d) generally determine the terms and conditions of each such
Award. At any date, each Performance Share shall have a
value equal to the Fair Market Value, determined as set
forth in Section 2.15.
11.3 Performance Periods may overlap, and Participants may participate
simultaneously with respect to Performance Shares for which
different Performance Periods are prescribed.
11.4 The Committee shall determine the Performance Objectives of Awards
of Performance Shares. Performance Objectives may vary from
Participant to Participant and between Awards and shall be based
upon such performance criteria or combination of factors as the
Committee may deem appropriate, including for example, but not
limited to, minimum earnings per share or return on equity. If
during the course of a Performance Period there shall occur
significant events which the Committee expects to have a
substantial effect on the applicable Performance Objectives during
such period, the Committee may revise such Performance Objectives.
11.5 The Committee shall determine for each Participant the number of
Performance Shares which shall be paid to the Participant if the
applicable Performance Objectives are exceeded or met in whole or
in part.
11.6 If a Participant terminates service with the Corporation or its
Subsidiaries during a Performance Period because of death,
Disability, Retirement or under other circumstances in which the
Committee in its discretion finds that a waiver would be
appropriate, that Participant, as determined by the Committee, may
be entitled to a payment of Performance Shares at the end of the
Performance Period based upon the extent to which the Performance
Objectives were satisfied at the end of such period and pro rated
for the portion of the Performance Period during which the
Participant was employed by the Corporation or any Subsidiary;
provided, however, the Committee may provide for an earlier payment
in settlement of such Performance Shares in such amount and under
such terms and conditions as the Committee deems appropriate or
desirable. If a Participant terminates service with the Corporation
or its Subsidiaries during a Performance Period for any other
reason, then such Participant shall not be entitled to any payment
with respect to that Performance Period unless the Committee shall
otherwise determine.
11.7 Each Award of a Performance Share shall be paid in whole shares of
Stock, or cash, or a combination of Stock and cash as the Committee
shall determine, with payment to be made as soon as practicable
after the end of the relevant Performance Period.
11.8 The Committee shall have the authority to approve requests by
Participants to defer payment of Performance Shares on terms and
conditions approved by the Committee and set forth in a written
Award Agreement between the Participant and the Corporation or its
Subsidiaries entered into in advance of the time of receipt or
constructive receipt of payment by the Participant.
<PAGE>
ARTICLE XII - OTHER STOCK-BASED AWARDS
12.1 Other awards of Stock and other awards that are valued in whole or
in part by reference to, or are otherwise based on, Stock ("Other
Stock-Based Awards"), including, without limitation, convertible
preferred stock, convertible debentures, exchangeable securities,
phantom stock and Stock awards or options valued by reference to
book value or performance, may be granted either alone or in
addition to or in tandem with Stock Options, Stock Rights,
Restricted Stock, Deferred Stock or Stock Awards granted under the
Plan and/or cash awards made outside of the Plan.
Subject to the provisions of the Plan, the Committee shall have
authority to determine the Eligible Participants to whom and the
time or times at which such Awards shall be made, the number of
shares of Stock subject to such Awards, and all other conditions of
the Awards. The Committee also may provide for the grant of shares
of Stock upon the completion of a specified Performance Period.
The provisions of Other Stock-Based Awards need not be the same
with respect to each recipient.
12.2 Other Stock-Based Awards made pursuant to this Article XII shall
be subject to the following terms and conditions:
(a) Subject to the provisions of this Plan and the Award
Agreement, shares of Stock subject to Awards made under
this Article XII may not be sold, assigned, transferred,
pledged or otherwise encumbered prior to the date on which
the shares are issued, or, if later, the date on which any
applicable restriction, performance or deferral period
lapses.
(b) Subject to the provisions of this Plan and the Award
Agreement and unless otherwise determined by the Committee
at the time of the Award, the recipient of an Award under
this Article XII shall be entitled to receive, currently
or on a deferred basis, interest or dividends or interest
or dividend equivalents with respect to the number of
shares covered by the Award, as determined at the time of
the Award by the Committee, in its sole discretion, and
the Committee may provide that such amounts (if any) shall
be deemed to have been reinvested in additional Stock or
otherwise reinvested.
(c) Any Award under this Article XII and any Stock covered by
any such Award shall vest or be forfeited to the extent so
provided in the Award Agreement, as determined by the
Committee, in its sole discretion.
