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 March 31, 1998
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)
(252) 454-4400
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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 26,572,853
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(Class of Stock) (Shares outstanding as of April 30, 1998)
Exhibit Index on sequential page number 33.
<PAGE>
CENTURA BANKS, INC.
FORM 10-Q
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -
March 31, 1998 and 1997, and December 31, 1997 4
Consolidated Statements of Income -
Three months ended March 31, 1998 and 1997 5
Consolidated Statement of Shareholders' Equity -
Three months ended March 31, 1998 6
Consolidated Statements of Cash Flows -
Three months ended March 31, 1998 and 1997 7
Notes to Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-23
Item 3. Quantitative and Qualitative Disclosures about Market Risk 24
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities and Use of Proceeds 25
Item 3. Defaults upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Securities Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
<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>
March 31 December 31,
--------------------------- ---------------------
(In thousands, except share data) 1998 1997 1997
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<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 259,237 $ 215,564 $ 268,248
Due from banks, interest-bearing 20,295 11,058 13,873
Federal funds sold 3,517 10,750 29,552
Investment securities:
Available for sale (cost of $1,770,947, $1,420,540
and $1,623,330, respectively) 1,784,940 1,418,066 1,639,500
Held to maturity (fair value of $182,614,
$244,906 and $191,689, respectively) 179,422 245,361 188,556
Loans 4,849,441 4,140,583 4,586,582
Less allowance for loan losses 66,828 58,762 64,279
- ---------------------------------------------------------------------------------------------------------------------
Net loans 4,782,613 4,081,821 4,522,303
Bank premises and equipment 116,439 113,552 115,464
Other assets 370,640 280,541 347,934
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Total assets $ 7,517,103 $ 6,376,713 $ 7,125,430
=====================================================================================================================
LIABILITIES
Deposits:
Demand, noninterest-bearing $ 871,249 $ 711,467 $ 816,475
Interest-bearing 4,140,335 3,696,385 4,076,372
Time deposits over $100 486,132 340,393 472,078
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Total deposits 5,497,716 4,748,245 5,364,925
Borrowed funds 935,504 745,763 733,192
Long-term debt 396,185 308,519 382,129
Other liabilities 113,474 82,819 106,848
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Total liabilities 6,942,879 5,885,346 6,587,094
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 26,559,747, 25,752,174
and 25,862,375, respectively 195,392 189,276 187,435
Common stock acquired by ESOP (215) (359) (251)
Unrealized securities gains (losses), net 8,709 (1,649) 9,970
Retained earnings 370,338 304,099 341,182
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Total shareholders' equity 574,224 491,367 538,336
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Total liabilities and shareholders' equity $ 7,517,103 $ 6,376,713 $ 7,125,430
======================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
CENTURA BANKS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
(Dollars in thousands, except share and per share data) 1998 1997
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<S> <C> <C>
INTEREST INCOME
Loans $ 107,318 $ 95,226
Investment securities:
Taxable 28,448 23,515
Tax-exempt 585 657
Short-term investments 370 445
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Total interest income 136,721 119,843
INTEREST EXPENSE
Deposits 49,070 43,185
Borrowed funds 10,514 7,983
Long-term debt 6,515 4,790
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Total interest expense 66,099 55,958
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NET INTEREST INCOME 70,622 63,885
Provision for loan losses 3,393 2,894
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Net interest income after provision for loan losses 67,229 60,991
NONINTEREST INCOME
Service charges on deposit accounts 10,586 9,212
Credit card and related fees 1,832 1,294
Other service charges, commissions and fees 7,582 4,943
Fees for trust services 2,100 1,950
Mortgage income 3,217 2,673
Other noninterest income 5,964 4,089
Securities gains (losses), net 302 (94)
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Total noninterest income 31,583 24,067
NONINTEREST EXPENSE
Personnel 31,234 27,757
Occupancy 3,822 3,338
Equipment 5,228 5,165
Foreclosed real estate losses and related
operating expense 428 324
Other operating expenses 24,000 20,531
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Total noninterest expense 64,712 57,115
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Income before income taxes 34,100 27,943
Income taxes 11,623 10,069
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NET INCOME $ 22,477 $ 17,874
================================================================================
NET INCOME PER COMMON SHARE
Basic $ 0.87 0.69
Diluted 0.85 0.68
===============================================================================
AVERAGE COMMON SHARES OUTSTANDING
Basic 25,982,304 25,728,556
Diluted 26,522,065 26,240,592
================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Centura Banks, Inc. and Subsidiaries
Three months ended March 31, 1998
<TABLE>
<CAPTION>
Common Unrealized
Stock Securities Total
Common Stock Acquired Gains(Losses) Retained Shareholders'
Shares Amount by ESOP Net Earnings Equity
----------- ---------- --------- ------------ ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 25,862,375 $ 187,435 $ (251) $ 9,970 $ 341,182 $ 538,336
Net income - - - - 22,477 22,477
Common stock issued:
Stock option plans and stock awards 71,388 1,601 - - - 1,601
Acquisitions 625,984 6,179 6,713 12,892
Change in unrealized securities gains(losses)- net - - - (1,261) - (1,261)
Other - 177 36 - - 213
Cash dividends - - - - (34) (34)
----------- ---------- -------- ---------- ---------- -----------
Balance, March 31, 1998 26,559,747 $ 195,392 $ (215) $ 8,709 $ 370,338 $ 574,224
=========== ========== ======== ========== ========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Centura Banks, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended
March 31
(Dollars in thousands) 1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 22,477 $ 17,874
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 3,393 2,894
Depreciation on assets under operating leases 2,494 1,918
Depreciation and amortization, excluding depreciation on assets under operating lease 8,744 7,540
Decrease in deferred income taxes 4,289 2,389
Loan fees deferred, net 328 (235)
Bond premium amortization and discount accretion, net 129 663
(Gains)/losses on sales of investment securities (302) 94
Gain on sales of equipment under lease (470) (1,457)
Proceeds from sales of mortgage loans held for sale 126,120 93,508
Originations, net of principal repayments, of mortgage loans held for sale (159,535) (80,010)
(Increase) decrease in accrued interest receivable (295) 1,167
(Increase) decrease in accrued interest payable 4,264 (641)
Net increase in other assets and other liabilities (22,278) (889)
---------- ---------
Net cash (used) provided by operating activities (10,642) 44,815
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (139,900) (48,722)
Purchases of:
Securities available for sale (251,188) (273,919)
Securities held to maturity - (32,006)
Premises and equipment (2,764) (3,909)
Other - (50,000)
Proceeds from:
Sales of securities available for sale 17,158 125,863
Maturities and issuer calls of securities available for sale 115,505 45,758
Maturities and issuer calls of securities held to maturity 9,134 42,901
Sales of foreclosed real estate 973 1,011
Dispositions of premises and equipment 160 192
Dispositions of equipment used in leasing activities 1,843 1,708
Cash acquired, net of cash paid, in mergers and acquisitions 15,447 -
---------- ---------
Net cash used by investing activities (233,632) (191,123)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 8,232 15,176
Net increase in borrowed funds 202,115 60,472
Proceeds from issuance of long-term debt 91,381 9,682
Repayment of long-term debt (79,151) (11,965)
Cash dividends paid (7,015) (6,436)
Proceeds from issuance of common stock, net 665 860
Other (577) -
---------- ---------
Net cash provided by financing activities 215,650 67,789
---------- ---------
Decrease in cash and cash equivalents (28,624) (78,519)
Cash and cash equivalents at January 1 311,673 315,891
---------- ---------
Cash and cash equivalents at March 31 $ 283,049 $ 237,372
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the three
months for:
Interest $ 61,835 $ 56,599
Income taxes 563 556
Noncash transactions:
Net equity adjustment of merged entity 9,636 -
Stock issued in purchase acquisitions and other stock issuances, net 3,279 -
Change in unrealized securities gains (losses), net (2,177) (5,099)
Other 971 217
Loans transferred to foreclosed property 595 1,483
========== ==========
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).
