<PAGE>

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                                 UNITED STATES

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                ---------------
                                   FORM 10-K

(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934


For the fiscal year ended December 31, 1998


[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934


For the transition period from ------------------ to ----------------------


Commission File Number: 0-12358



                           CCB FINANCIAL CORPORATION
--------------------------------------------------------------------------------
            (Exact name of Registrant as specified in its charter)



<TABLE>
<S>                                                      <C>
                         North Carolina                               56-1347849
------------------------------------------------------                ----------
      (State or other jurisdiction of incorporation)     (I.R.S. Employer Identification No.)
</TABLE>

          111 Corcoran Street, Post Office Box 931, Durham, NC 27702
--------------------------------------------------------------------------------
                   (Address of principal executive offices)



Registrant's telephone number, including area code (919) 683-7777


Securities issued pursuant to Section 12(b) of the Act:


<TABLE>
<S>                                        <C>
      $5.00 par value Common Stock                 New York Stock Exchange
----------------------------------------   ---------------------------------------
           (Title of class)                 (Name of exchange on which registered)
</TABLE>

Securities issued pursuant to Section 12(g) of the Act:
                                     None


     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.
                                Yes [X]  No [ ]

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]


     The aggregate  market value of the voting stock held by  non-affiliates  of
the Registrant as of March 8, 1999 was  $2,209,480,627.  On March 8, 1999, there
were 40,177,175  outstanding  shares of the Registrant's  $5.00 par value Common
Stock.


                      DOCUMENT INCORPORATED BY REFERENCE

Portions  of the  Proxy  Statement  of  Registrant  for the  Annual  Meeting  of
Shareholders  to be held on April 27, 1999 are  incorporated in Part III of this
report.

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<PAGE>

                             CROSS REFERENCE INDEX



<TABLE>
<CAPTION>
                                                                                                   Page
                                                                                                  -----
<S>          <C>        <C>                                                                       <C>
  Part I.
             Item 1.    Business ................................................................   3
                        Description .............................................................   3
                        Average Balance Sheets ..................................................  13
                        Net Interest Income Analysis -- Taxable Equivalent Basis ................  13
                        Net Interest Income and Volume/Rate Variance -- Taxable Equivalent Basis   14
                        Investment Securities Portfolio .........................................  20
                        Investment Securities -- Maturity/Yield Schedule ........................  20
                        Types of Loans ..........................................................  18
                        Maturities and Sensitivities of Loans to Changes in Interest Rates ......  19
                        Nonperforming and Risk Assets ...........................................  25
                        Loan Loss Experience ....................................................  26
                        Average Deposits ........................................................  21
                        Maturity Distribution of Large Denomination Time Deposits ...............  28
                        Return on Equity and Assets .............................................   9
                        Short-Term Borrowings ...................................................  45
             Item 2.    Properties ..............................................................   7
             Item 3.    Legal Proceedings .......................................................   7
             Item 4.    Submission of Matters to a Vote of Security Holders .....................   7
  Part II.
             Item 5.    Market for the Registrant's Common Stock and Related Shareholder Matters    7
             Item 6.    Selected Financial Data .................................................   8
             Item 7.    Management's Discussion and Analysis of Financial Condition and            11
                        Results of Operations ...................................................
             Item 7A.   Quantitative and Qualitative Disclosures About Market Risk ..............  31
             Item 8.    Financial Statements and Supplementary Data .............................  33
             Item 9.    Changes in and Disagreements with Accountants on Accounting and            62
                        Financial Disclosure ....................................................
  Part III.
             Item 10.   Directors and Executive Officers of the Registrant ......................  62
             Item 11.   Executive Compensation ..................................................  62
             Item 12.   Security Ownership of Certain Beneficial Owners and Management ..........  62
             Item 13.   Certain Relationships and Related Transactions ..........................  62
  Part IV.
             Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K .........  62
</TABLE>

<PAGE>

                                    PART I.

Item 1. BUSINESS


REGISTRANT

     CCB Financial  Corporation (the "Corporation") is a registered bank holding
company  headquartered  in Durham,  North Carolina whose  principal  business is
providing banking and other financial services through its banking subsidiaries.
The Corporation is the parent holding company of Central Carolina Bank and Trust
Company  ("CCB"),  American  Federal Bank,  FSB  ("AmFed") and Central  Carolina
Bank-Georgia  ("CCB-Ga.")  (collectively referred to as the "Subsidiary Banks").
The principal  assets of the Corporation  are all of the  outstanding  shares of
common stock of the Subsidiary Banks and the Corporation's  principal sources of
revenue are the interest  income and dividends it receives  from the  Subsidiary
Banks.  At  December  31,  1998,  the  Corporation  had  consolidated  assets of
approximately  $7.7  billion and was the seventh  largest  banking  organization
headquartered in North Carolina.


SUBSIDIARY BANKS

     CCB is chartered under the laws of the state of North Carolina to engage in
general banking business. CCB offers commercial and retail banking,  savings and
trust  services  through  161  offices  located  in 63 cities and towns in North
Carolina.  In addition,  CCB offers trust services  through an office located in
Virginia  and  through  a   subsidiary   headquartered   in  Florida.   CCB  had
approximately  $6.5  billion in assets at December  31, 1998 and was the seventh
largest bank in North Carolina.  CCB provides a full range of financial services
including accepting deposits;  making secured and unsecured loans;  renting safe
deposit boxes;  performing  trust functions for  corporations,  employee benefit
plans and individuals; and providing certain insurance and brokerage services.

     AmFed is a federally  chartered  savings bank located in Greenville,  South
Carolina.  AmFed offers commercial and retail banking through 40 offices located
in 24 cities and towns in South Carolina.  Trust services are currently  offered
through two trust  offices.  AmFed had  approximately  $1.3 billion in assets at
December 31, 1998. AmFed provides a full range of financial  services  including
accepting  deposits;  making secured and unsecured  loans;  renting safe deposit
boxes;  performing trust functions for corporations,  employee benefit plans and
individuals; and providing certain insurance and brokerage services.

     CCB-Ga. is a Georgia-chartered special purpose credit card bank which
provides nationwide credit card services from its headquarters in Columbus,
Georgia. As of December 31, 1998, CCB-Ga. had approximately $85.9 million in
assets.


NON-BANK SUBSIDIARIES

     CCB  has  five  wholly-owned  non-bank   subsidiaries:   CCBDE,  Inc.,  CCB
Investment  and Insurance  Service  Corporation  ("CCBI"),  Salem Trust Company,
Corcoran Holdings,  Inc ("Corcoran") and Southland Associates,  Inc. CCBDE, Inc.
is an investment  holding company  headquartered in Wilmington,  Delaware.  CCBI
provides full brokerage services through an independent  discount brokerage firm
and sells  annuity and mutual fund  products.  Salem  Trust  Company,  which was
formed  upon CCB's  acquisition  of  certain  trust  operations  from the former
Barnett Bank, provides  institutional  trust services in Florida.  Corcoran is a
holding company and sole owner of a real estate investment trust formed in 1998,
Watts Properties,  Inc. Southland  Associates,  Inc.  previously engaged in real
estate development and is in the process of winding-down operations.

     AmFed has five wholly-owned non-bank subsidiaries: AMFEDDE, Inc., American
Service Corporation of S.C. ("ASC"), McBee Holdings, Inc. ("McBee"), Finance
South, Inc. ("Finance South") and Mortgage North. AMFEDDE, Inc. is an
investment holding company headquartered in Wilmington, Delaware. ASC sells
insurance, annuity and mutual fund products as well as providing full brokerage
services through an independent discount brokerage firm. McBee is a holding
company and sole owner of a loan participation company formed in 1998,
Greenville Participations, Inc. During the second quarter of 1997, AmFed sold
substantially all of the assets of Finance South, a short-term consumer finance
operation. Mortgage North is a service related company in the process of
winding-down operations.


COMPETITION

     Vigorous  competition  exists in all major areas where the  Corporation  is
presently engaged in business.  Its Subsidiary Banks compete not only with other
major commercial banks but also with other  diversified  financial  institutions
such as thrift  institutions,  money  market and other  mutual  funds,  mortgage
companies,  leasing  companies,  finance  companies  and a variety of  financial
services and advisory  companies.  Competitor  commercial  banks larger than the
Corporation  range in size from $8 billion to over $100 billion in total assets,
including assets attributable to affiliates in other states. Consequently, these
competing  commercial  banks may be able to offer services and products that are
not cost-efficient for the Subsidiary Banks to offer. In addition, the competing
commercial  banks have access to greater  financial  resources that allow higher
lending limits than the Subsidiary Banks. In addition to


                                       3
<PAGE>

in-state  competition,  CCB and AmFed  have a high  degree of  competition  from
out-of-state financial service companies through the presence of loan production
offices.

     In recent years,  competition between commercial banks, thrift institutions
and  credit   unions  has   intensified   significantly,   especially  in  their
deposit-taking  activities.  Primarily  as a  result  of  legislation  aimed  at
effecting a  deregulation  of the financial  institutions  industry,  along with
other  regulatory  changes  effected by the primary  federal  regulators  of the
various types of financial  institutions,  the practical  distinctions between a
commercial bank and a thrift institution have been almost totally eliminated.


INTERSTATE BANKING AND BRANCHING

     Federal  law  permits  adequately  capitalized  and  managed  bank  holding
companies  to  acquire  control  of  the  assets  of  banks  in any  state  (the
"Interstate  Banking Law").  Acquisitions  are subject to anti-trust  provisions
that  cap at 10%  the  portion  of the  total  deposits  of  insured  depository
institutions  in the  United  States  that a single  bank  holding  company  may
control,  and generally cap at 30% the portion of the total  deposits of insured
depository  institutions  in a state  that a single  bank  holding  company  may
control. Under certain  circumstances,  states have the authority to increase or
decrease the 30% cap, and states may set minimum age  requirements of up to five
years on target banks within their borders.

     Subject to certain  conditions,  the  Interstate  Banking Law also  permits
interstate  branching  by  allowing  a bank to merge  with a bank  located  in a
different  state.  A  state  may  prohibit  interstate   branching  by  enacting
legislation to "opt out" of the Interstate  Banking Law. The Interstate  Banking
Law also  permits  banks to open new  branches or acquire  existing  branches of
banks located in other states that  specifically  permit that form of interstate
branching.

     North Carolina has adopted statutes which,  subject to conditions contained
therein, specifically authorize out-of-state bank holding companies and banks to
acquire or merge with North Carolina banks and to establish or acquire  branches
in North  Carolina.  It is  anticipated  that the  Interstate  Banking  Law will
increase (and, in some instances,  has increased) competition within the markets
in which the  Corporation  now  operates,  although  the  extent  to which  such
competition  will  increase  throughout  such  markets  and the  timing  of such
increase cannot be predicted.


SUPERVISION AND REGULATION

     The business and operations of the Corporation and its Subsidiary Banks are
subject to extensive federal and state governmental regulation and supervision.


Bank Holding Company Regulation

     The  Corporation  is a bank holding  company  registered  with the Board of
Governors of the Federal  Reserve System (the "Federal  Reserve") under the Bank
Holding  Company  Act of 1956,  as  amended  (the  "BHCA"),  and is  subject  to
supervision and examination by and the regulations and reporting requirements of
the Federal  Reserve.  Under the BHCA,  the  activities of the  Corporation  are
limited to banking,  managing or controlling  banks,  furnishing  services to or
performing  services for their  subsidiaries  or engaging in any other  activity
which the  Federal  Reserve  determines  to be so closely  related to banking or
managing or controlling banks as to be a proper incident thereto.

     The BHCA  prohibits  the  Corporation  from  acquiring  direct or  indirect
control of more than 5% of the outstanding  voting stock or substantially all of
the assets of a financial institution,  or merging or consolidating with another
bank  holding   company   without  prior   approval  of  the  Federal   Reserve.
Additionally,  the BHCA prohibits the Corporation from engaging in, or acquiring
ownership  or control  of more than 5% of the  outstanding  voting  stock of any
company engaged in a non-banking  activity unless such activity is determined by
the  Federal  Reserve  to be so closely  related  to  banking as to be  properly
incident thereto.  In approving an application by the Corporation to engage in a
non-banking  activity,  the Federal Reserve must consider  whether that activity
can  reasonably be expected to produce  benefits to the public,  such as greater
convenience,  increased  competition  or  gains  in  efficiency,  that  outweigh
possible adverse effects, such as undue concentration of resources,  decrease or
unfair competition, conflicts of interest or unsound banking practices.

     Federal Reserve  approval  generally must be obtained before any person may
acquire  control of a bank  holding  company.  Control is  presumed to exist if,
among other things, a person acquired more than 25% of any class of voting stock
of a  holding  company  or if a person  acquires  more  than 10% of any class of
voting stock and the holding company has registered  securities under Section 12
of the  1934 Act or the  acquirer  will be the  largest  shareholder  after  the
acquisition.

     There are a number of obligations and restrictions imposed by law on a bank
holding company and its insured  depository  institution  subsidiaries  that are
designed to  minimize  potential  loss to  depositors  and the  Federal  Deposit
Insurance  Corporation  ("FDIC") insurance funds. For example, if a bank holding
company's insured depository institution subsidiary becomes  "undercapitalized",
the


                                       4
<PAGE>

bank holding  company is required to guarantee  (subject to certain  limits) the
subsidiary's  compliance  with the terms of any capital  restoration  plan filed
with its appropriate  federal  banking  agency.  Also, a bank holding company is
required  to  serve  as  a  source  of  financial  strength  to  its  depository
institution subsidiaries and to commit resources to support such institutions in
circumstances  where it might not do so absent such policy.  Under the BHCA, the
Federal Reserve has the authority to require a bank holding company to terminate
any activity or to relinquish  control of a nonbank  subsidiary upon the Federal
Reserve's determination that such activity or control constitutes a serious risk
to the financial soundness and stability of a depository  institution subsidiary
of the bank holding company.

     Bank holding  companies  are required to comply with the Federal  Reserve's
risk-based  capital guidelines which require a minimum ratio of total capital to
risk-weighted assets of 8%. At least half of the total capital is required to be
Tier 1 capital.  In addition to the risk-based capital  guidelines,  the Federal
Reserve has adopted a minimum  leverage capital ratio under which a bank holding
company must  maintain a level of Tier 1 capital to average  total  consolidated
assets  of at least  3% in the  case of a bank  holding  company  which  has the
highest  regulatory  examination  rating  and is not  contemplating  significant
growth or expansion. All other bank holding companies are expected to maintain a
leverage capital ratio of at least 1% to 2% above the stated minimum.

     There  are also  various  legal  restrictions  on the  extent  to which the
Corporation and its nonbank  subsidiaries  can borrow or otherwise obtain credit
from banking subsidiaries.  In general, these restrictions require that any such
extensions  of  credit  must be  secured  by  designated  amounts  of  specified
collateral  and are limited,  as to any one of the  Corporation  or such nonbank
subsidiaries,  to 10% of the lending bank's capital stock and surplus, as to the
Corporation and all such nonbank  subsidiaries in the aggregate,  to 20% of such
lending bank's capital stock and surplus.

     As a result of its ownership of a North Carolina-chartered commercial bank,
the  Corporation  also is registered with and subject to regulation by the North
Carolina  Commissioner  of Banks (the  "Commissioner")  under the  state's  bank
holding company laws.


CCB

     CCB is a North Carolina  commercial  bank and is subject to supervision and
examination by and  regulations and reporting  requirements of the  Commissioner
and the FDIC. CCB is a member of the Federal Home Loan Bank ("FHLB")  system and
its deposits are insured by the FDIC. CCB is subject to legal limitations on the
amounts of dividends it is permitted to pay. Prior approval of the  Commissioner
is required if the total of all  dividends  declared by CCB in any calendar year
exceeds its net profits (as defined by statute) for that year  combined with its
retained  net profits (as defined by statute)  for the  preceding  two  calendar
years, less any required transfer to surplus.  Insured  depository  institutions
also are prohibited from making capital distributions,  including the payment of
dividends,  if, after making such  distributions,  the institution  would become
"undercapitalized"  (as such term is defined in the  Federal  Deposit  Insurance
Act).

     CCB is also subject to capital  requirements imposed by the FDIC. Under the
FDIC's regulations,  insured institutions that receive the highest rating during
the examination process and are not anticipating or experiencing any significant
growth are required to maintain a minimum leverage ratio of 3% of Tier 1 capital
to  average  total  consolidated  assets.  All other  insured  institutions  are
required to maintain a minimum ratio of 1% or 2% above the stated minimum,  with
a minimum leverage ratio of not less than 4%. The FDIC also requires CCB to have
a ratio of total capital to risk-weighted assets of at least 8%.

     Under  current  federal  law,  certain  transactions  between a  depository
institution  and its  affiliates  are  governed  by  Section  23A and 23B of the
Federal Reserve Act. An affiliate of a depository  institution is any company or
entity that  controls,  is  controlled  by or is under  common  control with the
institution,  and, in a holding company context, the parent holding company of a
depository  institution  and any companies  which are  controlled by such parent
holding  company  are  affiliates  of  the  depository  institution.  Generally,
Sections 23A and 23B (i) limit the extent to which a depository  institution  or
its subsidiaries may engage in covered transactions with any one affiliate,  and
(ii)  require  that  such  transactions  be on  terms  and  under  circumstances
substantially  the same, or at least as  favorable,  to the  institution  or the
subsidiary as those provided to a nonaffiliate.

     CCB is subject to various  other  state and federal  laws and  regulations,
including state usury laws,  laws relating to  fiduciaries,  consumer credit and
equal credit, fair credit reporting laws and laws relating to branch banking. As
an insured  institution,  CCB is  prohibited  from  engaging as a  principal  in
activities  that  are not  permitted  for  national  banks  unless  (i) the FDIC
determines  that the activity would pose no significant  risk to the appropriate
deposit  insurance  fund and (ii) the  institution  is, and  continues to be, in
compliance with all applicable capital standards.  Insured institutions also are
prohibited from directly  acquiring or retaining any equity investment of a type
or in an amount not permitted for national banks.


                                       5
<PAGE>

AmFed

     AmFed  is  a  federally-chartered   savings  bank  subject  to  regulation,
examination and supervision by the Office of Thrift Supervision  ("OTS"), as its
chartering  agency,  and by the FDIC,  as its deposit  insurer.  AmFed is also a
member of the FHLB system.  AmFed is subject to legal limitations on the amounts
of  dividends  it is  permitted  to pay.  Under  OTS  regulations,  if a savings
institution  exceeds all fully phased-in  capital  requirements and has not been
advised  that it is in need of more  than  normal  supervision,  it  could  make
dividend payments during a calendar year equal to the greater of (i) 100% of its
net income to date during the calendar year plus the amount that would reduce by
one-half  its  "surplus  capital  ratio"  (the  excess  capital  over its  fully
phased-in  capital  requirements)  at the beginning of the calendar year or (ii)
75% of its net income for the previous four quarters.

     AmFed is required to comply with the capital  requirements  promulgated  by
the OTS. The OTS capital  regulations  require tangible capital of at least 1.5%
of adjusted total assets (as defined by  regulation);  core capital in an amount
equal to at least 3% of adjusted total assets and total capital to risk-weighted
assets of at least 8%.

     The business  activities of savings  institutions  are governed by the Home
Owners'  Loan Act of 1933,  as  amended  ("HOLA").  The  HOLA  requires  savings
institutions to meet a Qualified Thrift Lender Test ("QTL test").  Under the QTL
test, as modified by the Federal Deposit Insurance  Corporation  Improvement Act
of 1991("FDICIA"), a savings institution is required to maintain at least 65% of
its "portfolio  assets" (total assets less (i) specified liquid assets up to 20%
of total assets, (ii) intangible assets, including goodwill, and (iii) the value
of property used to conduct business) in certain "qualified thrift  investments"
such as home mortgage loans and other residential real estate-related  assets on
a monthly average basis in 9 out of every 12 months. A savings  association that
fails the QTL test and does not  convert  to a bank  charter  generally  will be
subject to certain prohibitions including:  (i) not engaging in any new activity
not permissible  for a national bank; (ii) not paying  dividends not permissible
under  national bank  regulations  and (iii) not obtaining any advances from the
FHLB. In addition,  beginning three years after the savings  association  failed
the QTL test, the savings  association  would be prohibited from engaging in any
activity  not  permissible  for a  national  bank and  would  have to repay  any
outstanding  advances  from an FHLB as promptly as possible.  As of December 31,
1998,  AmFed's  QTL  percentage  was  77.89%  which  exceeded  the  current  QTL
requirements.


Insurance Assessments

     CCB and AmFed are  subject to  insurance  assessments  imposed by the FDIC.
Approximately  two-thirds of CCB's deposits are insured  through the FDIC's Bank
Insurance  Fund  (the  "BIF")  and the  remainder  are  insured  by the  Savings
Association  Insurance  Fund  ("SAIF")  due to  deposits  acquired  through  the
acquisition  of thrift  institutions  in prior years which remain insured by the
SAIF.  Effective  January 1, 1996,  the FDIC reduced the BIF  assessments,  to a
range of 0% to .27% of  deposits.  The  premium  reductions  did not  affect the
deposit premiums paid on SAIF insured deposits. The actual assessment to be paid
by each  insured  institution  is based  on the  institution's  assessment  risk
classification,  which  is  determined  based  on  whether  the  institution  is
considered "well capitalized",  "adequately capitalized" or "under capitalized",
as such terms have been defined in applicable federal  regulations,  and whether
the institution is considered by its supervisory  agency to be financially sound
or to have  supervisory  concerns.  During  1996,  the FDIC  imposed  a  special
assessment  on SAIF insured  deposits to  recapitalize  the SAIF.  CCB's special
assessment  amounted to $7.4 million and AmFed's amounted to $5.6 million.  FDIC
insurance  premiums  for 1998 and 1997 were .013% for BIF insured  deposits  and
 .0648% for SAIF insured deposits.

     On  September  30,  1996,  the  Economic  Growth and  Regulatory  Paperwork
Reduction Act of 1996 (the "Growth Act") was enacted. This legislation contained
a comprehensive  approach to recapitalize  the SAIF and to assure payment of the
Financing Corporation (the "FICO") obligations. Under the Growth Act, banks with
deposits  that are  insured  under the BIF are  required to pay a portion of the
interest  due on bonds  that  were  issued by FICO to help  shore up the  ailing
Federal  Savings  and  Loan  Insurance  Corporation  in  1987.  The  Growth  Act
stipulates  that  the  BIF  assessment  rate  to  contribute   toward  the  FICO
obligations must be equal to one-fifth the SAIF assessment rate through year-end
1999,  or until the insurance  funds are merged,  whichever  occurs  first.  The
amount  of FICO  debt  service  to be paid by all  BIF-insured  institutions  is
approximately  $0.0126 per $100 of BIF-insured  deposits for each year from 1997
through  1999 when the  obligation  of  BIF-insured  institutions  increases  to
approximately $0.0240 per $100 of BIF-insured deposits per year through the year
2019,  subject in all cases to adjustments by the FDIC on a quarterly basis. The
Growth  Act also  contained  provisions  protecting  banks  from  liability  for
environmental clean-up costs; prohibiting credit unions sponsored by Farm Credit
System banks;  easing  application  requirements for most bank holding companies
when they  acquire a thrift or a  permissible  non-bank  operation;  easing Fair
Credit Reporting Act restrictions  between bank holding company affiliates;  and
reducing the regulatory burden under the Real Estate Settlement  Procedures Act,
the Truth-in-Savings Act, the Truth-in-Lending Act and the Home Savings Mortgage
Disclosure Act.


                                       6
<PAGE>

Effect of Governmental Policies

     The earnings and  business of the  Corporation  are and will be affected by
the policies of various regulatory authorities of the United States,  especially
the Federal Reserve. The Federal Reserve,  among other functions,  regulates the
supply of credit and deals with general  economic  conditions  within the United
States.  The  instruments of monetary policy employed by the Federal Reserve for
these  purposes  influence  in various  ways the overall  level of  investments,
loans,  other extensions of credit and deposits,  and the interest rates paid on
liabilities and received on assets.


YEAR 2000 ISSUE

     The  Year  2000  Issue   presents  a  number  of  challenges  to  financial
institutions'  management;  correction  of Year 2000  Issues  will be costly and
complex  for  the  entire  industry.  See  "Year  2000  Issue"  in  Management's
Discussion  and Analysis of Financial  Condition and Results of  Operations  for
information  regarding  the impact of the Year 2000  Issue on the  Corporation's
operations and the progress made on remediating that impact.


EXECUTIVE OFFICERS OF THE REGISTRANT

     All  officers of the  Corporation  are elected or appointed by the board of
directors to hold their  offices at the  pleasure of the board.  At February 28,
1999, the executive officers of the Corporation were as follows:



<TABLE>
<CAPTION>
                                     Age at
Name                           December 31, 1998
----------------------------- -------------------
<S>                           <C>
Ernest C. Roessler                    57
Eugene J. McDonald                    66
David B. Jordan                       62
William L. Abercrombie, Jr.           51
J. Scott Edwards                      52
Richard L. Furr                       49



<CAPTION>
                                                                                                Has Served as
                                                                                                an Executive
                                                                                               Officer of the
Name                          Position                                                        Corporation Since
----------------------------- -------------------------------------------------------------- ------------------
<S>                           <C>                                                            <C>
Ernest C. Roessler            Chairman of the Board, President and Chief Executive Officer          1988
Eugene J. McDonald            Executive Vice Chairman of the Board                                  1998
David B. Jordan               Vice Chairman of the Board                                            1995
William L. Abercrombie, Jr.   Vice Chairman of the Board                                            1997 (1)
J. Scott Edwards              Executive Vice President                                              1988
Richard L. Furr               Executive Vice President                                              1988
</TABLE>

(1) Prior to August 1997,  Mr.  Abercrombie  served as Chairman,  President  and
    Chief Executive  Officer of American Federal Bank, FSB which was acquired by
    the  Corporation  on  August  1,  1997.  He  continues  to  serve  in  those
    capacities.



EMPLOYEE RELATIONS

     As of December 31, 1998, the Corporation and its Subsidiary  Banks employed
2,740 full-time equivalent  employees.  The Corporation and its Subsidiary Banks
are not parties to any collective  bargaining  agreements and employee relations
are considered to be good.


Item 2. PROPERTIES

     The Corporation's  principal  executive offices are located at 111 Corcoran
Street,  Durham,  North Carolina in a 17-story  office  building  constructed in
1937.  This office building is owned in fee simple by CCB and also serves as the
home  office of CCB. A majority  of the  administrative  functions  are  located
therein.  The  Corporation's  Customer  Service  Center  is a  one-story  leased
building also located in Durham,  North  Carolina  that has been occupied  since
1990.  The Subsidiary  Banks operate 201 banking  offices,  approximately  81 of
which are either  leased  buildings or leased  property on which the  Subsidiary
Banks have constructed banking offices.


Item 3. LEGAL PROCEEDINGS

     See Note 14 to the  Consolidated  Financial  Statements for a discussion of
legal proceedings.


Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     There has been no  submission of matters to a vote of  shareholders  during
the quarter ended December 31, 1998.


                                   PART II.

Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS

     See  "Capital  Resources"  in  Management's   Discussion  and  Analysis  of
Financial Condition and Results of Operations for the Corporation's stock prices
and  dividends  paid during 1998 and 1997 and  discussion  of other  shareholder
matters. Such prices and


                                       7
<PAGE>

dividends  have been adjusted to reflect a two-for-one  stock split  effected in
the form of a 100  percent  common  stock  dividend  paid on  October 1, 1998 to
shareholders of record on September 15, 1998. On January 19, 1999, a dividend of
$.26 per share was  declared  for  payment on April 1, 1999 to  shareholders  of
record as of March 15, 1999.

     Each outstanding share of the Corporation's common stock has attached to it
one  right (a  "Right")  issued  pursuant  to an  Amended  and  Restated  Rights
Agreement (the "Rights  Agreement") as discussed in Note 11 to the  Consolidated
Financial Statements. The Rights will not prevent a takeover of the Corporation.
However,  the Rights may cause  substantial  dilution  to a person or group that
acquires  15 percent or more (or 10% or more in  certain  circumstances)  of the
Corporation's  common  stock  unless  the  Rights  are  redeemed  prior  to such
acquisition  or terminated by the Board of Directors.  Nevertheless,  the Rights
should not  interfere  with a transaction  that is in the best  interests of the
Corporation  and  its  shareholders  because  the  Rights  can  be  redeemed  or
terminated,  as described in Note 11 to the Consolidated  Financial  Statements,
before the consummation of such transaction.

     The complete terms of the Rights are set forth in the Rights  Agreement and
the Corporation's  Amended and Restated  Articles of Incorporation,  as amended.
The  description  of the Rights and the Rights  Agreement  is  qualified  in its
entirety by reference to such documents.  A copy of the Rights  Agreement can be
obtained upon written  request to W. Harold Parker,  Jr.,  Senior Vice President
and Controller, CCB Financial Corporation,  P.O. Box 931, Durham, North Carolina
27702.


Item 6. SELECTED FINANCIAL DATA

     The following  selected  financial data should be read in conjunction  with
the Corporation's  Consolidated  Financial Statements and the accompanying notes
presented elsewhere herein. Prior year amounts have been restated to reflect the
1997 mergers  with AmFed and Salem Trust Bank and the 1995 merger with  Security
Capital  Bancorp  ("Security  Capital")  all  of  which  were  accounted  for as
poolings-of-interests.  Prior year  amounts  have been  restated  to reflect the
two-for-one  stock  split  effected  in the form of a 100% stock  dividend  paid
October  1,  1998.  Cash  dividends  per share  have not been  restated  for the
mergers.


