TRANSMITTAL LETTER
Central Fidelity Banks, Inc.
1021 East Cary Street
Richmond, Virginia 23219
(804) 782-4000
March 24, 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-K Filing
---------------------------------------------
Ladies and Gentlemen:
On behalf of Central Fidelity Banks, Inc., I enclose for filing
the Company's Annual Report on Form 10-K with exhibits for the year
ended December 31, 1994.
This report was prepared on the integrated basis and meets the
requirements of Exchange Act Rules 14a-3 as to the furnishing of
annual report to security holders. Accordingly, these copies are also
submitted to satisfy the 14-a3(c) requirements under said rules.
In accordance with the provisions of the Lockbox Rule, Rule 3a
of the Commission's Rules of Practice, as effective April 26, 1993,
the annual filing fees in the amount of $250.00 were wired from the
Registrant's account at Central Fidelity National Bank, Richmond,
Virginia, to the Commission's lockbox depository at the Mellon Bank
in Pittsburgh.
Sincerely yours,
/s/ Vivian Y. Woo
Vivian Y. Woo
Vice President and Assistant Controller
Enclosures
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT 1934
For the fiscal year ended December 31, 1994
COMMISSION FILE NUMBER 0-8829
CENTRAL FIDELITY BANKS, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1091649
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1021 East Cary Street, P. O. Box 27602, Richmond, Virginia 23261
(Address of Principal Executive Offices) (Zip Code)
(804) 782-4000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock at $5 par value
(Title of class)
Common shares outstanding as of March 2, 1995 - 39,461,475
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
The registrant's Proxy Statement for use at the Annual Meeting of
Shareholders on may 10, 1995, is incorporated by reference in Part III
of this Form 10-K. Said Proxy Statement also contains information with
respect to compliance with item 405 of Regulation S-K.
The aggregate market value of the registrant's voting stock held by
nonaffiliates as of March 2, 1995 was $1,044,210,000.
No action has been taken on the part of the Securities and Exchange
Commission to approve or disapprove of this Form 10-K and Annual Report
to Shareholders or to pass upon its accuracy or adequacy.
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
(In Thousands) December 31,
<CAPTION>
1994 1993
<S> <C> <C>
--------------------------------------------------------------------------------------------------------------
Assets
--------------------------------------------------------------------------------------------------------------
Cash and due from banks (note 3) $274,813 $264,531
Temporary investments:
Federal funds sold and securities purchased
under agreements to resell 196,859 193,131
Trading account securities 1,417 1,505
---------------------------------------------------------------------------------- ----------- ----------
Total temporary investments 198,276 194,636
---------------------------------------------------------------------------------- ----------- ----------
Assets available for sale:
Securities:
U.S. Government and agencies 2,516,781 3,193,391
States and political subdivisions 142,530 170,981
Other 827,070 735,734
---------------------------------------------------------------------------------- ----------- ----------
Total securities available for sale (note 4) 3,486,381 4,100,106
---------------------------------------------------------------------------------- ----------- ----------
Loans 2,186 37,773
---------------------------------------------------------------------------------- ----------- ----------
Total assets available for sale 3,488,567 4,137,879
---------------------------------------------------------------------------------- ----------- ----------
Loans (note 5):
Commercial and commercial real estate 1,879,499 1,711,092
Construction 305,457 289,199
Residential real estate 1,556,243 1,136,278
Consumer second mortgage 552,301 458,294
Installment 871,115 670,487
Bank card 605,292 509,386
---------------------------------------------------------------------------------- ----------- ----------
Total loans 5,769,907 4,774,736
Allowance for loan losses (note 6) (110,000) (105,000)
---------------------------------------------------------------------------------- ----------- ----------
Net loans 5,659,907 4,669,736
---------------------------------------------------------------------------------- ----------- ----------
Accrued interest receivable 59,933 65,754
Premises and equipment, net (note 7) 147,177 146,933
Due from customers on acceptances 13,663 16,923
Other assets (notes 8 and 11) 211,836 165,892
---------------------------------------------------------------------------------- ----------- ----------
Total assets $10,054,172 $9,662,284
---------------------------------------------------------------------------------- =========== ==========
Liabilities
--------------------------------------------------------------------------------------------------------------
Deposits:
Demand $953,655 $926,917
