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 September 30, 1999
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.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-1688522
- --------------------------------------------------------------------------------
(State of Incorporation) (IRS Employer Identification No.)
134 North Church Street, Rocky Mount, North Carolina 27804
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
(252) 454-4400
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(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 whether the registrant 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 28,069,792
- --------------------------------------------------------------------------------
(Class of Stock) (Shares outstanding as of October 31, 1999)
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 -
September 30, 1999 and 1998, and December 31, 1998 4
Consolidated Statements of Income -
Three months and nine months ended September 30, 1999 and 1998 5
Consolidated Statement of Shareholders' Equity -
Nine months ended September 30, 1999 6
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1999 and 1998 7
Notes to Consolidated Financial Statements 8-12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13-28
Item 3. Quantitative and Qualitative Disclosures about Market Risk 29
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 30
Item 2. Changes in Securities and Use of Proceeds 30
Item 3. Defaults upon Senior Securities 30
Item 4. Submission of Matters to a Vote of Securities Holders 30
Item 5. Other Information 30
Item 6. Exhibits and Reports on Form 8-K 31
SIGNATURES 32
<PAGE>
CENTURA BANKS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statement of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
<PAGE>
CONSOLIDATED BALANCE SHEETS
CENTURA BANKS, INC. AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
------------------------------------- -----------------
(In thousands, except share data) 1999 1998 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 244,119 $ 250,802 $ 289,230
Due from banks, interest-bearing 14,363 18,344 21,963
Federal funds sold 59,571 11,701 17,646
Investment securities:
Available for sale (cost of $2,180,048, $2,041,473,
and $2,036,707, respectively) 2,146,232 2,074,235 2,057,270
Held to maturity (fair value of $55,823,
$122,309, and $106,432, respectively) 54,860 119,131 103,767
Loans 5,852,553 5,460,334 5,852,830
Less allowance for loan losses 72,619 71,390 72,310
- -----------------------------------------------------------------------------------------------------------------
Net loans 5,779,934 5,388,944 5,780,520
Bank premises and equipment 115,811 121,302 120,405
Other assets 461,595 398,661 404,759
- -----------------------------------------------------------------------------------------------------------------
Total assets $ 8,876,485 $ 8,383,120 $ 8,795,560
=================================================================================================================
LIABILITIES
Deposits:
Demand, noninterest-bearing $ 967,488 $ 923,236 $ 979,346
Interest-bearing 4,447,496 4,532,729 4,569,243
Time deposits over $100 619,452 509,583 520,060
- -----------------------------------------------------------------------------------------------------------------
Total deposits 6,034,436 5,965,548 6,068,649
Borrowed funds 1,243,006 1,076,303 1,299,337
Long-term debt 787,102 542,013 614,284
Other liabilities 113,434 134,744 137,085
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 8,177,978 7,718,608 8,119,355
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 28,496,626; 28,255,688;
and 28,318,226, respectively 214,609 203,198 205,237
Common stock acquired by ESOP (43) (143) (107)
Retained earnings 505,379 441,068 458,298
Accumulated other comprehensive (loss) income (21,438) 20,389 12,777
- -----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 698,507 664,512 676,205
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 8,876,485 $ 8,383,120 $ 8,795,560
=================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
CENTURA BANKS, INC. AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ---------------------------
(In thousands, except share and per share data) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 128,394 $ 126,304 $ 378,848 $ 367,276
Investment securities:
Taxable 32,896 31,370 95,935 93,496
Tax-exempt 418 479 1,325 1,613
Short-term investments 757 407 1,911 1,196
- ------------------------------------------------------------------------------------------------------------
Total interest income 162,465 158,560 478,019 463,581
INTEREST EXPENSE
Deposits 50,125 55,982 149,486 164,630
Borrowed funds 14,559 13,505 44,118 40,905
Long-term debt 11,499 7,699 31,242 21,907
- ------------------------------------------------------------------------------------------------------------
Total interest expense 76,183 77,186 224,846 227,442
- ------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 86,282 81,374 253,173 236,139
Provision for loan losses 14,400 4,041 27,077 11,069
- ------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 71,882 77,333 226,096 225,070
NONINTEREST INCOME
Service charges on deposit accounts 13,750 13,069 40,165 35,633
Credit card and related fees 2,603 1,884 6,134 4,642
Other service charges, commissions and fees 8,591 7,846 26,051 23,351
Fees for trust services 2,586 2,400 7,768 6,900
Mortgage income 7,142 6,114 19,952 16,255
Gain of sale of subsidiary 4,893 - 4,893 -
Other noninterest income 3,580 5,272 14,694 16,514
Securities (losses) gains, net (1,686) 433 (1,208) 662
- ------------------------------------------------------------------------------------------------------------
Total noninterest income 41,459 37,018 118,449 103,957
NONINTEREST EXPENSE
Personnel 37,667 36,327 113,311 105,485
Occupancy 4,913 4,704 14,871 13,608
Equipment 5,233 5,542 15,800 16,678
Foreclosed real estate losses and related
operating expense 594 265 1,273 990
Merger-related expenses - - 6,858 -
Other operating 27,195 27,553 80,273 78,717
- ------------------------------------------------------------------------------------------------------------
Total noninterest expense 75,602 74,391 232,386 215,478
- ------------------------------------------------------------------------------------------------------------
Income before income taxes 37,739 39,960 112,159 113,549
Income taxes 12,996 13,613 38,051 38,632
- ------------------------------------------------------------------------------------------------------------
NET INCOME $ 24,743 $ 26,347 $ 74,108 $ 74,917
============================================================================================================
NET INCOME PER COMMON SHARE
Basic $ 0.87 $ 0.93 $ 2.60 $ 2.67
Diluted 0.86 0.92 2.57 2.62
============================================================================================================
AVERAGE COMMON SHARES OUTSTANDING
Basic 28,477,202 28,243,980 28,468,226 28,059,243
Diluted 28,810,597 28,771,526 28,882,785 28,620,490
============================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
CENTURA BANKS, INC. AND SUBSIDIARIES
(Unaudited)
Nine months ended September 30, 1999
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive
Income (loss)
Common -----------------------
Stock Minimum Total
Common Stock Acquired Retained Unrealized Pension Shareholders'
(In thousands, except share data) Shares Amount by ESOP Earnings Gains (losses) Liability Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1998, as originally reported 26,618,931 $ 195,516 $ (107) $ 421,464 $ 12,975 $ (5) $ 629,843
Adjustments for pooling-of-interests 1,699,295 9,721 - 36,834 (193) - 46,362
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, 1998, restated 28,318,226 205,237 (107) 458,298 12,782 (5) 676,205
Comprehensive income:
Net income - - - 74,108 - - 74,108
Unrealized losses on securities, net of tax - - - - (34,215) - (34,215)
----------
Comprehensive income - - - - - - 39,893
Common stock issued:
Stock option plans and stock awards 147,955 4,206 - - - - 4,206
Acquisitions 130,445 8,512 - (306) - - 8,206
Repurchases of common stock (100,000) (5,643) - - - - (5,643)
Cash dividends declared, $0.93 per share - - - (25,988) - - (25,988)
Other - 2,297 64 (733) - - 1,628
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1999 28,496,626 $ 214,609 $ (43)$ 505,379 $ (21,433)$ (5) $ 698,507
====================================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
CENTURA BANKS, INC. AND SUBSIDIARIES
(Unaudited)
Nine Months Ended
September 30,
(Dollars in thousands) 1999 1998
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 74,108 $ 74,917
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 27,077 11,069
Depreciation on assets under operating leases 11,247 9,491
Depreciation and amortization, excluding depreciation on assets under operating leases 29,548 27,779
Deferred income taxes 6,486 8,902
Loan fees deferred, net 2,488 206
Bond premium amortization and discount accretion, net 327 867
Loss (gain) on sales of investment securities 1,208 (662)
Gain on sales of equipment under lease (2,821) (4,525)
Gain on sale of subsidiary (4,893) -
Gain on sale of mortgage servicing rights (3,392) -
Proceeds from sales of mortgage loans held for sale 692,831 682,970
Originations, net of principal repayments, of mortgage loans held for sale (604,235) (717,363)
Increase in accrued interest receivable (397) (3,726)
(Increase) decrease in accrued interest payable (1,931) 4,336
Net increase in other assets and other liabilities (78,356) (56,913)
----------- ---------
Net cash provided by operating activities 149,295 37,348
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (121,054) (288,534)
Purchases of:
Securities available for sale (621,280) (895,416)
Premises and equipment (14,432) (11,795)
Proceeds from:
Sales of securities available for sale 137,056 178,231
Maturities and issuer calls of securities available for sale 341,150 422,738
Maturities and issuer calls of securities held to maturity 49,093 104,792
Sales of foreclosed real estate 7,446 4,593
Dispositions of premises and equipment 5,595 2,534
Dispositions of equipment used in leasing activities 7,369 13,389
Proceeds from sale of mortgage servicing rights 8,295 -
Net cash received in mergers, acquisitions or dispositions 3,105 26,664
----------- ---------
Net cash used by investing activities (197,657) (442,804)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits (73,795) 51,215
Net (decrease) increase in borrowed funds (55,834) 228,881
Proceeds from issuance of long-term debt 253,637 212,622
Repayment of long-term debt (57,253) (100,540)
Cash dividends paid (25,988) (23,313)
Proceeds from issuance of common stock, net 2,452 1,281
Redemption of common stock (5,643) (3,041)
Other - 95
----------- ---------
Net cash provided by financing activities 37,576 367,200
----------- ---------
Decrease in cash and cash equivalents (10,786) (38,256)
Cash and cash equivalents at January 1 328,839 319,103
----------- ---------
Cash and cash equivalents at September 30 $ 318,053 $ 280,847
=========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Year to date cash paid for:
Interest $ 222,915 $ 222,971
Income taxes 8,834 16,135
Noncash transactions:
Stock issued in purchase acquisitions and other stock issuances, net 12,563 12,915
Change in unrealized securities gains (losses) (54,379) 16,522
Loans transferred to foreclosed property 5,510 3,339
Other - 1,043
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CENTURA BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
Note 1: Basis of Presentation
The accompanying unaudited 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. The interim financial statements
have been prepared in conformity with generally accepted accounting principles
for interim financial statements. 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). All prior period
financial information has been restated to include historical information for
companies acquired in transactions accounted for as poolings-of-interests.
