<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET
- -------------------------------------------------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
(In Thousands) December 31,
<CAPTION>
1993 1992
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Assets
- -------------------------------------------------------------------------------------------------------------
Cash and due from banks (note 4) $264,531 $280,840
Temporary investments:
Federal funds sold and securities purchased
under agreements to resell 193,131 247,100
Interest-bearing deposits in other banks -- 35,000
Trading account securities 1,505 744
- ---------------------------------------------------------------------------------- ---------- ----------
Total temporary investments 194,636 282,844
- ---------------------------------------------------------------------------------- ---------- ----------
Assets available for sale:
Securities:
U.S. Government and agencies 3,193,391 14,316
States and political subdivisions 170,981 --
Other 735,734 28,645
- ---------------------------------------------------------------------------------- ---------- ----------
Total securities available for sale (fair value $42,977 in 1992) (note 5) 4,100,106 42,961
- ---------------------------------------------------------------------------------- ---------- ----------
Loans 37,773 --
- ---------------------------------------------------------------------------------- ---------- ----------
Total assets available for sale 4,137,879 42,961
- ---------------------------------------------------------------------------------- ---------- ----------
Investment securities:
U.S. Government and agencies -- 1,853,835
States and political subdivisions -- 179,819
Other -- 1,826,287
- ---------------------------------------------------------------------------------- ---------- ----------
Total investment securities (fair value $3,887,964) (note 5) -- 3,859,941
- ---------------------------------------------------------------------------------- ---------- ----------
Loans (notes 6 and 15):
Commercial and commercial real estate 1,711,092 1,576,744
Construction 289,199 347,685
Residential real estate 1,136,278 589,133
Consumer second mortgage 458,294 411,708
Installment 670,487 593,065
Bank card 509,386 435,019
- ---------------------------------------------------------------------------------- ---------- ----------
Total loans 4,774,736 3,953,354
Allowance for loan losses (note 7) (105,000) (101,800)
- ---------------------------------------------------------------------------------- ---------- ----------
Net loans 4,669,736 3,851,554
- ---------------------------------------------------------------------------------- ---------- ----------
Accrued interest receivable 65,754 68,109
Premises and equipment, net (note 8) 146,933 147,463
Due from customers on acceptances 16,923 21,474
Other assets (notes 6 and 11) 165,892 157,129
- ---------------------------------------------------------------------------------- ---------- ----------
Total assets $9,662,284 $8,712,315
- ---------------------------------------------------------------------------------- ========== ==========
Liabilities
- -------------------------------------------------------------------------------------------------------------
Deposits:
Demand $926,917 $823,124
Interest checking 662,122 631,009
Regular savings 863,627 741,646
Consumer certificates 2,756,087 2,758,839
Money market accounts 1,009,577 1,180,267
Certificates of deposit $100,000 and over 437,686 537,568
- ---------------------------------------------------------------------------------- ---------- ----------
Total deposits 6,656,016 6,672,453
- ---------------------------------------------------------------------------------- ---------- ----------
Short-term borrowings (note 9):
Federal funds purchased and securities sold
under agreements to repurchase 1,457,341 1,173,381
Other short-term borrowings 438,413 28,361
- ---------------------------------------------------------------------------------- ---------- ----------
Total short-term borrowings 1,895,754 1,201,742
- ---------------------------------------------------------------------------------- ---------- ----------
Dividends payable 9,752 7,920
Accrued interest payable 25,148 16,860
Bank acceptances outstanding 16,923 21,474
Accounts payable and accrued liabilities (note 13) 172,651 22,105
Long-term debt (note 10) 151,389 158,423
Capitalized lease obligations (note 8) 8,514 9,351
- ---------------------------------------------------------------------------------- ---------- ----------
Total liabilities 8,936,147 8,110,328
- ---------------------------------------------------------------------------------- ---------- ----------
SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------
Preferred stock, none issued (note 12) -- --
Common stock, par value $5 per share, authorized
100,000,000 shares, shares issued 1993 - 39,022,790;
1992 - 38,431,874 (notes 12 and 14) 195,114 192,159
Capital surplus 177,921 166,554
Retained earnings (note 2) 307,249 243,274
- ---------------------------------------------------------------------------------- ---------- ----------
Total shareholders' equity before unrealized gains 680,284 601,987
- ---------------------------------------------------------------------------------- ---------- ----------
Unrealized gains on securities available for sale 45,853 --
- ---------------------------------------------------------------------------------- ---------- ----------
Total shareholders' equity 726,137 601,987
- ---------------------------------------------------------------------------------- ---------- ----------
Commitments and contingent liabilities (notes 8, 13 and 17)
Total liabilities and shareholders' equity $9,662,284 $8,712,315
- ---------------------------------------------------------------------------------- ========== ==========
- -------------------------------------------------------------------------------------------------------------
The notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CONSOLIDATED INCOME
- --------------------------------------------------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
(In Thousands, except share and per share data) Year Ended December 31,
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Income From Earning Assets
- --------------------------------------------------------------------------------------------------------------
Interest and fees on loans $359,504 $351,972 $391,306
Interest on securities available for sale:
U.S. Government and agencies 45,869 56,922 1,446
States and political subdivisions 2,059 -- --
Other 11,886 287 --
Interest on loans available for sale 690 -- --
Interest on investment securities:
U.S. Government and agencies 102,028 101,395 120,039
States and political subdivisions 6,943 10,095 12,802
Other 79,221 54,816 22,739
Interest on money market investments 5,752 4,629 11,442
Interest on trading account securities 34 47 209
- ------------------------------------------------------------------------ ---------- ---------- ----------
Total income from earning assets 613,986 580,163 559,983
- ------------------------------------------------------------------------ ---------- ---------- ----------
Interest Expense
- --------------------------------------------------------------------------------------------------------------
Interest on deposits (note 16) 239,178 252,333 275,745
Interest on federal funds purchased and securities
sold under agreements to repurchase 31,752 29,577 38,995
Interest on other short-term borrowings 10,612 894 1,940
Interest on long-term debt 7,405 2,046 1,785
Interest on capitalized lease obligations 784 847 900
- ------------------------------------------------------------------------ ---------- ---------- ----------
Total interest expense 289,731 285,697 319,365
- ------------------------------------------------------------------------ ---------- ---------- ----------
Net interest income 324,255 294,466 240,618
Provision for loan losses (note 7) 79,509 99,757 49,810
- ------------------------------------------------------------------------ ---------- ---------- ----------
Net income from earning assets 244,746 194,709 190,808
- ------------------------------------------------------------------------ ---------- ---------- ----------
Noninterest Income
- --------------------------------------------------------------------------------------------------------------
Trust income 13,621 12,208 10,849
Deposit fees and charges 33,898 29,792 27,341
Profits on securities available for sale
and trading account securities (note 5) 3,695 52,827 6,172
Investment securities gains, net (note 5) 50,680 -- 17,725
Other income (note 16) 23,909 20,595 16,855
- ------------------------------------------------------------------------ ---------- ---------- ----------
Total noninterest income 125,803 115,422 78,942
- ------------------------------------------------------------------------ ---------- ---------- ----------
Noninterest Expense
- --------------------------------------------------------------------------------------------------------------
Personnel expense (note 13) 115,917 104,060 97,342
Occupancy and equipment expense 38,752 38,313 35,826
FDIC insurance expense 14,612 11,886 9,244
Other real estate expense 15,108 4,715 8,376
Other expense (note 16) 38,909 41,859 39,618
- ------------------------------------------------------------------------ ---------- ---------- ----------
Total noninterest expense 223,298 200,833 190,406
- ------------------------------------------------------------------------ ---------- ---------- ----------
Earnings
- --------------------------------------------------------------------------------------------------------------
Income before income taxes 147,251 109,298 79,344
Income tax expense (note 11) 44,334 30,782 18,909
- ------------------------------------------------------------------------ ---------- ---------- ----------
Net Income $102,917 $78,516 $60,435
- ------------------------------------------------------------------------ ========== ========== ==========
Earnings Per Share
- --------------------------------------------------------------------------------------------------------------
Net income $2.66 $2.25 $1.87
Average shares outstanding 38,737,447 34,962,561 32,396,301
- --------------------------------------------------------------------------------------------------------------
The notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CONSOLIDATED CASH FLOWS
----------------------------------------------------------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
(In Thousands) Year Ended December 31,
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------
Operating Activities
----------------------------------------------------------------------------------------------------------------------
Net income $102,917 $78,516 $60,435
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Provision for loan losses 79,509 99,757 49,810
Depreciation of premises and equipment 13,879 14,142 13,045
Net amortization of premium and accretion of discount on investment
securities and securities available for sale 19,727 7,013 598
Investment securities gains, net (50,680) -- (17,725)
Gains on securities available for sale (4,182) (49,834) (2,169)
Deferred income taxes (5,168) (16,234) (4,311)
(Increase) decrease in accrued interest receivable 2,355 (21,487) 2,896
Increase (decrease) in accrued interest payable 8,288 (5,640) (2,092)
(Increase) decrease in trading account securities (761) 19 112
Other, net 143,348 (131,709) (58,849)
---------------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided (used) by operating activities 309,232 (25,457) 41,750
---------------------------------------------------------------------------- ---------- ---------- ----------
Investing Activities
----------------------------------------------------------------------------------------------------------------------
Purchases of investment securities (617,998) (2,826,308) (641,880)
Proceeds from sales of investment securities 626,426 -- 730,263
Proceeds from maturities and repayments of investment securities 608,655 455,810 325,580
Purchases of securities available for sale (1,745,356) (492,270) (1,930,355)
Proceeds from sales of securities available for sale 532,910 2,242,506 651,437
Proceeds from maturities and repayments of securities available
for sale 503,839 38,124 --
Net increase in loans (975,872) (407,429) (108,071)
Purchases of premises and equipment (13,469) (23,589) (14,493)
Proceeds from the disposition of premises and equipment 657 471 760
Proceeds from the disposition of other real estate owned 18,782 24,575 31,258
Net cash received in acquisitions -- 64,739 --
---------------------------------------------------------------------------- ---------- ---------- ----------
Net cash used by investing activities (1,061,426) (923,371) (955,501)
---------------------------------------------------------------------------- ---------- ---------- ----------
Financing Activities
----------------------------------------------------------------------------------------------------------------------
Net increase in demand, interest checking and regular savings deposits 256,887 418,295 214,669
Net increase (decrease) in consumer certificates (2,752) (305,181) 399,031
Net increase (decrease) in money market accounts (170,690) 226,480 64,513
Net increase (decrease) in certificates of deposit $100,000 and over (99,882) 266,604 (32,990)
Net increase in short-term borrowings 694,012 184,304 70,881
Payments on long-term debt and capitalized lease obligations (7,871) (4,952) (4,792)
Increase in long-term debt and capitalized lease obligations -- 150,000 --
Proceeds from issuance of common stock 14,322 124,827 7,435
Cash in lieu of fractional shares for 3-for-2 stock split -- (92) (76)
Common stock purchased -- -- (561)
Cash dividends (37,110) (26,925) (23,027)
---------------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided by financing activities 646,916 1,033,360 695,083
---------------------------------------------------------------------------- ---------- ---------- ----------
Increase (decrease) in cash and cash equivalents (105,278) 84,532 (218,668)
Cash and cash equivalents at beginning of year 562,940 478,408 697,076
---------------------------------------------------------------------------- ---------- ---------- ----------
Cash and cash equivalents at end of year $457,662 $562,940 $478,408
---------------------------------------------------------------------------- ========== ========== ==========
----------------------------------------------------------------------------------------------------------------------
The notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN
CONSOLIDATED SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
(In Thousands)
<CAPTION> Total
Common Common Capital Retained Shareholders'
Shares Stock Surplus Earnings Equity
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------
Year Ended December 31, 1991
--------------------------------------------------------------------------------------------------------
Balance at beginning of year 14,335 $71,676 $55,390 $254,517 $381,583
Adoption of Statement of Financial
Accounting Standards No. 109
retroactive to January 1, 1983 (note 11) -- -- -- (1,948) (1,948)
Net income -- -- -- 60,435 60,435
Common stock issued under Plans 318 1,586 5,849 -- 7,435
Common stock purchased (23) (113) (448) -- (561)
Cash dividends declared on
common stock ($.74 per share) -- -- -- (23,648) (23,648)
Change in valuation allowance for
marketable equity securities -- -- -- 4,255 4,255
Stock split in the form of a dividend
declared May 8, 1991 7,181 35,904 -- (35,980) (76)
--------------------------------------------- -------- -------- -------- -------- --------
Balance at end of year 21,811 109,053 60,791 257,631 427,475
--------------------------------------------- -------- -------- -------- -------- --------
Year ended December 31, 1992
--------------------------------------------------------------------------------------------------------
Net income -- -- -- 78,516 78,516
Sale of common stock (note 12) 3,450 17,250 95,569 -- 112,819
Common stock issued under Plans 363 1,814 10,194 -- 12,008
Cash dividends declared on
common stock ($.82 per share) -- -- -- (28,739) (28,739)
Stock split in the form of a dividend
declared January 13, 1993 12,808 64,042 -- (64,134) (92)
--------------------------------------------- -------- -------- -------- -------- --------
Balance at end of year 38,432 192,159 166,554 243,274 601,987
--------------------------------------------- -------- -------- -------- -------- --------
Year ended December 31, 1993
--------------------------------------------------------------------------------------------------------
Net income -- -- -- 102,917 102,917
Common stock issued under Plans 591 2,955 11,367 -- 14,322
Unrealized gains on securities
available for sale -- -- -- 45,853 45,853
Cash dividends declared on
common stock ($1.00 per share) -- -- -- (38,942) (38,942)
--------------------------------------------- -------- -------- -------- -------- --------
Balance at end of year 39,023 $195,114 $177,921 $353,102 $726,137
--------------------------------------------- ======== ======== ======== ======== ========
--------------------------------------------------------------------------------------------------------
The notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
COMBINED BALANCE SHEET
--------------------------------------------------------------------------------------
Subsidiary Banks of Central Fidelity Banks, Inc.
(In Thousands) December 31,
<CAPTION>
1993 1992
<S> <C> <C>
--------------------------------------------------------------------------------------
Assets
--------------------------------------------------------------------------------------
Cash and due from banks (note 4) $264,939 $280,585
Temporary investments:
Federal funds sold and securities
purchased under agreements to resell 171,813 240,040
Interest-bearing deposits in other banks -- 25,000
Trading account securities 1,505 744
---------------------------------------------------------- ---------- ----------
Total temporary investments 173,318 265,784
---------------------------------------------------------- ---------- ----------
Assets available for sale:
Securities (fair value $32,153 in 1992) 4,094,431 31,984
Loans 37,773 --
---------------------------------------------------------- ---------- ----------
Total assets available for sale 4,132,204 31,984
---------------------------------------------------------- ---------- ----------
Investment securities (fair value $3,887,964) (note 5) -- 3,859,941
Loans (notes 6 and 15) 4,774,736 3,953,354
Allowance for loan losses (note 7) (105,000) (101,800)
---------------------------------------------------------- ---------- ----------
Net loans 4,669,736 3,851,554
---------------------------------------------------------- ---------- ----------
Accrued interest receivable 65,752 68,039
Premises and equipment, net (note 8) 146,933 147,463
Due from customers on acceptances 16,923 21,474
Other assets (notes 6 and 11) 146,665 134,681
---------------------------------------------------------- ---------- ----------
Total assets $9,616,470 $8,661,505
---------------------------------------------------------- ========== ==========
Liabilities
--------------------------------------------------------------------------------------
Deposits:
Demand $926,929 $823,233
Interest checking 662,122 631,009
Regular savings 863,627 741,646
Consumer certificates 2,756,087 2,758,839
Money market accounts 1,009,577 1,180,267
Certificates of deposit $100,000 and over 437,686 537,568
---------------------------------------------------------- ---------- ----------
Total deposits 6,656,028 6,672,562
---------------------------------------------------------- ---------- ----------
Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 1,479,480 1,174,299
Other short-term borrowings 421,488 10,006
---------------------------------------------------------- ---------- ----------
Total short-term borrowings 1,900,968 1,184,305
---------------------------------------------------------- ---------- ----------
Accrued interest payable 25,170 16,415
Bank acceptances outstanding 16,923 21,474
Accounts payable and accrued liabilities (note 13) 171,206 24,666
Note payable to parent company 150,000 150,000
Long-term debt (note 10) 1,389 2,423
Capitalized lease obligations (note 8) 8,514 9,351
---------------------------------------------------------- ---------- ----------
Total liabilities 8,930,198 8,081,196
---------------------------------------------------------- ---------- ----------
Shareholder's Equity
--------------------------------------------------------------------------------------
Common stock 167,275 167,275
Capital surplus 174,376 174,376
Retained earnings (note 2) 298,768 238,658
---------------------------------------------------------- ---------- ----------
Total shareholder's equity before unrealized gains 640,419 580,309
---------------------------------------------------------- ---------- ----------
Unrealized gains on securities available for sale 45,853 --
---------------------------------------------------------- ---------- ----------
Total shareholder's equity 686,272 580,309
---------------------------------------------------------- ---------- ----------
Commitments and contingent liabilities (notes 8, 13 and 17)
Total liabilities and shareholder's equity $9,616,470 $8,661,505
---------------------------------------------------------- ========== ==========
--------------------------------------------------------------------------------------
The notes are an integral part of the financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Central Fidelity Banks, Inc. ("Central Fidelity" or the "Company")
and its subsidiaries are considered as operating within the single
industry referred to as commercial banking. The accounting and reporting
policies used in the preparation of these financial statements conform
to generally accepted accounting principles and to general practices
within the industry. The consolidated financial statements include the
accounts and results of operations of Central Fidelity and its
subsidiaries, all of which are wholly owned. The Combined Balance Sheet
includes the accounts of the bank subsidiaries only.
ACCOUNTING CHANGES - As of January 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106)
for the Medicare carve-out health insurance coverage provided to its
qualifying retirees. SFAS 106 requires that the expected cost of
postretirement benefits be charged to expense during the period that
eligible employees render such service.
During the first quarter of 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS 109) retroactive to January 1, 1983. SFAS 109 changes the method
of accounting for income taxes from the deferred method to the asset and
liability method. The net cumulative effect of this change in accounting
for income taxes was $1,948,000 as of January 1, 1983.
As of December 31, 1993, the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS 115). SFAS 115 requires
investments to be classified as held-to-maturity, trading or
available-for-sale securities.