The information contained in the footnotes in Centura's annual report on Form
10-K should be referenced when reading these unaudited interim financial
statements. Operating results for the three-month period ended March 31, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
Note 2: Mergers and Acquisitions
Acquisition activity through March 31, 1998 and for 1997 is summarized below.
Data for the completed transactions is as of the date of acquisition.
<TABLE>
<CAPTION>
Institution Acquisition Banking Assets Loans Deposits Shares
Date Offices Issued
Completed Acquisitions
(dollars in millions)
1998
<S> <C> <C> <C> <C> <C> <C>
Moore and Johnson, Inc. ("Moore and Johnson") (2) 1/30/98 ---- $3 ---- ---- 48,950
Pee Dee Bankshares, Inc. ("Pee Dee") (1) 3/27/98 6 $138 $93 $125 577,034
1997
Deposit assumption from Branch Banking and Trust 8/15/97 13 $313 $171 $313 ----
Company and United Carolina Bank ("BB&T") (2)
Betts & Company ("Betts") (2) 11/3/97 ---- $1 ---- ---- 44,443
Deposit assumption from NationsBank, N.A. 11/13/97 5 $88 $52 $86 ----
("NationsBank") (2)
Deposit assumption from First Union National Bank 12/5/97 --- $16 --- $16 ---
("First Union") (2)
(1) Acquisition accounted for as a pooling-of-interests
(2) Acquisition accounted for as a purchase
</TABLE>
On January 30, 1998, Centura completed its acquisition of Moore and Johnson
located in Raleigh, North Carolina. The acquisition was accounted for as a
purchase with Centura recording $3.0 million of goodwill. Moore and Johnson
offers a full range of insurance products and will continue to operate through
Centura Insurance Services, Inc., a wholly-owned subsidiary of Centura Bank.
On March 27, 1998, Centura completed its acquisition of Pee Dee Bankshares, Inc.
and its wholly-owned subsidiary, Pee Dee State Bank (collectively, Pee Dee)
headquartered in Timmonsville, South Carolina. Pee Dee represents Centura's
entrance into the South Carolina banking market. Under the terms of the
agreement, the shareholders of Pee Dee received 577,034 shares of Centura common
stock for the issued and outstanding common shares of Pee Dee. Although the
transaction was accounted for as a pooling-of-interests, the merger was not
material and, accordingly, prior period financial statements have not been
restated.
During 1997, Centura completed three deposit assumption acquisitions. In
aggregate, the acquisitions added approximately $415 million in deposits and
$223 million in loans in the second half of 1997. All locations acquired were
located in North Carolina. The combined purchase price exceeded the combined
fair value of the net assets acquired and accordingly, goodwill of approximately
$43.2 million was recorded. The unamortized balance of this goodwill is included
in other assets. In addition, Centura purchased Betts, an independent insurance
agency based in Rocky Mount, North Carolina. Betts offers all forms of property
and liability insurance, as well as medical malpractice and surety insurance.
Betts merged into and continues to offer its services through Centura Insurance
Services, Inc., a wholly-owned subsidiary of Centura Bank. Additional goodwill
of $2.6 million was recorded in connection with the Betts acquisition.
For the acquisitions accounted for under the purchase method of accounting, the
financial position and results of operations relative to each transaction are
included in the consolidated financial statements since date of consummation.
Note 3: Reclassifications
Certain items in the March 31, 1997 consolidated financial statements have been
reclassified to conform with the March 31, 1998 presentation. Such
reclassifications had no impact on net income or shareholders' equity.
Note 4: Adoption of Statements of Financial Accounting Standards ("SFAS")
On January 1, 1998, Centura adopted SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130") which establishes standards for the 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. Comparative financial statements provided for
earlier periods are required to be reclassed to reflect the application of this
statement.
For the three months ended March 31, 1998 and 1997, total comprehensive income,
consisting of net income and unrealized securities gains and losses, net of
taxes, was $21.2 million and $14.7 million, respectively.
For the year ended December 31, 1997, Centura adopted SFAS No. 128, "Earnings
Per Share" (SFAS No. 128"). The standard provides guidance for computing and
presenting earnings per share. In accordance with this statement, primary net
income per common share is replaced with basic income per common share which is
calculated by dividing net income by the weighted-average number of common
shares outstanding for the period. Fully diluted net income per common share is
replaced with diluted net income per common share reflecting the maximum
dilutive effect of common stock issuable upon exercise of stock options. The
difference between the weighted average shares outstanding used in the basic net
income per share computation and the weighted average shares outstanding used in
the diluted net income per share calculation is attributable to shares which
arise from the assumed exercise of dilutive stock options.
Prior period per share data has been restated to reflect the adoption of SFAS
No. 128.
<PAGE>
CENTURA BANKS, INC.
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations For the Three Months Ended March 31, 1998
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, Virginia and South Carolina. Through Centura 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 the Centura Highway telephone
banking center, supermarket locations, and home banking through Quicken,
QuickBooks, and Microsoft Money.
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. Centura continually
evaluates acquisition opportunities and will continue seeking to acquire healthy
thrift and banking institutions as well as other financial services providers
allowed under current regulatory guidelines.