                                       8
<PAGE>

                  Six Year Summary of Selected Financial Data
                     (In Thousands Except Per Share Data)

<TABLE>
<CAPTION>
                                                                        Year Ended December 31
                                                     1998           1997          1996          1995          1994
                                                -------------- ------------- ------------- ------------- -------------
<S>                                             <C>            <C>           <C>           <C>           <C>
Summary of Operations
Interest income                                    $  577,307      550,463       512,575       492,409       401,588
-----------------------------------------------
Interest expense                                      254,562      250,099       237,572       234,880       168,483
-----------------------------------------------    ----------      -------       -------       -------       -------
Net interest income                                   322,745      300,364       275,003       257,529       233,105
-----------------------------------------------
Provision for loan and lease losses                    15,884       16,376        17,361        11,007        10,761
-----------------------------------------------    ----------      -------       -------       -------       -------
Net interest income after provision                   306,861      283,988       257,642       246,522       222,344
-----------------------------------------------
Other income (1)                                      111,022       92,919        84,767        67,001        58,128
-----------------------------------------------
Net investment securities gains (losses)                2,178          480        (2,161)         (816)          357
-----------------------------------------------
Other expenses (2)                                    230,217      226,198       209,833       198,207       180,963
-----------------------------------------------    ----------      -------       -------       -------       -------
Income before income taxes, extraordinary item
 and cumulative effect of changes in
 accounting principles                                189,844      151,189       130,415       114,500        99,866
-----------------------------------------------
Income taxes (3)                                       68,632       55,765        43,589        37,356        38,421
-----------------------------------------------    ----------      -------       -------       -------       -------
Income before extraordinary item and
 cumulative effect of changes in accounting
 principles                                           121,212       95,424        86,826        77,144        61,445
-----------------------------------------------
Extraordinary item (4)                                     --           --            --        (1,709)           --
-----------------------------------------------
Cumulative effect of changes in accounting
 principles (5)                                            --           --            --            --            --
-----------------------------------------------    ----------      -------       -------       -------       -------
Net income                                         $  121,212       95,424        86,826        75,435        61,445
-----------------------------------------------    ----------      -------       -------       -------       -------
Per Share (6)
Income before extraordinary item and
 cumulative effect of changes in accounting
 principles:
 Basic                                             $     2.96         2.31          2.11         1.90           1.50
-----------------------------------------------
 Diluted (7)                                             2.93         2.28          2.08         1.85           1.47
-----------------------------------------------
Net income:
 Basic                                                   2.96         2.31          2.11         1.86           1.50
-----------------------------------------------
 Diluted (7)                                             2.93         2.28          2.08         1.81           1.47
-----------------------------------------------
Cash dividends                                            .99          .89           .80          .72            .66
-----------------------------------------------
Book value                                              17.05        16.40         14.82        13.66          11.69
-----------------------------------------------
Average shares outstanding:
 Basic                                                 40,898       41,438        41,107       40,589         40,874
-----------------------------------------------
 Diluted (7)                                           41,409       41,947        41,815       41,800         41,959
-----------------------------------------------
Average Balances
Assets                                             $7,332,506    6,943,989     6,570,573    6,218,2 90     5,575,057
-----------------------------------------------
Loans and lease financing                           5,276,042    4,877,187     4,464,026     4,113,207     3,569,065
-----------------------------------------------
Earning assets                                      6,975,753    6,594,704     6,216,419     5,850,981     5,230,756
-----------------------------------------------
Deposits                                            6,141,074    5,800,128     5,449,912     5,153,952     4,581,111
-----------------------------------------------
Interest-bearing liabilities                        5,780,005    5,495,194     5,242,467     5,047,523     4,496,256
-----------------------------------------------
Shareholders' equity                                  678,264      638,988       574,759       511,031       478,314
-----------------------------------------------
Selected Period End Balances
Assets                                             $7,740,353    7,138,528     6,880,205     6,589,762     6,065,652
-----------------------------------------------
Loans and lease financing                           5,487,337    5,093,569     4,745,663     4,267,175     3,952,160
-----------------------------------------------
Reserve for loan and lease losses                      73,182       67,594        61,257        55,114        50,902
-----------------------------------------------
Deposits                                            6,459,764    5,984,597     5,741,454     5,421,376     4,980,250
-----------------------------------------------
Shareholders' equity                                  687,894      681,360       611,449       556,917       472,091
-----------------------------------------------
Ratios
Income before extraordinary item and
 effect of cumulative changes in accounting
 principles to:
 Average assets                                          1.65 %       1.37          1.32          1.24          1.10
-----------------------------------------------
 Average shareholders' equity                           17.87        14.93         15.11         15.10         12.85
-----------------------------------------------
Net income to:
 Average assets                                          1.65         1.37          1.32          1.21          1.10
-----------------------------------------------
 Average shareholders' equity                           17.87        14.93         15.11         14.76         12.85
-----------------------------------------------
Net interest margin, taxable equivalent (8)              4.75         4.70          4.56          4.56          4.61
-----------------------------------------------
Net loan and lease losses to average loans and
 lease financing                                          .20          .21           .25           .17           .16
-----------------------------------------------
Dividend payout ratio                                   33.45        38.53         37.91         38.71         44.00
-----------------------------------------------
Equity to assets ratio                                   9.25         9.20          8.75          8.22          8.58
-----------------------------------------------



<CAPTION>
                                                         Year
                                                Ended December
                                                     31
                                                               Five Year
                                                               Compound
                                                                Growth
                                                     1993       Rate %
                                                ------------- ----------
<S>                                             <C>            <C>
Summary of Operations
Interest income                                     339,137       11.2
-----------------------------------------------
Interest expense                                    139,037       12.9
-----------------------------------------------     -------
Net interest income                                 200,100       10.0
-----------------------------------------------
Provision for loan and lease losses                   8,339       13.8
-----------------------------------------------     -------
Net interest income after provision                 191,761        9.9
-----------------------------------------------
Other income (1)                                     54,652       15.2
-----------------------------------------------
Net investment securities gains (losses)              2,962
-----------------------------------------------
Other expenses (2)                                  162,330        7.2
-----------------------------------------------     -------
Income before income taxes, extraordinary item
 and cumulative effect of changes in
 accounting principles                               87,045       16.9
-----------------------------------------------
Income taxes (3)                                     30,070       17.9
-----------------------------------------------     -------
Income before extraordinary item and
 cumulative effect of changes in accounting
 principles                                          56,975       16.3
-----------------------------------------------
Extraordinary item (4)                                   --        --
-----------------------------------------------
Cumulative effect of changes in accounting
 principles (5)                                     (36,549)       --
-----------------------------------------------     -------
Net income                                           20,426       42.8
-----------------------------------------------     -------       ----
Per Share (6)
Income before extraordinary item and
 cumulative effect of changes in accounting
 principles:
 Basic                                                  1.52      14.3
-----------------------------------------------
 Diluted (7)                                            1.45      15.1
-----------------------------------------------
Net income:
 Basic                                                   .54      40.5
-----------------------------------------------
 Diluted (7)                                             .53      40.8
-----------------------------------------------
Cash dividends                                           .62       9.8
-----------------------------------------------
Book value                                             11.28       8.6
-----------------------------------------------
Average shares outstanding:
 Basic                                               37,528        1.7
-----------------------------------------------
 Diluted (7)                                         39,780         .8
-----------------------------------------------
Average Balances
Assets                                            4,715,319        9.2
-----------------------------------------------
Loans and lease financing                         3,027,617       11.7
-----------------------------------------------
Earning assets                                    4,396,756        9.7
-----------------------------------------------
Deposits                                          4,029,018        8.8
-----------------------------------------------
Interest-bearing liabilities                      3,785,448        8.8
-----------------------------------------------
Shareholders' equity                                407,635       10.7
-----------------------------------------------
Selected Period End Balances
Assets                                            5,386,653        7.5
-----------------------------------------------
Loans and lease financing                         3,384,291       10.1
-----------------------------------------------
Reserve for loan and lease losses                    43,357       11.0
-----------------------------------------------
Deposits                                          4,506,361        7.5
-----------------------------------------------
Shareholders' equity                                463,820        8.2
-----------------------------------------------
Ratios
Income before extraordinary item and
 effect of cumulative changes in accounting
 principles to:
 Average assets                                         1.21
-----------------------------------------------
 Average shareholders' equity                          13.98
-----------------------------------------------
Net income to:
 Average assets                                          .43
-----------------------------------------------
 Average shareholders' equity                           5.01
-----------------------------------------------
Net interest margin, taxable equivalent (8)             4.72
-----------------------------------------------
Net loan and lease losses to average loans and
 lease financing                                         .19
-----------------------------------------------
Dividend payout ratio                                 114.81
-----------------------------------------------
Equity to assets ratio                                  8.64
-----------------------------------------------
</TABLE>


                                       9
<PAGE>

(1) Other income in 1997 includes $2.3 million of gain ($1.4 million  after-tax)
    on the sale of a subsidiary  acquired through merger which increased diluted
    net income per share by $.03.
(2) Other  expenses  include  merger-related  expense  of $17.9  million in 1997
    related to the Corporation's  mergers with AmFed and Salem Trust Bank, $10.3
    million in 1995 related to the  Corporation's  merger with Security  Capital
    and $1.1  million in 1994  related to Security  Capital's  acquisition  of a
    savings and loan  association.  Other expenses also include the levy in 1996
    of a $12.9 million special  assessment by the FDIC to recapitalize the SAIF.
    The after-tax effect of the aforementioned  non-recurring  expense items was
    to decrease  diluted net income per share by $.31 in 1997, $.19 per share in
    1996, $.17 per share in 1995 and $.02 per share in 1994.
(3) During  1996,  a tax benefit of $1.6  million  ($.04 per diluted  share) was
    recorded for  forgiveness  of the  recapture  of tax bad debt  reserves of a
    former savings bank subsidiary.  During 1994,  Security Capital recognized a
    one-time  charge of  approximately  $5.6 million ($.13 per diluted share) of
    deferred tax liabilities  recorded in anticipation of the merger of Security
    Capital's three savings subsidiaries into its commercial bank subsidiary.
(4) The  extraordinary  item  resulted  from a  prepayment  penalty on the early
    extinguishment of debt by AmFed.
(5) The after-tax cumulative effect of changes in accounting  principles reflect
    adoption of SFAS No. 72,  "Accounting  for  Goodwill",  which  resulted in a
    one-time  charge  of $36.2  million  in  1993,  adoption  of SFAS  No.  106,
    "Employers'  Accounting for  Postretirement  Benefits Other Than  Pensions",
    which resulted in a one-time net charge of $2.3 million in 1993 and adoption
    of SFAS No. 109, "Accounting for Income Taxes", which resulted in a one-time
    benefit of $1.9 million in 1993.
(6) Amounts  for 1997 and prior  years have been  restated to give effect to the
    two-for-one  stock split  effected in the form of a 100% stock dividend paid
    October 1, 1998.
(7) Diluted  earnings  per share is computed  considering  the impact on average
    shares  outstanding  and  net  income  of the  exercise  of  stock  options,
    conversion of convertible  subordinated debentures and the exercise of stock
    warrants, where applicable.
(8) Net interest margin is computed by dividing taxable  equivalent net interest
    income by average earning assets.
--------------------------------------------------------------------------------

                                       10
<PAGE>

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS

     The purpose of this discussion and analysis is to provide the reader with a
description  of the  financial  condition  and  changes  therein  and results of
operations of CCB Financial Corporation (the "Corporation") and its wholly-owned
subsidiaries,  Central Carolina Bank and Trust Company ("CCB"), American Federal
Bank,   FSB   ("AmFed")   and  Central   Carolina   Bank-Georgia   ("CCB-  Ga.")
(collectively,  the  "Subsidiary  Banks") for the years ended December 31, 1998,
1997 and 1996. The consolidated  financial  statements also include the accounts
and results of operations of CCB's wholly-owned  subsidiaries:  CCBDE, Inc.; CCB
Investment  and Insurance  Service  Corporation  ("CCBI");  Salem Trust Company;
Corcoran  Holdings,  Inc., and its wholly-owned  subsidiary,  Watts  Properties,
Inc.; and Southland Associates,  Inc. AmFed's wholly-owned subsidiaries are also
included in the  consolidated  financial  statements:  AMFEDDE,  Inc.;  American
Service Corporation of S.C. ("ASC");  McBee Holdings,  Inc. and its wholly-owned
subsidiary,  Greenville  Participations,  Inc.;  Finance South,  Inc.  ("Finance
South") and Mortgage North.  The discussion and analysis of financial  condition
and results of operations  should be read in conjunction  with the  consolidated
financial  statements and accompanying notes appearing  elsewhere in this report
and are discussed as a single business segment.

     This report contains certain forward-looking  statements (as defined in the
Private Securities  Litigation Reform Act of 1995) related to anticipated future
operating and financial performance, growth opportunities and growth rates, Year
2000  compliance  and other similar  forecasts and  statements of  expectations.
Words such as "expects",  "plans",  "estimates",  "projects",  "objectives"  and
"goals" and similar  expressions are intended to identify these  forward-looking
statements. These forward-looking statements are based on estimates, beliefs and
assumptions made by Management and are not guarantees of future performance.

     Factors  that may cause  actual  results to differ from those  expressed or
implied  include,  but are not limited to,  changes in  political  and  economic
conditions,  interest rate movements,  competitive product and pricing pressures
within the Corporation's  markets,  success and timing of business  initiatives,
technological change and changes in legal, regulatory and tax policies.

     Readers should also consider information on risk and uncertainties noted in
the  discussions  of  competition,   interstate   banking  and  branching,   and
supervision and regulation contained elsewhere in this report on Form 10-K.


Mergers and Other Changes in Corporate Structure

     On October 1, 1998, the Corporation's  shareholders  received a two-for-one
stock split  effected  in the form of a 100% stock  dividend.  The  accompanying
discussion and analysis of financial condition and results of operations and the
consolidated  financial  statements have been restated as if the stock split had
occurred at the beginning of the earliest period presented.

     On January 31, 1997, the  Corporation  consummated its acquisition of Salem
Trust Bank, a $165 million commercial bank headquartered in Winston-Salem, North
Carolina.  On August 1, 1997, the  Corporation  consummated  its  acquisition of
AmFed, a $1.3 billion savings bank  headquartered in Greenville,  South Carolina
(collectively,  the "1997  Mergers").  Under the terms of the respective  merger
agreements,  the Corporation issued 11.2 million shares of common stock and cash
in lieu of fractional  shares for all of the  outstanding  shares of Salem Trust
Bank and AmFed.  The former  offices of Salem Trust Bank are operated as offices
of CCB and AmFed  continues to operate as a separate  federal  savings bank. The
1997 Mergers were accounted for as  poolings-of-interests  and accordingly,  the
Corporation's historical consolidated financial statements have been restated to
include the accounts and results of  operations of Salem Trust Bank and AmFed as
if the mergers had been effective as of the earliest period presented.


Results of Operations

     Performance Overview

     As a result  of the  mergers  consummated  over the past  five  years,  the
Corporation  has  positioned  its  franchise  to  be  in  economically   vibrant
metropolitan  areas of North and South Carolina.  With the customer base and the
economic  forces  present in those  market areas and the  Corporation's  focused
strategy of increasing  revenues  while  controlling  noninterest  expense,  the
Corporation's  1998 net income increased 27% over 1997's results.  Net income in
1998 totaled $121.2  million,  or $2.93 per diluted share compared to 1997's net
income of $95.4  million,  or $2.28 per  diluted  share.  Net income per diluted
share was $2.08 in 1996.  Returns on average  assets and  average  shareholders'
equity  were  1.65% and  17.87%,  respectively,  in 1998  compared  to 1.37% and
14.93%, respectively, in 1997 and 1.32% and 15.11%, respectively, in 1996. Table
1 compares  the  contributions  to net income per diluted  share for each income
statement  caption for the years ended December 31, 1998,  1997 and 1996 and the
respective changes from year to year.


                                       11
<PAGE>

T A B L E  1


                    Components of Diluted Income Per Share



<TABLE>
<CAPTION>
                                               Years Ended December 31                 Change From
                                        --------------------------------------   ------------------------
                                            1998          1997         1996       1998/1997     1997/1996
                                        ------------   ----------   ----------   -----------   ----------
<S>                                     <C>            <C>          <C>          <C>           <C>
Interest income                          $   13.95         13.12        12.26          .83          .86
-------------------------------------
Interest expense                              6.15          5.96         5.68          .19          .28
-------------------------------------    ---------         -----        -----         ----         ----
Net interest income                           7.80          7.16         6.58          .64          .58
-------------------------------------
Provision for loan and lease losses            .38           .39          .42        (.01)        (.03)
-------------------------------------    ---------         -----        -----        -----        -----
Net interest income after provision           7.42          6.77         6.16          .65          .61
-------------------------------------
Other income (1)                              2.73          2.23         1.98          .50          .25
-------------------------------------
Other expenses (2)                            5.56          5.39         5.02          .17          .37
-------------------------------------    ---------         -----        -----        -----        -----
Income before income taxes                    4.59          3.61         3.12          .98          .49
-------------------------------------
Income taxes (3)                              1.66          1.33         1.04          .33          .29
-------------------------------------    ---------         -----        -----        -----        -----
Net income                               $    2.93          2.28         2.08          .65          .20
-------------------------------------    ---------         -----        -----        -----        -----
</TABLE>

(1)  Other income includes $2.3 million of gain realized in the sale of a
     subsidiary during 1997.
(2)  Other expenses include merger-related expense of $17.9 million in 1997 and
     a FDIC special assessment of $12.9 million in 1996.
(3)  Income taxes for 1996 include a tax benefit of $1.6 million from the
     forgiveness of recapture of tax bad debt reserves of a former savings bank
     subsidiary.
--------------------------------------------------------------------------------
     Operating Income


     In 1998,  operating income,  defined as income before  non-recurring items,
increased 13.2% over 1997.  Operating income per diluted share was $2.93,  $2.56
and $2.23 in 1998, 1997 and 1996,  respectively.  Over the past three years, the
Corporation's  results of  operations  have been  significantly  impacted by the
non-recurring items described below.

     To effect the 1997  Mergers,  the  Corporation  incurred  $17.9  million of
merger-related  expense  which  included  severance and other  employee  benefit
costs,   excess   facilities   costs,   system   conversion   costs   and  other
transaction-related expenses. The after-tax effect of the merger-related expense
was $13.1  million.  During  1997,  AmFed sold  substantially  all the assets of
Finance South resulting in a gain of $2.3 million or $1.4 million after-tax.


     During 1996, the Corporation  experienced two non-recurring  items.  First,
the  Federal  Deposit  Insurance  Corporation  (the  "FDIC")  assessed a special
one-time  levy (the "FDIC  Special  Assessment")  to  recapitalize  the  Savings
Association  Insurance Fund (the "SAIF") which resulted in a special  assessment
totaling  $13.9 million for the  Subsidiary  Banks in the third quarter of 1996.
During  the  fourth  quarter  of 1996,  CCB  protested  the  amount  of  special
assessment levied on certain portions of the SAIF deposit base and received a $1
million reduction in the assessment. CCB's SAIF deposits resulted from its prior
acquisitions of thrift institutions.  Second, through Congressional  legislative
action,  the recapture of tax bad debt reserves  required upon a savings  bank's
conversion to a commercial bank was forgiven.  Consequently,  a $1.6 million tax
benefit  was  recorded  prior to a former  savings  bank's  merger into CCB (the
"Recapture Tax Benefit").

     Excluding the effects of the non-recurring items, returns on average assets
were  1.65% for 1998 and 1.54% for 1997 and  returns  on  average  shareholders'
equity  were 17.87% for 1998 and 16.76% for 1997.  Return on average  assets was
1.42% and  return on  average  shareholders'  equity  was  16.20% for 1996 after
excluding the effects of the non-recurring items.


     Net Interest Income

     Net interest income is one of the major determining  factors in a financial
institution's  performance  as it is the principal  source of earnings,  in most
cases. It is impacted by the volume, yield/cost and relative mix of both earning
assets and  interest-bearing and  noninterest-bearing  sources of funds. Table 2
presents  average balance sheets and a net interest income analysis on a taxable
equivalent  basis for each of the years in the three-year  period ended December
31, 1998.


                                       12
<PAGE>

T A B L E  2


               Average Balances and Net Interest Income Analysis
                (Taxable Equivalent Basis -- In Thousands) (1)


<TABLE>
<CAPTION>
                                                                         Years Ended December 31
                                             -------------------------------------------------------------------------------
                                                             1998                              1997                 1996
                                             ------------------------------------ ------------------------------ -----------
                                                             Interest   Average                Interest Average
                                                Average      Income/    Yield/     Average     Income/   Yield/    Average
                                                Balance      Expense     Rate      Balance     Expense    Rate     Balance
                                             -------------   --------   --------  -----------  --------  ------- -----------
<S>                                          <C>           <C>         <C>        <C>         <C>       <C>      <C>
Earning assets:
Loans and lease financing (2)                 $ 5,276,042    470,888   8.92 %      4,877,187   442,917     9.08   4,464,026
--------------------------------------------
U.S. Treasury and U.S. Government agencies
 and corporations (3)                           1,230,904     86,148   6.99        1,348,214    92,749     6.88   1,313,695
--------------------------------------------
States and political subdivisions                  80,693      7,093   8.79           81,967     7,254     8.85      77,015
--------------------------------------------
Equity and other securities (3)                    46,775      3,707   7.93           47,327     3,676     7.77      48,529
--------------------------------------------
Federal funds sold and other short-term
 investments                                      292,855     16,221   5.54          184,653    10,342     5.60     248,879
--------------------------------------------
Time deposits in other banks                       48,484      2,377   4.90           55,356     2,716     4.91      64,275
--------------------------------------------  -----------    -------   ----        ---------   -------     ----   ---------
  Total earning assets                          6,975,753    586,434   8.40%       6,594,704   559,654     8.49   6,216,419
--------------------------------------------  -----------    -------   ----        ---------   -------     ----   ---------
Non-earning assets:
Cash and due from banks                           204,985                            184,261                        198,091
--------------------------------------------
Premises and equipment                             89,236                             85,815                         86,469
--------------------------------------------
All other assets, net                              62,532                             79,209                         69,594
--------------------------------------------  -----------                          ---------                      ---------
  Total assets                                $ 7,332,506                          6,943,989                      6,570,573
--------------------------------------------  -----------                          ---------                      ---------
Interest-bearing liabilities:
Savings and time deposits                     $ 5,364,255    232,609   4.34 %      5,111,486   229,600     4.49   4,813,311
--------------------------------------------
Short-term borrowed funds                         245,778     11,822   4.81          304,372    15,371     5.05     361,091
--------------------------------------------
Long-term debt                                    169,972     10,131   5.96           79,336     5,128     6.46      68,065
--------------------------------------------  -----------    -------   ----        ---------   -------     ----   ---------
  Total interest-bearing liabilities            5,780,005    254,562   4.41%       5,495,194   250,099     4.55   5,242,467
--------------------------------------------  -----------    -------   ----        ---------   -------     ----   ---------
Other liabilities and shareholders' equity:
Demand deposits                                   776,819                            688,642                        636,601
--------------------------------------------
Other liabilities                                  97,418                            121,165                        116,746
--------------------------------------------
Shareholders' equity                              678,264                            638,988                        574,759
--------------------------------------------  -----------                          ---------                      ---------
  Total liabilities and
   shareholders' equity                       $ 7,332,506                          6,943,989                      6,570,573
--------------------------------------------  -----------                          ---------                      ---------
Net interest income and
 net interest margin (4)                                    $331,872   4.75 %                  309,555     4.70
--------------------------------------------                --------   --------                -------     ----
Interest rate spread (5)                                               3.99%                               3.94
--------------------------------------------                           ----                                ----



<CAPTION>
                                                Years Ended
                                                 December 31
                                             ------------------
                                                    1996                         
                                             ------------------                  
                                              Interest  Average
                                               Income/   Yield/
                                               Expense   Rate 
                                             ------------------         
<S>                                          <C>       <C>
Earning assets:
Loans and lease financing (2)                 406,473     9.10
--------------------------------------------
U.S. Treasury and U.S. Government agencies
 and corporations (3)                          86,759     6.60
--------------------------------------------
States and political subdivisions               7,102     9.22
--------------------------------------------
Equity and other securities (3)                 3,783     7.80
--------------------------------------------
Federal funds sold and other short-term
 investments                                   13,524     5.43
--------------------------------------------
Time deposits in other banks                    3,263     5.08
--------------------------------------------  -------     ----
  Total earning assets                        520,904     8.38
--------------------------------------------  -------     ----
Non-earning assets:
Cash and due from banks
--------------------------------------------
Premises and equipment
--------------------------------------------
All other assets, net
--------------------------------------------
  Total assets
--------------------------------------------
Interest-bearing liabilities:
Savings and time deposits                     214,500     4.46
--------------------------------------------
Short-term borrowed funds                      18,713     5.18
--------------------------------------------
Long-term debt                                  4,359     6.40
--------------------------------------------  -------     ----
  Total interest-bearing liabilities          237,572     4.53
--------------------------------------------  -------     ----
Other liabilities and shareholders' equity:
Demand deposits
--------------------------------------------
Other liabilities
--------------------------------------------
Shareholders' equity
--------------------------------------------
  Total liabilities and
   shareholders' equity
--------------------------------------------
Net interest income and
 net interest margin (4)                      283,332     4.56
--------------------------------------------  -------     ----
Interest rate spread (5)                                  3.85
--------------------------------------------              ----
</TABLE>

(1) The taxable  equivalent  basis is computed  using 35% federal and applicable
    state tax rates in 1998, 1997 and 1996.
(2) The average loan and lease financing balances include non-accruing loans and
    lease financing.  Loan fees of $16.2 million, $13.2 million, and $11 million
    for 1998, 1997, and 1996, respectively, are included in interest income.
(3) The average  balances for debt and equity  securities  exclude the effect of
    their mark-to-market adjustment, if any.
(4) Net interest margin is computed by dividing net interest income by total
    earning assets.
(5) Interest   rate  spread   equals  the   earning   asset  yield  minus  the 
    interest-bearing liability rate.
--------------------------------------------------------------------------------
     As  shown  in Table 2, the  Corporation  realized  net  taxable  equivalent
interest  income of $586.4 million in 1998.  Average  earning asset increases of
$381 million in 1998 were due solely to internal growth. The percentage of loans
and leases to total  earning  assets  increased  to 76% during  1998 from 74% in
1997.  Increases  in the volume of earning  assets  resulted in a $33.3  million
increase in total  interest  income  which was  partially  offset by declines in
rate. The overall yield on earning assets decreased 9 basis points to 8.40% from
1997's   8.49%   primarily   due  to  decreased   loan   yields.   The  cost  of
interest-bearing  liabilities  decreased  14 basis  points to 4.41% from  1997's
4.55% primarily due to the lower rates paid for savings and time deposits, 4.34%
in 1998 versus  4.49% in 1997.  As a result,  net  interest  income on a taxable
equivalent  basis  increased by $22.3 million or 7.2%.  The net interest  margin
increased  by 5 basis  points to 4.75% for 1998.  This  compares  to a 4.70% net
interest  margin for 1997 and 4.56% for 1996.  The  interest  rate spread grew 5
basis  points to 3.99%  for 1998  which  compares  to 3.94% in 1997 and 3.85% in
1996. See Table 3 for further  analysis of the effects of volume and rate on net
interest income.


                                       13
<PAGE>

T A B L E  3


                       Volume and Rate Variance Analysis
                 (Taxable Equivalent Basis -- In Thousands) (1)


<TABLE>
<CAPTION>
                                                                      Years Ended December 31
                                                              ----------------------------------------
                                                                                1998
                                                              ----------------------------------------
                                                                  Volume          Rate         Total
                                                               Variance (2)   Variance (2)   Variance
                                                              -------------- -------------- ----------
<S>                                                            <C>            <C>            <C>
Interest income:
Loans and lease financing                                        $ 35,853       (7,882)       27,971
-------------------------------------------------------------
U.S. Treasury and U.S. Government agencies and corporations        (8,082)       1,481        (6,601)
-------------------------------------------------------------
States and political subdivisions                                    (112)         (49)         (161)
-------------------------------------------------------------
Equity and other securities                                           (44)          75            31
-------------------------------------------------------------
Federal funds sold and short-term investments                       5,991         (112)        5,879
-------------------------------------------------------------
Time deposits in other banks                                         (334)            (5)       (339)
-------------------------------------------------------------    --------       ---------     ------
  Total interest income                                            33,272       (6,492)       26,780
-------------------------------------------------------------    --------       --------      ------
Interest expense:
Savings and time deposits                                          10,948       (7,939)        3,009
-------------------------------------------------------------
Short-term borrowed funds                                          (2,846)        (703)       (3,549)
-------------------------------------------------------------
Long-term debt                                                      5,429         (426)        5,003
-------------------------------------------------------------    --------       --------      ------
  Total interest expense                                           13,531       (9,068)        4,463
-------------------------------------------------------------    --------       --------      ------
Increase (decrease) in net interest income                       $ 19,741        2,576        22,317
-------------------------------------------------------------    --------       --------      ------



<CAPTION>
                                                                       Years Ended December 31
                                                              -----------------------------------------
                                                                                1997
                                                              -----------------------------------------
                                                                  Volume          Rate         Total
                                                               Variance (2)   Variance (2)    Variance
                                                              -------------- -------------- -----------
<S>                                                           <C>            <C>            <C>
Interest income:
Loans and lease financing                                         37,343          (899)        36,444
-------------------------------------------------------------
U.S. Treasury and U.S. Government agencies and corporations        2,291         3,699          5,990
-------------------------------------------------------------
States and political subdivisions                                    444          (292)           152
-------------------------------------------------------------
Equity and other securities                                          (93)          (14)          (107)
-------------------------------------------------------------
Federal funds sold and short-term investments                     (3,592)          410         (3,182)
-------------------------------------------------------------
Time deposits in other banks                                        (441)         (106)          (547)
-------------------------------------------------------------     ------         -----         ------
  Total interest income                                           35,952         2,798         38,750
-------------------------------------------------------------     ------         -----         ------
Interest expense:
Savings and time deposits                                         13,621         1,479         15,100
-------------------------------------------------------------
Short-term borrowed funds                                         (2,882)         (460)        (3,342)
-------------------------------------------------------------
Long-term debt                                                       728            41            769
-------------------------------------------------------------     ------         -----         ------
  Total interest expense                                          11,467         1,060         12,527
-------------------------------------------------------------     ------         -----         ------
Increase (decrease) in net interest income                        24,485         1,738         26,223
-------------------------------------------------------------     ------         -----         ------
</TABLE>

(1) The taxable  equivalent  basis is computed  using 35% federal and applicable
    state tax rates in 1998, 1997 and 1996.
(2) The rate/volume variance for each category has been allocated on a
    consistent basis between rate and volume variances based on the percentage
    of the rate or volume variance to the sum of the absolute value of the two
    variances.
--------------------------------------------------------------------------------
     In 1997, the Corporation realized net taxable equivalent interest income of
$309.6  million.  Average earning asset increases of $378.3 million in 1997 were
due to internal  growth.  The shift from  lower-yielding  investments  and other
short-term  funds to  higher-yielding  loans and leases had a moderate effect on
the yield on earning  assets as it increased  from 1996's 8.38% to 1997's 8.49%.
The contribution of free liabilities to the net interest margin (computed as net
interest  margin less the interest  rate spread) rose to 76 basis points in 1997
from 71 basis points in 1996.  The overall  increase in net  interest  income of
$26.2  million was due to increases in volume of $24.5  million and rate of $1.7
million.

     Growth in the average  earning  asset base in the previous  three years has
primarily occurred in the loans and lease financing portfolio. Following a trend
begun in 1995,  the mix in earning  assets  continued  to shift toward loans and
lease  financing  due to increased  loan demand.  Expansion of the earning asset
base during the periods  presented has been funded  primarily  with increases in
the deposit  base and the  retention  of  earnings.  Substantially  all deposits
originate  within the  market  areas of CCB and AmFed.  Average  total  deposits
increased by approximately  $340.9 million or 5.9% in 1998 and $350.2 million or
6.4% in 1997.


     Noninterest Income and Noninterest Expenses

     Noninterest  income  consists  primarily  of  service  charges  on  deposit
accounts,  trust and custodian fees, sales and insurance  commissions,  fees and
service  charges for  various  other  banking  services  provided to  customers,
mortgage  servicing  and  secondary  marketing  income and accretion of negative
goodwill resulting from past  acquisitions.  Noninterest  income,  excluding net
securities  gains and losses,  totaled $111 million for the year ended 1998,  an
$18.1  million  increase  over  1997.   Increases  in  noninterest  income  were
experienced  in all  categories  of other  income due to growth of the asset and
customer  bases,  a stronger  emphasis on the  collection  of fees for  services
rendered and new revenue-generating  customer service initiatives.  In addition,
the Subsidiary  Banks adopted a heightened  sales focus which resulted in higher
revenues in 1998. Noninterest income, excluding net securities gains and losses,
totaled $92.9 million in 1997 and $84.8 million in 1996. The five-year  compound
growth rate for noninterest income is 15.2% at December 31, 1998.

     Service  charges on deposit  accounts  continue to be the largest source of
noninterest  income  totaling $54.1 million in 1998 compared to $44.9 million in
1997, a 20.4% increase.  The increase was due primarily to growth in the deposit
base,  repricing of certain customer  services and surcharge income from foreign
(non-Subsidiary  Bank  customers) ATM use on the Subsidiary  Banks' expanded ATM
network. Additionally,  over the past several years, a greater emphasis has been
placed on developing new commercial  service products and attracting  commercial
customers.  Service  charges on  commercial  accounts have  increased  from $6.3
million in 1996 to $7.9 million in 1998 due to the higher volume of accounts and
expansion of products offered. The Corporation


                                       14
<PAGE>

monitors service charges closely and evaluates such fees  periodically to ensure
that they reflect the costs of providing the services and are competitive in the
marketplace.

     Trust and custodian fees rose to $10.2 million in 1998 from $8.4 million in
1997 due to growth of assets  managed,  new trust business  acquired in 1998 and
the continued  promotion of employee benefit trust products  introduced in 1996.
Trust and  custodian  fees  totaled  $7.3  million in 1996.  Expansion  of trust
operations have resulted from the mid-1998  acquisition of  institutional  trust
business  from  Barnett Bank which  operates  from Salem Trust  Company's  three
Florida offices,  the opening of a trust office in Virginia in the third quarter
of 1998 and the mid-1997  opening of a two-office  trust department by AmFed. In
addition  to the 1998  focus on  institutional  trust  business,  Management  is
positioning the trust  departments to attract new consumer trust  business.  The
number of people aged 55+ with incomes  exceeding  $100,000 is projected to grow
significantly  over the next five years as the "baby boomer"  population reaches
retirement  age. In  addition,  employee  benefit-related  trust  business  will
continue to be pursued as the  Subsidiary  Banks  market the 401(k)  Spectrum(R)
product. Managed assets totaled $4 billion at December 31, 1998 and $2.2 billion
at December 31, 1997.

     Sales and insurance  commissions  income  totaled $10.8 million in 1998 and
$9.4  million in 1997.  Complete  brokerage  services  are offered to  customers
through  CCBI's  and  ASC's  affiliation  with an  independent  brokerage  firm.
Brokerage  fees of $8.2 million  were  generated in 1998 and $7 million in 1997.
Through a correspondent  bank program initiated in 1997, CCBI provides brokerage
services  to  two  other  financial   institutions  which  generate   additional
commission  income.  CCBI will  continue  to  pursue  other  correspondent  bank
relationships.  Revenue  in this  category  is also  derived  from  the  sale of
insurance and annuity products.

     Negative  goodwill (the excess of net assets  acquired over costs) totaling
$33.6 million was recorded in connection with acquisitions completed in 1993 and
is being  accreted to income over a ten-year  period on a  straight-line  basis.
Accretion of negative goodwill totaled $3.4 million in 1998, 1997 and 1996.

