-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FEtEZvw5EchehZ/ok8nawBhEWH9g8Xb2Gdqhlg7WnEI1OWqmk8sBV2Ep3oYcO9S8 +7fVtMxK0961U3Zf4mvYjw== 0000931763-00-000682.txt : 20000328 0000931763-00-000682.hdr.sgml : 20000328 ACCESSION NUMBER: 0000931763-00-000682 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000327 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL COMMERCE BANCORPORATION CENTRAL INDEX KEY: 0000101844 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 620784645 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-06094 FILM NUMBER: 580061 BUSINESS ADDRESS: STREET 1: ONE COMMERCE SQ CITY: MEMPHIS STATE: TN ZIP: 38150 BUSINESS PHONE: 9015233242 MAIL ADDRESS: STREET 1: ONE COMMERCE SQ CITY: MEMPHIS STATE: TN ZIP: 38150 FORMER COMPANY: FORMER CONFORMED NAME: UNITED TENNESSEE BANCSHARES CORP DATE OF NAME CHANGE: 19780820 FORMER COMPANY: FORMER CONFORMED NAME: UNITED TENNESSEE BANSHARES CORP DATE OF NAME CHANGE: 19780525 8-K 1 FORM 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 CURRENT REPORT Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) March 27, 2000 ------------------ NATIONAL COMMERCE BANCORPORATION -------------------------------- (Exact name of registrant as specified in its charter) Tennessee 0-6094 62-0784645 - ------------------------------ ----------- ------------------ (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) Identification No.) One Commerce Square, Memphis, Tennessee 38150 - ---------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (901) 523-3371 ------------------- Not Applicable -------------- (Former name, former address and former fiscal year, if changed since last report) INFORMATION TO BE INCLUDED IN THE REPORT Item 5. Other Events. The Registrant announced on March 20, 2000 that it has executed a definitive Agreement and Plan of Merger with CCB Financial Corporation providing for the merger of CCB Financial Corporation into the Registrant. Attached to this Current Report on Form 8-K as Exhibits are (1) audited financial statements of CCB Financial Corporation, which are filed by the Registrant pursuant to Rule 3-05 of Regulation S-X, and (2) unaudited pro forma combined condensed financial information, which are filed by the Registrant pursuant to Article 11 of Regulation S-X. Both Exhibits are incorporated herein by reference. Item 7. Financial Statements and Exhibits (c) Exhibits. The following exhibits are filed pursuant to Item 601 of Regulation S-K:
Exhibit Number Description - ------- ------------------------------------------------------------------------------------------------- 99.1 Audited financial statements of CCB Financial Corporation. 99.2 Unaudited pro forma combined condensed financial statements of National Commerce Bancorporation assuming consummation of the merger between National Commerce Bancorporation and CCB Financial Corporation.
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. NATIONAL COMMERCE BANCORPORATION Date: March 27, 2000 By: /s/ William R. Reed, Jr. ----------------------------- William R. Reed, Jr. Vice Chairman EX-99.1 2 CCB AUDITED FINANCIALS EXHIBIT 99.1 CCB Financial Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998
1999 1998 -------------------------------------------- (In Thousands Except for Share Data) Assets: Cash and due from banks (note 3) $ 300,051 250,922 -------------------------------------------- Time deposits in other banks 63,020 59,529 -------------------------------------------- Federal funds sold and other short-term investments 37,918 430,000 -------------------------------------------- Investment securities (notes 4 and 8): Available for sale (amortized cost of $1,585,372 and $1,262,477) 1,563,120 1,284,198 -------------------------------------------- Held to maturity (market values of $75,448 and $85,277) 73,370 80,189 -------------------------------------------- Loans (notes 5, 8 and 9) 5,954,184 5,487,337 Less reserve for loan losses (note 6) 77,266 73,182 -------------------------------------------- Net loans 5,876,918 5,414,155 -------------------------------------------- Premises and equipment (notes 7 and 9) 113,858 92,770 Other assets (notes 5 and 13) 158,043 128,590 -------------------------------------------- Total assets $ 8,186,298 7,740,353 - ------------------------------------------------------------------------------------------------------------------------ Liabilities: Deposits: Demand (noninterest-bearing) $ 833,389 854,938 Savings and NOW accounts 852,265 863,920 Money market accounts 1,895,099 1,784,091 Jumbo certificates of deposit (note 8) 422,280 452,808 Time deposits (note 8) 2,713,992 2,504,007 -------------------------------------------- Total deposits 6,717,025 6,459,764 Short-term borrowed funds (note 8) 329,670 288,256 Long-term debt (note 9) 328,922 216,695 Other liabilities (notes 10 and 13) 90,720 87,744 -------------------------------------------- Total liabilities 7,466,337 7,052,459 -------------------------------------------- Shareholders' equity (notes 4, 11 and 15): Serial preferred stock. Authorized 10,000,000 shares; none issued - - Common stock of $5 par value. Authorized 100,000,000 shares; 39,579,808 and 40,345,214 shares issued in 1999 and 1998, respectively 197,900 201,726 Additional paid-in capital 29,690 73,771 Retained earnings 506,092 399,066 Accumulated comprehensive income (loss) (13,721) 13,331 -------------------------------------------- Total shareholders' equity 719,961 687,894 -------------------------------------------- Total liabilities and shareholders' equity $ 8,186,298 7,740,353 - ------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (note 14) See accompanying notes to consolidated financial statements. CCB Financial Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 ----------------------------------------------------- (In Thousands Except Per Share Data) Interest income: Interest and fees on loans $ 478,908 470,664 442,618 Interest and dividends on investment securities: U.S. Treasury 23,127 27,502 31,546 U.S. Government agencies and corporations 65,255 53,117 55,613 States and political subdivisions (primarily tax-exempt) 4,360 4,738 4,840 Equity and other securities 3,147 3,135 3,070 Interest on time deposits in other banks 2,750 2,377 2,716 Interest on federal funds sold and other short-term investments 12,052 15,893 10,060 ----------------------------------------------------- Total interest income 589,599 577,426 550,463 ----------------------------------------------------- Interest expense: Deposits 232,767 232,609 229,600 Short-term borrowed funds (note 8) 12,016 11,822 15,371 Long-term debt (note 9) 12,764 10,131 5,128 ----------------------------------------------------- Total interest expense 257,547 254,562 250,099 ----------------------------------------------------- Net interest income 332,052 322,864 300,364 Provision for loan losses (note 6) 14,296 15,884 16,376 ----------------------------------------------------- Net interest income after provision for loan losses 317,756 306,980 283,988 ----------------------------------------------------- Other income: Service charges on deposit accounts 61,831 54,117 44,937 Trust and custodian fees 12,574 10,221 8,415 Sales and insurance commissions 12,806 10,835 9,433 Merchant discount 11,866 8,826 7,017 Secondary marketing and servicing of mortgages 9,131 12,865 8,179 Accretion of negative goodwill from acquisitions 3,356 3,356 3,356 Other operating 12,675 10,683 11,582 Gain on sale of credit card receivables 32,837 - - Investment securities gains (note 4) 1,381 2,205 578 Investment securities losses (note 4) (3) (27) (98) ----------------------------------------------------- Total other income 158,454 113,081 93,399 ----------------------------------------------------- Other expenses: Personnel (note 10) 136,305 124,419 114,572 Net occupancy (note 14) 17,331 15,890 15,595 Equipment (note 14) 17,713 14,522 12,867 Merger-related expense (note 2) - - 17,916 Other operating (note 12) 72,687 75,386 65,248 ----------------------------------------------------- Total other expenses 244,036 230,217 226,198 ----------------------------------------------------- Income before income taxes 232,174 189,844 151,189 Income taxes (note 13) 81,351 68,632 55,765 ----------------------------------------------------- Net income $ 150,823 121,212 95,424 - -------------------------------------------------------------------------------------------------------------------------------- Earnings per common share (note 11): Basic $ 3.77 2.96 2.31 Diluted 3.74 2.93 2.28 Weighted average shares outstanding (note 11): Basic 39,944 40,898 41,438 Diluted 40,315 41,409 41,947
See accompanying notes to consolidated financial statements. CCB Financial Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME Years Ended December 31, 1999, 1998 and 1997
Accumulated Other Additional Comprehensive Management Total Common Paid-In Retained Income Recognition Shareholders' Stock Capital Earnings (Loss) Plans Equity ----------------------------------------------------------------------------------------- Balance December 31, 1996 $ 206,338 140,617 257,903 7,329 (738) 611,449 Net income - - 95,424 - - 95,424 Other comprehensive income - Unrealized gains on securities, net of deferred tax expense of $3,956 and reclassification adjustment (note 4) - - - 6,651 - 6,651 ----------------------------------------------------------------------------------------- Total comprehensive income 102,075 Restricted stock transactions, net (note 10) 54 373 (27) - - 400 Stock options exercised, net of shares tendered (note 10) 1,377 2,729 (689) - - 3,417 Earned portion of management recognition plan (note 10) - - - - 706 706 Other transactions, net (5) 65 3 - - 63 Cash dividends ($.89 per share) - - (36,750) - - (36,750) --------------------------------------------------------------------------------------- Balance December 31, 1997 207,764 143,784 315,864 13,980 (32) 681,360 Net income - - 121,212 - - 121,212 Other comprehensive loss - Unrealized losses on securities, net of deferred tax benefit of $484 and reclassification adjustment (note 4) - - - (649) - (649) ---------------------------------------------------------------------------------------- Total comprehensive income 120,563 Restricted stock transactions, net (note 10) 42 503 (10) - - 535 Stock options exercised, net of shares tendered (note 10) 879 1,497 (403) - - 1,973 Earned portion of management recognition plan (note 10) - - - - 32 32 Purchase and retirement of shares (6,957) (72,445) 2,801 - - (76,601) Other transactions, net (2) 432 - - - 430 Cash dividends ($.99 per share) - - (40,398) - - (40,398) --------------------------------------------------------------------------------------- Balance December 31, 1998 201,726 73,771 399,066 13,331 - 687,894 Net income - - 150,823 - - 150,823 Other comprehensive loss - Unrealized losses on securities, net of deferred tax benefit of $16,920 reclassification adjustment (note 4) - - - (27,052) - (27,052) --------------------------------------------------------------------------------------- Total comprehensive income 123,771 Restricted stock transactions, net (note 10) 9 93 - - - 102 Stock options exercised, net of shares tendered (note 10) 486 216 - - - 702 Shares issued in acquisition (note 2) 3,228 23,067 - - - 26,295 Purchase and retirement of shares (7,548) (67,448) - - - (74,996) Other transactions, net (1) (9) - - - (10) Cash dividends ($1.10 per share) - - (43,797) - - (43,797) --------------------------------------------------------------------------------------- Balance December 31, 1999 $ 197,900 29,690 506,092 (13,721) - 719,961 ---------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. CCB Financial Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 ----------------------------------------------- (In Thousands) Operating activities: Net income $ 150,823 121,212 95,424 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion, net 25,331 16,859 23,418 Provision for loan losses 14,296 15,884 16,376 Net gain on sales of investment securities (1,378) (2,178) (480) Gains on sales of mortgage loans and credit card receivables (36,315) - - Sales of loans held for sale 724,883 576,595 232,095 Origination of loans held for sale (771,710) (630,658) (214,170) Changes in: Accrued interest receivable (5,230) 2,084 (4,202) Accrued interest payable 429 (1,668) (17,550) Other assets 12,503 27,631 821 Other liabilities 1,281 (4,282) 905 Other operating activities, net (6,507) (5,053) (5,600) ----------------------------------------------- Net cash provided by operating activities 108,406 116,426 127,037 ----------------------------------------------- Investing activities: Proceeds from: Maturities and issuer calls of investment securities held to maturity 7,636 1,407 2,622 Sales of investment securities available for sale 44,715 36,036 176,481 Maturities and issuer calls of investment securities available for 550,654 628,252 501,394 sale Sales of mortgage loans and credit card receivables 386,729 - 25,658 Purchases of: Investment securities available for sale (912,932) (571,024) (677,990) Premises and equipment (34,980) (18,129) (10,584) Net originations of loans (684,329) (360,194) (529,365) Net cash acquired (paid) in acquisitions and dispositions (11,385) (8,675) 14,577 ----------------------------------------------- Net cash used by investing activities (653,892) (292,327) (497,207) ----------------------------------------------- Financing activities: Net increase in deposit accounts 203,910 484,220 243,143 Net increase (decrease) in short-term borrowed funds 30,614 11,819 (80,402) Proceeds from issuance of long-term debt 154,600 126,140 50,129 Repayments of long-term debt (64,558) (10,131) (7,997) Issuances of common stock from exercise of stock options, net 261 1,973 3,417 Purchase and retirement of common stock (74,996) (76,601) - Other equity transactions, net (10) (14) (44) Cash dividends paid (43,797) (40,398) (36,750) ----------------------------------------------- Net cash provided by financing activities 206,024 497,008 171,496 ----------------------------------------------- Net increase (decrease) in cash and cash equivalents (339,462) 321,107 (198,674) Cash and cash equivalents at beginning of year (note 1) 740,451 419,344 618,018 ----------------------------------------------- Cash and cash equivalents at end of year (note 1) $ 400,989 740,451 419,344 ============================================================================================================================ Supplemental disclosures of cash flow information: Interest paid during the year $ 257,118 256,250 267,649 Income taxes paid during the year 81,492 71,618 57,597