Interest checking 649,310 662,122
Regular savings 770,663 863,627
Consumer certificates 3,630,232 2,756,087
Money market accounts 976,188 1,009,577
Certificates of deposit $100,000 and over 247,196 437,686
---------------------------------------------------------------------------------- ----------- ----------
Total deposits 7,227,244 6,656,016
---------------------------------------------------------------------------------- ----------- ----------
Borrowings:
Federal funds purchased and securities sold
under agreements to repurchase (note 9) 1,040,870 1,457,341
Other short-term borrowings (note 9) 61,998 26,913
Medium-term notes (note 10) 561,500 411,500
Federal Home Loan Bank borrowings (note 10) 236,500 --
Long-term debt (note 10) 150,440 151,389
Capitalized lease obligations (note 7) 8,167 8,514
---------------------------------------------------------------------------------- ----------- ----------
Total borrowings 2,059,475 2,055,657
---------------------------------------------------------------------------------- ----------- ----------
Dividends payable 11,001 9,752
Accrued interest payable 36,211 25,148
Bank acceptances outstanding 13,663 16,923
Accounts payable and accrued liabilities (note 13) 83,506 172,651
---------------------------------------------------------------------------------- ----------- ----------
Total liabilities 9,431,100 8,936,147
---------------------------------------------------------------------------------- ----------- ----------
SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------
Preferred stock, none issued (note 12) -- --
Common stock, par value $5 per share, authorized
100,000,000 shares, shares issued 1994 - 39,324,228;
1993 - 39,022,790 (notes 12 and 14) 196,621 195,114
Capital surplus 180,458 177,921
Retained earnings (note 2) 348,219 307,249
---------------------------------------------------------------------------------- ----------- ----------
Total shareholders' equity before unrealized gains (losses) 725,298 680,284
Unrealized gains (losses) on securities available for sale, net of income taxes (102,226) 45,853
---------------------------------------------------------------------------------- ----------- ----------
Total shareholders' equity 623,072 726,137
---------------------------------------------------------------------------------- ----------- ----------
Commitments and contingent liabilities (notes 7, 13 and 16)
Total liabilities and shareholders' equity $10,054,172 $9,662,284
---------------------------------------------------------------------------------- =========== ==========
--------------------------------------------------------------------------------------------------------------
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>
1994 1993 1992
<S> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------
Income From Earning Assets
--------------------------------------------------------------------------------------------------------------
Interest and fees on loans $441,728 $359,504 $351,972
Interest on securities available for sale:
U.S. Government and agencies 160,822 45,869 56,922
States and political subdivisions 8,205 2,059 --
Other 49,173 11,886 287
Interest on loans available for sale 432 690 --
Interest on investment securities:
U.S. Government and agencies -- 102,028 101,395
States and political subdivisions -- 6,943 10,095
Other -- 79,221 54,816
Interest on money market investments 5,433 5,752 4,629
Interest on trading account securities 41 34 47
------------------------------------------------------------------------ ---------- ---------- ----------
Total income from earning assets 665,834 613,986 580,163
------------------------------------------------------------------------ ---------- ---------- ----------
Interest Expense
--------------------------------------------------------------------------------------------------------------
Interest on deposits (note 15) 243,632 239,178 252,333
Interest on federal funds purchased and securities
sold under agreements to repurchase 44,171 31,752 29,577
Interest on other short-term borrowings 1,663 663 894
Interest on medium-term notes 25,403 9,949 --
Interest on Federal Home Loan Bank borrowings 6,406 -- --
Interest on long-term debt 8,681 7,405 2,046
Interest on capitalized lease obligations 735 784 847
------------------------------------------------------------------------ ---------- ---------- ----------
Total interest expense 330,691 289,731 285,697
------------------------------------------------------------------------ ---------- ---------- ----------
Net interest income 335,143 324,255 294,466
Provision for loan losses (note 6) 24,359 79,509 99,757
------------------------------------------------------------------------ ---------- ---------- ----------
Net income from earning assets 310,784 244,746 194,709
------------------------------------------------------------------------ ---------- ---------- ----------
Noninterest Income
--------------------------------------------------------------------------------------------------------------
Trust income 13,926 13,621 12,208
