TRANSMITTAL LETTER
Central Fidelity Banks, Inc.
1021 East Cary Street
Richmond, Virginia 23219
(804) 782-4000
August 14, 1995
BY EDGAR SYSTEM
---------------
Securities and Exchange Commission
450 Fifth Street
Washington, D. C. 20549-1004
Attn: Filing Desk
Re: Central Fidelity Banks, Inc. Form 10-Q Filing
---------------------------------------------
Ladies and Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of 1934,
we are transmitting herewith the attached Form 10-Q/A for the quarter
ended June 30, 1995.
Sincerely,
Central Fidelity Banks, Inc.
/s/ Vivian Y. Woo
Vivian Y. Woo
Vice President and Assistant Controller
Enclosure
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A No. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
Commission file number 0-8829
CENTRAL FIDELITY BANKS, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1091649
(State of incorporation) (I.R.S. Employer
Identification No.)
1021 East Cary Street 23219
Richmond, Virginia (Zip Code)
(Address of principal executive offices)
(804) 782-4000
(Registrant's telephone number, including area code)
Central Fidelity Banks, Inc. (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
As of August 8, 1995, the latest practicable date, Central
Fidelity Banks, Inc. had 39,907,398 shares of its Common Stock
outstanding. This is the only class of outstanding shares.
<PAGE>
PART I
------
FINANCIAL INFORMATION
---------------------
CENTRAL FIDELITY BANKS, INC.
ITEM 1. FINANCIAL STATEMENTS
The consolidated balance sheet as of June 30, 1995 and 1994; the
statement of consolidated income for the three-month and six-month
periods ended June 30, 1995 and 1994 and the statement of
consolidated cash flows for the six-month period ended June 30, 1995
and 1994 are unaudited and do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the three-month and six-month periods ended June 30, 1995
are not necessarily indicative of the results that may be expected
for the year ending December 31, 1995. For further information, refer
to the consolidated financial statements and footnotes included in
the Company's Annual Report on Form 10-K for the year ended December
31, 1994, which is the source of the Company's balance sheet as of
that date.
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET
-------------------------------------------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
(In thousands, except share data)
<CAPTION>
June 30, December 31,
1995 1994
<S> <C> <C>
-------------------------------------------------------------------------------------------------------
ASSETS
-------------------------------------------------------------------------------------------------------
Cash and due from banks $343,712 $274,813
Temporary investments:
Federal funds sold and securities purchased
under agreements to resell 142,173 196,859
Trading account securities 926 1,417
---------------------------------------------------------------------- ----------- -----------
Total temporary investments 143,099 198,276
---------------------------------------------------------------------- ----------- -----------
Assets available for sale:
Securities 3,638,868 3,486,381
Loans 7,259 2,186
---------------------------------------------------------------------- ----------- -----------
Total assets available for sale 3,646,127 3,488,567
---------------------------------------------------------------------- ----------- -----------
Total loans 5,985,715 5,769,907
Allowance for loan losses (110,000) (110,000)
---------------------------------------------------------------------- ----------- -----------
Net loans 5,875,715 5,659,907
---------------------------------------------------------------------- ----------- -----------
Accrued interest receivable 60,411 59,933
Premises and equipment, net 150,210 147,177
Due from customers on acceptances 12,943 13,663
Other assets 185,924 211,836
---------------------------------------------------------------------- ----------- -----------
Total assets $10,418,141 $10,054,172
---------------------------------------------------------------------- =========== ===========
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET (Continued)
<CAPTION>
LIABILITIES
<S> <C> <C>
-------------------------------------------------------------------------------------------------------
Deposits:
Demand $997,357 $953,655
Savings and other time 6,582,225 6,026,393
Certificates of deposit $100,000 and over 320,634 247,196
---------------------------------------------------------------------- ----------- -----------
Total deposits 7,900,216 7,227,244
---------------------------------------------------------------------- ----------- -----------
Borrowings:
Federal funds purchased and securities sold
under agreements to repurchase 827,057 1,040,870
Other short-term borrowings 79,779 61,998
Medium-term notes 252,250 561,500
Federal Home Loan Bank borrowings 343,200 236,500
Long-term debt 150,407 150,440
Capitalized lease obligations 7,982 8,167
---------------------------------------------------------------------- ----------- -----------
Total borrowings 1,660,675 2,059,475
---------------------------------------------------------------------- ----------- -----------
Dividends payable 11,911 11,001
Accrued interest payable 37,290 36,211
Bank acceptances outstanding 12,943 13,663
Accounts payable and accrued liabilities 30,962 83,506
---------------------------------------------------------------------- ----------- -----------
Total liabilities 9,653,997 9,431,100
---------------------------------------------------------------------- ----------- -----------
SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------------------------------------
Preferred stock, none issued -- --
Common stock, par value $5 per share, authorized
100,000,000 shares, shares issued: 39,789,911
and 39,324,228, respectively 198,950 196,621
Capital surplus 187,952 180,458