SUMMARY
Centura recorded net income of $22.5 million for the first quarter of 1998, up
$4.6 million or 25.8 percent over the same period in 1997. Earnings per diluted
share were $0.85 as of March 31, 1998 compared to $0.68 for the same period for
the prior year. Key factors responsible for these results were as follows:
Taxable equivalent net interest income increased $6.8 million to $72.4
million for the first three months of 1998 compared to $65.6 million for
the same period in 1997. This increase was primarily attributable to higher
levels of earning assets.
Excluding acquisition activity, average loans increased 8.0 percent to
$4.4 billion for the three months ended March 31, 1998 compared to $4.1
billion for the same period of 1997. Average deposits, excluding
acquisitions, were up approximately 5.4 percent compared with the same
three month period ending March 31, 1997. Including acquisitions, average
loans and average deposits increased 13.5 percent and 14.4 percent,
respectively, over the prior year comparable period.
Noninterest income, before securities transactions, increased $7.1 million
to $31.3 million or 29.5 percent over the $24.2 million recorded for the
same period of 1997. Deposit fees represented 33.5 percent of noninterest
income and contributed $1.4 million to the increase over the prior year
period. Additionally, the recent insurance acquisitions added approximately
$1.1 million of insurance commissions. The efficiency ratio of 62.22
percent at March 31, 1998 improved 149 basis points from the 63.71 percent
recorded for the three months ended March 31, 1997.
Nonperforming assets of $33.2 million at March 31, 1998 increased $6.4
million from March 31, 1997, but represented only 0.44 percent and 0.42
percent of total assets, respectively. The majority of this increase was in
loans secured by real estate and other commercial loans.
The allowance for loan losses was $66.8 million, representing 1.38 percent
of total loans at March 31, 1998, compared to $58.8 million and 1.42
percent at March 31, 1997. Gross charge-off were $3.8 million, up from $3.6
million for the prior year period. Recoveries were relatively flat totaling
$932,000 and $770,000, respectively, as of March 31, 1998 and 1997. The
provision for loan losses was $3.4 million for the three months ending
March 31, 1998 versus $2.9 million for the same period of 1997.
INTEREST-EARNING ASSETS
Average interest-earning assets for the three months ended March 31, 1998
climbed to $6.5 billion, an increase of $845.3 million or 14.8 percent over the
average of $5.7 billion for the same period in 1997. Growth in the loan and
investment securities portfolios contributed $552.7 million and $294.3 million,
respectively, while short-term investments declined $1.7 million. At March 31,
1998, earning assets were $6.8 billion, representing a $1.0 billion or 17.4
percent increase over the level at March 31, 1997. For additional information on
average interest-earning assets, refer to Table 3, "Net Interest Income
Analysis," and Table 8, "Net Interest Income and Volume/Rate Analysis."
Loans
Loans and leases (collectively referred to as "loans") averaged $4.7 billion for
the first three months of 1998, increasing $552.7 million or 13.5 percent over
the average loan volume of $4.1 billion for the comparable prior year period.
Loans of approximately $223 million were acquired in connection with the 1997
acquisitions. Excluding these loans, average loan growth was approximately 8.0
percent. Due to the timing of the transaction, Pee Dee did not have a material
impact on first quarter 1998 loan averages.
Commercial loans, the largest segment of the loan portfolio, increased $326.6
million, on average, between the two three-month periods. Consumer loans (equity
lines, residential mortgages, installment loans, and other credit line loans)
increased, on average, $194.1 million or 14.2 percent over the prior year
period. Much of this growth was attributed to the acquisitions as well as a
fourth quarter 1997 consumer loan campaign which carried over into the first
quarter of 1998. Moderate to slow loan growth throughout much of 1997 impacted
the ratio of average loans to average earning assets which declined to 71.3
percent from 72.1 percent for the first quarter of 1997.
Loans at March 31, 1998 were $4.8 billion, an increase of $708.9 million, or
17.1 percent, compared to $4.1 billion at March 31, 1997. Excluding the late
1997 acquisitions and the 1998 Pee Dee transaction, growth between the periods
was 9.5 percent. Table 1 summarizes total loans outstanding and the mix of loans
being held. Each loan category demonstrated growth between the periods. The
commercial portfolio represented 50.7 percent and 50.6 percent at March 31, 1998
and 1997, respectively. Of these commercial loans, over 90 percent are secured.
Credit is extended by Centura Bank almost exclusively to customers in its market
areas of North Carolina, the Hampton Roads area of Virginia, and now South
Carolina. Although not a significant part of Centura's lending activities,
foreign credit is extended on a case by case basis and is subject to the same
credit and approval process as other commercial loans including an assessment of
country risk. Management discourages loans to high technology start-up
companies, to highly speculative real estate development projects, and to
participation in highly leveraged transactions. The loan portfolio is reviewed
on an on-going basis to maintain diversification by industry, geography, type of
loan, collateral and borrower.
Loans generated $107.4 million of taxable equivalent interest income for the
first quarter 1998 compared to $95.3 million for the same period last year.
Given that the average loan yield declined 6 basis points to 9.26 percent, the
increase in the average loan volume accounted for the majority of the $12.1
million improvement in loan related interest income. Since over 50 percent of
the loan portfolio is affected by changes in the prime rate and other indices,
loan interest income is impacted by changes in the rate environment. See Table
3, "Net Interest Income Analysis-Taxable Equivalent Basis," for further detail.
Investment Securities
Investment securities, the second largest component of earning assets, were
higher by $300.9 million or 18.1 percent at March 31, 1998 as compared to the
same period last year. On average, the investment portfolio grew $294.3 million
to $1.8 billion for the first three months of 1998 from March 31, 1997. Average
investments represented 28.3 percent of average earnings assets as compared to
27.3 percent for the prior year period, primarily due to the fact that deposit
growth out-paced loan growth.
The investment portfolio consists primarily of securities for which an active
market exists. Centura's policy is to invest primarily in securities of the U.S.
Government and its agencies and in other high grade fixed income securities so
as to minimize any credit risk in the investment portfolio. Accordingly, at
March 31, 1998, approximately 97 percent of the total investment portfolio
consisted of obligations of the U.S. Government and its agencies and other
investment grade fixed income securities.
The classification of securities as held to maturity ("HTM") or as available for
sale ("AFS") is determined at the date of purchase. Centura intends and has the
ability to hold its HTM portfolio until maturity. The HTM investments declined
$65.9 million compared to the same prior year period to $179.4 million at March
31, 1998. The decrease was primarily due to the scheduled maturities within the
portfolio. HTM investments represented 9.1 percent of the total investment
securities as of March 31, 1998 compared to 14.8 percent as of March 31, 1997.
At March 31, 1998, the fair value of the HTM portfolio was $182.6 million,
representing $3.2 million more than amortized cost.