Deposit fees and charges 34,557 33,898 29,792
Profits (losses) on securities available for sale
and trading account securities (note 4) (25,984) 3,695 52,827
Investment securities gains, net (note 4) -- 50,680 --
Other income (note 15) 35,860 23,909 20,595
------------------------------------------------------------------------ ---------- ---------- ----------
Total noninterest income 58,359 125,803 115,422
------------------------------------------------------------------------ ---------- ---------- ----------
Noninterest Expense
--------------------------------------------------------------------------------------------------------------
Personnel expense (note 13) 127,683 115,917 104,060
Occupancy and equipment expense 41,653 38,752 38,313
FDIC insurance expense 14,910 14,612 11,886
Other real estate expense 11,786 15,108 4,715
Other expense (note 15) 49,191 38,909 41,859
------------------------------------------------------------------------ ---------- ---------- ----------
Total noninterest expense 245,223 223,298 200,833
------------------------------------------------------------------------ ---------- ---------- ----------
Earnings
--------------------------------------------------------------------------------------------------------------
Income before income taxes 123,920 147,251 109,298
Income tax expense (note 11) 39,056 44,334 30,782
------------------------------------------------------------------------ ---------- ---------- ----------
Net Income $84,864 $102,917 $78,516
------------------------------------------------------------------------ ========== ========== ==========
Earnings Per Share
--------------------------------------------------------------------------------------------------------------
Net income $2.17 $2.66 $2.25
Average shares outstanding 39,163,599 38,737,447 34,962,561
--------------------------------------------------------------------------------------------------------------
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>
1994 1993 1992
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------
Operating Activities
-----------------------------------------------------------------------------------------------------------------------
Net income $84,864 $102,917 $78,516
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Provision for loan losses 24,359 79,509 99,757
Depreciation of premises and equipment 15,248 13,879 14,142
Net amortization of premium and accretion of discount on investment
securities and securities available for sale 1,132 19,727 7,013
Gains on investment securities -- (50,680) --
(Gains) losses on securities available for sale 25,292 (4,182) (49,834)
Deferred income taxes 1,272 (5,168) (16,234)
(Increase) decrease in trading account securities 88 (761) 19
(Increase) decrease in loans available for sale 35,587 (37,773) --
(Increase) decrease in accrued interest receivable 5,821 2,355 (21,487)
Increase (decrease) in accrued interest payable 11,063 8,288 (5,640)
Other, net (77,388) 136,336 (135,613)
----------------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided (used) by operating activities 127,338 264,447 (29,361)
----------------------------------------------------------------------------- ---------- ---------- ----------
Investing Activities
-----------------------------------------------------------------------------------------------------------------------
Purchases of securities available for sale (2,436,679) (1,745,356) (492,270)
Proceeds from sales of securities available for sale 2,266,537 532,910 2,242,506
Proceeds from maturities and repayments of securities available
for sale 529,629 503,839 38,124
Purchases of investment securities -- (617,998) (2,826,308)
Proceeds from sales of investment securities -- 626,426 --
Proceeds from maturities and repayments of investment securities -- 608,655 455,810
Net increase in loans (1,020,589) (938,099) (407,429)
Purchases of premises and equipment (16,548) (13,469) (23,589)
Proceeds from the disposition of premises and equipment 960 657 471
Proceeds from the disposition of foreclosed properties 26,917 25,794 28,479
Net cash received in acquisitions -- -- 64,739
----------------------------------------------------------------------------- ---------- ---------- ----------
Net cash used by investing activities (649,773) (1,016,641) (919,467)
----------------------------------------------------------------------------- ---------- ---------- ----------
Financing Activities
-----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in demand, interest checking and regular
savings deposits (79,038) 256,887 418,295
Net increase (decrease) in consumer certificates 874,145 (2,752) (305,181)
Net increase (decrease) in money market accounts (33,389) (170,690) 226,480
Net increase (decrease) in certificates of deposit $100,000 and over (190,490) (99,882) 266,604
Net increase (decrease) in short-term borrowings (381,386) 282,512 184,304
Proceeds from medium-term notes and FHLB borrowings 386,500 411,500 --
Proceeds from long-term debt 100 -- 150,000