Retained earnings 376,979 348,219
Unrealized gains (losses) on securities available
for sale, net of income taxes 263 (102,226)
---------------------------------------------------------------------- ----------- -----------
Total shareholders' equity 764,144 623,072
---------------------------------------------------------------------- ----------- -----------
Total liabilities and shareholders' equity $10,418,141 $10,054,172
---------------------------------------------------------------------- =========== ===========
-------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CONSOLIDATED INCOME
-----------------------------------------------------------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
(In thousands, except share and per share data)
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
-----------------------------------------------------------------------------------------------------------------------
Income From Earning Assets
-----------------------------------------------------------------------------------------------------------------------
Interest and fees on loans $130,719 $106,404 $256,136 $206,003
Interest on securities available for sale:
U.S. Government and agencies 41,865 40,153 84,113 81,849
States and political subdivisions 1,836 2,170 3,724 4,162
Other 15,334 11,274 29,883 21,476
Interest on loans available for sale 77 18 110 385
Interest on money market investments 1,301 1,320 2,610 1,987
Interest on trading account securities 20 7 38 19
------------------------------------------------------------------- ------- ------- ------- -------
Total income from earning assets 191,152 161,346 376,614 315,881
------------------------------------------------------------------- ------- ------- ------- -------
Interest Expense
-----------------------------------------------------------------------------------------------------------------------
Interest on deposits 78,294 55,878 150,965 110,226
Interest on federal funds purchased and securities
sold under agreements to repurchase 15,261 12,136 30,223 21,812
Interest on other short-term borrowings 761 436 1,488 657
Interest on medium-term notes 5,193 6,291 11,896 10,601
Interest on Federal Home Loan Bank borrowings 4,940 743 9,216 743
Interest on long-term debt 2,709 2,076 5,531 3,863
Interest on capitalized lease obligations 177 184 356 371
------------------------------------------------------------------- ------- ------- ------- -------
Total interest expense 107,335 77,744 209,675 148,273
------------------------------------------------------------------- ------- ------- ------- -------
Net interest income 83,817 83,602 166,939 167,608
Provision for loan losses 3,344 2,304 8,648 12,421
------------------------------------------------------------------- ------- ------- ------- -------
Net income from earning assets 80,473 81,298 158,291 155,187
------------------------------------------------------------------- ------- ------- ------- -------
Noninterest Income
-----------------------------------------------------------------------------------------------------------------------
Trust income 3,507 3,573 6,930 7,162
Deposit fees and charges 8,676 8,837 17,202 17,246
Profits (losses) on securities available for sale and
trading account securities (158) 264 358 7,048
Other income 7,453 6,435 13,121 23,348
------------------------------------------------------------------- ------- ------- ------- -------
Total noninterest income 19,478 19,109 37,611 54,804
------------------------------------------------------------------- ------- ------- ------- -------
Noninterest Expense
-----------------------------------------------------------------------------------------------------------------------
Personnel expense 33,359 31,023 66,290 63,145
Occupancy and equipment expense 10,499 9,857 20,900 21,033
FDIC insurance expense 4,069 3,773 7,972 7,501
Other real estate expense 1,812 1,006 2,333 7,309
Other expense 12,197 10,864 22,868 23,598
------------------------------------------------------------------- ------- ------- ------- -------
Total noninterest expense 61,936 56,523 120,363 122,586
------------------------------------------------------------------- ------- ------- ------- -------
Earnings
-----------------------------------------------------------------------------------------------------------------------
Income before income taxes 38,015 43,884 75,539 87,405
Income tax expense 11,991 14,301 23,795 28,531
------------------------------------------------------------------- ------- ------- ------- -------
Net income $26,024 $29,583 $51,744 $58,874
------------------------------------------------------------------- ======= ======= ======= =======
Earnings Per Share
-----------------------------------------------------------------------------------------------------------------------
Net income $0.66 $0.76 $1.31 $1.51
Average shares outstanding 39,654,721 39,114,067 39,556,609 39,084,341
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CONSOLIDATED CASH FLOWS
------------------------------------------------------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
(In Thousands) For the six months ended June 30,
<CAPTION>
1995 1994
<S> <C> <C>
------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
------------------------------------------------------------------------------------------------------------------
Net income $51,744 $58,874
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 8,648 12,421
Depreciation of premises and equipment 7,912 7,605
Net amortization of premium and accretion of discount on investment securities
and securities available for sale (3,867) 2,534
Gains on securities available for sale (633) (7,377)
Deferred income taxes 2,386 (4,546)
(Increase) decrease in trading account securities 491 (69)
Originations of loans available for sale (15,588) --