The information contained in the consolidated financial statements and
accompanying 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 and nine month periods ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
Note 2: Mergers and Acquisitions
Acquisition activity through September 30, 1999 is summarized below.
Data for the completed transactions is as of the date of acquisition.
<TABLE>
<CAPTION>
Acquisition Shares
Date Offices Assets Loans Deposits Issued
- ------------------------------------------------------------------------------------------------------------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Capital Advisors ** 01/07/99 -- $ 0.6 $ -- $ -- 107,789
Scotland Bancorp, Inc. ** 02/05/99 2 56.8 41.0 39.6 --
First Coastal Bankshares, Inc. * 03/26/99 18 526.5 433.1 380.0 1,706,875
- ------------------------------------------
* Merger accounted for as a pooling-of-interests
** Acquisition accounted for as a purchase
</TABLE>
On January 7, 1999, Centura acquired Capital Advisors of North
Carolina, LLC, Capital Advisors of South Carolina, Inc., Capital Advisors of
Mississippi, Inc., Selken, Inc., and Capital Advisors, Inc., collectively
referred to as Capital Advisors. With this transaction, Capital Advisors became
a wholly-owned subsidiary of Centura Bank. Capital Advisors, with offices in
North Carolina, South Carolina, Georgia, and Mississippi, is engaged in the
business of commercial real estate financing and consulting primarily through
brokering and servicing commercial mortgage loans. The acquisition was accounted
for using the purchase method of accounting, and approximately $14.3 million of
goodwill was recorded in other assets on the consolidated balance sheet.
On February 5, 1999, Centura completed the acquisition of Scotland
Bancorp, Inc. ("Scotland") based in Laurinburg, North Carolina. The acquisition
was accounted for as a purchase. Goodwill of approximately $6.6 million was
recorded in other assets on the consolidated balance sheet.
<PAGE>
On March 26, 1999, Centura merged with First Coastal Bankshares, Inc.
("First Coastal"), headquartered in Virginia Beach, Virginia. Each share of
First Coastal common stock was exchanged for 0.34 shares of Centura common
stock. The combination was accounted for as a pooling-of-interests, and
accordingly, historical financial information for all periods presented has been
restated to include First Coastal's historical financial information. This
combination increased Centura's presence in the Hampton Roads region of Virginia
by 18 financial stores. In connection with the merger, Centura recorded
non-recurring pre-tax merger-related charges of $8.4 million. Included in these
merger-related expenses were severance and termination-related accruals, costs
of the transaction, and the write-off of certain assets deemed to have no
ongoing benefit to Centura. The severance costs include payments to be made in
connection with the involuntary termination of employees who were specifically
identified and notified of their termination and severance benefits in December,
1998. The remaining accrued severance balance is expected to be paid during
1999. An additional $1.5 million in provision for loan losses was also recorded
to align the allowance for loan loss factors between the two entities. The
following table summarizes these merger-related charges as well as the remaining
liability at September 30, 1999:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Utilized in Remaining Balance
Merger-Related Charges Pre-tax 1999 September 30, 1999
- --------------------------------------- ------------- -------------- -------------------
<S> <C> <C> <C>
(In thousands)
Severance costs $ 770 $ 732 $ 38
Write-off of unrealizable assets 1,259 1,059 200
Contract terminations 2,071 904 1,167
Professional costs 1,683 1,683 -
Other merger-related expenses 1,075 962 113
- --------------------------------------- ------------- -------------- -------------------
Merger-related expenses 6,858 5,340 1,518
Provision for loan losses 1,500 1,500 -
======================================= ============= ============== ===================
Total merger-related expenses $ 8,358 $ 6,840 $ 1,518
======================================= ============= ============== ===================
The following table summarizes the historical results of operations for
Centura and First Coastal prior to the date of merger and the consolidated
results of operations after giving effect to the merger:
</TABLE>
- --------------------------------------------------------------------------------
Historical
-----------------------------
Centura First Coastal Combined
- --------------------------------------------------------------------------------
(In thousands, except share data)
Year ended December 31, 1998
Net interest income $ 284,174 $ 18,273 $ 302,447
Noninterest income 134,700 5,821 140,521
Noninterest expense 271,689 18,708 290,397
Net income 96,871 3,443 100,314
Net income per common share:
Basic $ 3.67 $ 0.69 $ 3.57
Diluted 3.60 0.68 3.50
Year ended December 31, 1997
Net interest income $ 254,487 $ 18,737 $ 273,224
Noninterest income 109,974 3,901 113,875
Noninterest expense 238,983 15,981 254,964
Net income 83,058 4,103 87,161
Net income per common share:
Basic $ 3.22 $ 0.82 $ 3.17
Diluted 3.15 0.81 3.11
- --------------------------------------------------------------------------------
<PAGE>
On August 22, 1999, Centura entered into a definitive agreement
whereby Centura will acquire Triangle Bancorp, Inc. ("Triangle"), a Raleigh,
North Carolina based bank holding company. Triangle has assets of approximately
$2.3 billion and operates 71 locations throughout North Carolina. Subject to the
adjustments described in the agreement, each Triangle shareholder will receive
0.45 shares of Centura common stock for each Triangle share. The merger is
expected to close during the first quarter of the year 2000 and will be
accounted for using the pooling-of-interests method.
The financial position and results of operations of acquisitions
accounted for under the purchase method of accounting are included in the
consolidated financial statements since the date of consummation.
Note 3: Net Income Per Share
Basic earnings per common share is calculated by dividing net income by
the weighted-average number of common shares outstanding during each period.
Diluted earnings per common share is based on the weighted-average number of
common shares outstanding during each period plus the maximum dilutive effect of
common stock issuable upon exercise of stock options which totaled 414,559
shares and 561,247 shares for the nine months ended September 30, 1999 and 1998,
respectively.
Note 4: Reclassifications
Certain items reported in prior periods have been reclassified to
conform with current period presentation. Such reclassifications had no impact
on net income or shareholders' equity.
Note 5: Commitments and Contingencies
Centura Bank is a co-defendant in two actions (the "Staton Cases")
which have been consolidated for discovery in the Superior Court of Forsyth
County, North Carolina. The plaintiffs (Philip A.R. Staton, Ingeborg Staton,
Mercedes Staton, and trusts created by Ingeborg Staton and Mercedes Staton)
allege that Centura Bank breached its duties and committed other violations of
law while acting as depository of substantial sums of money allegedly converted
by the personal and financial advisors of the owners of such money and in
connection with the creation of charitable trusts established with a portion of
the funds. The Staton Cases were originally brought in 1996. No claim for a
specific amount of monetary damages was made in the cases until 1999. Plaintiffs
seek compensatory and treble damages in amounts that are material to Centura and
its subsidiaries taken as a whole. Centura and Centura Bank believe that Centura
Bank has meritorious defenses to all claims asserted in these cases and Centura
Bank is defending the cases vigorously. In a separate and related case, also
instituted in 1996 in the Superior Court of Forsyth County, North Carolina,
which has been consolidated for discovery with the Staton Cases, Centura Bank is
alleged to have provided the plaintiffs (Piedmont Institute of Pain Management
and three physicians associated with it) with false information regarding the
establishment and funding of a medical clinic by failing to exercise reasonable
care or competence in obtaining such information, and to have committed other
violations of law. Plaintiffs seek specific performance or recovery of money
damages in an amount that is material to Centura and its subsidiaries taken as a
whole. Centura and Centura Bank believe Centura Bank has meritorious defenses to
all claims asserted in this case and Centura Bank is defending the case
vigorously. In 1999, certain of the plaintiffs in the Staton Cases filed a
motion to further amend their complaint to add allegations of fraudulent
concealment, violation of the Bank Bribery Act and negligent supervision of
employees. Centura Bank filed a response to that motion resisting the proposed
amendments. The movants thereupon filed a new action (the "1999 Case") in
Forsyth County, North Carolina Superior Court asserting those claims against
Centura Bank, certain of its named current and former officers and persons
described as "one or more John Does and one or more Jane Does" who are
identified in the complaint as current or former directors of the Bank. Centura
Bank is seeking to consolidate the 1999 Case with the existing cases and intends
to defend it vigorously. Management does not believe that Centura or Centura
Bank have liability with respect to these cases and is unable to estimate a
range of loss.