Payments on long-term debt and capitalized lease obligations (1,396) (7,871) (4,952)
Proceeds from issuance of common stock 4,044 14,322 124,735
Cash dividends (42,645) (37,110) (26,925)
----------------------------------------------------------------------------- ---------- ---------- ----------
Net cash provided by financing activities 536,445 646,916 1,033,360
----------------------------------------------------------------------------- ---------- ---------- ----------
Increase (decrease) in cash and cash equivalents 14,010 (105,278) 84,532
Cash and cash equivalents at beginning of year 457,662 562,940 478,408
----------------------------------------------------------------------------- ---------- ---------- ----------
Cash and cash equivalents at end of year $471,672 $457,662 $562,940
----------------------------------------------------------------------------- ========== ========== ==========
-----------------------------------------------------------------------------------------------------------------------
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>
Unrealized
Gains (Losses)
on Securities Total
Common Common Capital Retained Available Shareholders'
Shares Stock Surplus Earnings for Sale Equity
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1992
-------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year 21,811 $109,053 $60,791 $257,631 $ -- $427,475
Net income -- -- -- 78,516 -- 78,516
Sale of common stock 3,450 17,250 95,569 -- -- 112,819
Common stock issued under Plans 363 1,814 10,194 -- -- 12,008
Cash dividends declared on
common stock ($.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
Cash dividends declared on
common stock ($1.00 per share) -- -- -- (38,942) -- (38,942)
Unrealized gains on securities available
for sale, net of income taxes of
$24,690 -- -- -- -- 45,853 45,853
--------------------------------------------- ------ -------- -------- -------- -------- --------
Balance at end of year 39,023 195,114 177,921 307,249 45,853 726,137
--------------------------------------------- ------ -------- -------- -------- -------- --------
Year ended December 31, 1994
-------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 84,864 -- 84,864
Common stock issued under Plans 301 1,507 2,537 -- -- 4,044
Cash dividends declared on
common stock ($1.12 per share) -- -- -- (43,894) -- (43,894)
Change in unrealized gains on securities
available for sale, net of income taxes
of $79,735 -- -- -- -- (148,079) (148,079)
--------------------------------------------- ------ -------- -------- -------- -------- --------
Balance at end of year 39,324 $196,621 $180,458 $348,219 ($102,226) $623,072
--------------------------------------------- ====== ======== ======== ======== ======== ========
-------------------------------------------------------------------------------------------------------------------------
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>
1994 1993
<S> <C> <C>
---------------------------------------------------------------------------------------------------------
Assets
---------------------------------------------------------------------------------------------------------
Cash and due from banks (note 3) $274,746 $264,939
Temporary investments:
Federal funds sold and securities
purchased under agreements to resell 166,831 171,813
Trading account securities 1,417 1,505
------------------------------------------------------------------------------- ---------- ----------
Total temporary investments 168,248 173,318
------------------------------------------------------------------------------- ---------- ----------
Assets available for sale:
Securities 3,480,617 4,094,431
Loans 2,186 37,773
------------------------------------------------------------------------------- ---------- ----------
Total assets available for sale 3,482,803 4,132,204
------------------------------------------------------------------------------- ---------- ----------
Loans (note 5) 5,769,907 4,774,736
Allowance for loan losses (note 6) (110,000) (105,000)
------------------------------------------------------------------------------- ---------- ----------
Net loans 5,659,907 4,669,736
------------------------------------------------------------------------------- ---------- ----------
Accrued interest receivable 59,915 65,752
Premises and equipment, net (note 7) 147,177 146,933
Due from customers on acceptances 13,663 16,923
Other assets (notes 8 and 11) 184,946 146,665
------------------------------------------------------------------------------- ---------- ----------
Total assets $9,991,405 $9,616,470
------------------------------------------------------------------------------- ========== ==========
Liabilities
---------------------------------------------------------------------------------------------------------
Deposits:
Demand $953,665 $926,929
Interest checking 649,310 662,122
Regular savings 770,663 863,627
Consumer certificates 3,630,232 2,756,087
Money market accounts 976,188 1,009,577
Certificates of deposit $100,000 and over 247,196 437,686
------------------------------------------------------------------------------- ---------- ----------