Purchases of loans available for sale (9,681) --
Proceeds from sales of loans available for sale 20,222 36,785
(Increase) decrease in accrued interest receivable (478) 4,266
Increase in accrued interest payable 271 1,466
Other, net (49,182) (108,044)
--------------------------------------------------------------------------------------- ---------- ----------
Net cash provided by operating activities 12,245 3,915
--------------------------------------------------------------------------------------- ---------- ----------
INVESTING ACTIVITIES
------------------------------------------------------------------------------------------------------------------
Purchases of securities available for sale (330,458) (789,562)
Proceeds from sales of securities available for sale 181,471 920,671
Proceeds from maturities and repayments of securities available for sale 158,675 370,301
Net increase in loans (225,258) (597,945)
Purchases of premises and equipment (9,002) (7,077)
Proceeds from the disposition of premises and equipment 10 216
Proceeds from the disposition of other real estate owned 4,158 9,483
Net cash received in acquisition 413,022 --
--------------------------------------------------------------------------------------- ---------- ----------
Net cash provided (used) by investing activities 192,618 (93,913)
--------------------------------------------------------------------------------------- ---------- ----------
FINANCING ACTIVITIES
------------------------------------------------------------------------------------------------------------------
Net increase in demand, interest checking and regular savings deposits 43,898 37,405
Net increase in money market accounts 90,877 10,677
Net increase (decrease) in consumer certificates 12,188 (17,511)
Net increase in certificates of deposit $100,000 and over 73,438 21,393
Net decrease in short-term borrowings (196,032) (157,697)
Proceeds from medium-term notes and FHLB borrowings 106,700 291,200
Payments on medium-term notes and FHLB borrowings (309,250) --
Proceeds from long-term debt -- 100
Payments on long-term debt and capitalized lease obligations (218) (200)
Proceeds from issuance of common stock 9,823 1,635
Cash dividends (22,074) (20,692)
--------------------------------------------------------------------------------------- ---------- ----------
Net cash provided (used) by financing activities (190,650) 166,310
--------------------------------------------------------------------------------------- ---------- ----------
Increase in cash and cash equivalents 14,213 76,312
Cash and cash equivalents at beginning of year 471,672 457,662
--------------------------------------------------------------------------------------- ---------- ----------
Cash and cash equivalents at end of period $485,885 $533,974
--------------------------------------------------------------------------------------- ========== ==========
------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
ALLOWANCE FOR LOAN LOSSES
---------------------------------------------------------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------
(In thousands) 1995 1994 1995 1994
---------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $110,000 $110,000 $110,000 $105,000
Provision charged to expense 3,344 2,304 8,648 12,421
-------------------------------------------------------------- -------- -------- -------- --------
113,344 112,304 118,648 117,421
Loans charged off:
Commercial and commercial real estate 1,071 2,188 2,522 5,179
Construction 72 649 72 1,060
Residential real estate 44 22 94 42
Installment 2,553 1,451 5,805 2,381
Bank card 6,634 3,770 11,782 7,003
-------------------------------------------------------------- -------- -------- -------- --------
Total charge-offs 10,374 8,080 20,275 15,665
-------------------------------------------------------------- -------- -------- -------- --------
Recoveries of loans previously charged off:
Commercial and commercial real estate 3,090 1,086 5,068 1,691
Construction 2,021 3,090 2,878 3,305
Residential real estate 3 17 9 18
Installment 1,078 793 2,140 1,700
Bank card 838 790 1,532 1,530
-------------------------------------------------------------- -------- -------- -------- --------
Total recoveries 7,030 5,776 11,627 8,244
-------------------------------------------------------------- -------- -------- -------- --------
Net charge-offs 3,344 2,304 8,648 7,421
-------------------------------------------------------------- -------- -------- -------- --------
Balance at end of period $110,000 $110,000 $110,000 $110,000
-------------------------------------------------------------- ======== ======== ======== ========
Average loans $5,935,458 $5,201,406 $5,873,964 $5,055,595
Loans at period-end $5,992,974 $5,363,138 $5,992,974 $5,363,138
Ratio of provision for loan losses to average loans 0.23% 0.18% 0.29% 0.49%
Ratio of net charge-offs to average loans 0.23% 0.18% 0.29% 0.29%
Ratio of allowance for loan losses to loans at period-end 1.84% 2.05% 1.84% 2.05%
---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
NONPERFORMING ASSETS AND PAST-DUE LOANS
---------------------------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
(In thousands)
<CAPTION> June 30, December 31,
1995 1994 1994
<S> <C> <C> <C>
---------------------------------------------------------------------------------------
Nonperforming Assets
---------------------------------------------------------------------------------------
Nonaccrual loans:
Land acquisition, land development
or construction:
Commercial $6,342 $13,087 $7,766
Residential 19,265 25,854 14,162
Residential real estate 4,061 4,251 4,987
Commercial real estate 14,495 22,346 26,962
Commercial and industrial 11,397 10,166 13,657
----------------------------------------- ------- -------- -------
Total nonaccrual loans 55,560 75,704 67,534
----------------------------------------- ------- -------- -------