     Mortgage loan  origination  volume of nearly $1 billion in 1998 contributed
to the increase in mortgage operations income to $12.9 million, a 57.3% increase
over 1997's $8.2 million.  Income from mortgage  operations,  included in "other
operating income",  was comprised of servicing income ($4 million),  origination
fees on loans held for sale ($4.5 million) and secondary  marketing income ($4.4
million)  in  1998.   Included  within   secondary   marketing   income  is  the
capitalization  of mortgage  servicing  rights ("MSR") from the sale of mortgage
loans with  servicing  retained.  At December  31,  1998 and 1997,  there was no
impairment of the recorded MSR and no  adjustment  to the MSR valuation  account
was made  during  1998 or  1997.  In the past two  years,  the  Corporation  has
periodically  sold  mortgages  with servicing  released  through  contracts with
out-of-state financial institutions. The Corporation intends to continue selling
the majority of its  originated  servicing in  recognition  of the  economies of
scale needed to make mortgage  servicing a profitable  line of business over the
long term.

     Also  included in "other  operating  income" are gains on sales of branches
totaling $1.1 million in 1998 and $645,000 in 1997.

     Net securities gains (losses) of $2.2 million,  $480,000 and $(2.2) million
were  realized  in  1998,  1997  and  1996,  respectively,  through  the sale of
securities held in the available for sale portfolio. The net securities gains in
1998 were  realized  through  the sale of  mortgage-backed  securities.  The net
securities  losses in 1996 were realized  through  losses on  marketable  equity
securities partially offset by gains on sales of obligations of U. S.
Government agencies and corporations.

     Despite the advances  made in increasing  noninterest  income over the past
three years,  Management  believes  significant future growth  opportunities are
available through branch optimization and further expansion of trust,  brokerage
and insurance services and professional banking.

     Branch  optimization  includes  not  only  placing  branches  in the  right
locations and closing  duplicate  facilities but designing branch operations for
maximum  productivity/profitability.  During 1997, CCB  experimented  with a new
branch  design  called  sales   centers.   The  new  design  seeks  to  increase
productivity  from  the  traditional   branch  model  by  employing   energetic,
sales-oriented  individuals  who are trained to function as a teller,  sales and
service  representative  and loan originator.  These individuals are compensated
based on their  revenue  production.  The sales center  approach  was  initially
instituted at three  branches in Greensboro,  North  Carolina;  improvements  in
sales and  profitability  in those pilot sales  centers  were very  encouraging.
During 1998,  three branches were opened as sales centers;  Management  plans to
convert 50% of existing branches to the sales center model by 2001.

     Beginning in 1998, the Subsidiary  Banks expanded trust services to Florida
and Virginia. While Salem Trust Company's Florida operations were founded upon a
book of business  acquired from Barnett  Bank, it is pursuing new  institutional
customers.  CCB's  Virginia  trust  office  was  opened  in  response  to growth
opportunities  identified  in that  market.  In  order  to  compete  with  other
financial  service  providers,  CCBI and ASC must expand  their  investment  and
insurance  offerings.  Beginning  in 1998,  CCBI  began a series of  initiatives
related  to  expanding  its life  insurance  services.  Growth  in this  area is
anticipated to come from existing insurance customers, referrals from within the
Subsidiary Banks and target-marketing  potential  customers.  Insurance products
will be offered


                                       15
<PAGE>

through a combination of dedicated insurance agents,  direct mail solicitations,
telephone sales  specialists,  joint ventures with third-party  sales forces and
eventually,  over the Internet. New professional banking offices are planned for
certain   metropolitan   areas;   these  offices  will  cater  to  higher-wealth
individuals with a focus on providing high-touch quality service.

     Table 4 presents various  operating  efficiency  ratios for the Corporation
for the  prior  five  years  (excluding  the  impact  of  non-recurring  items).
Noninterest  income as a percentage  of average  assets has risen  significantly
since  1994  due  to a  greater  focus  on  identifying  additional  sources  of
noninterest revenue and collecting the resulting revenues.

T A B L E  4


                          Operating Efficiency Ratios


<TABLE>
<CAPTION>

                                                                                              Years Ended December 31
                                                                                           ------------------------------
                                                                                               1998      1997      1996
                                                                                           ---------- --------- ---------
<S>                                                                                        <C>        <C>       <C>
As a percentage of average assets (1):
 Noninterest income                                                                            1.54%      1.31      1.26
-------------------------------------------------------------------------------------------   -----      -----     -----
 Personnel expense                                                                             1.70       1.65      1.61
-------------------------------------------------------------------------------------------
 Occupancy and equipment expense                                                                .42        .41       .43
-------------------------------------------------------------------------------------------
 Other operating expense                                                                       1.03        .93       .95
-------------------------------------------------------------------------------------------  ------      -----     -----
 Total noninterest expense                                                                     3.15       2.99      2.99
-------------------------------------------------------------------------------------------  ------      -----     -----
 Net overhead (noninterest expense less noninterest income)                                    1.61%      1.68      1.73
-------------------------------------------------------------------------------------------  ------      -----     -----
Noninterest expense as a percentage of net interest income and noninterest income (1) (2)     51.73%     51.99     53.80
-------------------------------------------------------------------------------------------
Average assets per employee (in millions)                                                    $ 2.68       2.63      2.47
-------------------------------------------------------------------------------------------



<CAPTION>
                                                                                           Years Ended December
                                                                                                    31
                                                                                           -------------------
                                                                                              1995      1994
                                                                                           --------- ---------
<S>                                                                                        <C>       <C>
As a percentage of average assets (1):
 Noninterest income                                                                            1.06      1.05
-------------------------------------------------------------------------------------------   -----     -----
 Personnel expense                                                                             1.60      1.62
-------------------------------------------------------------------------------------------
 Occupancy and equipment expense                                                                .41       .51
-------------------------------------------------------------------------------------------
 Other operating expense                                                                       1.01      1.10
-------------------------------------------------------------------------------------------   -----     -----
 Total noninterest expense                                                                     3.02      3.23
-------------------------------------------------------------------------------------------   -----     -----
 Net overhead (noninterest expense less noninterest income)                                    1.96      2.18
-------------------------------------------------------------------------------------------   -----     -----
Noninterest expense as a percentage of net interest income and noninterest income (1) (2)     56.46     60.07
-------------------------------------------------------------------------------------------
Average assets per employee (in millions)                                                      2.36      2.15
-------------------------------------------------------------------------------------------
</TABLE>

(1) Excludes the 1997 gain on sale of a subsidiary,  the FDIC Special Assessment
    incurred in 1996 and merger-related expenses incurred in 1997, 1995 and
    1994.
(2) Presented using taxable equivalent net interest income. The taxable
    equivalent basis is computed using a 35% federal tax rate and applicable
    state tax rates.
--------------------------------------------------------------------------------
     Noninterest expenses,  excluding non-recurring items, rose $21.9 million or
10.5% in 1998  over  1997's  level of  $208.3  million.  This  increase  was due
primarily to a $9.8 million increase in personnel expense.  As reported in Table
4, total  noninterest  expense as a percentage  of average  assets rose to 3.15%
from 1997's 2.99%  indicating  that  noninterest  expenses grew at a faster rate
than average assets.

     The increase in personnel expense was due in part to general wage increases
and  a  greater  emphasis  on  incentive-based  compensation.   Commissions  and
incentive  pay totaled  $14.2  million in 1998 compared to $9.9 million in 1997.
Temporary and contract personnel costs rose $750,000 due to a tight labor market
in the Subsidiary  Banks' market area and the need for specialized  personnel to
complete various 1998 initiatives.

     Net occupancy and equipment  expenses were up $2 million for the year ended
December 31,  1998.  The  increases  experienced  in 1998 were due  primarily to
increased computer equipment costs incurred as a result of Year 2000 remediation
as discussed later and other technological initiatives such as implementation of
a data warehouse and improved branch platforms.

     Other operating expenses, excluding non-recurring items, increased by $10.1
million in 1998 or 15.5% from  1997.  Overall,  other  operating  expenses  have
increased due to improvements in the branch network,  Year 2000  remediation and
other  initiatives  undertaken  to improve  future  revenue  streams.  Increased
expenses  were  experienced  in  professional  services,   printing  and  office
supplies, credit card program-related expenses and data processing.

     The Corporation's  efficiency ratio (noninterest expense as a percentage of
taxable equivalent net interest income and noninterest income) has improved over
the past four years from 60.07% in 1994 to 51.73% in 1998 as  disclosed in Table
4.  Management's  goal is to reach and maintain an efficiency ratio of less than
50%.  Management  will  continue to closely  monitor this ratio and  anticipates
continuing  improvement  as  additional  revenue-enhancement  opportunities  are
identified and cost-containment programs are continued.


     Income Taxes

     Income tax expense  was $68.6  million in 1998,  $55.8  million in 1997 and
$43.6 million in 1996. The Corporation's  effective income tax rates were 36.2%,
36.9%  and  33.4%  in  1998,   1997  and  1996,   respectively.   Non-deductible
merger-related  expense had an adverse impact on 1997's  effective tax rate. The
Recapture Tax Benefit had a positive impact on 1996's effective income tax rate.
Deferred tax assets of $37.4 million and deferred tax liabilities of $20 million
are recorded on the  Consolidated  Balance  Sheets as of December 31, 1998.  The
Corporation  has  determined  that a valuation  allowance  for the  deferred tax
assets was not warranted at December 31, 1998.


                                       16
<PAGE>

 Fourth Quarter Results

     During the fourth quarter of 1998, the  Corporation  recorded net income of
$31.6  million or $.77 per  diluted  share  compared  to 1997's  fourth  quarter
results of $27.7 million or $.66 per diluted share.  Income  statements for each
of the quarters in the five-quarter  period ended December 31, 1998 are included
in Table 5.  Returns  on  average  assets  were 1.66% in 1998 and 1.56% in 1997;
return on average  shareholders' equity was 18.13% in 1998 compared to 16.58% in
1997.  During the fourth quarter of 1997, the Corporation  incurred  $647,000 of
non-recurring merger-related expense. Excluding the impact of this non-recurring
item,  returns on average assets and average  shareholders'  equity in 1997 were
1.58% and 16.83%, respectively.

T A B L E  5


          Income Statements for Five Quarters Ended December 31, 1998
                     (In Thousands Except Per Share Data)


<TABLE>
<CAPTION>
                                                                         Three Months Ended
                                                    -------------------------------------------------------------
                                                       12/31/98      9/30/98     6/30/98     3/31/98     12/31/97
                                                    -------------   ---------   ---------   ---------   ---------
<S>                                                 <C>             <C>         <C>         <C>         <C>
Total interest income                                 $ 145,425      145,683     144,562     141,637     141,495
-------------------------------------------------
Total interest expense                                   62,756       64,604      64,234      62,968      64,034
-------------------------------------------------     ---------      -------     -------     -------     -------
Net interest income                                      82,669       81,079      80,328      78,669      77,461
-------------------------------------------------
Provision for loan and lease losses                       4,320        4,778       3,646       3,140       3,472
-------------------------------------------------     ---------      -------     -------     -------     -------
Net interest income after provision                      78,349       76,301      76,682      75,529      73,989
-------------------------------------------------     ---------      -------     -------     -------     -------
Service charges on deposits                              14,368       13,919      13,745      12,085      11,972
-------------------------------------------------
Trust income                                              2,766        2,392       2,792       2,271       2,324
-------------------------------------------------
Sales and insurance commissions                           2,324        2,937       3,059       2,515       2,262
-------------------------------------------------
Accretion of negative goodwill                              839          839         839         839         839
-------------------------------------------------
Other                                                     9,281        8,095       8,712       6,405       6,590
-------------------------------------------------
Securities gains (losses), net                              789          406         361         622         236
-------------------------------------------------     ---------      -------     -------     -------     -------
Total other income                                       30,367       28,588      29,508      24,737      24,223
-------------------------------------------------     ---------      -------     -------     -------     -------
Personnel                                                30,358       31,507      32,111      30,443      29,024
-------------------------------------------------
Occupancy and equipment                                   8,180        7,858       7,278       7,096       7,279
-------------------------------------------------
Deposit and other insurance                                 565          587         619         774         767
-------------------------------------------------
Amortization of intangible assets                         1,040        1,034       1,080         968       1,036
-------------------------------------------------
Merger-related expense (1)                                   --           --          --          --         647
-------------------------------------------------
Other operating                                          18,170       17,908      17,830      14,811      16,324
-------------------------------------------------     ---------      -------     -------     -------     -------
Total other expenses                                     58,313       58,894      58,918      54,092      55,077
-------------------------------------------------     ---------      -------     -------     -------     -------
Income before income taxes                               50,403       45,995      47,272      46,174      43,135
-------------------------------------------------
Income taxes                                             18,814       15,632      17,296      16,890      15,390
-------------------------------------------------     ---------      -------     -------     -------     -------
Net income                                            $  31,589       30,363      29,976      29,284      27,745
-------------------------------------------------     ---------      -------     -------     -------     -------
Income before non-recurring items per share (1):
 Basic                                                $     .78          .75         .73         .70         .68
-------------------------------------------------
 Diluted                                                    .77          .74         .72         .70         .67
-------------------------------------------------
Net income per share:
 Basic                                                      .78          .75         .73         .70         .67
-------------------------------------------------
 Diluted                                                    .77          .74         .72         .70         .66
-------------------------------------------------
</TABLE>

(1) Non-recurring items include  merger-related  expense of $409,000 (after-tax)
 or $.01 per diluted share for the fourth quarter of 1997.
--------------------------------------------------------------------------------
     Average  assets for the three months  ended  December 31, 1998 totaled $7.5
billion,  a 6.6% increase over the same period in 1997.  Average  earning assets
increased  7.1% from $6.7 billion in 1997 to $7.2 billion for the same period in
1998.  The net  interest  margin for the fourth  quarter of 1998 was 4.72%,  a 3
basis point decrease from 1997's 4.75%.


                                       17
<PAGE>

     Noninterest  income as a  percentage  of  average  assets was 1.60% for the
fourth quarter of 1998 compared to 1997's 1.36%. Noninterest expense,  excluding
the  non-recurring  item discussed  above, as a percentage of average assets was
3.07% for the fourth  quarter of 1998 compared to 1997's 3.05%.  The  efficiency
ratio for these periods in 1998 and 1997 was 50.58% and 52.29%, respectively.


Financial Position

     Earning Assets

     The percentage of earning assets to total assets  measures how  efficiently
Management  utilizes the  Corporation's  financial  resources.  Average  earning
assets as a percentage  of total  average  assets has been stable at 95% for the
past three years.


     Loans and Lease Financing

     Loans are the largest  category  of earning  assets and produce the highest
yields.  Strong loan growth  during 1998 resulted in an 8.2% increase in average
loans and lease financing and a 5.6% increase in average  assets.  The five-year
compound  growth rate for  average  loans and lease  financing  is 11.7% and for
average assets is 9.2%.

     The  Subsidiary   Banks'  loan   portfolios  are  comprised   primarily  of
diversified credits with little borrower or industry  concentration.  Management
believes that lending to medium-sized  commercial customers and consumers allows
a higher interest rate spread which helps support the net interest margin. Table
6 shows the year-end  breakdown of the major  categories  of the loans and lease
financing   portfolio  for  the  previous  five  years  based  upon   regulatory
classifications.  Outstanding loans and lease financing increased $393.8 million
over 1997's outstandings. All of the 1998 loan growth was internally generated.


     Substantially  all loans are made on a secured  basis with the exception of
certain revolving credit accounts and, with the exception of marketable mortgage
loans,  are  originated for retention in the Subsidiary  Banks'  portfolios.  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  except  for  credit  card  receivables  which are  offered on a
nationwide basis and automobile loans which are offered from Virginia to Georgia
through referrals from a major automobile insurance company. Lending officers of
the Subsidiary  Banks generally  consider the cash flow or earnings power of the
borrower as the primary source of repayment.  The Subsidiary Banks do not engage
in highly leveraged  transactions or foreign lending  activities.  There were no
concentrations of loans exceeding 10% of total loans other than those categories
included in Table 6.

T A B L E  6


                           Loans and Lease Financing
                                 (In Thousands)


<TABLE>
<CAPTION>
                                                                       As of December 31
                                           --------------------------------------------------------------------------
                                                1998            1997           1996           1995           1994
                                           --------------   ------------   ------------   ------------   ------------
<S>                                        <C>              <C>            <C>            <C>            <C>
Commercial, financial and agricultural      $   686,133        688,040        549,831        629,814        660,452
----------------------------------------
Real estate -- construction                     906,916        733,026        629,829        504,461        401,486
----------------------------------------
Real estate -- mortgage                       3,143,637      2,915,851      2,602,639      2,279,621      2,133,560
----------------------------------------
Instalment loans to individuals                 488,110        506,339        739,991        594,508        527,898
----------------------------------------
Revolving credit                                214,685        212,794        193,561        230,142        202,846
----------------------------------------
Lease financing                                  54,955         43,265         38,323         37,223         33,433
----------------------------------------    -----------      ---------      ---------      ---------      ---------
 Total gross loans and lease financing        5,494,436      5,099,315      4,754,174      4,275,769      3,959,675
----------------------------------------
Less: Unearned income                             7,099          5,746          8,511          8,594          7,515
----------------------------------------    -----------      ---------      ---------      ---------      ---------
 Total loans and lease financing            $ 5,487,337      5,093,569      4,745,663      4,267,175      3,952,160
----------------------------------------    -----------      ---------      ---------      ---------      ---------
</TABLE>

     Loans  in the  commercial,  financial  and  agricultural  category  consist
primarily  of  short-term   and/or  floating  rate  commercial   loans  made  to
medium-sized  companies.  There is no substantial loan  concentration in any one
industry or to any one borrower.  Real  estate-construction  loans are primarily
made to commercial  developers  and  residential  contractors on a floating rate
basis. Cash flow analyses for each project are the primary decision factor, with
additional  reliance upon  collateral  values.  Management  expects  moderate to
strong  growth in these  categories  during  1999.  The  Subsidiary  Banks  will
maintain their focus on quality credit underwriting.  See Table 7 for a schedule
of  maturities  and  sensitivities  of certain loan types to changes in interest
rates.

     Real  estate-mortgage  loans consist primarily of loans secured by first or
second deeds of trust on primary  residences (70% of total real  estate-mortgage
loans). The remainder of real estate-mortgage loans are primarily for commercial
purposes and often include


                                       18
<PAGE>

the commercial  borrower's real property in addition to other collateral.  It is
the Subsidiary  Banks' general  policy to sell current  originations  and retain
only  certain   adjustable   and  fixed  rate  loans  in  the   portfolio.   The
lower-interest  rate environment  experienced in 1998 is expected to continue in
1999. While these rates may generate high production volume, with the Subsidiary
Banks'  planned  sales  of  loans,  the  mortgage  portfolio  will  not  grow in
proportion to 1999's  anticipated  production volume.  Consequently,  Management
anticipates only moderate growth in this category during 1999.

     Instalment  loans to  individuals  consist  primarily  of loans  secured by
automobiles and other consumer personal property.  Lending officers consider the
customer's  debt  obligations,  ability  and  willingness  to repay and  general
economic trends in their decision to extend credit.  Since 1993, the Corporation
has had an alliance with a major automobile  insurance company,  which,  through
referrals  from company  agents,  has increased  the amount of automobile  loans
outstanding.  The  agreements  with the  insurance  company  cover a market area
stretching from Virginia to Georgia.

     Revolving credit includes overdraft  protection and traditional credit card
products.  The credit card program was  restructured  in late 1997  resulting in
more options based on credit card interest rates and annual fees.  Additionally,
a credit card product  offering  travel awards for airline flights based on card
usage was  introduced  where the travel  awards are not limited to a  particular
travel  partner  but can be used with any of the major  airlines.  AmFed did not
offer  credit  cards at the time of the  merger  and thus  their  customer  base
provides  an  additional  opportunity  to grow the credit card  portfolio.  With
continued  emphasis  on  prudent  underwriting  standards,   Management  expects
moderate growth during 1999.

     The leasing portfolio,  net of unearned income,  increased 27.1% in 1998 to
$48  million.  The  leasing  portfolio  is not  concentrated  in any one line of
business  or  type  of  equipment.  The  lease  growth  in  1998  resulted  from
instituting  a leasing  program  at AmFed  and  expanding  of the  number of CCB
lenders originating leases.

T A B L E  7


      Maturities and Sensitivities of Loans to Changes in Interest Rates
                                (In Thousands)


<TABLE>
<CAPTION>
                                                      As of December 31, 1998
                                          ----------------------------------------------
                                            Commercial,
                                           Financial and    Real Estate-
                                           Agricultural     Construction        Total
                                          --------------   --------------   ------------
<S>                                       <C>              <C>              <C>
Due in one year or less                      $198,196           51,223         249,419
---------------------------------------
Due after one year through five years:
 Fixed interest rates                         276,241          215,065         491,306
---------------------------------------
 Floating interest rates                       50,926           40,185          91,111
---------------------------------------
Due after five years:
---------------------------------------
 Fixed interest rates                          46,238          130,453         176,691
---------------------------------------
 Floating interest rates                      114,532          469,990         584,522
---------------------------------------      --------          -------         -------
  Total                                      $686,133          906,916       1,593,049
---------------------------------------      --------          -------       ---------
</TABLE>

     Investment Securities

     Investment  securities decreased 6.8% from year-end 1997 to $1.4 billion at
December 31, 1998.  Due to the interest rate  environment,  the  Corporation  is
experiencing higher levels of paydowns for mortgage-backed  securities (included
within  U.S.  Government  agencies  and  corporations).  These  funds  are being
primarily reinvested in shorter-term U.S. Government agencies as there is not an
interest  rate  advantage  in  committing  funds  to  longer-term   investments.
Investment  securities  as a percentage  of earning  assets  declined due to the
previously  discussed shift in earning assets to higher-yielding  loans. Average
investment  securities  totaled 19.5% of average  earning assets for 1998 versus
22.4%  for  1997.  Taxable  securities  remain  the  primary  component  of  the
portfolio.  See  Table 8 for  additional  information  about  the  Corporation's
investment securities portfolio.

     The  Corporation  segregates  debt and equity  securities that have readily
determinable  fair  values  into  one of three  categories  for  accounting  and
reporting  purposes.  Debt and equity  securities  that the  Corporation has the
positive  intent and ability to hold until  maturity are  classified  as held to
maturity and are reported at amortized cost. Securities held to maturity totaled
$80.2 million or 5.9% of the total investment  securities  portfolio at December
31, 1998. Debt and equity  securities  that are bought and held  principally for
the  purpose  of  selling  them in the  near  term  are  classified  as  trading
securities and reported at fair value, with unrealized gains and losses included
in earnings.  The  Corporation  had no trading  securities at December 31, 1998,
1997 or 1996 nor at any time during those years.  Debt and equity securities not
classified as either held to maturity or as trading securities are classified as
available for sale  securities and are reported at fair value,  with  unrealized
gains and losses excluded from earnings and reported in a separate  component of
shareholders'  equity, net of taxes. At December 31, 1998,  securities available
for sale totaled $1.3 billion,


                                       19
<PAGE>

which represented over 90% of the total portfolio. The mark-to-market adjustment
for available for sale securities  totaled $21.7 million in unrealized  gains at
December 31, 1998 and, after considering  applicable taxes,  resulted in a $13.3
million  addition to total  shareholders'  equity.  As of December 31, 1997, the
mark-to-market  adjustment  for  available  for sale  securities  totaled  $22.7
million and resulted in a net $14 million addition to total shareholders' equity
after applying  applicable taxes. The Corporation does not currently  anticipate
selling a significant  amount of the  securities  available for sale in the near
future.  Future fluctuations in shareholders' equity may occur due to changes in
the market  values of debt and equity  securities  classified  as available  for
sale.

T A B L E  8


                        Investment Securities Portfolio
                                (In Thousands)


<TABLE>
<CAPTION>
                                                                           As of December 31
                                            -------------------------------------------------------------------------------
                                                       1998                       1997                      1996
                                            --------------------------- ------------------------- -------------------------
                                               Amortized     Carrying     Amortized    Carrying     Amortized    Carrying
                                                 Cost          Value        Cost         Value        Cost         Value
                                            -------------- ------------ ------------ ------------ ------------ ------------
<S>                                          <C>            <C>          <C>          <C>          <C>          <C>
Securities Available for Sale
U.S. Treasury                                $   389,043      400,914      472,396      480,659      442,410      447,577
-------------------------------------------
U.S. Government agencies and corporations        826,367      835,128      841,034      854,481      761,136      768,090
-------------------------------------------
Equity securities                                 47,067       48,156       45,946       46,967       51,851       51,852
-------------------------------------------  -----------      -------      -------      -------      -------      -------
  Total securities available for sale        $ 1,262,477    1,284,198    1,359,376    1,382,107    1,255,397    1,267,519
-------------------------------------------  -----------    ---------    ---------    ---------    ---------    ---------
</TABLE>

Maturity and Yield Schedule as of December 31, 1998

<TABLE>
<CAPTION>
                                                                        Weighted  
                                                         Carrying       Yield (1)
                                                           Value         Average
                                                      --------------   ---------- 
<S>                                                   <C>              <C>
U.S. Treasury:
Within 1 year                                          $   108,769       6.65%
---------------------------------------------------
After 1 but within 5 years                                 292,145       6.99
---------------------------------------------------    -----------     -------
  Total U.S. Treasury                                      400,914       6.90
---------------------------------------------------    -----------     -------
U.S. Government agencies and corporations:
Within 1 year                                               47,533       6.85
---------------------------------------------------
After 1 but within 5 years                                 236,249       6.83
---------------------------------------------------
After 5 but within 10 years                                416,153       6.56
---------------------------------------------------
After 10 years (2)                                         135,193       7.84
---------------------------------------------------    -----------     -------
  Total U.S. Government agencies and corporations          835,128       6.86
---------------------------------------------------    -----------     -------
Equity securities                                           48,156       7.64
---------------------------------------------------    -----------     -------
  Total securities available for sale                  $ 1,284,198       6.90%
---------------------------------------------------    -----------     ----------
</TABLE>


<TABLE>
<CAPTION>
                                                                As of December 31
                                      ----------------------------------------------------------------------
                                               1998                     1997                    1996
                                      -----------------------   ---------------------   --------------------
                                        Carrying      Market     Carrying     Market     Carrying    Market
                                         Value        Value       Value       Value       Value       Value
                                      -----------   ---------   ---------   ---------   ---------   --------
<S>                                   <C>           <C>         <C>         <C>         <C>         <C>
Securities Held to Maturity
States and political subdivisions      $ 80,189      85,277       81,617     87,002       84,262     88,504
-----------------------------------    --------     -------      -------    -------      -------    -------
</TABLE>

Maturity and Yield Schedule As of December 31, 1998

<TABLE>
<CAPTION>
                                                     Weighted 
                                         Carrying    Yield (1) 
                                          Value       Average  
                                        ---------    --------- 
<S>                                     <C>         <C>
States and political subdivisions:
Within 1 year                            $   500      9.98 %    
-------------------------------------                           
After 1 but within 5 years                 7,709      7.98      
-------------------------------------                           
After 5 but within 10 years               48,997      8.56      
-------------------------------------                           
After 10 years                            22,983      8.65      
-------------------------------------    -------      ------      
  Total securities held to maturity      $80,189      8.54 %    
-------------------------------------    -------      ------     
</TABLE>                                              

(1) Where applicable, the weighted average yield is computed on a taxable
    equivalent basis using a 35% federal tax rate and applicable state tax
    rates.
(2) The amount shown consists primarily of mortgage-backed securities which
    have monthly  curtailments  of principal  even though the final  maturity of
    each security is in excess of 10 years.
--------------------------------------------------------------------------------

                                       20
<PAGE>

 Deposits


     During  1998,  average  deposits  rose to $6.1 billion from $5.8 billion in
1997. The largest  increase was  experienced  in average money market  accounts,
$120.3  million.  As a percentage  of average total  deposits,  interest-bearing
deposits  remained  relatively  constant  at 87.4% in 1998  compared to 88.1% in
1997.  Demand  deposits on average grew $88.2  million in 1998.  See Table 9 for
average  deposits by type for the three-year  period ended December 31, 1998. As
with the rest of the financial  institutions  industry,  CCB and AmFed have seen
decreased  growth  trends in  traditional  deposits  as  consumers  elect  other
investment/savings  opportunities.   However,  as  discussed  in  Liquidity  and
Interest-Sensitivity,  the  Subsidiary  Banks have  alternative  sources to fund
future loan growth if deposit growth does not keep pace with loan demand.

T A B L E  9


                               Average Deposits
                                (In Thousands)


<TABLE>
<CAPTION>
                                                                  Years Ended December 31
                                      -------------------------------------------------------------------------------
                                                 1998                        1997                      1996
                                      ---------------------------   -----------------------   -----------------------
                                          Average        Average       Average      Average      Average      Average
                                          Balance         Rate         Balance       Rate        Balance       Rate
                                      --------------   ----------   ------------   --------   ------------   --------
<S>                                   <C>              <C>          <C>            <C>        <C>            <C>
Savings and time deposits:
-----------------------------------
Savings and NOW accounts               $   736,548     1.06 %          691,365     1.27          669,913     1.48
-----------------------------------
Money market accounts                    1,729,207     3.72          1,608,929     3.78        1,561,222     3.66
-----------------------------------
Time                                     2,898,500     5.54          2,811,192     5.69        2,582,176     5.71
-----------------------------------    -----------     ----          ---------     ----        ---------     ----
  Total savings and time deposits        5,364,255     4.34 %        5,111,486     4.49        4,813,311     4.46
-----------------------------------                    --------                    ----                      ----
Demand deposits                            776,819                     688,642                   636,601
-----------------------------------    -----------                   ---------                 ---------
  Total deposits                       $ 6,141,074                   5,800,128                 5,449,912
-----------------------------------    -----------                   ---------                 ---------
</TABLE>

     In October 1995, CCB opened its first in-store banking office, CCB7, within
a  newly  constructed  Harris  Teeter  supermarket.  Since  1995  an  additional
seventeen  in-store banking offices located in high-volume  Harris Teeter stores
have been opened.  These banking  offices have extended hours during the weekday
and are open on weekends and holidays.  An additional eight new CCB7 offices are
planned for 1999.  In-store banking offices are an additional source of consumer
loans and deposits and generate noninterest fee income.


     Long-Term Debt and Other Borrowings

     The Corporation's ratio of long-term debt to shareholders' equity increased
to 31.5% at December 31, 1998 from 14.8% at December 31, 1997.  The increase was
due to obtaining  additional advances from the Federal Home Loan Bank of Atlanta
("FHLB")  at  favorable  interest  rates.  The  advances  were  replacements  of
Subsidiary  Banks'  funds  that were  dividended  up to the Parent  Company  for
funding its stock repurchase  program  discussed below. Of the $183.6 million of
FHLB advances  outstanding at December 31, 1998,  approximately  $150 million is
due within five years.


Capital Resources

     The Corporation has had a strong capital position historically as evidenced
by the  Corporation's  ratio of average  shareholders'  equity to average  total
assets of 9.25% and 9.20% for 1998 and 1997, respectively.


     Regulatory Capital

     Bank  holding  companies  are  required to comply with the Federal  Reserve
Board's  risk-based  capital  guidelines  which require a minimum ratio of total
capital to  risk-weighted  assets of 8%. At least  half of the total  capital is
required to be "Tier I" capital,  principally consisting of common shareholders'
equity,  noncumulative  perpetual  preferred  stock,  and a  limited  amount  of
cumulative perpetual preferred stock less certain goodwill items. The remainder,
"Tier II" capital, may consist of a limited amount of subordinated debt, certain
hybrid capital instruments and other debt securities, perpetual preferred stock,
and a limited  amount of the  general  reserve  for loan and  lease  losses.  In
addition to the risk-based  capital  guidelines,  the Federal  Reserve Board has
adopted a minimum leverage capital ratio under which a bank holding company must
maintain a minimum level of Tier I capital to average total consolidated  assets
of at least 3% in the  case of a bank  holding  company  which  has the  highest
regulatory  examination  rating and is not contemplating  significant  growth or
expansion.  All other bank holding companies are expected to maintain a leverage
capital ratio of at least 1% to 2% above the stated minimum.


                                       21
<PAGE>

     The  Corporation  and the  Subsidiary  Banks  continue to  maintain  higher
capital ratios than required under  regulatory  guidelines.  Table 10 shows that
the Corporation and the Subsidiary Banks  significantly  exceeded all risk-based
capital requirements at December 31, 1998 and 1997.