(d) Upon the Participant's Retirement, Disability or death, or
in cases of special circumstances, the Committee may, in
its sole discretion, waive in whole or in part any or all
of the remaining limitations imposed hereunder (if any)
with respect to any or all of an Award under this Article
XII.
(e) Each Award under this Article XII shall be confirmed
by, and subject to the terms of, an Award Agreement.
(f) Stock (including securities convertible into Stock) issued
on a bonus basis under this Article XII may be issued for
no cash consideration.
12.3 Other Stock-Based Awards may include a phantom stock Award, which
is subject to the following terms and conditions:
(a) The Committee shall select the Eligible Participants who
may receive phantom stock Awards. The Eligible Participant
shall be awarded a phantom stock unit, which shall be the
equivalent to a share of Stock.
(b) Under an Award of phantom stock, payment shall be made on
the dates or dates as specified by the Committee or as
stated in the Award Agreement and phantom stock Awards may
be settled in cash, Stock, or some combination thereof.
(c) The Committee shall determine such other terms and
conditions of each Award as it deems necessary in its sole
discretion.
<PAGE>
ARTICLE XIII - ACCELERATION EVENTS
13.1 For the purposes of the Plan, an Acceleration Event shall occur in
the event of a "Potential Change in Control," or "Change in
Control" or a "Board-Approved Change in Control", as those terms
are defined below.
13.2 A "Change in Control" shall be deemed to have occurred if:
(a) Any "Person" as defined in Section 3(a)(9) of the Act,
including a "group" (as that term is used in Sections
13(d)(3) and 14(d)(2) of the Act), but excluding the
Corporation and any Subsidiary and any employee benefit
plan sponsored or maintained by the Corporation and any
Subsidiary (including any trustee of such plan acting as
trustee) who:
(i) makes a tender or exchange offer for any shares
of the Corporation's Stock (as defined below)
pursuant to which any shares of the
Corporation's Stock are purchased (an "Offer");
or
(ii) together with its "affiliates" and "associates"
(as those terms are defined in Rule 12b-2 under
the Act) becomes the "Beneficial Owner" (within
the meaning of Rule 13d-3 under the Act) of at
least twenty percent (20%) of the Corporation's
Stock (an "Acquisition");
(b) The stockholders of the Corporation approve a definitive
agreement or plan to merge or consolidate the Corporation
with or into another corporation, to sell or otherwise
dispose of all or substantially all of its assets, or to
liquidate the Corporation (individually, a "Transaction");
or
(c) When, during any period of twenty-four (24) consecutive
months during the existence of the Plan, the individuals
who, at the beginning of such period, constitute the
Board (the "Incumbent Directors") cease for any reason
other than death to constitute at least a majority
thereof; provided, however, that a director who was not a
director at the beginning of such twenty-four (24) month
period shall be deemed to have satisfied such
twenty-four (24) month requirement (and be an Incumbent
Director) if such director was elected by, or on the
recommendation of or with the approval of, at least
two-thirds of the directors who then qualified as
Incumbent Directors either actually (because they
were directors at the beginning of such twenty-four
(24) month period) or by prior operation of this Section
13.2(c).
13.3 A "Board-Approved Change in Control" shall be deemed to have
occurred if the Offer, Acquisition or Transaction, as the case may
be, is approved by a majority of the Directors serving as members
of the Board at the time of the Potential Change in Control or
Change in Control.
13.4 A "Potential Change in Control" means the happening of any one of
the following:
(a) The approval by stockholders of an agreement by the
Corporation, the consummation of which would result in a
Change in Control of the Corporation, as defined in
Section 13.2; or
(b) The acquisition of Beneficial Ownership, directly or
indirectly, by any entity, person or group (other than the
Corporation or any Subsidiary or any Corporation or
Subsidiary employee benefit plan (including any trustee of
such plan acting as such trustee)) of securities of the
Corporation representing five percent (5%) or more of the
combined voting power of the Corporation's outstanding
securities and the adoption by the Board of a resolution
to the effect that a Potential Change in Control of the
Corporation has occurred for the purposes of this Plan.