See accompanying notes to consolidated financial statements. CCB Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation The consolidated financial statements include the accounts and results of operations of CCB Financial Corporation ("CCB") and its wholly-owned subsidiaries, Central Carolina Bank and Trust Company ("CCB Bank"), American Federal Bank, FSB ("AmFed") and Central Carolina Bank-Georgia ("CCB-Ga.") (collectively, the "Subsidiary Banks"). The consolidated financial statements also include the accounts and results of operations of the wholly-owned subsidiaries of CCB Bank (CCB Investment and Insurance Service Corporation; CCBDE, Inc.; Salem Trust Company; Salem Advisors, Inc.; Southland Associates, Inc. and Corcoran Holdings, Inc. and its subsidiary, Watts Properties, Inc.) and AmFed (American Service Corporation of S.C.; AMFEDDE, Inc.; Mortgage North; Finance South, Inc. and McBee Holdings, Inc. and its subsidiary, Greenville Participations, Inc.). All significant intercompany transactions and accounts are eliminated in consolidation. CCB operates as one business segment. CCB Bank and AmFed provide a full range of banking services to individual and corporate customers through their branch networks based in North Carolina and South Carolina, respectively. CCB Bank also provides trust services to customers in Virginia and Florida through trust offices located in each of those states. CCB-Ga. is a special purpose bank that provided nationwide credit card services until the sale of the majority of its credit card receivables during 1999. CCB-Ga. is in the process of being dissolved. Neither CCB nor its Subsidiary Banks have foreign operations. CCB believes that there is no concentration of risk with any single customer or supplier, or small group of customers or suppliers, whose failure or nonperformance would materially affect CCB's results. Products and services offered to customers include traditional banking services such as accepting deposits; making secured and unsecured loans; renting safety deposit boxes; performing trust functions for corporations, employee benefit plans and individuals; and providing certain insurance and brokerage services. The Subsidiary Banks are subject to competition from other financial entities and are subject to the regulations of certain Federal and state agencies and undergo periodic examinations by those regulatory agencies. Certain amounts for prior years have been reclassified to conform to the 1999 presentation. These reclassifications have no effect on shareholders' equity or net income as previously reported. Financial Statement Presentation In preparing the financial statements, management is required to make estimates and assumptions that affect the reported balances of assets and liabilities as of the date of the balance sheet and income and expenses for the periods presented. Actual results could differ from those estimates. For purposes of the Statements of Cash Flows, CCB considers time deposits in other banks, federal funds sold and other short-term investments to be cash equivalents. Investment Securities CCB classifies its investment securities in one of the three following categories: (a) debt securities that CCB has the positive intent and ability to hold to maturity are classified as held for investment and reported at amortized cost; (b) debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading and reported at fair value, with unrealized gains and losses included in earnings; and (c) debt and equity securities not classified as either held for investment or trading are classified as available for sale and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' equity. CCB has had no securities classified as trading securities. The net unrealized gains or losses on securities available for sale, net of taxes, are reported as a separate component of shareholders' equity. Changes in market values of securities classified as available for sale will cause fluctuations in shareholders' equity. Unrealized losses on securities held to maturity due to fluctuations in fair value are recognized when it is determined that an other than temporary decline in value has occurred. Investment securities classified as available for sale will be considered in CCB's asset/liability management strategies and may be sold in response to changes in interest rates, liquidity needs and/or significant prepayment risk. The cost of investment securities sold is determined by the "identified certificate" method. Premium amortization and discount accretion are computed using the interest method. Loan Portfolio The loan portfolio is comprised of the following: commercial, financial and agricultural; real estate-construction; real estate-mortgage; instalment loans to individuals, revolving credit accounts and leases. The lease portfolio includes rolling stock such as automobiles, trucks and trailers as well as a broadly diversified base of equipment. Interest income on loans is recorded on the accrual basis. Accrual of interest on loans (including impaired loans) is discontinued when management deems that collection of additional interest is doubtful. Interest received on nonaccrual loans and impaired loans is generally applied against principal or may be reported as interest income depending on management's judgment as to the collectibility of principal. When borrowers with loans on a nonaccrual status demonstrate their ability to repay their loans in accordance with the contractual terms of the notes, the loans are returned to accrual status. Reserve for Loan Losses The reserve for loan losses is increased by provisions charged to expense and reduced by loan charge-offs, net of recoveries. The reserve is maintained at a level considered adequate by management to provide for probable loan losses. The reserve is comprised of specific loan loss allocations, nonaccrual loan and classified loan allocations, and general allocations by loan type for all other loans. Specific loan loss allocations are determined for significant credits where management believes that a risk of loss exists. While management uses the best information available on which to base estimates, future adjustments to the reserve may be necessary if economic conditions, particularly in the Subsidiary Banks' markets, differ substantially from the assumptions used by management. Additionally, bank regulatory agency examiners periodically review the loan portfolio and may require CCB to charge-off loans and/or increase the reserve for loan losses to reflect their assessment of the collectibility of loans based on available information at the time of their examination. For all specifically reviewed loans for which it is probable that the Subsidiary Banks will be unable to collect all amounts due according to the terms of the loan agreement, the Subsidiary Banks determine a value at either the present value of expected cash flows discounted at the loan's effective interest rate, or if more practical, the market price or value of the collateral. If the resulting value of the impaired loan is less than the recorded balance, impairment is recognized by creating a valuation allowance for the difference and recognizing a corresponding bad debt expense. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed over the estimated lives of the assets on accelerated and straight-line methods. Leasehold improvements are amortized over the term of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Other Real Estate Other real estate acquired through loan foreclosures is valued at the lower of cost or fair value less estimated cost of sale. Mortgage Servicing Rights Mortgage servicing rights ("MSR") are the rights to service mortgage loans for others which are capitalized and included in "other assets" on the Consolidated Balance Sheets at the lower of their cost or market. The cost of mortgage loans originated or purchased is allocated between the cost of the loans and the MSR. Capitalization of the allocated cost of MSR occurs when the underlying loans are sold or securitized. The cost of the MSR is amortized over the estimated period of and in proportion to net servicing revenues. MSR for loans originated by the Subsidiary Banks prior to 1996 were not capitalized in accordance with the then current accounting standards. CCB periodically evaluates MSR for impairment by estimating the fair value based on market prices for similar servicing assets. For purposes of impairment evaluation, the MSR are stratified based on predominate risk characteristics of the underlying loans, including loan type (conventional or government), term and amortization type (fixed or adjustable). If the carrying value of the MSR exceed the estimated fair value, a valuation allowance is established. Changes to the valuation allowance are charged against or credited to mortgage servicing income and fees up to the original cost of the MSR. Subordinated Notes Underwriting discounts and commissions and issuance expenses of the subordinated notes are included in "other assets" on the Consolidated Balance Sheets. These expenses are being amortized over the life of the subordinated notes. Intangibles Arising from Acquisitions Intangible assets arising from acquisitions result from CCB paying amounts in excess of fair value for businesses, core deposits and tangible assets acquired. Such amounts are being amortized by systematic charges to income over a period no greater than the estimated remaining life of the assets acquired or not exceeding the estimated remaining life of the existing deposit base assumed (primarily for up to 10 years). Goodwill is amortized on a straight-line basis over periods ranging from 10 to 20 years. CCB's unamortized goodwill is reviewed for impairment whenever the facts and circumstances indicate that the carrying amount may not be recoverable. Unamortized goodwill associated with disposed assets is charged to current earnings. Negative goodwill, included in "other liabilities" on the Consolidated Balance Sheets, represents the excess of fair value of net assets acquired over cost after recording the liability for recaptured tax bad debt reserves and after reducing the basis in noncurrent assets acquired to zero. Negative goodwill is being accreted into earnings on a straight-line basis over the estimated periods to be benefited (generally 10 years). Comprehensive Income Comprehensive income is the change in CCB's equity during the period from transactions and other events and circumstances from non-owner sources. Total comprehensive income is divided into net income and other comprehensive income (loss). CCB's "other comprehensive income (loss)" for the three-year period ended December 31, 1999 and "accumulated other comprehensive income (loss)" as of December 31, 1999 and 1998 are comprised solely of unrealized gains and losses on certain investments in debt and equity securities. Income Taxes The provision for income taxes is based on income and expense reported for financial statement purposes after adjustment for permanent differences such as tax-exempt interest income. Deferred income taxes are provided when there is a difference between the periods items are reported for financial statement purposes and when they are reported for tax purposes and are recorded at the enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. Subsequent changes in tax rates will require adjustment to these assets and liabilities. Incentive and Performance Unit Plans CCB has incentive and related performance unit plans covering certain officers of CCB and the Subsidiary Banks. The market value of shares issued under the incentive plans and the estimated value of awards under the performance unit plans are being charged to operating expense over periods of up to three years. Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" encourages but does not require that companies record compensation cost for stock-based employee compensation plans at fair value. CCB has chosen to account for stock-based compensation plans using the intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees". Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at grant date or other measurement date over the amount an employee must pay to acquire the stock. CCB's stock options have no intrinsic value at grant date, and consequently, no compensation cost is recognized for them. An employer that continues to apply the intrinsic value accounting method rather than the "fair value based method" must disclose certain pro forma information. Under the fair value based method, compensation cost is measured at the grant date of the option based on the value of the award and is recognized over the service period, which is usually the vesting period. The required pro forma amounts reflect the difference between compensation cost, if any, included in net income and the related cost measured by the fair value based method, including tax effects, that would have been recognized in the income statement if the fair value based method had been used. Stock Split and Per Share Data All share and per share data has been retroactively restated for the two-for-one stock split effected in the form of a 100% stock dividend paid on October 1, 1998. Basic earnings per share ("EPS") excludes dilution and is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding plus dilutive stock options (as computed under the treasury stock method) assumed to have been exercised during the period. Fair Value of Financial Instruments The financial statements include disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the financial instrument. As the fair value of certain financial instruments and all nonfinancial instruments are not presented, the aggregate fair value amounts presented do not represent the underlying value of CCB. Derivative Financial Instruments CCB uses off-balance sheet derivative contracts for interest rate risk management. These contracts are accounted for on the accrual basis and the net interest differential, including premiums paid, if any, are recognized as an adjustment to interest income or expense of the related asset or liability. CCB does not utilize derivative financial instruments for trading purposes. (2) ACQUISITIONS On October 1, 1999, CCB acquired Stone Street Bancorp, Inc. ("Stone Street"), a $129 million savings bank located in the Winston-Salem, North Carolina area. The acquisition was accounted for as a purchase and resulted in the issuance of approximately 646,000 shares of CCB stock. In accordance with purchase accounting, the operations and income of Stone Street are included in the income of CCB from the date of purchase. Goodwill totaling $3.6 million was recorded in the acquisition and is being amortized over a 15-year period. The Stone Street acquisition is not material to CCB's financial position or net earnings and pro forma information is not deemed necessary. (3) RESTRICTIONS ON CASH AND DUE FROM BANKS The Subsidiary Banks are required to maintain reserve and clearing balances with the Federal Reserve Bank. These balances are included in "cash and due from banks" on the Consolidated Balance Sheets. For the reserve maintenance periods in effect at both December 31, 1999 and 1998, the Subsidiary Banks were required to maintain average reserve and clearing balances of $7,600,000. (4) INVESTMENT SECURITIES Investment securities with amortized costs of approximately $829,416,000 at December 31, 1999 and $638,400,000 at December 31, 1998 were pledged to secure public funds on deposit, repurchase agreements and for other purposes required by law. The investment securities portfolio is segregated into securities available for sale and securities held to maturity. CCB's other comprehensive income (loss) for the years ended December 31, 1999, 1998 and 1997 and accumulated other comprehensive income (loss) as of December 31, 1999 and 1998 are comprised solely of unrealized gains and losses on certain investments in debt and equity securities. Other comprehensive income (loss) for the years ended December 31, 1999, 1998 and 1997 follows:
1999 1998 1997 ------------------------------------------------------- (In Thousands) Unrealized holding gains (losses) arising during the year $(26,225) 658 6,939 Less reclassification adjustment for net realized gains, net of tax 827 1,307 288 ------------------------------------------------------- Unrealized gains (losses) on securities, net of applicable income taxes $(27,052) (649) 6,651 - ---------------------------------------------------------------------------------------------------------------------------
Securities Available for Sale Securities available for sale are presented on the Consolidated Balance Sheets at their market value. The amortized cost and approximate market values of these securities at December 31, 1999 and 1998 were as follows:
1999 1998 Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market Cost Gains Losses Value Cost Gains Losses Value -------------------------------------------------------------------------------------------------- (In Thousands) U.S. Treasury $ 354,316 1,977 (1,063) 355,230 389,043 11,871 -- 400,914 U.S. Government agencies and corporations 1,109,062 439 (25,264) 1,084,237 672,502 4,222 (563) 676,161 Mortgage-backed securities 74,647 1,356 (98) 75,905 153,865 5,102 -- 158,967 Equity securities 47,347 539 (138) 47,748 47,067 1,090 (1) 48,156 -------------------------------------------------------------------------------------------------- Total $1,585,372 4,311 (26,563) 1,563,120 1,262,477 22,285 (564) 1,284,198 ====================================================================================================================================
Equity securities include CCB Bank's and AmFed's required investment in stock of the Federal Home Loan Bank (the "FHLB") which totaled $25,494,000 at December 31, 1999 and $25,423,000.00 at December 31, 1998. No ready market exists for this stock and it has no quoted market value. However, redemption of this stock has historically been at par value. Accordingly, the carrying amounts were deemed to be a reasonable estimate of fair value. Net unrealized gains (losses) on securities available for sale totaled $(22,252,000), $21,721,000, and $22,731,000 at December 31, 1999, 1998 and 1997, respectively, and are included as a component of shareholders' equity, net of deferred tax liabilities (benefits) of $(8,531,000), $8,390,000 and $8,751,000 at December 31, 1999, 1998 and 1997, respectively. In the opinion of management, no securities are permanently impaired. Gross gains and losses from sales of investment securities available for sale totaled $1,303,000 and $3,000, respectively in 1999, $2,203,000 and $26,000, respectively, in 1998 and $578,000 and $98,000, respectively, in 1997. Following is a maturity schedule of securities available for sale at December 31, 1999:
Amortized Carrying Cost Value ------------------------------- (In Thousands) Within 1 year $ 168,739 168,956 After 1 but within 5 years 934,610 922,795 After 5 but within 10 years 351,841 339,700 After 10 years 8,188 8,016 ------------------------------- Subtotal 1,463,378 1,439,467 Mortgage-backed securities 74,647 75,905 Equity securities 47,347 47,748 ------------------------------- Total securities available for sale $1,585,372 1,563,120 ========================================================================
Securities Held to Maturity The carrying values and approximate market values of securities held to maturity at December 31, 1999 and 1998 were as follows:
1999 1998 ------------------------------------------------------------------------------------- Carrying Unrealized Unrealized Market Carrying Unrealized Unrealized Value Gains Losses Value Value Gains Losses -------------------------------------------------------------------------------------- (In Thousands) States and political subdivisions $73,370 2,121 (43) 75,448 80,189 5,088 -- ========================================================================================================================
Following is a maturity schedule of securities held to maturity at December 31, 1999: Carrying Market Value Value ----------------------------------------- (In Thousands) Within 1 year $ 1,600 1,603 After 1 but within 5 years 10,878 11,248 After 5 but within 10 years 48,836 50,216 After 10 years 12,056 12,381 ----------------------------------------- Total securities held to maturity $ 73,370 75,448 - ---------------------------------------------------------------------------------------
Gains from calls of securities held to maturity totaled $78,000 during 1999 and $2,000 during 1998. Losses from calls of securities held to maturity totaled $1,000 during 1998. (5) LOANS A summary of loans at December 31, 1999 and 1998 follows:
1999 1998 ------------------------------------------- (In Thousands) Commercial, financial and agricultural $ 697,776 686,133 Real estate-construction 1,152,081 906,916 Real estate-mortgage 3,406,789 3,143,637 Instalment loans to individuals 571,771 488,110 Revolving credit 58,926 214,685 Lease financing 76,424 54,955 ---------------------------------------- Total gross loans 5,963,767 5,494,436 Less: Unearned income 9,583 7,099 ---------------------------------------- Total loans $5,954,184 5,487,337 ======================================================================================================
During 1999, the Subsidiary Banks sold $151,342,000 of consumer credit card receivables to a large credit card issuer. As a result of the sale, the Subsidiary Banks realized a gain of $32,837,000. Under an agent bank agreement, the Subsidiary Banks will continue to offer consumer credit card products through the issuer bank. The Subsidiary Banks retained the commercial credit card portfolio. Loans of $15,950,000 and $16,761,000 at December 31, 1999 and 1998, respectively, were not accruing interest. Loans with outstanding balances of $4,248,000 in 1999, $2,205,000 in 1998 and $2,281,000 in 1997 were transferred from loans to other real estate acquired through loan foreclosure. Other real estate acquired through loan foreclosures amounted to $2,872,000 and $791,000 at December 31, 1999 and 1998, respectively, and is included in "other assets" on the Consolidated Balance Sheets. The following is an analysis of interest income related to loans on nonaccrual status for the years ended December 31, 1999, 1998 and 1997:
1999 1998 1997 -------------------------------------------------------- (In Thousands) Interest income that would have been recognized if the loans had been current at original contractual rates $1,307 $1,138 1,055 Amount recognized as interest income 322 288 171 Difference $ 985 $ 850 884 ===============================================================================================================
In general, the Subsidiary Banks do not purchase loans or participate with others in the origination of loans and confine their lending activities to North and South Carolina with the exception of certain instalment loans which are available in market areas stretching from Virginia to Georgia. Substantially all loans are made on a secured basis and, with the exception of marketable mortgage loans, are originated for retention in the Subsidiary Banks' portfolios. Loans held for sale totaled $21,516,000 and $77,626,000 at December 31, 1999 and 1998, respectively. The Subsidiary Banks do not engage in highly leveraged transactions or foreign lending activities. The loan portfolios are well diversified and there are no significant concentrations of credit risk. At December 31, 1999, impaired loans totaled $8,903,000, of which $6,513,000 were on nonaccrual status, and their related reserve for loan losses totaled $1,897,000. The average carrying value of impaired loans was $14,442,000 during 1999 and gross interest income recognized on impaired loans totaled $1,075,000. At December 31, 1998, the carrying value of loans considered to be impaired totaled $15,766,000, of which $9,030,000 were on nonaccrual status. The related reserve for loan losses on the impaired loans totaled $2,574,000. The average carrying value of impaired loans was $15,267,000 during the year ended December 31, 1998. Gross interest income recognized on the impaired loans totaled $845,000 during 1998 and $320,000 during 1997. During 1999 and 1998, the Subsidiary Banks had loan and deposit relationships with Executive Officers and Directors of CCB and their Associates. In the opinion of management, these loans do not involve more than the normal risk of collectibility and are made on terms comparable to other borrowers. Following is an analysis of these borrowings for the year ended December 31, 1999 (in thousands):
Balance at Beginning New Balance at of Year Loans Repayments End of Year ------------------------------------------------------------------------------ Directors, Executive Officers and Associates $38,518 7,690 5,850 $40,358 ============================================================================================================================
Loans serviced for the benefit of others totaled $948 million at December 31, 1999, $1.1 billion at December 31, 1998, and $1.2 billion at December 31, 1997. Mortgage servicing fees totaled $3,496,000 in 1999, $3,980,000 in 1998 and $3,978,000 in 1997. Mortgage servicing rights totaled $2,686,000 and $4,981,000 at December 31, 1999 and 1998, respectively, and are included in "other assets" on the Consolidated Balance Sheets. The estimated fair value of mortgage servicing rights was $3,270,000 at December 31, 1999 and $5,333,000 at December 31, 1998. Additionally, there is value associated with servicing originated prior to January 1, 1996 for which the carrying value is zero. No valuation allowance for capitalized mortgage servicing rights was required at December 31, 1999. The following table summarizes the changes in mortgage servicing rights during 1999 and 1998:
1999 1998 ------------------------------------------ (In Thousands) Balance at beginning of year $ 4,981 3,640 Capitalized mortgage servicing rights 12,508 12,980
Amortization (1,391) (1,358) Sale of mortgage servicing (13,412) (10,281) ------------------------------------------ Balance at end of year $ 2,686 4,981 ==============================================================================================================
Certain real estate-mortgage loans are pledged as collateral for advances from the FHLB as set forth in Note 9. (6) RESERVE FOR LOAN LOSSES Following is a summary of the reserve for loan losses:
1999 1998 1997 ------------------------------------------------------- (In Thousands) Balance at beginning of year $ 73,182 67,594 61,257 Provision charged to operations 14,296 15,884 16,376 Decrease from sale of credit card receivables (1,967) - - Addition from acquired financial institution 886 - - Recoveries of loans previously charged-off 3,450 2,613 3,105 Loan losses charged to reserve (12,581) (12,909) (13,144) -------------------------------------------------------- Balance at end of year $ 77,266 73,182 67,594 =====================================================================================================================
(7) PREMISES AND EQUIPMENT Following is a summary of premises and equipment:
Accumulated Net Depreciation Book Cost and Amortization Value ------------------------------------------------------------ (In Thousands) December 31, 1999: Land $ 19,624 --- 19,624 Buildings 75,091 36,406 38,685 Leasehold improvements 16,526 5,168 11,358 Furniture and equipment 131,530 87,339 44,191 ------------------------------------------------------------ Total premises and equipment $242,771 128,913 113,858 ============================================================================================================== December 31, 1998: Land $ 18,282 --- 18,282 Buildings 68,755 33,905 34,850 Leasehold improvements 14,326 4,071 10,255 Furniture and equipment 105,964 76,581 29,383 ------------------------------------------------------------ Total premises and equipment $207,327 114,557 92,770 ==============================================================================================================
(8) TIME DEPOSITS AND OTHER SHORT-TERM BORROWED FUNDS Maturities of time deposits are as follows:
Total Year Ending December 31 Maturities - ----------------------- ---------------- (In Thousands) 2000 $2,193,963 2001 765,478 2002 148,393 2003 28,160 2004 and thereafter 278 ---------- Total $3,136,272 =======================================================================================
Short-term borrowed funds outstanding at December 31, 1999 and 1998 consisted of the following
1999 1998 -------------------------------------- (In Thousands) FHLB short-term advances $ 100,000 105,000 Federal funds purchased and master notes 174,748 128,482 Treasury tax and loan depository note account 10,568 8,513 Securities sold under agreements to repurchase 44,354 46,261 -------------------------------------- Total short-term borrowed funds $ 329,670 288,256 ===============================================================================================================
The short-term FHLB advances were drawn under CCB Bank's FHLB line of credit and are secured by a blanket collateral agreement on CCB Bank's mortgage loan portfolio. Master note borrowings are unsecured obligations of CCB which mature daily and bore a weighted average interest rate of 4.71% at December 31, 1999. The treasury tax and loan depository note account is payable on demand and is collateralized by various investment securities with amortized costs of $32,478,000 and market values of $32,172,000 at December 31, 1999. Interest on borrowings under this arrangement is payable at .25% below the weekly federal funds rate as quoted by the Federal Reserve. The following table presents certain information for securities sold under agreements to repurchase. These short-term borrowings by the Subsidiary Banks are collateralized by U.S. Treasury and U.S. Government agency and corporation securities with carrying and market values of $380,128,000 at December 31, 1999. The securities collateralizing the short-term borrowings have been delivered to a third-party custodian for safekeeping. Following is a summary of this type of borrowing for the three previous years:
1999 1998 1997 ----------------------------------------------------- (In Thousands) Balance at December 31 $44,354 46,261 76,500 Weighted average interest rate at December 31 4.65% 3.89 5.30 Maximum amount outstanding at any month end during the year $49,189 70,398 125,383 Average daily balance outstanding during the year 43,904 59,638 101,159 Average annual interest rate paid during the year 4.00% 4.88 5.29 ==============================================================================================================================
CCB has an unsecured $50 million line of credit with a commercial bank. No draws were outstanding as of December 31, 1999 or outstanding during 1999. The maximum outstanding during 1998 was $10,000,000. Interest expense on the draw from the line of credit totaled $72,000 during 1998. The line of credit currently requires an annual commitment fee of 12 basis points and may be withdrawn under certain events of default including failure to comply with covenants, failure to make principal or interest payments within the specified timeframe or voluntary or involuntary liquidation, reorganization or other relief with respect to indebtedness. No draws were outstanding as of December 31, 1998 or 1997. (9) LONG-TERM DEBT Following is a summary of long-term debt at December 31, 1999 and 1998:
1999 1998 ------------------------------------ (In Thousands) Federal Home Loan Bank advances maturing through 2017 $295,937 183,622 6.75% subordinated notes 32,985 32,985 Mortgage payable at 9%, collateralized by bank premises -- 88 ---------------------------- Total long-term debt $328,922 216,695 ===============================================================================================================
The FHLB long-term advances are primarily at fixed rates of up to 6.30% and are collateralized by liens on first mortgage loans with book values not less than the outstanding principal balance of the obligations. Interest on the FHLB long- term advances totaled $10,530,000 in 1999, $7,895,000 in 1998 and $2,891,000 in 1997. CCB's 6.75% subordinated notes due December 1, 2003 pay interest semi-annually and are not redeemable prior to maturity. There is no sinking fund for the notes. The notes are unsecured and subordinated to all present and future senior indebtedness of CCB. Interest on the subordinated notes totaled $2,226,000 in 1999, 1998 and 1997. Maturities of long-term debt are as follows:
Total Year Ending December 31 Maturities - ----------------------- ---------------- (In Thousands) 2000 $ 2,165 2001 194,028 2002 170 2003 29,172 2004 33,148 Thereafter 70,239 ----------- Total $328,922 ===============================================================================================================
(10) EMPLOYEE BENEFIT PLANS Pension Plan CCB has a noncontributory, defined benefit pension plan covering substantially all full-time employees. The pension plan, which makes provisions for early and delayed retirement as well as normal retirement, provides participants with retirement benefits based on credited years of service and an average salary for the five consecutive years within the last ten years preceding normal retirement that will produce the highest average salary. CCB's policy is to fund amounts allowable for federal income tax purposes. In 1998 and 1997, CCB contributed $2,614,000 and $2,871,000 respectively, to the pension plan. No contributions were made in 1999 due to funding limitations. At December 31, 1999, pension plan assets consist primarily of corporate stocks, including 64,100 shares of CCB's common stock, corporate bonds, and obligations of U.S. government agencies and corporations. The plan's assets are held and administered by CCB Bank's trust department. The change in benefit obligation, change in plan assets and funded status of the pension plan and the amounts included in "other liabilities" on the Consolidated Balance Sheets at December 31, 1999 and 1998 are shown below:
1999 1998 ------------------------------------- Change in benefit obligation: (In Thousands) Benefit obligation at January 1 $75,124 69,834 Service cost 4,320 3,677 Interest cost 5,157 4,859 Actuarial gain (8,840) (899) Benefit payments (2,836) (2,347) ----------------------------- Benefit obligation at December 31 $72,925 75,124 ============================================================================================================================= Change in plan assets: Fair value of plan assets at January 1 $ 89,907 79,161 Actual return on plan assets 3,275 10,479 Employer contributions - 2,614 Benefit payments (2,836) (2,347) ------------------------------ Fair value of plan assets at December 31 $ 90,346 89,907 ============================================================================================================================== Funded status: As of end of year $ 17,421 14,782 Unrecognized transition asset (211) (250) Unrecognized prior-service cost 812 968 Unrecognized net gain (21,117) (16,672) ------------------------------ Accrued pension expense $ (3,095) (1,172) =============================================================================================================================
Assumptions used in computing the actuarial present value of the projected benefit obligation were as follows:
1999 1998 ------------------------------------- Discount rate 7.75% 7.00 Rate of increase in compensation level of employees 4.50% 5.00 Expected long-term rate of return on pension plan assets 8.00% 8.00
The components of pension expense for the years ended December 31, 1999, 1998 and 1997 are shown below:
1999 1998 1997 -------------------------------------------------- (In Thousands) Service cost of benefits earned during the period $4,320 3,677 3,576 Interest cost on projected benefit obligation 5,157 4,859 4,569 Expected return on plan assets 7,078) (6,412) (5,395) Amortization of transition asset (39) (46) (319) Amortization of prior service cost 155 155 155 Amortization of net gain (592) (523) (1) ------------------------------------------------- Net pension expense $1,923 1,710 2,585 ========================================================================================================================
Savings and Profit Sharing Plans CCB has a defined contribution employee benefit plan covering substantially all employees with one year's service. Under the plan, employee contributions are partially matched. In addition, CCB may make discretionary contributions to the plan. Total expense under this plan was $2,259,000, $2,882,000 and $2,850,000 in 1999, 1998 and 1997, respectively. Stock Options, Restricted Stock and Other Incentive Plans CCB's Long-Term Incentive Plan provides up to 2,000,000 shares of common stock for award as performance-based stock and cash incentives and other equity-based incentives. As of December 31, 1999, a total of 1,077,346 stock options to purchase shares of CCB's common stock and 32,718 shares of restricted stock had been awarded. The options and restricted stock vest over varying periods, from immediate vesting up to three years. During 1993, CCB adopted nonstatutory and incentive stock option plans as part of transactions to acquire financial institutions. The stock options were granted to the directors and certain officers of the acquired financial institutions entitling them to purchase shares of common stock. The options are earned and exercisable over periods of up to ten years. Additionally, CCB continued in effect nonstatutory and incentive stock option plans existing at the date of merger with acquired financial institutions. The stock options under these plans were granted to directors and certain officers of the respective financial institutions and entitled them to purchase shares of common stock at an exercise price equal to the fair market value of the stock on the date of grant. The options granted under these plans were exercisable for periods of up to ten years and certain of the stock options included vesting provisions of up to five years. All stock options outstanding at the time of the respective mergers were converted into options to acquire CCB common stock. No additional options have been granted under these option plans. CCB has elected to follow APB No. 25 and related interpretations in accounting for its employee stock options as permitted under SFAS No. 123. In accordance with APB No. 25, no compensation expense is recognized when stock options are granted because the exercise price of the stock options equals the market price of the underlying stock on the date of grant. Had compensation expense for the stock option plans been determined consistent with SFAS No. 123, CCB's net income and net income per share for the years ended December 31, 1999, 1998 and 1997 would have been reduced to the pro forma amounts indicated below. These pro forma amounts may not be representative of the effect on reported net income in future years since only options granted since December 31, 1994 have been included.