CASH FLOW INFORMATION - For purposes of the Statement of
Consolidated Cash Flows, the Company considers amounts due from banks
and money market investments which have original maturities of three
months or less to be cash equivalents. During the years ended December
31, 1993, 1992 and 1991, cash paid for interest was $281,443,000,
$288,955,000 and $321,457,000, and cash paid for income taxes was
$53,485,000, $50,555,000 and $21,531,000, respectively. During 1993,
1992 and 1991, other real estate owned increased as a result of loan
foreclosures in the amount of $40,408,000, $22,737,000 and
$16,535,000, respectively, representing non-cash investing activities
for purposes of the Statement of Consolidated Cash Flows.
MONEY MARKET INVESTMENTS - Money market investments are carried at
cost, which approximates market value. These assets are highly liquid
short-term investments generally maturing within one year which arise
from Central Fidelity's and its subsidiary banks' money market
activities. They include the overnight investment of excess reserves,
securities purchased under agreements to resell, and the investment in
certificates of deposit of unrelated banks. Interest earned on money
market investments is reflected as "Interest on money market
investments" in the Statement of Consolidated Income.
INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE - When
securities are purchased, they are classified as investment securities
when management has the positive intent and the Company has the ability
at the time of purchase to hold them until maturity or on a long-term
basis. These securities are carried at cost adjusted for amortization of
premiums and accretion of discounts. Premiums are amortized (deducted)
and discounts are accreted (added) to interest income on investment
securities using methods that approximate the level yield method.
Securities to be held for indefinite periods of time and not
intended to be held to maturity or on a long-term basis are classified
as available for sale and accounted for at fair market value, with
unrealized gains and losses reported in a separate component of
shareholders' equity in the Consolidated Balance Sheet. These include
securities used as part of the Company's asset/liability strategy and
may be sold in response to changes in interest rates, prepayment
risk, the need or desire to increase capital, to satisfy regulatory
requirements and other similar factors. Interest earned on securities
available for sale is reflected as "Interest on securities available for
sale" in the Statement of Consolidated Income. Gains and losses arising
from the sale of securities available for sale included in "Profits on
securities available for sale and trading account securities."
TRADING ACCOUNT SECURITIES - Trading account securities are carried
at fair market value. Interest rate futures, options, and forward
contracts used in trading activities are carried at fair market value.
These contracts, used in the management of interest rate exposure, are
purchased and sold on a matched-off basis only. Interest earned on
trading account securities is reflected as "Interest on trading
account securities" in the Statement of Consolidated Income. Gains and
losses arising from the sale of trading account securities and
adjustments to market are included in "Profits on securities available
for sale and trading account securities."
INTEREST RATE SWAPS - The Company utilizes interest rate swaps to
manage its interest rate exposure. Income or expense associated with
interest rate swap agreements is recognized over the life of the swap
agreement as a component of interest income or interest expense.
LOANS - Interest on loans is credited to income based on the
principal amounts outstanding during the period. Origination and
commitment fees and all related costs are deferred and the net amount is
amortized over the contractual life of the loans or the estimated life
if shorter.
The policy with respect to interest accruals specifies that
interest will stop being accrued on any loan, except installment and
bank card loans, when there appears to be no reasonable expectation that
the borrower will be able to pay the interest up to date within a
reasonable time period and the value of the collateral is not at least
equal to the amount at which the loan plus all interest accrued is
recorded. Interest income is recognized on these loans only when
received in cash. A loan will remain on a nonaccrual status until the
loan is current as to payment of both interest and principal and the
borrower demonstrates the ability to pay and remain current. Since
installment and bank card loan payments include both interest and
principal, the policy with respect to installment and bank card loans
requires that a loan be charged off when it is over 120 and 180 days
past due, respectively. Accruals of interest on these loans are not
discontinued prior to charge off.
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses consists
of the cumulative effect of the provision for loan losses less net loans
charged off. The provision for loan losses charged to operating
expense is the amount necessary, in management's judgment, to maintain
the allowance at a level it believes sufficient to cover losses in
collections of loans. The provision is based on such factors that in
management's judgment warrant current recognition in providing an
adequate allowance. Principal factors in management's analysis of the
adequacy of the allowance are: the historical relationships among
loans outstanding, loan loss experience and the current level of the
allowance; a continuing evaluation of the present and anticipated future
economic environment for the nation and for the various business sectors
of the Company's trade area; and reviews of loan portfolio quality by
the federal and state regulatory authorities, external auditors, and the
Company's loan review staff.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost
less accumulated depreciation and amortization. Additions, major
replacements, and improvements to buildings and equipment are added to
the asset accounts at cost.
Certain noncancellable leases, which relate to the financing of
premises and equipment, have been capitalized and are classified as
premises and equipment in the accompanying balance sheets. Related
amounts representing capitalized lease obligations are included in the
accompanying balance sheets as a separate liability and are amortized
using the interest method to allocate payments between principal
reduction and interest expense. The initial carrying amounts represent
the present value of the future rental payments, discounted at the lower
of the incremental borrowing rate of the lessee or the interest rate
implicit in the lease.
Depreciation is charged to expense over the estimated useful lives
of the assets. Capital leases and leasehold improvements are amortized
to expense over the terms of their respective leases or the estimated
useful lives of the improvements, whichever is shorter. Depreciation and
amortization are computed principally on the straight-line method. Rates
of depreciation are based on the following lives: buildings, twenty to
fifty years; leasehold improvements, five to twenty years; and furniture
and equipment, three to fifteen years. Gains and losses on dispositions
are reflected in operations. Maintenance, repairs and minor replacements
are charged to expense.
OTHER REAL ESTATE - Other real estate, classified in "Other assets"
in the accompanying balance sheets, consists primarily of real estate
held for resale which was acquired through foreclosure on loans secured
by real estate. Other real estate is carried at the lower of cost less
estimated disposal costs or appraised market value. Writedowns to market
value at the date of foreclosure are charged to the allowance for
loan losses. Subsequent declines in market value are charged to expense.
INCOME TAXES - Central Fidelity accounts for certain income and
expense items differently for income tax purposes than for financial
reporting purposes. Provisions for deferred taxes are made in
recognition of these timing differences.
PENSION PLAN - The plan covers substantially all employees. Costs of
the plan are determined by independent actuaries using the projected
unit credit method. The plan is funded on a current basis to the
extent deductible under existing federal tax regulations.
STOCK OPTIONS - At the time options are exercised, the par value of
the shares is credited to common stock, and the excess of the proceeds
over the par value is credited to capital surplus. No charges or credits
to income are made with respect to the options since the option price is
the same as market value at the date of grant.
EARNINGS PER SHARE - Earnings per share have been computed on the
basis of the weighted average number of shares outstanding during the
period. The assumed exercise of stock options has not been included in
the computations because the resulting dilution is not material.
On January 13, 1993 and May 8, 1991, the Board of Directors of the
Company declared 3-for-2 stock splits in the form of a dividend payable
on February 22, 1993 and July 1, 1991, respectively, to shareholders of
record January 29, 1993 and May 24, 1991, respectively.
DIVIDENDS - Dividends are paid to the Company by its subsidiaries in
amounts sufficient to cover corporate expenses and dividends paid to
shareholders. Dividends are subject to the financial condition of the
subsidiaries, regulatory limitations and management's judgment as to the
desirability of utilizing alternative sources of funds.
TRUST ASSETS AND INCOME - Assets held by one of the commercial
banking subsidiaries in a fiduciary, agency or safekeeping capacity for
customers are not included as assets in the accompanying balance
sheets. At December 31, 1993, such assets amounted to $5.2 billion.
Trust service income is recognized primarily on the accrual basis.
RECLASSIFICATIONS - Certain previously reported amounts have been
reclassified to conform to current presentations.
<PAGE>
<TABLE>
NOTE 2. Parent Company Financial Information
Condensed financial information of Central Fidelity Banks, Inc.
(Parent Company) is presented below:
Balance Sheet
(In Thousands) December 31,
<CAPTION>
1993 1992
<S> <C> <C>
-------------------------------------------------------------------------------------------
Assets:
Cash $27 $55
Securities purchased under agreements to resell
and other money market investments 41,139 20,918
Securities available for sale 5,675 10,977
Investments in subsidiaries, at equity:
Bank 686,272 580,309
Bank-related 2,100 2,221
Notes receivable from subsidiaries 150,500 150,500
Other assets 22,491 23,935
----------------------------------------------------------------- -------- --------
Total assets $908,204 $788,915
----------------------------------------------------------------- ======== ========
Liabilities:
Commercial paper (note 9) $16,925 $18,355
Securities sold under agreements to repurchase 1,910 2,940
Long-term debt (note 10) 150,000 156,000
Other liabilities 13,232 9,633
----------------------------------------------------------------- -------- --------
Total liabilities 182,067 186,928
Shareholders' equity:
Shareholders' equity before unrealized gains 680,284 601,987
----------------------------------------------------------------- -------- --------
Unrealized gains on securities available for sale 45,853 --
----------------------------------------------------------------- -------- --------
Shareholders' equity 726,137 601,987
----------------------------------------------------------------- -------- --------
Total liabilities and shareholders' equity $908,204 $788,915
----------------------------------------------------------------- ======== ========
-------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
Statement of Income
(In Thousands)
Year Ended December 31,
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
------------------------------------------------------- -----------------------------------
Income:
Dividends from subsidiary banks $45,084 $6,107 $24,507
Other 13,972 2,996 6,515
------------------------------------------------------- -------- ------- -------
Total income 59,056 9,103 31,022
------------------------------------------------------- -------- ------- -------
Expense:
Interest 13,133 2,808 2,834
Other 5,030 4,884 6,281
------------------------------------------------------- -------- ------- -------
Total expense 18,163 7,692 9,115
------------------------------------------------------- -------- ------- -------
Income before income taxes and equity in
undistributed net income of subsidiaries 40,893 1,411 21,907
Income tax benefit (2,035) (1,943) (1,392)
------------------------------------------------------- -------- ------- -------
Income before equity in undistributed
net income of subsidiaries 42,928 3,354 23,299
Equity in undistributed net income of subsidiaries 59,989 75,162 37,136
------------------------------------------------------- -------- ------- -------
Net income $102,917 $78,516 $60,435
------------------------------------------------------- ======== ======= =======
------------------------------------------------------- -----------------------------------
</TABLE>
<PAGE>
<TABLE>
Statement of Cash Flows
(In Thousands)
Year Ended December 31,
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
--------------------------------------------------------------------------------------------------------
Operating activities:
Net income $102,917 $78,516 $60,435
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Equity in undistributed net income of subsidiaries (59,989) (75,162) (37,136)
Provision for loan losses -- -- 1,793
(Increase) decrease in other assets 914 (5,403) 1,923
Increase (decrease) in other liabilities 1,767 1,004 (2,461)
--------------------------------------------------------------------- ------- ------- -------
Net cash provided (used) by operating activities 45,609 (1,045) 24,554
--------------------------------------------------------------------- ------- ------- -------
Investing activities:
Purchase of investment securities (7,565) (17,653) (47,183)
Proceeds from sales of investment securities 5,890 -- 51,982
Proceeds from maturities and repayments of investment securities -- 26,216 10,000
Purchase of securities available for sale (5,955) (10,980) --
Proceeds from sales of securities available for sale 11,962 -- --
Proceeds from maturities and repayments of securities
available for sale 1,500 -- --
Net decrease in loans -- 3,462 2,046
Increase in note receivable from subsidiary -- (150,000) --
Additional investment in subsidiaries -- (129,500) (6,000)
--------------------------------------------------------------------- ------- ------- -------
Net cash provided (used) by investing activities 5,832 (278,455) 10,845
--------------------------------------------------------------------- ------- ------- -------
Financing activities:
Net decrease in short-term borrowings (2,460) (4,212) (8,454)
Increase in long-term debt -- 150,000 --
Payments on long-term debt (6,000) (4,000) (4,000)
Proceeds from issuance of common stock 14,322 124,827 7,435
Cash in lieu of fractional shares for 3-for-2 stock split -- (92) (76)
Common stock purchased -- -- (561)
Cash dividends (37,110) (26,925) (23,027)
--------------------------------------------------------------------- ------- ------- -------
Net cash provided (used) by financing activities (31,248) 239,598 (28,683)
--------------------------------------------------------------------- ------- ------- -------
Increase (decrease) in cash and cash equivalents 20,193 (39,902) 6,716
Cash and cash equivalents at beginning of year 20,973 60,875 54,159
--------------------------------------------------------------------- ------- ------- -------
Cash and cash equivalents at end of year $41,166 $20,973 $60,875
--------------------------------------------------------------------- ======= ======= =======
--------------------------------------------------------------------------------------------------------
Central Fidelity and each of its subsidiaries are affiliates within the meaning of
Section 23A of the Federal Reserve Act. Accordingly, they are subject to the limitations
specified in such section on the making of loans or extension of credit to, or purchase
of securities under repurchase agreement from, any of the subsidiaries within the
affiliate group. Therefore, substantially all of the net assets of the affiliate group
are restricted from use by the Company in the form of loans or advances. Dividends,
however, may be paid to the Company by its bank subsidiaries under formulas established
by the appropriate regulatory authorities. These formulas contemplate that the current
year earnings and earnings retained for the two preceding years may be paid to the Parent
Company without regulatory approval. In 1994, the subsidiary banks can initiate dividend
payments without said regulatory approvals of $138,949,000, plus an additional amount equal
to their net earnings for 1994 up to the date of any such dividend declaration. In addition,
the limitations on dividends paid by the Company on common stock to shareholders for the
current and two immediately preceeding years may not exceed consolidated net income of the
Company and its subsidiaries for the same period.
Substantially all of the retained earnings of the Parent Company are represented by
undistributed earnings of subsidiaries.
</TABLE>
<PAGE>
NOTE 3. ACQUISITIONS
On March 7, 1992, Central Fidelity Bank (the "Bank") acquired from
the Resolution Trust Corporation ("RTC") core deposits, other
miscellaneous assets and liabilities of CorEast Federal Savings Bank
("CorEast") in Richmond, Virginia. Total deposits of approximately $17.1
million and one branch office in Blacksburg, Virginia were acquired. The
$445,000 excess of the fair value of liabilities assumed over the fair
value of assets acquired and cash received from the RTC is classified in
other assets in the consolidated balance sheet and is being amortized
over ten years.
On July 10, 1992, the Bank completed the acquisition of
approximately $871.1 million of core deposits, selected loans and
investment securities of Investors Federal Savings Bank ("Investors"), a
47-branch thrift institution headquartered in Richmond, Virginia that
had been operating under RTC management. Total consumer loans and
investment securities of approximately $8.4 million and $3.0 million,
respectively, and a total of 25 branch offices were acquired. The fair
value of liabilities assumed over the fair value of assets acquired and
cash received from the RTC in the amount of $24.6 million is classified
in other assets in the consolidated balance sheet and is being amortized
over fifteen years.
<PAGE>
NOTE 4. RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The Company is required to maintain average reserve balances with
the Federal Reserve Bank. The average amount of those reserve balances
for the years ended December 31, 1993 and 1992 was $68,252,000 and
$60,875,000, respectively.
<PAGE>
<TABLE>
NOTE 5. Investment Securities and Securities Available For Sale
The following table shows amortized cost, fair value and gross unrealized gains and losses of
investment securities as of December 31, 1992:
(In Thousands)
<CAPTION>
----------------------------------------------------------------------------------------------------
U.S. States &
Government Political
& Agencies Subdivisions Other Total
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------
December 31, 1992:
Amortized cost $1,853,835 $179,819 $1,826,287 $3,859,941
Fair value 1,890,681 182,771 1,814,512 3,887,964
Gross unrealized gains 44,065 3,678 11,004 58,747
Gross unrealized losses (7,219) (726) (22,779) (30,724)
----------------------------------------------------------------------------------------------------
The following table shows amortized cost, fair value and gross unrealized gains and losses of
securities available for sale as of December 31, 1993 and 1992:
(In Thousands)
<CAPTION>
----------------------------------------------------------------------------------------------------
U.S. States &
Government Political
& Agencies Subdivisions Other Total
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------
December 31, 1993:
Amortized cost $3,144,911 $165,449 $719,203 $4,029,563
Fair value 3,193,391 170,981 735,734 4,100,106
Gross unrealized gains 57,583 5,604 18,065 81,252
Gross unrealized losses (9,103) (72) (1,534) (10,709)
December 31, 1992:
Amortized cost $14,316 $ -- $28,645 $42,961
Fair value 14,644 -- 28,333 42,977
Gross unrealized gains 335 -- -- 335
Gross unrealized losses (7) -- (312) (319)
----------------------------------------------------------------------------------------------------
Securities available for sale having a fair value of $1,704,971,000 at December 31, 1993 were
pledged to secure deposits and to meet other legal requirements.
The amortized cost and fair value of securities available for sale, at December 31, 1993 are
shown below by maturity. The classification of mortgage-backed securities was based on expected
maturities, while contractual maturities were used for other debt securities. Expected maturities
differ from contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
(In Thousands)
<CAPTION>
----------------------------------------------------------------------------------------------------
Estimated
Amortized Market
Cost Value
<S> <C> <C>
---------------------------------------------------------------------------------------------------
Due in one year or less $558,971 $563,036
Due after one year through five years 2,881,565 2,936,070
Due after five years through ten years 549,366 559,393
Due after ten years 39,661 41,607
------------------------------------------------------------------------ ---------- ----------
Total $4,029,563 $4,100,106
------------------------------------------------------------------------ ========== ==========
----------------------------------------------------------------------------------------------------
During 1993 and 1991, proceeds from sales of investment securities were $626,426,000 and $730,263,000,
respectively, which resulted in $51,307,000 gross gains and $627,000 gross losses in 1993 and
$17,725,000 gross gains in 1991. There were no sales of investment securities in 1992. Proceeds from
sales of securities available for sale were $532,910,000 for 1993, $2,242,506,000 for 1992 and
$651,437,000 for 1991. Gross gains realized on those sales were $4,182,000, $49,834,000 and $2,169,000
for 1993, 1992 and 1991, respectively.
</TABLE>
<PAGE>
NOTE 6. LOANS AND REAL ESTATE ACQUIRED THROUGH FORECLOSURE
Real estate acquired through foreclosure amounted to $38,746,000
at December 31, 1993 and $27,901,000 at December 31, 1992.
Loans for which accrual of interest has been discontinued
(principally commercial and construction loans) totalled $93,349,000 at
December 31, 1993 and $84,401,000 at December 31, 1992.
The loss of revenue on nonaccrual loans and real estate acquired
through foreclosure was $22,447,000 in 1993, $12,232,000 in 1992, and
$15,683,000 in 1991.