Total deposits 7,227,254 6,656,028
------------------------------------------------------------------------------- ---------- ----------
Borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 1,060,229 1,479,480
Other short-term borrowings 36,801 9,988
Medium-term notes (note 10) 561,500 411,500
Federal Home Loan Bank borrowings (note 10) 236,500 --
Note payable to parent company 150,000 150,000
Long-term debt (note 10) 440 1,389
Capitalized lease obligations (note 7) 8,167 8,514
------------------------------------------------------------------------------- ---------- ----------
Total borrowings 2,053,637 2,060,871
------------------------------------------------------------------------------- ---------- ----------
Accrued interest payable 36,190 25,170
Bank acceptances outstanding 13,663 16,923
Accounts payable and accrued liabilities (note 13) 82,054 171,206
------------------------------------------------------------------------------- ---------- ----------
Total liabilities 9,412,798 8,930,198
------------------------------------------------------------------------------- ---------- ----------
Shareholder's Equity
---------------------------------------------------------------------------------------------------------
Common stock 167,275 167,275
Capital surplus 174,376 174,376
Retained earnings (note 2) 339,182 298,768
------------------------------------------------------------------------------- ---------- ----------
Total shareholder's equity before unrealized gains (losses) 680,833 640,419
Unrealized gains (losses) on securities available for sale, net of income taxes (102,226) 45,853
------------------------------------------------------------------------------- ---------- ----------
Total shareholder's equity 578,607 686,272
------------------------------------------------------------------------------- ---------- ----------
Commitments and contingent liabilities (notes 7, 13 and 16)
Total liabilities and shareholder's equity $9,991,405 $9,616,470
------------------------------------------------------------------------------- ========== ==========
---------------------------------------------------------------------------------------------------------
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 operate within the commercial banking industry.
The accounting and reporting policies used in preparing 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, 1994,
1993 and 1992, cash paid for interest was $319,628,000, $281,443,000
and $288,955,000, and cash paid for income taxes was $41,372,000,
$53,485,000 and $50,555,000, respectively. During 1994, 1993 and
1992, other assets increased as a result of loan foreclosures in the
amount of $6,059,000, $40,408,000 and $22,737,000, 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 fair 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.
SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES - 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. 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. At September
30, 1993, all investment securities were reclassified as
securities available for sale.
Securities held for indefinite periods of time but not
intended to be held to maturity, are classified as available for
sale and are accounted for at fair value. Unrealized gains and
losses are 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, satisfy regulatory
requirements or 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 are included
in "Profits (losses) on securities available for sale and trading
account securities."
TRADING ACCOUNT SECURITIES - Trading account securities are carried
at fair value. Interest rate futures, options, and forward contracts
used in trading activities are carried at fair value. These contracts,
used in the management of interest rate exposure, are purchased and
sold only on a matched-off basis. 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 market adjustments
are included in "Profits (losses) 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 on the accrual basis
over the life of the swap agreement as a component of interest
income or interest expense. Gains and losses on early terminations
of interest rate swap agreements are recognized over the remaining
life of the underlying asset or liability. The Company did not
terminate any interest rate swap agreements prior to contractual
maturity in 1994 or 1993.
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 or estimated life of the
loans, 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 the loan
portfolio quality by the 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, for 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 and amortization are computed and charged to
expense over the estimated useful lives of the assets, principally
on a 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. 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. Gains and losses on dispositions are reflected in
operations. Maintenance, repairs and minor replacements are charged
to expense.