1999 1998 1997 ---------------------------------------------------------- (In Thousands Except per Share Data): Net income As reported $150,823 121,212 95,424 Pro forma 148,909 119,815 94,343 Basic EPS As reported 3.77 2.96 2.31 Pro forma 3.73 2.93 2.27 Diluted EPS As reported 3.74 2.93 2.28 Pro forma 3.69 2.89 2.25
The weighted average fair value of options granted approximated $10.74 in 1999, $10.91 in 1998 and $8.32 in 1997. The fair values of the options granted in 1999, 1998 and 1997 are estimated on the date of the grants using the Black- Scholes option-pricing model. Option pricing models require the use of highly subjective assumptions, including expected stock volatility, which when changed can materially affect fair value estimates. The fair values were estimated using the following weighted-average assumptions:
1999 1998 1997 ----------------------------------------------------------- Dividend yield 2.66% 2.00 2.00 Expected volatility 20.00 15.00 19.51 Risk-free interest rate 4.79 5.47 6.68 Expected average life 5 years 5 years 5 years
A summary of stock option activity and related information for the years ended December 31, 1999, 1998 and 1997 follows:
Outstanding Exercisable ------------------------------------ ----------------------------- Weighted Weighted Average Average Option Exercise Option Exercise Shares Price Shares Price ---------------------------------------------------------------------- At December 31, 1996 1,035,746 $15.60 Granted 442,166 32.90 Exercised (287,582) 13.66 Forfeited (24,510) 21.00 ------------------------------------ At December 31, 1997 1,165,820 22.53 749,498 $18.22 Granted 348,460 55.72 ============================== Exercised (209,313) 18.14 Forfeited (32,448) 42.06 ------------------------------------ At December 31, 1998 1,272,519 31.81 800,464 $22.11 Granted 338,140 55.57 ============================= Assumed under acquisition of financial institution 82,059 45.31 Exercised (155,940) 21.48 Forfeited (45,118) 54.60 ------------------------------------ At December 31, 1999 1,491,660 $38.39 979,150 $30.75 ===============================================================================================================================
Exercise prices for options outstanding as of December 31, 1999 ranged from $2.60 to $56.75. The following table summarizes information about stock options outstanding at December 31, 1999:
Options Outstanding Options Exercisable ---------------------------------------------------------- ------------------------------------- Weighted Weighted Weighted Average Average Average Range of Number of Years Exercise Number of Exercise Exercise Prices Options Remaining Price Options Price - ------------------------- --------------------------------------------------------------------------------------------------- $2.60 to $25.03 433,627 4.47 $16.63 433,627 $16.63 $31.46 to $45.31 428,860 7.18 35.11 360,907 34.90 $47.22 to $55.81 334,140 8.96 55.24 71,875 55.24 $55.97 to $56.75 295,033 8.29 56.03 112,741 56.12 --------------------------------------------------------------------------------------------------- $2.60 to $56.75 1,491,660 7.10 $38.39 979,150 $30.75 ==================================================================================================================================
A total of 32,718 shares of restricted stock have been awarded under the Long- Term Incentive Plan including 3,050 shares, 10,648 shares and 11,202 shares during 1999, 1998 and 1997, respectively. The grants in 1999, 1998 and 1997 were recorded at their fair values of $154,000, $580,000 and $388,000, respectively, on the dates of grant and had weighted average fair values of $50.54, $54.52 and $36.56 per share. Of the restricted stock awarded, a total of 3,780 shares have been forfeited. Forfeited stock totaled $52,000, $95,000 and $29,000 in 1999, 1998 and 1997. The tax benefit resulting from lapsed restrictions totaled $51,000 in 1998 and $41,000 in 1997. During 1999, 1998 and 1997, $390,000, $195,000, and $176,000, respectively, of compensation expense was recognized for restricted stock awards. The Long-Term Incentive Plan includes a Performance Unit Plan that covers certain senior officers. Eligible participants were awarded performance units which have a range in value from $0 to $200 each, with a target value of $100 each based on CCB's results as compared to a group of peer banks. As of December 31, 1999, 1998 and 1997, a total of 10,400, 13,330 and 17,614 units, respectively, were outstanding and will be deemed earned if and to the extent CCB meets profit objectives established by the Board of Directors over the three-year period ended December 31, 2000. Expense for this plan was $1,305,000, $1,200,000 and $1,100,000 for 1999, 1998 and 1997, respectively. CCB has a Management Performance Incentive Plan covering certain officers. The total award is based on a percentage of base salary of the eligible participants and financial performance of CCB as compared to certain targets established by the Board of Directors. Total expense under this plan was $7,304,000, $4,125,000, and $3,278,000 in 1999, 1998 and 1997, respectively. During 1993, CCB adopted Management Recognition Plans ("MRP") covering certain officers and directors. Common stock totaling 236,240 shares was awarded under the MRP and vested over periods of up to five years; all MRP shares were fully vested in 1998. Total expense under the MRP was $32,000 and $1,411,000 for 1998 and 1997, respectively. Postretirement Health and Life Insurance Plan CCB maintains a defined dollar benefit plan which provides postretirement health and life insurance for all employees who retire after age 55 with ten years of service. Benefits are provided through a self-insured plan administered by an insurance company. The following table sets forth the plan's change in benefit obligation, funded status and the amounts included in "other liabilities" on the Consolidated Balance Sheets at December 31, 1999 and 1998:
1999 1998 ------------------------------------------------- Change in benefit obligation: (In Thousands) Benefit obligation at January 1 $ 7,984 7,450 Service cost 321 285 Interest cost 554 527 Actuarial (gain) loss (831) 97 Benefit payments (428) (375) -------------------------------------------- Benefit obligation at December 31 $ 7,600 7,984 - ------------------------------------------------------------------------------------------------------------------------------ Funded status: As of end of year $ (7,600) (7,984) Unrecognized net loss 994 1,933 -------------------------------------------- Accrued postretirement benefit expense $ (6,606) (6,051) ==============================================================================================================================
The accumulated postretirement benefit obligations at December 31, 1999 and 1998 were determined using discount rates of 7.75% and 7.00%, respectively. Net periodic postretirement benefit expense charged to operations for the years ended December 31, 1999, 1998 and 1997 included the following components:
1999 1998 1997 ----------------------------------------------------------- (In Thousands) Service cost $ 321 285 202 Interest cost 554 527 513 Amortization of net loss 107 103 90 ----------------------------------------------------------- Net postretirement benefit expense $ 982 915 805 =======================================================================================================================
The health care trend rate was projected to be 5% for 2000 and thereafter. A 1% change in the assumed health care trend rates would have the following effects:
1% Increase 1% Decrease -------------------------------------- (In Thousands) Effect on total of service and interest cost components of net periodic postretirement benefit expense $ 27 (24) Effect on the accumulated postretirement benefit obligation 389 (343)
(11) SHAREHOLDERS' EQUITY Earnings per Share The following schedule reconciles the numerators and denominators of the basic and diluted EPS computations for the years ended December 31, 1999, 1998 and 1997. Diluted common shares arise from the potentially dilutive effect of CCB's stock options outstanding.
1999 1998 1997 ------------ ---------- --------- (In Thousand Except Per Share Data) Basic EPS: Average common shares outstanding 39,944 40,898 41,438 Net income $150,823 121,212 95,424 Earnings per share 3.77 2.96 2.31 ======================================================================== Diluted EPS: Average common shares outstanding 40,315 41,409 41,947 Net income $150,823 121,212 95,424 Earnings per share 3.74 2.93 2.28 ========================================================================
Preferred Stock CCB is authorized to issue up to 10,000,000 shares of serial preferred stock, of which 800,000 have been designated as Series A Junior Participating Preferred Stock. No shares of preferred stock have been issued or were outstanding at December 31, 1999 or 1998. Rights Plan In 1990, CCB entered into a Rights Agreement (the "Rights Agreement") with CCB which provided for a plan (the "Rights Plan") under which preferred stock purchase rights were authorized (the "Rights"). During 1998, the Rights Agreement was amended and restated to extend its term and to make other changes necessary to update the Rights Plan. For use in connection with the Rights Plan, CCB's Board of Directors has designated a series of preferred stock designated as Series A Junior Participating Preferred Stock ("Preferred Shares") consisting of 800,000 shares and having certain special rights for purposes of dividends and other distributions, voting, dissolution and liquidation, and in connection with certain mergers or acquisitions of the common stock of CCB. No Preferred Shares have been issued. In accordance with the Rights Plan, one Right was distributed during 1990 to CCB's shareholders for each of their shares of common stock. Also under the Rights Plan, after the date of the Rights Agreement and before the earlier of the "Distribution Date" (as defined below) or the date of redemption or expiration of the Rights, each new share of common stock issued after the date of the Rights Plan also has attached to it one Right. The Rights currently are not exercisable, but may become so in the future on a date (the "Distribution Date") which is ten business days after (i) a public announcement that any person or group has become an "Acquiring Person" by acquiring beneficial ownership of 15% or more (or 10% in certain circumstances) of the outstanding common stock of CCB, or (ii) the date of commencement by any person of, or the announcement by any person of his intention to commence, a tender or exchange offer which would result in his becoming an Acquiring Person. However, after the time any person becomes an Acquiring Person, all Rights held by or transferred to such person (or any associate or affiliate of such person) shall be void and of no effect. Until the Distribution Date, each Right will be evidenced by the certificate evidencing the common share to which it relates and may be transferred only with such common share, and the surrender for transfer of any common share certificate also will constitute the transfer of the Rights related thereto. After the Distribution Date, separate certificates evidencing each Right will be distributed to the record holders of the common stock to which such Rights are attached, and each such Right may then be exercised to purchase one one- hundredth (1/100) of a Preferred Share for a price of $187.50 (the "Purchase Price") (all as adjusted from time to time as described in the Rights Agreement). In the alternative (and subject to certain exceptions), after any person becomes an Acquiring Person (i) each Right may be exercised to purchase the number of shares of CCB's common stock equal to the result obtained by multiplying the then current Purchase Price by the number of Preferred Shares interests covered by the Right, and dividing that product by 50% of the "current market price" of a share of CCB's common stock, or (ii) unless the Acquiring Person has become the beneficial owner of more than 50% of the outstanding common stock, CCB's Board of Directors at its option may exchange one share of CCB's common stock, or a number of shares of Preferred Shares having voting rights equivalent to one share of common stock, for all or part of the outstanding Rights (all as adjusted from time to time as described in the Rights Agreement). If CCB is acquired in a merger or other business combination or if 50% of its consolidated assets or earning power is sold, each Right will entitle the holder, other than an Acquiring Person, to purchase securities of the surviving company equal to the current Purchase Price multiplied by the number of Preferred Shares interests covered by the Right, and dividing that product by 50% of the "current market price" of a share of the common stock of the surviving or acquiring company. The Rights will expire on October 1, 2008, and may be redeemed by CCB at a price of $.01 per Right at any time prior to the acquisition by a person or group of 15% or more (or 10% in certain circumstances) of CCB's outstanding common stock. Regulatory Matters CCB and the Subsidiary Banks are subject to risk-based capital guidelines requiring minimum capital levels based on the perceived risk of assets and off- balance sheet instruments. As required by the Federal Deposit Insurance Corporation Improvement Act, the federal bank regulatory agencies have jointly issued rules which implement a system of prompt corrective action for financial institutions. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, there are minimum ratios of capital to risk- weighted assets. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors. Failure to meet minimum capital requirements can initiate certain mandatory and possibly discretionary actions by regulators that, if undertaken, could have a material effect on CCB's consolidated financial statements. Disclosure about the Subsidiary Banks' capital adequacy are set forth in the table below. Tier I capital consists of common equity less goodwill and certain other intangible assets. Tier I excludes the equity impact of adjusting available for sale securities to market value. Total Capital is comprised of Tier I and Tier II capital. Tier II capital includes subordinated notes and loan loss reserves, as defined and limited according to regulatory guidelines. Balance sheet assets and the credit equivalent amount of off-balance sheet items per regulatory guidelines are assigned to broad risk categories and a category risk-weight is then applied. Management believes that as of December 31, 1999, CCB and the Subsidiary Banks met all capital adequacy requirements to which they were subject. As of December 31, 1999 (the most recent notification), the Federal Deposit Insurance Corporation ("FDIC") categorized the Subsidiary Banks as well- capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Subsidiary Banks must meet minimum ratios for total risk-based, Tier I risk-based, and Tier I leverage (the ratio of Tier I capital to average assets) as set forth in the following table. There are no conditions or events since the latest notification that management believes have changed the Subsidiary Banks' category. The risk-based capital and leverage ratios for CCB Bank, AmFed and CCB-Ga. as of December 31, 1999 and 1998 are presented below. CCB-Ga.'s high capital ratios are due to the sale of the majority of its assets (credit card receivables) without returning excess capital to the Parent Company. It is anticipated that CCB-Ga. will be dissolved in 2000 with the resulting return of capital to the Parent Company.