The AFS portfolio, which comprises the remainder and majority of the investments
securities portfolio, is reported at estimated fair value. These securities are
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 March 31, 1998, AFS
investments were $1.8 billion, up $366.9 million compared with $1.4 billion at
March 31, 1997. The recorded fair value of the AFS portfolio exceeded the
amortized cost by $14.0 million at March 31, 1998, which amount has been
recorded, net of tax, as a separate component of shareholders' equity. At March
31, 1997, the fair value of the AFS portfolio was $2.5 million less than its
amortized cost resulting in a $1.6 million decrease, after tax, to shareholders'
equity. Net realized gains of $302,000 were generated during the first three
months of 1998 from sales and issuer call activity compared to net losses of
$94,000 during the comparable 1997 period.
Investment securities contributed $30.7 million in taxable equivalent interest
income for the three-month period ending March 31, 1998, an increase of $4.9
million over the $25.8 million earned in the comparable period of 1997. A 6
basis point improvement in the investment yield to 6.71 percent accounted for
$287,000 of the increase between the two periods while the average volume
increase provided an additional $4.7 million of taxable equivalent interest
income.
FUNDING SOURCES
Total funding sources averaged $6.5 billion for the three month period ended
March 31,1998, a $892.4 million or 15.9 percent increase from the average volume
of $5.6 billion in the comparable 1997 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".
Deposits
For the first three months of 1998, average deposits increased $670.8 million to
$5.3 billion, or 14.4 percent over the comparable 1997 period, with
approximately $415 million attributable to late 1997 acquisition activity.
Excluding these acquisition transactions, total average deposits increased 5.4
percent over first quarter 1997. Total average deposits were not materially
impacted by the Pee Dee acquisition due to the transaction timing.
Centura's deposit mix trends continued to demonstrate a shift from passbook
savings and certificates of deposits to market sensitive money market accounts.
On average, money market accounts represented 17.9 percent of the average
deposit mix for the quarter ended March 31, 1998 compared to only 15.0 percent
at March 31, 1997. This growth represented a $263.2 million increase over the
$692.9 million average for the first quarter of 1997. Time deposits increased,
on average, $200.4 million to $2.6 billion for March 31, 1998 compared to $2.4
billion for March 31, 1997. However, time deposits represented 48.4 percent of
total average deposits for the three month period ended March 31, 1998 compared
to 51.0 percent at March 31, 1997. Of the deposits assumed through the 1997
transactions and the Pee Dee merger, approximately $287 million were time
accounts. Transaction accounts (interest checking and non-interest bearing
demand deposits) on average increased 15.7 percent while holding steady at
approximately 28.2 percent of average total deposits. For additional information
on deposits, see Table 2, "Average Deposit Mix for the Three Months Ended."
The deposit base at March 31, 1998 of $5.5 billion was up $749.5 million, or
15.8 percent, from the $4.7 billion level held at March 31, 1997. Excluding the
1997 acquisitions and Pee Dee merger, period-end deposit growth was
approximately 4.4 percent over the level at March 31, 1997.
Interest expense on deposits increased $5.9 million to $49.1 million for the
three months ending March 31, 1998 versus $43.2 million for the comparable
period of 1997. The average rate paid for deposits decreased 1 basis point as
shown in Table 3, "Net Interest Income Analysis-Taxable Equivalent Basis". The
cost of money market accounts increased 30 basis points over the prior year
three-month period with all other deposit rates declining. Despite the increase
in the money market rate and the continued shift in dollars to this product, the
overall average rate paid for deposits remained relatively flat compared to
March 31, 1997, decreasing 1 basis point to 4.37 percent. As detailed further in
Table 8, the majority of the $5.9 million increase in deposit interest expense
was due to increased volume rather than rate.
Other Funding Sources
The use of both short-term and long-term debt has been in line with
asset/liability strategies. Consequently, short-term borrowed funds averaged
$796.0 million, compared to the $647.0 million average volume for the period
ending March 31, 1997. Interest expense on short-term borrowings increased by a
net $2.5 million, primarily due to higher volume. The average rate paid for
these funds increased 28 basis points to 5.28 percent. The average amount of
long-term debt, consisting predominantly of FHLB advances and Capital
Securities, increased $72.6 million to $381.7 million for the first three months
of 1998 compared to $309.1 million for the comparable prior year three months.
With the issuance of the 8.845 percent Capital Securities in June of 1997, rates
paid for long-term funding increased to 6.83 percent, 55 basis points over the
prior year period.
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income as of March 31, 1998 was $70.6 million, up $6.7 million from
$63.9 million as of March 31, 1997. Taxable equivalent net interest income for
the three months of 1998 increased by $6.8 million, or 10.4 percent, to $72.4
million from $65.6 million in the comparable period of 1997. As indicated on
Table 8, "Net Interest Income and Volume/Rate Analysis-Taxable Equivalent
Basis", the distribution of balance sheet growth contributed $8.4 million to
taxable equivalent net interest income with the rate environment impacting
taxable equivalent net interest income unfavorably by $1.5 million.
The net interest margin declined 15 basis points between the two three month
periods to 4.43 percent. The interest rate spread, the difference between the
average earning asset yield and the average rate paid on interest-bearing
liabilities, also decreased 13 basis points to 3.86 percent as of March 31,
1998. The margin was negatively impacted by the continued growth in Centura's
investment securities portfolio which typically carry lower yields than loans.
Although moderate, the 8 basis point increase in funding costs and the 5 basis
point decline in the average asset yield also compressed the margin.
ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was $3.4 million for the three months ending March
31, 1998, up $499,000 compared to $2.9 million for the same period last year.
Net charge-offs totaled $2.9 million for the first three months of 1998 while
net charge-off activity for the same period in 1997 resulted in $2.8 million of
net charge-offs. Segmented based on regulatory definitions, net losses between
the two three-month periods were generally higher for all loan categories,
except loans secured by real estate and agriculture loans. Net charge-offs as a
percent of average loans and leases, on an annualized basis were 0.25 percent
for March 31, 1998 compared to 0.28 percent for March 31, 1997. Recoveries
remained relatively flat at $932,000 as of March 31, 1998 compared to $770,000
for the same period in 1997.
The allowance for loan losses was $66.8 million at March 31, 1998, representing
1.38 percent of loans outstanding, compared to $58.8 million, or 1.42 percent of
loans outstanding at March 31, 1997, and compared to $64.3 million or 1.40
percent of loans outstanding at December 31, 1997. After taking into
consideration the growth of the 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." At March 31, 1998, the allowance for loan losses was 2.26
times nonperforming loans, down from 2.58 times at March 31, 1997 and 2.71 times
at December 31, 1997.