T A B L E  10


                                Capital Ratios


<TABLE>
<CAPTION>
                       As of December 31
                    ------------------------    Regulatory
                        1998         1997        Minimum
                    -----------   ----------   -----------
<S>                 <C>           <C>          <C>
Tier I Capital:                                4.00%
 Corporation            11.23%    12.14
-----------------
 CCB                    10.31     11.98
-----------------
 AmFed                  11.94     13.35
-----------------
 CCB-Ga.                20.79     12.23
-----------------       -----     -----
Total Capital:                                 8.00
 Corporation            12.95     14.02
-----------------
 CCB                    11.50     13.15
-----------------
 AmFed                  13.25     14.60
-----------------
 CCB-Ga.                22.09     13.51
-----------------       -----     -----
Leverage:                                      4.00
 Corporation             8.57      9.02
-----------------
 CCB                     7.82      8.92
-----------------
 AmFed                   8.64      8.89
-----------------
 CCB-Ga.                14.48     10.20
-----------------       -----     -----
</TABLE>

     The  Subsidiary  Banks also have the highest  rating in regards to the FDIC
insurance assessment and, accordingly, pay the lowest deposit insurance premium.


     Equity Capital

     The   Corporation's   primary  source  of  additional  equity  capital  has
historically  been the retention of earnings  which added $80.8  million,  $58.7
million and $58.2 million to capital in 1998, 1997 and 1996, respectively. Table
11 presents the rate of internal  capital growth for the Corporation for each of
the five previous years. The Corporation's stock repurchase  program,  discussed
below, positively impacted 1998's rate of internal capital growth.

T A B L E  11


                        Rate Of Internal Capital Growth


<TABLE>
<CAPTION>
                                                                   Years Ended December 31
                                                 ------------------------------------------------------------
                                                    1998      1997 (1)     1996 (1)     1995 (1)     1994 (1)
                                                 ---------   ----------   ----------   ----------   ---------
<S>                                              <C>         <C>          <C>          <C>          <C>
Average assets to average equity times           10.81 x         10.87        11.43        12.17       11.66
----------------------------------------------
Return on average assets equals                   1.65 %          1.54         1.42         1.36        1.21
----------------------------------------------   ---------       -----        -----        -----       -----
Return on average shareholders' equity times     17.87 %         16.76        16.20        16.53       14.15
----------------------------------------------
Earnings retained equals                         66.67 %         65.68        69.31        70.21       70.38
----------------------------------------------   ---------       -----        -----        -----       -----
Rate of internal capital growth                  11.91 %         11.01        11.23        11.61        9.96
----------------------------------------------   ---------       -----        -----        -----       -----
</TABLE>

(1) Excludes the after-tax impact of non-recurring items, as applicable: for
    1997, merger-related expense of $13.1 million and gain on sale of
    subsidiary of $1.4 million; for 1996, the FDIC Special Assessment and the
    Recapture Tax Benefit; for 1995, merger-related expense of $7.3 million;
    and for 1994, merger-related expense of $660,000 and a $5.6 million charge
    for the recapture of tax bad debt reserves by savings bank subsidiaries of
    Security Capital.
--------------------------------------------------------------------------------
     Since August 14, 1996,  the  Corporation's  common stock has been traded on
The New York Stock  Exchange  under the  symbol  CCB.  Prior to that  date,  the
Corporation's  common stock had been traded on The Nasdaq Stock Market under the
symbol CCBF.  At December 31, 1998,  the  Corporation  had  approximately  9,900
shareholders of record.

     During 1998, the Corporation  adopted a continuing stock repurchase program
to better manage its capital  position.  The Board of Directors  authorized  the
repurchase and subsequent  retirement of up to 2,000,000  shares of common stock
plus additional purchases needed to retire any shares issued for the exercise of
options,  restricted stock awards, or other corporate purposes. Through December
31, 1998,  1,391,300  shares had been repurchased and retired at an average cost
of $55.06 per share.


                                       22
<PAGE>

T A B L E  12


                           Stock Prices and Dividends


<TABLE>
<CAPTION>
                                   Prices                      Cash
                   --------------------------------------    Dividends
                       High           Low         Close      Declared
                   ------------   ----------   ----------   ----------
<S>                <C>            <C>          <C>          <C>
1998
First Quarter       $   57.00         47.00        55.28       .235
----------------
Second Quarter          56.06         51.75        53.13       .235
----------------
Third Quarter           58.50         46.25        50.38       .260
----------------
Fourth Quarter          57.38         43.13        57.00       .260
----------------
1997
First Quarter       $   35.00         31.88        31.94       .210
----------------
Second Quarter          37.00         30.94        36.57       .210
----------------
Third Quarter           41.82         36.69        40.32       .235
----------------
Fourth Quarter          55.00         40.57        53.75       .235
----------------    ---------         -----        -----       ----
</TABLE>

     Dividends  per share  have  increased  from $.80 in 1996 to $.89 in 1997 to
$.99 in 1998. The 1998 increase  continues the  Corporation's  thirty-four  year
trend of annual dividend  increases,  a record that places the Corporation first
among U.S.  banks  tracked by Moody's  Investors  Service.  Dividends  paid as a
percentage of earnings,  excluding  non-recurring items, equaled 33.45%,  34.36%
and  35.40%  for  the  years  ended  1998,  1997  and  1996,  respectively.  The
Corporation's dividend guideline is to pay approximately 30% to 40% of operating
earnings  in  dividends.   Management  feels  that  this  guideline  provides  a
reasonable cash return to shareholders and at the same time maintains sufficient
equity to support future growth and expansion.

     Capital  expenditures for new and improved  facilities as well as furniture
and equipment  amounted to $17.8 million in 1998, $10.6 million in 1997 and $9.8
million in 1996.  There were no  significant  capital  resource  commitments  at
December 31, 1998 other than the operating  lease  commitments  specified in the
notes to the  Consolidated  Financial  Statements  and  resolution  of Year 2000
technology  concerns as  discussed  below.  Additionally,  the  Corporation  has
budgeted $28 million in 1999 for technological improvements and new or renovated
facilities.  Technology  improvements  totaling  $12.6 million  planned for 1999
include  tools to  enhance  cross-selling,  track  profitability  of  individual
customers and measure product profitability.


     Year 2000 Issue

     The  Corporation  is in the midst of its  project to assess and correct the
impact of the "Year 2000 Issue". The Year 2000 Issue resulted from many computer
programs  having been  written  using two digit dates rather than four to define
the applicable year. Historically,  the first two digits were eliminated to save
memory.  Since in such systems there is no accommodation for the full four-digit
year,  a serious  problem may occur when "00" is used to identify the Year 2000.
For these systems,  it is not only impossible to distinguish  2000 from 1900 but
it also becomes  difficult to calculate the passage of time between preceding or
succeeding years and the Year 2000. This error could result in system failure or
miscalculations causing disruption of operations, including, among other things,
an inability to process customer  transactions,  properly accrue interest income
and   expense   or  engage  in  normal   business   activities.   In   addition,
non-information   technology   ("non-IT")   systems  such  as  security  alarms,
elevators,  telephones,  etc. may be subject to a Year 2000  malfunction  due to
their dependence upon computer  technology for proper  operation.  As described,
the Year 2000 Issue  presents a number of challenges to financial  institutions'
management;  correction  of Year 2000  Issues has been and will  continue  to be
costly and complex for the entire industry.

     The  Corporation  began  discussing the Year 2000 Issue more than two years
ago and adopted a Year 2000  Strategic  Project  Plan to address the issue.  The
Corporation's  Year  2000  plan  follows  guidelines  outlined  by  the  Federal
Financial  Institutions  Examination  Council ("FFIEC").  The FFIEC requires all
financial  institutions to develop plans with five critical  phases:  awareness,
assessment,  renovation,  validation  and  implementation.  The awareness  phase
defined the Year 2000 Issue and the  potential  challenges  associated  with the
date change.  The  assessment  phase  consisted of an evaluation of the size and
complexity  of ensuring  that the  Corporation  will be ready for the Year 2000.
During  the  assessment  phase,  the  Corporation  determined  that it  would be
required to modify a  significant  portion of its software  and replace  certain
software and hardware so that its computer  systems will properly  utilize dates
beyond  December 31, 1999.  During the renovation  phase,  system  upgrades were
implemented and applicable hardware was replaced.  The validation phase involves
testing all computer systems. Even if software has been tested by the vendor and
certified  Year  2000-ready,   the  Corporation's  Year  2000  project  team  is
re-testing  and  validating  all  software  to  ensure  compatibility  with  the
Corporation's  information systems environment.  The implementation phase is the
final  step  which  involves  incorporating  Year  2000-ready  systems  into the
day-to-day operations of the Corporation.


                                       23
<PAGE>

     The  renovation of all major software  applications  was completed in early
September 1998. Testing of mission critical systems was substantially  completed
by the  end of  1998.  This  consisted  of  performing  tests  on the  mainframe
hardware, operating system, and application software; PC and server hardware and
software;  data and  telecommunications  systems; and non-IT systems. A new Year
2000-ready  mainframe  computer was put into production during mid-January 1999.
Substantially  all non-mission  critical  testing and replacement of non-mission
critical  personal  computers  is  scheduled to be completed by the end of March
1999. The Corporation plans to complete the Year 2000 project by the end of June
1999.  Testing of hardware  and  software  acquired or  modified  since  initial
testing was completed  will be done in the remainder of 1999 as part of on-going
due diligence.

     In  addition  to  ensuring  the  proper  operation  of  its  systems,   the
Corporation is also monitoring the remediation  efforts of third-party  entities
whose own Year 2000 disruptions would impact the Corporation's  operations.  The
incurred  to date and  estimated  costs to assess the  impact of third  parties'
remediation  efforts are included in the  Corporation's  total Year 2000 project
costs and estimates.  The project team  identified the vendors whose  operations
were deemed mission critical to the Corporation's operations and contacted those
vendors  regarding  their  progress in  correcting  their Year 2000  Issues.  In
addition,  the Corporation  initiated  communication with its major customers to
determine  the  extent  of  their  Year  2000  preparedness.  As most  corporate
customers  depend on computer  systems for normal  operations,  a disruption  in
their business could result in potentially  significant financial  difficulties.
In the loan and deposit areas,  major  customers of $1 million or more have been
identified.  As of December 31, 1998, the Corporation had contacted in excess of
97% of major customers and evaluated the risk to the Corporation  based upon the
results of the  customer  communication.  Also,  the  Corporation  has  reviewed
certain issuers of debt securities held in the investment  securities  portfolio
as well as federal funds counter-parties. In the Trust area, the Corporation has
reviewed  certain  issuers  of  debt  and  equity  securities  held  as  managed
investment assets. Finally,  financial institutions such as the Subsidiary Banks
exchange  large  volumes of  date-sensitive  data  electronically  between other
financial institutions,  clearing houses, customers and regulatory agencies. The
Corporation has tested and verified, as appropriate, these data exchanges. Based
on  these  reviews  of  critical  vendors,   major  customers  and  other  major
counter-parties,  at  present  the  Corporation  feels  that  there  is  not  an
inordinate  amount of risk which would require the  establishment of any special
reserves for the Year 2000 Issue.  The Corporation  will continue to monitor and
test the remediation efforts of these third parties and determine if it needs to
modify its own  operations  due to their  failure to  remediate  their Year 2000
Issue. However, there can be no guarantee that the systems of other companies on
which the Corporation's systems rely will be timely converted, or that a failure
to convert by another  company,  or a conversion that is  incompatible  with the
Corporation's  systems,  will not have an  adverse  effect on the  Corporation's
results of operations.

     The Corporation  has a contingency  plan that outlines  emergency  response
procedures that meet regulatory guidelines.  The goal of the contingency plan is
to facilitate  the  resumption of business in the event there is a disruption of
critical systems  necessary to operate.  Contingency  plans include  alternative
power  sources,  off-site  processing,  etc.  The FFIEC's  contingency  planning
guidelines  require the  completion of  organizational  planning  guidelines and
business impact  analysis by March 31, 1999.  FFIEC  guidelines  further require
that the development and validation of the business resumption contingency plans
be completed by June 30, 1999.  The  Corporation  completed  its  organizational
planning   guidelines  and  business   impact  analysis  in  October  1998.  The
Corporation's  contingency  plans include  consideration  of the most reasonably
likely worst-case scenario.  Development and validation of the contingency plans
and independent  review and verification of the contingency plans were completed
in February 1999. The last contingency planning requirement, developing detailed
Year 2000 rollover event plans,  is scheduled to be completed  during the second
quarter of 1999.

     While the Corporation's project team is monitoring the progress of the Year
2000 plan,  consulting  firms are also being used to keep track of the readiness
program.  A Year 2000  independent  consulting  services group is overseeing the
Year 2000 Project  Management  Office on an on-going  basis.  In  addition,  the
Corporation  retained the  services of another  independent  consulting  firm to
review its Year 2000  readiness  plans.  As the  Corporation  and its Subsidiary
Banks are regulated by federal and state banking regulatory  agencies,  they are
required  to comply  with  those  agencies'  Year 2000  modification  schedules.
Federal  regulatory  agencies  periodically  review the Corporation's  Year 2000
conversion efforts and have had no adverse criticism on the  progress-to-date or
its anticipated schedule to complete the Year 2000 project.  Management believes
that it will meet the regulators' timeframe for Year 2000 compliance.

     The total cost of the Year 2000  project  is  currently  estimated  at $5.3
million,  of which $2.3 million is attributable to the purchase of capitalizable
software and hardware.  Since the third quarter of 1998, estimated costs for the
Year 2000 project have  increased by $500,000.  Estimated  hardware and software
costs were  increased by $146,000 and the  remaining  $354,000 was earmarked for
the development of detailed  business  resumption  plans and a support  contract
with the Corporation's Year 2000 independent consulting services group to extend
through the  millennium  rollover.  During 1998, the  Corporation  incurred $2.2
million of  non-capitalizable  expense  attributable  to the Year 2000  project.
Total  non-capitalizable  expense  incurred prior to 1998 was less than $75,000.
The  remainder of the cost will be expensed as incurred  over the next two years
and is not expected to have a material  effect on the  Corporation's  results of
operations.


                                       24
<PAGE>

     The costs of the Year 2000 project and the dates the  Corporation  plans to
complete the Year 2000  modifications  are based on Management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources,  third-party modification plans and
other factors.  However,  there can be no guarantee that these estimates will be
achieved at the cost disclosed or within the timeframe anticipated.

     Management  presently  believes that with its identified  modifications  to
existing  software  and  conversions  to  new  software  and  hardware  and  the
successful  completion of third-party  remediation  efforts, the Year 2000 Issue
can be mitigated.  However,  if the Corporation's  modifications and conversions
are not made,  or are not  completed  on a timely  basis or if mission  critical
third-parties  do not  remediate  their own Year  2000  Issues,  disruptions  in
operations could occur and could have a material adverse impact on the financial
position of the Corporation.


Asset Quality

     Total risk assets have declined from $26.3 million in 1994 to $24.2 million
in 1998. Nonperforming assets (nonaccrual loans and lease financing,  other real
estate  acquired  through loan  foreclosures  and  restructured  loans and lease
financing) and risk assets  (nonperforming  assets plus accruing loans and lease
financing  90 days or more  past  due) at the end of each of the  previous  five
years are presented in Table 13. Risk assets to total assets were .31%, .30% and
 .32% at December 31, 1998, 1997 and 1996, respectively. The reserve for loan and
lease losses to risk assets was 3.03 times at December 31, 1998 compared to 3.20
times and 2.77 times at December  31, 1997 and 1996,  respectively.  Real estate
acquired  through loan  foreclosures  decreased to $791,000 at December 31, 1998
from $5.9  million at  December  31,  1994.  In  addition  to total risk  assets
disclosed in Table 13,  Management  has  identified  $6.8 million of loans whose
borrowers have possible  credit  problems that cause  Management to have serious
doubts  about the ability of such  borrowers  to comply  with the  present  loan
repayment terms.

T A B L E  13


                         Nonperforming and Risk Assets
                                (In Thousands)


<TABLE>
<CAPTION>
                                                                                             As of December 31
                                                                                    -----------------------------------
                                                                                        1998        1997        1996
                                                                                    ----------- ----------- -----------
<S>                                                                                 <C>         <C>         <C>
Nonaccrual loans and lease financing (1)                                            $ 16,761       16,088      15,752
-----------------------------------------------------------------------------------
Other real estate acquired through loan foreclosures                                     791          845       2,469
-----------------------------------------------------------------------------------
Restructured loans and lease financing                                                   739          784         838
----------------------------------------------------------------------------------- --------       ------      ------
Total nonperforming assets                                                            18,291       17,717      19,059
-----------------------------------------------------------------------------------
Accruing loans and lease financing 90 days or more past due                            5,889        3,423       3,066
----------------------------------------------------------------------------------- --------       ------      ------
Total risk assets                                                                   $ 24,180       21,140      22,125
----------------------------------------------------------------------------------- --------       ------      ------
Ratio of nonperforming assets to:
 Loans and lease financing outstanding and other real estate acquired through loan       
  foreclosures                                                                           .33 %         .35         .40
-----------------------------------------------------------------------------------
 Total assets                                                                            .24           .25         .28
-----------------------------------------------------------------------------------
Ratio of total risk assets to:
 Loans and lease financing outstanding and other real estate acquired through loan       
  foreclosures                                                                           .44           .41         .47
-----------------------------------------------------------------------------------
 Total assets                                                                            .31           .30         .32
-----------------------------------------------------------------------------------
Reserve for loan and lease losses to total risk assets                                  3.03 x        3.20        2.77
-----------------------------------------------------------------------------------



<CAPTION>
                                                                                       As of December 31
                                                                                    -----------------------
                                                                                        1995        1994
                                                                                    ----------- -----------
<S>                                                                                 <C>         <C>
Nonaccrual loans and lease financing (1)                                               17,518      14,915
-----------------------------------------------------------------------------------
Other real estate acquired through loan foreclosures                                    3,198       5,892
-----------------------------------------------------------------------------------
Restructured loans and lease financing                                                    915       1,545
-----------------------------------------------------------------------------------    ------      ------
Total nonperforming assets                                                             21,631      22,352
-----------------------------------------------------------------------------------
Accruing loans and lease financing 90 days or more past due                             4,120       3,913
-----------------------------------------------------------------------------------    ------      ------
Total risk assets                                                                      25,751      26,265
-----------------------------------------------------------------------------------    ------      ------
Ratio of nonperforming assets to:
 Loans and lease financing outstanding and other real estate acquired through loan        
  foreclosures                                                                            .51         .56
-----------------------------------------------------------------------------------
 Total assets                                                                             .33         .37
-----------------------------------------------------------------------------------
Ratio of total risk assets to:
 Loans and lease financing outstanding and other real estate acquired through loan        
  foreclosures                                                                            .60         .66
-----------------------------------------------------------------------------------
 Total assets                                                                             .39         .43
-----------------------------------------------------------------------------------
Reserve for loan and lease losses to total risk assets                                   2.14        1.94
-----------------------------------------------------------------------------------
</TABLE>

(1) For the years ended December 31, 1998, 1997 and 1996, gross interest income
    that would have been recorded during the year on the nonaccrual loans and
    lease financing listed above, if the loans and lease financing had been
    current in accordance with their original terms, would have amounted to
    approximately $1,138,000 in 1998, $1,055,000 in 1997, and $1,359,000 in
    1996. Gross interest income included in net income on these nonaccrual and
    restructured loans and lease financing amounted to approximately $288,000,
    $171,000, and $412,000 for the years ended December 31, 1998, 1997, and
    1996,  respectively.  The amounts  also  include  interest  from prior years
    collected during 1998, 1997, or 1996.
--------------------------------------------------------------------------------
     The Corporation's general nonaccrual policy is to place business credits in
a  nonaccrual  status  when there are doubts  regarding  the  collectibility  of
principal or interest or when payment of principal or interest is ninety days or
more past due  (unless  Management  determines  that the  collectibility  is not
reasonably considered in doubt). Generally,  instalment loans to individuals and
revolving credit accounts past due more than 90 and 120 days, respectively,  are
charged-off.

     Loans are considered  impaired if it is probable that the Subsidiary  Banks
will be unable to collect all amounts due under the terms of the loan agreement.
The value of the  impaired  loan is based on  discounted  cash flows or the fair
value of the collateral for a  collateral-dependent  loan. Any impairment losses
are  recognized  through  charges to the reserve for loan and lease  losses.  At
December 31, 1998 and 1997,  impaired  loans amounted to $15.8 million and $14.3
million,  respectively.  Impaired  loans  totaling $9 million  were not accruing
interest at December 31, 1998 and $7.8  million  were not  accruing  interest at
December 31, 1997. The related  reserve for loan and lease losses on these loans
amounted  to $2.6  million  and $2.8  million  at  December  31,  1998 and 1997,
respectively.


                                       25
<PAGE>

     Table 14 presents a summary of loss experience and the reserve for loan and
lease losses for the  previous  five years.  Net  charge-offs  in the  five-year
period ended 1998 occurred primarily in revolving credit and instalment loans to
individuals.   The  out-of-market  credit  risk  from  credit  card  receivables
(included within the revolving credit category) which are offered nationwide, is
considered in the  Corporation's  review of the adequacy of the reserve for loan
and lease losses.

T A B L E  14


              Summary of Loan and Lease Financing Loss Experience
                   and the Reserve for Loan and Lease Losses
                                 (In Thousands)


<TABLE>
<CAPTION>
                                                                                              Years Ended December 31
                                                                                           -----------------------------
                                                                                                 1998           1997
                                                                                           --------------- -------------
<S>                                                                                        <C>             <C>
Balance at beginning of year                                                                   $    67,594      61,257
-------------------------------------------------------------------------------------------
Loan and lease losses charged to reserve:
-------------------------------------------------------------------------------------------
 Commercial, financial and agricultural                                                               (269)       (673)
-------------------------------------------------------------------------------------------
 Real estate -- construction                                                                          (111)        (25)
-------------------------------------------------------------------------------------------
 Real estate -- mortgage                                                                              (424)       (545)
-------------------------------------------------------------------------------------------
 Instalment loans to individuals                                                                    (4,971)     (4,514)
-------------------------------------------------------------------------------------------
 Revolving credit                                                                                   (7,066)     (7,344)
-------------------------------------------------------------------------------------------
 Lease financing                                                                                       (68)        (43)
-------------------------------------------------------------------------------------------     ----------      ------
   Total loan and lease losses charged to reserve                                                  (12,909)    (13,144)
-------------------------------------------------------------------------------------------     ----------     -------
Recoveries of loans and leases previously charged-off:
 Commercial, financial and agricultural                                                                 51          63
-------------------------------------------------------------------------------------------
 Real estate -- construction                                                                            64          41
-------------------------------------------------------------------------------------------
 Real estate --  mortgage                                                                              143         136
-------------------------------------------------------------------------------------------
 Instalment loans to individuals                                                                       842       1,431
-------------------------------------------------------------------------------------------
 Revolving credit                                                                                    1,490       1,339
-------------------------------------------------------------------------------------------
 Lease financing                                                                                        23          95
-------------------------------------------------------------------------------------------     ----------     -------
   Total recoveries of loans and leases previously charged-off                                       2,613       3,105
-------------------------------------------------------------------------------------------     ----------     -------
Net charge-offs                                                                                    (10,296)    (10,039)
-------------------------------------------------------------------------------------------
Provision charged to operations                                                                     15,884      16,376
-------------------------------------------------------------------------------------------
Reserves related to acquisitions                                                                        --          --
-------------------------------------------------------------------------------------------     ----------     -------
Balance at end of year                                                                         $    73,182      67,594
-------------------------------------------------------------------------------------------     ----------     -------
Loans and lease financing outstanding at end of year                                           $ 5,487,337   5,093,569
-------------------------------------------------------------------------------------------
Ratio of reserve for loan and lease losses to loans and lease financing outstanding at end
 of year                                                                                              1.33%       1.33
-------------------------------------------------------------------------------------------
Average loans and lease financing outstanding                                                  $ 5,276,042   4,877,187
-------------------------------------------------------------------------------------------
Ratio of net charge-offs of loans and lease financing to average loans and lease
financing:
-------------------------------------------------------------------------------------------
  Total                                                                                                .20%        .21
-------------------------------------------------------------------------------------------
  Excluding revolving credit                                                                           .09         .09
-------------------------------------------------------------------------------------------
  Revolving credit                                                                                    2.66        2.87
----------------------------------------------------------------------------------------------------------   ---------



<CAPTION>
                                                                                             Years Ended December 31
                                                                                           ----------------------------
                                                                                                1996          1995
                                                                                           ------------- -------------
<S>                                                                                        <C>           <C>
Balance at beginning of year                                                                    55,114        50,902
-------------------------------------------------------------------------------------------
Loan and lease losses charged to reserve:
-------------------------------------------------------------------------------------------
 Commercial, financial and agricultural                                                           (438)         (343)
-------------------------------------------------------------------------------------------
 Real estate -- construction                                                                       (38)         (392)
-------------------------------------------------------------------------------------------
 Real estate -- mortgage                                                                          (869)         (328)
-------------------------------------------------------------------------------------------
 Instalment loans to individuals                                                                (5,136)       (3,337)
-------------------------------------------------------------------------------------------
 Revolving credit                                                                               (7,633)       (4,334)
-------------------------------------------------------------------------------------------
 Lease financing                                                                                  (166)          (71)
-------------------------------------------------------------------------------------------     ------        ------
   Total loan and lease losses charged to reserve                                              (14,280)       (8,805)
-------------------------------------------------------------------------------------------    -------        ------
Recoveries of loans and leases previously charged-off:
 Commercial, financial and agricultural                                                            445           176
-------------------------------------------------------------------------------------------
 Real estate -- construction                                                                        61            38
-------------------------------------------------------------------------------------------
 Real estate --  mortgage                                                                          305            77
-------------------------------------------------------------------------------------------
 Instalment loans to individuals                                                                 1,127           680
-------------------------------------------------------------------------------------------
 Revolving credit                                                                                1,083         1,024
-------------------------------------------------------------------------------------------
 Lease financing                                                                                    41            15
-------------------------------------------------------------------------------------------    -------        ------
   Total recoveries of loans and leases previously charged-off                                   3,062         2,010
-------------------------------------------------------------------------------------------    -------        ------
Net charge-offs                                                                                (11,218)       (6,795)
-------------------------------------------------------------------------------------------
Provision charged to operations                                                                 17,361        11,007
-------------------------------------------------------------------------------------------
Reserves related to acquisitions                                                                    --            --
-------------------------------------------------------------------------------------------    -------        ------
Balance at end of year                                                                          61,257        55,114
-------------------------------------------------------------------------------------------    -------        ------
Loans and lease financing outstanding at end of year                                         4,745,663     4,267,175
-------------------------------------------------------------------------------------------
Ratio of reserve for loan and lease losses to loans and lease financing outstanding at end
 of year                                                                                           1.29          1.29
-------------------------------------------------------------------------------------------
Average loans and lease financing outstanding                                                4,464,026     4,113,207
-------------------------------------------------------------------------------------------
Ratio of net charge-offs of loans and lease financing to average loans and lease
-------------------------------------------------------------------------------------------
financing:
---------------------------------------------------------------------------------------  --
  Total                                                                                             .25           .17
-------------------------------------------------------------------------------------------
  Excluding revolving credit                                                                        .11           .09
-------------------------------------------------------------------------------------------
  Revolving credit                                                                                 2.85          1.47
-------------------------------------------------------------------------------------------  ----------    ----------



<CAPTION>
                                                                                            Years Ended
                                                                                            December 31
                                                                                           -------------
                                                                                                1994
                                                                                           -------------
<S>                                                                                        <C>
Balance at beginning of year                                                                    43,357
-------------------------------------------------------------------------------------------
Loan and lease losses charged to reserve:
-------------------------------------------------------------------------------------------
 Commercial, financial and agricultural                                                           (463)
-------------------------------------------------------------------------------------------
 Real estate -- construction                                                                      (567)
-------------------------------------------------------------------------------------------
 Real estate -- mortgage                                                                        (1,112)
-------------------------------------------------------------------------------------------
 Instalment loans to individuals                                                                (2,845)
-------------------------------------------------------------------------------------------
 Revolving credit                                                                               (3,122)
-------------------------------------------------------------------------------------------
 Lease financing                                                                                   (84)
-------------------------------------------------------------------------------------------     ------
   Total loan and lease losses charged to reserve                                               (8,193)
-------------------------------------------------------------------------------------------     ------
Recoveries of loans and leases previously charged-off:
 Commercial, financial and agricultural                                                            454
-------------------------------------------------------------------------------------------
 Real estate -- construction                                                                        60
-------------------------------------------------------------------------------------------
 Real estate --  mortgage                                                                          224
-------------------------------------------------------------------------------------------
 Instalment loans to individuals                                                                   964
-------------------------------------------------------------------------------------------
 Revolving credit                                                                                  684
-------------------------------------------------------------------------------------------
 Lease financing                                                                                    91
-------------------------------------------------------------------------------------------     ------
   Total recoveries of loans and leases previously charged-off                                   2,477
-------------------------------------------------------------------------------------------     ------
Net charge-offs                                                                                 (5,716)
-------------------------------------------------------------------------------------------
Provision charged to operations                                                                 10,761
-------------------------------------------------------------------------------------------
Reserves related to acquisitions                                                                 2,500
-------------------------------------------------------------------------------------------     ------
Balance at end of year                                                                          50,902
-------------------------------------------------------------------------------------------     ------
Loans and lease financing outstanding at end of year                                         3,952,160
-------------------------------------------------------------------------------------------
Ratio of reserve for loan and lease losses to loans and lease financing outstanding at end
 of year                                                                                           1.29
-------------------------------------------------------------------------------------------
Average loans and lease financing outstanding                                                3,569,065
-------------------------------------------------------------------------------------------
Ratio of net charge-offs of loans and lease financing to average loans and lease
-------------------------------------------------------------------------------------------
financing:
---------------------------------------------------------------------------------------  --
  Total                                                                                             .16
-------------------------------------------------------------------------------------------
  Excluding revolving credit                                                                        .10
-------------------------------------------------------------------------------------------
  Revolving credit                                                                                 1.18
-------------------------------------------------------------------------------------------  ----------
</TABLE>

     Despite a modest increase in 1998's actual net charge-offs,  charge-offs as
a percentage  of average  loans and leases fell 1 basis point from 1997's level.
The largest category of charge-off's,  revolving credit,  experienced a 21 basis
point decrease from 1997's level.  Provisions for loan and lease losses amounted
to $15.9  million,  $16.4  million  and $17.4  million  in 1998,  1997 and 1996,
respectively.  An  allocation of the reserve for loan and lease losses as of the
end of the  previous  five years is presented  in Table 15. Data  presented  for
prior  years has been  restated  to better  present  the data  reflected  in the
Corporation's loan and lease loss reserve model.


                                       26
<PAGE>

T A B L E  15


              Allocation of the Reserve for Loan and Lease Losses
                                 (In Thousands)


<TABLE>
<CAPTION>
                                           1998                    1997
                                  ----------------------- -----------------------
                                                 % of                    % of              
                                     Amount      Loans       Amount      Loans
                                       of      and Leases      of      and Leases
                                    Reserve     in Each     Reserve     in Each
                                   Allocated    Category   Allocated    Category
                                  ----------- ----------- ----------- -----------
<S>                                <C>         <C>         <C>         <C>
Commercial, financial and
 agricultural                      $ 13,085   12.5 %          8,492        13.5
---------------------------------
Real estate -- construction           8,850   16.5            4,420        14.4
---------------------------------
Real estate -- mortgage               4,969   57.3            4,339        57.2
---------------------------------
Instalment loans to individuals      13,901    8.9           10,648         9.9
---------------------------------
Revolving credit                     10,270    3.9            8,507         4.2
---------------------------------
Lease financing                         463     .9              319          .8
---------------------------------
Unallocated portion of reserve       21,644    --            30,869         --
---------------------------------  --------   ----           ------       -----
 Total                             $ 73,182   100.0 %        67,594       100.0
---------------------------------  --------   ---------      ------       -----



<CAPTION>
                                           1996                    1995                    1994
                                  ----------------------- ----------------------- -----------------------
                                                  % of                    % of                    % of
                                     Amount      Loans       Amount      Loans       Amount      Loans
                                       of      and Leases      of      and Leases      of      and Leases
                                    Reserve     in Each     Reserve     in Each     Reserve     in Each
                                   Allocated    Category   Allocated    Category   Allocated    Category
                                  ----------- ----------- ----------- ----------- ----------- -----------
<S>                               <C>         <C>         <C>         <C>         <C>         <C>
Commercial, financial and
 agricultural                         9,955        11.6       6,113        14.8       6,590        16.7
---------------------------------
Real estate -- construction           2,584        13.3       3,185        11.8       4,551        10.2
---------------------------------
Real estate -- mortgage               7,034        54.8       9,823        53.4      13,126        54.0
---------------------------------
Instalment loans to individuals       9,743        15.6       5,185        13.9      10,885        13.4
---------------------------------
Revolving credit                      5,937         4.1       4,929         5.4       3,756         5.1
---------------------------------
Lease financing                         314          .6         240          .7         281          .6
---------------------------------
Unallocated portion of reserve       25,690         --       25,639         --       11,713         --
---------------------------------    ------       -----      ------       -----      ------       -----
 Total                               61,257       100.0      55,114       100.0      50,902       100.0
---------------------------------    ------       -----      ------       -----      ------       -----
</TABLE>

     Management  performs a detailed analysis of the loan and lease portfolio to
determine the adequacy of the reserve for loan and lease losses.  The reserve is
comprised of allocated and unallocated portions.