CCB Bank AmFed CCB-Ga. --------------------- ----------------- --------------- 1999 1998 1999 1998 1999 1998 ------------------------------------------------------------------------------------- (In Thousands) Tier I capital $ 590,141 500,016 113,975 105,287 10,067 12,781 Total capital 655,394 557,567 124,549 116,807 10,067 13,577 Risk-weighted assets 5,330,070 4,848,586 830,670 881,471 2,190 61,470 Adjusted quarterly average assets 6,866,296 6,396,674 1,256,837 1,218,405 28,623 88,290 Risk-based capital ratios: Tier I capital to risk-weighted assets: Actual 11.07% 10.31 13.72 11.94 459.68 20.79 Regulatory minimum 4.00 4.00 4.00 4.00 4.00 4.00 Well-capitalized under prompt corrective action provisions 6.00 6.00 6.00 6.00 6.00 6.00 Total capital to risk-weighted assets: Actual 12.30 11.50 14.99 13.25 459.68 22.09 Regulatory minimum 8.00 8.00 8.00 8.00 8.00 8.00 Well-capitalized under prompt corrective action provisions 10.00 10.00 10.00 10.00 10.00 10.00 Leverage ratio: Actual 8.59 7.82 9.07 8.64 35.17 14.48 Regulatory minimum 4.00 4.00 4.00 4.00 4.00 4.00 Well-capitalized under prompt corrective action provisions 5.00 5.00 5.00 5.00 5.00 5.00 ================================================================================================================================
(12) SUPPLEMENTARY INCOME STATEMENT INFORMATION Following is a breakdown of the components of "other operating" expenses on the Consolidated Statements of Income:
Years Ended December 31 ------------------------------------------------------ 1999 1998 1997 ------------------------------------------------------ (In Thousands ) Marketing $ 5,974 7,370 7,303 External data processing services 6,298 5,364 4,446 Deposit and other insurance 2,618 3,415 3,346 Postage and freight 4,449 4,486 4,107 Printing and office supplies 8,017 7,935 6,178 Telecommunications 6,817 6,341 5,765 Legal and professional fees 7,870 10,331 6,340 Amortization of intangible assets 4,150 4,122 4,433 All other 26,494 26,022 23,330 ------------------------------------------------------ Total other operating expenses $ 72,687 75,386 65,248 ==============================================================================================================
(13) INCOME TAXES The components of income tax expense for the years ended December 31, 1999, 1998 and 1997 are as follows:
1999 1998 1997 ------------------------------------------- (In Thousands) Current income taxes: Federal $ 78,383 66,004 57,809 State 4,436 7,552 5,172 ------------------------------------------- Total current tax expense 82,819 73,556 62,981 ------------------------------------------- Deferred income tax benefit: Federal (1,334) (4,071) (6,245) State (134) (853) (971) ------------------------------------------- Total deferred tax benefit (1,468) (4,924) (7,216) ------------------------------------------- Total income tax expense $ 81,351 68,632 55,765 ==============================================================================================
During 1999 and 1998, a total of $441,000 and $495,000, respectively, of income tax benefit was credited to additional paid-in capital as a result of the exercise of certain stock options and as a result of the lapse of restrictions on restricted stock. A reconciliation of income tax expense to the amount computed by multiplying income before income taxes by the statutory federal income tax rate follows:
Amount % of Pretax Income ------------------------------ --------------------------- 1999 1998 1997 1999 1998 1997 ------------------------------------------------------------- (In Thousands) Tax expense at statutory rate on income before income taxes $ 81,261 66,445 52,916 35.00 % 35.00 35.00 State taxes, net of federal benefit 2,797 4,354 2,731 1.20 2.29 1.81 Increase (reduction) in taxes resulting from: Tax-exempt interest on investment securities and (1,486) (1,370) (1,411) (.64) (.70) (.93) loans Other, net (1,221) (797) 1,529 (.52) (.40) 1.00 ------------------------------------------------------------- Income tax expense $ 81,351 68,632 55,765 35.04 % 36.19 36.88 ========================================================================================================================
At December 31, 1999 and 1998, CCB had recorded net deferred tax assets of $35,582,000 and $16,295,000, respectively, which are included in "other assets" on the Consolidated Balance Sheets. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. In management's opinion, it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. In addition, taxes paid during the carryback period exceed CCB's recorded net deferred tax asset. Consequently, management has determined that a valuation allowance for deferred tax assets was not required at December 31, 1999 or 1998. In connection with the Stone Street acquisition, CCB acquired a net deferred tax asset of $900,000 representing tax bases in excess of financial amounts. The sources and tax effects of cumulative temporary differences that give rise to significant portions of the net deferred tax assets at December 31, 1999 and 1998 are shown below:
1999 1998 --------------------------- (In Thousands) Deferred tax assets: Reserve for loan losses $ 28,784 26,370 Postretirement benefits 4,234 2,853 Deferred compensation 2,338 2,453 Unrealized losses on investment securities available for sale 8,530 - Other 4,918 5,835 --------------------------- Total gross deferred tax assets 48,804 37,514 --------------------------- Deferred tax liabilities: Intangible assets 676 1,218 Deferred loan fees and costs 4,232 3,333 Premises and equipment 2,915 1,542 FHLB dividends 2,294 2,581 Unrealized gains on investment securities available for sale - 8,390 Mortgage servicing rights gain 1,569 2,724 Other 1,536 1,431 --------------------------- Total gross deferred tax liabilities 13,222 21,219 --------------------------- Net deferred tax asset $ 35,582 16,295 ==================================================================================================
(14) COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK Commitments and Contingencies The Subsidiary Banks lease certain real property and equipment under long-term operating leases expiring at various dates to 2019. Total rental expense amounted to $8,601,000 in 1999, $7,467,000 in 1998 and $6,319,000 in 1997. A summary of noncancellable, long-term lease commitments at December 31, 1999 follows:
Type of Property ------------------------ Total Year Ending December 31 Real Property Equipment Commitments - ------------------------- ------------- --------- ----------- (In Thousands) 2000 $ 6,923 3,186 10,109 2001 6,447 2,637 9,084 2002 6,050 1,845 7,895 2003 5,264 276 5,540 2004 4,213 30 4,243 Thereafter 31,535 - 31,535 ------------------------------------ Total lease commitments $ 60,432 7,974 68,406 ===============================================================
Generally, real estate taxes, insurance, and maintenance expenses are obligations of the Subsidiary Banks. It is expected that in the normal course of business, leases that expire will be renewed or replaced by leases on other properties; thus, it is anticipated that future minimum lease commitments will not be less than the amounts shown for 2000. Certain legal claims have arisen in the normal course of business in which CCB and certain of its Subsidiary Banks have been named as defendants. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management and counsel, any such liability will have no material effect on CCB's financial position or results of operations. In addition to legal actions in the normal course of business, AmFed filed a claim against the United States of America in the Court of Federal Claims in 1995. The complaint seeks compensation for exclusion of supervisory goodwill from the calculation of AmFed's regulatory capital requirements as a result of enactment of the Financial Institution Reform, Recovery and Enforcement Act of 1989 ("FIRREA"). During the 1980's, healthy thrift institutions were encouraged to buy troubled thrifts through the regulatory agencies allowing the thrifts to count supervisory goodwill as regulatory capital on their balance sheets and amortize the purchase over several decades. Supervisory goodwill represented the difference between the purchase price and the actual value of an insolvent thrift's tangible assets. However, when the FIRREA legislation was enacted in 1989, the acquiring thrifts were required to write-off their supervisory goodwill more rapidly, effectively wiping out a significant part of their regulatory capital. Over 100 lawsuits have been filed by the acquiring thrifts seeking compensation from the United States for the losses suffered from capital restrictions. AmFed's supervisory goodwill arose from acquisitions in 1982. CCB is vigorously pursuing this litigation. The amount of recovery, if any, which could result if AmFed were to prevail in its suit cannot be determined at this time. Legal expenses incurred in pursuit of the claim have been nominal. Commitments to extend credit are agreements to lend to customers as long as there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer's credit worthiness is evaluated on a case-by-case basis and collateral, primarily real estate or business assets, is generally obtained. At December 31, 1999 and 1998, the Subsidiary Banks had commitments to extend credit of approximately $1.7 billion and $1.8 billion. These amounts include unused revolving credit lines and home mortgage equity lines of $94 million and $496 million, respectively, at December 31, 1999 and $403 million and $416 million, respectively, at December 31, 1998. Standby letters of credit are commitments issued by the Subsidiary Banks to guarantee the performance of a customer to a third party. The standby letters of credit are generally secured by non-depreciable assets. The Subsidiary Banks had approximately $39 million and $31 million in outstanding standby letters of credit at December 31, 1999 and 1998. Off-Balance Sheet Risk The Subsidiary Banks are parties to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of their customers and to reduce their own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby letters of credit and interest rate contracts. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the Consolidated Balance Sheets. The contract or notional amount of these instruments reflects the extent of involvement that the Subsidiary Banks have in classes of financial instruments. The Subsidiary Banks use the same credit policies in making commitments to extend credit that are used for on-balance sheet instruments. For standby letters of credit, the Subsidiary Banks use a more strict credit policy due to the nature of the instruments. CCB's exposure to credit loss for commitments to extend credit and standby letters of credit in the event of the other party's nonperformance is represented by the contract amount of the instrument and is essentially the same as that involved in extensions of loans with collateral being obtained if deemed necessary. For interest rate contracts, the contract or notional amounts do not represent amounts to be exchanged between parties and are not a measure of financial risks, but only provide the basis for calculating interest payments between the counterparties. Potential credit risk on these contracts arises from the counterparty's inability to meet the terms of the contract. With management's policy of settling interest payments quarterly, the risk of loss from nonperformance is decreased. Management considers the credit risk of these contracts to be minimal and manages this risk through routine review of the counterparty's financial ratings. As of December 31, 1999, CCB had off-balance sheet derivative financial instruments in the form of interest rate swaps (basis swaps) with notional principal of $200 million. The interest rate swaps were entered into in July 1999 and April 1998 with two-year terms; the counterparties are large financial institutions. The purpose of entering into the interest rate swaps was to synthetically convert CCB's U.S. Treasury-based liabilities (certain types of deposit accounts) into prime rate-based liabilities and lock-in a favorable spread between the two indices. Payments or receipts of interest are computed by netting (1) payment of the notional amount times the prime rate, as adjusted by the terms of the basis swaps, and (2) receipt of the notional amount times the 91-day weekly Treasury Bill rate. Consequently, if the Treasury Bill rate increases more than the prime rate increases, CCB receives a greater net interest payment. Therefore, the negative impact of paying higher rates on the portions of the deposit base tied to the U.S. Treasury rates while earning "lower" yields on prime-based earning assets (loans), is decreased. Net interest payments received on these financial instruments had a positive impact on interest expense in 1999 of $353,000 and a negative impact of $105,000 in 1998. CCB was party to another basis swap for $100 million that expired during 1999 and was replaced by the basis swap entered into in July 1999. Since inception, the cumulative impact of the three interest rate swaps as of December 31, 1999 was to decrease deposit interest expense by $272,000. CCB's interest rate swaps provide for the quarterly exchange of interest payments between counterparties. At December 31, 1999, interest receivable on these contracts totaled $78,000. (15) DIVIDEND RESTRICTIONS Certain restrictions exist regarding the ability of the Subsidiary Banks to transfer funds to CCB in the form of cash dividends. Regulatory capital requirements must be met by the Subsidiary Banks as well as restrictions under the General Statutes of North Carolina in regard to CCB Bank. Under these requirements, the Subsidiary Banks have approximately $283,903,000 in retained earnings at December 31, 1999 that can be transferred to CCB in the form of cash dividends. Total dividends declared by the Subsidiary Banks to CCB in 1999 were $88,900,000. As a result of the above requirements, consolidated net assets of the Subsidiary Banks amounting to approximately $493,034,000 at December 31, 1999 were restricted from transfer to CCB. (16) CCB FINANCIAL CORPORATION (PARENT COMPANY) CCB Financial Corporation's principal asset is the investment in its Subsidiary Banks and its principal source of income is dividends from the Subsidiary Banks. The Parent Company's Condensed Balance Sheets at December 31, 1999 and 1998 and the related Condensed Statements of Income and Cash Flows for the three-years ended December 31, 1999 are as follows: Condensed Balance Sheets As of December 31, 1999 and 1998