<PAGE>
<TABLE>
NOTE 7. Allowance for Loan Losses
Following is a summary of the activity in the allowance for loan losses:
(In Thousands)
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------------
Balance at January 1 $101,800 $61,000 $60,806
Provision for loan losses 79,509 99,757 49,810
------------------------------------------------------------- -------- -------- -------
181,309 160,757 110,616
Loans charged off 86,728 67,569 56,053
Recoveries of loans previously charged off 10,419 8,612 6,437
------------------------------------------------------------- -------- -------- -------
Net charge-offs 76,309 58,957 49,616
------------------------------------------------------------- -------- -------- -------
Balance at December 31 $105,000 $101,800 $61,000
------------------------------------------------------------- ======== ======== =======
---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
NOTE 8. Premises and Equipment
Premises and equipment included in the Consolidated Balance Sheet are:
(In Thousands)
December 31,
<CAPTION>
1993 1992
<S> <C> <C>
----------------------------------------------------------------------------------------------------------
Capital leases $14,146 $14,258
Land 22,986 22,856
Buildings 74,365 72,303
Furnishings and equipment 134,068 123,298
Leasehold improvements 25,874 24,764
Work-in-progress 7,144 8,442
---------------------------------------------------------------------------------- -------- --------
Total cost 278,583 265,921
Accumulated depreciation and amortization (131,650) (118,458)
---------------------------------------------------------------------------------- -------- --------
Premises and equipment, net $146,933 $147,463
---------------------------------------------------------------------------------- ======== ========
----------------------------------------------------------------------------------------------------------
The Company has entered into long-term leases for certain bank premises and equipment used by the
Company and its subsidiaries. These leases expire at various dates to 2025, and most of the leases
contain renewal options for periods ranging from 5 to 30 years. In addition, certain leases provide
that the Company may elect to purchase the leased property at the expiration of the initial lease
term. Some leases also contain escalation clauses whereby the Company's rental payments are adjusted
proportionately with increases in the consumer price index.
Premises and equipment include the following amounts for leases that have been capitalized:
(In Thousands)
December 31,
<CAPTION>
1993 1992
<S> <C> <C>
----------------------------------------------------------------------------------------------------------
Land $920 $920
Buildings 12,953 13,065
Equipment 273 273
---------------------------------------------------------------------------------- ------ ------
Total cost 14,146 14,258
Accumulated amortization (7,240) (6,614)
---------------------------------------------------------------------------------- ------ ------
Capitalized leases, net $6,906 $7,644
---------------------------------------------------------------------------------- ====== ======
----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
Future minimum lease payments, by year and in the aggregate, for capital and noncancellable operating
leases with initial or remaining terms of one year or more consisted of the following at December 31,
1993:
(In Thousands)
<CAPTION>
Capital Operating
<S> <C> <C>
----------------------------------------------------------------------------------------------------------
1994 $1,082 $10,127
1995 1,084 9,181
1996 1,086 8,065
1997 1,096 7,407
1998 1,109 6,940
Later years 11,964 27,919
---------------------------------------------------------------------------------- ------- -------
Total minimum lease payments 17,421 $69,639
---------------------------------------------------------------------------------- =======
Imputed interest (rates ranging from 6.3% to 14.3%) (8,907)
---------------------------------------------------------------------------------- -------
Present value of net minimum lease payments $8,514
---------------------------------------------------------------------------------- =======
----------------------------------------------------------------------------------------------------------
Minimum future rentals receivable from subleases under the Company's capital leases at December 31,
1993 amounted to $484,000. This amount is not included in the preceding table. Rental expense for
all operating leases (cancellable and noncancellable) consisted of:
(In Thousands)
Year Ended December 31,
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------------------
Minimum rentals $12,540 $12,126 $11,461
Sublease rental income (298) (256) (232)
------------------------------------------------------------------------ ------- ------- -------
Net rental expense for operating leases $12,242 $11,870 $11,229
------------------------------------------------------------------------ ======= ======= =======
----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
NOTE 9. Short-Term Borrowings
Short-term borrowings are comprised of:
(In Thousands)
December 31,
<CAPTION>
1993 1992
<S> <C> <C>
--------------------------------------------------------------------------------------------------------
Federal funds purchased $323,649 $433,283
Securities sold under agreements to repurchase 1,133,692 740,098
Commercial paper 16,925 18,355
Medium-term notes 411,500 --
Other short-term borrowings 9,988 10,006
---------------------------------------------------------------------------- ---------- ----------
Total $1,895,754 $1,201,742
---------------------------------------------------------------------------- ========== ==========
The following tabulation is a summary of amounts and weighted average rates applicable to the various
categories of short-term borrowings:
(In Thousands)
<CAPTION>
-------------------------------------------------------------------------------------------------------
Average Annual Daily Average Maximum
Rate Interest Amount Month-end
December Rate Outstanding Balance
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------
Federal funds purchased:
1993 3.08 % 3.12 % $378,158 $622,474
1992 3.11 3.48 379,557 725,584
1991 4.45 5.64 272,872 489,896
Securities sold under agreements to repurchase:
1993 2.82 2.88 692,705 1,133,692
1992 2.99 3.10 527,446 745,201
1991 4.06 5.40 437,131 594,627
Commercial paper:
1993 2.32 2.36 17,428 19,840
1992 2.44 2.79 20,431 22,721
1991 3.90 5.36 25,284 30,385
Medium-term notes:
1993 3.58 3.40 292,395 411,500
1992 -- -- -- --
1991 -- -- -- --
Other short-term borrowings:
1993 2.61 2.80 9,012 10,000
1992 2.89 3.63 8,894 10,090
1991 4.87 6.34 9,235 47,092
Total:
1993 3.04 3.05 1,389,698 --
1992 3.02 3.25 936,328 --
1991 4.20 5.50 744,522 --
--------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold under agreements to repurchase generally mature daily
or on demand.
Commercial paper, in the form of short-term variable rate notes, matures no later than six months
from date of issuance.
Medium-term notes consist of fixed rate notes maturing two to three years from issuance date.
Other short-term borrowings consist principally of U.S. Treasury tax and loan deposit notes payable
on demand and borrowings from the Federal Reserve.
</TABLE>
<PAGE>
<TABLE>
NOTE 10. LONG-TERM DEBT
Long-term debt consists of:
(In Thousands)
December 31,
<CAPTION>
1993 1992
<S> <C> <C>
-------------------------------------------------------------------------------------
Central Fidelity Banks, Inc. (Parent Company):
Term loans due July 1, 1993 $ -- $6,000
Subordinated notes due November 15, 2002 150,000 150,000
Subsidiary bank:
Notes payables due:
August 1, 1993 -- 1,000
August 1, 1994 1,000 1,000
Mortgage note at 10.42% due 11/1/2000 389 423
--------------------------------------------------------------- -------- --------
1,389 2,423
--------------------------------------------------------------- -------- --------
Total long-term debt $151,389 $158,423
--------------------------------------------------------------- ======== ========
-------------------------------------------------------------------------------------
The subordinated notes due November 15, 2002 are subordinated to all existing and
future senior indebtedness of the Company. The notes bear interest at 8.15% per
annum, payable semi-annually on May 15 and November 15.
The note payable due on August 1, 1994 bears interest at 12 1/2% per annum,
payable semi-annually on February 1 and August 1.
Scheduled principal payments of the long-term debt at December 31, 1993 are:
(In Thousands)
<CAPTION>
<S> <C>
-------------------------------------------------------------------------------------
1994 $1,038
1995 43
1996 51
1997 56
1998 62
Later years 150,139
-------------------------------------------------------------------------- ---------
Total $151,389
-------------------------------------------------------------------------- ========
-------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
NOTE 11. Income Taxes
Central Fidelity and its subsidiaries file consolidated federal income tax returns.
As discussed in note 1, the Company adopted SFAS 109 in 1993 and has applied its
provisions retroactively to January 1, 1983. The net cumulative effect of this change
in accounting for income taxes was $1,948,000 as of January 1, 1983. The consolidated
financial statements for the years ended December 31, 1992 and 1991 have been restated
to comply with the provisions of SFAS 109.
The components of income tax expense are:
(In Thousands)
Year Ended December 31,
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
------------------------------------------------------------------------------------------
Current taxes - federal $49,502 $47,016 $23,220
Deferred taxes - federal (5,168) (16,234) (4,311)
--------------------------------------------------------------- ------- ------- -------
Income tax expense $44,334 $30,782 $18,909
--------------------------------------------------------------- ======= ======= =======
------------------------------------------------------------------------------------------
The adjustment to deferred tax assets and deferred tax liabilities for 1993 changes
in tax laws and rates was immaterial.
The difference between federal income tax computed at the statutory rate and the actual
tax provision is shown below:
Year Ended December 31,
<CAPTION>
1993 1992 1991
<C> <C> <C> <C>
------------------------------------------------------------------------------------------
Income tax at federal statutory rate 35.0% 34.0% 34.0%
Increase (decrease) in taxes resulting from:
Tax-exempt interest (3.8) (6.0) (9.8)
Other, net (1.1) 0.2 (0.4)
--------------------------------------------------------------- ----- ----- -----
Net decrease in taxes (4.9) (5.8) (10.2)
--------------------------------------------------------------- ----- ----- -----
Income tax expense 30.1% 28.2% 23.8%
--------------------------------------------------------------- ===== ===== =====
------------------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 1993 and 1992 are
presented below:
(In Thousands)
December 31,
<CAPTION>
1993 1992
<S> <C> <C>
------------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $35,968 $33,186
Employee benefit programs 7,283 4,258
Other 3,596 4,458
------------------------------------------------------------------------ ------- -------
Total deferred tax assets 46,847 41,902
------------------------------------------------------------------------ ------- -------
Deferred tax liabilities:
Accretion of discount on securities 898 560
Depreciation and amortization 1,575 1,458
Leasing activities 498 630
Other investments 739 717
Prepaid expenses 947 920
Deferred loan fees and costs -- 1,369
Unrealized gains on securities available for sale 24,690 --
Other 242 444
------------------------------------------------------------------------ ------- -------
Total deferred tax liabilities 29,589 6,098
------------------------------------------------------------------------ ------- -------
Net deferred tax asset (included in other assets) $17,258 $35,804
------------------------------------------------------------------------ ======= =======
------------------------------------------------------------------------------------------
Management has determined, based on the Company's history of earnings, its expectation
of earnings in future years and taxable income in the available carryback period and
future taxable income from reversing taxable temporary differences, that it is more likely
than not that all of the deferred tax asset will be realized.
</Table
<PAGE>
NOTE 12. PREFERRED AND COMMON STOCK
The Company is authorized to issue two classes of preferred stock:
200,000 shares of Preferred Stock, par value $100.00 per share; and
4,000,000 shares of 1983 Preferred Stock, par value $25.00 per share.
Both classes are issuable in series, and have such rights, including
voting and conversion rights, preferences and terms as determined by the
Board of Directors at the time of issuance. As of December 31, 1993,
no shares of either class were outstanding.
In August, 1992, in a public offering, the Company issued
3,450,000 shares of its common stock and realized $112,819,000 in net
proceeds therefrom. Substantially all of which was contributed to the
Bank as equity capital.
<PAGE>
</TABLE>
<TABLE>
NOTE 13. Employee Benefit Plans
Central Fidelity has a noncontributory defined benefit pension plan covering
substantially all full-time employees. The plan provides pension benefits that
are based on the employee's compensation during the five years before retirement.
The Company's funding policy is to contribute annually the maximum amount that
can be deducted for federal income tax purposes.
The following table sets forth the plan's funded status and amounts recognized
in the Company's Consolidated Balance Sheet:
(In Thousands)
December 31,
<CAPTION>
1993 1992
<S> <C> <C>
-----------------------------------------------------------------------------------------
Accumulated and vested benefit obligation ($31,763)($22,670)
--------------------------------------------------------------------- ======= =======
Projected benefit obligation ($47,709)($38,540)
Plan assets at fair value 41,529 35,856
--------------------------------------------------------------------- ------- -------
Plan assets under projected benefit obligation (6,180) (2,684)
Unrecognized net loss from past experience 7,418 1,513
Prior service cost not yet recognized (500) (571)
Unrecognized net asset being recognized
over 15 years (1,419) (1,622)
--------------------------------------------------------------------- ------- -------
Accrued pension cost (included in accrued liabilities) ($681) ($3,364)
--------------------------------------------------------------------- ======= =======
----------------------------------------------------------------------------------------
Net pension cost included the following components:
(In Thousands)
Year Ended December 31,
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------
Service cost $2,198 $1,896 $1,870
Interest cost 3,114 2,551 2,287
Actual return on plan assets (2,561) (2,785) (6,653)
Net amortization and deferral (869) (274) 3,942
------------------------------------------------------------ ------ ------ ------
Total pension expense $1,882 $1,388 $1,446
------------------------------------------------------------ ====== ====== ======
----------------------------------------------------------------------------------------
In determining the actuarial present value of the projected benefit obligation,
the weighted-average discount rate used was 7.75% and 8.50% for 1993 and 1992,
respectively, and rate of increase in future compensation levels used was 4.75% for
1993 and 5.00% for 1992. The expected long-term rate of return on assets for 1993 and
1992 was 9.00% and 8.50%, respectively.
The plan assets at December 31, 1993 included common stock of the Company having
a market value of $5,745,000 or 13.75% of the total market value of the plan assets
at that date.
Under the provisions of its Stock and Thrift Plan, the Company matches at least
50% of employee contributions to the plan. Additional matching contributions are
made by the Company based upon attainment of defined earnings levels. The Company
contributed $2,148,000, $1,842,000 and $1,690,000 in 1993, 1992 and 1991,
respectively, as its matching share.
In 1992, the Company adopted a Stock Incentive Plan under which employees are
awarded shares of the Company's common stock upon the attainment of growth in
earnings per share objectives. Employees receive between 1.5% and 3.0% of their
base salary, in the form of stock, should the Company's growth in earnings
per share be between 10% and 15% over the prior year. The shares will be held
in a trust for the employees' benefit. Employees are 100% vested after 3 years'
participation in the plan or at normal retirement age; there is no partial vesting.
Payouts occur only in stock upon termination of employment, retirement, long-term
disability or death. In 1993, the growth in earnings per share of 18.2%
resulted in the maximum contribution to the plan. The cost to the Company was
$3,101,000 in 1993 and $2,694,000 in 1992, respectively.
During the first quarter of 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" (SFAS 106) for the Medicare carve-out health insurance
coverage provided to its qualifying retirees (the "Plan"). Participants in this
Plan are retired employees and active employees who are age 45 and have completed
10 full years of service.
The following table sets forth the Plan's funded status and amounts recognized
in the Company's Consolidated Balance Sheet as of December 31, 1993:
(In Thousands)
December 31,
<CAPTION>
1993
<S> <C>
-----------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees and spouses ($11,936)
Eligible active participants (2,610)
Other active participants (4,505)
------------------------------------------------------------------------------- -------
Total accumulated postretirement benefit obligation (19,051)
Plan assets at fair value --
Unrecognized prior service cost --
Total unrecognized loss 1,236
Unrecognized transition obligation 15,725
------------------------------------------------------------------------------- -------
Net postretirement benefit liability ($2,090)
------------------------------------------------------------------------------- =======
-----------------------------------------------------------------------------------------
The net postretirement benefit cost included the following components:
(In Thousands)
Year Ended December 31,
<CAPTION>
1993
<S> <C>
-----------------------------------------------------------------------------------------
Service cost $753
Interest cost 1,471
Amortization of transition obligation over 20 years 828
Amortization of net loss --
------------------------------------------------------------------------------- ------
Total postretirement benefit expense $3,052
------------------------------------------------------------------------------- ======
-----------------------------------------------------------------------------------------
The Plan does not have any assets and the Company does not have any present
intention to fund the Plan. The assumed health care cost trend used to measure
the expected cost of benefits under the Plan for 1993 and 1994 is 14%. This rate
gradually declines to 6.5% for the year 2004 and remains at that level thereafter.
The discount rate used in determining the accumulated postretirement benefit obligation
was 8.5%. The Plan is not compensation based, accordingly, changes in participants'
compensation have no effect upon the Plan. Should the health care cost trend increase
by 1%, the service and interest cost and the accumulated benefit obligation would increase
by $356,000 and $2,489,000, respectively.
</TABLE>
<PAGE>
<TABLE>
NOTE 14. Stock Option Plans
The Company has four stock option plans which provide for the granting of options to
key executives and employees of the Company and its subsidiaries to purchase shares
of the Company's common stock at the fair market value at date of grant. The 1986
Incentive Stock Option Plan ("1986 Plan"), 1988 Incentive Stock Option Plan
("1988 Plan"), 1991 Incentive Stock Option Plan ("1991 Plan") and the 1993
Incentive Stock Option Plan ("1993 Plan") provide for the granting of stock options
for 675,000 shares each for the 1986 Plan, 1988 Plan and 1991 Plan and 750,000 shares
for the 1993 Plan, of the Company's common stock.
Each option granted is exercisable within ten years from date of grant. The 1986
Plan, 1988 Plan, 1991 Plan and 1993 Plan will terminate February 4, 1996, February 2,
1998, March 12, 2001 and March 12, 2003, respectively.
A summary of activity in the stock option plans follows:
<CAPTION>
Options
Available Options Option Price
for Grant Outstanding Per Share
<S> <C> <C> <C>
---------------------------------------------------------------------------------------
Balance, December 31, 1990 65,318 1,647,499 $4.49 - $14.56
Adoption of 1991 Plan 675,000 --
Granted (599,098) 599,098 10.50 - 23.92
Exercised -- (190,840) 4.49 - 21.25
Cancelled 13,499 (13,499) 13.53 - 14.56
--------------------------------------- ----------- -----------
Balance, December 31, 1991 154,719 2,042,258 $4.49 - $23.92
Granted (82,650) 82,650 23.92 - 28.00
Exercised -- (126,276) 4.49 - 23.92
Cancelled 5,737 (5,737) 13.53 - 23.92
--------------------------------------- ----------- -----------
Balance, December 31, 1992 77,806 1,992,895 $8.52 - $28.00
Adoption of 1993 Plan 750,000 --
Granted (331,900) 331,900 23.92 - 29.50
Exercised -- (192,951) 8.52 - 28.00
Cancelled 7,100 (7,100) 23.92 - 29.50
--------------------------------------- ----------- -----------
Balance, December 31, 1993 503,006 2,124,744 $8.52 - $29.50
--------------------------------------- =========== ===========
----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTE 15. LOANS TO RELATED PARTIES
In the ordinary course of business, the Company and its
subsidiaries grant loans to directors and executive officers of the
Company and to their associates. These loans are made on substantially
the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated
persons and do not involve more than the normal risk of collectibility.
The aggregate dollar amount of these loans was $4,383,000 and
$5,203,000 at December 31, 1993 and 1992, respectively. During 1993,
$657,000 of new loans were made and repayments totalled $1,477,000.