     The allocated reserve consists of specific as well as general  allocations.
Specific loan loss  allocations  are  determined for  significant  credits where
Management  believes that a risk of loss exists.  A key tool in controlling loan
losses is the Corporation's  loan grading system that begins at the inception of
the credit  relationship.  Under this grading system,  substantially  all credit
relationships  greater than $100,000  (excluding  residential  mortgage and home
equity  lines) are assigned  grades that direct the timing and intensity of loan
review  activity  throughout  the  life  of the  relationship.  All  significant
relationships are reviewed at least annually. Relationships that have the lowest
grade are reviewed  each thirty days.  All  relationships  in excess of $100,000
which have been internally  classified as "Special  Mention",  "Substandard"  or
"Loss" are evaluated  individually  for their  potential  loss;  factors such as
collateral value and guarantor strength are included in the evaluation  process.
In addition,  general allocations are determined for each loan type by assigning
a risk factor to compute their  respective  loss reserve.  The risk factors have
been developed using historical loss levels,  economic trends, market conditions
and other  factors.  The  allocated  reserve is  determined  as a result of this
analysis  which  includes  the specific and general  reserves  discussed  above.
During 1998, Management adjusted the risk factors used for general allocation of
the reserve among the respective loan categories. The risk factors were adjusted
upward  in  consideration  of  historical  charge-off  rates,  recent  trends in
consumer debt levels,  increased  consumer  bankruptcy  rates  nationally and in
North Carolina and other pertinent  factors.  Management reviews risk assets and
charge-offs by loan type on a monthly basis.

     For the  unallocated  portion  of the  reserve  for loan and lease  losses,
Management  determines the appropriate  level of unallocated  reserve to provide
for  probable  losses  inherent  in  the  loan  and  lease  portfolios  and  for
unfavorable credit events that may have occurred for specific borrowers of which
Management is not yet aware. Factors considered in Management's determination of
the appropriate  level of unallocated  reserve are general  economic and lending
trends. The level of unallocated  reserves as of year-end 1998 has declined from
prior years.

     Management  believes that the reserve for loan and lease losses is adequate
to absorb  estimated  probable  losses  inherent in the loan and lease financing
portfolio.  The most recent regulatory agency examinations have not revealed any
material  problem  credits  that had not been  previously  identified;  however,
future regulatory  examinations may result in the regulatory  agencies requiring
additions  to the  reserve  for  loan and  lease  losses  based  on  information
available at the examination date.


Liquidity and Interest-Sensitivity

     Liquidity  ensures  that  adequate  funds  are  available  to meet  deposit
withdrawals,  fund loan and capital  expenditure  commitments,  maintain reserve
requirements,  pay operating expenses, provide funds for dividends, debt service
and other  commitments and operate the  organization on an ongoing basis.  Funds
are primarily provided by the Subsidiary Banks through financial  resources from
operating  activities,  expansion of the deposit base,  borrowing funds in money
market operations and through the sale or maturity of assets.

     Net cash provided by operating  activities and deposits from customers have
historically been the primary sources of liquidity for the Corporation. Net cash
provided by operating activities amounted to $100.6 million,  $152.7 million and
$103.6 million in 1998, 1997 and 1996, respectively. Average total deposits have
grown by $340.9 million, $350.2 million and $296 million during


                                       27
<PAGE>

the three previous years.  Average  certificates of deposit in  denominations of
$100,000 or more still comprise a relatively  small  percentage of average total
deposits, 7.4% in 1998 versus 6.8% in 1997. These deposits grew on average $43.6
million  from 1997 to 1998.  Management  intentionally  keeps the  Corporation's
reliance on the  higher-cost  large  certificates  of deposit low because of the
availability of less expensive sources of funding and considers them a secondary
source of liquidity that can be obtained as needed.

     At December 31, 1998,  time  certificates of deposit in amounts of $100,000
or more were $452.8  million  compared to $392.4  million at December  31, 1997.
During 1998, the maximum  month-end  balance for time certificates of deposit in
amounts of $100,000 or more totaled $465.4 million. The following is a remaining
maturity schedule of these deposits at December 31, 1998 (in thousands):



<TABLE>
<CAPTION>
                                           Over 3        Over 6
                              3 Months     Through       Through 
                              or Less      6 Months     12 Months       Total
                            -----------   ---------     ---------    -----------
<S>                         <C>           <C>          <C>           <C>
  Jumbo deposits             $269,397      110,689       72,722       $452,808
</TABLE>

     At December 31, 1998, the Subsidiary  Banks were net short-term  lenders as
average short-term  investments exceeded average short-term liabilities by $47.1
million.  In the  past  several  years,  the  Subsidiary  Banks  have  been  net
short-term  borrowers.  The change to being a net  short-term  lender was due to
1998's  interest rate  environment:  the Subsidiary  Banks received  higher than
normal  paydowns  on  mortgage-backed  securities  due to the  fall in  mortgage
interest  rates,  excess funds were not  reinvested  in  longer-term  investment
securities  due to the flat yield  curve and the  Subsidiary  Banks were able to
obtain  longer-term  borrowings at attractive  interest rates. In 1997 and 1996,
average short-term borrowings exceeded short-term  investments by $119.7 million
and $112.2 million, respectively, due to high loan demand.

     Correspondent  relationships  are  maintained  with  several  larger  banks
enabling  the  Subsidiary  Banks to purchase  federal  funds when  needed.  Also
available as liquidity sources are access to the Federal Reserve discount window
and CCB's $600 million  line of credit  maintained  with the FHLB.  This line of
credit is secured  by a blanket  collateral  agreement  on CCB's  mortgage  loan
portfolio.

     Maturities of securities  held for  investment  and sales and maturities of
securities  categorized  as available  for sale are other  sources of liquidity.
Securities  with carrying values of $156.8 million mature in 1999. The available
for sale portfolio is comprised of U.S. Treasury securities, obligations of U.S.
Government agencies and corporations and equity securities. Securities available
for  sale  are  considered  in  the  Corporation's   asset/liability  management
strategies and may be sold in response to changes in interest  rates,  liquidity
needs and/or significant prepayment risk.

     Liquidity at the Parent  Company level is provided  through cash  dividends
from the  Subsidiary  Banks and the  capacity  of the  Parent  Company  to raise
additional  borrowed  funds as needed.  At December 31, 1998, the Parent Company
had an unused $50 million  credit  agreement with a financial  institution.  The
credit agreement is unsecured and expires in November 2001.

     In addition to ensuring  adequate  liquidity,  the Corporation is concerned
with the  management  of its  balance  sheet to maintain  relatively  stable net
interest   margins   despite   changes  in  the   interest   rate   environment.
Responsibility for both liquidity and interest-sensitivity management rests with
the Corporation's  Asset/Liability  Management  Committee  ("ALCO") comprised of
senior  management.  ALCO reviews the Corporation's  interest rate and liquidity
exposures  and,  based on its view of existing and expected  market  conditions,
adopts  balance  sheet  strategies  that are  intended to optimize  net interest
income  to the  extent  possible  while  minimizing  the  risk  associated  with
unanticipated  changes  in  interest  rates.   Determining  and  monitoring  the
appropriate  balance between  interest-sensitive  assets and  interest-sensitive
liabilities  and the  impact  on  earnings  of  changes  in  interest  rates  is
accomplished through ALCO's use of Gap Analysis and Simulation Analysis.

     Gap Analysis measures the interest-sensitivity of assets and liabilities at
a given point in time.  The  interest-sensitivity  of assets and  liabilities is
based on the  timing of  contractual  maturities  and  repricing  opportunities.
Prepayments of loans and certain investment  securities and early withdrawals of
deposits  represent  options  which may or may not be exercised and thus are not
considered in the Gap Analysis.  A positive  interest-sensitive  gap occurs when
interest-sensitive  assets exceed  interest-sensitive  liabilities.  The reverse
situation  results  in a negative  gap.  Management  feels  that an  essentially
balanced  position (+/- 10% of total earning assets) between  interest-sensitive
assets  and   liabilities  is  necessary  in  order  to  protect   against  wide
fluctuations   in   interest   rates.   An   analysis   of   the   Corporation's
interest-sensitivity  position at December 31, 1998 is presented in Table 16. At
December  31,  1998,   the   Corporation   had  a  cumulative   "negative   gap"
(interest-sensitive  liabilities exceeding  interest-sensitive assets) of $352.6
million or 4.82% of total earning assets over a twelve-month  horizon. The ratio
of  interest-sensitive  assets to  interest-sensitive  liabilities was .91x. Gap
Analysis is a limited measurement tool, however, because it does not incorporate
the  interrelationships  between  interest rates charged or paid,  balance sheet
trends and  Management's  reaction  in response to  interest  rate  changes.  In
addition,  a gap analysis model does not consider that changes in interest rates
do  not  affect  all   categories   of  assets   and   liabilities   equally  or
simultaneously. Therefore,


                                       28
<PAGE>

ALCO  uses Gap  Analysis  as a tool to  monitor  changes  in the  balance  sheet
structure.  To estimate the impact that changes in interest  rates would have on
the Corporation's earnings, ALCO uses Simulation Analysis.

T A B L E  16


                       Interest-Sensitivity Analysis (1)
                                (In Thousands)


<TABLE>
<CAPTION>
                                                                   As of December 31, 1998
                                                  -------------------------------------------------------------------
                                                                                                          6 Month
                                                     30 Day        60 Day       90 Day      6 Month      Sensitive
                                                    Sensitive    Sensitive    Sensitive    Sensitive     to 1 Year
                                                  ------------ ------------- ----------- -------------  -------------
<S>                                               <C>          <C>           <C>         <C>           <C>
Earning assets:
Time deposits in other banks                        $ 59,429            --          --            --           100
-------------------------------------------------
Federal funds sold and other short-term
 investments                                         430,000            --          --            --            --
-------------------------------------------------
Investment securities (2)                            124,690        44,800      48,125       157,849       109,359
-------------------------------------------------
Loans and lease financing                         1,294,270        595,862      84,502       252,998       529,174
------------------------------------------------- ----------       -------      ------       -------       -------
 Total earning assets                             1,908,389        640,662     132,627       410,847       638,633
------------------------------------------------- ----------       -------     -------       -------       -------
Interest-bearing liabilities:
Savings deposits                                  1,040,904        631,886          --            --            --
-------------------------------------------------
Other time deposits                                 345,696        195,326     203,421       554,013       823,957
-------------------------------------------------
Short-term borrowed funds                           238,256             --          --            --            --
-------------------------------------------------
Long-term debt                                           63             19          19        50,057           117
------------------------------------------------- ----------       -------     -------       -------       -------
 Total interest-bearing liabilities               1,624,919        827,231     203,440       604,070       824,074
------------------------------------------------- ----------       -------     -------       -------       -------
Interest-sensitivity gap                          $ 283,470       (186,569)    (70,813)     (193,223)     (185,441)
------------------------------------------------- ----------      --------     -------      --------      --------
Cumulative gap                                    $ 283,470         96,901      26,088      (167,135)     (352,576)
------------------------------------------------- ----------      --------     -------      --------      --------
Cumulative ratio of interest-sensitive assets to
 interest-sensitive liabilities                   1.17 x               1.04        1.01           .95           .91
------------------------------------------------- -----------     ---------    --------     ---------     ---------
Cumulative gap to total earning assets            3.87 %               1.32         .36        (2.28)        (4.82)
------------------------------------------------- -----------     ---------    --------     ---------     ---------



<CAPTION>
                                                          As of December 31, 1998
                                                  ----------------------------------------
                                                      Total      Non-Interest
                                                    Sensitive     Sensitive       Total
                                                  ------------- ------------- ------------
<S>                                               <C>           <C>           <C>
Earning assets:
Time deposits in other banks                           59,529            --       59,529
-------------------------------------------------
Federal funds sold and other short-term
 investments                                          430,000            --      430,000
-------------------------------------------------
Investment securities (2)                             484,823       857,843    1,342,666
-------------------------------------------------
Loans and lease financing                           2,756,806     2,730,531    5,487,337
-------------------------------------------------   ---------     ---------    ---------
 Total earning assets                               3,731,158     3,588,374    7,319,532
-------------------------------------------------   ---------     ---------    ---------
Interest-bearing liabilities:
Savings deposits                                    1,672,790       975,221    2,648,011
-------------------------------------------------
Other time deposits                                 2,122,413       834,402    2,956,815
-------------------------------------------------
Short-term borrowed funds                             238,256        50,000      288,256
-------------------------------------------------
Long-term debt                                         50,275       166,420      216,695
-------------------------------------------------   ---------     ---------    ---------
 Total interest-bearing liabilities                 4,083,734     2,026,043    6,109,777
-------------------------------------------------   ---------     ---------    ---------
Interest-sensitivity gap                             (352,576)
-------------------------------------------------   ---------
Cumulative gap
-------------------------------------------------
Cumulative ratio of interest-sensitive assets to
 interest-sensitive liabilities
-------------------------------------------------
Cumulative gap to total earning assets
-------------------------------------------------
</TABLE>

(1) Assets and liabilities  that mature in one year or less and/or have interest
    rates that can be adjusted during this period are considered
    interest-sensitive. The interest-sensitivity position has meaning only as
    of the date for which it is prepared.
(2) Investment securities are presented at their amortized cost. The
    mark-to-market adjustment of $21,721,000 for available for sale securities
    is not included.
--------------------------------------------------------------------------------
     Simulation  Analysis is performed  using a  computer-based  asset/liability
model   incorporating   current  portfolio   balances  and  rates,   contractual
maturities,  repricing opportunities,  and assumptions about prepayments, future
interest rates, and future volumes. Using this information, the model calculates
earnings  estimates for the Corporation  under multiple interest rate scenarios.
To  measure  the  sensitivity  of the  Corporation's  earnings,  the  results of
multiple  simulations,  which assume changes in interest rates,  are compared to
the "base case"  simulation,  which  assumes no changes in interest  rates.  The
sensitivity of earnings is expressed as a percentage change in comparison to the
"base case" simulation.  As a matter of policy, ALCO has stated that the maximum
negative impact to net income from a positive or negative 100 basis point change
in  interest  rates over a  12-month  period  should  not  exceed 6%,  which was
achieved  during 1998 and 1997. At December 31, 1998,  earnings  sensitivity was
well under this guideline as a 100 basis point increase is projected to decrease
net income .2% and a 100 basis point  decrease  is  projected  to  decrease  net
income .9%.  ALCO in practice  manages  earnings  sensitivity,  however,  with a
targeted  goal of only a 2% to 3% impact on net income.  If  simulation  results
show that  earnings  sensitivity  exceeds the targeted  limits,  ALCO will adopt
on-balance  sheet  and/or   off-balance   sheet  strategies  to  bring  earnings
sensitivity within target guidelines.

     Management  uses both on- and  off-balance  sheet  strategies to manage the
balance sheet. The most efficient and cost-effective  method of on-balance sheet
management  is creating  desired  maturity  and  repricing  streams  through the
tactical  pricing of  interest-earning  and  interest-bearing  on-balance  sheet
products.  ALCO reviews the interest-earning and interest-bearing  portfolios to
ensure  that  the  Corporation  has a  proper  mix of fixed  and  variable  rate
products.  Emphasis  will  continue  to be placed on  granting  loans with short
maturities and floating rates where possible.  This strategy increases liquidity
and is necessitated by the continued  shortening of maturities and more frequent
repricing  opportunities of the Corporation's  funding sources.  As of year-end,
approximately  23.6% of all loans reprice or mature within 30 days.  See Table 7
for  additional  detail  regarding  loan maturity and  sensitivity to changes in
interest rates at December 31, 1998.

     Within the  Corporation's  overall interest rate risk management  strategy,
off-balance sheet derivatives have been and may be used in the future as a cost-
and  capital-efficient  way to manage interest rate sensitivity by modifying the
repricing or maturity of


                                       29
<PAGE>

on-balance sheet assets or liabilities. As of December 31, 1998, the Corporation
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 November  1997 and April 1998 and have  two-year
terms. The purpose of entering into the interest rate swaps was to synthetically
convert U.S. Treasury-based liabilities into prime rate-based liabilities and to
lock-in a wide spread between the two indices. These financial instruments had a
nominal  negative effect on interest  expense for 1998 and 1997. The Corporation
was not party to any other  off-balance sheet derivative  financial  instruments
during 1998. Although off-balance sheet derivative  financial  instruments would
not expose the  Corporation  to credit risk equal to the notional  amount of the
contracts,  the Corporation would be exposed to credit risk to the extent of the
fair value of the unrealized gain (if any) in the off-balance  sheet  derivative
instrument if the counterparty  failed to perform.  Credit risk resulting from a
counterparty's  nonperformance  of any  contracts  is  being  monitored  through
routine review of the counterparty's financial ratings.

     The Corporation has not experienced any liquidity  problems in the past nor
are problems  anticipated in the future.  Reliance will continue to be placed on
the same funding sources,  primarily  financial  resources provided by operating
activities and expansion of the "core" deposit base. Management will continue to
monitor the Corporation's  interest-sensitivity  position with goals of ensuring
adequate liquidity while at the same time seeking profitable spreads between the
yields on funding uses and the rates paid for funding sources.


Other Accounting Matters

     Statement  of  Financial  Accounting  Standards  No. 133,  "Accounting  for
Derivative  Instruments  and Hedging  Activities,"  establishes  accounting  and
reporting standards for derivatives and hedging activities. It requires that all
derivatives  be included as assets or  liabilities in the balance sheet and that
such  instruments be carried at fair market value through  adjustments to either
other  comprehensive  income or current  earnings or both, as  appropriate.  The
Corporation  is in the process of  assessing  the impact of this  Standard.  The
Standard is effective for financial statements issued for all fiscal quarters of
fiscal years beginning after June 15, 1999.

     Statement  of  Financial  Accounting  Standards  No. 134,  "Accounting  for
Mortgage-Backed  Securities  Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage  Banking  Enterprise,"  establishes  accounting  and
reporting  standards for certain mortgage banking  activities.  It also conforms
the subsequent  accounting for securities  retained after the  securitization of
other types of assets. The Corporation is in the process of assessing the impact
of this  Standard.  The Standard is effective for financial  statements  for the
first fiscal quarter beginning after December 15, 1998.


                                       30
<PAGE>

Item 7A. QUANTITATIVE AND QUALITATIVE  DISCLOSURES ABOUT MARKET RISK

     Market risk reflects the risk of economic loss resulting from adverse
changes in market price and interest  rates.  This risk of loss can be reflected
in diminished current market values and/or reduced potential net interest income
in future periods.

     The  Corporation's  market risk arises  primarily  from  interest rate risk
inherent in its lending and  deposit-taking  activities.  The  structure  of the
Corporation's  loan and deposit  portfolios is such that a  significant  rise or
decline  in  interest  rates may  adversely  impact  net  market  values and net
interest income.  The Corporation does not maintain a trading account nor is the
Corporation   subject  to  currency  exchange  risk  or  commodity  price  risk.
Responsibility for monitoring interest rate risk rests with the Asset/ Liability
Management  Committee  ("ALCO")  which is comprised of senior  management.  ALCO
regularly  reviews the  Corporation's  interest  rate risk  position  and adopts
balance sheet strategies that are intended to optimize net interest income while
maintaining market risk within a set of Board-approved  guidelines.  To estimate
the  impact  that  changes in  interest  rates  would have on the  Corporation's
earnings, ALCO uses Simulation Analysis.

     Simulation  Analysis is performed  using a  computer-based  asset/liability
model which  incorporates  current  portfolio  balances  and rates,  contractual
maturities,  repricing  opportunities and assumptions about prepayments,  future
interest  rates  and  future   volumes.   To  measure  the  sensitivity  of  the
Corporation's earnings, the result of multiple simulations, which assume changes
in interest rates, are compared to the "base case" simulation,  which assumes no
changes in  interest  rates.  The  sensitivity  of earnings  is  expressed  as a
percentage change in comparison to the "base case" simulation. The model assumes
an immediate  parallel shift in interest rates. As a matter of policy,  ALCO has
stated  that the  maximum  negative  impact to net  income  from a  positive  or
negative 100 basis point change in interest rates over a 12-month  period should
not exceed 6%. However,  ALCO in practice manages earnings  sensitivity within a
targeted  range  of only a 2% to 3%  impact  on net  income.  The  Corporation's
interest rate risk position based on simulation  results as of December 31, 1998
is as follows:


<TABLE>
<S>                                           <C>        <C>
  Basis point change in interest rates          (100)         100
---------------------------------------------
  Projected percentage change in net income      (.9)%        (.2)%
---------------------------------------------
</TABLE>

     As of December 31, 1998,  Management  believes that it has accomplished its
objective  to avoid  material  negative  changes  in net income  resulting  from
possible future changes in interest rates.  Projected  percentage changes in net
income brought about by changes in interest  rates are not material  relative to
the Corporation's net income.

     If  simulation  results  indicate  earnings  sensitivity  in  excess of the
targeted  limits,  ALCO will adopt  on-balance  sheet and/or  off-balance  sheet
strategies to bring earnings  sensitivity within target  guidelines.  On-balance
sheet strategies  involve the creation of desired maturity and repricing streams
through the tactical pricing of interest-earning and interest-bearing portfolios
to ensure  that the  Corporation  has a proper  mix of fixed and  variable  rate
products.  As of December  31,  1998,  the  Corporation  had  off-balance  sheet
derivative financial instruments  outstanding in the form of interest rate swaps
(basis swaps) with a notional  amount of $200  million.  The two-year term basis
swaps were entered into in November 1997 and April 1998 to synthetically convert
U.S. Treasury-based liabilities into prime rate-based liabilities and to lock-in
the favorable spread between the two indices. The Corporation was not a party to
any other off-balance sheet derivative financial instruments during 1998.

     Emphasis will continue to be placed on granting loans with short maturities
and floating  rates where  possible.  This strategy  increases  liquidity and is
necessitated  by the  continued  shortening  of  maturities  and  more  frequent
repricing  opportunities of the Corporation's  funding sources.  Management will
continue to monitor the  Corporation's  interest  rate risk position to minimize
the adverse impact of earnings caused by changes in interest rates.


                                       31
<PAGE>

                     (THIS PAGE INTENTIONALLY LEFT BLANK)

                                       32
<PAGE>

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


<TABLE>
<S>                                                                                          <C>
                                                                                              Page
                                                                                              -
(a)  The  following  audited  consolidated   financial  statements  and  related
documents are set forth in this
  Annual Report on Form 10-K on the pages indicated:
CCB Financial Corporation and Subsidiaries:
 Consolidated Balance Sheets at December 31, 1998 and 1997 ...............................     34
 Consolidated Statements of Income for each of the years in the three-year period
   ended December 31, 1998 ...............................................................     35
 Consolidated Statements of Shareholders' Equity and Comprehensive Income for each
   of the years in the three-year period ended December 31, 1998 .........................     36
 Consolidated Statements of Cash Flows for each of the years in the three-year period
   ended December 31, 1998 ...............................................................     37
 Notes to Consolidated Financial Statements ..............................................     38
Report of Management Regarding Responsibility for Financial Statements ...................     60
Independent Auditors' Report .............................................................     61
(b) The following supplementary data is set forth in this Annual Report on Form 10-K on
the page indicated:
  Quarterly Financial Data ...............................................................     58
</TABLE>

                                       33
<PAGE>

                  CCB FINANCIAL CORPORATION AND SUBSIDIARIES


                          Consolidated Balance Sheets
                          December 31, 1998 and 1997


<TABLE>
<CAPTION>
                                                                                               1998           1997
                                                                                          -------------   ------------
                                                                                            (In Thousands Except for
                                                                                                    Share Data)
<S>                                                                                       <C>             <C>
Assets:
Cash and due from banks (note 3)                                                           $   250,922       277,469
---------------------------------------------------------------------------------------    -----------       -------
Time deposits in other banks                                                                    59,529        19,875
---------------------------------------------------------------------------------------    -----------       -------
Federal funds sold and other short-term investments                                            430,000       122,000
---------------------------------------------------------------------------------------    -----------       -------
Investment securities (notes 4 and 8):
 Available for sale (Amortized cost of $1,262,477 and $1,359,376)                            1,284,198     1,382,107
---------------------------------------------------------------------------------------    -----------     ---------
 Held to maturity (Market values of $85,277 and $87,002)                                        80,189        81,617
---------------------------------------------------------------------------------------    -----------     ---------
Loans and lease financing (notes 5, 8 and 9)                                                 5,487,337     5,093,569
---------------------------------------------------------------------------------------
 Less reserve for loan and lease losses (note 6)                                                73,182        67,594
---------------------------------------------------------------------------------------    -----------     ---------
  Net loans and lease financing                                                              5,414,155     5,025,975
---------------------------------------------------------------------------------------    -----------     ---------
Premises and equipment (notes 7 and 9)                                                          92,770        86,035
---------------------------------------------------------------------------------------
Other assets (notes 5 and 13)                                                                  128,590       143,450
---------------------------------------------------------------------------------------    -----------     ---------
  Total assets                                                                             $ 7,740,353     7,138,528
---------------------------------------------------------------------------------------    -----------     ---------
Liabilities:
Deposits:
 Demand (noninterest-bearing)                                                              $   854,938       740,338
---------------------------------------------------------------------------------------
 Savings and NOW accounts                                                                      863,920       727,108
---------------------------------------------------------------------------------------
 Money market accounts                                                                       1,784,091     1,636,683
---------------------------------------------------------------------------------------
 Jumbo time deposits (note 8)                                                                  452,808       392,435
---------------------------------------------------------------------------------------
 Time deposits (note 8)                                                                      2,504,007     2,488,033
---------------------------------------------------------------------------------------    -----------     ---------
  Total deposits                                                                             6,459,764     5,984,597
---------------------------------------------------------------------------------------
Short-term borrowed funds (note 8)                                                             288,256       276,437
---------------------------------------------------------------------------------------
Long-term debt (note 9)                                                                        216,695       100,686
---------------------------------------------------------------------------------------
Other liabilities (notes 10 and 13)                                                             87,744        95,448
---------------------------------------------------------------------------------------    -----------     ---------
  Total liabilities                                                                          7,052,459     6,457,168
---------------------------------------------------------------------------------------    -----------     ---------
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; 40,345,214 and 41,552,824
shares
 issued in 1998 and 1997, respectively                                                         201,726       207,764
---------------------------------------------------------------------------------------
Additional paid-in capital                                                                      73,771       143,784
---------------------------------------------------------------------------------------
Retained earnings                                                                              399,066       315,864
---------------------------------------------------------------------------------------
Accumulated other comprehensive income                                                          13,331        13,980
---------------------------------------------------------------------------------------
Less: Unearned common stock held by management recognition plans                                    --           (32)
---------------------------------------------------------------------------------------    -----------     ---------
  Total shareholders' equity                                                                   687,894       681,360
---------------------------------------------------------------------------------------    -----------     ---------
  Total liabilities and shareholders' equity                                               $ 7,740,353     7,138,528
---------------------------------------------------------------------------------------    -----------     ---------
</TABLE>

Commitments and contingencies (note 14)


See accompanying notes to consolidated financial statements.

                                       34
<PAGE>

                   CCB FINANCIAL CORPORATION AND SUBSIDIARIES


                       Consolidated Statements of Income
                 Years Ended December 31, 1998, 1997 and 1996


<TABLE>
<CAPTION>
                                                                        1998           1997         1996
                                                                    ------------   -----------   ----------
                                                                     (In Thousands Except Per Share Data)
<S>                                                                 <C>            <C>           <C>
Interest income:
Interest and fees on loans and lease financing                       $ 470,664       442,618      405,894
-----------------------------------------------------------------
Interest and dividends on investment securities:
 U.S. Treasury                                                          27,502        31,546       28,957
-----------------------------------------------------------------
 U.S. Government agencies and corporations                              53,117        55,613       53,222
-----------------------------------------------------------------
 States and political subdivisions (primarily tax-exempt)                4,738         4,840        4,593
-----------------------------------------------------------------
 Equity and other securities                                             3,135         3,070        3,374
-----------------------------------------------------------------
Interest on time deposits in other banks                                 2,377         2,716        3,263
-----------------------------------------------------------------
Interest on federal funds sold and other short-term investments         15,774        10,060       13,272
-----------------------------------------------------------------    ---------       -------      --------
  Total interest income                                                577,307       550,463      512,575
-----------------------------------------------------------------    ---------       -------      --------
Interest expense:
Deposits                                                               232,609       229,600      214,500
-----------------------------------------------------------------
Short-term borrowed funds (note 8)                                      11,822        15,371       18,713
-----------------------------------------------------------------
Long-term debt (note 9)                                                 10,131         5,128        4,359
-----------------------------------------------------------------    ---------       -------      --------
  Total interest expense                                               254,562       250,099      237,572
-----------------------------------------------------------------    ---------       -------      --------
Net interest income                                                    322,745       300,364      275,003
-----------------------------------------------------------------
Provision for loan and lease losses (note 6)                            15,884        16,376       17,361
-----------------------------------------------------------------    ---------       -------      --------
Net interest income after provision for loan and lease losses          306,861       283,988      257,642
-----------------------------------------------------------------    ---------       -------      --------
Other income:
Service charges on deposit accounts                                     54,117        44,937       40,070
-----------------------------------------------------------------
Trust and custodian fees                                                10,221         8,415        7,348
-----------------------------------------------------------------
Sales and insurance commissions                                         10,835         9,433        7,816
-----------------------------------------------------------------
Merchant discount                                                        8,826         7,017        6,116
-----------------------------------------------------------------
Accretion of negative goodwill from acquisitions                         3,356         3,356        3,356
-----------------------------------------------------------------
Other operating                                                         23,667        19,761       20,061
-----------------------------------------------------------------
Investment securities gains (note 4)                                     2,205           578        2,198
-----------------------------------------------------------------
Investment securities losses (note 4)                                      (27)          (98)      (4,359)
-----------------------------------------------------------------    ---------       -------      --------
  Total other income                                                   113,200        93,399       82,606
-----------------------------------------------------------------    ---------       -------      --------
Other expenses:
Personnel (note 10)                                                    124,419       114,572      105,991
-----------------------------------------------------------------
Net occupancy (note 14)                                                 15,890        15,595       16,189
-----------------------------------------------------------------
Equipment (note 14)                                                     14,522        12,867       12,032
-----------------------------------------------------------------
Merger-related expense (note 2)                                             --        17,916           --
-----------------------------------------------------------------
Other operating (note 12)                                               75,386        65,248       75,621
-----------------------------------------------------------------    ---------       -------      --------
  Total other expenses                                                 230,217       226,198      209,833
-----------------------------------------------------------------    ---------       -------      --------
Income before income taxes                                             189,844       151,189      130,415
-----------------------------------------------------------------
Income taxes (note 13)                                                  68,632        55,765       43,589
-----------------------------------------------------------------    ---------       -------      --------
Net income                                                           $ 121,212        95,424       86,826
-----------------------------------------------------------------    ---------       -------      --------
Earnings per common share (note 11):
  Basic                                                              $    2.96           2.31         2.11
-----------------------------------------------------------------
  Diluted                                                                 2.93           2.28         2.08
-----------------------------------------------------------------
Weighted average shares outstanding (note 11):
  Basic                                                                 40,898        41,438       41,107
-----------------------------------------------------------------
  Diluted                                                               41,409        41,947       41,815
-----------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.