1999 1998 ------------------------------------ (In Thousands) Cash and short-term investments $ 185,840 177,036 Loans 75,096 65,653 Less reserve for loan losses 792 792 -------------------------------------- Net loans 74,304 64,861 Investment in subsidiaries 727,631 658,951 Other assets 19,969 17,772 -------------------------------------- Total assets $ 1,007,744 918,620 - ---------------------------------------------------------------------------------------------------------------------------- Master notes $ 174,748 128,482 Note payable to subsidiary 60,000 52,000 Subordinated notes 32,985 32,985 Other liabilities 20,050 17,259 -------------------------------------- Total liabilities 287,783 230,726 Shareholders' equity 719,961 687,894 -------------------------------------- Total liabilities and shareholders' equity $ 1,007,744 918,620 ============================================================================================================================
Condensed Income Statements Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 ------------------------------------------------------- (In Thousands) Dividends from subsidiaries $ 88,900 151,700 32,100 Interest income 11,413 10,909 9,811 Other income 48 66 8 ------------------------------------------------------- Total operating income 100,361 162,675 41,919 ------------------------------------------------------- Interest expense 11,714 10,188 8,881 Provision for loan losses -- -- 102 Merger-related expense -- -- 3,873 Management fees 589 563 150 Other operating expenses 889 1,303 870 ------------------------------------------------------- Total operating expenses 13,192 12,054 13,876 ------------------------------------------------------- Income before income taxes 87,169 150,621 28,043 Income taxes (606) (377) (910) ------------------------------------------------------- Income before equity in undistributed net income of subsidiaries 87,775 150,998 28,953 Equity in undistributed net income (loss) of subsidiaries 63,048 (29,786) 66,471 ------------------------------------------------------- Net income $ 150,823 121,212 95,424 =============================================================================================================================
Condensed Statements of Cash Flows Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 ------------------------------------------------------- (In Thousands) Net cash provided by operating activities $ 88,980 153,493 26,347 ------------------------------------------------------- Investment in subsidiaries (32,683) -- 2,598 Net decrease in loans to subsidiaries -- 10,000 -- Net increase in loans (9,443) (4,776) (7,835) Other, net (69) (24) (4) ------------------------------------------------------- Net cash provided (used) by investing activities (42,195) 5,200 (5,241) ------------------------------------------------------- Increase in master notes 46,266 11,110 32,505 Proceeds from issuance of debt to subsidiaries 8,000 3,000 4,800 Proceeds from stock issuance in acquisition 26,295 -- -- Purchase and retirement of common stock (74,996) (76,601) -- Cash dividends (43,797) (40,398) (36,750) Other, net 251 1,959 3,417 ------------------------------------------------------- Net cash provided (used) by financing activities (37,981) (100,930) 3,972 ------------------------------------------------------- Net increase in cash and short-term investments 8,804 57,763 25,078 Cash and short-term investments at beginning of year 177,036 119,273 94,195 ------------------------------------------------------- Cash and short-term investments at end of year $ 185,840 177,036 119,273 =============================================================================================================================
(17) QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized consolidated quarterly financial data for the years ended December 31, 1999 and 1998 follows:
1999 1998 ------------------------------------------------------------------------------------------------ 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. ------------------------------------------------------------------------------------------------ (In Thousands Except Per Share Data) Interest income $ 154,344 146,486 145,796 142,973 145,517 145,683 144,562 141,637 Interest expense 69,620 63,741 62,071 62,115 62,756 64,604 64,234 62,968 ------------------------------------------------------------------------------------------------ Net interest income 84,724 82,745 83,725 80,858 82,761 81,079 80,328 78,669 Provision for loan losses 3,525 3,284 5,676 1,811 4,320 4,778 3,646 3,140 ------------------------------------------------------------------------------------------------ Net interest income after provision for loan losses 81,199 79,461 78,049 79,047 78,441 76,301 76,682 75,529 Gain on sale of credit card receivables - - 32,837 - - - - - Other income 32,476 28,549 32,551 32,041 30,275 28,588 29,508 24,737 Other expenses 62,765 60,453 61,596 59,222 58,313 58,894 58,918 54,092 ------------------------------------------------------------------------------------------------ Income before income taxes 50,910 47,557 81,841 51,866 50,403 45,995 47,272 46,174 Income taxes 17,470 16,012 29,756 18,113 18,814 15,632 17,296 16,890 - ---------------------------------------------------------------------------------------------------------------------------- Net income $ 33,440 31,545 52,085 33,753 31,589 30,363 29,976 29,284 ============================================================================================================================ Net income per share: Basic $ .84 .80 1.30 .84 .78 .75 .73 .70 Diluted .83 .79 1.29 .83 .77 .74 .72 .70 ============================================================================================================================
(18) FAIR VALUE OF FINANCIAL INSTRUMENTS Disclosure of fair value estimates of on- and off-balance sheet financial instruments is required under SFAS No. 107. Certain financial instruments and all non-financial instruments are excluded from its disclosure requirements. Fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business. Significant assets and liabilities that are not considered financial instruments include premises and equipment, intangible assets, negative goodwill, the trust department and mortgage banking operations. In addition, the tax ramifications resulting from the realization of the unrealized gains and losses of the financial instruments would have a significant impact on the fair value estimates presented and have not been considered in any of the fair value estimates. Accordingly, the aggregate fair value amounts presented below do not represent the underlying value of CCB. Estimated fair values of certain on- and off-balance sheet financial instruments at December 31, 1999 and 1998 are presented below (in thousands):
1999 1998 ------------------------------------------------------------------------ Carrying Fair Carrying Fair Amount Value Amount Value ------------------------------------------------------------------------ (In Thousands) Financial assets: Cash, time deposits in other banks and other short-term investments $ 400,989 400,989 740,451 740,451 Investment securities 1,636,490 1,638,568 1,364,387 1,369,475 Net loans 5,876,918 5,912,856 5,414,155 5,527,581 Financial liabilities: Deposits 6,717,025 6,705,433 6,459,764 6,475,689 Short-term borrowings 329,670 329,670 288,256 288,256 Long-term debt 328,922 320,295 216,695 219,236 Off-balance sheet financial instruments: Interest rate swaps 78 100 26 (430) =====================================================================================================================
Fair value estimations are made at a point in time based on relevant market information and the characteristics of the on- and off-balance sheet financial instruments being valued. The estimated fair value presented does not represent the gain or loss that could result if CCB chose to liquidate all of its holdings of a financial instrument. Because no market exists for a large portion of CCB's financial instruments, fair value estimates are based on management's judgments about expected loss experience, current economic conditions, the risk characteristics of the individual financial instruments and other factors. Accordingly, these estimates are subjective in nature and involve a high degree of judgment and cannot be determined with a high degree of precision. Changes in assumptions and/or the methodology used could significantly impact the fair values presented above. Financial Assets The fair value of cash, time deposits in other banks and other short-term investments is equal to their carrying value due to the nature of those instruments. The fair value of investment securities is based on published market values. The fair value of net loans is based on the discounting of scheduled cash flows through estimated maturity using market rates and management's judgment about the credit risk inherent in the different segments of the loan portfolio. Estimates of maturity, except for residential mortgage loans, are based on the stated term of the loan or CCB's estimates of prepayments considering current economic and lending conditions. Estimates of maturity for residential mortgage loans are based on prepayments estimated by secondary market sources. Financial Liabilities The fair value of noninterest-bearing deposits, savings and NOW accounts and money market accounts is the amount payable on demand at December 31, 1999 and 1998. The fair value of time deposits is estimated based on the discounted value of contractual cash flows using the currently offered rate for deposits with similar remaining maturities. Short-term borrowings are generally due within 90 days, and, accordingly, the carrying amount of these instruments is considered to be a reasonable approximation of their fair value. The estimated fair value of long-term debt is based on quoted market rates for the same or similar issues or is based on the market rates for debt of the same remaining maturities. Off-Balance Sheet Financial Instruments The estimated fair value of commitments to extend credit and standby letters of credit are equal to their carrying value due to the majority of these off- balance sheet instruments having relatively short terms to maturity and being written at variable rates. The carrying amounts of commitments to extend credit and standby letters of credit are comprised of unamortized fee income, if any. These amounts are not material to CCB. The carrying amounts are reasonable estimates of the fair value of these off-balance sheet financial instruments due to their maturity and repricing terms. Independent Auditors' Report The Board of Directors and Shareholders CCB Financial Corporation We have audited the consolidated balance sheets of CCB Financial Corporation and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CCB Financial Corporation and subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999 in conformity with generally accepted accounting principles. /s/ KPMG LLP Raleigh, North Carolina January 20, 2000 EX-99.2 3 UNAUDITED PRO FORMA EXHIBIT 99.2 UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION The following unaudited pro forma combined condensed balance sheet as of December 31, 1999, combines the historical consolidated balance sheets of National Commerce Bancorporation (NCBC) and CCB Financial Corporation (CCB) as if the merger of CCB into NCBC had been effective on December 31, 1999, after giving effect to certain estimated adjustments. The unaudited pro forma combined condensed statements of income for the years ended December 31, 1999, 1998 and 1997 present the combined results of operations of NCBC and CCB as if the merger of CCB into NCBC had been effective at the beginning of the earliest period presented. The unaudited pro forma combined condensed financial information has been prepared from, and should be read in conjunction with, the historical consolidated financial statements of NCBC and CCB. The unaudited pro forma combined condensed financial information reflects the application of the pooling-of-interests method of accounting for the merger. Under this method of accounting, the recorded assets, liabilities, stockholders' equity, income and expenses of NCBC and CCB are combined and reflected at historical amounts. You should not assume that NCBC and CCB would have achieved the pro forma combined results if they had actually been combined during the periods presented. The combined company expects to incur merger and other non-recurring expenses as a result of the merger and to achieve merger benefits in the form of operating cost savings. The pro forma earnings, which do not reflect any direct costs or potential savings which are expected to result from the consolidation of the operations of NCBC and CCB, are not necessarily indicative of the results of future operations. No assurances can be given with respect to the ultimate level of expense savings. NATIONAL COMMERCE BANCORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET DECEMBER 31, 1999 (IN THOUSANDS)