FORECLOSED PROPERTIES - Foreclosed properties, classified in "Other
assets" in the accompanying balance sheets, consist primarily of real
estate held for resale which was acquired through foreclosure on loans
secured by real estate. Foreclosed properties are carried at the lower
of cost or appraised market value less estimated disposal costs.
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, the Board of Directors of the Company
declared a 3-for-2 stock split in the form of a dividend payable on
February 22, 1993 to shareholders of record January 29, 1993.
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, 1994, such assets amounted to $5.0 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>
1994 1993
<S> <C> <C>
-------------------------------------------------------------------------------------------
Assets:
Cash $26 $27
Securities purchased under agreements to resell
and other money market investments 46,359 41,139
Securities available for sale 5,764 5,675
Investments in subsidiaries, at equity:
Bank 578,607 686,272
Bank-related 3,762 2,100
Notes receivable from subsidiaries 150,500 150,500
Other assets 28,830 22,491
----------------------------------------------------------------- -------- --------
Total assets $813,848 $908,204
----------------------------------------------------------------- ======== ========
Liabilities:
Commercial paper (note 9) $25,197 $16,925
Securities sold under agreements to repurchase 1,460 1,910
Long-term debt (note 10) 150,000 150,000
Other liabilities 14,119 13,232
----------------------------------------------------------------- -------- --------
Total liabilities 190,776 182,067
----------------------------------------------------------------- -------- --------
Shareholders' equity:
Shareholders' equity before unrealized gains (losses) 725,298 680,284
Unrealized gains (losses) on securities available for sale,
net of income taxes (102,226) 45,853
----------------------------------------------------------------- -------- --------
Total shareholders' equity 623,072 726,137
----------------------------------------------------------------- -------- --------
Total liabilities and shareholders' equity $813,848 $908,204
----------------------------------------------------------------- ======== ========
-------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
Statement of Income
(In Thousands)
Year Ended December 31,
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
------------------------------------------------------- -----------------------------------
Income:
Dividends from subsidiary bank $45,000 $45,084 $6,107
Other 14,581 13,972 2,996
------------------------------------------------------- -------- -------- -------
Total income 59,581 59,056 9,103
------------------------------------------------------- -------- -------- -------
Expense:
Interest 13,085 13,133 2,808
Other 4,850 5,030 4,884
------------------------------------------------------- -------- -------- -------
Total expense 17,935 18,163 7,692
------------------------------------------------------- -------- -------- -------
Income before income taxes and equity in
undistributed net income of subsidiaries 41,646 40,893 1,411
Income tax benefit (1,143) (2,035) (1,943)
------------------------------------------------------- -------- -------- -------
Income before equity in undistributed
net income of subsidiaries 42,789 42,928 3,354
Equity in undistributed net income of subsidiaries 42,075 59,989 75,162
------------------------------------------------------- -------- -------- -------
Net income $84,864 $102,917 $78,516
------------------------------------------------------- ======== ======== =======
------------------------------------------------------- -----------------------------------
</TABLE>
<PAGE>
<TABLE>
Statement of Cash Flows
(In Thousands)
Year Ended December 31,
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
--------------------------------------------------------------------------------------------------------
Operating activities:
Net income $84,864 $102,917 $78,516
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Equity in undistributed net income of subsidiaries (42,075) (59,989) (75,162)
(Increase) decrease in other assets (6,340) 914 (5,403)
Other, net (362) 1,767 1,004
--------------------------------------------------------------------- ------- ------- -------
Net cash provided (used) by operating activities 36,087 45,609 (1,045)
--------------------------------------------------------------------- ------- ------- -------
Investing activities:
Purchase of securities available for sale (11,479) (5,955) (10,980)
Proceeds from sales of securities available for sale 10,965 11,962 --
Proceeds from maturities and repayments of securities
available for sale 425 1,500 --
Purchase of investment securities -- (7,565) (17,653)