                                       35
<PAGE>

                  CCB FINANCIAL CORPORATION AND SUBSIDIARIES


                Consolidated Statements of Shareholders' Equity
                           and Comprehensive Income
                 Years Ended December 31, 1998, 1997 and 1996



<TABLE>
<CAPTION>
                                                                                                      Accumulated      
                                                                            Additional                   Other        Management  
                                                                Common       Paid-In      Retained   Comprehensive    Recognition 
                                                                Stock        Capital      Earnings       Income          Plans     
                                                           ---------------  ----------  ------------  -------------   -----------
                                                                                      (In Thousands)
<S>                                                        <C>             <C>         <C>           <C>            <C>
Balance December 31, 1995, as originally reported             $ 101,938      138,073       307,334       11,306        (1,734)
----------------------------------------------------------
Common stock issued in 1998 in a two-for-one
 stock split                                                   101,938            --      (101,938)          --            --
----------------------------------------------------------    ---------      -------      --------       ------        ------
Balance December 31, 1995, as restated                         203,876       138,073       205,396       11,306        (1,734)
Net income                                                          --            --        86,826           --            --
----------------------------------------------------------
Other comprehensive income --
 Unrealized losses on securities, net of deferred tax
  benefit of $2,656 and reclassification adjustment
  (note 4)                                                          --            --            --       (3,977)           --
----------------------------------------------------------
   Total comprehensive income
----------------------------------------------------------
Transactions pursuant to restricted stock, net (note 10)            40           728           (20)          --            --
----------------------------------------------------------
Stock options exercised, net of shares tendered
 (note 10)                                                       1,852         2,152          (926)          --            --
----------------------------------------------------------
Earned portion of management recognition plans (note
   10)                                                              --            --            --           --           996
----------------------------------------------------------
Purchase and retirement of shares                                 (192)         (901)           96           --            --
----------------------------------------------------------
Conversion of debentures (note 11)                                 762         1,737          (381)          --            --
----------------------------------------------------------
Common stock warrants repurchased (note 11)                         --        (1,172)       (4,509)          --            --
----------------------------------------------------------
Cash dividends ($.80 per share)                                     --            --       (28,579)          --            --
----------------------------------------------------------    ---------      -------      --------       ------        ------
Balance December 31, 1996                                      206,338       140,617       257,903        7,329          (738)
Net income                                                          --            --        95,424           --            --
----------------------------------------------------------
Other comprehensive income --
 Unrealized gains on securities, net of deferred tax
  expense of $3,956 and reclassification adjustment
  (note 4)                                                          --            --            --        6,651            --
----------------------------------------------------------
   Total comprehensive income
----------------------------------------------------------
Transactions pursuant to restricted stock, net (note 10)            54           373           (27)          --            --
----------------------------------------------------------
Stock options exercised, net of shares tendered
 (note 10)                                                       1,377         2,729          (689)          --            --
----------------------------------------------------------
Earned portion of management recognition plans (note
   10)                                                              --            --            --           --           706
----------------------------------------------------------
Other transactions, net                                               (5)         65             3           --            --
----------------------------------------------------------
Cash dividends ($.89 per share)                                     --            --       (36,750)          --            --
----------------------------------------------------------    ----------     -------      --------       ------        ------
Balance December 31, 1997                                      207,764       143,784       315,864       13,980           (32)
Net income                                                          --            --       121,212           --            --
----------------------------------------------------------
Other comprehensive income --
 Unrealized losses on securities, net of deferred tax
  benefit of $484 and reclassification adjustment
  (note 4)                                                          --            --            --         (649)           --
--------------------------------------------------------
   Total comprehensive income
----------------------------------------------------------
Transactions pursuant to restricted stock, net (note 10)            42           503           (10)          --            --
----------------------------------------------------------
Stock options exercised, net of shares tendered
 (note 10)                                                         879         1,497          (403)          --            --
----------------------------------------------------------
Earned portion of management recognition plans (note
   10)                                                              --            --            --           --            32
----------------------------------------------------------
Purchase and retirement of shares                               (6,957)      (72,445)        2,801           --            --
----------------------------------------------------------
Other transactions, net                                               (2)        432            --           --            --
----------------------------------------------------------
Cash dividends ($.99 per share)                                     --            --       (40,398)          --            --
----------------------------------------------------------    ----------     -------      --------       ------        ------
Balance December 31, 1998                                     $ 201,726       73,771       399,066       13,331            --
----------------------------------------------------------    ----------     -------      --------       ------        ------



<CAPTION>
                                                               Total
                                                           Shareholders'
                                                              Equity
                                                          (In Thousands)
<S>                                                        <C>
Balance December 31, 1995, as originally reported              556,917
----------------------------------------------------------
Common stock issued in 1998 in a two-for-one
 stock split                                                        --
----------------------------------------------------------     -------
Balance December 31, 1995, as restated                         556,917
Net income                                                      86,826
----------------------------------------------------------
Other comprehensive income --
 Unrealized losses on securities, net of deferred tax
  benefit of $2,656 and reclassification adjustment
  (note 4)                                                      (3,977)
--------------------------------------------------------       -------
   Total comprehensive income                                   82,849
----------------------------------------------------------
Transactions pursuant to restricted stock, net (note 10)           748
----------------------------------------------------------
Stock options exercised, net of shares tendered
 (note 10)                                                       3,078
--------------------------------------------------------
Earned portion of management recognition plans (note
   10)                                                             996
----------------------------------------------------------
Purchase and retirement of shares                                 (997)
----------------------------------------------------------
Conversion of debentures (note 11)                               2,118
----------------------------------------------------------
Common stock warrants repurchased (note 11)                     (5,681)
----------------------------------------------------------
Cash dividends ($.80 per share)                                (28,579)
----------------------------------------------------------     -------
Balance December 31, 1996                                      611,449
Net income                                                      95,424
----------------------------------------------------------
Other comprehensive income --
 Unrealized gains on securities, net of deferred tax
  expense of $3,956 and reclassification adjustment
  (note 4)                                                       6,651
--------------------------------------------------------       -------
   Total comprehensive income                                  102,075
----------------------------------------------------------
Transactions pursuant to restricted stock, net (note 10)           400
----------------------------------------------------------
Stock options exercised, net of shares tendered
 (note 10)                                                       3,417
--------------------------------------------------------
Earned portion of management recognition plans (note
   10)                                                             706
----------------------------------------------------------
Other transactions, net                                             63
----------------------------------------------------------
Cash dividends ($.89 per share)                                (36,750)
----------------------------------------------------------     -------
Balance December 31, 1997                                      681,360
Net income                                                     121,212
----------------------------------------------------------
Other comprehensive income --
 Unrealized losses on securities, net of deferred tax
  benefit of $484 and reclassification adjustment
  (note 4)                                                        (649)
----------------------------------------------------------     -------
   Total comprehensive income                                  120,563
----------------------------------------------------------
Transactions pursuant to restricted stock, net (note 10)           535
----------------------------------------------------------
Stock options exercised, net of shares tendered
 (note 10)                                                       1,973
----------------------------------------------------------
Earned portion of management recognition plans (note
   10)                                                              32
----------------------------------------------------------
Purchase and retirement of shares                              (76,601)
----------------------------------------------------------
Other transactions, net                                            430
----------------------------------------------------------
Cash dividends ($.99 per share)                                (40,398)
----------------------------------------------------------     -------
Balance December 31, 1998                                      687,894
----------------------------------------------------------     -------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       36
<PAGE>

                   CCB FINANCIAL CORPORATION AND SUBSIDIARIES


                     Consolidated Statements of Cash Flows
                 Years Ended December 31, 1998, 1997 and 1996


<TABLE>
<CAPTION>
                                                                                       1998          1997          1996
                                                                                   ------------ ------------- -------------
                                                                                                (In Thousands)
<S>                                                                                 <C>          <C>           <C>
Operating activities:
Net income                                                                          $  121,212       95,424        86,826
----------------------------------------------------------------------------------
Adjustments   to  reconcile  net  income  to  net  cash  provided  by  operating
activities:
----------------------------------------------------------------------------------
 Depreciation, amortization and accretion, net                                          16,859       23,418        10,361
----------------------------------------------------------------------------------
 Provision for loan and lease losses                                                    15,884       16,376        17,361
----------------------------------------------------------------------------------
 Net (gain) loss on sales of investment securities                                      (2,178)        (480)        2,161
----------------------------------------------------------------------------------
 Sale of securitized mortgage loans at par                                                  --       25,658            --
----------------------------------------------------------------------------------
 Sales of loans held for sale                                                          576,595      232,095       181,310
----------------------------------------------------------------------------------
 Origination of loans held for sale                                                   (630,658)    (214,170)     (187,555)
----------------------------------------------------------------------------------
 Changes in:
  Accrued interest receivable                                                            2,084       (4,202)         (592)
----------------------------------------------------------------------------------
  Accrued interest payable                                                              (1,668)     (17,550)        4,809
----------------------------------------------------------------------------------
  Other assets                                                                          27,631          821       (13,426)
----------------------------------------------------------------------------------
  Other liabilities                                                                     (4,282)         905         5,309
----------------------------------------------------------------------------------
 Other operating activities, net                                                        (5,053)      (5,600)       (2,927)
----------------------------------------------------------------------------------  ----------     --------      --------
  Net cash provided by operating activities                                            116,426      152,695       103,637
----------------------------------------------------------------------------------  ----------     --------      --------
Investing activities:
Proceeds from:
 Maturities and issuer calls of investment securities held to maturity                   1,407        2,622         9,973
----------------------------------------------------------------------------------
 Sales of investment securities available for sale                                      36,036      176,481       195,363
----------------------------------------------------------------------------------
 Maturities and issuer calls of investment securities available for sale               628,252      501,394       474,889
----------------------------------------------------------------------------------
Purchases of:
 Investment securities held to maturity                                                     --           --       (16,005)
----------------------------------------------------------------------------------
 Investment securities available for sale                                             (571,024)    (677,990)     (517,477)
----------------------------------------------------------------------------------
 Premises and equipment                                                                (18,129)     (10,584)       (9,768)
----------------------------------------------------------------------------------
Net originations of loans and leases receivable                                       (360,194)    (529,365)     (487,972)
----------------------------------------------------------------------------------
Net cash acquired (paid) in acquisitions (dispositions)                                 (8,675)      14,577       (50,926)
----------------------------------------------------------------------------------  ----------     --------      --------
  Net cash used by investing activities                                               (292,327)    (522,865)     (401,923)
----------------------------------------------------------------------------------  ----------     --------      --------
Financing activities:
Net increase in deposit accounts                                                       484,220      243,143       375,900
----------------------------------------------------------------------------------
Net increase (decrease) in short-term borrowed funds                                    11,819      (80,402)       43,897
----------------------------------------------------------------------------------
Proceeds from issuance of long-term debt                                               126,140       50,129            --
----------------------------------------------------------------------------------
Repayments of long-term debt                                                           (10,131)      (7,997)     (122,699)
----------------------------------------------------------------------------------
Issuances of common stock from exercise of stock options, net                            1,973        3,417         3,078
----------------------------------------------------------------------------------
Purchase and retirement of common stock                                                (76,601)          --          (997)
----------------------------------------------------------------------------------
Purchase and retirement of common stock warrants                                            --           --        (5,681)
----------------------------------------------------------------------------------
Other equity transactions, net                                                             (14)         (44)           --
----------------------------------------------------------------------------------
Cash dividends paid                                                                    (40,398)     (36,750)      (28,579)
----------------------------------------------------------------------------------  ----------     --------      --------
  Net cash provided by financing activities                                            497,008      171,496       264,919
----------------------------------------------------------------------------------  ----------     --------      --------
Net increase (decrease) in cash and cash equivalents                                   321,107     (198,674)      (33,367)
----------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year (note 1)                                419,344      618,018       651,385
----------------------------------------------------------------------------------  ----------     --------      --------
Cash and cash equivalents at end of year (note 1)                                   $  740,451      419,344       618,018
----------------------------------------------------------------------------------  ----------     --------      --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the year                                                       $  256,250      267,649       232,763
----------------------------------------------------------------------------------  ----------     --------      --------
Income taxes paid during the year                                                   $   71,618       57,597        45,530
----------------------------------------------------------------------------------  ----------     --------      --------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       37
<PAGE>

                  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 (the "Corporation") and its wholly-owned
subsidiaries,  Central Carolina Bank and Trust Company ("CCB"), American Federal
Bank, FSB ("AmFed") and Central Carolina Bank-Georgia ("CCB-Ga.") (collectively,
the "Subsidiary Banks"). The consolidated  financial statements also include the
accounts and results of operations of the wholly-owned  subsidiaries of CCB (CCB
Investment and Insurance Service Corporation; CCBDE, 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.  The  Corporation  operates as one  business
segment.

     CCB 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 also provides trust services to customers in
Virginia  and Florida  through a trust office  located in each of those  states.
CCB-Ga. is a special purpose bank that provides nationwide credit card services.
Neither the Corporation nor its Subsidiary  Banks have foreign  operations.  The
Corporation  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 the Corporation'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
1998  presentation.  These  reclassifications  have no effect  on  shareholders'
equity or net income as previously reported.


     Financial Statement Presentation

     In preparing the financial  statements,  Management of the  Corporation  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,  the  Corporation  considers
time  deposits  in  other  banks,   federal  funds  sold  and  other  short-term
investments to be cash equivalents.


     Investment Securities

     The  Corporation  classifies its investment  securities in one of the three
following categories:  (a) debt securities that the Corporation 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.  The  Corporation 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 the Corporation'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.


                                       38
<PAGE>

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued


     Loans and Lease Financing

     The  loan  portfolio  is  comprised  of  the  following   types  of  loans:
commercial,   financial  and  agricultural;   real   estate-construction;   real
estate-mortgage;  instalment loans to individuals and revolving credit accounts.
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 and lease  financing  is  recorded on the accrual
basis.  Accrual of interest  on loans and lease  financing  (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 and Lease Losses

     The reserve for loan and lease losses is increased by provisions charged to
expense and reduced by loan and lease financing charge-offs,  net of recoveries.
The  reserve is  maintained  at a level  considered  adequate by  Management  to
provide for inherent loan and lease 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.  All  relationships in excess of $100,000 which have
been internally  classified as "Special  Mention",  "Substandard"  or "Loss" are
evaluated  individually for their potential loss;  consideration of factors such
as  collateral  value and  guarantor  strength  is  included  in the  evaluation
process. For the balance of loans not included in the previous categories,  each
loan type is assigned a risk factor to compute  their  respective  loss reserve.
The risk factors have been developed using actual loss levels,  economic trends,
market conditions and other factors.

     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 and lease  financing  portfolio and may
require the Corporation to charge-off  loans and lease financing and/or increase
the  reserve  for loan and  lease  losses to  reflect  their  assessment  of the
collectibility  of loans and lease financing in the portfolio 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.

     The Corporation 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


                                       39
<PAGE>

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued

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

     Intangibles  arising from acquisitions  result from the Corporation  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. The Corporation'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 the Corporation'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. The Corporation's  "other  comprehensive  income" for the
three-year period ended December 31, 1998 and "accumulated  other  comprehensive
income" as of December  31,  1998 and 1997 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.


     Pensions and Other Postretirement Benefit Plans

     The Corporation  adopted  Statement of Financial  Accounting  Standards No.
132, "Employers'  Disclosures about Pensions and Other Postretirement  Benefits,
an amendment of Statements  No. 87, 88 and 106" ("SFAS No.  132"),  during 1998.
SFAS No. 132  standardizes  the disclosure  requirements  for pensions and other
postretirement  benefits,  requires  additional  information  on  changes in the
benefit  obligations  and fair  values of plan  assets  and  eliminates  certain
disclosures  previously required. The methods of measurement and recognition for
such plans remain unchanged.  In accordance with the provisions of SFAS No. 132,
disclosures  for earlier  periods  provided for  comparative  purposes have been
restated to reflect the provisions of this Statement.


     Incentive and Performance Unit Plans

     The Corporation has incentive and related  performance  unit plans covering
certain  officers of the Corporation and 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. The Corporation 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.  The  Corporation's  stock
options have no intrinsic value at grant date, and consequently, no compensation
cost is recognized for them.


                                       40
<PAGE>

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued

     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 EPS excludes dilution and is computed by dividing income available to
common shareholders, before and after the impact of extraordinary items, if any,
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 or  resulted  in the  issuance  of common  stock  that then  shared in the
earnings of the entity.


     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 the Corporation.


     Derivative Financial Instruments

     The Corporation may use 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. The Corporation does not utilize derivative financial instruments for
trading purposes.


(2) MERGERS ACCOUNTED FOR AS POOLINGS-OF-INTERESTS

     The   Corporation   consummated  two  mergers  in  1997  accounted  for  as
poolings-of-interests.     In    accordance     with    the    accounting    for
poolings-of-interests,  the financial  statements of the  Corporation  have been
restated to reflect the  respective  mergers as if they had been effective as of
the earliest period  presented.  On August 1, 1997, the Corporation  merged with
AmFed, a $1.3 billion savings bank headquartered in Greenville,  South Carolina.
AmFed operates as a wholly-owned  subsidiary of the Corporation.  On January 31,
1997, the  Corporation  merged with Salem Trust Bank, a $165 million  commercial
bank based in Winston-Salem,  North Carolina.  The former offices of Salem Trust
Bank are operated as offices of CCB. The mergers were effected  through tax-free
exchanges of stock,  whereby the  Corporation  issued  approximately  11,226,000
shares of common  stock and cash  in-lieu  of  fractional  shares for all of the
outstanding shares of AmFed and Salem Trust Bank.


                                       41
<PAGE>

(2) MERGERS ACCOUNTED FOR AS POOLINGS-OF-INTERESTS -- Continued

     The financial  statements of the Corporation  have been restated to reflect
the AmFed and Salem Trust Bank  mergers as if they had been  effective as of the
earliest period presented.  The respective  contributions of the pooled entities
to consolidated  total income,  net interest income after provision for loan and
lease  losses and net income for the two years  ended  December  31,  1997 (1997
includes  AmFed for the six months  ended June 30, 1997 and Salem Trust Bank for
the month ended January 31, 1997) were as follows:



<TABLE>
<CAPTION>
                                                                         1997         1996
                                                                     -----------   ----------
                                                                          (In Thousands)
<S>                                                                  <C>           <C>
Total income:
CCB Financial Corporation                                             $580,403      460,353
---------------------------------------------------------------
American Federal Bank, FSB                                              62,326      121,081
---------------------------------------------------------------
Salem Trust Bank                                                         1,133       13,747
---------------------------------------------------------------       --------      -------
Combined                                                              $643,862      595,181
---------------------------------------------------------------       --------      -------
Net interest income after provision for loan and lease losses:
CCB Financial Corporation                                             $256,228      200,670
---------------------------------------------------------------
American Federal Bank, FSB                                              27,207       50,799
---------------------------------------------------------------
Salem Trust Bank                                                           553        6,173
---------------------------------------------------------------       --------      -------
Combined                                                              $283,988      257,642
---------------------------------------------------------------       --------      -------
Net income:
CCB Financial Corporation                                             $ 84,306       70,315
---------------------------------------------------------------
American Federal Bank, FSB                                              11,202       14,492
---------------------------------------------------------------
Salem Trust Bank                                                           (84)       2,019
---------------------------------------------------------------       --------      -------
Combined                                                              $ 95,424       86,826
---------------------------------------------------------------       --------      -------
</TABLE>

     AmFed and Salem Trust Bank's  total  income and net  interest  income after
provision  for loan  and  lease  losses  have  been  adjusted  from the  amounts
previously  reported by those entities.  The adjustments were made to reclassify
certain items to the accounting  classification  followed by the  Corporation in
its income statement categories.

     In connection with the AmFed and Salem Trust Bank mergers,  the Corporation
incurred  merger-related  expense of $17,916,000  during 1997.  This expense was
comprised of severance  and other  employee  benefit  costs,  excess  facilities
costs,  systems  conversion costs and other  transaction-related  expenses.  The
after-tax effect of the merger-related expense was $13,051,000.


(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 December 31, 1998 and 1997, the  Subsidiary  Banks were required to
maintain  average reserve and clearing  balances of $7,600,000 and  $18,366,000,
respectively.


(4) INVESTMENT SECURITIES

     Investment securities with amortized costs of approximately $638,400,000 at
December 31, 1998 and  $598,600,000  at December 31, 1997 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.

     The Corporation's other  comprehensive  income for the years ended December
31,  1998,  1997 and 1996  and  accumulated  other  comprehensive  income  as of
December 31, 1998 and 1997 are comprised  solely of unrealized  gains and losses
on certain investments in debt and equity securities. Other comprehensive income
for the years ended December 31, 1998, 1997 and 1996 follows:



<TABLE>
<CAPTION>
                                                                                1998        1997        1996
                                                                             ----------   -------   -----------
                                                                                       (In Thousands)
<S>                                                                          <C>          <C>       <C>
Unrealized holding gains (losses) arising during period                        $  658      6,939       (5,274)
--------------------------------------------------------------------------
Less reclassification adjustment for realized gains (losses), net of tax        1,307        288       (1,297)
--------------------------------------------------------------------------     ------      -----       ------
Unrealized gains (losses) on securities, net of applicable income taxes        $ (649)     6,651       (3,977)
--------------------------------------------------------------------------     ------      -----       ------
</TABLE>

                                       42
<PAGE>

(4) INVESTMENT SECURITIES -- Continued


     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, 1998 and 1997 were as follows:



<TABLE>
<CAPTION>
                                                     1998
                              ---------------------------------------------------
                                 Amortized    Unrealized  Unrealized    Market
                                   Cost         Gains       Losses       Value
                              -------------- ----------- ----------- ------------
                                                (In Thousands)
<S>                            <C>            <C>         <C>         <C>
U.S. Treasury                 $   389,043       11,871        --       400,914
-----------------------------
U.S. Government agencies and
 corporations                     672,502        4,222      (563)      676,161
-----------------------------
Mortgage-backed securities        153,865        5,102        --       158,967
-----------------------------
Equity securities                  47,067        1,090        (1)       48,156
----------------------------- -----------       ------      -------    -------
 Total                        $ 1,262,477       22,285      (564)    1,284,198
----------------------------- -----------       ------      ------   ---------



<CAPTION>
                                                    1997
                              -------------------------------------------------
                                Amortized   Unrealized  Unrealized    Market
                                  Cost        Gains       Losses       Value
                              ------------ ----------- ----------- ------------
                                               (In Thousands)
<S>                           <C>          <C>         <C>         <C>
U.S. Treasury                   472,396        8,322        (59)     480,659
-----------------------------
U.S. Government agencies and
 corporations                   551,830        4,813        (83)     556,560
-----------------------------
Mortgage-backed securities      289,204        8,795        (78)     297,921
-----------------------------
Equity securities                45,946        1,021         --       46,967
-----------------------------   -------        -----        ---      -------
 Total                        1,359,376       22,951       (220)   1,382,107
----------------------------- ---------       ------       ----    ---------
</TABLE>

     Equity securities include CCB's and AmFed's required investment in stock of
the Federal Home Loan Bank (the "FHLB")  which totaled  $25,423,000  at December
31, 1998 and  $24,432,000  at December 31, 1997. 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 on securities  available for sale totaled $21,721,000,
$22,731,000 and  $12,122,000 at December 31, 1998, 1997 and 1996,  respectively,
and are included as a component  of  shareholders'  equity,  net of deferred tax
liabilities of $8,390,000,  $8,751,000 and $4,793,000 at December 31, 1998, 1997
and 1996,  respectively.  In the opinion of Management,  the  Corporation has no
securities which are other than temporarily impaired.

     Gross gains and losses from sales of  investment  securities  available for
sale totaled $2,203,000 and $26,000, respectively, in 1998, totaled $578,000 and
$98,000,   respectively,   in  1997  and  totaled   $2,058,000  and  $4,359,000,
respectively, in 1996.

     Following  is a  maturity  schedule  of  securities  available  for sale at
December 31, 1998:



<TABLE>
<CAPTION>
                                                       Amortized       Carrying
                                                         Cost            Value
                                                    --------------   ------------
                                                           (In Thousands)
<S>                                                 <C>              <C>
Within 1 year                                        $   154,128        155,200
-------------------------------------------------
After 1 but within 5 years                               495,939        509,329
-------------------------------------------------
After 5 but within 10 years                              400,440        401,477
-------------------------------------------------
After 10 years                                            11,038         11,069
-------------------------------------------------    -----------        -------
  Subtotal                                             1,061,545      1,077,075
-------------------------------------------------
Mortgage-backed securities                               153,865        158,967
-------------------------------------------------
Equity securities                                         47,067         48,156
-------------------------------------------------    -----------      ---------
  Total securities available for sale                $ 1,262,477      1,284,198
-------------------------------------------------    -----------      ---------
</TABLE>

     Securities Held to Maturity

     The carrying  values and  approximate  market values of securities  held to
maturity at December 31, 1998 and 1997 were as follows:



<TABLE>
<CAPTION>
                                                        1998                                       1997
                                    -------------------------------------------- -----------------------------------------
                                      Carrying   Unrealized  Unrealized  Market   Carrying  Unrealized  Unrealized  Market
                                       Value       Gains       Losses     Value    Value      Gains       Losses    Value
                                    ----------- ----------- ----------- -------- --------- ----------- ----------- -------
                                                                        (In Thousands)
<S>                                  <C>         <C>         <C>         <C>      <C>       <C>         <C>         <C>
States and political subdivisions    $ 80,189      5,088            --  85,277    81,617      5,385            --  87,002
-----------------------------------  --------      -----            --  ------    ------      -----            --  ------
</TABLE>

     Following is a maturity schedule of securities held to maturity at December
31, 1998:



<TABLE>
<CAPTION>
                                                    Carrying      Market
                                                     Value        Value
                                                  -----------   ---------
                                                      (In Thousands)
<S>                                               <C>           <C>
  Within 1 year                                    $    500         501
-----------------------------------------------
  After 1 but within 5 years                          7,709       8,003
-----------------------------------------------
  After 5 but within 10 years                        48,997      51,907
-----------------------------------------------
  After 10 years                                     22,983      24,866
-----------------------------------------------    --------      ------
   Total securities held to maturity               $ 80,189      85,277
-----------------------------------------------    --------      ------
</TABLE>

     Gains from calls of securities held to maturity  totaled $2,000 during 1998
and  $140,000  during  1996.  Losses from calls of  securities  held to maturity
during 1998 totaled $1,000.


                                       43
<PAGE>

(5) LOANS AND LEASE FINANCING

     A summary  of loans and  lease  financing  at  December  31,  1998 and 1997
follows:



<TABLE>
<CAPTION>
                                                1998            1997
                                           --------------   ------------
                                                  (In Thousands)
<S>                                        <C>              <C>
Commercial, financial and agricultural      $   686,133        688,040
----------------------------------------
Real estate-construction                        906,916        733,026
----------------------------------------
Real estate-mortgage                          3,143,637      2,915,851
----------------------------------------
Instalment loans to individuals                 488,110        506,339
----------------------------------------
Revolving credit                                214,685        212,794
----------------------------------------
Lease financing                                  54,955         43,265
----------------------------------------    -----------      ---------
 Total gross loans and lease financing        5,494,436      5,099,315
----------------------------------------
Less: Unearned income                             7,099          5,746
----------------------------------------    -----------      ---------
 Total loans and lease financing            $ 5,487,337      5,093,569
----------------------------------------    -----------      ---------
</TABLE>

     Loans and lease  financing of $16,761,000  and  $16,088,000 at December 31,
1998 and 1997, respectively,  were not accruing interest. Loans with outstanding
balances of $2,205,000 in 1998,  $2,281,000 in 1997 and  $2,666,000 in 1996 were
transferred from loans to other real estate acquired  through loan  foreclosure.
Other real estate acquired  through loan  foreclosures  amounted to $791,000 and
$845,000 at December 31, 1998 and 1997, respectively,  and is included in "other
assets" on the Consolidated Balance Sheets.

     The following is an analysis of interest  income related to loans and lease
financing on nonaccrual  status for the years ended December 31, 1998,  1997 and
1996:



<TABLE>
<CAPTION>
                                                                                                1998        1997     1996
                                                                                             ----------   -------   ------
                                                                                                    (In Thousands)
<S>                                                                                          <C>          <C>       <C>
Interest income that would have been recognized if the loans had been current at original     $ 1,138      1,055    1,359
------------------------------------------------------------------------------------------
  contractual rates
------------------------------------------------------------------------------------------
Amount recognized as interest income                                                              288        171      412
------------------------------------------------------------------------------------------    -------      -----    -----
Difference                                                                                    $   850        884      947
------------------------------------------------------------------------------------------    -------      -----    -----
</TABLE>

     During 1997,  the Subsidiary  Banks  securitized  $112,600,000  of mortgage
loans and retained the  securities in the  investment  securities  available for
sale  portfolio.  The securities  were  subsequently  sold at a nominal gain. An
additional $25,658,000 of mortgage loans were securitized and immediately sold.


     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 credit cards which are  available to
customers on a nationwide basis and 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  $77,626,000  and  $31,490,000  at  December  31,  1998 and  1997,
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,  1998,  impaired  loans  totaled  $15,766,000,  of  which
$9,030,000 were on nonaccrual  status, and their related reserve for loan losses
totaled $2,574,000. The average carrying value of impaired loans was $15,267,000
during 1998 and gross  interest  income  recognized  on impaired  loans  totaled
$845,000.  At December 31, 1997,  the carrying  value of loans  considered to be
impaired totaled $14,325,000, of which $7,810,000 were on nonaccrual status. The
related  reserve for loan losses on the impaired loans totaled  $2,846,000.  The
average  carrying value of impaired loans was $11,424,000  during the year ended
December 31, 1997. Gross interest income on the impaired loans,  included in net
income, totaled $320,000 during 1997.

     During 1998 and 1997, the Subsidiary  Banks had loan,  lease  financing and
deposit  relationships  with Executive Officers and Directors of the Corporation
and their  Associates.  In the  opinion  of  Management,  these  loans and lease
financing   arrangements   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,  1998 (in
thousands):



<TABLE>
<CAPTION>
                                                  Balance at
                                                  Beginning      New                     Balance at
                                                   of Year      Loans     Repayments     End of Year
                                                 -----------   -------   ------------   ------------
<S>                                              <C>           <C>       <C>            <C>
Directors, Executive Officers and Associates       $40,982     3,944        6,408          $38,518
----------------------------------------------     -------     -----        -----          -------
</TABLE>

     Loans  serviced for the benefit of others  totaled $1.1 billion at December
31, 1998 and $1.2 billion at December 31, 1997 and 1996. Mortgage servicing fees
totaled $3,980,000 in 1998,  $3,978,000 in 1997 and $3,969,000 in 1996. Mortgage
servicing rights


                                       44
<PAGE>

(5) LOANS AND LEASE FINANCING -- Continued

totaled  $4,981,000 and $3,640,000 at December 31, 1998 and 1997,  respectively,
and are included in "other assets" on the Consolidated  Balance Sheets. The fair
value of mortgage  servicing  rights was  $5,333,000  at  December  31, 1998 and
$3,982,000 at December 31, 1997.  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, 1998.  The following  table  summarizes  the changes in
mortgage servicing rights during 1998 and 1997:



<TABLE>
<CAPTION>
                                              1998           1997
                                          ------------   -----------
                                                (In Thousands)
<S>                                       <C>            <C>
Balance at beginning of year               $   3,640         2,889
---------------------------------------
Capitalized mortgage servicing rights         12,980         4,106
---------------------------------------
Amortization                                  (1,358)         (871)
---------------------------------------
Sale of mortgage servicing                   (10,281)       (2,484)
---------------------------------------    ---------        ------
Balance at end of year                     $   4,981         3,640
---------------------------------------    ---------        ------
</TABLE>

     Certain real  estate-mortgage  loans are pledged as collateral for advances
from the FHLB as set forth in Note 9.