<PAGE>
Note 6: Segment Information
Centura has two reportable segments: retail banking and treasury.
Centura's reportable segments represent business units that are managed
separately. Each segment requires specific industry knowledge and products and
services offered have varying customer bases.
The retail banking segment includes commercial loans, retail loans,
retail lines of credit, credit cards, transaction deposits, time deposits,
master notes and repurchase agreements, and mortgage servicing and origination.
The retail bank offers its products to individuals, small businesses, and
commercial customers. Treasury is responsible for Centura's asset/liability
management including managing Centura's investment portfolio.
The `other' segment includes the asset management division, leasing
activities, Centura Securities, Inc., Centura Insurance Services, Inc., and
First Greensboro Home Equity ("FGHE"). Centura's asset management division
provides trust and fiduciary services as well as retirement plan design and
administration. Leasing activities include Centura's technology leasing
subsidiary CLG, Inc. ("CLG"), as well as the Centura Bank Leasing Division,
which together offer a broad range of lease products including automobile,
equipment, and recreational vehicle leases. On September 30, 1999, Centura
consummated the sale of CLG. Centura Securities, Inc. offers a competitive line
of brokerage services. Centura Insurance Services, Inc. offers various insurance
products to commercial and consumer customers. FGHE is a mortgage and finance
company specializing in alternative equity lending for homeowners whose
borrowing needs are generally not met by traditional financial institutions.
Centura has a 49 percent ownership interest in FGHE.
Financial information by segment for the three months ended September
30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999
(In thousands) Retail Treasury Other Total Adjustments Consolidated
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income $106,171 $44,351 $ 9,213 $ 159,735 $ 2,730(A) $ 162,465
Interest expense 52,529 20,501 1,030 74,060 2,123(A) 76,183
Funds transfer pricing allocation 17,065 (15,866) (3,877) (2,678) 2,678(B) --
- ---------------------------------------------------------------------------------------------------------------
Net interest income 70,707 7,984 4,306 82,997 3,285 86,282
Provision for loan losses 16,253 -- 616 16,869 (2,469)(C) 14,400
- ---------------------------------------------------------------------------------------------------------------
provision for loan losses 54,454 7,984 3,690 66,128 5,754 71,882
Noninterest income 26,518 142 12,854 39,514 1,945(A) 41,459
Noninterest expense 57,903 2,774 9,624 70,301 5,301(A) 75,602
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes 23,069 5,352 6,920 35,341 2,398 37,739
Income tax expense/(benefit) 5,939 763 2,148 8,850 4,146(C) 12,996
- ---------------------------------------------------------------------------------------------------------------
Net income $ 17,130 $ 4,589 $ 4,772 $ 26,491 $ (1,748) $ 24,743
===============================================================================================================
Period-end assets $5,029,404 $2,733,989 $292,717 $8,056,110 $820,375(D) $8,876,485
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1998
(In thousands) Retail Treasury Other Total Adjustments Consolidated
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income $ 107,012 $ 38,677 $ 9,675 $1 55,364 $ 3,196(A) $ 158,560
Interest expense 58,789 16,179 1,429 76,397 789(A) 77,186
Funds transfer pricing allocation 17,757 (16,591) (4,774) (3,608) 3,608(B) --
- ----------------------------------------------------------------------------------------------------------------
Net interest income 65,980 5,907 3,472 75,359 6,015 81,374
Provision for loan losses 2,799 25 1,176 4,000 41(C) 4,041
- ----------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 63,181 5,882 2,296 71,359 5,974 77,333
Noninterest income 27,244 105 10,614 37,963 (945)(A) 37,018
Noninterest expense 55,225 2,136 9,208 66,569 7,822(A) 74,391
- ----------------------------------------------------------------------------------------------------------------
Income before income taxes 35,200 3,851 3,702 42,753 (2,793) 39,960
Income tax expense/(benefit) 10,654 (1,204) 1,549 10,999 2,614(C) 13,613
- ----------------------------------------------------------------------------------------------------------------
Net income $ 24,546 $ 5,055 $ 2,153 $ 31,754 $ (5,407) $ 26,347
================================================================================================================
Period-end assets $ 4,341,777 $2,793,728 $479,458 $7,614,963 $768,157(D) $8,383,120
</TABLE>
(A) Reconciling item reflects adjustments that are necessary to reconcile to
consolidated totals.
(B) Reconciling item relates to the elimination of funds transfer pricing
credits and charges.
(C) Reconciling item adjusts balances from cash basis to accrual method of
accounting.
(D) Reconciling item relates to assets not allocated to segments including
premises and equipment, cash and due from banks, and other assets.
<PAGE>
CENTURA BANKS, INC.
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations For the Nine Months Ended September 30, 1999
This document contains forward-looking statements about Centura Banks,
Inc. ("Centura"). These statements can be identified by the use of words such as
"expect," "may," "could," "intend," "estimate," or "anticipate." These
forward-looking statements reflect current views, but are based on assumptions
and are subject to risks, uncertainties and other factors. Those factors
include, but are not limited to, the following: (i) expected cost savings from
completed mergers may not be fully realized or costs or difficulties related to
the integration of the businesses of Centura and merged institutions may be
greater than expected, (ii) deposit attrition, customer loss, or revenue loss
following completed mergers may be greater than expected, (iii) competitive
pressure in the banking industry may increase significantly, (iv) changes in the
interest rate environment may reduce margins, (v) general economic conditions,
either nationally or regionally, may be less favorable than expected, resulting
in, among other things, credit quality deterioration, (vi) changes may occur in
the regulatory environment, (vii) changes may occur in business conditions and
inflation, (viii) changes may occur in the securities markets, and (ix)
disruptions of the operations of Centura or any of its subsidiaries, or any
other governmental or private entity may occur as a result of the "Year 2000"
("Y2K") problem.
The following discussion and analysis is presented to assist in the
understanding and evaluation of the financial condition and results of
operations of Centura. Centura is a bank holding company operating in North
Carolina, South Carolina and Virginia. 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 leading online money
management packages.
Centura's common stock is traded on the New York Stock Exchange under
the symbol CBC.
EARNINGS SUMMARY
Net income for the nine months ended September 30, 1999 totaled $74.1
million as compared to $74.9 million earned during the same period of 1998. Year
to date diluted earnings per share were $2.57 and $2.62 at September 30, 1999
and 1998, respectively. Included in year to date earnings are $8.4 million of
merger-related charges related to the merger with First Coastal Bankshares, Inc.
These expenses adversely impacted earnings per diluted share by $0.19. Other key
factors responsible for Centura's results of operations are discussed throughout
Management's Discussion and Analysis.
INTEREST-EARNING ASSETS
Interest-earning assets, net, consisting primarily of loans and
investment securities, averaged $8.0 billion for the nine months ended September
30, 1999, an increase of $657.0 million or 8.9 percent over the net
interest-earning assets of $7.4 billion averaged for the nine months ended
September 30, 1998. Growth in the commercial loan portfolio accounted for the
majority of the increase as discussed below.
Period-end interest-earning assets at September 30, 1999 were $8.1
billion, representing a $443.8 million or 5.8 percent
increase over the level at September 30, 1998.
For additional information on average interest-earning assets, refer to
the discussion below, Table 3, "Net Interest Income Analysis, Taxable Equivalent
Basis," and Table 8, "Net Interest Income and Volume/Rate Analysis, Taxable
Equivalent Basis."
<PAGE>
Loans
Loans, the largest component of interest-earning assets, were $5.9
billion at September 30, 1999, an increase of $392.2 million, or 7.2 percent
over the $5.5 billion reported at September 30, 1998. Table 1 provides a summary
of the loan portfolio and mix as of September 30, 1999, September 30, 1998 and
December 31, 1998.
Loans, on average, were $5.9 billion for the nine months ended
September 30, 1999, increasing 10.2 percent over the average loan balance of
$5.3 billion for the comparable prior year period. Average loan growth was
driven primarily by volume generated in the commercial loan portfolio. On
average, commercial loans increased $574.3 million between the two nine-month
periods. Consumer loans (equity lines, installment loans, and other credit line
loans) were higher, on average, by $102.9 million or 8.4 percent over the prior
year period, a result of various loan campaigns. The leasing portfolio, on
average, declined $60.6 million, driven by the decreased emphasis on the product
and normal amortization. The residential mortgage portfolio was reduced during
the first nine months of 1999 by $72.6 million in response to balance sheet
repositioning in anticipation of higher interest rates.