Restructured loans -- -- --
----------------------------------------- ------- -------- -------
Total nonperforming loans 55,560 75,704 67,534
----------------------------------------- ------- -------- -------
Foreclosed properties:
Land and developed lots:
Commercial 3,506 4,855 5,032
Residential 12,796 17,379 13,699
Residential real estate 3,548 4,728 3,307
Commercial real estate 822 836 722
----------------------------------------- ------- -------- -------
Total foreclosed properties 20,672 27,798 22,760
----------------------------------------- ------- -------- -------
Total nonperforming assets $76,232 $103,502 $90,294
----------------------------------------- ======= ======== =======
Ratio of nonperforming assets to
loans and foreclosed properties 1.27% 1.92% 1.56%
---------------------------------------------------------------------------------------
Past-due Loans (90 days or more and still accruing)
---------------------------------------------------------------------------------------
Commercial and construction $959 $3,055 $1,195
Residential real estate 3,985 1,546 2,255
Installment 2,042 663 2,028
Bank card 6,271 3,614 5,562
----------------------------------------- ------- -------- -------
Total past-due loans $13,257 $8,878 $11,040
----------------------------------------- ======= ======== =======
---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CENTRAL FIDELITY BANKS, INC.
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The purpose of this discussion is to address information about
the Company's financial condition and results of operations which is
not otherwise apparent from the consolidated financial statements and
tables included in this report. Reference should be made to those
statements and tables and other selected financial data presented
elsewhere in this report for an understanding of the following
discussion and analysis.
Results of Operations
---------------------
Net income for the first six months of 1995 was $51.7 million,
12.1% lower than the $58.9 million earned in the first six months of
1994. On a per share basis, net income declined 13.2% to $1.31 from
$1.51. The declines in net income and net income per share were due
primarily to higher funding costs which resulted from the increases
in interest rates.
On a tax-equivalent basis, net interest income for the six
months was $170.8 million, a .4% decline from the $171.6 million
earned in the corresponding 1994 period. The net interest margin was
3.61% for the six months ended June 30, 1995, down thirty-three basis
points from 3.94% during the same period in 1994. The declines in net
interest income and net interest margin during the six-month period
were impacted by the high interest rates which lowered net interest
income and net interest margin due to higher funding costs. For the
six-month period ended June 30, 1995, the impact of the Company's
interest rate swap activities on interest income was a decrease of
$1.4 million and an increase of $1.3 million on interest expense,
compared to $2.0 million increase on interest income and a decrease
of $3.3 million on interest expense for the corresponding 1994
period. The impact on net interest income for the six months ended
June 30, 1995 and 1994 was a decrease of $2.7 million and an increase
of $5.3 million, respectively. While average earning assets and
income earned on the earning assets grew $751.8 million, or 8.6% and
$60.7 million, or 19.0%, respectively, over 1994, average
interest-bearing liabilities and interest expense on these
liabilities increased $666.4 million, or 8.7%, and $61.4 million, or
41.4%, respectively. The increase in the yield on average earning
assets of 70 basis points was mitigated by the 118 basis points
increase in the cost of interest-bearing liabilities.
The provision for loan losses was $8.6 million for the six
months ended June 30, 1995 compared with $12.4 million recorded for
the corresponding period in 1994.
Noninterest income totalled $37.6 million for the first six
months of 1995 compared with $54.8 million for the 1994 level,
representing a decline of 31.4%. The decline in noninterest income
was primarily driven by two significant nonrecurring items in 1994.
During the first quarter of 1994, the Company recognized $6.4 million
profits from the sale of securities available for sale and $11.4
million gain on the sale of out-of-state affinity credit card
portfolio. Excluding these two items, noninterest income increased
1.6% in 1995 with higher insurance commissions and general fee
categories accounting for the gain.
Noninterest expense for the first six months of 1995 declined
1.8% to $120.4 million compared to the same period in 1994. The
decline was due primarily to $8.6 million in several nonrecurring
charges in the first quarter of 1994. These charges included the
recognition of certain postemployment costs; the write-off of various
software systems and charges to reflect appraised values of other
real estate owned. Absent these nonrecurring charges, noninterest
expense was up 5.6% in 1995 with personnel and other real estate
expense accounting for the increase.
Balance Sheet
-------------
Total assets as of June 30, 1995 were $10.4 billion, up 3.6%
from year-end 1994's level. Total loans at June 30, 1995 were $6.0
billion, or 3.8% higher than at December 31, 1994, representing
growth in all categories of consumer loans. Total deposits were $7.9
billion at June 30, 1995, representing an increase of 9.3% from
December 31, 1994. The increase was impacted by approximately
$450,000,000 of deposits acquired from Household Bank, f.s.b., a
subsidiary of Household International, Inc. headquartered in
Chicago, Illinois. On June 9, 1995, this acquisition resulted in the
addition of twelve branches located in Northern Virginia. Shareholders'
equity at June 30, 1995 was $764.1 million, or 7.3% of total assets.