<PAGE>
<TABLE>
NOTE 16. Other Information
The principal components of "Other income," "Other expense" and "Interest on
deposits" in the Statement of Consolidated Income are:
(In Thousands)
Year Ended December 31,
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
---------------------------------------------------------------------------------
Other income (includes no items in excess of
1% of total revenue) $23,909 $20,595 $16,855
--------------------------------------------- ========= ========= =========
Other expense:
Telecommunications and postage expense $8,402 $8,571 $9,103
Credit card operations 1,037 3,626 5,934
Other (includes no items in excess of 1%
of total revenue) 29,470 29,662 24,581
--------------------------------------------- --------- --------- ---------
Total $38,909 $41,859 $39,618
--------------------------------------------- ========= ========= =========
Interest on deposits:
Interest checking $15,666 $16,616 $17,126
Regular savings 25,028 20,637 17,904
Consumer certificates 143,565 155,337 169,320
Money market accounts 32,832 42,063 49,651
Certificates of deposit $100,000 and over 22,087 17,680 21,744
--------------------------------------------- --------- --------- ---------
Total $239,178 $252,333 $275,745
--------------------------------------------- ========= ========= =========
---------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTE 17. Off-Balance-Sheet Items, Commitments and Contingent
Liabilities
In the normal course of business, there are outstanding various
financial instruments which involve elements of credit and interest rate
risk, to varying degrees, that are not recognized in the Consolidated
Balance Sheets. These financial instruments include commitments to
extend credit, standby letters of credit, interest rate swaps, options,
and forward and exchange rate contracts. At December 31, 1993 and
1992, the Company had outstanding loan commitments and standby letters
of credit approximating $1,162,091,000 and $201,125,000, and
$1,156,213,000 and $188,661,000, respectively. The notional value of
interest rate swaps, options, and forward and exchange rate contracts
were approximately $1,002,746,000 and $379,143,000 at December 31, 1993
and 1992, respectively. To meet the financing needs of its customers
and to reduce its own exposure to fluctuations in interest rates, the
Company controls and monitors the credit risk of its financial
instruments through credit approvals, limits, and the same credit
policy procedures as it does for on-balance-sheet instruments. No
material losses are anticipated as a result of these transactions. The
Company's loan portfolio is comprised of credit extensions principally
to customers in the Commonwealth of Virginia.
There are also legal proceedings pending against the Company and
its subsidiaries arising during the normal course of business. In the
opinion of management, after consultation with legal counsel,
liabilities arising from these proceedings, if any, would not have a
material adverse effect on the consolidated financial position or
results of operations.
<PAGE>
<TABLE>
NOTE 18. Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and due from banks and temporary investments
The carrying amount of cash and due from bank balances and temporary
investments is a reasonable estimate of fair value.
Investment securities, securities available for sale and trading account securities
Fair values of securities are based on quoted market prices or dealer quotes.
If a quoted market price is not available, fair value is estimated using quoted
market prices for similar securities.
Loans
The fair value of loans is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities, taking into
consideration the credit risk in various loan categories.
Deposits
The fair value of demand, interest checking, regular savings and money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed maturity certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities.
Short-term borrowings
The carrying values of federal funds purchased and securities sold under
agreements to repurchase and other short-term borrowings are reasonable
estimates of fair value. Included in other short-term borrowings, however, were
$411.5 million fixed rate medium-term notes maturing two to three years from
date of issuance. Fair values for these notes are determined based on interest
rates currently available for debt with similar terms and remaining maturities.
Long-term debt
The fair value of long-term debt is estimated based on interest rates currently
available for debt with similar terms and remaining maturities.
Off-Balance-Sheet Items
The fair value of interest rate swaps (used for hedging purposes) is the
estimated amount that the Company would receive or pay to terminate the swap
agreements at the reporting date, taking into account current interest rates
and the current creditworthiness of the swap counterparties.
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates.
The fair value of standby letters of credit is based on fees currently charged
for similar agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counterparties at the reporting date.
The carrying amount and estimated fair value of off-balance-sheet items were
not material at December 31, 1993 and December 31, 1992.
The estimated fair values of financial instruments as of December 31, 1993 and
December 31, 1992 as follows:
Estimated
<CAPTION> Carrying Fair
Amount Value
<S> <C> <C>
---------------------------------------------------------------------------
December 31, 1993:
Financial assets:
Cash and due from banks $264,531 $264,531
Temporary investments 194,636 194,636
Securities available for sale 4,100,106 4,100,106
Loans, net 4,707,509 4,917,533
Financial liabilities:
Deposits 6,656,016 6,687,462
Short-term borrowings 1,895,754 1,896,330
Long-term debt 151,389 164,351
December 31, 1992:
Financial assets:
Cash and due from banks $280,840 $280,840
Temporary investments 282,844 282,844
Investment securities 3,859,941 3,887,964
Securities available for sale 42,961 42,977
Loans, net 3,851,554 4,273,944
Financial liabilities:
Deposits 6,672,453 6,820,200
Short-term borrowings 1,201,742 1,201,742
Long-term debt 158,423 158,423
---------------------------------------------------------------------------
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
KPMG Peat Marwick
Certified Public Accountants
Suite 1900
1021 East Cary Street
Richmond, Virginia 23219-4023
The Board of Directors and Shareholders
Central Fidelity Banks, Inc.
We have audited the accompanying consolidated balance sheet of
Central Fidelity Banks, Inc. and subsidiaries as of December 31, 1993
and 1992, and the related statements of consolidated income,
consolidated cash flows and changes in consolidated shareholders' equity
for each of the years in the three-year period ended December 31,
1993, and the combined balance sheet of the subsidiary banks of Central
Fidelity Banks, Inc. as of December 31, 1993 and 1992. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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
audits 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 Central Fidelity Banks, Inc. and subsidiaries at December 31, 1993
and 1992, the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1993, and the
combined balance sheet referred to above presents fairly, in all
material respects, the financial position of the subsidiary banks of
Central Fidelity Banks, Inc. at December 31, 1993 and 1992, all in
conformity with generally accepted accounting principles.
As discussed in note 1 to the consolidated financial statements,
in 1993 Central Fidelity Banks, Inc. and subsidiaries adopted the
provisions of Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" and
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities."
KPMG Peat Marwick
January 18, 1994
<PAGE>
<TABLE>
1993 GRAPH MATERIAL
CENTRAL FIDELITY BANKS, INC.
<CAPTION>
<C> <C> <C> <C> <C>
<S> 1989 1990 1991 1992 1993
---------- ---------- ---------- ---------- ----------
AVERAGE EARNING ASSETS (In Millions of Dollars)
Average investments and other earning assets 1,031 1,440 2,058 3,206 4,139
Average loans 3,359 3,600 3,607 3,731 4,250
Total average earning assets 4,390 5,040 5,665 6,937 8,389
NET INTEREST MARGIN
Yield on Earning Assets 11.40% 10.91% 10.12% 8.52% 7.43%
Rate on Interest-bearing Liabilities
(Relative to Earning Assets) 6.52% 6.47% 5.64% 4.12% 3.45%
Net Interest Margin 4.88% 4.44% 4.48% 4.40% 3.98%
AVERAGE LOANS (In Millions of Dollars) 3,359 3,600 3,607 3,731 4,250
LOAN YIELDS 12.03% 11.59% 11.00% 9.55% 8.56%
LOAN LOSS COVERAGE (In Millions of Dollars)
Provision for Loan Losses 17.2 45.0 49.8 99.8 79.5
Net Loan Charge-offs 14.2 19.4 49.6 59.0 76.3
ALLOWANCE FOR LOAN LOSSES (In Millions of Dollars) 35.2 60.8 61.0 101.8 105.0
ALLOWANCE FOR LOAN LOSSES AS A PERCENTAGE OF
NET LOANS 1.00% 1.70% 1.69% 2.58% 2.18%
AVERAGE SECURITIES (In Millions Of Dollars)
Average Taxable Securities (Including Money
Market Investments) 771 1,204 1,840 3,019 3,954
Average Nontaxable Securities 258 234 215 186 184
Total 1,029 1,438 2,055 3,205 4,138
INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE YIELDS
Taxable 8.95% 9.19% 8.69% 7.37% 6.33%
Tax-exempt (Taxable Equivalent Basis) 10.12% 9.93% 9.57% 8.86% 8.41%
INTEREST-BEARING DEPOSIT RATES 7.39% 7.24% 6.44% 4.87% 4.09%
MONEY MARKET INVESTMENTS YIELDS
Average Yield On Money Market Investments 9.49% 8.52% 6.38% 3.83% 3.13%
Average Yield (discount basis) On 3-Month
U.S. Treasury Bills 8.11% 7.51% 5.41% 3.43% 3.02%
AVERAGE DEPOSITS (In Millions of Dollars)
Interest-bearing Deposits 3,301 3,753 4,279 5,181 5,846
Noninterest-bearing Deposits 577 576 592 734 840
Total 3,878 4,329 4,871 5,915 6,686
NET INCOME (In Millions of Dollars) 54.4 55.8 60.4 78.5 102.9
EARNINGS AND DIVIDENDS PER SHARE
Earnings Per Share $1.57 $1.65 $1.87 $2.25 $2.66
Dividends Per Share $0.54 $0.63 $0.74 $0.82 $1.00
BOOK VALUE PER SHARE
(Excluding FAS 115 for 1993) 10.84 11.77 13.07 15.66 17.43
AVERAGE SHAREHOLDERS' EQUITY (In Millions of Dollars)
(Excluding FAS 115 for 1993) 359.7 383.4 404.8 503.3 643.0
</TABLE>
<PAGE>
Summary
In 1993, Central Fidelity recorded its nineteenth consecutive year
of increased earnings. This performance was attributable to a
combination of factors including a steadily improving economy,
heightened levels of consumer confidence and greater demand in
commercial and consumer lending activities. In 1993, net income grew
31.1% to $102.9 million, an increase of $24.4 million from $78.5 million
in 1992. On a per share basis, net income was $2.66, resulting in an
18.2% increase compared to $2.25 earned in 1992.
Net interest income increased 10.1% to $324.3 million in 1993. The
increase was driven by higher levels of earning assets. Noninterest
income rose 9.0% to $125.8 million compared with 1992. Excluding
securities trading transactions, noninterest income for 1993 increased
14.1% to $71.4 million. Noninterest expense increased 11.2% to $223.3
million compared to $200.8 million in 1992, primarily due to higher
personnel cost, FDIC insurance premiums and other real estate expense.
Included in the 1993 personnel cost was a $4 million nonrecurring charge
relating to certain postemployment benefits. Other real estate
expense increased $10.4 million when compared to the prior year. The
provision for loan losses was $79.5 million, a decline of 20.3% from
$99.8 million in 1992.
Average earning assets were $8.4 billion, up 20.9% compared to
$6.9 billion in 1992. Securities available for sale and investment
securities totalled $4.0 billion, for an increase of 28.2% when compared
with $3.1 billion in 1992. Money market investments grew 52.1% to $184.0
million. Average loans grew 13.9% to $4.3 billion with first mortgage
residential real estate loans accounting for most of this growth.
Average interest-bearing liabilities totalled $7.4 billion,
representing a 20.3% increase. Interest-bearing deposits were $5.8
billion, up 12.8% when compared to $5.2 billion in 1992. The 1993
level benefitted from the full year impact of the acquisition of
Investors Federal Savings Bank from the Resolution Trust Corporation.
With the exception of money market accounts, all other interest-bearing
deposit categories registered growth in 1993. Short-term borrowings and
long-term debt contributed substantial growth in funding sources. The
sales of medium-term notes totalling $411.5 million throughout 1993
and $150.0 million subordinated notes in November, 1992 accounted for
the growth in these two funds categories.
Excluding the $45.9 million in unrealized gains on securities
available for sale subject to FAS 115, average shareholders' equity grew
27.8% to $643.0 million. The growth was impacted by new equity
capital from the sale of 3,450,000 shares of common stock in August,
1992. The return on average shareholders' equity of 16.01% was up from
15.60% in 1992. The book value of common stock per share was $17.43 at
December 31, 1993, compared to $15.66 at year-end 1992, representing an
increase of 11.3%. The closing price of the Company's common stock as of
December 31, 1993 of $27.75 resulted in a market to book value ratio
of 159%.
<PAGE>
<TABLE>
---------------------------------------------------------------------------------------
TABLE 1 Changes in Earnings Per Share
<CAPTION>
1993/1992 1992/1991 1991/1990
<S> <C> <C> <C>
---------------------------------------------------------------------------------------
Net income for 1992, 1991 and 1990, respectively $2.25 $1.87 $1.65
Increase (decrease) attributable to:
Net interest income 0.77 1.54 1.00
Provision for loan losses 0.52 (1.43) (0.15)
Noninterest income 0.27 1.04 0.25
Noninterest expense (0.58) (0.30) (0.79)
Income taxes (0.35) (0.34) (0.16)
Average shares outstanding (0.22) (0.13) 0.07
--------------------------------------------------- ----- ----- -----
Net increase 0.41 0.38 0.22
--------------------------------------------------- ----- ----- -----
Net income for 1993, 1992 and 1991, respectively $2.66 $2.25 $1.87
--------------------------------------------------- ===== ===== =====
---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
---------------------------------------------------------------------------------------------
TABLE 2 Selected Ratios
Year Ended December 31,
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------
Percentage of net income to:
Average shareholders' equity* 16.01% 15.60% 14.93%
Average total assets 1.16 1.06 0.99
Percentage of dividends per share
to net income per share 37.59 36.44 39.57
Percentage of average total shareholders' equity
to average total assets* 7.22 6.79 6.65
---------------------------------------------------------------------------------------------
* Excludes FAS 115 adjustment for net unrealized gains for securities available for sale.
</TABLE>
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------------------------------------------------
TABLE 3 Selected Financial Data
(In Thousands, except share and per share data) Percent
Change
<CAPTION> -------------------
1993 1992 1991 1990 1989 1993/1992 1992/199
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
Results of Operations (Taxable
Equivalent Basis)
Interest income $623,645 $591,076 $573,187 $550,089 $500,609 5.5 % 3.1
Interest expense 289,731 285,697 319,365 326,102 286,331 1.4 (10.5
--------------------------------------- --------- --------- --------- --------- ---------
Net interest margin 333,914 305,379 253,822 223,987 214,278 9.3 20.3
Provision for loan losses 79,509 99,757 49,810 45,016 17,246 (20.3) 100.3
--------------------------------------- --------- --------- --------- --------- ---------
Net income from earning assets 254,405 205,622 204,012 178,971 197,032 23.7 0.8
Noninterest income 125,803 115,422 78,942 70,918 54,125 9.0 46.2
Noninterest expense 223,298 200,833 190,406 164,706 163,110 11.2 5.5
--------------------------------------- --------- --------- --------- --------- ---------
Income before income taxes 156,910 120,211 92,548 85,183 88,047 30.5 29.9
Income tax expense 53,993 41,695 32,113 29,430 33,663 29.5 29.8
--------------------------------------- --------- --------- --------- --------- ---------
Net income $102,917 $78,516 $60,435 $55,753 $54,384 31.1 29.9
--------------------------------------- ========= ========= ========= ========= =========
Per Share
Net income $2.66 $2.25 $1.87 $1.65 $1.57 18.2 % 20.3
Cash dividends declared $1.00 $0.82 $0.74 $0.63 $0.54 22.0 10.8
Average common shares outstanding 38,737,447 34,962,561 32,396,301 33,842,775 34,695,185 10.8 7.9
Daily Averages for the Year
Total assets $8,900,247 $7,416,919 $6,083,792 $5,454,753 $4,763,055 20.0 % 21.9
Loans 4,250,089 3,730,625 3,606,906 3,599,978 3,359,230 13.9 3.4
Earning assets 8,389,175 6,937,150 5,665,342 5,040,287 4,390,176 20.9 22.4
Deposits 6,685,916 5,914,733 4,871,463 4,328,780 3,878,478 13.0 21.4
Shareholders' equity 643,005 503,313 404,817 383,361 359,664 27.8 24.3
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------------------------------
TABLE 4 Analysis of Changes in the Components of Net Interest Earnings
Interest income and expense are affected by fluctuations in interest rates, by changes in the volumes
of earning assets and interest-bearing liabilities, by the interaction of rate and volume factors, and
by the mix of the categories of earning assets and interest-bearing liabilities. The following analysis
shows the direct causes of the year-to-year changes in the components of net interest earnings on a
taxable equivalent basis. The rate and volume variances are calculated by a formula prescribed by the
Securities and Exchange Commission. Rate/volume variances, a third element in the calculation, are
not shown separately, but are allocated to the rate and volume variances according to their relative
size. The details of rate and volume variances do not sum to the rate and volume variances on total
interest earnings or total interest expense because of changes in the mix of interest-earning assets
and interest-bearing liabilities from year to year.
(In Thousands) 1993 Compared to 1992 1992 Compared to 1991
<CAPTION> Increase (Decrease) Due to Increase (Decrease) Due to
Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------
Interest-earning assets
Loans:
Commercial and commercial real estate $3,450 ($9,740) ($6,290) ($1,714) ($23,590) ($25,304)
Construction (6,498) (112) (6,610) (8,006) (9,767) (17,773)
Residential real estate 34,518 (10,309) 24,209 18,365 (4,379) 13,986
Consumer second mortgage 3,863 (2,962) 901 5,158 (4,624) 534
Installment 5,564 (8,223) (2,659) 841 (5,768) (4,927)
Bank card 3,926 (6,537) (2,611) 54 (6,901) (6,847)
-------------------------------------------- ------- -------
Total loans 45,497 (38,557) 6,940 13,246 (53,577) (40,331)
Assets available for sale:
Securities:
U.S. Government and agencies (695) (10,358) (11,053) 55,411 65 55,476
States and political subdivisions 3,449 34 3,483 -- -- --
Other 11,861 (193) 11,668 355 7 362
-------------------------------------------- ------- -------
17,122 (13,024) 4,098 55,772 66 55,838
Loans 683 7 690 -- -- --
-------------------------------------------- ------- -------
Total assets available for sale 17,955 (13,167) 4,788 55,772 66 55,838
Investment securities:
U.S. Government and agencies 11,881 (11,247) 634 (2,501) (16,144) (18,645)
States and political subdivisions (4,069) (1,239) (5,308) (2,619) (1,448) (4,067)
Other 31,053 (6,643) 24,410 37,484 (5,419) 32,065
-------------------------------------------- ------- -------
Total investment securities 41,676 (21,940) 19,736 37,228 (27,875) 9,353
Money market investments 2,090 (967) 1,123 (3,062) (3,751) (6,813)
Trading account securities (11) (7) (18) (144) (14) (158)
-------------------------------------------- ------- -------
Total interest-earning assets 113,938 (81,369) 32,569 116,894 (99,005) 17,889
-------------------------------------------- ------- -------
Interest-bearing liabilities
Interest checking 3,195 (4,145) (950) 4,743 (5,253) (510)
Regular savings 8,418 (4,028) 4,390 7,719 (4,986) 2,733
Consumer certificates 10,134 (21,906) (11,772) 22,426 (36,409) (13,983)
Money market accounts (3,043) (6,188) (9,231) 11,829 (19,418) (7,589)
Certificates of deposit $100,000 and over 9,420 (5,013) 4,407 (217) (3,847) (4,064)
Federal funds purchased and repos 5,024 (2,849) 2,175 9,062 (18,479) (9,417)
Other short-term borrowings 9,628 90 9,718 (260) (787) (1,047)
Long-term debt 6,575 (1,215) 5,360 977 (716) 261
Capitalized lease obligations (71) 8 (63) (62) 10 (52)
-------------------------------------------- ------- -------
Total interest-bearing liabilities 52,844 (48,810) 4,034 61,401 (95,069) (33,668)
-------------------------------------------- ------- -------
Net interest earnings $61,094 ($32,559) $28,535 $55,493 ($3,936) $51,557
-------------------------------------------- ======= =======
--------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
----------------------------------------------------------------------------------------------------------------------------------
TABLE 5 Average Balances and Interest Rates (Taxable Equivalent Basis)
The following table shows the average balance sheets for each of the years ended December 31, 1993, 1992 and 1991. In addition,
amounts of interest earned on earning assets, with related yields, and the interest paid on interest-bearing liabilities, together
the rates, are shown. Loans placed on a nonaccrual status are included in the balances and were included in the computation of yie
upon which they had an immaterial effect. Interest on earning assets is on a taxable equivalent basis, which was computed using th
federal corporate income tax rate of 35% for 1993, 34% for 1992 and 1991.