The average year to date loan yield declined 60 basis points between
September 30, 1998 and 1999. Loans repricing in a lower rate environment through
the first half of the year and tighter credit spreads contributed to this
decline. Also contributing to the decline was a change in the loan portfolio
mix, as high quality commercial loans represented 60.0 percent of the loan
portfolio at September 30, 1999 as compared to 55.4 percent for the prior
period.
Investment Securities
At September 30, 1999, investment securities totaled $2.2 billion, an
increase of $7.7 million over 1998. On average, the investment portfolio grew
$92.8 million to $2.1 billion for the nine-month period ending September 30,
1999 as compared with the same prior year period.
The available for sale ("AFS") investment portfolio is 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 manage
regulatory capital and other factors. This portfolio is carried at fair value
with unrealized gains or losses recorded, net of tax, in accumulated other
comprehensive income. At September 30, 1999, AFS investments were $2.1 billion,
up $72.0 million compared with $2.1 billion at September 30, 1998. The AFS
portfolio continues to be unfavorably impacted by rising interest rates
resulting in unrealized losses totaling $33.8 million.
The held to maturity ("HTM") investment portfolio declined $64.3
million between comparable periods to total $54.9 million at September 30, 1999,
a result of scheduled maturities within the portfolio. It is management's intent
to hold the remaining securities in the portfolio to maturity.
During the third quarter, Centura incurred losses of $1.7 million on
sales of investments in response to management's decision to restructure
portions of the investment portfolio in an attempt to optimize yields in the
future.
FUNDING SOURCES
Funding sources include total deposits, short-term borrowings and
long-term debt. Funding sources averaged $7.9 billion for the nine-month period
ended September 30, 1999, a $635.0 million or 8.7 percent increase from the
average balance of $7.3 billion at September 30, 1998.
<PAGE>
Deposits
Total deposits, whose major categories include money market accounts,
savings accounts, individual retirement accounts, time deposits and transaction
accounts totaled $6.0 billion at September 30, 1999, up $68.9 million over 1998.
Table 2 details average balances for the deposit portfolio and the mix
of deposits for the nine months ended September 30, 1999 and 1998. Overall,
average deposits increased $154.5 million between the two nine-month periods.
Average money market accounts showed the strongest growth, increasing $258.3
million or 23.3 percent, followed by certificates of deposit ("CD's") with
balances greater than $100,000 and noninterest bearing demand accounts, which
grew $68.7 million and $77.5 million, respectively. The growth in the money
market balance is a result of attractive pricing as well as customers preferring
the liquidity and flexibility provided by the product. CD's and individual
retirement accounts ("IRA's") declined $124.8 million as customers migrated to
money market products. The average non-interest bearing demand deposit growth
was primarily within commercial accounts.
Centura's cost of funds for interest-bearing deposits declined 46 basis
points between September 30, 1998 and 1999. Higher cost CD's repricing during
the first half of 1999, changes in the portfolio mix and an emphasis on more
efficient product pricing improved the cost of funds.
Other Funding Sources
Aside from the traditional funding sources described above, management
may utilize alternative nondeposit funding sources in periods when asset
generation exceeds deposit growth. Such sources included the $125.0 million
issuance of 6.5 percent subordinated bank notes in the first quarter of 1999.
Management also utilizes short-term borrowed funds, consisting predominantly of
Federal funds purchased, securities sold under repurchase agreements and master
notes. On average, short-term borrowed funds increased $270.3 million to total
$1.2 billion at September 30, 1999. Period-end short-term borrowings totaled
$1.2 billion and $1.1 billion at September 30, 1999 and 1998, respectively. The
increase was driven by additional borrowings of $74.3 million, $50.0 million and
$30.7 million in repurchase agreements, Federal Home Loan Bank ("FHLB")
advances, and master notes, respectively. The cost of funds for short-term debt
declined 90 basis points to 4.75 percent when compared with the prior year. The
change in mix of short-term debt from higher to lower cost debt in combination
with falling interest rates during the first half of 1999 contributed to this
decline.
Long-term debt consists predominantly of FHLB advances, Capital
Securities and subordinated bank notes and totaled $787.1 million at September
30, 1999 as compared to $542.0 million at September 30, 1998. The majority of
the increase resulted from the issuance of the $125.0 million in subordinated
bank notes described above and an increase of $156.8 million in borrowings from
the FHLB. Notes secured by lease rentals declined $36.4 million as a result of
the sale of CLG, Inc., Centura's technology leasing subsidiary, in the third
quarter of 1999. The average amount of long-term debt increased $210.3 million
to $708.5 million for the nine-month period ended September 30, 1999 compared to
$498.2 million for the comparable prior year period.
NET INTEREST INCOME AND NET INTEREST MARGIN
The net interest margin, taxable equivalent, continues to be impacted
by tighter credit spreads, increased competition and changes in the product mix
to lower yielding earning assets. The margin declined 9 basis points between the
two nine-month periods to 4.27 percent. A more in-depth discussion of these
components follows.
<PAGE>
Net interest income for the nine months ended September 30, 1999 and
1998 was $253.2 million and $236.1 million, respectively. On a taxable
equivalent basis, net interest income increased $17.0 million to $258.6 million
from $241.6 million the prior year. The increase was primarily due to the
combination of interest rate and portfolio mix changes, and a $657.0 million
increase in net average interest-earning asset volume that outpaced the $557.5
million increase in average interest-bearing liabilities.
As indicated on Table 8, "Net Interest Income and Volume/Rate
Analysis-Taxable Equivalent Basis", volume contributed $43.1 million to the
increase in interest income between the two nine-month periods whereas interest
rates reduced interest income by $28.7 million. The reduction in interest income
was influenced by a shift in the relative loan mix from higher yielding leases
and installment loans to lower yielding commercial loans. Commercial loans,
whose yield averaged 8.39 percent for 1999, down 86 basis points from the prior
year, represented 60.0 percent of the loan portfolio, an increase of 465 basis
points over 1998. Interest expense declined $23.6 million as a result of the
rate environment and increased $21.0 million due to volume. Interest expense was
impacted by movements in the deposit portfolio mix. Money market accounts
yielding 3.89 percent comprised 22.7 percent of total deposits at September 30,
1999 compared to money markets yielding 4.40 percent that comprised 18.9 percent
in 1998. Offsetting the increase in money market accounts was a decline in CD's
and IRA's which comprised 52.1 percent and 55.4 percent of interest-bearing
deposits at September 30, 1999 and 1998, respectively. The yield on these
deposits averaged 5.35 percent and 5.65 percent at September 30, 1999 and 1998,
respectively.
ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES (AFLL)
Total nonperforming assets ("NPA's"), including nonperforming loans
("NPL's") and foreclosed properties, were $41.5 million at September 30, 1999
compared with $37.5 million at September 30, 1998, representing 0.47 percent and
0.45 percent of total assets, respectively.
During the third quarter, Centura charged off $11.8 million of loans
outstanding to Pluma, Inc. ("Pluma"), an Eden, North Carolina based manufacturer
and distributor of fleece and jersey sportswear. Including the Pluma charge-off,
year to date net charge-offs were $26.8 million compared to $10.3 million for
1998. Net charge-offs for the nine months ended September 30, 1999 were 0.62
percent of average loans1 versus 0.26 percent for the same period of 1998.
Excluding the Pluma charge-off, net charge-offs as a percent of average loans1
for the current year would have been 0.35 percent. Net charge-offs for
commercial and industrial loans, representing the largest portion of net
charge-offs, increased $15.3 million between the two nine-month periods. Leasing
charge-offs increased $372,000, a result of higher levels of problem assets in
the leasing portfolio. Charge-offs on the credit card portfolio increased
$464,000 between periods.
For the nine months ended September 30, 1999 and 1998, the provision
for loan losses was $27.1 million and $11.1 million, respectively. Of the $27.1
million charged in 1999, $1.5 million was incurred as a result of the merger
with First Coastal in order to align the allowance for loan loss factors between
the two merged entities and $8.9 million was recorded in anticipation of losses
related to the Pluma credit. Centura's total estimated loss associated with the
Pluma credit is approximately $14.0 million, which has been fully reserved. The
remaining increase in the provision for loan losses was in response to growth in
the loan portfolio.
The allowance for loan losses ended the period at $72.6 million,
representing 1.26 percent of total loans outstanding1, compared to $71.4
million, or 1.33 percent of total loans outstanding1 at September 30, 1998. For
additional information with respect to the activity in the allowance for loan
losses, see Table 4 "Analysis of Allowance for Loan Losses."