(6) RESERVE FOR LOAN AND LEASE LOSSES

     Following is a summary of the reserve for loan and lease losses:



<TABLE>
<CAPTION>
                                                             1998           1997           1996
                                                         ------------   ------------   ------------
                                                                       (In Thousands)
<S>                                                      <C>            <C>            <C>
Balance at beginning of year                              $  67,594         61,257         55,114
------------------------------------------------------
Provision charged to operations                              15,884         16,376         17,361
------------------------------------------------------
Recoveries of loan and leases previously charged-off          2,613          3,105          3,062
------------------------------------------------------
Loan and lease losses charged to reserve                    (12,909)       (13,144)       (14,280)
------------------------------------------------------    ---------        -------        -------
Balance at end of year                                    $  73,182         67,594         61,257
------------------------------------------------------    ---------        -------        -------
</TABLE>

(7) PREMISES AND EQUIPMENT


     Following is a summary of premises and equipment:



<TABLE>
<CAPTION>
                                                  Accumulated
                                                 Depreciation       Net  
                                                      and          Value
                                      Cost       Amortization      Book
                                  -----------   --------------    ------  
                                               (In Thousands)
<S>                               <C>           <C>              <C>
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
-------------------------------    ---------        -------       ------
December 31, 1997:
Land                               $  18,364             --       18,364
-------------------------------
Buildings                             67,464         31,543       35,921
-------------------------------
Leasehold improvements                11,488          3,555        7,933
-------------------------------
Furniture and equipment               94,336         70,519       23,817
-------------------------------    ---------        -------       ------
 Total premises and equipment      $ 191,652        105,617       86,035
-------------------------------    ---------        -------       ------
</TABLE>

(8) TIME DEPOSITS AND SHORT-TERM BORROWED FUNDS


     Maturities of time deposits are as follows:



<TABLE>
<CAPTION>
Year Ending December 31              Total Maturities
---------------------------------   -----------------
                                      (In Thousands)
<S>                                 <C>
  1999                                  $2,113,261
----------------
  2000                                     719,950
----------------
  2001                                      87,584
----------------
  2002                                      35,424
----------------
  2003 and thereafter                          596
---------------------------------       ----------
  Total                                 $2,956,815
----------------                        ----------
</TABLE>

                                       45
<PAGE>

(8) TIME DEPOSITS AND SHORT-TERM BORROWED FUNDS -- Continued


     Short-term  borrowed  funds  outstanding  at  December  31,  1998  and 1997
consisted of the following:



<TABLE>
<CAPTION>
                                                       1998         1997
                                                   -----------   ---------
                                                        (In Thousands)
<S>                                                <C>           <C>
FHLB short-term advances                            $ 105,000      50,000
------------------------------------------------
Federal funds purchased and master notes              128,482     137,372
------------------------------------------------
Treasury tax and loan depository note account           8,513      12,565
------------------------------------------------
Securities sold under agreements to repurchase         46,261      76,500
------------------------------------------------    ---------     -------
 Total short-term borrowed funds                    $ 288,256     276,437
------------------------------------------------    ---------     -------
</TABLE>

     The short-term  FHLB advances were drawn under CCB's $600 million FHLB line
of credit and are secured by a blanket  collateral  agreement on CCB's  mortgage
loan  portfolio.  Master  note  borrowings  are  unsecured  obligations  of  the
Corporation  which mature  daily and bore a weighted  average  interest  rate of
4.60% at December 31, 1997. The treasury tax and loan depository note account is
payable on demand and is  collateralized by various  investment  securities with
carrying  values of $32,649,000 and market values of $33,075,000 at December 31,
1997. Interest on borrowings under this arrangement is payable at .25% below the
weekly federal fund 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 $292,909,000 at December 31, 1998.
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:



<TABLE>
<CAPTION>
                                                                    1998          1997          1996
                                                                -----------   -----------   -----------
                                                                            (In Thousands)
<S>                                                             <C>           <C>           <C>
Balance at December 31                                          $ 46,261         76,500       120,057
-------------------------------------------------------------   --------         ------       -------
Weighted average interest rate at December 31                      3.89 %          5.30          5.33
-------------------------------------------------------------   ----------       -------      --------
Maximum amount outstanding at any month end during the year     $ 70,398        125,383       207,412
-------------------------------------------------------------   --------        --------      --------
Average daily balance outstanding during the year               $ 59,638        101,159       167,259
-------------------------------------------------------------   --------        --------      --------
Average annual interest rate paid during the year                  4.88 %          5.29          5.31
-------------------------------------------------------------   ----------      --------      --------
</TABLE>

     The  Corporation  has an  unsecured  $50  million  line  of  credit  with a
commercial  bank. No draws were outstanding as of December 31, 1998. 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, 1997 or 1996 nor
during the years then ended.


(9) LONG-TERM DEBT

     Following is a summary of long-term debt at December 31, 1998 and 1997:



<TABLE>
<CAPTION>
                                                                1998          1997
                                                            ------------   ---------
                                                                 (In Thousands)
<S>                                                         <C>            <C>
Mortgage payable at 9%, collateralized by bank premises      $      88          109
---------------------------------------------------------
Federal Home Loan Bank advances maturing through 2014          183,622       67,592
---------------------------------------------------------
6.75% subordinated notes                                        32,985       32,985
---------------------------------------------------------    ---------       ------
 Total long-term debt                                        $ 216,695      100,686
---------------------------------------------------------    ---------      -------
</TABLE>

     The FHLB long-term advances are primarily at fixed rates of up to 8.41% and
are  collateralized  by liens on first  mortgage loans with book values not less
than the outstanding  principal balance of the obligations.  The majority of the
FHLB  long-term  advances  outstanding  at  December  31, 1998 were drawn by the
Subsidiary  Banks to replace funds paid in special  dividends to the Corporation
for the  stock  repurchase  program.  Interest  on the FHLB  long-term  advances
totaled $7,895,000 in 1998, $2,891,000 in 1997 and $1,997,000 in 1996.

     In 1993, the Corporation issued $40,000,000 of 6.75% subordinated notes due
December 1, 2003.  Interest on the notes is payable  semi-annually on June 1 and
December  1. The  notes are not  redeemable  prior to  maturity  and there is no
sinking fund. The notes are unsecured and subordinated to all present and future
senior indebtedness of the Corporation. During 1995, the Corporation repurchased
and extinguished  $7,015,000 of the subordinated  notes with a resulting gain of
$880,000.  Interest on the subordinated  notes totaled  $2,226,000 in 1998, 1997
and 1996.


                                       46
<PAGE>

(9) LONG-TERM DEBT -- Continued

     Maturities of long-term debt are as follows:



<TABLE>
<CAPTION>
Year Ending December 31      Total Maturities
-------------------------   -----------------
                              (In Thousands)
<S>                         <C>
  1999                           $ 50,273
----------------
  2000                                296
----------------
  2001                             50,377
----------------
  2002                                322
----------------
  2003                             58,310
----------------
  Thereafter                       57,117
----------------                 --------
  Total                          $216,695
----------------                 --------
</TABLE>

(10) EMPLOYEE BENEFIT PLANS


     Pension Plan

     The  Corporation  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.
In 1998, 1997 and 1996, the Corporation contributed  $2,614,000,  $2,871,000 and
$2,928,000, respectively, to its pension plan.

     AmFed also had a  noncontributory,  defined  benefit  pension plan covering
substantially  all full-time  salaried  employees.  An employee's  benefits were
based on  years of  service  and  compensation  during  the last  five  years of
employment. AmFed's funding policy was to contribute annually the maximum amount
that could be deducted for Federal income tax purposes.  In 1997 and 1996, AmFed
contributed  $590,000 and $528,000  respectively,  to its pension plan.  AmFed's
pension plan was merged into the Corporation's pension plan effective January 1,
1998.

     At December 31, 1998,  pension plan assets  consist  primarily of corporate
stocks and bonds including 64,100 shares of the Corporation's  common stock. The
plan's  assets are held and  administered  by CCB in a trust fund.  The combined
change in benefit  obligation,  change in plan  assets and funded  status of the
Corporation  and  AmFed's  pension  plans  and the  amounts  included  in "other
liabilities"  on the  Consolidated  Balance Sheets at December 31, 1998 and 1997
are shown below:



<TABLE>
<CAPTION>
                                                   1998           1997
                                               ------------   -----------
Change in benefit obligation:                        (In Thousands)
<S>                                            <C>            <C>
Benefit obligation at January 1                 $  69,834        63,770
--------------------------------------------
Service cost                                        3,677         3,576
--------------------------------------------
Interest cost                                       4,859         4,570
--------------------------------------------
Actuarial (gain) loss                                (899)            6
--------------------------------------------
Benefit payments                                   (2,347)       (2,088)
--------------------------------------------    ---------        ------
Benefit obligation at December 31               $  75,124        69,834
--------------------------------------------    ---------        ------
Change in plan assets:
Fair value of plan assets at January 1          $  79,161        65,139
--------------------------------------------
Actual return on plan assets                       10,479        12,649
--------------------------------------------
Employer contributions                              2,614         3,461
--------------------------------------------
Benefit payments                                   (2,347)       (2,088)
--------------------------------------------    ---------        ------
Fair value of plan assets at December 31        $  89,907        79,161
--------------------------------------------    ---------        ------
Funded status:
As of end of year                               $  14,782         9,327
--------------------------------------------
Unrecognized transition (asset) obligation           (250)         (297)
--------------------------------------------
Unrecognized prior-service cost                       968         1,123
--------------------------------------------
Unrecognized net (gain) loss                      (16,672)      (12,228)
--------------------------------------------    ---------       -------
Accrued pension expense                         $  (1,172)       (2,075)
--------------------------------------------    ---------       -------
</TABLE>


                                       47
<PAGE>

(10) EMPLOYEE BENEFIT PLANS -- Continued


     The combined  pension  expense  components for the  Corporation and AmFed's
pension  plans for the years ended  December 31,  1998,  1997 and 1996 are shown
below:



<TABLE>
<CAPTION>
                                                         1998           1997           1996
                                                      ----------   -------------   -----------
                                                                   (In Thousands)
<S>                                                   <C>          <C>             <C>
Service cost of benefits earned during the period      $  3,677        3,576           3,325
---------------------------------------------------
Interest cost on projected benefit obligation             4,859        4,569           4,136
---------------------------------------------------
Expected return on plan assets                           (6,412)      (5,395)         (4,479)
---------------------------------------------------
Amortization of transition (asset) obligation               (46)        (319)           (319)
---------------------------------------------------
Amortization of prior-service cost                          155          155             128
---------------------------------------------------
Amortization of net (gain) loss                            (523)          (1)             --
---------------------------------------------------    --------       ---------       ------
 Net pension expense                                   $  1,710        2,585           2,791
---------------------------------------------------    --------       --------        ------
</TABLE>

     Assumptions   used  in  computing  the  actuarial   present  value  of  the
Corporation's and AmFed's projected benefit obligation were as follows:



<TABLE>
<CAPTION>
                                                              1998         1997
                                                           ----------   ---------
<S>                                                        <C>          <C>
Discount rate                                              7.00%            7.25
----------------------------------------------------------
Rate of increase in compensation level of employees        5.00 %           5.00
----------------------------------------------------------
Expected long-term rate of return on pension plan assets   8.00 %           8.00
----------------------------------------------------------
</TABLE>

     Savings and Profit Sharing Plans

     The Corporation 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,  the  Corporation  may make
discretionary  contributions  to the plan.  Total  expense  under  this plan was
$2,882,000, $2,850,000 and $2,612,000 in 1998, 1997 and 1996, respectively.


     Stock Options, Restricted Stock and Other Incentive Plans

     In 1994,  the  Corporation  adopted the Long-Term  Incentive Plan which was
designed to attract,  retain and motivate key  employees as well as to provide a
competitive  reward  for  achieving   longer-term  goals,   provide  balance  to
short-term incentive awards, and reinforce a one-company perspective. Under this
plan,  performance-based  stock  and  cash  incentives  and  other  equity-based
incentives can be awarded.  A maximum of 2,000,000  shares of the  Corporation's
common stock is available  for award under this plan. As of December 31, 1998, a
total of 1,077,346 stock options to purchase shares of the Corporation's  common
stock and 29,668 restricted  shares of the  Corporation's  common stock had been
awarded  under this plan.  The options and  restricted  stock vest over  varying
periods of up to three years. No other awards have been made under this plan.

     During 1993,  the  Corporation  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 the  Corporation's
common stock.  The options are earned and exercisable over a period of up to ten
years.

     The Corporation continued in effect nonstatutory and incentive stock option
plans in force at the date of the mergers with AmFed, Salem Trust Bank and other
acquired  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 common stock of the Corporation.  No additional  options have
been granted under these option plans.

     The   Corporation   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  by the  Corporation  when stock  options  are  granted  because  the
exercise price of the Corporation's stock options equals the market price of the
underlying  stock  on the  date  of  grant.  Had  compensation  expense  for the
Corporation's  stock option plans been determined  consistent with SFAS No. 123,
the  Corporation's  net  income  and net  income  per share for the years  ended
December  31,  1998,  1997 and 1996  would  have been  reduced  to the pro forma
amounts  indicated  below.  Pro forma net income  reflects only options  granted
since December 31, 1994. Therefore,  the effects of applying SFAS No. 123 during
the initial phase-in period may not be  representative of the effect on reported
net income in future years.


                                       48
<PAGE>

(10) EMPLOYEE BENEFIT PLANS -- Continued



<TABLE>
<CAPTION>
                                    1998        1997       1996
                               ------------- ---------- ----------
                               (In Thousands Except Per Share Data)
<S>              <C>           <C>           <C>        <C>
   Net income    As reported     $ 121,212     95,424     86,826
----------------
                 Pro forma         119,815     94,343     86,356
   Basic EPS     As reported           2.96       2.31       2.11
----------------
                 Pro forma             2.93       2.27       2.10
   Diluted EPS   As reported           2.93       2.28       2.08
----------------
                 Pro forma             2.89       2.25       2.06
</TABLE>

     The weighted average fair value of options granted  approximated  $10.91 in
1998, $8.32 in 1997 and $5.27 in 1996. The fair values of the options granted in
1998,  1997  and  1996  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.  Accordingly, the model does
not  necessarily  provide a  reliable  single  measure  of the fair value of the
Corporation's stock options.  The fair values were estimated using the following
weighted-average assumptions:



<TABLE>
<CAPTION>
                               1998       1997      1996
                            ---------- --------- ---------
<S>                         <C>        <C>       <C>
  Dividend yield             2.00%      2.00      2.30
---------------------------
  Expected volatility       15.00      19.51     20.26
---------------------------
  Risk-free interest rate    5.47       6.68      6.15
---------------------------
  Expected average life     5 years    5 years   5 years
---------------------------
</TABLE>

     A  summary  of  the   Corporation's   stock  option  activity  and  related
information for the years ended December 31, 1998, 1997 and 1996 follows:



<TABLE>
<CAPTION>
                                    Outstanding                       Exercisable
                         ---------------------------------   ------------------------------
                             Option       Weighted Average   Option      Weighted Average
                             Shares        Exercise Price    Shares       Exercise Price
                         -------------   ----------------- ----------   -----------------
<S>                      <C>             <C>               <C>          <C>
At December 31, 1995       1,223,126         $  12.47
----------------------
Granted                      214,206            21.56
----------------------
Exercised                   (387,570)            9.10
----------------------
Forfeited                    (14,016)           12.94
----------------------     ---------         --------
At December 31, 1996       1,035,746            15.60       782,308          $ 14.01
----------------------                                      -------          -------
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)           54.06
----------------------
Forfeited                    (32,448)           42.06
----------------------     ---------         --------
At December 31, 1998       1,272,519         $  31.81       800,464          $ 22.11
----------------------     ---------         --------       -------          -------
</TABLE>

     Exercise prices for options outstanding as of December 31, 1998 ranged from
$2.60  to  $56.00.   The  following  table  summarizes   information  about  the
Corporation's stock options outstanding at December 31, 1998:



<TABLE>
<CAPTION>
                                     Options Outstanding                       Options Exercisable
                       ------------------------------------------------   ------------------------------
      Range of            Number         Weighted          Weighted        Number          Weighted
   Exercise Prices      of Options       Remaining      Exercise Price   of Options     Exercise Price
--------------------   ------------    Average Years        Average     ------------       Average
<S>                    <C>            <C>              <C>              <C>            <C>
  $2.60 to $18.49         359,519           5.04           $  13.81        359,518        $  13.81
--------------------
  $18.63 to $31.56        321,131           6.81              25.67        286,702           25.75
--------------------
  $31.94 to $55.25        284,809           8.34              35.40        153,044           34.54
--------------------
  $55.97 to $56.00        307,060           9.21              55.97          1,200           55.97
--------------------      -------           ----           --------        -------        --------
  $2.60 to $56.00       1,272,519           7.23           $  31.81        800,464        $  22.11
--------------------    ---------           ----           --------        -------        --------
</TABLE>

     During 1998, 1997 and 1996, 10,648 shares,  11,020 shares and 8,000 shares,
respectively, of the Corporation's common stock were awarded as restricted stock
under the Long-Term Incentive Plan. The restricted stock awards were recorded at
their fair values of $580,000, $388,000 and $200,000, respectively, on the dates
of grant and had weighted  average fair values of $54.52,  $36.56 and $25.25 per
share.  During 1998,  2,720 shares of restricted  stock were  forfeited.  During
1998,  1997  and  1996,  $195,000,  $176,000  and  $76,000,   respectively,   of
compensation expense was recognized for restricted stock awards.


                                       49
<PAGE>

(10) EMPLOYEE BENEFIT PLANS -- Continued

     The Corporation  has a Performance  Unit Plan which operates in conjunction
with the Long-Term  Incentive  Plan and covers  certain  senior  officers of the
Corporation and its subsidiaries.  Under this plan,  eligible  participants have
been awarded performance units which have a value in range from $0 to $200 each,
with a target value of $100 each.  At December 31, 1998, a total of 13,330 units
were  outstanding and will be deemed earned if and to the extent the Corporation
and  its  subsidiaries  meet  profit  objectives  established  by the  Board  of
Directors  over the  three-year  period ended  December 31, 2000.  Total expense
under this plan was  $1,200,000,  $1,100,000 and  $1,087,000 for 1998,  1997 and
1996, 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 the Corporation as compared to certain
targets established by the Corporation's Board of Directors. Total expense under
this plan was  $4,125,000,  $3,278,000  and  $2,524,000 in 1998,  1997 and 1996,
respectively.

     During 1993, the Corporation  adopted Management  Recognition Plans ("MRP")
covering certain officers and directors of the Subsidiary  Banks.  Shares of the
Corporation's  common stock  totaling  236,240 shares were 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,  $1,411,000  and  $1,533,000 for
1998, 1997 and 1996, respectively.  During 1998 and 1997, lapsed restrictions on
MRP shares increased shareholders' equity by $32,000 and $706,000, respectively.


     Postretirement Health and Life Insurance Plan

     The  Corporation  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.  The  Corporation  is required  to  recognize  the
accumulated  obligation  for the  Corporation's  health care and life  insurance
plans as well as the periodic costs of providing these coverages for retirees.

     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, 1998 and 1997:



<TABLE>
<CAPTION>
                                                1998           1997
                                           -------------   -----------
                                                 (In Thousands)
<S>                                        <C>             <C>
Change in benefit obligation:
Benefit obligation at January 1              $   7,450         7,040
----------------------------------------
Service cost                                       285           202
----------------------------------------
Interest cost                                      527           513
----------------------------------------
Actuarial (gain) loss                               97            44
----------------------------------------
Benefit payments                                  (375)         (349)
----------------------------------------     ---------         -----
Benefit obligation at December 31            $   7,984         7,450
----------------------------------------     ---------         -----
Funded status:
As of end of year                            $  (7,984)       (7,450)
----------------------------------------
Unrecognized net (gain) loss                     1,933         1,939
----------------------------------------     ---------        ------
Accrued postretirement benefit expense       $  (6,051)       (5,511)
----------------------------------------     ---------        ------
</TABLE>

     Net periodic  postretirement  benefit expense charged to operations for the
years ended December 31, 1998, 1997 and 1996 included the following components:




<TABLE>
<CAPTION>
                                                       1998     1997     1996
                                                      ------   ------   -----
                                 (In Thousands)
<S>                                                   <C>      <C>      <C>
Service cost of benefits earned during the period      $285     202      214
---------------------------------------------------
Interest cost on accumulated benefit obligation         527     513      471
---------------------------------------------------
Amortization of net (gain) loss                         103      90      127
---------------------------------------------------    ----     ---      ---
 Net postretirement benefit expense                    $915     805      812
---------------------------------------------------    ----     ---      ---
</TABLE>

     The accumulated postretirement benefit obligations at December 31, 1998 and
1997 were determined using discount rates of 7.00% for 1998 and 7.25% for 1997.


                                       50
<PAGE>

(10) EMPLOYEE BENEFIT PLANS -- Continued

     The health care trend rate was  projected to be 6.00% for 1998 and decrease
to 5.00% for 1999 and  thereafter.  A 1% change in the assumed health care trend
rates would have the following effects:



<TABLE>
<CAPTION>
                                                                                   1% Increase     1% Decrease
                                                                                  -------------   ------------
                                                                                         (In Thousands)
<S>                                                                               <C>             <C>
       Effect on total of service and interest cost components of net periodic
        postretirement benefits expense                                                $ 29            (25)
-------------------------------------------------------------------------------
       Effect on the accumulated postretirement benefit obligation                      394           (346)
-------------------------------------------------------------------------------
</TABLE>

(11) SHAREHOLDERS' EQUITY


     Earnings per Share

     The following  schedule  reconciles the numerators and  denominators of the
basic and diluted EPS computations for income before extraordinary items and net
income for the years ended December 31, 1998, 1997 and 1996:



<TABLE>
<CAPTION>
                                                           Income           Share         Per Share
                                                         (Numerator)     (Denominator)      Amount
                                                         -------------   ---------------   ----------
                                                            (In Thousands Except Per Share Data)
<S>                                                      <C>             <C>               <C>
For the year ended December 31, 1998:
Basic EPS:
Net income                                                 $ 121,212          40,898         $ 2.96
--------------------------------------                                        ------
Effect of dilutive securities --
Stock options                                                     --             511
--------------------------------------                     ---------          ------
Diluted EPS                                                $ 121,212          41,409         $ 2.93
--------------------------------------                     ---------          ------         ------
For the year ended December 31, 1997:
Basic EPS:
--------------------------------------
Net income                                                 $  95,424          41,438         $ 2.31
--------------------------------------                                                       ------
Effect of dilutive securities --
Stock options                                                     --             509
--------------------------------------                     ---------          ------
Diluted EPS                                                $  95,424          41,947         $ 2.28
--------------------------------------                     ---------          ------         ------
For the year ended December 31, 1996:
Basic EPS:
---------------------------------------
Net income                                                 $  86,826          41,107         $ 2.11
--------------------------------------                                        ------
Effect of dilutive securities:
Warrants                                                         --             180
--------------------------------------
Convertible debentures                                           22              44
--------------------------------------
Stock options                                                    --             484
--------------------------------------                    ---------          ------
Diluted EPS                                               $  86,848          41,815         $ 2.08
--------------------------------------                    ---------          ------         ------
</TABLE>

     Changes in Shareholders' Equity

     Salem Trust Bank issued  $2,133,000 of  convertible  subordinated  notes in
1993 which bore interest at 6%. The notes were  convertible at the option of the
holder or could be called at Salem Trust Bank's option,  in whole or in part, at
any time after  December 31, 1995 at par.  During 1996,  Salem Trust Bank called
the  remaining  convertible   subordinated  notes  and  substantially  all  were
converted into shares of common stock.  Conversion of  subordinated  notes added
$2,118,000 to shareholders' equity in 1996.

     As part of AmFed's 1989  conversion  from a mutual to a stock savings bank,
AmFed issued certain equity  instruments  including  common stock warrants which
allowed the holders of the warrants to purchase  600,000  shares of AmFed common
stock at a price of $5.00 per share.  During 1996, AmFed  repurchased all of the
remaining common stock warrants outstanding at a cost of $5,681,000.


     Preferred Stock

     The  Corporation  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, 1998 or 1997.


                                       51
<PAGE>

(11) SHAREHOLDERS' EQUITY -- Continued


     Rights Plan

     In 1990,  the  Corporation  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,  the  Corporation'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 the Corporation. No Preferred Shares have been issued.

     In accordance with the Rights Plan, one Right was  distributed  during 1990
to the Corporation's  shareholders for each of their shares of the Corporation's
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 the  Corporation,  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 the  Corporation'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 the Corporation's  common stock,
or (ii) unless the Acquiring Person has become the beneficial owner of more than
50% of the outstanding common stock, the Corporation's Board of Directors at its
option may exchange one share of the Corporation'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 the Corporation 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 the
Corporation 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 the
Corporation's outstanding common stock.


     Regulatory Matters

     The Corporation 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
weighted risk 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  the  Corporation'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


                                       52
<PAGE>

(11) SHAREHOLDERS' EQUITY -- Continued

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, 1998, the Corporation
and the Subsidiary  Banks met all capital  adequacy  requirements  to which they
were subject.

     As of December 31, 1998 (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, AmFed and CCB-Ga. as of
December 31, 1998 and 1997 are presented below.

<TABLE>
<CAPTION>

                                                                                     CCB                          AmFed
                                                                         ----------------------------- -----------------------------
                                                                              1998           1997           1998           1997
                                                                         -------------- -------------- -------------- --------------
                                                                                                 (In Thousands)
<S>                                                                         <C>             <C>            <C>            <C>
Tier I capital                                                            $ 500,016            520,279        105,287        115,088
--------------------------------------------------------------
Total capital                                                               557,567            571,185        116,807        125,890
--------------------------------------------------------------
Risk weighted assets                                                      4,848,586          4,343,721        881,471        862,072
--------------------------------------------------------------
Adjusted quarterly average assets                                         6,396,674          5,835,963      1,218,405      1,295,122
--------------------------------------------------------------
Risk-based capital ratios: Tier I capital to risk weighted assets:
  Actual                                                                      10.31 %            11.98          11.94          13.35
--------------------------------------------------------------
  Regulatory minimum                                                           4.00               4.00           4.00           4.00
--------------------------------------------------------------
  Well-capitalized under prompt corrective action provisions                   6.00               6.00           6.00           6.00
--------------------------------------------------------------
 Total capital to risk weighted assets:
  Actual                                                                      11.50              13.15          13.25          14.60
--------------------------------------------------------------
  Regulatory minimum                                                           8.00               8.00           8.00           8.00
--------------------------------------------------------------
  Well-capitalized under prompt corrective action provisions                  10.00              10.00          10.00          10.00
--------------------------------------------------------------
 Leverage ratio:
  Actual                                                                       7.82               8.92           8.64           8.89
--------------------------------------------------------------
  Regulatory minimum                                                           4.00               4.00           4.00           4.00
--------------------------------------------------------------
  Well-capitalized under prompt corrective action provisions                   5.00               5.00           5.00           5.00
--------------------------------------------------------------              ---------         ----------     ----------      -------



<CAPTION>
                                                                               CCB-Ga.
                                                                      ----------------------
                                                                         1998        1997
                                                                      ---------- -----------
                                                                          (In Thousands)
<S>                                                                      <C>        <C>
Tier I capital                                                          12,781       9,613
--------------------------------------------------------------
Total capital                                                           13,577      10,620
--------------------------------------------------------------
Risk weighted assets                                                    61,470      78,602
--------------------------------------------------------------
Adjusted quarterly average assets                                       88,290      93,867
--------------------------------------------------------------
Risk-based capital ratios: Tier I capital to risk weighted assets:
  Actual                                                                 20.79       12.23
--------------------------------------------------------------
  Regulatory minimum                                                      4.00        4.00
--------------------------------------------------------------
  Well-capitalized under prompt corrective action provisions              6.00        6.00
--------------------------------------------------------------
 Total capital to risk weighted assets:
  Actual                                                                 22.09       13.51
--------------------------------------------------------------
  Regulatory minimum                                                      8.00        8.00
--------------------------------------------------------------
  Well-capitalized under prompt corrective action provisions             10.00       10.00
--------------------------------------------------------------
 Leverage ratio:
  Actual                                                                 14.48       10.24
--------------------------------------------------------------
  Regulatory minimum                                                      4.00        4.00
--------------------------------------------------------------
  Well-capitalized under prompt corrective action provisions              5.00        5.00
--------------------------------------------------------------          -------     -------
</TABLE>

(12) SUPPLEMENTARY INCOME STATEMENT INFORMATION

     Following is a breakdown of the components of "other operating" expenses on
the  Consolidated  Statements  of Income for the years ended  December 31, 1998,
1997 and 1996:

<TABLE>
<CAPTION>
                                              1998        1997       1996
                                           ----------   --------   --------
                                                   (In Thousands )
<S>                                        <C>          <C>        <C>
Marketing                                   $  7,370      7,303      6,991
----------------------------------------
External data processing services              5,364      4,446      4,025
----------------------------------------
FDIC special assessment, net of refund            --         --     12,959
----------------------------------------
Deposit and other insurance                    3,415      3,346      4,912
----------------------------------------
Postage and freight                            4,486      4,107      3,863
----------------------------------------
Printing and office supplies                   7,935      6,178      5,457
----------------------------------------
Telecommunications                             6,341      5,765      4,895
----------------------------------------
Legal and professional fees                   10,331      6,340      7,350
----------------------------------------
Amortization of intangible assets              4,122      4,433      4,366
----------------------------------------
All other                                     26,022     23,330     20,803
----------------------------------------    --------     ------     ------
 Total other operating expenses             $ 75,386     65,248     75,621
----------------------------------------    --------     ------     ------
</TABLE>

     The FDIC  special  assessment  was levied by the FDIC to  recapitalize  the
Savings Association Insurance Fund.

                                       53
<PAGE>

(13) INCOME TAXES

     The components of income tax expense for the years ended December 31, 1998,
1997 and 1996 were as follows:


<TABLE>
<CAPTION>
                                     1998          1997          1996
                                 -----------   -----------   -----------
                                             (In Thousands)
<S>                              <C>           <C>           <C>
Current income taxes:
 Federal                          $ 66,004        57,809        42,011
------------------------------
 State                               7,552         5,172         4,594
------------------------------    --------        ------        ------
  Total current tax expense         73,556        62,981        46,605
------------------------------    --------        ------        ------
Deferred income tax benefit:
 Federal                            (4,071)       (6,245)       (2,344)
------------------------------
 State                                (853)         (971)         (672)
------------------------------    --------        ------        ------
  Total deferred tax benefit        (4,924)       (7,216)       (3,016)
------------------------------    --------        ------        ------
  Total income tax expense        $ 68,632        55,765        43,589
------------------------------    --------        ------        ------
</TABLE>

     Income  tax  expense  for  1996 was  favorably  impacted  by  Congressional
legislation  enacted in 1996 that  repealed the tax bad debt reserve  method for
thrift  institutions and froze the amount of such reserves  existing at December
31, 1987. Under the Internal Revenue Code of 1986, thrift  institutions had been
allowed  a special  bad debt  deduction  related  to  additions  to tax bad debt
reserves  established for the purpose of absorbing  losses.  A reduction of such
reserves for purposes other than bad debt losses created income for tax purposes
only, which was subject to the then current corporate income tax rates. Deferred
tax liabilities  totaling  $1,553,000 had been previously  recorded for a former
thrift subsidiary's tax bad debt reserves (the thrift subsidiary was merged into
CCB in 1996). Due to the 1996  Congressional  legislation,  a federal income tax
benefit of  $1,358,000  and a state income tax benefit of $195,000 were recorded
related  to the thrift  subsidiary's  tax bad debt  reserves,  which can only be
recaptured in certain remote circumstances.

     During 1998 and 1997, a total of $495,000 and  $118,000,  respectively,  of
income tax benefit was credited to additional paid-in capital as a result of the
exercise of certain  stock options  which were  subsequently  disposed of by the
optionees  and as a result of the lapse of  restrictions  on  restricted  stock.
During  1996,  a total of  $546,000  of  income  tax  benefit  was  credited  to
additional  paid-in  capital  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:



<TABLE>
<CAPTION>
                                                                            Amount
                                                              -----------------------------------
                                                                  1998        1997        1996
                                                              ----------- ----------- -----------
                                                                        (In Thousands)
<S>                                                            <C>         <C>         <C>
Tax expense at statutory rate on income before income taxes    $ 66,445      52,916      45,645
-------------------------------------------------------------
State taxes, net of federal benefit                               4,354       2,731       2,549
-------------------------------------------------------------
Increase (reduction) in taxes resulting from:
 Tax law change regarding thrift bad debt reserve recapture          --          --      (1,358)
-------------------------------------------------------------
 Tax-exempt interest on investment securities and loans          (1,370)     (1,411)     (1,654)
-------------------------------------------------------------
 Decrease in valuation allowance for deferred tax assets             --          --        (600)
-------------------------------------------------------------
 Other, net                                                        (797)      1,529        (993)
-------------------------------------------------------------  --------      ------      ------
Income tax expense                                             $ 68,632      55,765      43,589
-------------------------------------------------------------  --------      ------      ------



<CAPTION>
                                                                     % of Pretax Income
                                                              ---------------------------------
                                                                  1998       1997       1996
                                                              ----------- ---------- ----------
<S>                                                           <C>         <C>        <C>
Tax expense at statutory rate on income before income taxes   35.00 %         35.00      35.00
-------------------------------------------------------------
State taxes, net of federal benefit                            2.29            1.81       1.95
-------------------------------------------------------------
Increase (reduction) in taxes resulting from:
 Tax law change regarding thrift bad debt reserve recapture     --              --      (1.04)
-------------------------------------------------------------
 Tax-exempt interest on investment securities and loans       (.70)          ( .93)     (1.27)
-------------------------------------------------------------
 Decrease in valuation allowance for deferred tax assets        --              --      ( .46)
-------------------------------------------------------------
 Other, net                                                   (.40)            1.00     ( .76)
------------------------------------------------------------- -----          ------     ------
Income tax expense                                            36.19 %         36.88      33.42
------------------------------------------------------------- ---------      ------     ------
</TABLE>

     At December 31, 1998 and 1997,  the  Corporation  had recorded net deferred
tax assets of $17,365,000 and $12,080,000,  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 the Corporation's  recorded net deferred tax asset.  Consequently,
Management has determined that a valuation allowance for deferred tax assets was
not  required  at  December  31,  1998 or 1997.  The  sources and tax effects of
cumulative  temporary  differences that give rise to significant portions of the
net deferred tax assets at December 31, 1998 and 1997 are shown below:


                                       54
<PAGE>


<TABLE>
<CAPTION>
                                                                      1998         1997
                                                                  -----------   ---------
                                                                      (In Thousands)
<S>                                                               <C>           <C>
Deferred tax assets:
 Reserve for loan losses                                           $ 27,047      22,851
---------------------------------------------------------------
 Postretirement benefits                                              2,887       2,245
---------------------------------------------------------------
 Deferred compensation                                                2,457       2,528
---------------------------------------------------------------
 Other                                                                5,013       4,934
---------------------------------------------------------------    --------      ------
  Total gross deferred tax assets                                    37,404      32,558
---------------------------------------------------------------    --------      ------
Deferred tax liabilities:
 Intangible assets                                                      996       1,764
---------------------------------------------------------------
 Deferred loan fees and costs                                         3,315       2,999
---------------------------------------------------------------
 Premises and equipment                                               1,694       1,346
---------------------------------------------------------------
 FHLB dividends                                                       2,588       2,606
---------------------------------------------------------------
 Unrealized gains on investment securities available for sale         8,390       8,751
---------------------------------------------------------------
 Mortgage servicing rights gain                                       1,815       1,227
---------------------------------------------------------------
 Other                                                                1,241       1,785
---------------------------------------------------------------    --------      ------
  Total gross deferred tax liabilities                               20,039      20,478
---------------------------------------------------------------    --------      ------
  Net deferred tax asset                                           $ 17,365      12,080
---------------------------------------------------------------    --------      ------
</TABLE>

(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 2009.  Total  rental
expense  amounted to  $7,467,000 in 1998,  $6,319,000 in 1997 and  $6,852,000 in
1996. A summary of  noncancellable,  long-term lease commitments at December 31,
1998 follows:



<TABLE>
<CAPTION>
                                   Type of Property
                             -----------------------------
                                                                 Total
Year Ending December 31       Real Property     Equipment     Commitments
--------------------------   ---------------   -----------   ------------
                                            (In Thousands)
<S>                          <C>               <C>           <C>
1999                             $  5,328         2,249          7,577
----
2000                                4,844         1,937          6,781
----
2001                                3,884         1,369          5,253
----
2002                                3,528           496          4,024
----
2003                                3,138            77          3,215
----
Thereafter                         24,025            --         24,025
----                             --------         -----         ------
 Total lease commitments         $ 44,747         6,128         50,875
--------------------------       --------         -----         ------
</TABLE>

     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 1999.