(In Millions)
<CAPTION>
1993 1992 199
<S> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average
Balance Interest Rate Balance Interest Rate Balance Inter
----------------------------------------------------------------------------------------------------------------------------------
Assets
----------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
Loans:
Commercial and commercial real estate $1,585.1 $121.7 7.67 % $1,542.7 $127.9 8.29 % $1,560.3 $15
Construction 331.2 23.7 7.15 422.0 30.3 7.18 518.1 4
Residential real estate 825.9 63.3 7.67 397.5 39.1 9.84 216.1 2
Consumer second mortgage 433.5 41.1 9.47 394.0 40.2 10.19 346.1 3
Installment 619.2 52.9 8.55 559.6 55.6 9.93 551.8 6
Bank card 441.6 60.5 13.72 414.8 63.2 15.24 414.5 7
--------------------------------------------------- -------- ------ -------- ------ -------- ---
4,236.5 363.2 8.57 3,730.6 356.3 9.55 3,606.9 39
Assets available for sale:
Securities:
U.S. Government and agencies 747.4 45.9 6.14 756.7 56.9 7.52 19.8
States and political subdivisions 43.4 3.5 8.03 -- -- -- --
Other 230.4 12.0 5.22 4.5 0.3 8.08 --
--------------------------------------------------- -------- ------ -------- ------ -------- ---
1,021.2 61.4 6.01 761.2 57.2 7.53 19.8
Loans 13.6 0.7 5.08 -- -- -- --
--------------------------------------------------- -------- ------ -------- ------ -------- ---
1,034.8 62.1 6.00 761.2 57.2 7.53 19.8
Investment securities:
U.S. Government and agencies 1,516.7 102.0 6.73 1,349.1 101.4 7.52 1,378.3 12
States and political subdivisions 137.4 11.2 8.15 186.3 16.5 8.86 215.1 2
Other 1,279.0 79.3 6.20 788.0 55.0 6.97 263.0 2
--------------------------------------------------- -------- ------ -------- ------ -------- ---
2,933.1 192.5 6.56 2,323.4 172.9 7.44 1,856.4 16
Money market investments 184.0 5.8 3.13 121.0 4.6 3.83 179.2 1
Trading account securities 0.8 -- 6.18 1.0 0.1 6.98 3.0
--------------------------------------------------- -------- ------ -------- ------ -------- ---
Total interest-earning assets 8,389.2 $623.6 7.43 % 6,937.2 $591.1 8.52 % 5,665.3 $57
--------------------------------------------------- -------- ====== -------- ====== -------- ===
Noninterest-earning assets:
Cash and due from banks 248.3 234.2 204.5
Premises and equipment, net 145.6 140.4 137.9
Other assets 222.1 206.9 137.1
Allowance for loan losses (105.0) (101.8) (61.0)
--------------------------------------------------- -------- -------- --------
Total assets $8,900.2 $7,416.9 $6,083.8
--------------------------------------------------- ======== ======== ========
Liabilities and Shareholders' Equity
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Interest checking $632.4 $15.7 2.48 % $520.1 $16.6 3.19 % $392.9 $1
Regular savings 816.8 25.0 3.06 557.2 20.6 3.70 367.9 1
Consumer certificates 2,781.4 143.6 5.16 2,603.7 155.3 5.97 2,275.0 16
Money market accounts 1,091.8 32.8 3.01 1,181.7 42.1 3.56 922.4 4
Certificates of deposit $100,000 and over 523.5 22.1 4.22 318.4 17.7 5.55 321.6 2
Federal funds purchased and repos 1,070.9 31.7 2.97 907.0 29.6 3.26 710.0 3
Other short-term borrowings 318.8 10.6 3.33 29.3 0.9 3.05 34.5
Long-term debt 154.9 7.4 4.78 24.9 2.0 8.22 14.6
Capitalized lease obligations 8.9 0.8 8.81 9.7 0.9 8.73 10.4
--------------------------------------------------- -------- ------ -------- ------ -------- ---
Total interest-bearing liabilities 7,399.4 $289.7 3.92 % 6,152.0 $285.7 4.64 % 5,049.3 $31
--------------------------------------------------- -------- ====== -------- ====== -------- ===
Noninterest-bearing liabilities:
Demand deposits 840.1 733.7 591.7
Other 13.9 27.9 38.0
--------------------------------------------------- -------- -------- --------
854.0 761.6 629.7
Shareholders' equity before unrealized gains 643.0 503.3 404.8
Unrealized gains on securities available for sale 45.9 -- --
--------------------------------------------------- -------- -------- --------
Total liabilities and shareholders' equity $8,900.2 $7,416.9 $6,083.8
--------------------------------------------------- ======== ======== ========
Net interest earnings $333.9 $305.4 $25
--------------------------------------------------- ====== ====== ===
Net interest spread 3.51 % 3.88 %
--------------------------------------------------- ===== =====
Net interest margin 3.98 % 4.40 %
--------------------------------------------------- ===== =====
Fees included in loan income $8.4 $12.0 $1
--------------------------------------------------- ====== ====== ===
Taxable equivalent adjustment $9.7 $10.9 $1
--------------------------------------------------- ====== ====== ===
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Net Interest Income
Net interest income, the primary source of the Company's earnings,
is the amount by which interest and fee income earned on earning assets
exceeds interest paid on interest-bearing liabilities. Earning assets
are comprised of loans, securities available for sale, investment
securities, money market investments and trading account securities
while interest-bearing liabilities consist of deposits and borrowings.
Net interest income is impacted by the volume, mix, and the general
level of interest rates among earning assets and interest-bearing
liabilities.
On a tax-equivalent basis, net interest income for 1993 was $333.9
million, representing an increase of 9.3% over 1992. The growth in net
interest income resulted primarily from higher levels of average earning
assets. The net interest margin for 1993 was 3.98% compared with 4.40%
for 1992, reflecting a decline of 42 basis points. The decline in net
interest margin during 1993 was caused by the lower rate environment and
heavy prepayments on premium rate mortgage-backed securities which
reduced spread income.
In 1993, total average earning assets grew 20.9%, or $1.5 billion,
to $8.4 billion. Average loans rose 13.9%, totalling $4.3 billion in
1993. The growth in loans resulted from continued strong demand for
first mortgage residential real estate loans as well as accelerated
growth of other consumer loan activity. Average residential real estate
loans gained a substantial 111.2%, or $442.0 million, to $839.5 million
in 1993 compared to $397.5 million in 1992. Installment loans
averaged $619.2 million, a 10.7% increase over the prior year. When
compared with the 1992 levels on average, other loan categories,
including consumer second mortgage, bank card and commercial and
commercial real estate loans registered increases of 10.0%, 6.5% and
2.7%, respectively. Average construction loans declined 21.5% during the
year. Securities available for sale combined with investment securities
averaged $4.0 billion, reflecting an increase of 28.2% over 1992.
Money market investments, consisting of federal funds sold and
securities purchased under agreements to resell, averaged $184.0
million, an increase of 52.1% over 1992. Average trading account
securities declined 20.0% in 1993. The yield on average earning assets
declined 109 basis points to 7.43%, indicating the lower rate
environment which prevailed during 1993.
In 1993, average interest-bearing liabilities totalled $7.4
billion, having grown 20.3% from $6.2 billion in 1992. Core deposits
averaged $6.2 billion, representing an increase of 10.1% from a year
ago. Regular savings averaged $816.8 million, registering a 46.6%
increase from the previous year. Interest checking and consumer
certificates, averaging $632.4 million and $2.8 billion, showed
increases of 21.6% and 6.8%, respectively. Average money market accounts
declined 7.6% compared to 1992. In 1993, average certificates of deposit
$100,000 and over rose 64.4%, to $523.5 million. Federal funds purchased
and securities sold under agreements to repurchase averaged $1.1
billion, an 18.1% increase over 1992. Both other short-term borrowings
and long-term debt grew significantly to $318.8 million and $154.9
million from $29.3 million and $24.9 million, respectively. The
increases were due primarily to the issuance of medium-term and
subordinated notes in the amounts of $411.5 million and $150.0 million,
respectively. In 1993, the cost of interest-bearing liabilities declined
72 basis points to 3.92%, reflecting generally lower interest rates and
a bias toward shorter maturity instruments.
Table 5 presents the components of net interest income on a
taxable equivalent basis. Interest earned on certain tax-exempt loans
and investment securities has been increased by an amount equivalent to
the taxes that would have been paid on taxable assets at the federal
statutory rate.
<PAGE>
Loans
Loans represent the highest yielding and largest component of
earning assets. In 1993, average loans totalled $4.3 billion compared to
$3.7 billion in the prior year, representing an increase of 13.9%,
following a modest increase of 3.4% in 1992. The loan growth reflected
an improved demand in consumer lending throughout the year and a rise in
commercial lending activity during the fourth quarter of 1993. The
average yield on the loan portfolio declined 99 basis points to 8.56%,
indicating the generally lower rate environment and heightened
competition in 1993. The average prime rate was 5.926% in 1993 compared
to 6.25% in 1992.
Commercial and commercial real estate loans grew a modest 2.7% to
an average of $1.6 billion. The average yield was 7.67%, a decline of 62
basis points compared to 1992, reflecting the general decline in
interest rates and intensified competition during 1993. Construction
loans were impacted by the continued weakness in real estate values.
Construction loans averaged $331.2 million, representing a decline in
volume of 21.5%.
Residential first mortgage loans grew a substantial 111.2% to an
average $839.5 million in 1993. The magnitude of this growth during 1993
was attributable to the refinancing of first mortgage residential
loans and increased home sales fostered by the lowest residential
mortgage rate environment in the past twenty-five years. This loan
growth was primarily in the adjustable rate mortgages and shorter term
fixed rate products. Yields declined 222 basis points to 7.62% from
9.84% in 1992.
Consumer second mortgage loans which consist of second mortgage
loans and home equity lines of credit, averaged $433.5 million, a 10.0%
increase over the prior year's level. The average yield was 9.47%, down
72 basis points from a year ago. Installment and bank card loans grew
10.7% and 6.5%, averaging $619.2 million and $441.6 million,
respectively. Installment loan yields declined 138 basis points to
8.55% and the yield on bank card loans fell 152 basis points to 13.72%.
The declines in yields resulted from both the lower interest rate
environment and intensive market competition in both installment and
bank card loans.
There are no foreign loans within the portfolio or credits to
finance leveraged buyouts or other highly leveraged transactions.
<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------------------------------
TABLE 6 Average Loans
(In Thousands) Year Ended December 31,
<CAPTION> Percent
Change
1993 1992 1991 1990 1989 1993/1992
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------
Commercial and commercial real estate $1,585,135 $1,542,712 $1,560,323 $1,643,943 $1,612,833 2.8 %
Construction 331,162 422,029 518,131 485,048 417,561 (21.5)
Residential real estate 839,496 397,512 216,117 237,308 220,222 111.2
Consumer second mortgage 433,552 394,024 346,074 218,388 * 10.0
Installment 619,172 559,588 551,820 572,742 658,174 10.7
Bank card 441,572 414,760 414,441 442,549 450,440 6.5
------------------------------------------ ---------- ---------- ---------- ---------- ----------
Total loans $4,250,089 $3,730,625 $3,606,906 $3,599,978 $3,359,230 13.9 %
------------------------------------------ ========== ========== ========== ========== ==========
--------------------------------------------------------------------------------------------------------------------------
* Consumer second mortgage loan data is not separately available for 1989 and is included in installment and bank card
loan balances.
</TABLE>
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------------
TABLE 7 Sensitivity of Loan Portfolio to Changes in Interes Rates
At December 31, 1993, the total commercial and construction loans due after one year are
categorized according to interest rate sensitivity as follows:
(In Thousands)
<CAPTION>
<S> <C>
--------------------------------------------------------------------------------------------
Loans having floating or adjustable interest rates $105,840
Loans with fixed or predetermined interest rates 690,380
------------------------------------------------------------------------------ ----------
Total $796,220
------------------------------------------------------------------------------ ==========
--------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
----------------------------------------------------------------------------------------------
TABLE 8 Loan Maturities
Scheduled principal repayments of loans outstanding at December 31, 1993, except residential
real estate, consumer second mortgage, installment and bank card loans, are as follows:
(In Thousands)
<CAPTION>
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------
One
One Year Through Over Five
or Less Five Years Years Total
---------------------------------------------------------------------------------------------
Commercial and commercial real estate $960,062 $543,752 $207,278 $1,711,092
Construction 244,009 4,485 40,705 289,199
-------------------------------------------- ---------- -------- -------- ----------
Total $1,204,071 $548,237 $247,983 $2,000,291
-------------------------------------------- ========== ======== ======== ==========
----------------------------------------------------------------------------------------------
As is common in the banking industry, the timing of actual principal repayments is expected
to vary significantly from the scheduled repayments due to renewal of certain loans at
their maturities.
</TABLE>
<PAGE>
Allowance/Provision for Loan Losses
The allowance for loan losses represents management's estimate of
an amount adequate to absorb potential future losses inherent in the
loan portfolio. In assessing the adequacy of the allowance, management
relies predominately on its ongoing review of the lending process and
the risk characteristics of the portfolio in the aggregate. Among other
factors, management considers the Company's loan loss experience, the
amount of past-due and nonperforming loans, current and anticipated
economic conditions, and the estimated current values of collateral
securing loans in assessing the level of the allowance for loan losses.
While it is the Company's policy to charge off in the current
period loans in which a loss is considered probable, there are
additional risks of future losses which cannot be quantified precisely
or attributed to particular loans or classes of loans. Because these
risks include the state of the economy as well as conditions affecting
individual borrowers, management's judgment of the allowance is
necessarily approximate and imprecise. It is also subject to
regulatory examinations and determinations as to adequacy.
At December 31, 1993, the allowance for loan losses was $105.0
million, reflecting a 3.1% increase, or $3.2 million, from $101.8
million a year ago. The increase in the level of allowance for loan
losses was impacted by the provision to the reserve and the amount of
net charge-offs. The provision for loan losses totalled $79.5 million
for 1993, a decline of $20.3 million compared to $99.8 million in 1992.
Net charge-offs amounted to $76.3 million for 1993, compared with $59.0
million for the prior year. The provision and net charge-offs were
reflections of continued deterioration of the commercial real estate
market and the related writedowns of values associated with those
problem loans. Table 9 provides an analysis of the allowance for loan
losses for the years 1989 through 1993, including gross charge-offs and
recoveries for the five year period.
Nonperforming assets as of December 31, 1993 were $132.1 million
or 1.37% of total assets compared to $112.3 million or 1.29% of total
assets a year ago. The increase of 17.6% in nonperforming assets in 1993
reflected the continued weakness in real estate development, primarily
in the Northern Virginia markets. Table 13 shows the distribution of
nonperforming assets by geographic region and loan category.
<PAGE>
<TABLE>
---------------------------------------------------------------------------------------------------------------------------
TABLE 9 Selected Loan Loss Data
(In Thousands) Year Ended December 31,
<CAPTION>
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year $101,800 $61,000 $60,806 $35,156 $32,112
Provision charged to expense 79,509 99,757 49,810 45,016 17,246
------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
181,309 160,757 110,616 80,172 49,358
Loans charged off:
Commercial and commercial real estate 27,995 17,091 20,092 5,921 4,266
Construction 39,031 27,793 14,393 2,909 2
Residential real estate 64 4 32 21 47
Installment 5,841 6,273 5,949 4,241 4,232
Bank card 13,797 16,408 15,587 11,992 10,975
------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Total charge-offs 86,728 67,569 56,053 25,084 19,522
------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Recoveries of loans previously charged off:
Commercial and commercial real estate 3,162 1,967 2,083 1,737 989
Construction 392 1,557 69 11 27
Residential real estate 23 3 2 33 78
Installment 3,508 2,656 2,099 1,694 2,090
Bank card 3,334 2,429 2,184 2,243 2,136
------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Total recoveries 10,419 8,612 6,437 5,718 5,320
------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Net charge-offs 76,309 58,957 49,616 19,366 14,202
------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Balance at end of year $105,000 $101,800 $61,000 $60,806 $35,156
------------------------------------------------------- =========== =========== =========== =========== ===========
Average loans $4,250,089 $3,730,625 $3,606,906 $3,599,978 $3,359,230
Loans at year-end $4,812,509 $3,953,354 $3,619,218 $3,577,298 $3,528,927
Ratio of provision for loan losses to average loans 1.87% 2.67% 1.38% 1.25% 0.51%
Ratio of net charge-offs to average loans 1.80% 1.58% 1.38% 0.54% 0.42%
Ratio of allowance for loan losses to loans at year-end 2.18% 2.58% 1.69% 1.70% 1.00%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
----------------------------------------------------------------------------------------------------------------------------------
TABLE 10 Allocated Allowance For Loan Losses
The allowance for loan losses is a general allowance applicable to all loan categories; however, management has allocated the al
to provide an indication of the relative risk characteristics of the loan portfolio. The allocation is based on the same judgmenta
criteria discussed earlier in determining the level of the allowance and should not be interpreted as an indication that charge-of
1994 will occur in these amounts, or proportions, or that the allocation indicates future trends. The allocation of the allowance
December 31 for the years indicated and the ratio of the related outstanding loan balances to total loans are as follows:
(In Thousands)
December 31,
<CAPTION>
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------------
Ratio of Ratio of Ratio of Ratio of Ra
Loans to Loans to Loans to Loans to Lo
Total Loans Total Loans Total Loans Total Loans Tota
Allowance Outstanding Allowance Outstanding Allowance Outstanding Allowance Outstanding Allowance Outs
----------------------------------------------------------------------------------------------------------------------------------
Commercial and
commercial
real estate $61,956 35.5% $40,166 39.9% $24,377 42.5% $20,860 44.3% $12,776
Construction 18,803 6.0 36,184 8.8 21,351 13.3 23,906 14.5 7,313
Residential
real estate 1,318 24.4 1,018 14.9 300 7.1 258 4.8 240
Installment 5,497 19.0 6,108 20.3 3,672 20.3 3,443 20.7 3,245
Bank card 17,426 15.1 18,324 16.1 11,300 16.8 12,339 15.7 11,582
------------------ --------- ----------- --------- ----------- --------- ----------- --------- ----------- --------- ----
Total $105,000 100.0% $101,800 100.0% $61,000 100.0% $60,806 100.0% $35,156
------------------ ========= =========== ========= =========== ========= =========== ========= =========== ========= ====
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------
TABLE 11 Nonaccrual, Past-Due and Restructured Loans
The following table presents information concerning: loans in a nonaccrual status; other loans
which are contractually past due as to interest or principal payments; and loans whose terms
have been renegotiated to provide a reduction or deferral of interest or a deferral of
principal because of a deterioration in the financial position of the borrower. Past-due loans
are those loans contractually past due for 90 days or more.