- --------
1 Excludes mortgage loans held for sale, on average, of $104.4 million and $91.7
million for the nine months ended September 30, 1999 and 1998, respectively.
<PAGE>
During the third quarter, eastern North Carolina suffered widespread
flood damage as a result of Hurricane Floyd. Centura has examined a significant
portion of its major credits across all sectors affected by the hurricane. Based
on this examination, Centura does not expect any material adverse financial
impact or impairment to credit quality as a result of the flooding.
Management believes the AFLL is adequate based upon its current
judgment, evaluation, and analysis of the loan portfolio. Centura continuously
monitors overall credit quality and manages its credit processes, including
loans in past due and nonaccrual status. The AFLL represents management's
estimate of an amount adequate to provide for probable losses inherent in the
loan portfolio. However, there are additional risks of future losses which
cannot be quantified precisely or attributed to particular loans or classes of
loans. Because those risks include general economic trends as well as conditions
affecting individual borrowers, management's judgment of the AFLL is necessarily
approximate and imprecise. The AFLL is also subject to regulatory examinations
and determinations as to adequacy, which may take into account such factors as
the methodology used to calculate the AFLL and the size of the AFLL in
comparison to peer banks identified by the regulatory agencies. No assurances
can be given that the ongoing evaluation of the loan portfolio in light of
economic conditions and other factors then prevailing will not require
significant future additions to the AFLL, thus adversely affecting the operating
results of Centura.
In addition to nonperforming assets and past due loans shown in Table
5, management has identified approximately $25.0 million in loans that are
currently performing in accordance with contractual terms that management
believes may become nonperforming during the remaining term of the loan.
NONINTEREST INCOME AND EXPENSE
While Centura generates most of its revenue from net interest income,
noninterest income continues to comprise an increasing percentage of revenue.
Noninterest income as a percentage of total revenues (defined as the sum of net
interest income, taxable equivalent plus noninterest income) was 31.4 percent
and 30.1 percent for the nine months ended September 30, 1999 and 1998,
respectively. Noninterest income grew $14.5 million to total $118.4 million for
the nine months ended September 30, 1999. Service charges on deposit accounts,
the largest component of noninterest income, grew 12.7 percent or $4.5 million
over 1998. The increase was principally the result of changes to the fee
structure for various products, primarily checking account related, implemented
in order for Centura to become more competitive with other financial
institutions. Service charges received on checking accounts increased $2.9
million between periods. Nonsufficient funds fees ("NSF"), another component of
service charges on deposits, increased $1.0 million between periods, primarily
the result of an increase in NSF fees implemented during the second quarter.
Insurance and brokerage commissions increased $431,000 and $1.9 million
respectively, a result of higher volume supported by favorable market
conditions. Mortgage income increased $3.7 million, a result of the sale of the
Ginnie Mae servicing portfolio which resulted in a gain of $3.4 million. The
sale of the Ginnie Mae servicing portfolio was driven by the value inherent in
the current rate environment combined with the increased operating efficiencies
expected from selling the labor intensive portfolio.
During the quarter, Centura sold its technology leasing subsidiary,
CLG, Inc. in a transaction that resulted in a gain of $4.9 million.
Excluding merger-related expenses, year to date noninterest expenses
totaled $225.5 million, a $10.1 million or 4.7 percent increase over the
comparable 1998 period. Personnel and occupancy expenses contributed $7.8
million and $1.3 million to the increase, respectively. Normal salary growth and
increases in the cost of employee benefits were the primary factors to the
increase in personnel costs. Acquisitions contributed to an increase in
amortization expense of $1.1 million over 1998's expense. Fees for outsourced
services, which is mainly volume driven, increased $1.6 million. Telephone
expenses were up $901,000 in 1999. Favorably, marketing expenses dropped $1.4
million as a result of decreased emphasis on marketing campaigns. Equipment
related expenses between periods declined $878,000.
<PAGE>
Year to date, Centura has incurred additional expense related to Year
2000 remediation efforts. Direct and indirect expenses incurred for the first
nine months of 1999, which are included throughout the various components of
noninterest expense, totaled $3.8 million. Refer to the "Year 2000" section for
additional information concerning Y2K.
INCOME TAX EXPENSE
Income tax expense recorded for the nine months ended September 30,
1999 was $38.1 million compared to $38.6 million in the prior period. The
current effective tax rate is 33.93 percent, down from the 34.02 percent at
September 30, 1998.
EQUITY AND CAPITAL RESOURCES
Shareholders' equity as of September 30, 1999 was $698.5 million
compared to $664.5 million at September 30, 1998. The change in equity between
the two periods was influenced by the retention of earnings, the issuance of
common stock in connection with the acquisition of Capital Advisors, and the
exercise of stock options. Offsetting increases to shareholders' equity between
the two periods was the payment of $26.0 million in dividends and the repurchase
of common stock. During the second quarter of 1999, Centura repurchased 100,000
shares of common stock at an aggregate cost of $5.6 million. Unrealized losses
on available for sale securities, net of tax, were $21.4 million compared to
unrealized gains of $20.4 million the year before. This decline was attributable
to rising interest rates. The ratio of shareholders' equity to period-end assets
was 7.87 percent and 7.93 percent at September 30, 1999 and 1998, respectively.
Subsequent to September 30, 1999, Centura announced the authorization
by its board of directors to repurchase up to approximately 1,000,000 shares of
its common stock. The number of shares repurchased will be consistent with
acceptable limits to allow for the merger with Triangle to be accounted for as a
pooling-of-interests under generally accepted accounting principles.
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 within the regulatory framework while providing a basis for future
growth. At September 30, 1999, Centura had the required capital levels to
qualify as well capitalized. At September 30, 1999, Tier I capital was $698.8
million and total capital was $866.1 million. For risk-based capital
calculations, Centura's Capital Securities are included as a component of Tier I
capital. Centura's capital ratios are outlined in Table 6.
LIQUIDITY
Centura's liquidity management objective is to meet maturing debt
obligations, fund loan commitments and deposit withdrawals, and manage
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.
Centura's traditional funding sources include established federal funds
lines with major banks, advances from the FHLB, proceeds from matured
investments, principal repayments on loans, and core deposit growth. Centura
also has an unsecured bank note facility for institutional investors. In
addition, Centura accepts Eurodeposits, has a master note commercial paper
facility, and offers brokered CD's.
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 objective is to
manage the mix of interest-sensitive assets and liabilities to minimize interest
rate risk and stabilize the net interest margin and the market value of equity
while optimizing profit potential.
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 allow Centura to utilize
diversified funding sources. 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 a 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 September 30, 1999. 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 on-balance sheet or off-balance sheet position should not be
viewed independently.
THIRD QUARTER RESULTS
Net income decreased by $1.6 million or 6.1 percent to total $24.7
million for the third quarter of 1999 as compared to the third quarter of 1998.
Earnings per diluted share of $0.86 represented a $0.06 decrease over 1998's
third quarter. These results produced a return on average assets of 1.12 percent
and a return on average equity of 13.98 percent, compared with third quarter
1998 ratios of 1.27 percent and 16.03 percent, respectively. 1999 third quarter
earnings were unfavorably impacted by a $7.8 million charge to provision expense
for anticipated losses associated with the Pluma credit. This charge unfavorably
impacted earnings by $0.17 per diluted share.
Comparing current and prior year third quarters, the net interest
margin fell 8 basis points to 4.32 percent. The decline in the margin was
influenced by greater growth in the average interest-earning asset balance
relative to the increase in net interest income, taxable equivalent. Average
interest-earning assets, net, grew $523.9 million, or 7.0 percent between the
periods. As seen in Table 8, volume growth contributed $12.2 million to interest
income, taxable equivalent, whereas changes in interest rates reduced interest
income by $8.3 million. Interest expense declined $1.0 million for the three
months ended September 30, 1999 as compared to 1998. A decline in the cost of
funds of 36 basis points as a result of falling interest rates through the first
half of 1999 contributed to an $7.2 million decrease in interest expense while
volume increases added $6.2 million.
<PAGE>
Net charge-offs for the third quarter of 1999 were $16.8 million, or
1.16 percent of average loans1. Gross charge-offs and recoveries were $17.4
million and $538,000, respectively, as compared to $4.6 million and $726,000,
respectively, for the third quarter of 1998. Included in gross charge-offs for
the third quarter was an $11.8 million charge-off related to the Pluma credit.
Had the Pluma credit not been charged-off, net charge-offs for the quarter would
have been $5.0 million or 0.35 percent of average loans2.