At December 31, 1994, shareholders' equity was $623.1 million, or
6.2% of total assets. The book value per share grew 21.2% from $15.84
at December 31, 1994 to $19.20 at June 30, 1995. Excluding the impact
of the unrealized gains and losses on securities available for sale
adjustment, shareholders' equity was $763.9 million, or 7.3% of total
assets at June 30, 1995, and $725.3 million, or 7.2% of total assets
at December 31, 1994. The book value per share was $19.20 at June 30,
1995, a 4.1% growth from $18.44 at December 31, 1994.
During the first six months of 1995, the return on average total
assets was 1.03% compared to 1.27% for the comparable 1994 period and
the return on average shareholders' equity was 14.50% versus 17.19%
in 1994.
Asset Quality
-------------
Nonperforming assets as of June 30, 1995 were $76.2 million, or
.73% of total assets, compared to $90.3 million or .90% at December
31, 1994 and $103.5 million or 1.07% of total assets at June 30,
1994. At June 30, 1995, nonperforming assets were 1.27% of loans and
foreclosed properties, compared to 1.56% at December 31, 1994 and
1.92% at June 30, 1994. The lower level of nonperforming assets was a
result of continued improvement in real estate markets.
The allowance for loan losses remained at $110.0 million for
periods ended June 30, 1995, December 31, 1994 and June 30, 1994. At
June 30, 1995, the allowance for loan losses was 1.84% of loans,
compared to 1.91% at December 31, 1994 and 2.05% at June 30, 1994. At
June 30, 1995, the allowance for loan losses to nonperforming assets
was 144.3%, compared to 121.8% at December 31, 1994 and 106.3% at
June 30, 1994. Net loan charge-offs for the three months ended June
30, 1995 were $3.3 million, representing .23% of average loans on an
annualized basis compared to $8.0 million or .57% for the three
months ended December 31, 1994 and $2.3 million or .18% for the three
months ended June 30, 1994.
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 for 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 its
adequacy.
Capital Resources
-----------------
The Company's risk-based capital and leverage ratios exceeded
the Federal Reserve's minimum guidelines at June 30, 1995. At June
30, 1995, the Company's total risk-based capital was $935.1 million,
as compared to $928.4 million at year-end 1994 and $915.1 million at
June 30, 1994. The ratio of total risk-based capital to risk-weighted
assets was 13.45% at June 30, 1995 compared to 13.85% and 14.65% at
December 31, 1994 and June 30, 1994, respectively. At June 30, 1995,
the Company's leverage ratio was 6.97%, compared to 7.04% at December
31, 1994 and 7.27% at June 30, 1994. At June 30, 1995, the Bank's
total risk-based capital and leverage ratios were 12.85% and 6.55%,
respectively.
Off-Balance-Sheet Derivatives
-----------------------------
Interest rate swaps have been the main derivative instrument
used to modify the repricing characteristics of various balance
sheet assets and liabilities. The interest rate swaps entered into
by the Company are essentially commitments to participate in cash
settlements with a counterparty at various future dates as agreed to
in the swap contract. These cash settlements result from movements
in interest rates and are based on differences in specific rate
indexes as applied to the notional principal amount of the
contract.
The Company employed financial derivatives in its strategy of
increasing liability sensitivity, which boosted earnings in an
environment of declining interest rates. The Company entered into
interest rate swaps to receive a fixed rate of interest and pay a
variable rate. In the implementation of this strategy, the use of
off-balance-sheet derivatives was limited compared to the size of
various on-balance-sheet instruments, namely fixed rate securities
and short-term borrowings, which were the predominant vehicles for
pursuing liability sensitivity.
Market values of derivatives transactions fluctuate based upon
movements in the underlying financial indices such as interest
rates. Market values are monitored on a monthly basis through
external pricing mechanisms and then tested by using internal
calculations. The Company's objective measurement system together
with risk limits and timely reporting to senior management help to
mitigate the possibility of any gain or loss recognition on the
Company's interest rate swaps. In the event that a derivative
product were terminated prior to its contractual maturity, it is the
Company's policy to recognize the resulting gain or loss over the
remaining life of the underlying hedged asset or liability.
Financial derivatives may expose the Company to credit risk to
the extent of the fair value gain of an instrument, should the
counterparty default on its obligation to perform. The Company
seeks to reduce credit risk by dealing only with highly rated
counterparties and by setting exposure limits based on independent
industry ratings from the major rating agencies and other relevant
criteria. Furthermore, the Company uses bilateral netting
agreements and collateral arrangements to reduce credit risk.