     Certain  legal claims have arisen in the normal course of business in which
the  Corporation  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 the Corporation'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. The
Corporation intends to vigorously pursue the 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


                                       55
<PAGE>

(14) COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK -- Continued

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, 1998 and 1997,  the  Subsidiary  Banks had
commitments  to extend  credit of  approximately  $1.8 billion and $1.4 billion.
These amounts  include unused  revolving  credit lines and home mortgage  equity
lines of $403 million and $416 million,  respectively,  at December 31, 1998 and
$309 million and $334 million, respectively, at December 31, 1997.

     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  $31  million and $24 million in  outstanding  standby  letters of
credit at December 31, 1998 and 1997.


     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.  The  Corporation'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  exposure to credit  loss.  Potential  credit risk on these  contracts
arises  from the  counterparty's  inability  to meet the terms of the  contract.
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,  1998,  the  Corporation  had  two  off-balance  sheet
derivative  financial  instruments  in the form of  interest  rate swaps  (basis
swaps) with a notional  principal of $200 million.  The basis swaps were entered
into in November 1997 and April 1998 with a major regional  commercial  bank and
have two-year terms.  No fees were paid upon entering into the basis swaps.  The
purpose of  entering  into the basis  swaps was to  synthetically  convert  U.S.
Treasury-based  liabilities into prime rate-based liabilities and to lock-in the
spread between the two indices. The financial instruments had a nominal negative
effect on  1998's  interest  expense  and a  nominal  positive  effect on 1997's
interest expense.  The financial  instruments had a carrying value of $26,000 at
December  31, 1998.  The  Corporation  was not a party to any other  off-balance
sheet derivative financial instruments during 1998.


(15) DIVIDEND RESTRICTIONS

     Certain restrictions exist regarding the ability of the Subsidiary Banks to
transfer  funds to the  Corporation  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.  Under these
requirements,  the Subsidiary Banks have approximately  $240,884,000 in retained
earnings at December 31, 1998 that can be transferred to the  Corporation in the
form of cash dividends.  Total dividends declared by the Subsidiary Banks to the
Corporation in 1998 were $151,700,000.

     As a result  of the  above  requirements,  consolidated  net  assets of the
Subsidiary  Banks amounting to  approximately  $463,322,000 at December 31, 1998
were restricted from transfer to the Corporation.


(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,
1998 and 1997 and the related Condensed  Statements of Income and Cash Flows for
the three-years ended December 31, 1998 are as follows:


                                       56
<PAGE>

(16) CCB FINANCIAL CORPORATION (PARENT COMPANY) -- Continued


Condensed Balance Sheets
As of December 31, 1998 and 1997

<TABLE>
<CAPTION>
                                                     1998          1997
                                                 ------------   ----------
                                                      (In Thousands)
<S>                                              <C>            <C>
Cash and short-term investments                   $ 177,036      119,273
----------------------------------------------
Note receivable from subsidiary                          --       10,000
----------------------------------------------
Loans                                                65,653       60,877
----------------------------------------------
 Less reserve for loan losses                           792          792
----------------------------------------------    ---------      -------
  Net loans                                          64,861       60,085
----------------------------------------------
Investment in subsidiaries                          658,951      689,386
----------------------------------------------
Other assets                                         17,772       13,447
----------------------------------------------    ---------      -------
  Total assets                                    $ 918,620      892,191
----------------------------------------------    ---------      -------
Master notes                                      $ 128,482      117,372
----------------------------------------------
Note payable to subsidiary                           52,000       49,000
----------------------------------------------
Subordinated notes                                   32,985       32,985
----------------------------------------------
Other liabilities                                    17,259       11,474
----------------------------------------------    ---------      -------
  Total liabilities                                 230,726      210,831
----------------------------------------------
Shareholders' equity                                687,894      681,360
----------------------------------------------    ---------      -------
  Total liabilities and shareholders' equity      $ 918,620      892,191
----------------------------------------------    ---------      -------
</TABLE>

Condensed Income Statements
Years Ended December 31, 1998, 1997 and 1996


<TABLE>
<CAPTION>
                                                                         1998          1997         1996
                                                                     ------------   ----------   ---------
                                                                                (In Thousands)
<S>                                                                  <C>            <C>          <C>
Dividends from subsidiaries                                           $ 151,700       32,100      30,000
------------------------------------------------------------------
Interest income                                                          10,909        9,811       8,010
------------------------------------------------------------------
Other income                                                                 66            8           5
------------------------------------------------------------------    ---------       ------      ------
  Total operating income                                                162,675       41,919      38,015
------------------------------------------------------------------    ---------       ------      ------
Interest expense                                                         10,188        8,881       7,342
------------------------------------------------------------------
Provision for loan losses                                                    --          102          40
------------------------------------------------------------------
Merger-related expense                                                       --        3,873          --
------------------------------------------------------------------
Management fees                                                             563          150         150
------------------------------------------------------------------
Other operating expenses                                                  1,303          870         898
------------------------------------------------------------------    ---------       ------      ------
  Total operating expenses                                               12,054       13,876       8,430
------------------------------------------------------------------    ---------       ------      ------
Income before income taxes                                              150,621       28,043      29,585
------------------------------------------------------------------
Income taxes                                                               (377)        (910)       (145)
------------------------------------------------------------------    ---------       ------      ------
Income before equity in undistributed net income of subsidiaries        150,998       28,953      29,730
------------------------------------------------------------------
Equity in undistributed net income (loss) of subsidiaries               (29,786)      66,471      57,096
------------------------------------------------------------------    ---------       ------      ------
Net income                                                            $ 121,212       95,424      86,826
------------------------------------------------------------------    ---------       ------      ------
</TABLE>

Condensed Statements of Cash Flows
Years Ended December 31, 1998, 1997 and 1996


<TABLE>
<CAPTION>
                                                             1998            1997           1996
                                                         ------------   -------------   -----------
                                                                       (In Thousands)
<S>                                                      <C>            <C>             <C>
Net cash provided by operating activities                 $  153,493       26,347          29,470
------------------------------------------------------    ----------       -------         ------
Investment in subsidiaries                                        --        2,598           9,317
------------------------------------------------------
Net decrease in loans to subsidiaries                         10,000           --              --
------------------------------------------------------
Net increase in loans                                         (4,776)      (7,835)         (3,041)
------------------------------------------------------
Other, net                                                       (24)            (4)         (215)
------------------------------------------------------    ----------       ---------       ------
  Net cash provided (used) by investing activities             5,200       (5,241)          6,061
------------------------------------------------------    ----------       --------        ------
Increase in master notes                                      11,110       32,505          68,147
------------------------------------------------------
Proceeds from issuance of debt to subsidiaries                 3,000        4,800           4,200
------------------------------------------------------
Purchase and retirement of common stock                      (76,601)          --            (997)
------------------------------------------------------
Cash dividends                                               (40,398)     (36,750)        (28,579)
------------------------------------------------------
Purchase and retirement of common stock warrants                  --           --          (5,681)
------------------------------------------------------
Other, net                                                     1,959        3,417           3,078
------------------------------------------------------    ----------      ---------       -------
  Net cash provided (used) by financing activities          (100,930)       3,972          40,168
------------------------------------------------------    ----------      ---------       -------
Net increase in cash and short-term investments               57,763       25,078          75,699
------------------------------------------------------
Cash and short-term investments at beginning of year         119,273       94,195          18,496
------------------------------------------------------    ----------      ---------       -------
Cash and short-term investments at end of year            $  177,036      119,273          94,195
------------------------------------------------------    ----------      ---------       -------
</TABLE>

                                       57
<PAGE>

(17) QUARTERLY FINANCIAL DATA (UNAUDITED)


     Summarized  consolidated  quarterly  financial  data  for the  years  ended
December 31, 1998 and 1997 follows:



<TABLE>
<CAPTION>
                                                                                     1998
                                                                ----------------------------------------------
                                                                   4th Qtr.    3rd Qtr.   2nd Qtr.   1st Qtr.
                                                                ------------- ---------- ---------- ----------
                                                                     (In Thousands Except Per Share Data)
<S>                                                              <C>           <C>        <C>        <C>
Interest income                                                   $ 145,425    145,683    144,562    141,637
---------------------------------------------------------------
Interest expense                                                     62,756     64,604     64,234     62,968
---------------------------------------------------------------   ---------    -------    -------    -------
Net interest income                                                  82,669     81,079     80,328     78,669
---------------------------------------------------------------
Provision for loan and lease losses                                   4,320      4,778      3,646      3,140
---------------------------------------------------------------   ---------    -------    -------    -------
Net interest income after provision for loan and lease losses        78,349     76,301     76,682     75,529
---------------------------------------------------------------
Other income                                                         30,367     28,588     29,508     24,737
---------------------------------------------------------------
Other expenses                                                       58,313     58,894     58,918     54,092
---------------------------------------------------------------   ---------    -------    -------    -------
Income before income taxes                                           50,403     45,995     47,272     46,174
---------------------------------------------------------------
Income taxes                                                         18,814     15,632     17,296     16,890
---------------------------------------------------------------   ---------    -------    -------    -------
Net income                                                        $  31,589     30,363     29,976     29,284
---------------------------------------------------------------   ---------    -------    -------    -------
Net income per share:
 Basic                                                            $     .78        .75        .73        .70
---------------------------------------------------------------
 Diluted                                                                .77        .74        .72        .70
---------------------------------------------------------------   ---------    -------    -------    -------



<CAPTION>
                                                                                   1997
                                                                ------------------------------------------
                                                                 4th Qtr.   3rd Qtr.   2nd Qtr.   1st Qtr.
                                                                ---------- ---------- ---------- ---------
                                                                   (In Thousands Except Per Share Data)
<S>                                                             <C>        <C>        <C>        <C>
Interest income                                                  141,495    138,932    136,946    133,090
---------------------------------------------------------------
Interest expense                                                  64,034     63,529     61,582     60,954
---------------------------------------------------------------  -------    -------    -------    -------
Net interest income                                               77,461     75,403     75,364     72,136
---------------------------------------------------------------
Provision for loan and lease losses                                3,472      5,355      4,885      2,664
---------------------------------------------------------------  -------    -------    -------    -------
Net interest income after provision for loan and lease losses     73,989     70,048     70,479     69,472
---------------------------------------------------------------
Other income                                                      24,223     23,041     24,223     21,912
---------------------------------------------------------------
Other expenses                                                    55,077     66,719     52,374     52,028
---------------------------------------------------------------  -------    -------    -------    -------
Income before income taxes                                        43,135     26,370     42,328     39,356
---------------------------------------------------------------
Income taxes                                                      15,390     11,062     14,847     14,466
---------------------------------------------------------------  -------    -------    -------    -------
Net income                                                        27,745     15,308     27,481     24,890
---------------------------------------------------------------  -------    -------    -------    -------
Net income per share:
 Basic                                                               .67        .37        .67        .60
---------------------------------------------------------------
 Diluted                                                             .66        .37        .66        .59
---------------------------------------------------------------  -------    -------    -------    -------
</TABLE>

(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,  intangibles  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 the  Corporation.  Estimated  fair values of
certain on- and off-balance  sheet  financial  instruments of the Corporation at
December 31, 1998 and 1997 are presented below (in thousands):



<TABLE>
<CAPTION>
                                                                                1998                      1997
                                                                      ------------------------- -------------------------
                                                                        Carrying       Fair       Carrying       Fair
                                                                         Amount        Value       Amount        Value
                                                                      ------------ ------------ ------------ ------------
                                                                                        (In Thousands)
<S>                                                                    <C>          <C>          <C>          <C>
Financial assets:
Cash, time deposits in other banks and other short-term investments    $  740,451     740,451      419,344      419,344
---------------------------------------------------------------------
Securities available for sale                                           1,284,198   1,284,198    1,382,107    1,382,107
---------------------------------------------------------------------
Securities held to maturity                                                80,189      85,277       81,617       87,002
---------------------------------------------------------------------
Net loans                                                               5,414,155   5,527,581    5,025,975    5,115,476
---------------------------------------------------------------------
Mortgage servicing rights                                                   4,981       5,333        3,640        3,982
---------------------------------------------------------------------
Financial liabilities:
Deposits                                                                6,459,764   6,475,689    5,984,597    5,992,450
---------------------------------------------------------------------
Short-term borrowings                                                     288,256     288,256      276,437      276,437
---------------------------------------------------------------------
Long-term debt                                                            216,695     219,236      100,686      100,524
---------------------------------------------------------------------
Off-balance sheet financial instruments:
Interest rate swaps                                                            26        (430)          13          218
---------------------------------------------------------------------  ----------   ---------    ---------    ---------
</TABLE>

     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 the Corporation  chose to liquidate all of
its  holdings of a financial  instrument.  Because no market  exists for a large
portion of the  Corporation'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


                                       58
<PAGE>

(18) FAIR VALUE OF FINANCIAL INSTRUMENTS -- Continued

loans, are based on the stated term of the loan or the  Corporation'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.  The fair value of mortgage  servicing rights is based
on market prices for similar servicing assets.


     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, 1998
and 1997.  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 the Corporation. The carrying amounts are
reasonable  estimates  of the fair value of these  off-balance  sheet  financial
instruments due to their maturity and repricing terms.

                                       59
<PAGE>

    REPORT OF MANAGEMENT REGARDING RESPONSIBILITY FOR FINANCIAL STATEMENTS

     Management  is  responsible  for the content of the  financial  information
included  in this  annual  report.  The  financial  statements  from  which  the
financial  information  has been drawn are prepared in accordance with generally
accepted accounting  principles.  Other information in this report is consistent
with the financial statements.

     In meeting its responsibility,  Management relies on the system of internal
accounting  control  and related  control  systems.  Elements  of these  systems
include  selection  and  training  of  qualified  personnel,  establishment  and
communication  of  accounting  and   administrative   policies  and  procedures,
appropriate  segregation of  responsibilities,  and programs of internal audits.
These  systems  are  designed to provide  reasonable  assurance  that  financial
records  are  reliable  for  preparing  financial   statements  and  maintaining
accountability for assets, and that assets are safeguarded against  unauthorized
use or  disposition.  Such  assurance  cannot be  absolute  because of  inherent
limitations  in any  system of  internal  control.  The  concept  of  reasonable
assurance  recognizes  that the cost of a system of internal  control should not
exceed the  benefit  derived  and that the  evaluation  of such cost and benefit
necessarily requires estimates and judgments.

     KPMG LLP,  independent  auditors,  audited the  Corporation's  consolidated
financial  statements in accordance with generally accepted auditing  standards.
These  standards  include a study and  evaluation  of  internal  control for the
purpose  of  establishing  a  basis  for  reliance   thereon   relative  to  the
determination of the scope of their audits.

     The voting  members of the  Corporation's  Audit  Committee of the Board of
Directors  consist  solely  of  outside  Directors.  The Audit  Committee  meets
periodically  with  Management,  the  Corporation's  internal  auditors  and the
independent auditors to discuss audit, financial reporting, and related matters.
KPMG LLP and the internal auditors have direct access to the Audit Committee.




                         /s/ Ernest C. Roessler
                         ERNEST C. ROESSLER
                         Chairman, President and Chief Executive Officer



                         /s/ Sheldon M. Fox
                         SHELDON M. FOX
                         Executive Vice President and Chief Financial Officer



                         /s/ W. Harold Parker, Jr.
                         W. HAROLD PARKER, JR.
                         Senior Vice President and Controller

January 19, 1999

                                       60
<PAGE>

                         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, 1998 and 1997, 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,   1998.   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, 1998 and 1997, and the
results  of their  operations  and their cash flows for each of the years in the
three-year period ended December 31, 1998 in conformity with generally  accepted
accounting principles.



/s/ KPMG LLP
Raleigh, North Carolina
January 19, 1999


                                       61
<PAGE>

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL AND
      ACCOUNTING DISCLOSURE

     There  have  been no  disagreements  with  accountants  on  accounting  and
financial disclosures.


                                   PART III.


Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information  required by Item 10 is incorporated herein by reference to
CCB Financial Corporation's definitive Proxy Statement dated March 18, 1999 (the
"Proxy  Statement"),  pages 5 to 6, under the heading  "Proposal 1.  Election of
Directors" or appears under the heading  "Executive  Officers of the Registrant"
in Part I. of this Annual Report on Form 10-K.


Item 11. EXECUTIVE COMPENSATION

     The information  required by Item 11 is incorporated herein by reference to
the Proxy Statement,  pages 8 to 15, under the headings "Compensation  Committee
Report",  "Executive  Compensation",  "Pension Plan" and "Changes in Control and
Employment Arrangements".


Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information  required by Item 12 is incorporated herein by reference to
the Proxy  Statement,  pages 2 to 4,  under the  heading  "Amount  and Nature of
Beneficial Ownership of Voting Securities".


Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information  required by Item 13 is incorporated herein by reference to
the Proxy Statement, page 17, under the heading "Transactions with Management".



                                   PART IV.


Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a) 1. and 2.

     The financial  statements  and  supplementary  data listed in the index set
forth in Item 8 of this Annual Report are filed as part of this Annual Report.

     All  schedules are omitted  because of the absence of the  condition  under
which they are required or because the required  information  is included in the
financial statements or related notes.

     (a) 3.

     Exhibits  are  listed in the  Exhibit  Index  beginning  on page 63 of this
Annual Report.

     (b) Reports on Form 8-K:

     A report on Form 8-K dated  October 2, 1998 was filed  under  Items 5 and 7
reporting the  Corporation's  amendment and restatement of the 1990  Shareholder
Rights Plan to extend its term and to make other changes considered necessary to
update the original Shareholder Rights Plan.

     An  amendment  to Form 8-K dated  July 1, 1983 was filed on October 1, 1998
under Item 5 to amend and update the  description of the  Corporation's  capital
stock.


                                       62
<PAGE>

                            DESCRIPTION OF EXHIBITS


Amended and Restated Articles of Incorporation of Registrant

Articles of Amendment to the Amended and Restated Articles of Incorporation of
Registrant

Amended and Restated Bylaws of Registrant

Specimen of Common Stock of Registrant

Amended and Restated Rights Agreement dated October 1, 1998 between Registrant
              and Central Carolina Bank and Trust Company

Form of Indenture dated as of November 1, 1993,  between  Registrant and Bank of
New York as  successor  to  Wachovia  Bank of  North  Carolina,  N.A.,  Trustee,
pursuant to which Registrant's Subordinated Notes are issued and held

Description of Management Performance Incentive Plan of Central Carolina Bank
and Trust Company

1993 Nonstatutory Stock Option Plan for CCB Savings Bank of Lenoir, Inc., SSB

Amendment No. 1 to 1993 Nonstatutory Stock Option Plan for CCB Savings Bank of
Lenoir, Inc., SSB

1993 Incentive Stock Option Plan of Registrant

Long-Term Incentive Plan of Registrant

Security Capital Omnibus Stock Ownership and Long-Term Incentive Plan, as
assumed by the Registrant

Salem Trust Bank 1986 Incentive Stock Option Plan, as assumed by the Registrant


American Federal Bank, FSB Amended and Restated 1988 Stock Option and Incentive
Plan, as assumed by the Registrant

1995 Directors Performance Plan of American Federal Bank, FSB, as assumed by the
Registrant

Employment and Amended and Restated Change of Control Agreement between
Registrant, Central Carolina Bank and Trust Company and Ernest C. Roessler

Employment and Amended and Restated Change of Control Agreement between
Registrant, Central Carolina Bank and Trust Company and Richard L. Furr

Employment and Amended and Restated Change of Control Agreement between
Registrant, Central Carolina Bank and Trust Company and J. Scott Edwards

Plan          for Severance Compensation After A Change in Control dated October
              21, 1997 and amended October 19, 1998

Amended and Restated Employment Agreement by and between Registrant, Central
Carolina Bank and Trust Company and David B. Jordan

Employment Agreement by and between Registrant and William L. Abercrombie, Jr.

Subsidiaries of Registrant

Consent of KPMG LLP

Financial Data Schedule

Registrant's Proxy Statement to Shareholders for the 1999 Annual Meeting of
Shareholders

            COPIES OF EXHIBITS ARE AVAILABLE UPON WRITTEN REQUEST TO
          W. HAROLD PARKER, JR., SENIOR VICE PRESIDENT AND CONTROLLER
                          OF CCB FINANCIAL CORPORATION

                                       63
<PAGE>

                                  SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                        CCB FINANCIAL CORPORATION


                                        By: /s/  ERNEST C. ROESSLER
                                          -------------------------------------
                                                  Ernest C. Roessler
                                            Chairman, President and Chief 
                                                  Executive Officer

                                          Date: March 15, 1999


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.



<TABLE>
<CAPTION>
                Signature                             Title                    Date
----------------------------------------   ---------------------------   ---------------
<S>                                        <C>                           <C>
/s/  ERNEST C. ROESSLER
----------------------------------         Chairman and President        March 15, 1999
     Ernest C. Roessler                 (Chief Executive Officer)

/s/  WILLIAM L. ABERCROMBIE, JR.           Vice Chairman                 March 15, 1999
----------------------------------
     William L. Abercrombie, Jr.

/s/  J. HARPER BEALL, III                  Director                      March 15, 1999
----------------------------------
     J. Harper Beall, III

/s/  JAMES B. BRAME, JR.                   Director                      March 15, 1999
----------------------------------
     James B. Brame, Jr.

/s/  TIMOTHY B. BURNETT                    Director                      March 15, 1999
----------------------------------
     Timothy B. Burnett

/s/  BLAKE P. GARRETT, JR.                 Director                      March 15, 1999
----------------------------------
     Blake P. Garrett, Jr.

/s/  EDWARD S. HOLMES                      Director                      March 15, 1999
----------------------------------
     Edward S. Holmes

/s/  BONNIE MCELVEEN-HUNTER                Vice Chairman                 March 15, 1999
----------------------------------
     Bonnie McElveen-Hunter

/s/  DAVID B. JORDAN                       Director                      March 15, 1999
----------------------------------
     David B. Jordan

/s/  C. DAN JOYNER                         Director                      March 15, 1999
----------------------------------
     C. Dan Joyner

/s/  OWEN G. KENAN                         Director                      March 15, 1999
----------------------------------
     Owen G. Kenan

/s/  EUGENE J. MCDONALD                    Executive Vice Chairman       March 15, 1999
----------------------------------
     Eugene J. McDonald
                                           Director                      March   , 1999

----------------------------------
   Hamilton W. McKay, Jr., M.D.
</TABLE>

                                       65
<PAGE>


<TABLE>
<CAPTION>
             Signature                          Title                   Date
-----------------------------------   -------------------------   ---------------
<S>                                   <C>                         <C>
/s/  GEORGE J. MORROW                 Director                    March 15, 1999
----------------------------------
     George J. Morrow

/s/  ERIC B. MUNSON                   Director                    March 15, 1999
----------------------------------
     Eric B. Munson

/s/  DAVID E. SHI                     Director                    March 15, 1999
----------------------------------
     Dr. David E. Shi
                                      Director                    March   , 1999

----------------------------------
     Jimmy K. Stegall
                                      Director                    March   , 1999

----------------------------------
     H. Allen Tate, Jr.

 /s/  JAMES L. WILLIAMSON             Director                    March 15, 1999
----------------------------------
      James L. Williamson

/s/  PHAIL WYNN, JR.                  Director                    March 15, 1999
----------------------------------
     Dr. Phail Wynn, Jr.

/s/  SHELDON M. FOX                   Executive Vice President    March 15, 1999
----------------------------------    and Chief Financial     
     Sheldon M. Fox                          Officer          
                                      

/s/  W. HAROLD PARKER, JR.            Senior Vice President       March 15, 1999
----------------------------------    and Controller (Chief   
     W. Harold Parker, Jr.               Accounting Officer)  
                                      
</TABLE>

                                       66
<PAGE>

                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
 Exhibit Number
 per Item 601 of
 Regulation S-K                                       Description                                       Exhibit No.
---------------- ------------------------------------------------------------------------------------- ------------
<S>              <C>  <C>                                                                              <C>
        (3)      Articles of Incorporation and Bylaws.
                 a.   Registrant's Amended and Restated Articles of                                         *
                      Incorporation are incorporated herein by reference from
                      Exhibit 3 of Registrant's Form 8-K dated May 19, 1995.
                 b.   Registrant's Articles of Amendment to its Amended and                                 *
                      Restated Articles of Incorporation are incorporated herein
                      by reference from Exhibit 3 of Registrant's Quarterly
                      Report on Form 10-Q for the period ended June 30, 1997.
                 c.   Registrant's Articles of Amendment to its Amended and                                 *
                      Restated Articles of Incorporation are incorporated herein
                      by reference from Exhibit 3 of Registrant's Quarterly
                      Report on Form 10-Q for the period ended June 30, 1998.
                 d.   Registrant's Articles of Amendment to its Amended and                                 *
                      Restated Articles of Incorporation are incorporated herein
                      by reference from Exhibit 3 of Registrant's Current Report
                      on Form 8-K dated October 1, 1998.
                 e.   Registrant's Amended and Restated Bylaws dated October 22,                            *
                      1996 are incorporated by reference from Exhibit 3 of
                      Registrant's Quarterly Report on Form 10-Q for the quarter
                      ended September 30, 1996.
        (4)      Instruments defining the rights of security holders, including 
                 indentures.                                                                                *
                 a.   Specimen of Common Stock of Registrant is incorporated
                      herein by reference from Exhibit 4.1 of Registrant's
                      Current Report on Form 8-K dated October 1, 1998.
                 b.   Amended and Restated Rights Agreement dated October 1,                                *
                      1998 between Registrant and Central Carolina Bank and
                      Trust Company is incorporated herein by reference from
                      Exhibit 4.2 of Registrant's Current Report on Form 8-K
                      dated October 1, 1998.
                 c.   Form of indenture dated November 1, 1993 between                                      *
                      Registrant and Bank of New York as successor to Wachovia
                      Bank of North Carolina, N.A., Trustee, pursuant to which
                      Registrant's Subordinated Notes are issued and held is
                      incorporated herein by reference from Exhibit 4.2 of the
                      Registrant's Registration Statement No. 33-50793 on Form
                      S-3.

     (10)        Material contracts.                                                                        
                 a.   Description of Management Performance Incentive Plan of                               *
                      Central Carolina Bank and Trust Company is incorporated
                      herein by reference from Registrant's 1988 Annual Report
                      on Form 10-K.
                 b.   1993 Nonstatutory Stock Option Plan for CCB Savings Bank                              *
                      of Lenoir, Inc., SSB is incorporated herein by reference
                      from Exhibit 28 of Registrant's Registration Statement No.
                      33-61268 on Form S-8.
                 c.   Amendment No. 1 to the 1993 Nonstatutory Stock Option Plan                            *
                      for CCB Savings Bank of Lenoir, Inc., SSB is incorporated
                      herein by reference from Exhibit 10(G) of Registrant's
                      Annual Report on Form 10-K for the year ended December 31,
                      1993.
                 d.   1993 Incentive Stock Option Plan of Registrant is                                     *
                      incorporated herein by reference from Exhibit 28 of
                      Registrant's Registration Statement No. 33-61270 on Form
                      S-8.
                 e.   Long-Term Incentive Plan of Registrant is incorporated                                *
                      herein by reference from Exhibit 99 of Registrant's
                      Registration Statement No. 33-54645 on Form S-8.
                 f.   Security Capital Omnibus Stock Ownership and Long-Term                                *
                      Incentive Plan, as assumed by the Registrant, is
                      incorporated herein by reference from Exhibit 99 of
                      Registrant's Registration Statement No. 33-61791 on Form
                      S-8.
                 g.   Salem Trust Bank 1986 Incentive Stock Option Plan, as                                 *
                      assumed by the Registrant, is incorporated herein by
                      reference from Exhibit 99 of Registrant's Registration
                      Statement No. 333-22031 on Form S-8.

</TABLE>

                                       67
<PAGE>


<TABLE>
<CAPTION>
 Exhibit Number
 per Item 601 of
 Regulation S-K                                      Description                                         Exhibit No.
---------------- ------------------------------------------------------------------------------------ ----------------
<S>              <C>  <C>                                                                             <C>

                 h.   American Federal Bank, FSB Amended and Restated 1988 Stock                            *
                      Option and Incentive Plan, as assumed by the Registrant,
                      is incorporated herein by reference from Exhibit 99 of
                      Registrant's Registration Statement No. 333-34207 on Form
                      S-8.
                 i.   1995 Directors Performance Plan of American Federal Bank,                             *
                      FSB, as assumed by the Registrant, is incorporated herein
                      by reference from Exhibit 99 of Registrant's Registration
                      Statement No. 333-34231 on Form S-8.
                 j.   Employment and Amended and Restated Change of Control                                 *
                      Agreement dated January 12, 1998 between Registrant,
                      Central Carolina Bank and Trust Company and Ernest C.
                      Roessler is incorporated herein by reference from Exhibit
                      10.1 of Registrant's Form 8-K dated March 16, 1998.
                 k.   Employment and Amended and Restated Change of Control                                 *
                      Agreement dated January 27, 1998 between Registrant,
                      Central Carolina Bank and Trust Company and Richard L.
                      Furr is incorporated herein by reference from Exhibit 10.2
                      of Registrant's Form 8-K dated March 16, 1998.
                 l.   Employment and Amended and Restated Change of Control                                 *
                      Agreement dated January 12, 1998 between Registrant,
                      Central Carolina Bank and Trust Company and J. Scott
                      Edwards is incorporated herein by reference from Exhibit
                      10.3 of Registrant's Form 8-K dated March 16, 1998.
                 m.   Registrant's Plan for Severance Compensation After A                                  10
                      Change in Control dated October 21, 1997 and amended
                      October 19, 1998.
                 n.   Amended and Restated Employment Agreement by and between                              *
                      Registrant, Central Carolina Bank and Trust Company and
                      David B. Jordan dated May 19, 1995 is incorporated herein
                      by reference from Exhibit 10.1 of Registrant's Form 8-K
                      dated May 19, 1995.
                 o.   Employment Agreement by and between Registrant and William                            *
                      L. Abercrombie, Jr. dated July 31, 1997 is incorporated
                      herein by reference from Exhibit 10.1 of Registrant's
                      Registration Statement No. 333-25705 on Form S-4.
  (21)           Subsidiaries of Registrant.
                 A listing of the direct and indirect subsidiaries of Registrant
                 is included in Note 1 to the Consolidated  Financial Statements
                 of Registrant included in this Form 10-K.
  (23)           Consents of experts and counsel.
                 Consent of KPMG LLP.                                                                       23
  (27)           Financial Data Schedule.                                                                   27
  (99)           Additional exhibits.
                 Proxy Statement for 1999 Annual Meeting of Shareholders to be held
                 on April 27, 1999.                                                                         Not Required to
                                                                                                            be Re-filed
</TABLE>

* Previously filed

                                       68
<PAGE>