------------------------------------------------------------------------------------------------
(In Thousands) December 31,
<CAPTION>
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------
Nonaccrual loans $93,349 $84,401 $35,853 $69,653 $5,064
Past-due loans (not including
nonaccrual loans):
Commercial and construction 1,887 9,369 8,542 10,663 817
Residential real estate 670 134 306 260 189
Installment 681 2,271 3,300 2,431 1,516
Bank card 3,104 3,413 4,363 2,921 2,736
----------------------------------------- ------- ------- ------- ------- -------
6,342 15,187 16,511 16,275 5,258
Restructured loans 606 260 1,635 191 1,955
----------------------------------------- ------- ------- ------- ------- -------
Total $100,297 $99,848 $53,999 $86,119 $12,277
----------------------------------------- ======= ======= ======= ======= =======
------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
----------------------------------------------------------------------------------------------------------------------------
TABLE 12 Loan Distribution
(In Thousands) December 31,
<CAPTION> Percent
Change
1993 1992 1991 1990 1989 1993/1992
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------- ------------
Commercial and commercial real estate $1,711,092 $1,576,744 $1,537,611 $1,583,451 $1,635,510 8.5 %
Construction 289,199 347,685 483,026 520,810 465,051 (16.8)
Residential real estate 1,174,051 589,133 256,863 172,282 239,719 99.3
Consumer second mortgage 458,294 411,708 377,009 314,488 * 11.3
Installment 670,487 593,065 537,258 570,047 690,493 13.1
Bank card 509,386 435,019 427,451 416,220 498,154 17.1
--------------------------------------- ---------- ---------- ---------- ---------- ----------
Total loans $4,812,509 $3,953,354 $3,619,218 $3,577,298 $3,528,927 21.7 %
--------------------------------------- ========== ========== ========== ========== ==========
------------------------------------------------------------------------------------------------------------------------------
* Consumer second mortgage loan data is not separately available for 1989 and is included in installment and bank card loan
balances.
</TABLE>
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------------------------------------------------
TABLE 13 Distribution of Loan Portfolio and Nonperforming Assets by Region
(In Thousands) December 31, 1993
<CAPTION> Capital Eastern Northern Western Southwestern
Region Region Region Region Region Consolidated
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
Commercial and commercial real estate $327,607 $646,868 $226,770 $282,888 $226,959 $1,711,09
Construction 47,914 68,324 110,009 41,152 21,800 289,19
Residential real estate 224,077 154,863 165,117 515,658 114,336 1,174,05
Consumer second mortgage 77,118 87,568 56,375 188,198 49,035 458,29
Installment 223,152 88,884 37,930 227,591 92,930 670,48
Bank card 229,344 82,209 103,675 76,415 17,743 509,38
---------------------------------------- -------- ---------- -------- ---------- -------- ---------
Loans* $1,129,212 $1,128,716 $699,876 $1,331,902 $522,803 $4,812,50
---------------------------------------- ======== ========== ======== ========== ======== =========
Nonaccrual loans $12,709 $16,554 $52,174 $8,717 $3,195 $93,34
Foreclosed properties 1,494 6,580 27,393 221 3,058 38,74
---------------------------------------- ------- ---------- ------- ---------- ------- ---------
Nonperforming assets $14,203 $23,134 $79,567 $8,938 $6,253 $132,09
---------------------------------------- ======= ========== ======= ========== ======= =========
Ratio of nonperforming assets to
loans and foreclosed properties 1.26% 2.04% 10.94% 0.67% 1.19% 2.7
--------------------------------------------------------------------------------------------------------------------------------
* Includes nonaccrual loans.
</TABLE>
<PAGE>
Investments
With U.S. economic growth slow and uneven for much of 1993,
interest rates continued to decline. The Federal Reserve held short-term
rates to their lowest levels in twenty years in order to accommodate the
economic recovery. Meanwhile, with inflation under control, long-term
interest rates dropped to levels not seen since the 1960s. Lower rates
made borrowing more affordable for consumers and businesses, and many
took the opportunity to refinance existing debt and to take out new
loans. Led by rising consumer demand for houses, automobiles and other
big ticket items, the economy finally strengthened in the second half
and finished 1993 with the best quarterly growth rate since the fourth
quarter of 1987.
During 1991 and 1992, weak loan demand and rapid growth in core
deposits provided the Company with ample liquidity for investment in
securities. Those trends reversed in 1993, with loan growth
significantly outpacing deposit growth. As a result, the securities
portfolio was virtually the same size at the end of 1993 as it was at
the end of 1992. However, the average yield on the securities portfolio
declined 104 basis points during 1993 to 6.42%. This was attributable to
three factors: prepayments on mortgage-backed securities, a change in
the mix of asset classes and a move to shorter maturities.
Sustained low interest rates generated record volume of home
mortgage refinancing activity, which produced high levels of prepayments
on mortgage-backed securities. Two waves of prepayments hit the mortgage
market in 1993, one in the second quarter and another in the fourth
quarter. Central Fidelity received nearly $960 million in principal
paydowns from mortgage-backed securities and collateralized mortgage
obligations in 1993, with $428 million in the fourth quarter alone.
Prepayments in a falling rate environment expose the Company to
reinvestment risk, with the yields on new investments generally lower
than the yields on the securities that have paid down.
The second factor leading to lower portfolio yields was a shift in
sector weightings. The proportion of mortgage-backed and corporate
securities in the portfolio declined while the holdings of U.S. Treasury
securities more than doubled. Holdings in the mortgage sector declined
from 55% of the portfolio at December 31, 1992 to 50% at December 31,
1993. Corporate securities fell from 15% of the portfolio to 0%.
Holdings of U.S. Treasury securities grew from 15% of the portfolio to
32%.
The third action affecting yields was a strategy to shorten the
average maturity of the securities portfolio. As the bond market rallied
throughout the summer, it presented an opportunity to restructure the
portfolio and reduce interest rate risk. In early September, the
Company sold nearly $600 million in corporate securities which had an
average maturity of 9 years. The Company realized a gain on the
transaction of approximately $50 million. The proceeds were
subsequently reinvested in shorter maturity government and agency
securities. The expected weighted average life and yield of the
portfolio at the end of 1993 was 3.3 years and 6.42%, compared to 4.8
years and 7.46% at the end of 1992.
As of December 31, 1993, the Company implemented changes in its
accounting for certain investment securities as required by Statement of
Financial Accounting Standards No. 115. Upon initial application of the
new standard, existing investments must be classified based on the
enterprise's current intent. Thus the Company has reclassified
substantially all of its investment securities as available for sale.
Such securities will be reported on a fair value basis, with unrealized
gains and losses excluded from earnings but reported as a separate
component of shareholders' equity, net of any deferred tax provision.
Management believes the available for sale classification allows the
most flexibility in meeting liquidity needs, adjusting interest rate
risk and controlling balance sheet trends. The Company could experience
volatility in its capital account in future periods because of market
price fluctuation in its investment securities holdings.
<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------
TABLE 14 Investment Portfolio and Securities Available For Sale
The carrying value of investment securities at the dates indicated was:
(In Thousands) December 31,
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
------------------------------------------------------------------------------------------------
U.S. Government and agencies $ -- $1,853,835 $734,325
States and political subdivisions -- 179,819 207,576
Other -- 1,826,287 156,958
--------------------------------------------------- ---------- ---------- ----------
Total investment securities $ -- $3,859,941 $1,098,859
--------------------------------------------------- ========== ========== ==========
The carrying value of securities available for sale at the dates indicated was:
(In Thousands) December 31,
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
------------------------------------------------------------------------------------------------
U.S. Government and agencies $3,193,391 $14,316 $1,381,167
States and political subdivisions 170,981 -- --
Other 735,734 28,645 --
--------------------------------------------------- ---------- -------- ----------
Total securities available for sale $4,100,106 $42,961 $1,381,167
--------------------------------------------------- ========== ======== ==========
------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
----------------------------------------------------------------------------------------------------------------------------------
TABLE 15 Securities Maturities, Expected Principal Repayments, and Expected Yields
The table below shows the weighted average expected yields, maturities and expected principal repayments, at carrying value, of
available for sale at December 31, 1993:
(In Thousands)
<CAPTION>
Maturity or Expected Principal Repayment
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------------
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years Tota
Amount Yield Amount Yield Amount Yield Amount Yield Amount
----------------------------------------------------------------------------------------------------------------------------------
U.S. Government and agencies:
U.S. Treasury $ -- -- % $1,063,645 5.56 % $211,125 6.18 % $ -- -- % $1,274,770
Federal agencies 3,025 -- 97,781 4.80 -- -- -- -- 100,806
Mortgage-backed obligations 323,405 6.00 1,224,878 5.90 269,532 6.19 -- -- 1,817,815
-------- --------- ---------- -------- ----------
326,430 5.94 2,386,304 5.70 480,657 6.19 -- -- 3,193,391
-------- --------- ---------- -------- ----------
States and political subdivisions 51,573 6.68 35,362 8.25 52,689 8.04 31,357 8.75 170,981
-------- --------- ---------- -------- ----------
Other:
Whole loan mortgage-backed 153,087 6.30 96,054 6.13 -- -- -- -- 249,141
Corporates and asset-backed 16,946 6.73 418,100 6.62 26,047 6.67 -- -- 461,093
Other 15,000 3.97 250 5.50 -- -- 10,250 6.00 25,500
-------- --------- ---------- -------- ----------
185,033 6.15 514,404 6.53 26,047 6.67 10,250 6.00 735,734
--------------------------------- -------- ---------- ---------- -------- ----------
Total $563,036 6.08 % $2,936,070 5.88 % $559,393 6.38 % $41,607 8.07 % $4,100,106
--------------------------------- ======== ========== ========== ======== ==========
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
Asset/Liability Management and Financial Derivatives
The mission of the Asset/Liability function at Central Fidelity is the
prudent management of interest rate risk (IRR) through the proper control over
lending, investment and funding activities. The Asset/Liability Committee meets
monthly to review the following topics: economic conditions, interest rate
trends, loan strategies, investment strategies, funding strategies, interest
rate risk, liquidity, derivatives and off-balance-sheet strategies and earnings
forecasts.
The primary tool for IRR measurement is an earnings simulation model which
has been used and refined over the last fifteen years. The model projects
changes to the balance sheet and earnings over the next twelve months using four
standard interest rate scenarios: 1) a base case scenario which is management's
expected path of interest rates; 2) a gradual rise of 300 basis points over the
next twelve months; 3) a decline of 300 basis points over the next twelve months;
and 4) no change in rates. Policy requires that projected earnings not vary more
than 15% from the unchanged rate scenario over the twelve month horizon.
To adjust the IRR profile of the Company, the Company may use both
on-balance-sheet and off-balance-sheet positions to achieve corporate goals. In
order to maximize our balance sheet liquidity, all the Company's investment
securities were reclassified on December 31, 1993 as available for sale. This
means that should the Company need to adjust its liquidity or IRR profile, all
the Company's securities would be available. To supplement on-balance-sheet
positions, the Company has used off-balance-sheet financial derivatives to
change the nature of certain on-balance-sheet positions. Interest rates swaps
are used to change fixed rate assets to floating or vice versa or fixed rate
liabilities to floating depending on the needs of the Company.
The notional amount of outstanding interest rate swaps as of December 31,
1993 is shown in the table below:
<CAPTION>
Interest Rate Swap Portfolio
-----------------------------------------------------------------------------------------------------------------
Notional Maturity Pay Receive Net Annualized Credit
(In Thousands) December 31, Amount (In Years) Rate Rate Spread Income Exposure
<S> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------
Company Swaps:
Pay Fixed/Receive Floating $125,000 0.98 5.23% 3.20% ($2,538) ($1,268)
Pay Floating/Receive Fixed 850,000 4.17 3.44 5.37 16,415 18,819
------------------------------- -------- ---- ----- ----- ------- -------
Total company swaps $975,000 3.76 3.67% 5.09% 1.42% $13,877 $17,551
------------------------------- ======== ==== ===== ===== ===== ======= =======
Customer Swaps:
Pay Fixed/Receive Floating $11,500 2.61 7.66% 3.50% ($478) ($765)
Pay Floating/Receive Fixed 11,500 2.61 3.50 7.73 487 788
------------------------------- -------- ---- ----- ----- ------- -------
Total customer swaps $23,000 2.61 5.58% 5.62% 0.04% $9 $23
------------------------------- ======== ==== ===== ===== ===== ======= =======
-----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Deposits
In 1993, total deposits averaged $6.7 billion, representing an
increase of 13.0%, or $771.2 million, over 1992. Core deposits grew
10.1%, or $566.1 million, averaging $6.2 billion in 1993. The slower
growth in core deposits, when compared to 1992, which increased $1.0
billion, or 23.0%, over 1991, was principally the result of generally
lower rates paid on bank deposits and a marked tendency of consumers to
purchase annuities and mutual funds in search of higher yields.
All categories of core deposits, except for money market accounts,
increased during the year. The largest growth in average core deposits
was in regular savings, which rose 46.6% to $816.8 million compared to
$557.2 million in 1992. Interest checking grew 21.6%, averaging $632.4
million. Consumer certificates averaged $2.8 billion, representing a
6.8% increase. Money market accounts averaged $1.1 billion,
reflecting a decline of 7.6%. Table 16 shows the components of total
average deposits for the past five years.
The Company's asset funding strategy focuses primarily on core
deposit growth. Central Fidelity's share of total core deposits for the
State of Virginia was 11.29% as of September 30, 1993, ranking the
Company fourth in market share. During 1993, certificates of deposit of
$100,000 and over increased 64.4%, or $205.1 million, to an average of
$523.5 million. Table 17 shows a maturity schedule for certificates of
deposit $100,000 and over at year-end 1993.
<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------------------------
TABLE 16 Average Deposits
(In Thousands) Year Ended December 31,
<CAPTION> Percent
Change
1993 1992 1991 1990 1989 1993/1992
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------
Noninterest-bearing $840,070 $733,716 $591,724 $576,264 $577,175 14.5 %
Interest-bearing:
Interest checking 632,429 520,062 392,912 344,803 332,915 21.6
Regular savings 816,783 557,220 367,837 349,344 360,007 46.6
Consumer certificates 2,781,417 2,603,656 2,274,954 1,913,856 1,628,716 6.8
Money market accounts 1,091,764 1,181,713 922,429 816,859 603,689 (7.6)
Certificates of deposit $100,000 and over 523,453 318,366 321,607 327,654 375,976 64.4
--------------------------------------------- ---------- ---------- ---------- ---------- ----------
Total interest-bearing 5,845,846 5,181,017 4,279,739 3,752,516 3,301,303 12.8
--------------------------------------------- ---------- ---------- ---------- ---------- ----------
Total $6,685,916 $5,914,733 $4,871,463 $4,328,780 $3,878,478 13.0 %
--------------------------------------------- ========== ========== ========== ========== ==========
------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
---------------------------------------------------------------------------------
TABLE 17 Certificates of Deposit $100,000 and Over
(In Thousands) December 31,
<CAPTION>
1993
<S> <C>
---------------------------------------------------------------------------------
Time remaining to maturity:
Less than three months $224,182
Three through six months 97,217
Six through twelve months 69,387
More than twelve months 46,900
--------------------------------------------------------------------- ---------
Total $437,686
--------------------------------------------------------------------- =========
---------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------------------------------------------------
Table 18 Interest Sensitivity Analysis
Interest sensitivity management is the process of developing objectives, goals and strategies to manage the Company's assets and
liabilities. Its purpose is to maintain a managed balance in interest sensitive assets and liabilities, those which either matur
within a certain time period or where the related interest rate can be adjusted or repriced within a specified time period prior
to maturity. The objective of interest sensitivity management is to provide flexibility in controlling the response of both rate
sensitive assets and liabilities to wide and frequent fluctuations in market rates of interest so that the effect of such swings
on net interest income is minimized. The most important part of this objective is to maximize earnings while keeping risks withi
defined limits.
The interest sensitivity position is indicated by the volume of rate sensitive assets, less rate sensitive liabilities. This
difference is generally referred to as the interest sensitivity gap. The nature of the gap indicates how future interest rate
changes may affect net interest income. Depending on the perception as to whether interest rates will rise or fall, the objectiv
is to maintain the gap within a designated range. A negative gap, for example, should generally have a favorable impact on net
interest income when interest rates are declining, as more liabilities than assets would be repriced at lower interest rates.
The table below shows the Company's interest sensitivity position at Deccember 31, 1993.