Collateral is delivered by either party when the fair value of the
transaction exceeds established thresholds of credit risk.
The Company has also entered into a small number of interest
rate swap agreements to accommodate the needs of commercial
customers. In order to offset the interest rate risk of customer
swaps, the Company has executed offsetting transactions with third
parties.
The Company intends to continue using off-balance-sheet
financial derivatives as a limited end-user in the prudent
management of interest rate sensitivity.
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------------------------------------------
Summary of Interest Rate Swaps
The weighted average variable rates are based upon the contractual rates in effect at June 30, 1995:
(In thousands) June 30, 1995
<CAPTION>
6 months ended
6/30/95
Notional Weighted Average Rate Maturity Interest Unrecognized
Amount Receive Pay In Years Income/(Expense) Gains (Losses)
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
Company Hedging Swaps
--------------------------------------------------------------------------------------------------------------------------
Pay fixed/receive variable:
Variable rate deposits $50,000 5.51%(1) 4.98% 0.04 $225 $136
Variable rate medium-term borrowings 50,000 6.00 (2) 6.42 1.96 (52) (472)
Securities available for sale 24,439 6.66 (3) 9.00 4.24 (70) (1,093)
Fixed rate commercial loans 26,087 6.19 (2) 6.83 4.35 (87) (627)
---------------------------------------- -------- ------ -------
Total pay fixed/receive variable 150,526 5.98 6.43 2.07 16 (2,056)
---------------------------------------- -------- ------ -------
Pay variable/receive fixed:
Fixed rate subordinated debt 150,000 7.10 6.13 (2) 7.38 656 5,857
Fixed rate medium-term borrowings 200,000 5.14 6.14 (2) 1.81 (2,186) (2,803)
Variable rate commercial loans 100,000 4.77 6.06 (2) 1.56 (1,219) (2,025)
---------------------------------------- -------- ------ -------
Total pay variable/receive fixed 450,000 5.71 6.12 3.61 (2,749) 1,029
---------------------------------------- -------- ------ -------
Total company hedging swaps $600,526 5.78% 6.20% 3.22 ($2,733) ($1,027)
---------------------------------------- ======== ====== =======
--------------------------------------------------------------------------------------------------------------------------
Customer Hedging Swaps
--------------------------------------------------------------------------------------------------------------------------
Pay fixed/receive variable $4,000 6.01%(2) 9.57% 2.84 -- ($407)
Pay variable/receive fixed 4,000 9.62 6.01 (2) 2.84 -- 412
---------------------------------------- -------- ------ -------
Total customer hedging swaps $8,000 7.82% 7.79% 2.84 $2 $5
---------------------------------------- ======== ====== =======
--------------------------------------------------------------------------------------------------------------------------
(1) Variable rate is tied to U.S. Treasury bill rate.
(2) Variable rate is tied to London Inter-Bank Offered Rate (LIBOR) with designated 3-month maturity.
(3) Variable rate is tied to London Inter-Bank Offered Rate (LIBOR) with designated 1-month maturity plus 60 basis points.
</TABLE>
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------------------------------------------
Summary of Interest Rate Swaps
The weighted average variable rates are based upon the contractual rates in effect at June 30, 1994:
(In thousands) June 30, 1994
<CAPTION>
6 months ended
6/30/94
Notional Weighted Average Rate Maturity Interest Unrecognized
Amount Receive Pay In Years Income/(Expense) Gains (Losses)
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
Company Hedging Swaps
--------------------------------------------------------------------------------------------------------------------------
Pay fixed/receive variable:
Variable rate deposits $75,000 4.33%(1) 5.37% 0.83 ($915) $150
Variable rate medium-term borrowings 50,000 4.63 (2) 6.42 2.96 40 356
Fixed rate commercial loans 1,997 4.52 (2) 7.03 6.42 (1) 6
---------------------------------------- -------- ------ -------
Total pay fixed/receive variable 126,997 4.45 5.81 1.76 (876) 512
---------------------------------------- -------- ------ -------
Pay variable/receive fixed:
Fixed rate subordinated debt 150,000 7.10 4.88 (2) 8.38 2,383 (3,108)
Fixed rate medium-term borrowings 400,000 4.87 4.88 (2) 2.18 1,838 (9,679)
Variable rate commercial loans 300,000 5.18 4.58 (2) 1.33 1,962 (5,084)
---------------------------------------- -------- ------ -------
Total pay variable/receive fixed 850,000 5.37 4.77 2.80 6,183 (17,871)
---------------------------------------- -------- ------ -------
Total company hedging swaps $976,997 5.25% 4.91% 2.66 $5,307 ($17,359)
---------------------------------------- ======== ====== =======
--------------------------------------------------------------------------------------------------------------------------
Customer Hedging Swaps
--------------------------------------------------------------------------------------------------------------------------
Pay fixed/receive variable $9,000 4.50%(2) 6.87% 2.77 -- ($265)
Pay variable/receive fixed 9,000 6.92 4.50 (2) 2.77 -- 245
---------------------------------------- -------- ------ -------
Total customer hedging swaps $18,000 5.71% 5.68% 2.77 $2 ($20)
---------------------------------------- ======== ====== =======
--------------------------------------------------------------------------------------------------------------------------
(1) Variable rate is tied to U.S. Treasury bill rate.