13.5 Upon the occurrence of an Acceleration Event, subject to the
approval of the Committee if the Acceleration Event results from a
Board-Approved Change in Control, all then outstanding Performance
Shares with respect to which the applicable Performance Period has
not been completed shall be paid as soon as practicable as follows:
(a) all Performance Objectives applicable to the Award of
Performance Shares shall be deemed to have been satisfied
to the extent necessary to result in payment of one
hundred percent (100%) of the Performance Shares covered
by the Award; and
(b) the applicable Performance Period shall be deemed
to have ended on the date of the Acceleration Event;
(c) the payment to the Participant shall be the amount
determined either by the Committee, in its sole
discretion, or in the manner stated in the Award
Agreement. This amount shall then be multiplied by a
fraction, the numerator of which is the number of full
calendar months of the applicable Performance Period that
have elapsed prior to the date of the Acceleration Event,
and the denominator of which is the total number of months
in the original Performance Period; and
(d) upon the making of any such payment, the Award Agreement
as to which it relates shall be deemed canceled and of no
further force and effect.
13.6 Upon the occurrence of an Acceleration Event, subject to the
approval of the Committee if the Acceleration Event results from a
Board-Approved Change in Control, the Committee in its discretion
may declare any or all then outstanding Stock Options not
previously exercisable and vested as immediately exercisable and
fully vested, in whole or in part.
13.7 Upon the occurrence of an Acceleration Event, subject to the
approval of the Committee if the Acceleration Event results from a
Board-Approved Change in Control, the Committee in its discretion,
may declare the restrictions applicable to Awards of Restricted
Stock, Deferred Stock or Other Stock-Based Awards to have lapsed,
in which case the Corporation shall remove all restrictive legends
and stop-transfer orders applicable to the certificates for such
shares of Stock, and deliver such certificates to the Participants
in whose names they are registered.
13.8 The value of all outstanding Stock Option, Stock Rights, Restricted
Stock, Deferred Stock, Performance Shares, Stock Awards and Other
Stock-Based Awards, in each case to the extent vested, shall,
unless otherwise determined by the Committee in its sole discretion
at or after grant but prior to any Change in Control, be cashed out
on the basis of the "Change in Control Price," as defined in
Section 13.9 as of the date such Change in Control or such
Potential Change in Control is determined to have occurred or such
other date as the Committee may determine prior to the Change in
Control.
13.9 For purposes of Section 13.8, "Change in Control Price" means the
highest price per share of Stock paid in any transaction reported
on the New York Stock Exchange Composite Index, or paid or offered
in any bona fide transaction related to a Potential or actual
Change in Control of the Corporation at any time during the sixty
(60) day period immediately preceding the occurrence of the Change
in Control (or, where applicable, the occurrence of the Potential
Change in Control event), in each case as determined by the
Committee except that, in the case of Incentive Stock Options and
Stock Appreciation Rights (or Limited Stock Appreciation Rights)
relating to such Incentive Stock Options, such price shall be based
only on transactions reported for the date on which the optionee
exercises such Stock Appreciation Rights (or Limited Stock
Appreciation Rights).
<PAGE>
ARTICLE XIV - AMENDMENT AND TERMINATION
14.1 The Board, upon recommendation of the Committee, or otherwise, at
any time and from time to time, may amend or terminate the Plan as
may be necessary or desirable to implement or discontinue this Plan
or any provision thereof. No amendment, without approval by the
Corporation's stockholders, shall:
(a) alter the group of persons eligible to participate in the
Plan;
(b) except as provided in Sections 3.6 and 3.11, increase the
maximum number of shares of Stock or Stock Options or
Stock Rights which are available for Awards under the Plan
or increase the maximum number of shares with respect to
which Stock Options or Stock Rights may be granted to any
employee under the Plan;
(c) extend the period during which Incentive Stock Option
Awards may be granted beyond November 20, 2000;
(d) limit or restrict the powers of the Committee with
respect to the administration of this Plan; or
(e) change any of the provisions of this Article XIV.
14.2 No amendment to or discontinuance of this Plan or any provision
thereof by the Board or the stockholders of the Corporation shall,
without the written consent of the Participant, adversely affect,
as shall be determined by the Committee, any Award theretofore
granted to such Participant under this Plan; provided, however, the
Committee retains the right and power to:
(a) annul any Award if the Participant competes against the
Corporation or any Subsidiary or is terminated for cause
as determined by the Committee;
(b) provide for the forfeiture of shares of Stock or other
gain under an Award as determined by the Committee for
competing against the Corporation or any Subsidiary; and
(c) convert any outstanding Incentive Stock Option to a
Nonqualified Stock Option.
14.3 If an Acceleration Event has occurred, no amendment or termination
shall impair the rights of any person with respect to an
outstanding Award as provided in Article XIII.