(In Thousands)
<CAPTION>
1-30 Day 1-90 Day 1-180 Day 1-365 Day Beyond One Year
Sensitivity Sensitivity Sensitivity Sensitivity Or Insensitive Total
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
Uses of Funds
Earning assets:
Securities available for sale and
trading account securities $316,467 $292,615 $532,117 $971,812 $3,129,799 $4,101,6
Federal funds sold and securities purchased
under agreements to resell 193,131 193,131 193,131 193,131 -- 193,1
Loans and loans available for sale 1,330,544 1,445,217 1,641,061 2,074,167 2,738,342 4,812,5
-------------------------------------------------- ------------ ------------ ------------ ------------ --------------- --------
Total earning assets 1,840,142 1,930,963 2,366,309 3,239,110 5,868,141 9,107,2
Nonearning assets 5,937 5,937 5,937 5,937 549,096 555,0
-------------------------------------------------- ------------ ------------ ------------ ------------ --------------- --------
Total uses of funds 1,846,079 1,936,900 2,372,246 3,245,047 6,417,237 9,662,2
-------------------------------------------------- ------------ ------------ ------------ ------------ --------------- --------
Sources of Funds
Interest-bearing liabilities:
Savings and interest-bearing demand accounts -- -- -- -- 1,525,749 1,525,7
Certificates and other time deposits 1,261,690 1,505,697 2,038,428 2,628,914 1,136,750 3,765,6
Certificates of deposit $100,000 and over 133,020 224,182 321,399 390,786 46,900 437,6
Federal funds purchased and securities
sold under agreements to repurchase 1,424,670 1,457,116 1,457,116 1,457,116 225 1,457,3
Other short-term borrowings 26,913 426,913 426,913 426,913 11,500 438,4
Long-term debt and capitalized lease obligations 3 150,009 150,019 151,039 8,864 159,9
-------------------------------------------------- ------------ ------------ ------------ ------------ --------------- --------
Total interest-bearing liabilities 2,846,296 3,763,917 4,393,875 5,054,768 2,729,988 7,784,7
Noninterest-bearing sources 116,994 467,976 467,976 571,973 1,305,555 1,877,5
-------------------------------------------------- ------------ ------------ ------------ ------------ --------------- --------
Total sources of funds 2,963,290 4,231,893 4,861,851 5,626,741 4,035,543 9,662,2
-------------------------------------------------- ------------ ------------ ------------ ------------ --------------- --------
Interest sensitivity gap ($1,117,211) ($2,294,993) ($2,489,605) ($2,381,694) $2,381,694 $
-------------------------------------------------- ============ ============ ============ ============ =============== ========
Interest sensitivity gap as a percentage
of earning assets (12.27)% (25.20)% (27.34)% (26.15)% (26.15)%
Interest sensitive assets as a percentage
of interest sensitive liabilities 0.62 % 0.46 % 0.49 % 0.58 % 1.59 %
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Noninterest Income
Noninterest income was $125.8 million in 1993, compared to $115.4
million in 1992. To reduce future interest rate risk and enhance
liquidity in anticipation of higher loan demand and sluggish growth
in deposits, the Company sold $600 million of corporate bonds in 1993,
producing a $50.7 million gain. The increase of noninterest income,
excluding the effects of securities trading transactions, was 14.1%.
During 1993, trust income and deposit fees and charges grew 11.6%
and 13.8% to $13.6 million and $33.9 million, respectively. Other income
increased 16.1% to $23.9 million, primarily due to commissions from the
sale of annuities and mutual funds which totalled $2.7 million.
Table 19 shows the major categories of noninterest income for the
past five years.
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------------------------------------------
TABLE 19 Noninterest Income
(In Thousands) Year Ended December 31, Percent
<CAPTION> Change
1993 1992 1991 1990 1989 1993/1992
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
Trust income $13,621 $12,208 $10,849 $10,223 $8,771 11.6 %
Deposit fees and charges 33,898 29,792 27,341 24,271 20,833 13.8
Profits on securities available for sale
and trading account securities 3,695 52,827 6,172 6,323 2,694 (93.0)
Investment securities gains, net 50,680 -- 17,725 6,194 793 --
Other income 23,909 20,595 16,855 23,907 21,034 16.1
------------------------------------------------------ -------- -------- ------- ------- -------
Total $125,803 $115,422 $78,942 $70,918 $54,125 9.0 %
------------------------------------------------------ ======== ======== ======= ======= =======
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Noninterest Expense
Noninterest expense for 1993 increased 11.2% to $223.3 million,
primarily reflecting higher personnel cost, FDIC insurance premiums and
expenses associated with foreclosed properties.
Included in the noninterest expense increases were a $4.0 million
nonrecurring charge in personnel cost relating to certain postemployment
benefits and $10.4 million in higher expenses related to foreclosed
properties. Excluding these two items, noninterest expense increased
4.0%.
Table 20 shows the major categories of noninterest expense for the
past five years.
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------------------------------------------
TABLE 20 Noninterest Expense
(In Thousands) Year Ended December 31, Percent
<CAPTION> Change
1993 1992 1991 1990 1989 1993/1992
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
Personnel expense $115,917 $104,060 $97,342 $87,401 $87,277 11.4 %
Occupancy and equipment expense 38,752 38,313 35,826 34,159 32,061 1.1
FDIC insurance expense 14,612 11,886 9,244 4,734 3,005 22.9
Other real estate expense 15,108 4,715 8,376 (62) (750) 220.4
Other expense 38,909 41,859 39,618 38,474 41,517 (7.0)
------------------------------------------------------ -------- -------- -------- -------- --------
Total $223,298 $200,833 $190,406 $164,706 $163,110 11.2 %
------------------------------------------------------ ======== ======== ======== ======== ========
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Liquidity
In determining the Company's liquidity requirements, both sides of
the balance sheet are managed to ensure that adequate funding sources
are available to support loan growth, deposit withdrawals or any
unanticipated need for funds.
Money market investments and securities available for sale that
mature within one year, or have an expected weighted average life of one
year, are the primary source of asset liquidity. At December 31, 1993,
those balances were $193 million and $563 million, respectively.
Anticipated mortgage-backed securities paydowns also generate a
significant cashflow. In 1993, prepayments from mortgage-backed
securities totalled $960 million.
Wholesale funding sources are also used to supply liquidity such
as federal funds purchased, repurchase agreements, securities lending
and large denomination certificates of deposit. In addition, the Bank
instituted a $600 million bank note program that was brought to market
in February, providing additional funding. As of December 31, 1993, $309
million of bank notes maturing in 1995 and $102 million of bank notes
maturing in 1996 were outstanding. All sources of funds are evaluated
for their cost and maturity structure balanced against prudent
liability management goals.
<PAGE>
Capital Resources
At December 31, 1993, total shareholders' equity, excluding
unrealized gains on securities available for sale, was $680.3 million, a
13.0% increase from the prior year's level of $602.0 million. The
contributing factors to the equity increase were growth in earnings
after dividends of $64.0 million and $14.3 million from the issuance of
common stock through stock option exercises, the dividend reinvestment
program, and the Company's stock and thrift and stock incentive plans.
Cash dividends declared on common stock at an annual rate of $1.00 per
share represented a payout ratio of 37.6%.
At year-end 1992, the Federal Reserve Board adopted final risk-
based capital guidelines for bank holding companies and banks to assist
in the assessment of capital adequacy. The risk-based capital
guidelines significantly revise the definition of capital and establish
minimum capital standards in relation to assets and off-balance-sheet
exposures, as adjusted for credit risks. The final minimum guidelines
for the ratio of total capital to risk-weighted assets is 8%. At least
4% of the total risk-based capital is to be composed of common equity
net of goodwill and other intangibles (" Tier 1 capital"). The remainder
may consist of subordinated debt, other preferred stock and an allowable
portion of allowance for loan losses ("Tier 2 capital"). Table 21 shows
the components of risk-based capital at December 31, 1993 and 1992.
In addition, the Federal Reserve established minimum leverage
ratio guidelines for bank holding companies. These guidelines provided
for a minimum ratio of Tier 1 capital to total average quarterly assets,
less goodwill and other intangibles of 3% for bank holding companies
that meet certain specified criteria, including having the highest
regulatory rating. All other bank holding companies generally are
required to maintain a leverage ratio of at least 3% plus an
additional cushion of 100 to 200 basis points. Furthermore, the Federal
Reserve has proposed a "tangible Tier 1 leverage ratio" in evaluating
proposals for expansion or new activities. The tangible Tier 1 leverage
ratio is the ratio of Tier 1 capital less all intangibles, to total
tangible assets.
At December 31, 1993, Central Fidelity's risk-based capital and
leverage ratios exceeded the Federal Reserve's minimum guidelines.
Central Fidelity's Tier 1 and total risk-based capital at December 31,
1993 were $646.9 million and $870.4 million, respectively, as
compared to $566.3 million and $791.5 million, respectively, at year-end
1992. At December 31, 1993, the ratios of Tier 1 and total risk-based
capital to risk-weighted assets were 11.06% and 14.88%, compared to
9.46% and 13.22%, respectively, at December 31, 1992. Central Fidelity's
leverage ratio was 7.10% at December 31, 1993, compared to 6.85% at
December 31, 1992.
Based upon the risk-based capital and leverage requirements,
Central Fidelity's capital structure places it well above the Federal
Reserve Board's guidelines and in the well capitalized category when
measured against FDIC criteria. The Company will continue to review
and monitor the asset mix and pricing, and other areas determined to be
most affected by these capital requirements.
<PAGE>
<TABLE>
-------------------------------------------------------------------
TABLE 21 Risk-Based Capital
(In Thousands) December 31,
<CAPTION>
1993 1992
<S> <C> <C>
-------------------------------------------------------------------
Tier 1 capital:
Common shareholders' equity $726,137 $601,987
Less unrealized gains on securities
available for sale (45,853) --
--------------------------------------------- -------- --------
680,284 601,987
Less goodwill (10,722) (11,405)
Less deposit intangibles (22,662) (24,254)
--------------------------------------------- -------- --------
Total Tier 1 capital 646,900 566,328
--------------------------------------------- -------- --------
Tier 2 capital:
Allowable allowance for loan losses 73,539 75,192
Allowable long-term debt 150,000 150,000
--------------------------------------------- -------- --------
Total Tier 2 capital 223,539 225,192
--------------------------------------------- -------- --------
Total capital $870,439 $791,520
--------------------------------------------- ======== ========
Risk-weighted assets $5,851,654 $5,986,757
Quarterly average assets $9,185,380 $8,307,864
Risk-based capital ratios:
Tier 1 capital 11.06% 9.46%
Total capital 14.88% 13.22%
Leverage ratio 7.10% 6.85%
-------------------------------------------------------------------
</TABLE>
<PAGE>
Earnings and Balance Sheet Analysis
1992 Compared to 1991
In 1992, net income increased 29.9% to $78.5 million from $60.4
million in 1991. On a per share basis, net income was $2.25,
representing an increase of 20.3% when compared with $1.87 earned in
1991. The return on average total assets of 1.06% in 1992 increased
7.1% from .99% for the prior year while the return on average
shareholders' equity of 15.60% was up 4.5% from 14.93% the previous
year.
Average earning assets rose 22.5% to $6.9 billion from $5.7
billion in 1991. Investment securities and securities available for sale
which increased $1.2 billion or 64.4% over 1991 accounted for the growth
in earning assets. The yield on average earning assets declined 160
basis points to 8.52%, reflecting generally lower interest rates which
prevailed during 1992.
In 1992, total average interest-bearing liabilities rose 21.8% to
$6.2 billion from $5.0 billion in 1991. Average core deposits rose 23.0%
to $5.6 billion, resulting from the acquisition of Investors and
significant internal growth. In 1992, the cost of interest-bearing
liabilities was impacted by the generally lower interest rate
environment, showing a decline of 168 basis points to 4.64%.
At December 31, 1992, the allowance for loan losses was $101.8
million or 2.58% of loans compared with $61.0 million or 1.69% for the
prior year. The level of allowance resulted from a $99.8 million
provision, $40.8 million of which went to reserves and $59.0 million
was reflected in net charge-offs. The magnitude of the growth in
provision and net charge-offs was due largely to the continuing sluggish
economy in 1992 and the growth in nonperforming assets.
Nonperforming assets as of December 31, 1992 were $112.3 million
or 1.29% of total assets compared to $69.2 million or 1.01% at year-end
1991. This increase reflected the continued weakness in real estate
sales and values, primarily in the Northern Virginia markets.
Noninterest income grew from $78.9 million in 1991 to $115.4
million in 1992, representing an increase of 46.2%. The magnitude of the
increase was attributable primarily to gains from the sales of long-term
mortgage-backed securities held as securities available for sale.
Excluding the effects of securities transactions, noninterest income
increased by 13.7%. Noninterest expense rose a modest 5.5% in 1992 to
$200.8 million. Higher FDIC insurance premiums, personnel and occupancy
and equipment expenses were the contributing factors to this
increase.
<PAGE>
<TABLE>
Quarterly Results of Operations
The following is a tabulation of the quarterly results of operations for each of
the four quarters in 1993 and 1992:
(In Thousands, except per share data)
<CAPTION>
March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------
1993
Total income from earning assets $154,292 $156,306 $150,341 $153,047
Net interest income 82,598 83,656 76,968 81,033
Provision for loan losses 18,821 12,513 42,807 5,368
Income before income taxes 34,056 38,038 37,883 37,274
Net income 24,127 26,317 26,741 25,732
Net income per share 0.63 0.68 0.69 0.66
1992
Total income from earning assets $137,020 $142,128 $147,637 $153,378
Net interest income 65,876 71,555 74,924 82,111
Provision for loan losses 15,183 33,564 33,821 17,189
Income before income taxes 21,107 27,664 29,348 31,179
Net income 15,752 19,864 20,696 22,204
Net income per share 0.48 0.60 0.58 0.58
-------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
Common Stock Performance and Dividends
Central Fidelity Banks, Inc. common stock is traded on the national over-the-counter
market under NASDAQ symbol CFBS. A comparative summary of the prices for such stock
for 1993 and 1992 is as follows:
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------
Common Stock Prices
------------------------------------------ Dividends
1993 1992 Per Share
-------------------- -------------------- ----------------
High Low High Low 1993 1992
-------------------------------------------------------------------------------------
First Quarter $34.00 $26.00 $26.08 $23.17 $0.25 $0.19
Second Quarter 35.25 26.50 25.83 22.67 0.25 0.21
Third Quarter 32.25 28.25 24.67 22.33 0.25 0.21
Fourth Quarter 30.75 25.75 28.33 23.33 0.25 0.21
-------------------------------------------------------------------------------------
On January 13, 1993 and May 8, 1991, the Board of Directors of the Company declared
3-for-2 stock splits in the form of a dividend payable on February 22, 1993 and
July 1, 1991, respectively, to shareholders of record January 29, 1993 and May 24,
1991, respectively.
Please read "Dividends" in note 1 and "Parent Company Financial Information"
in note 2 of the notes to financial statements for information on the Company's
sources of funds for dividends and restrictions on the payment thereof. At
December 31, 1993, there were 17,759 holders of record of the Company's
outstanding common stock.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED FINANCIAL HISTORY
----------------------------------------------------------------------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
Five-Year
Compound
Earnings Summary Growth Rate
----------------------------------------------------------------------------------------------------------------------------------
(In Thousands, except per share data)
<CAPTION>
1993 1992 1991 1990 1989 1988 1993/1988
<S> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------------
Income from earning assets:
Interest and fees on loans $359,504 $351,972 $391,306 $410,155 $395,833 $335,258 1.4
Interest on assets available for sale:
Securities 59,814 57,209 1,446 4,520 -- -- --
Loans 690 -- -- -- -- -- --
----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total interest on assets available for sale 60,504 57,209 1,446 4,520 -- -- --
----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Interest on investment securities:
Taxable 181,311 156,211 142,778 89,410 48,640 34,062 39.7
Nontaxable 6,881 10,095 12,802 14,678 16,438 16,094 (15.6
----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total interest on investment securities 188,192 166,306 155,580 104,088 65,078 50,156 30.3
----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Interest on money market investments 5,752 4,629 11,442 15,339 21,628 14,385 (16.8
Interest on trading account securities 34 47 209 166 147 307 (35.6
----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total income from earning assets 613,986 580,163 559,983 534,268 482,686 400,106 8.9
----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Interest expense:
Interest on deposits 239,178 252,333 275,745 271,749 243,935 198,282 3.8
Interest on borrowings 50,553 33,364 43,620 54,353 42,396 31,598 9.9
----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total interest expense 289,731 285,697 319,365 326,102 286,331 229,880 4.7
----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income 324,255 294,466 240,618 208,166 196,355 170,226 13.8
Provision for loan losses 79,509 99,757 49,810 45,016 17,246 17,050 36.1
----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net income from earning assets 244,746 194,709 190,808 163,150 179,109 153,176 9.8
----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Noninterest income:
Trust income 13,621 12,208 10,849 10,223 8,771 8,224 10.6
Profits on securities available for sale
and trading account securities 3,695 52,827 6,172 6,323 2,694 3,462 1.3
Investment securities gains, net 50,680 -- 17,725 6,194 793 1,615 --
Other income 57,807 50,387 44,196 48,178 41,867 33,054 11.8
----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total noninterest income 125,803 115,422 78,942 70,918 54,125 46,355 22.1
----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Noninterest expense:
Personnel expense 115,917 104,060 97,342 87,401 87,277 73,497 9.5
Occupancy and equipment expense 38,752 38,313 35,826 34,159 32,061 26,934 7.5
FDIC insurance expense 14,612 11,886 9,244 4,734 3,005 2,517 42.2
Other real estate expense 15,108 4,715 8,376 (62) (750) 69 --
Other expense 38,909 41,859 39,618 38,474 41,517 37,249 0.9
----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total noninterest expense 223,298 200,833 190,406 164,706 163,110 140,266 9.7
----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes 147,251 109,298 79,344 69,362 70,124 59,265 20.0
Income tax expense 44,334 30,782 18,909 13,609 15,740 9,768 35.3
----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net income $102,917 $78,516 $60,435 $55,753 $54,384 $49,497 15.8
----------------------------------------------- ========== ========== ========== ========== ========== ==========
Net income per share $2.66 $2.25 $1.87 $1.65 $1.57 $1.42 13.4
Dividends per share $1.00 $0.82 $0.74 $0.63 $0.54 $0.51 14.6
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
Five-Yea
Compoun
Average Balance Sheet Summary Growth Ra
----------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<CAPTION>
1993 1992 1991 1990 1989 1988 1993/198
<S> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks $248,328 $234,205 $204,473 $208,297 $208,579 $222,672 2
Temporary investments 184,810 121,925 182,204 182,052 229,561 182,407 0
Assets available for sale:
Securities 1,021,150 761,192 19,854 53,501 -- --
Loans 13,587 -- -- -- -- --
------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Assets available for sale 1,034,737 761,192 19,854 53,501 -- --
Investment securities:
Taxable 2,791,522 2,137,088 1,641,329 970,393 543,853 398,175 47
Nontaxable 141,604 186,320 215,049 234,363 257,532 270,712 (12
------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Investment securities 2,933,126 2,323,408 1,856,378 1,204,756 801,385 668,887 34
Loans 4,236,502 3,730,625 3,606,906 3,599,978 3,359,230 3,097,920 6
Allowance for loan losses (105,000) (101,800) (61,000) (60,806) (35,156) (32,112) 26
------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net loans 4,131,502 3,628,825 3,545,906 3,539,172 3,324,074 3,065,808 6
Premises and equipment, net 145,604 140,444 137,859 130,514 119,928 108,840 6
Other assets 222,140 206,920 137,118 136,461 79,528 66,485 27
------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total assets $8,900,247 $7,416,919 $6,083,792 $5,454,753 $4,763,055 $4,315,099 15
------------------------------------------------- ========== ========== ========== ========== ========== ==========
Demand deposits $840,070 $733,716 $591,724 $576,264 $577,175 $563,325 8
Savings and other time deposits 5,322,393 4,862,651 3,958,132 3,424,862 2,925,327 2,584,312 15
Certificates of deposit $100,000 and over 523,453 318,366 321,607 327,654 375,976 382,685 6
------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total deposits 6,685,916 5,914,733 4,871,463 4,328,780 3,878,478 3,530,322 13
Borrowed funds 1,553,541 970,918 769,547 693,684 485,357 415,991 30
Other liabilities 13,964 27,955 37,965 48,928 39,556 41,077 (19
------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total liabilities 8,253,421 6,913,606 5,678,975 5,071,392 4,403,391 3,987,390 15
------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Shareholders' equity before unrealized gains 643,005 503,313 404,817 383,361 359,664 327,709 14
Unrealized gains on securities available for sale 45,853 -- -- -- -- --
------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total liabilities and
shareholders' equity $8,900,247 $7,416,919 $6,083,792 $5,454,753 $4,763,055 $4,315,099 15
------------------------------------------------- ========== ========== ========== ========== ========== ==========
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
FORM 10-K
----------------------------------------------------------------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
Cross Reference Index
This Annual Report to Shareholders and Form 10-K incorporates into a single document the requirements of the Securities
and Exchange Commission for both.