(2) Variable rate is tied to London Inter-Bank Offered Rate (LIBOR) with designated 3-month maturity.
</TABLE>
<PAGE>
<TABLE>
-------------------------------------------------------------------------------------------------------------------------
Interest Rate Swaps - Notional Amount Rollforward
Pay fixed/ Pay variable/ Total
(In thousands) receive receive All
<CAPTION> variable fixed Swaps
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------------
Notional Amount
-------------------------------------------------------------------------------------------------------------------------
Company Swaps:
Beginning balance, January 1, 1995 $126,548 $850,000 $976,548
New swaps 25,000 -- 25,000
Terminated swaps -- -- --
Matured swaps -- (300,000) (300,000)
Amortization of swaps (1,022) (100,000) (101,022)
------------------------------------------ -------- -------- ----------
Ending balance, June 30, 1995 $150,526 $450,000 $600,526
------------------------------------------ ======== ======== ==========
Customer Swaps:
Beginning balance, January 1, 1995 $9,000 $9,000 $18,000
New swaps -- -- --
Terminated swaps (5,000) (5,000) (10,000)
Matured swaps -- -- --
Amortization of swaps -- -- --
------------------------------------------ -------- -------- ----------
Ending balance, June 30, 1995 $4,000 $4,000 $8,000
------------------------------------------ ======== ======== ==========
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
-----------------------------------------------------------------------------------------------------------------------
Expected Maturities of Interest Rate Swaps
<CAPTION>
Due After One After Two After Three After Four
Within Through Through Through Through After
(In thousands) June 30, 1995 One Year Two Years Three Years Four Years Five Years Five Years Total
<S> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------
Company Hedging Swaps
-----------------------------------------------------------------------------------------------------------------------
Pay fixed/receive variable:
Notional amount $59,143 $56,830 $12,551 $20,599 $1,403 -- $150,526
Weighted average pay rate 5.47% 6.65% 8.05% 7.49% 7.03% -- 6.43%
Weighted average receive rate:
Contractual rate * 5.66% 6.07% 6.45% 6.34% 6.13% -- 5.98%
Forward yield curve ** 5.57% 5.78% 5.97% 6.03% 6.16% -- 5.75%
Receive fixed/pay variable:
Notional amount $200,000 $100,000 -- -- -- $150,000 $450,000
Weighted average pay rate:
Contractual rate * 6.14% 6.06% -- -- -- 6.13% 6.12%
Forward yield curve ** 5.65% 5.68% -- -- -- 6.45% 5.92%
Weighted average receive rate 5.14% 4.77% -- -- -- 7.10% 5.71%
-----------------------------------------------------------------------------------------------------------------------
Customer Hedging Swaps
-----------------------------------------------------------------------------------------------------------------------
Pay fixed/receive variable:
Notional amount -- -- $4,000 -- -- -- $4,000
Weighted average pay rate -- -- 9.57% -- -- -- 9.57%
Weighted average receive rate:
Contractual rate * -- -- 6.01% -- -- -- 6.01%
Forward yield curve ** -- -- 5.88% -- -- -- 5.88%
Receive fixed/pay variable:
Notional amount -- -- $4,000 -- -- -- $4,000
Weighted average pay rate:
Contractual rate * -- -- 6.01% -- -- -- 6.01%
Forward yield curve ** -- -- 5.88% -- -- -- 5.88%
Weighted average receive rate -- -- 9.62% -- -- -- 9.62%
-----------------------------------------------------------------------------------------------------------------------
* The weighted average variable rates are based upon the contractual rates in effect at June 30, 1995.
** The weighted average variable rates are projected based upon the implied forward yield curve from date of analysis
through maturity.
</TABLE>
<PAGE>
PART II
-------
OTHER INFORMATION
-----------------
CENTRAL FIDELITY BANKS, INC.
ITEM 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders was held on May 10, 1995.
At said meeting, as set forth in the Registrant's definitive proxy
material for the meeting, five directors in Class 1 were elected
to serve until the 1998 Annual Meeting of Shareholders, and until
their successors are elected and qualified.