Noninterest income for the three months ended September 30, 1999 was
$41.5 million, an increase of $4.4 million or 12.0 percent over the three months
ended September 30, 1998. This increase in noninterest income was driven by the
sales of the Ginnie Mae servicing portfolio and CLG, Inc., which increased
mortgage income and other noninterest income by $3.4 million and $4.9 million,
respectively. Mortgage income was $7.1 million and $6.1 million for the three
months ended September 30, 1999 and 1998, respectively. Excluding the gain from
the sale of the Ginnie Mae portfolio, mortgage income declined between periods
as a result of higher interest rates which have slowed loan refinances and loan
sales to the secondary market. Noninterest income was favorably impacted by
increases of $681,000 in service charges on deposit accounts, $1.2 million in
brokerage commissions and $719,000 for credit cards and related fees. Service
charges on deposit accounts increased as a result of higher volume as well as an
increase in the fee for NSF transactions. Insurance and brokerage commissions
were up as a result of increases in volume supported by favorable market
conditions. Losses on securities sales increased $2.1 million between periods, a
result of management's decision to restructure portions of the investment
portfolio in an attempt to optimize yields in the future.
Noninterest expenses were up $1.2 million or 1.6 percent to total $75.6
million for the quarter ended September 30, 1999. Contributing to the increase
in noninterest expense were additional personnel and occupancy expenses of $1.3
million and $209,000, respectively. Included in personnel expense is $901,000
related to compensation for the employees of CLG, Inc. Losses on foreclosed real
estate were up $329,000, of which $295,000 relates to a single property acquired
in the merger with First Coastal. Intangibles amortization increased $398,000
over the prior year's third quarter, a result of acquisitions between the
periods. Expense savings were realized in the marketing, office supplies, and
losses other than loans categories, which declined $367,000, $542,000 and
$324,000, respectively. Fees for outsources services, a volume driven expense,
were up $195,000.
CURRENT ACCOUNTING ISSUES
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"). The statement addresses accounting and reporting requirements for
derivative instruments and for hedging activities. SFAS 133 requires that all
derivatives be recognized as either assets or liabilities in the consolidated
balance sheet and that those instruments be measured at fair value. If certain
conditions are met, a derivative may be designated as a hedge of exposure to
changes in fair value of an asset or liability, exposure to variable cashflows
of a forecasted transaction or exposure of foreign currency denominated
forecasted transactions. The accounting for changes in the fair value of a
derivative depends on the intended use of the derivatives and its resulting
designation. In June 1999, the FASB issued SFAS No. 137 "Accounting for
Derivative Instruments and Hedging Activities- Deferral of the Effective Date of
FASB 133." This Statement defers the effective date of SFAS 133 for one year.
SFAS 133, as amended, is now effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. Management has not quantified the impact of
adopting SFAS 133 nor has the timing of the adoption been determined.
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 exposure drafts and to proposed effective
dates.
- --------
(2)Excludes mortgage loans held for sale, on average, of $80.9 million and
$103.4 million for the three months ended September 30, 1999 and 1998,
respectively.
<PAGE>
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.
Centura formulated the initial Year 2000 awareness program in 1996. A
steering committee with representation from all the major areas of the bank and
executive management was established to determine internal operational
requirements to make its systems Year 2000 compliant. A formal Year 2000 Project
Plan was drafted and approved by the board of directors in 1998. In this effort,
Centura has followed the five management phases recommended by the Federal
Financial Institutions Examination Council: (1) awareness, (2) assessment, (3)
renovation, (4) validation, and (5) implementation. As of the end of September,
Centura has completed all five phases of its readiness plan on schedule
according to the Y2K plan that was established and the milestones decreed by the
federal guidelines. The project has been organized along functional lines to
ensure that information technology (mainframe and distributed applications),
vendors and other third parties, and the customer base will receive adequate
resource attention.
For its internal systems, Centura completed the assessment phase with a
complete inventory of all hardware and software that could potentially be
impacted. A risk scoping analysis determined the schedule for remediation and
testing to ensure that mission critical systems would have ample time for
extensive validation. Through code enhancements, hardware and software upgrades,
and systems replacement, where needed, Centura has completed renovation or
replacement of all of its systems. The final phase, validation of all internal
systems and external interfaces through integrated testing, is complete. Centura
will continue to conduct additional tests of all systems and interfaces
throughout the remainder of the year.
Centura's assessment phase included the identification of external
vendors, significant customers and borrowers, market partners, and fund
providers whose operations and state of Year 2000 readiness may have a potential
impact on Centura. Relationships with third parties in which electronic data is
exchanged exposes Centura to some risk of loss in the event the other party
makes a mistake or is unable to perform. In the Year 2000 context, Centura
continues to work to identify where such exposure may exist and has developed
contingency plans in order to minimize risk of loss due to third parties' Year
2000 vulnerabilities.
Centura is exposed to credit risk due to the failure of its borrowers
to properly remediate their own systems as well as address their own customers'
or suppliers' Year 2000 state of readiness. Centura continues its due diligence
process of identifying all borrowers representing a material Year 2000 related
risk, evaluating their Year 2000 preparedness, assessing the aggregate Year 2000
borrower risk to Centura, and developing appropriate risk controls to manage and
mitigate the Year 2000 customer risk. As part of this process, borrowers are
assigned a risk rating based on their Year 2000 compliance readiness that is
being used to assess the need for additional specific loan loss reserves.
Management has documented and tested contingency plans for mission
critical systems and business processes. The Year 2000 contingency plans were
designed to address any failure to remediate Centura's internal systems
and to address failures of systems outside Centura. Centura, of course, cannot
control the Y2K compliance of its suppliers or customers; accordingly, it is
possible that the failure of those third parties could have an adverse
impact on Centura's operations and financial results. For example, in the
event of a power failure caused by Y2K non-compliance, Centura's operations
could be adversely affected. Centura's contingency plans have incorporated
these "worst case" scenarios of an outside failure. The plans incorporated
the use of third party service providers, alternate vendors, and other
contingency service providers. An Event Management Plan has also been documented
to outline the monitoring process of system validation during the event period.
<PAGE>
Monitoring and managing the Year 2000 project continues to result in
additional nonrecurring expenditures. 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 were not enhanced. In addition to the direct costs, indirect costs have
also been incurred. These indirect costs consist principally of the time devoted
by existing employees in monitoring software vendor progress, testing enhanced
software products, and implementing any necessary contingency plans. 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 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. The Emerging Issues Task Force provided guidance
concerning the accounting for the costs related to Year 2000 modification. The
costs of the modifications continue to be treated as regular maintenance and
repair and are charged to expense as incurred.
The remaining direct and indirect costs are not expected to have a
material effect on Centura's results of operations. However, the distribution of
Year 2000 expenses between direct and indirect may change due to the allocation
of internal resources. Including direct and indirect expenditures, management
currently estimates that the total costs to become Year 2000 compliant will
range between $8.0 and $10.0 million. In total, Centura has expensed
approximately $9.9 million in indirect and direct costs related to Year 2000
compliance efforts, of which $3.8 million was incurred during 1999.