Table 5, "Nonperforming Assets and Past Due Loans," discloses the components and
balances of nonperforming assets. Nonperforming assets increased $6.4 million to
$33.2 million at March 31, 1998 and represented 0.44 percent of total assets at
the end of the period. Nonperforming assets were $26.8 million at March 31,
1997, or 0.42 percent of total assets. At December 31, 1997, nonperforming
assets were $27.9 million or 0.39 percent of total assets. Real estate
nonperforming loans increased by $4.8 million to $18.4 million at March 31, 1998
primarily due to the addition of several commercial credits and represented 0.61
percent of outstanding real estate loans. The remaining increase in
nonperforming assets was principally in the commercial/industrial loan category
which increased $2.0 million compared to the same 1997 period, primarily the
result of one commercial credit which was classified as nonperforming in the
first quarter of 1998. Foreclosed properties were $3.6 million, down $372,000
from March 31, 1997, and down $526,000 from December 31, 1997.
Accruing loans past due ninety or more days were $11.5 million, $11.0 million
and $7.0 million at March 31, 1998, March 31, 1997 and December 31, 1997,
respectively, which represented 0.24 percent, 0.27 percent and 0.15 percent of
outstanding loans, respectively.
While the loan portfolio is evaluated by sector and credit quality analysis, and
existing credit policies are reviewed in light of current economic conditions,
management recognizes that growth in the loan portfolio opens opportunity for
new credit problems to develop. The impact of ever-changing economic conditions
and changes to interest rates and/or inflation on the operations of Centura's
customers is unknown, but gives opportunity for increased nonperforming asset
levels. In addition to the nonperforming assets and past due loans shown in
Table 5, management believes that an estimated $10 to $15 million of additional
nonperforming and past due loans may exist which are currently "performing" in
accordance with their contractual terms.
NONINTEREST INCOME AND EXPENSE
Traditionally, Centura has generated most of its revenue from net interest
income. However, with a strategic goal focusing on becoming the primary
financial services provider for its customers and the recent insurance agency
acquisitions, noninterest income has continued to increase. Noninterest income
("NII") increased $7.5 million, or 31.2 percent, to $31.6 million for the three
months ended March 31, 1998. Excluding net realized securities gains/losses, NII
was up $7.1 million or 29.5 percent. Service charges on deposits, which
represented 33.5 percent of total NII, increased $1.4 million between the two
three-month periods. This increase was principally the result of growth in new
deposits, a mid-1997 increase in non-sufficient funds ("NSF") charges, and the
reduction of waived service charges. The continued emphasis on expanding
financial services resulted in a $592,000 increase in brokerage commissions and
a $1.6 million improvement in insurance commissions over the comparable period
last year. The recent acquisitions of Betts and Moore and Johnson contributed
approximately $1.1 million to the increase in insurance commissions compared to
the prior year. Other service charges, commissions, and fees increased $468,000
to a total of $2.2 million between the two periods primarily due to an increase
in ATM fees assessed to non-Centura customers using Centura ATMs and to an
increase in debit card activity. Mortgage income (composed of servicing
revenues, origination fees, servicing release premiums, and net gains or losses
on the sales of mortgage loans) for the first three months of 1998 increased to
$3.2 million compared to $2.7 million for the comparable period in 1997. Credit
card revenue and trust fees were higher by $538,000 and $150,000, respectively,
while net operating lease fees were up $586,000 principally due to an increase
in volume. Other NII, which includes such items as Centura's investment in First
Greensboro Home Equity, Inc., bank-owned life insurance and the gains on the
sale of fixed assets, increased $1.3 million compared to the same period in
1997.
Noninterest expense ("NIE") increased 13.3 percent, or $7.6 million to $64.7
million compared to the same period in 1997. Personnel expenses, the largest
component of noninterest expense, contributed $3.5 million to this increase.
Salaries and fringe benefits represented $2.8 million of this increase as
full-time equivalents between the periods increased by 182, primarily due to the
timing of the 1997 acquisitions. Incentives increased $372,000 compared to the
same period in 1997, principally due to favorable results relative to
performance criteria.
Occupancy and equipment expense increased $547,000 over year-to-date 1997,
principally in rent and depreciation associated with the continued opening of
retail in-store locations and the depreciation for equipment upgrades and
enhancements. Professional fees and fees for outsourced services increased
$243,000 and $1.4 million, respectively for the first three months of 1998
compared to the same period in 1997. These increases are the result of continued
efforts to evaluate operating efficiencies both in the branch network and
support areas as well as the outsourcing of various functions including item
processing, property management, and call processing generated from the Centura
Highway. The amortization of intangibles increased $795,000 for the period ended
March 31, 1998 compared to the same period in 1997 due to the increased goodwill
recorded for the 1997 purchase acquisitions. Marketing expenses increased
$302,000 over 1997 in response to an expanded customer base, the support of new
markets, and an increased emphasis on target-marketing customer segments.
The efficiency ratio for the period ended March 31, 1998 was 62.22 percent, an
improvement of 149 basis points as compared to the 63.71 percent recorded for
the same period in 1997. During the first quarter of 1998, total revenues
increased by $24.5 million compared to the first quarter of 1997 while
noninterest expenses increased $7.6 million, thus benefiting the efficiency
ratio.
INCOME TAX EXPENSE
The amount of income tax expense for the three months ended March 31, 1998 was
$11.6 million compared to $10.1 million in the prior period. The current
effective tax rate is 34.09 percent, down from the 36.03 percent at March 31,
1997. The reduction in the effective tax rate is primarily due to the increase
in non-taxable income during the first quarter of 1998 versus that of first
quarter 1997.
<PAGE>
EQUITY AND CAPITAL RESOURCES
Shareholders' equity increased to $574.2 million at March 31, 1998 compared to
$491.4 million at March 31, 1997. The change in equity between the two periods
was influenced by the retention of earnings, the issuance of common stock in
connection with Centura's insurance agency acquisitions and the 1998 acquisition
of Pee Dee, the exercise of stock options, along with the payment of dividends
and the repurchase of common stock. From time to time, Centura's management
repurchases Centura common stock; however, there have been no shares repurchased
for the first three months ended March 31, 1998. Shareholder's equity also
included unrealized gains, net of tax, on securities available for sale of $8.7
million at March 31, 1998 compared to $1.6 million unrealized losses, net of
tax, for the comparable period last year. The ratio of shareholders' equity to
period-end assets was 7.64 percent, down from 7.71 percent at period end March
31, 1997.
Centura's common stock is traded on the New York Stock Exchange under the symbol
CBC. At March 31, 1998, Centura had 26,559,747 shares outstanding. Cash
dividends of $7.0 million for the first quarter 1998 were paid on March 13,
1998.