<CAPTION>
<S> <C>
Part One Page
Item 1 Business
Item 2 Properties
Item 3 Legal Proceedings
Item 4 Submission of Matters to a Vote of Security Holders None
Part Two
Item 5 Market for the Registrant's Common Stock and Related Shareholder Matters
Item 6 Selected Financial Data
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 8 Financial Statements and Supplementary Data
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None
Part Three
Item 10 Directors and Executive Officers of the Registrant*
Item 11 Executive Compensation*
Item 12 Security Ownership of Certain Beneficial Owners and Management*
Item 13 Certain Relationships and Related Transactions*
Part Four
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
* Included on page __ of this report is a listing of the names of the directors and executive officers of the Company.
However, the specific information called for by the instructions to Form 10-K with respect to Items 10 through 13 as
listed above is hereby incorporated by reference to the Company's definitive Proxy Statement for use at the Annual
Meeting of Shareholders on May 11, 1994.
</TABLE>
<PAGE>
FORM 10-K
--------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
Business
Central Fidelity, a Virginia corporation headquartered in
Richmond, Virginia, is a bank holding company. The Company owns, except
for bank directors' qualifying shares, all of the stock of its
commercial banks. At December 31, 1993, Central Fidelity and its
subsidiaries had approximately 3,500 full-time employees.
The Company is registered with, and supervised by, the Board of
Governors of the Federal Reserve System under the Bank Holding Company
Act of 1956. Under this Act, it may only engage in the business of
managing or controlling banks or furnishing services to its subsidiaries
and certain other activities which, in the opinion of the Federal
Reserve Board, are closely related to banking.
The Company serves only Virginia markets, primarily through its
wholly-owned banking subsidiary, Central Fidelity National Bank, a
Virginia banking corporation (the "Bank"). At December 31, 1993,
Central Fidelity National Bank, the Company's principal banking
subsidiary, converted to a national bank and is therefore supervised and
examined by the Comptroller of the Currency. At year-end 1993, the Bank
operated 230 branch offices, including 29 full-service supermarket
locations and 195 automated teller machines throughout the Commonwealth
of Virginia. The Company, through the Bank and its other
subsidiaries, provides a wide variety of financial services to a broad
customer base of individuals, corporations, institutions and
governments, primarily located in Virginia. The Bank is an issuer of
MasterCard and VISA credit cards. Through the use of reciprocally shared
automated teller machines, the Company can deliver services through its
membership in the Internet/MOST regional and PLUS national networks
of automated teller machines. The Company also engages in limited
international banking activities, primarily in connection with
foreign trade financing for Virginia based companies. In addition to
commercial activities, through its Financial Services Group, the Company
generates noninterest income by sales of trust and fiduciary
services, annuities, private label mutual funds and other investment
services. The Bank's mortgage banking subsidiary, Central Fidelity
Mortgage Corporation, was formed in 1992 to increase mortgage
origination and servicing fee income and to expand the Bank's
residential mortgage loan portfolio.
The Company's other national bank subsidiary, Central Fidelity
Bank, N.A., organized in 1986, is also supervised and examined by the
Comptroller of the Currency.
Bank-related subsidiaries, all of which are wholly owned, are
engaged in insurance and other bank-related services. Such subsidiaries,
of which there are nine, have made only a nominal contribution to
revenues for each of the past five years. The bank-related companies are
examined by the Federal Reserve.
Central Fidelity conducts its commercial banking business under a
variety of Federal and State laws and regulations, some of which relate
to interest rates, required reserves, transactions between the
Company and its subsidiaries, restrictions on loans to officers, the use
of correspondent balances, the establishment of branches and the
acquisition of subsidiaries. In addition, the Federal Reserve Board
has statutory authority to issue "cease and desist" orders to bank
holding companies and their bank-related subsidiaries with respect to
actions deemed to constitute a serious threat to the safety,
soundness or stability of a subsidiary bank. In 1991, Congress enacted
the Federal Deposit Insurance Corporation Improvement Act ("FDICIA"),
which substantially revises the bank regulatory and funding provisions
of the Federal Deposit Insurance Act and makes revisions to several
other federal banking statutes. FDICIA provides that insured depository
institutions maintain certain minimum capital standards and requires
federal bank regulatory authorities to take prompt corrective action
against those institutions that fail to meet these standards. FDICIA
establishes five capital tiers, Central Fidelity's banking subsidiaries
rank, in management's opinion, in the highest of those tiers, which is
"well capitalized." FDICIA also contains a variety of other provisions
that affect the operations of the Company's banking subsidiaries,
including new reporting requirements and regulatory standards for real
estate lending.
The earnings and business of Central Fidelity are affected by the
policies of various regulatory authorities, principally the Federal
Reserve Board. Important functions of the Federal Reserve Board, in
addition to those enumerated above, are to regulate the supply of credit
and to deal with general economic conditions within the United
States. The instruments of monetary policy employed by the Federal
Reserve Board 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 earning assets.
Based on December 31, 1993 published core deposit market share
data, the Company ranks as the fourth largest among all Virginia
commercial banking organizations. The Company experiences keen
competition in all aspects of its business from each of the other major
bank holding companies in the state. Additionally, the Company
encounters competition from smaller banks or bank holding companies
and other financial service organizations. Finance companies and credit
unions compete with banks in the important area of consumer lending and
deposit gathering.
Among commercial banks, the principal method of competition is the
efficient delivery of quality financial services at competitive prices.
Central Fidelity believes its delivery of financial services is
equivalent or superior to that of its competitors and that its loan,
deposit and service prices are highly competitive.
The Company is not dependent upon any single customer, or group of
customers, nor is the Company significantly affected by seasonal
changes.
The earnings of the Company are affected not only by general
economic conditions, both domestic and foreign, but also by the monetary
and fiscal policies of the United States Government and its various
agencies, particularly the Federal Reserve System. The Company cannot
accurately predict the impact of changes in monetary policy.
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FORM 10-K
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Central Fidelity Banks, Inc. and Subsidiaries
Properties
The executive offices of Central Fidelity are located in the main
office of Central Fidelity National Bank, 1021 East Cary Street,
Richmond, Virginia 23219. The Central Fidelity National Bank Building is
in the James Center complex located in the heart of Richmond's business
and financial district. The headquarters building consists of a 22 story
office building and garage, 10 floors of which are leased from a third
party with an initial lease term that expires 2002.
The Company's subsidiaries generally own their offices and
facilities. However, either because of escalating property costs or
statutes limiting the amount of a bank's investment in banking premises
in relation to its capital, the Company has entered into operating
leases for certain of its locations.
As of December 31, 1993, the Company and its subsidiaries had
consolidated bank premises and equipment, including land, buildings,
furnishings and equipment, leasehold improvements and capitalized leases
of $146.9 million. For additional information, refer to notes 7 and 9 of
the notes to financial statements on pages __ and __, respectively.
<PAGE>
FORM 10-K
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Central Fidelity Banks, Inc. and Subsidiaries
Directors and Executive Officers of the Registrant
Information with respect to the Directors of the Registrant is
hereby incorporated by reference to the Registrant's definitive Proxy
Statement for use at the Annual Meeting of Shareholders on May 11, 1994.
The names and ages of the executive officers of the Registrant
together with their areas of responsibility are set forth herein. Except
as otherwise indicated, each executive officer holds the same office in
the Company and in Central Fidelity National Bank (the "Bank"). All of
said officers were elected to their positions by the Board of Directors
and will hold office until their successors are elected. All of said
officers, except for Ms. Master and Sorah and Messrs. Baird, Foster,
Pruitt, Mapp and Tysinger, have served in executive positions for more
than five years with the Registrant and or its subsidiaries. Ms. Sorah
and Messrs. Pruitt and Tysinger were elected executive officers in 1990,
after having served in various senior officer positions with the Bank
for more than five years. Ms. Master joined the Bank in 1988 as Human
Resources manager. For several years prior thereto she was Human
Resources manager for BDM Corporation, a Northern Virginia company that
provided professional technical services for the defense industry. Ms.
Master manages the Human Resources Division and was elected executive
officer in 1991. Mr. Baird joined the Bank in 1992 to establish the
mortgage banking subsidiary. Just prior to joining the Bank, Mr. Baird
was President and Chief Executive Officer of C&S/Sovran Mortgage
Corporation and its predecessors for more than ten years. Mr. Baird was
elected executive officer in 1992. In 1993, Messrs. Foster and Mapp were
elected executive officers, after having served in various senior
officer positions with the Bank for more than five years.
There are no family relationships between any of the officers nor
are there any arrangements or understandings between them or any other
person pursuant to which they were elected as an officer.
Carroll L. Saine, 59, Chairman of the
Board of Directors
Lewis N. Miller, Jr., 50, President
Deborah J. Brooks, 42, Corporate Executive
Vice President, Marketing
Philip G. Hug, 51, Corporate
Executive Vice President, Commercial
James W. Koeniger, 47, Corporate Executive
Vice President, Financial Services
Jay O. Livingston, 47, Corporate Executive
Vice President, Administration
Maryann Master, 45, Corporate Executive
Vice President, Human Resources
John T. Percy, Jr., 47, Corporate
Executive Vice President, Investments
William H. Pruitt, 46, Corporate Executive
Vice President, Loan Administration
Jane D. Sorah, 46, Corporate Executive
Vice President, Bank Card Administration
Rodger W. Fauber, 52, Corporate
Executive Officer and President,
Western Region
William I. Foster, III, 38, Corporate
Executive Officer and President,
Eastern Region
Stephen W. Mapp, 42, Executive Vice
President, Capital Region
J. Carson Quarles, 57, Corporate
Executive Officer and President,
Southwestern Region
William N. Stoyko, 47, Corporate Executive
Officer, Secretary and Senior Legal
Counsel, Legal Administration
Charles W. Tysinger, 45, Corporate
Executive Officer and Treasurer, Finance
John L. Van Horn, II, 57, Corporate
Executive Officer and President,
Northern Region
Bryant W. Baird, Jr., 57, President,
Central Fidelity Mortgage Corporation
James F. Campbell, 55, Senior Vice
President and Controller
John S. Moore, 42, Senior Vice
President and Auditor
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EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
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Central Fidelity Banks, Inc. and Subsidiaries
The following documents are filed as part of this report:
(a) Financial Statements:
Consolidated Balance Sheet -
December 31, 1993 and 1992
Statement of Consolidated Income -
Years ended December 31, 1993, 1992 and 1991
Statement of Consolidated Cash Flows -
Years ended December 31, 1993, 1992 and 1991
Statement of Changes in Consolidated Shareholders'
Equity -
Years ended December 31, 1993, 1992 and 1991
Notes to Financial Statements
Independent Auditors' Report
(b) Schedules:
Schedules specified in the applicable regulations of the
Securities and Exchange Commission pertain to items which do not appear
in the consolidated financial statements, to items which are
insignificant or to items as to which the required disclosures have been
made elsewhere in the consolidated financial statements and notes
thereto. These schedules have therefore been omitted.
(c) Reports on Form 8-K:
A report on Form 8-K was filed on October 25, 1993 announcing
the resignation of William F. Shumadine, Jr. as President of its
principal subsidiary, Central Fidelity National Bank.
(d) Exhibits **
** A list of Exhibits was filed separately. Copies of any Exhibits
not contained herein may be obtained by writing to William N. Stoyko,
Corporate Secretary, Central Fidelity Banks, Inc., Post Office Box
27602, Richmond, Virginia 23261.
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SIGNATURES
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Central Fidelity Banks, Inc. and Subsidiaries
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.
Central Fidelity Banks, Inc.
Carroll L. Saine
Chairman of the Board
(Principal Executive Officer)
Charles W. Tysinger
Corporate Executive Officer and Treasurer
(Principal Financial Officer)
James F. Campbell
Senior Vice President and Controller
(Principal Accounting Officer)
Date: March 9, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on March 9, 1994 by a majority of the
Registrant's Board of Directors as follows:
Carroll L. Saine, Lewis N. Miller, Jr., Robert L. Freeman, Lloyd U.
Noland, III, Robert C. Dawson, Pauline Allen Ellison, Jack H. Ferguson,
Thomas R. Glass, James F. Betts, William G. Reynolds, Jr., Alvin R.
Clements, Richard L. Morrill, George R. Lewis and G. Bruce Miller.
<PAGE>
Exhibit Index
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Exhibit 3 - Articles of Incorporation and By-laws - Restated
Articles of Incorporation and By-laws are incorporated by reference to
the Registrant's report on Form 8 dated May 22, 1992. Articles of
Amendment is incorporated by reference to the Registrant's report on
Form 10-Q for the quarterly period ended June 30, 1993, dated August 12,
1993.
Exhibit 4 - Instruments defining the rights of security holders,
including indentures - amendment is incorporated by reference to the
Registrant's report on Form 10-K for 1986.
Exhibit 11 - Statement re computation of per share earnings - filed
herewith.
Exhibit 22 - Subsidiaries of the Registrant - filed herewith.
Exhibit 24 - Consent of independent accountants - filed herewith.
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<TABLE>
EXHIBIT 11
Exhibit No. 11 to Annual Report on Form 10-K
Central Fidelity Banks, Inc.
Commission File No. 0-8829
Statement Re Computation of Per Share Earnings
(In Thousands, except per share data)
<CAPTION>
Year Ended December 31,
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1993 1992 1991
<S> <C> <C> <C>
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Net income $102,917 $78,516 $60,435
======== ======= =======
Shares:
Weighted average number of common shares
outstanding used in computing primary
earnings per share 38,738 34,963 32,396
Dilutive stock options - based on
treasury stock method 854 740 522
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Weighted average number of common shares
used in computing fully diluted
earnings per share 39,592 35,703 32,918
======== ======= =======
Earnings per share:
Primary earnings per share $2.66 $2.25 $1.87
Fully diluted earnings per share $2.60 $2.20 $1.84
</TABLE>
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<TABLE>
EXHIBIT 22
Exhibit No. 22 to Annual Report on Form 10-K
Central Fidelity Banks, Inc.
Commission File No. 0-8829
Subsidiaries of the Registrant
The list below shows all of the subsidiaries of Central Fidelity Banks, Inc.,
their relationship by percentage of stock owned and the state of incorporation.
All are included in the consolidated financial statements at December 31, 1993,
which are incorporated in this report.
<CAPTION>
Percentage
Owned by State of
Registrant Incorporation
<S> <C> <C>
Registrant
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Central Fidelity Banks, Inc. --- Virginia
Subsidiaries
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Central Fidelity National Bank 100 National Banking Act
Richmond, Virginia
Central Fidelity Bank, N.A. 100 National Banking Act
Richmond, Virginia
Central Fidelity Insurance Agency, Inc. 100 Virginia
Richmond, Virginia
Central Fidelity Services, Inc. 100 Virginia
Lynchburg, Virginia
Central Fidelity Properties, Inc. 100 Virginia
Richmond, Virginia
CFB Advisory Corporation 100 Virginia
Richmond, Virginia
Mulberry Corporation * Virginia
Richmond, Virginia
S. Brooke Corporation * Virginia
Richmond, Virginia
S. Hill Corporation * Virginia
Richmond, Virginia
Central Fidelity Mortgage Corporation * Virginia
Richmond, Virginia
North Hart Run, Inc. ** Virginia
Richmond, Virginia
G. C. Leasing, Inc. ** Virginia
Richmond, Virginia
* 100% owned by Central Fidelity National Bank, the Registrant's principal subsidiary.
** 100% owned by Mulberry Corporation, a subsidiary of the Registrant's principal
subsidiary, Central Fidelity National Bank.
</TABLE>
<PAGE>
Exhibit 24
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Central Fidelity Banks, Inc.
We consent to incorporation by reference in (1) Registration Statement
No. 2-77520 on Form S-8, (2) Registration Statement No. 2-75507 on Form
S-8, (3) Registration Statement No. 2-86240 on Form S-8, (4)
Registration Statement No. 33-51393 on Form S-8, and (5) Registration
Statement No. 33-61694 on Form S-3 of Central Fidelity Banks, Inc. of
our report dated January 18, 1994, relating to the consolidated balance
sheet of Central Fidelity Banks, Inc. and subsidiaries as of December
31, 1993 and 1992, and the related statements of consolidated income,
consolidated cash flows and changes in consolidated shareholders' equity
for each of the years in the three-year period ended December 31, 1993,
which report appears on page 30 of this 1993 annual report on Form 10-K
of Central Fidelity Banks, Inc.
KPMG Peat Marwick
Richmond, Virginia
March 25, 1994
CENTRAL FIDELITY BANKS, INC.
Consent
March 25, 1994