<PAGE>
<TABLE>
<CAPTION>
TABLE 1
- -------------------------------------------------------------------------------------------------------------------
LOAN PORTFILIO
September 30, 1999 September 30, 1998 December 31, 1998
---------------------------------------------------------------------------------
(Dollars in thousands) Balance % of Total Balance % of Total Balance % of Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and agriculture $1,162,312 19.9 % $1,041,056 19.1 % $1,126,721 19.3 %
Commercial mortgage 1,303,117 22.3 1,055,332 19.3 1,142,962 19.5
Real estate construction 773,347 13.1 696,118 12.7 750,156 12.8
- -------------------------------------------------------------------------------------------------------------------
Commercial loan portfolio 3,238,776 55.3 2,792,506 51.1 3,019,839 51.6
Consumer 445,804 7.6 399,746 7.3 437,815 7.5
Residential mortgage 1,794,335 30.7 1,775,833 32.5 1,873,944 32.0
Leases 280,662 4.8 428,149 7.8 434,556 7.4
Other 92,976 1.6 64,100 1.3 86,676 1.5
- -------------------------------------------------------------------------------------------------------------------
Total loans $5,852,553 100.0 % $5,460,334 100.0 % $5,852,830 100.0 %
===================================================================================================================
Residential mortgage servicing
portfolio for others $3,664,000 $2,937,000 $2,877,000
==================================================================================================================
</TABLE>
TABLE 2
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
AVERAGE DEPOSIT MIX FOR THE NINE MONTHS ENDED
September 30, 1999 September 30, 1998
-----------------------------------------------------------
(Dollars in thousands) Balance % of Total Balance % of Total
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Demand, noninterest bearing $ 922,961 15.4 % $ 845,451 14.4 %
Interest checking 770,894 12.8 750,601 12.8
Money market 1,364,447 22.7 1,106,160 18.9
Savings 282,991 4.7 332,285 5.7
- --------------------------------------------------------------------------------------------
Time deposits:
Certificates of deposit < $100,000 1,736,620 28.9 1,946,228 33.2
Certificates of deposit > $100,000 558,365 9.3 462,091 7.9
IRA 354,615 5.9 366,061 6.3
Foreign deposits 20,301 0.3 47,857 0.8
- --------------------------------------------------------------------------------------------
Total time deposits 2,669,901 44.4 2,822,237 48.2
- --------------------------------------------------------------------------------------------
Total average deposits $ 6,011,194 100.0 % $ 5,856,734 100.0 %
============================================================================================
</TABLE>
<PAGE>
TABLE 3
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME ANALYSIS - TAXABLE EQUIVALENT BASIS
Nine months ended Nine months ended
September 30, 1999 September 30, 1998
-------------------------------------------------------------------------------------------
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 $ 5,861,987 $ 379,673 8.59 % $ 5,304,823 $ 367,805 9.19 %
Taxable securities 2,085,060 99,863 6.39 1,965,960 97,593 6.62
Tax-exempt securities 30,520 2,016 8.81 37,024 2,455 8.84
Short-term investments 47,551 1,911 5.30 29,639 1,196 5.33
------------- ----------- ----------- -----------
Interest-earning assets, gross 8,025,118 483,463 8.00 7,337,446 469,049 8.49
Net unrealized (losses) gains on available
for sale securities (4,182) 15,635
Other assets, net 752,689 706,025
------------- -----------
Total assets $ 8,773,625 $ 8,059,106
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking $ 770,894 $ 5,966 1.03 % $ 750,601 $ 8,178 1.46 %
Money market 1,364,447 39,739 3.89 1,106,160 36,372 4.40
Savings 282,991 3,173 1.50 332,285 5,032 2.02
Time 2,669,901 100,608 5.04 2,822,237 115,048 5.45
------------- ----------- ----------- -----------
Total interest-bearing deposits 5,088,233 149,486 3.93 5,011,283 164,630 4.39
Borrowed funds 1,225,301 44,118 4.75 955,036 40,905 5.65
Long-term debt 708,517 31,242 5.81 498,192 21,907 5.80
------------- ----------- ----------- -----------
Interest-bearing liabilities 7,022,051 224,846 4.26 6,464,511 227,442 4.69
Demand, noninterest-bearing 922,961 845,451
Other liabilities 131,564 120,594
Shareholders' equity 697,049 628,550
------------- -----------
Total liabilities and
shareholders' equity $ 8,773,625 $ 8,059,106
============= ===========
Interest rate spread 3.74 % 3.80 %
Net yield on interest-
earning assets $ 8,025,118 $ 258,617 4.27 % $ 7,337,446 $ 241,607 4.36 %
============= =========== =========== ===========
Taxable equivalent adjustment $ 5,444 $ 5,468
=========== ===========
</TABLE>
<PAGE>
TABLE 3- Continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME ANALYSIS - TAXABLE EQUIVALENT BASIS
Three months ended Three months ended
September 30, 1999 September 30, 1998
-----------------------------------------------------------------------------------
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 $ 5,863,879 $ 128,679 8.65 % $ 5,433,365 $ 126,508 9.18 %
Taxable securities 2,126,237 34,242 6.44 1,990,245 32,775 6.58
Tax-exempt securities 29,809 639 8.57 33,462 721 8.62
Short-term investments 55,407 757 5.35 27,624 407 5.78
-------------- --------- ------------ -----------
Interest-earning assets, gross 8,075,332 164,317 8.04 7,484,696 160,411 8.47
Net unrealized (losses) gains on available
for sale securities (31,421) 19,508
Other assets, net 732,544 721,403
-------------- ------------
Total assets $ 8,776,455 $ 8,225,607
============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking $ 761,245 $ 2,059 1.07 % $ 755,421 $ 2,630 1.38 %
Money market 1,415,583 14,034 3.93 1,183,015 13,141 4.41
Savings 261,876 934 1.41 325,403 1,640 2.00
Time 2,637,373 33,098 4.98 2,817,446 38,571 5.43
-------------- --------- ------------ -----------
Total interest-bearing deposits 5,076,077 50,125 3.92 5,081,285 55,982 4.37
Borrowed funds 1,183,117 14,559 4.82 937,448 13,505 5.64
Long-term debt 756,671 11,499 5.95 540,689 7,699 5.57
-------------- --------- ------------ -----------
Interest-bearing liabilities 7,015,865 76,183 4.29 6,559,422 77,186 4.65
Demand, noninterest-bearing 936,216 883,978
Other liabilities 122,273 130,005
Shareholders' equity 702,101 652,202
-------------- ------------
Total liabilities and
shareholders' equity $ 8,776,455 $ 8,225,607
============== ============
Interest rate spread 3.75 % 3.82 %
Net yield on interest-
earning assets $ 8,075,332 $ 88,134 4.32 % $ 7,484,696 $ 83,225 4.40 %
============== ========= ============ ===========
Taxable equivalent adjustment $ 1,852 $ 1,851
========= ===========
</TABLE>
<PAGE>
TABLE 4
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES (AFLL)
At and for the nine months At and for the year ended
ended September 30, ended December 31,
-------------------------------------------------------------
(Dollars in thousands) 1999 1998 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance for loan losses at beginning of period $ 72,310 $ 68,576 $ 68,576
Transfer of AFLL for loans sold and subsidiary sale (556) - -
Allowance for acquired loans 605 2,068 2,068
Provision for loan losses 27,077 11,069 15,644
Loans charged off (28,873) (13,069) (17,358)
Recoveries on loans previously charged off 2,056 2,746 3,380
- --------------------------------------------------------------------------------------------------------------------------
Net charge-offs (26,817) (10,323) (13,978)
- --------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses at end of period $ 72,619 $ 71,390 $ 72,310
==========================================================================================================================
Loans at period-end $ 5,852,553 $ 5,460,334 $5,852,830
Average loans 5,861,987 5,304,823 5,391,867
Nonperforming loans 37,924 32,403 32,293
Allowance for loan losses to total loans 1 1.26 % 1.33 % 1.27 %
Net charge-offs to average loans 2 0.62 0.26 0.26
Allowance for loan losses to nonperforming loans 1.91 x 2.20 x 2.24 x
==========================================================================================================================
1 Excludes mortgage loans held for sale of $70.2 million, $91.0 million, and $158.8 million at September 30, 1999, September 30,
1998 and December 31, 1998, respectively.
2 Excludes mortgage loans held for sale, on average, of $104.4 million and $91.7 million for the nine months ended September 30,
1999 and September 30, 1998, respectively and $96.3 million for the year ended December 31, 1998.
</TABLE>
TABLE 5
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS AND PAST DUE LOANS
September 30, December 31,
-------------------------------------------------------------
(Dollars in thousands) 1999 1998 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonperforming loans $ 37,924 $ 32,403 $ 32,293
Foreclosed property 3,594 5,135 5,812
- --------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 41,518 $ 37,538 $ 38,105
==========================================================================================================================
Nonperforming assets to:
Loans and foreclosed property 1 0.72 % 0.70 % 0.67 %
Total assets 0.47 0.45 0.43
==========================================================================================================================
Accruing loans past due ninety days or greater $ 7,340 $ 10,061 $ 9,095
==========================================================================================================================
1 Excludes mortgage loans held for sale of $70.2 million, $91.0 million, and $158.8 million at September 30, 1999, September 30,
1998 and December 31, 1998, respectively.
</TABLE>
<PAGE>
TABLE 6
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS
Tier I Capital Total Capital Tier I Leverage
<S> <C> <C> <C>
September 30, 1999 10.43 % 12.93 % 8.07 %
December 31, 1998 10.18 10.79 7.79
September 30, 1998 10.47 11.09 7.85
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 September 30, 1999 are summarized below:
Weighted Avg.