Centura's capital ratios are greater than minimums required by regulatory
guidelines. It is Centura's intent to maintain an optimal capital and leverage
mix. At March 31, 1998, Centura had the required capital levels to qualify as
well capitalized. At March 31, 1998, Tier I capital was $556.1 million and total
capital was $588.7 million. Centura's capital ratios are outlined in Table 6
entitled "Capital Ratios."
LIQUIDITY
Centura's liquidity management objective is to meet maturing debt obligations,
provide a reliable source of funding to borrowers, and fund operations on a cost
effective basis. Management believes that sufficient resources are available to
meet Centura's liquidity objective through its debt maturity structure, holdings
of liquid assets, and access to the capital markets through a variety of funding
vehicles.
Investment securities are an important tool to Centura's liquidity management
objective. Some AFS securities were sold during 1997 and the first quarter of
1998 to reposition the investment portfolio in a fluctuating interest rate
environment. Management may continue to reposition the investment portfolio in
order to enhance future results of operations with no expected material impact
on liquidity.
The Bank has multiple funding sources that could be used to increase liquidity
and provide additional financing flexibility. These sources consist primarily of
established federal fund lines with major banks, advances from the Federal Home
Loan Bank ("FHLB"), and an unsecured bank note offering to institutional
investors. There were no bank notes outstanding at March 31, 1998 and 1997. In
addition, Centura accepts Eurodeposits, has a master note commercial paper
facility, and offers brokered certificates of deposits.
Long-term debt consists principally of FHLB advances and $100 million of Capital
Securities, Series A ("Capital Securities") issued in June of 1997. At March 31,
1998, FHLB advances totaled $247.3 million compared to $227.3 million at March
31, 1997. For risk-based capital calculations, the Capital Securities are
included as a component of Tier I capital.
Management is not aware of any events or uncertainties 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 pending regulatory
developments or proposals, which, if implemented would have a material effect on
Centura.
<PAGE>
ASSET/LIABILITY AND INTEREST RATE RISK MANAGEMENT
Market risk is the risk of loss from adverse changes in market prices and rates.
Centura's market risk primarily stems from interest rate risk, the potential
economic loss due to future changes in interest rates, which is inherent in
lending and deposit gathering activities.
Centura's Asset/Liability Management Committee seeks to maintain a general
balance between interest-sensitive assets and liabilities to insulate net
interest income and shareholders' equity from significant adverse changes in
market interest rates. Mismatches in interest rate repricings of assets and
liabilities arise from the interaction of customer business needs and Centura's
discretionary asset and liability management activities. Exposure to changes in
the level and direction of interest rates is managed by adjusting the
asset/liability mix through the use of various interest rate risk management
products, including 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 option
contracts ("swaps, floors, caps, futures and options," respectively), are an
integral part of Centura's interest rate risk management activities. Centura has
principally utilized interest rate swaps. Swaps are used to manage interest rate
risk, reduce funding costs, and diversify sources of funding. 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 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,
"Off-Balance Sheet Derivative Financial Instruments" summarizes Centura's
off-balance sheet derivative financial positions at March 31, 1998.
On-balance-sheet and off-balance-sheet financial instruments are managed on an
integrated basis as part of Centura's overall asset/liability management
function. The value of any single component of the balance sheet or
off-balance-sheet position should not be viewed independently.
The Financial Accounting Standards Board is developing new accounting standards
which could significantly affect the accounting treatment of Centura's
derivatives and other financial instruments. It is not possible to determine at
this time how such changes could affect the nature and extent of these
activities.
CURRENT ACCOUNTING ISSUES
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. Centura, as required, will adopt this statement for the year
ending December 31, 1998.
In February 1998, the FASB issued SFAS No. 132 "Employer's Disclosures about
Pensions and Other Postretirement Benefits" ("SFAS No. 132"). The statement
revises the required disclosures for pensions and other post retirement plans
but does not change the measurement or recognition of such plans. SFAS No. 132
is effective for fiscal years beginning after December 31, 1997. Centura, as
required, will adopt this statement for the year ending December 31, 1998.
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 the
proposed statements on the consolidated financial statements of Centura and
monitors the status of changes to issued exposure drafts and to proposed
effective dates.
YEAR 2000
The Year 2000 issue confronting Centura and its suppliers, customers, customers'
suppliers, and competitors centers on the inability of computer systems to
recognize the Year 2000. Many existing computer programs and systems were
originally programmed with six digit dates that provided only two digits to
identify the calendar year, without considering the upcoming change in the
century. Monitoring and managing the Year 2000 project will result in additional
direct costs. Direct costs include potential charges by third party software
vendors for product enhancements, costs involved in testing software products
for Year 2000 compliance, and any resulting costs for developing and
implementing contingency plans for critical software products which are not
enhanced. The Emerging Issues Task Force provided guidance concerning the
accounting for these costs related to Year 2000 modification. The costs of the
modifications should be treated as regular maintenance and repair and be charged
to expense as incurred. Management currently estimates that the aggregate direct
costs for 1998 and 1999 will be approximately $1.7 million and $1.0 million,
respectively. In addition to the direct costs, indirect costs will also be
incurred. These indirect costs will consist principally of the time devoted by
existing employees in monitoring software vendor progress, testing enhanced
software products and implementing any necessary contingency plans. These direct
and indirect costs are not expected to have a material effect on results of
operations. However, the distribution of Year 2000 expenses between direct and
indirect may change due to the allocation of internal resources. To date through
March 31, 1998, Centura has expensed approximately $1.6 million in direct costs
related to Year 2000, with approximately $270,000 being incurred in the first
quarter of 1998. Expenditures for the Year 2000 compliance project including
direct and indirect costs are estimated to total $6-$8 million.
Management presently believes that with modifications to existing software and
conversions to new software, the Year 2000 matter will be mitigated without
causing a material adverse impact on the operations of Centura. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 issue could have a material impact on the operations of Centura.
In addition, Centura has initiated formal communications with all of its
significant suppliers and large customers to determine the extent to which it is
vulnerable to those third parties' failure to remediate their own Year 2000
issues. The Year 2000 project cost estimates include the estimated costs and
time associated with the assessment and monitoring of a third party's Year 2000
risk, and are based on presently available information. However, there can be no
guarantee that the systems of other companies on which Centura's systems rely
will be timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with Centura's systems, would not have a
material adverse effect on Centura in future periods.