<PAGE>
ARTICLE XV - MISCELLANEOUS PROVISIONS
15.1 Nothing in the Plan or any Award granted hereunder shall confer
upon any Participant any right to continue in the employ of the
Corporation or its Subsidiaries (or to serve as a director thereof)
or interfere in any way with the right of the Corporation or its
Subsidiaries to terminate his or her employment at any time. Unless
specifically provided otherwise, no Award granted under the Plan
shall be deemed salary or compensation for the purpose of computing
benefits under any employee benefit plan or other arrangement of
the Corporation or its Subsidiaries for the benefit of its
employees unless the Corporation shall determine otherwise. No
Participant shall have any claim to an Award until it is actually
granted under the Plan. To the extent that any person acquires a
right to receive payments from the Corporation under the Plan, such
right shall, except as otherwise provided by the Committee, be no
greater than the right of an unsecured general creditor of the
Corporation. All payments to be made hereunder shall be paid from
the general funds of the Corporation, and no special or separate
fund shall be established and no segregation of assets shall be
made to assure payment of such amounts, except as provided in
Article VIII with respect to Restricted Stock and except as
otherwise provided by the Committee.
15.2 The Corporation may make such provisions and take such steps as it
may deem necessary or appropriate for the withholding of any taxes
which the Corporation or any Subsidiary is required by any law or
regulation of any governmental authority, whether federal, state or
local, domestic or foreign, to withhold in connection with any
Stock Option or the exercise thereof, any Stock Right or the
exercise thereof, or in connection with any other type of
equity-based compensation provided hereunder or the exercise
thereof, including, but not limited to, the withholding of payment
of all or any portion of such Award or another Award under this
Plan until the Participant reimburses the Corporation or its
Subsidiaries for the amount the Corporation or its Subsidiaries is
required to withhold with respect to such taxes, or canceling any
portion of such Award or another Award under this Plan in an amount
sufficient to reimburse itself for the amount it is required to so
withhold, or selling any property contingently credited by the
Corporation for the purpose of paying such Award or another Award
under this Plan, in order to withhold or reimburse itself for the
amount it is required to so withhold.
15.3 The Plan and the grant of Awards shall be subject to all applicable
federal and state laws, rules, and regulations and to such
approvals by any government or regulatory agency as may be
required. Any provision herein relating to compliance with Rule
16b-3 under the Act shall not be applicable with respect to
participation in the Plan by Participants who are not subject to
Section 16(b) of the Act.
15.4 The terms of the Plan shall be binding upon the Corporation, its
Subsidiaries and their successors and assigns.
15.5 Neither a Stock Option, Stock Right, nor any other type of
equity-based compensation provided for hereunder, shall be
transferable except as provided for herein. If any Participant
makes such a transfer in violation hereof, any obligation of the
Corporation shall forthwith terminate.
15.6 This Plan and all actions taken hereunder shall be governed by the
laws of the State of North Carolina, except to the extent preempted
by ERISA.
15.7 The Plan is intended to constitute an "unfunded" plan for incentive
and deferred compensation. With respect to any payments not yet
made to a Participant by the Corporation, nothing contained herein
shall give any such Participant any rights that are greater than
those of a general creditor of the Corporation. In its sole
discretion, the Committee may authorize the creation of trusts or
other arrangements to meet the obligations created under the Plan
to deliver shares of Stock or payments in lieu of or with respect
to Awards hereunder; provided, however, that, unless the Committee
otherwise determines with the consent of the affected Participant,
the existence of such trusts or other arrangements is consistent
with the "unfunded" status of the Plan.
15.8 Each Participant exercising an Award hereunder agrees to give the
Committee prompt written notice of any election made by such
Participant under Section 83(b) of the Code, or any similar
provision thereof.
15.9 If any provision of this Plan or an Award Agreement is or becomes
or is deemed invalid, illegal or unenforceable in any jurisdiction,
or would disqualify the Plan or any Award Agreement under any law
deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to applicable laws or if it
cannot be construed or deemed amended without, in the determination
of the Committee, materially altering the intent of the Plan or the
Award Agreement, it shall be stricken and the remainder of the Plan
or the Award Agreement shall remain in full force and effect.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized:
CENTURA BANKS, INC.
Registrant
Date: April 16, 1997 By: /s/Frank L. Pattillo
----------------------
Frank L. Pattillo
Vice Chairman
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