Weighted Average Rate Remaining Estimated
Notional During the Quarter Contractual Fair Value
Amount ---------------------- Terms (Years) Gain(Loss)
Received Paid
- ------------------------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS
<S> <C> <C> <C> <C> <C>
Corporation pays fixed/receives floating $ 502,318 5.46% 5.86% 2.5 $ 5,570
Corporation pays variable/receives fixed 516,000 5.98% 5.33% 4.5 (6,383)
Corporation pays variable/receives variable 50,000 5.41% 5.53% 0.4 3
---------------------------------------------------------------------------
Total interest rate swaps $ 1,068,318 $ (810)
===========================================================================
</TABLE>
Interest rate cap and floor agreements at September 30, 1999 are summarized
below:
<TABLE>
<CAPTION>
Weighted Average
Remaining Estimated
Notional Average Current Index Contractual Carrying Fair Value
(Dollars in thousands) Amount Rate * Rate Term (Years) Value Gain (Loss)
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST RATE FLOORS
<S> <C> <C> <C> <C> <C> <C>
LIBOR $ 180,000 5.73% 6.08% 1.2 $ 433 $ 511
CMS 125,000 5.20% 6.85% 4.0 - 203
-----------------------------------------------------------------------------------
$ 305,000 $ 433 $ 714
===================================================================================
INTEREST RATE CAPS
LIBOR $ 22,000 7.00% 6.08% 4.0 $ 399 $ 335
CMS 125,000 6.94% 6.85% 4.0 - (3,054)
-----------------------------------------------------------------------------------
$ 147,000 $ 399 $ (2,719)
===================================================================================
* 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 (TE) BASIS
Nine months ended Three months ended
September 30, 1999 and 1998 September 30, 1999 and 1998
----------------------------------------------------------------------------
Income/ Variance Income/ Variance
Expense Attributable to Expense Attributable to
(Dollars in thousands) Variance Volume Rate Variance Volume Rate
- ------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
<S> <C> <C> <C> <C> <C> <C>
Loans $ 11,868 $ 37,067 ($25,199) $ 2,171 $ 9,690 ($7,519)
Taxable securities 2,270 5,781 (3,511) 1,467 2,202 (735)
Tax-exempt securities (439) (430) (9) (82) (78) (4)
Short-term investments 715 720 (5) 350 382 (32)
- ------------------------------------------------------------------------------------------------------------------
Total interest income 14,414 43,138 (28,724) 3,906 12,196 (8,290)
INTEREST EXPENSE
Interest-bearing deposits:
Interest checking (2,212) 216 (2,428) (571) 20 (591)
Money market 3,367 7,841 (4,474) 893 2,404 (1,511)
Savings (1,859) (676) (1,183) (706) (283) (423)
Time (14,440) (6,014) (8,426) (5,473) (2,376) (3,097)
- ------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits (15,144) 1,367 (16,511) (5,857) (235) (5,622)
Borrowed funds 3,213 10,396 (7,183) 1,054 3,208 (2,154)
Long-term debt 9,335 9,274 61 3,800 3,252 548
- ------------------------------------------------------------------------------------------------------------------
Total interest expense (2,596) 21,037 (23,633) (1,003) 6,225 (7,228)
- ------------------------------------------------------------------------------------------------------------------
Net interest income, TE $17,010 $22,101 ($5,091) $4,909 $5,971 ($1,062)
==================================================================================================================
</TABLE>
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.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There has been no material change in Centura's market risk since
December 31, 1998 as described in Item 7A of Centura's Annual Report on Form
10-K for the year ended December 31, 1998. Mergers accounted for as pooling-
of-interests did not materially impact Centura's market risk.
<PAGE>
CENTURA BANKS, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Centura Bank is a co-defendant in two actions (the "Staton Cases")
which have been consolidated for discovery in the Superior Court of Forsyth
County, North Carolina. The plaintiffs (Philip A.R. Staton, Ingeborg Staton,
Mercedes Staton, and trusts created by Ingeborg Staton and Mercedes Staton)
allege that Centura Bank breached its duties and committed other violations of
law while acting as depository of substantial sums of money allegedly converted
by the personal and financial advisors of the owners of such money and in
connection with the creation of charitable trusts established with a portion of
the funds. The Staton Cases were originally brought in 1996. No claim for a
specific amount of monetary damages was made in the cases until 1999. Plaintiffs
seek compensatory and treble damages in amounts that are material to Centura and
its subsidiaries taken as a whole. Centura and Centura Bank believe that Centura
Bank has meritorious defenses to all claims asserted in these cases and Centura
Bank is defending the cases vigorously. In a separate and related case, also
instituted in 1996 in the Superior Court of Forsyth County, North Carolina,
which has been consolidated for discovery with the Staton Cases, Centura Bank is
alleged to have provided the plaintiffs (Piedmont Institute of Pain Management
and three physicians associated with it) with false information regarding the
establishment and funding of a medical clinic by failing to exercise reasonable
care or competence in obtaining such information, and to have committed other
violations of law. Plaintiffs seek specific performance or recovery of money
damages in an amount that is material to Centura and its subsidiaries taken as a
whole. Centura and Centura Bank believe Centura Bank has meritorious defenses to
all claims asserted in this case and Centura Bank is defending the case
vigorously. In 1999, certain of the plaintiffs in the Staton Cases filed a
motion to further amend their complaint to add allegations of fraudulent
concealment, violation of the Bank Bribery Act and negligent supervision of
employees. Centura Bank filed a response to that motion resisting the proposed
amendments. The movants thereupon filed a new action (the "1999 Case") in
Forsyth County, North Carolina Superior Court asserting those claims against
Centura Bank, certain of its named current and former officers and persons
described as "one or more John Does and one or more Jane Does" who are
identified in the complaint as current or former directors of the Bank. Centura
Bank is seeking to consolidate the 1999 Case with the existing cases and intends
to defend it vigorously. Management does not believe that Centura or Centura
Bank have liability with respect to these cases and is unable to estimate a
range of loss.
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
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Exhibit
No. Description of Exhibit Reference
<S> <C> <C>
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 - included in the electronically filed document
as required.
27.2 Financial Data Schedule- (Restated for pooling-of-interests with First
Coastal Bankshares, Inc.) 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 July 7, 1999 was filed under Item 5, Other
Events, indicating Centura's announcement on July 7, 1999 of earnings
for the three and six month periods ended June 30, 1999.
(2) A report on Form 8-K dated August 23, 1999 was filed under Item 5,
Other Events, indicating Centura's announcement on August 22, 1999 of
an agreement entered into between Centura Banks, Inc. and Triangle
Bancorp, Inc., whereby Triangle will be acquired by Centura.
<PAGE>
</TABLE>
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: November 12, 1999 By: /s/ Steven J. Goldstein
Steven J. Goldstein
Chief Financial Officer
<PAGE>
CENTURA BANKS, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit Description of Exhibit Page No.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 **
27.2 Financial Data Schedule- Restated **
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Sep-30-1999
<CASH> 244,119
<INT-BEARING-DEPOSITS> 14,363
<FED-FUNDS-SOLD> 59,571
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,146,232
<INVESTMENTS-CARRYING> 54,860
<INVESTMENTS-MARKET> 55,823
<LOANS> 5,852,553
<ALLOWANCE> 72,619
<TOTAL-ASSETS> 8,876,485
<DEPOSITS> 6,034,436
<SHORT-TERM> 1,243,006
<LIABILITIES-OTHER> 113,434
<LONG-TERM> 787,102
0
0
<COMMON> 214,609
<OTHER-SE> 483,898
<TOTAL-LIABILITIES-AND-EQUITY> 8,876,485
<INTEREST-LOAN> 378,848
<INTEREST-INVEST> 97,260
<INTEREST-OTHER> 1,911
<INTEREST-TOTAL> 478,019
<INTEREST-DEPOSIT> 149,486
<INTEREST-EXPENSE> 224,846
<INTEREST-INCOME-NET> 253,173
<LOAN-LOSSES> 27,077
<SECURITIES-GAINS> (1,208)
<EXPENSE-OTHER> 80,273
<INCOME-PRETAX> 112,159
<INCOME-PRE-EXTRAORDINARY> 112,159
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,108
<EPS-BASIC> 2.60
<EPS-DILUTED> 2.57
<YIELD-ACTUAL> 4.27
<LOANS-NON> 37,924
<LOANS-PAST> 7,340
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 25,000
<ALLOWANCE-OPEN> 72,310
<CHARGE-OFFS> 28,873
<RECOVERIES> 2,056
<ALLOWANCE-CLOSE> 72,619
<ALLOWANCE-DOMESTIC> 72,619
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 16,059
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Sep-30-1998
<CASH> 250,802
<INT-BEARING-DEPOSITS> 18,344
<FED-FUNDS-SOLD> 11,701
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,074,235
<INVESTMENTS-CARRYING> 119,131
<INVESTMENTS-MARKET> 122,309
<LOANS> 5,460,334
<ALLOWANCE> 71,390
<TOTAL-ASSETS> 8,383,120
<DEPOSITS> 5,965,548
<SHORT-TERM> 1,076,303
<LIABILITIES-OTHER> 134,744
<LONG-TERM> 542,013
0
0
<COMMON> 203,198
<OTHER-SE> 461,314
<TOTAL-LIABILITIES-AND-EQUITY> 8,383,120
<INTEREST-LOAN> 367,276
<INTEREST-INVEST> 95,109
<INTEREST-OTHER> 1,196
<INTEREST-TOTAL> 463,581
<INTEREST-DEPOSIT> 164,630
<INTEREST-EXPENSE> 227,442
<INTEREST-INCOME-NET> 236,139
<LOAN-LOSSES> 11,069
<SECURITIES-GAINS> 662
<EXPENSE-OTHER> 78,717
<INCOME-PRETAX> 113,549
<INCOME-PRE-EXTRAORDINARY> 113,549
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,917
<EPS-BASIC> 2.67
<EPS-DILUTED> 2.62
<YIELD-ACTUAL> 4.36
<LOANS-NON> 32,403
<LOANS-PAST> 10,061
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 12,500
<ALLOWANCE-OPEN> 68,576
<CHARGE-OFFS> 13,069
<RECOVERIES> 2,746
<ALLOWANCE-CLOSE> 71,390
<ALLOWANCE-DOMESTIC> 71,390
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 11,389
</TABLE>