TABLE 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
LOANS
March 31, 1998 March 31, 1997 December 31, 1997
-------------- --------------- -----------------
(Dollars in thousands) Balance % of Total Balance % of Total Balance % of Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 930,981 19.2% $ 748,453 18.1% $ 846,074 18.4%
Commercial mortgage 932,581 19.2 808,620 19.5 894,014 19.5
Real estate construction 596,651 12.3 536,829 13.0 578,304 12.6
-----------------------------------------------------------------------------------------
Commercial loan portfolio 2,460,213 50.7 2,093,902 50.6 2,318,392 50.5
Consumer 369,648 7.6 269,422 6.5 321,513 7.0
Residential mortgage 1,496,655 30.9 1,290,437 31.1 1,426,306 31.1
Leases 451,273 9.3 441,568 10.7 470,376 10.3
Other 71,652 1.5 45,254 1.1 49,995 1.1
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans $4,849,441 100.0% $4,140,583 100.0% $4,586,582 100.0%
===================================================================================================================================
Residential mortgage servicing
portfolio for others $2,719,000 $2,302,000 $2,812,000
===================================================================================================================================
</TABLE>
TABLE 2
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
AVERAGE DEPOSIT MIX FOR THE THREE MONTHS ENDED
March 31, 1998 March 31, 1997
-------------- --------------
(Dollars in thousands) Balance % of Total Balance % of Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Demand, noninterest bearing $ 775,665 14.6% $ 657,971 14.1%
Interest checking 725,573 13.6 640,054 13.7
Money market 956,103 17.9 692,894 15.0
Savings 293,488 5.5 289,531 6.2
- --------------------------------------------------------------------------------------------------------------
Time deposits:
Certificates of deposit < $100,000 1,763,189 33.1 1,736,938 37.3
Certificates of deposit > $100,000 494,288 9.3 346,930 7.4
IRA 319,910 6.0 293,087 6.3
- --------------------------------------------------------------------------------------------------------------
Total time deposits 2,577,387 48.4 2,376,955 51.0
- --------------------------------------------------------------------------------------------------------------
Total average deposits $ 5,328,216 100.0% $ 4,657,405 100.%
==============================================================================================================
</TABLE>
<PAGE>
TABLE 3
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME ANALYSIS - TAXABLE EQUIVALENT BASIS
Centura Banks, Inc. and Subsidiaries
Three months ended Three months ended
March 31, 1998 March 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
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 $ 4,659,863 $ 107,448 9.26% $ 4,107,133 $ 95,327 9.32%
Taxable securities 1,791,895 29,808 6.67 1,505,254 24,764 6.58
Tax-exempt securities 40,291 895 8.89 45,356 999 8.81
Short-term investments 31,146 370 4.75 32,975 445 5.40
---------------- ---------- ---------------- ------------
Interest-earning assets, gross 6,523,195 138,521 8.52 5,690,718 121,535 8.57
Net unrealized gains on available
for sale securities 14,838 2,065
Other assets, net 633,166 491,935
---------------- ----------------
Total assets $ 7,171,199 $ 6,184,718
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking $ 725,573 $ 2,815 1.57% $ 640,054 $ 2,810 1.78%
Money market 956,103 10,293 4.37 692,894 6,952 4.07
Savings 293,488 1,298 1.79 289,531 1,417 1.98
Time 2,577,387 34,664 5.45 2,376,955 32,006 5.46
--------------- ---------- --------------- -------------
Total interest-bearing deposits 4,552,551 49,070 4.37 3,999,434 43,185 4.38
Borrowed funds 796,002 10,514 5.28 646,995 7,983 5.00
Long-term debt 381,697 6,515 6.83 309,112 4,790 6.28
--------------- ---------- ----------------- --------------
Interest-bearing liabilities 5,730,250 66,099 4.66 4,955,541 55,958 4.58
Demand, noninterest-bearing 775,665 657,971
Other liabilities 105,716 82,597
Shareholders' equity 559,568 488,609
--------------- -------------
Total liabilities and
shareholder's equity $ 7,171,199 $ 6,184,718
===============
Interest rate spread 3.86% 3.99%
Net yield on interest-
earning assets $ 6,523,195 $ 72,422 4.43% $ 5,690,718 $ 65,577 4.%8
=============== ========== ============= ============
Taxable equivalent adjustment $ 1,800 $ 1,692
========== ============
</TABLE>
<PAGE>
TABLE 4
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
At and for the three months At and for the year ended
ended March 31, ended December 31,
(Dollars in thousands) 1998 1997 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance for loan losses at beginning of period $ 64,279 $ 58,715 $ 58,715
Allowance for acquired loans 2,068 --- 3,133
Provision for loan losses 3,393 2,894 13,418
Loans charged off (3,844) (3,617) (14,425)
Recoveries on loans previously charged off 932 770 3,438
- -----------------------------------------------------------------------------------------------------------------
Net charge-offs (2,912) (2,847) (10,987)
- -----------------------------------------------------------------------------------------------------------------
Allowance for loan losses at end of period $ 66,828 $ 58,762 $ 64,279
=================================================================================================================
Loans at period-end $ 4,849,441 $ 4,140,583 $ 4,586,582
Average loans 4,659,863 4,107,133 4,309,064
Nonperforming loans 29,570 22,767 23,722
Allowance for loan losses to loans at period-end 1.38% 1.42% 1.40%
Net charge-offs to average loans 0.25 0.28 0.25
Allowance for loan losses to nonperforming loans 2.26x 2.58x 2.71x
=================================================================================================================
TABLE 5
- -----------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS AND PAST DUE LOANS
March 31, December 31,
------------------------------ -------------
(Dollars in thousands) 1998 1997 1997
- -----------------------------------------------------------------------------------------------------------------
Nonaccrual loans $ 29,570 $ 22,767 $ 23,722
Foreclosed property 3,629 4,001 4,155
- -----------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 33,199 $ 26,768 $ 27,877
=================================================================================================================
Nonperforming assets to:
Loans and foreclosed property 0.68% 0.65% 0.61%
Total assets 0.44 0.42 0.39
=================================================================================================================
Accruing loans past due ninety days or greater $ 11,450 $ 11,055 $ 6,985
=================================================================================================================