(4) (2) (5) (6) Pro Forma Pro Forma NCBC CCB Adjustments Combined ---------- ---------- ----------- ---------- Assets ------ Cash and cash equivalents $ 261,296 $ 400,989 - $ 662,285 Available-for-sale securities 553,928 1,563,120 - 2,117,048 Held-to-maturity securities 1,759,383 73,370 - 1,832,753 Trading account securities 30,294 - - 30,294 Net loans 3,926,192 5,876,918 - 9,803,110 Premises and equipment, net 47,830 113,858 - 161,688 Other assets 227,250 158,043 - 385,293 - --------------------------------------------------------------------------------------------------------------------- Total assets $6,806,173 $8,186,298 - $14,992,471 ===================================================================================================================== Liabilities and Stockholders' Equity ------------------------------------ Deposits $4,495,900 $6,717,025 - $11,212,925 Short-term borrowings 883,038 329,670 - 1,112,708 Federal Home Loan Bank Advances 714,335 - - 1,110,272 Accounts payable and accrued liabilities 99,241 90,720 89,100 279,061 Long-term debt 6,372 28,922 - 39,357 ----------------------------------------------------------------- Total liabilities 6,198,886 7,466,337 89,100 13,754,323 Capital trust pass-through securities 49,909 - - 49,909 Stockholders' equity Common Stock 216,446 197,900 (3,959) 410,387 Additional Paid In Capital 90,230 29,690 3,959 123,879 Retained Earnings 253,940 506,092 (89,100) 670,932 Accumulated other comprehensive loss (3,238) (13,721) - (16,959) ----------------------------------------------------------------- Total stockholders' equity 557,378 719,961 (89,100) 1,188,239 ----------------------------------------------------------------- Total liabilities and stockholders' equity $6,806,173 $8,186,298 - $14,992,471 =================================================================
The accompanying notes are an integral part of the unaudited pro forma combined condensed financial information. NATIONAL COMMERCE BANCORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT YEAR ENDED DECEMBER 31, 1999 (IN THOUSANDS, EXCEPT PER SHARE DATA) (4) (2) (3) (6) Pro Forma Pro Forma NCBC CCB Adjustments Combined --------------------------------------------- Interest Income: Loans $311,293 $478,908 $ - $790,201 Securities: Taxable 136,424 91,529 227,953 Non-Taxable 12,108 4,360 16,468 -------------------------------------------- 148,532 95,889 0 244,421 Other 8,203 14,802 23,005 -------------------------------------------- Total interest income 468,028 589,599 0 1,057,627 Interest Expense: Deposits 158,477 232,767 391,244 Borrowings 73,013 24,780 97,793 -------------------------------------------- Total interest expense 231,490 257,547 0 489,037 -------------------------------------------- Net interest income 236,538 332,052 0 568,590 Provision for loan losses 15,206 14,296 29,502 -------------------------------------------- Net interest income after provision for loan losses 221,332 317,756 0 539,088 Other income: Trust service income 10,139 12,574 22,713 Service charges on deposits 21,705 61,831 83,536 Other service charges and fees 20,674 24,672 45,346 Broker/dealer revenue 18,092 - 18,092 Investment securities gains (losses) (1,789) 1,378 (411) Other 23,693 57,999 81,692 -------------------------------------------- Total other income 92,514 158,454 0 250,968 Other Expenses: Salaries and employee benefits 76,343 136,305 212,648 Occupancy expense 14,086 17,331 31,417 Furniture and equipment expense 7,500 17,713 25,213 Other 57,329 72,687 130,016 -------------------------------------------- Total other expenses 155,258 244,036 0 399,294 -------------------------------------------- Income before income taxes 158,588 232,174 0 390,762 Income taxes 51,354 81,351 132,705 -------------------------------------------- Net income $107,234 $150,823 $ - $258,057 ============================================ Net income per common share - basic $ 1.00 $ 3.77 $ 1.26 ============================================ Net income per common share - diluted $ 0.99 $ 3.74 $ 1.24 ============================================ Weighted average shares outstanding - basic 106,749 39,944 57,919 204,612 ============================================ Weighted averages shares outstanding - diluted 108,823 40,315 58,457 207,595 ============================================ The accompanying notes are an integral part of the unaudited pro forma combined condensed financial information. NATIONAL COMMERCE BANCORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
(4) (2) (3) (6) Pro Forma Pro Forma NCBC CCB Adjustments Combined --------------------------------------------- Interest Income: Loans $275,890 $470,664 $ - $746,554 Securities: Taxable 110,649 83,754 194,403 Non-Taxable 8,451 4,738 13,189 --------------------------------------------- 119,100 88,492 0 207,592 Other 8,118 18,270 26,388 --------------------------------------------- Total interest income 403,108 577,426 0 980,534 Interest Expense: Deposits 142,967 232,609 375,576 Borrowings 57,245 21,953 79,198 --------------------------------------------- Total interest expense 200,212 254,562 0 454,774 --------------------------------------------- Net interest income 202,896 322,864 0 525,760 Provision for loan losses 10,079 15,884 25,963 --------------------------------------------- Net interest income after provision for loan losses 192,817 306,980 0 499,797 Other income: Trust service income 10,135 10,221 20,356 Service charges on deposits 19,747 54,117 73,864 Other service charges and fees 17,500 19,661 37,161 Broker/dealer revenue 20,441 - 20,441 Investment securities gains 224 2,178 2,402 Other 19,945 26,904 46,849 --------------------------------------------- Total other income 87,992 113,081 0 201,073 Other Expenses: Salaries and employee benefits 70,712 124,419 195,131 Occupancy expense 12,643 15,890 28,533 Furniture and equipment expense 6,265 14,522 20,787 Other 59,279 75,386 134,665 --------------------------------------------- Total other expenses 148,899 230,217 0 379,116 --------------------------------------------- Income before income taxes 131,910 189,844 0 321,754 Income taxes 43,890 68,632 112,522 --------------------------------------------- Net income $88,020 $121,212 $ - $209,232 ============================================= Net income per common share - basic $ 0.85 $ 2.96 - $ 1.03 ============================================= Net income per common share - diluted $ 0.83 $ 2.93 - $ 1.01 ============================================= Weighted average shares outstanding - basic 103,636 40,898 59,302 203,836 ============================================= Weighted averages shares outstanding - diluted 105,970 41,409 60,043 207,422 =============================================
The accompanying notes are an integral part of the unaudited pro forma combined condensed financial information. 4 NATIONAL COMMERCE BANCORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
(4) (2) (3) (6) Pro Forma Pro Forma NCBC CCB Adjustments Combined -------- -------- ----------- --------- Interest Income: Loans $243,079 $442,618 $ - $685,697 Securities: Taxable 98,268 90,229 188,497 Non-Taxable 8,038 4,840 12,878 -------- ------- ------ -------- 106,306 95,069 0 201,375 Other 4,573 12,776 17,349 -------- ------- ------ -------- Total interest income 353,958 550,463 0 904,421 Interest Expense: Deposits 126,741 229,600 356,341 Borrowings 55,410 20,499 75,909 -------- ------- ------ -------- Total interest expense 182,151 250,099 0 432,250 -------- ------- ------ -------- Net interest income 171,807 300,364 0 472,171 Provision for loan losses 17,363 16,376 33,739 -------- ------- ------ -------- Net interest income after provision for loan losses 154,444 283,988 0 438,432 Other income: Trust service income 9,284 8,415 17,699 Service charges on deposits 17,673 44,937 62,610 Other service charges and fees 13,069 16,450 29,519 Broker/dealer revenue 13,115 - 13,115 Investment securities gains (losses) (127) 480 353 Other 32,915 23,117 56,032 -------- ------- ------ -------- Total other income 85,929 93,399 0 179,328 Other Expenses: Salaries and employee benefits 60,934 114,572 175,506 Occupancy expense 11,162 15,595 26,757 Furniture and equipment expense 5,356 12,867 18,223 Other 54,129 83,164 137,293 -------- ------- ------ -------- Total other expenses 131,581 226,198 0 357,779 -------- ------- ------ -------- Income before income taxes 108,792 151,189 0 259,981 Income taxes 36,338 55,765 92,103 -------- ------- ------ -------- Net income $ 72,454 $95,424 $ - $167,878 ======== ======= ====== ======== Net income per common share - basic $ 0.72 $ 2.31 $ 0.83 ======== ======= ====== ======== Net income per common share - diluted $ 0.69 $ 2.28 $ 0.81 ======== ======= ====== ======== Weighted average shares outstanding - basic 101,083 41,438 60,085 202,606 ======== ======= ====== ======== Weighted averages shares outstanding - diluted 104,454 41,947 60,823 207,224 ======== ======= ====== ========
The accompanying notes are an integral part of the unaudited pro forma combined condensed financial information. NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION (1) The Unaudited Pro Forma Combined Condensed Financial Information presented herein is not necessarily indicative of the results of operations or the combined financial position that would have resulted had the merger been consumated at the beginning of the earliest period presented, nor is it necessarily indicative of the results of operations in future periods or the future financial position of the combined entities. The Unaudited Pro Forma Combined Condensed Financial Information should be read together with the historical consolidated financial statements and the related notes thereto of each NCBC and CCB incorporated by reference herein. (2) It is assumed that the merger will be accounted for on a pooling-of- interests accounting basis, and accordingly, the related pro forma amounts are included using the exchange ratio of 2.45 shares of NCBC common stock for each share of CCB common stock. In addition, common stock and additional paid in capital include a reclassification adjustment to reflect the change in par value of outstanding shares of CCB to the $2.00 par value of NCBC common stock. (3) Earning per share data has been computed based on the combined historical net income applicable to NCBC stockholders and CCB stockholders using the historical weighted average shares outstanding of NCBC common stock and the weighted average outstanding shares of CCB common stock, adjusted to equivalent shares of NCBC common stock for each of the periods presented. (4) Certain reclassifications have been included to ensure consistent presentation. (5) The Unaudited Pro Forma Combined Condensed Financial Information, with the exception of the Unaudited Pro Forma Combined Condensed Balance Sheet, does not include any material expenses related to the Merger. NCBC currently estimates pre-tax merger and integration and other nonrecurring merger related charges of approximately $110 million ($89.1 million net of taxes) will be recorded. (6) NCBC expects to realize significant revenue enhancements and cost savings from the merger, primarily through the realization of certain operating efficiencies and reductions in systems, labor and administrative costs. The Unaudited Pro Forma Combined Condensed Financial Information, which does not reflect any revenue enhancements, direct costs or potential savings, is therefore not necessarily indicative of the results of future operations. There can be no assurance that anticipated revenue enhancements or cost savings will be achieved in the expected amounts or at the times anticipated. -----END PRIVACY-ENHANCED MESSAGE-----