The results of the voting were as follows:
Nominees for election as # of shares voting Percent of Votes
Class 1 directors: For Withheld Cast For
------------------------ --- -------- ----------------
Jack H. Ferguson 35,178,203 146,711 89.0%
Lewis N. Miller, Jr. 35,172,497 152,417 89.0%
Richard L. Morrill 35,161,293 163,621 88.9%
Lloyd U. Noland, III 35,179,957 144,957 89.0%
William G. Reynolds, Jr. 35,176,290 148,624 89.0%
The results of the voting by brokers were as follows:
Nominees for election as # of shares voting Proxies
Class 1 directors: For Withheld not received
------------------------ --- -------- ------------
Jack H. Ferguson 22,875,946 74,753 1,415,693
Lewis N. Miller, Jr. 22,875,973 74,276 1,415,693
Richard L. Morrill 22,873,346 77,353 1,415,693
Lloyd U. Noland, III 22,878,758 86,425 1,415,693
William G. Reynolds, Jr. 22,872,058 78,691 1,415,693
The other matter presented to the shareholders for their vote
at said 1995 Annual Meeting and the results of the voting were as
follows:
On the adoption of the proposal to approve the 1995 Incentive
Stock Option Plan as set forth in Exhibit A to the Proxy Statement
dated March 30, 1995, incorporated herein by reference and that the
vote taken therein resulted as follows:
Percent of Shares
Number of Votes Outstanding
--------------- -----------------
For 32,999,566 83.45%
Against 1,644,716 4.16%
Abstentions 731,585 1.85%
Votes not received 4,166,143 10.54%
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K.
A. Exhibits:
11. Statement re computation of per share earnings -
filed herewith.
B. Reports on Form 8-K:
Report on Form 8-K was filed on June 9, 1995, reporting
that Central Fidelity National Bank, the Company's principal
subsidiary, acquired 12 Virginia branches and assumed
approximately $450,000,000 in deposits from Household Bank,
f.s.b., a subsidiary of Household International, Inc.
headquartered in Chicago, Illinois. The 12 branch offices
are located in Northern Virginia.
<PAGE>
<TABLE>
EXHIBIT 11
CENTRAL FIDELITY BANKS, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(In Thousands)
<CAPTION>
For the Three Months For the Six Months
ended June 30, ended June 30,
-------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings:
Net income $26,024 $29,583 $51,744 $58,874
======== ======== ======== ========
Shares:
Weighted average number of common shares used
in computing primary earnings per share 39,655 39,114 39,557 39,084
Dilutive stock options - based on treasury stock
method 604 856 554 809
-------- -------- -------- --------
Weighted average number of common shares used
in computing fully diluted earnings per share 40,259 39,970 40,111 39,893
======== ======== ======== ========
Earnings per share:
Primary earnings per share $0.66 $0.76 $1.31 $1.51
Fully diluted earnings per share $0.65 $0.74 $1.29 $1.48
</TABLE>
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this amendment to its Quarterly Report
on Form 10-Q for the quarter ended June 30, 1995 to be signed on its
behalf by the undersigned, thereunto duly authorized.
CENTRAL FIDELITY BANKS, INC.
----------------------------
(Registrant)
/s/ Charles W. Tysinger
Charles W. Tysinger
Corporate Executive Officer and Treasurer
(Principal Financial Officer)
/s/ James F. Campbell
James F. Campbell
Senior Vice President & Controller
(Principal Accounting Officer)
Date: August 14, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000276235
<NAME> CENTRAL FIDELITY BANKS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 343,712
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 143,173
<TRADING-ASSETS> 926
<INVESTMENTS-HELD-FOR-SALE> 3,638,868
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 5,992,974
<ALLOWANCE> 110,000
<TOTAL-ASSETS> 10,418,141
<DEPOSITS> 7,900,216
<SHORT-TERM> 906,836
<LIABILITIES-OTHER> 93,106
<LONG-TERM> 753,839
<COMMON> 198,950
0
0
<OTHER-SE> 565,194
<TOTAL-LIABILITIES-AND-EQUITY> 10,418,141
<INTEREST-LOAN> 256,246
<INTEREST-INVEST> 117,720
<INTEREST-OTHER> 2,648
<INTEREST-TOTAL> 376,614
<INTEREST-DEPOSIT> 150,965
<INTEREST-EXPENSE> 209,675
<INTEREST-INCOME-NET> 166,939
<LOAN-LOSSES> 8,648
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 120,363
<INCOME-PRETAX> 75,539
<INCOME-PRE-EXTRAORDINARY> 75,539
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,744
<EPS-PRIMARY> 1.31
<EPS-DILUTED> 1.29
<YIELD-ACTUAL> 3.44
<LOANS-NON> 55,560
<LOANS-PAST> 13,257
<LOANS-TROUBLED> 894
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 110,000
<CHARGE-OFFS> 20,275
<RECOVERIES> 11,627
<ALLOWANCE-CLOSE> 110,000
<ALLOWANCE-DOMESTIC> 110,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