</TABLE>
<PAGE>
TABLE 6
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS
Tier I CapitalTotal Capital Tier I Leverage
<S> <C> <C> <C>
March 31, 1998 10.61% 11.23% 7.85%
December 31, 1997 10.60 11.19 7.51
March 31, 1997 9.19 10.44 6.39
Minimum requirement 4.00 8.00 3.00-5.00
</TABLE>
TABLE 7
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate swap agreements at March 31, 1998 are summarized below:
Weighted Average
Weighted Average Rate Remaining Estimated
Notional During the Quarter Contractual Fair Value
Amount Received Paid Term (Years)Gain (Loss)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST RATE SWAPS
Corporation pays fixed/receives floating $ 281,200 5.69% 6.21% 2.6 $ (1,189)
Corporation pays variable/receives fixed 291,000 6.38% 5.69% 6.6 3,375
Corporation pays variable/receives variable 250,000 5.68% 5.64% 1.0 (297)
----------- -----------
Total interest rate swaps $ 822,200 $ 1,889
=========== ===========
</TABLE>
Interest rate cap and floor agreements at March 31, 1998 are summarized below:
<TABLE>
<CAPTION>
Weighted Average
Remaining
Notional Average Current Index Contractual Carrying Estimated
Amount Rate * Rate Term (Years) Value Fair Value
- ----------------------------------------------------------------------------------------------------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest Rate Floors $ 180,000 5.73% 5.71% 2.7 $ 833 $ 1,352
=========== =========== ==========
Interest Rate Caps $ 38,000 7.27% 5.71% 5.3 $ 928 $ 304
=========== =========== ==========
* Average rate represents the average of the strike rates above or below which
Centura will receive payments on the outstanding cap or floor agreements
</TABLE>
<PAGE>
TABLE 8
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AND VOLUME/RATE ANALYSIS - TAXABLE EQUIVALENT BASIS
Three months ended
March 31, 1998 and 1997
- ---------------------------------------------------------------------------------------------------------------
Income/ Variance
Expense Attributable to
(Dollars in thousands) Variance Volume Rate
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans $ 12,121 $ 12,749 ($628)
Taxable securities 5,044 4,765 279
Tax-exempt securitie (104) (112) 8
Short-term investmen (75) (24) (51)
----------------- ---------------- --------------
Total interest inc 16,986 17,378 (392)
INTEREST EXPENSE Interest-bearing deposits:
Interest checking 5 352 (347)
Money market 3,341 2,803 538
Savings (119) 19 (138)
Time 2,658 2,696 (38)
------------------- ---------------- --------------
Total interest-bearing deposits 5,885 5,870 15
Borrowed funds 2,531 1,938 593
Long-term debt 1,725 1,204 521
------------------- ---------------- --------------
Total interest expense 10,141 9,012 1,129
------------------- ---------------- --------------
Net interest income $ 6,845 $ 8,366 ($1,521)
========= ========= ========
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>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There has been no material change in Centura's market risk since December 31,
1997 as described in Item 7A of Centura's Annual Report on Form 10-K for the
year ended December 31, 1997.
<PAGE>
CENTURA BANKS, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Securities Holders
Not applicable
Item 5. Other Information
Not applicable
<TABLE>
<CAPTION>
Item 6. Exhibits and Reports on Form 8-K
<S> <C> <C> <C>
(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)
27.1 Financial Data Schedule (Restated due to the adoption of SFAS
No. 128) included in the electronically filed document as
required.
27.2 Financial Data Schedule - included in the electronically filed
document as required.
(1)Included as the identified exhibit in Centura Banks, Inc. Form S-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 January 7, 1998 was filed under Item 5,
Other Events, indicating the Registrant's announcement on January 7,
1998 of earnings for the year-end December 31, 1997.
</TABLE>
<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: May 15, 1998 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)
27.1 Financial Data Schedule Restated **
27.2 Financial Data Schedule **
*Incorporated by reference from the following documents as noted:
(1)Included as the identified exhibit in Centura Banks, Inc. Form S-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.
FINANCIAL DATA SCHEDULE for CENTURA BANKS, INC.
REQUIRED FOR All EDGAR FILERS
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 215,564
<INT-BEARING-DEPOSITS> 11,058
<FED-FUNDS-SOLD> 10,750
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,418,066
<INVESTMENTS-CARRYING> 245,361
<INVESTMENTS-MARKET> 244,906
<LOANS> 4,140,583
<ALLOWANCE> 58,762
<TOTAL-ASSETS> 6,376,713
<DEPOSITS> 4,748,245
<SHORT-TERM> 745,763
<LIABILITIES-OTHER> 82,819
<LONG-TERM> 308,519
0
0
<COMMON> 189,276
<OTHER-SE> 302,091
<TOTAL-LIABILITIES-AND-EQUITY> 6,376,713
<INTEREST-LOAN> 95,226
<INTEREST-INVEST> 24,172
<INTEREST-OTHER> 445
<INTEREST-TOTAL> 119,843
<INTEREST-DEPOSIT> 43,185
<INTEREST-EXPENSE> 55,958
<INTEREST-INCOME-NET> 63,885
<LOAN-LOSSES> 2,894
<SECURITIES-GAINS> (94)
<EXPENSE-OTHER> 57,115
<INCOME-PRETAX> 27,943
<INCOME-PRE-EXTRAORDINARY> 27,943
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,874
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.68
<YIELD-ACTUAL> 4.58
<LOANS-NON> 22,767
<LOANS-PAST> 11,055
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 12,500
<ALLOWANCE-OPEN> 58,715
<CHARGE-OFFS> 3,617
<RECOVERIES> 770
<ALLOWANCE-CLOSE> 58,762
<ALLOWANCE-DOMESTIC> 58,762
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 12,403
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 259,237
<INT-BEARING-DEPOSITS> 20,295
<FED-FUNDS-SOLD> 3,517
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,784,940
<INVESTMENTS-CARRYING> 179,422
<INVESTMENTS-MARKET> 182,614
<LOANS> 4,849,441
<ALLOWANCE> 66,828
<TOTAL-ASSETS> 7,517,103
<DEPOSITS> 5,497,716
<SHORT-TERM> 935,504
<LIABILITIES-OTHER> 113,474
<LONG-TERM> 396,185
0
0
<COMMON> 195,392
<OTHER-SE> 378,832
<TOTAL-LIABILITIES-AND-EQUITY> 7,517,103
<INTEREST-LOAN> 107,318
<INTEREST-INVEST> 29,033
<INTEREST-OTHER> 370
<INTEREST-TOTAL> 136,721
<INTEREST-DEPOSIT> 49,070
<INTEREST-EXPENSE> 66,099
<INTEREST-INCOME-NET> 70,622
<LOAN-LOSSES> 3,393
<SECURITIES-GAINS> 302
<EXPENSE-OTHER> 64,712
<INCOME-PRETAX> 34,100
<INCOME-PRE-EXTRAORDINARY> 34,100
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,477
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.85
<YIELD-ACTUAL> 4.43
<LOANS-NON> 29,570
<LOANS-PAST> 11,450
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 12,500
<ALLOWANCE-OPEN> 64,279
<CHARGE-OFFS> 3,844
<RECOVERIES> 932
<ALLOWANCE-CLOSE> 66,828
<ALLOWANCE-DOMESTIC> 66,828
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 12,773
</TABLE>