Proceeds from sales of investment securities -- 5,890 --
Proceeds from maturities and repayments of investment securities -- -- 26,216
Net decrease in loans -- -- 3,462
Increase in note receivable from subsidiary -- -- (150,000)
Additional investment in subsidiaries -- -- (129,500)
--------------------------------------------------------------------- ------- ------- -------
Net cash provided (used) by investing activities (89) 5,832 (278,455)
--------------------------------------------------------------------- ------- ------- -------
Financing activities:
Net increase (decrease) in short-term borrowings 7,822 (2,460) (4,212)
Proceeds from long-term debt -- -- 150,000
Payments on long-term debt -- (6,000) (4,000)
Proceeds from issuance of common stock 4,044 14,322 124,827
Cash in lieu of fractional shares for 3-for-2 stock split -- -- (92)
Cash dividends (42,645) (37,110) (26,925)
--------------------------------------------------------------------- ------- ------- -------
Net cash provided (used) by financing activities (30,779) (31,248) 239,598
--------------------------------------------------------------------- ------- ------- -------
Increase (decrease) in cash and cash equivalents 5,219 20,193 (39,902)
Cash and cash equivalents at beginning of year 41,166 20,973 60,875
--------------------------------------------------------------------- ------- ------- -------
Cash and cash equivalents at end of year $46,385 $41,166 $20,973
--------------------------------------------------------------------- ======= ======= =======
--------------------------------------------------------------------------------------------------------
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 1995, the subsidiary banks can initiate dividend
payments without said regulatory approvals of $100,524,000, plus an additional amount equal
to their net earnings for 1995 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 preceding 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. 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, 1994 and 1993 was $70,285,000 and
$68,252,000, respectively.
<PAGE>
<TABLE>
NOTE 4. Securities Available for Sale
The following table shows amortized cost, fair value and gross unrealized gains and losses of
securities available for sale as of December 31, 1994 and 1993:
(In Thousands)
<CAPTION>
----------------------------------------------------------------------------------------------------
U.S. States &
Government Political
& Agencies Subdivisions Other Total
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------
December 31, 1994:
Amortized cost $2,640,414 $145,111 $858,127 $3,643,652
Fair value 2,516,781 142,530 827,070 3,486,381
Gross unrealized gains 1,169 887 263 2,319
Gross unrealized losses (124,802) (3,468) (31,320) (159,590)
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)
----------------------------------------------------------------------------------------------------
Securities available for sale having a fair value of $1,490,373,000 at December 31, 1994 were
pledged to secure deposits and to meet other legal requirements.
</TABLE>
<PAGE>
<TABLE>
The amortized cost and fair value of securities available for sale, at December 31, 1994 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>
----------------------------------------------------------------------------------------------------
Amortized Fair
Cost Value
<S> <C> <C>
---------------------------------------------------------------------------------------------------
Due in one year or less $242,566 $241,317
Due after one year through five years 1,924,238 1,832,514
Due after five years through ten years 1,454,621 1,390,804
Due after ten years 22,227 21,746
------------------------------------------------------------------------ ---------- ----------
Total $3,643,652 $3,486,381
------------------------------------------------------------------------ ========== ==========
----------------------------------------------------------------------------------------------------
Proceeds from sales of securities available for sale were $2,266,537,000 for
1994, $532,910,000 for 1993 and $2,242,506,000 for 1992. Gross gains realized
on those sales were $11,555,000, $4,182,000 and $49,834,000 for 1994, 1993 and
1992, respectively. In 1994, there were $36,847,000 of gross losses realized
on the sales of securities available for sale.
During 1993, proceeds from sales of investment securities were $626,426,000,
which resulted in $51,307,000 gross gains and $627,000 gross losses. There were
no sales of investment securities in 1994 and 1992.
</TABLE>
<PAGE>
NOTE 5. LOANS
Nonaccrual loans (principally commercial and construction loans)
totalled $67,534,000 at December 31, 1994 and $93,349,000 at December
31, 1993.
Interest on nonaccrual loans not recognized was $6,171,000 in 1994,
$5,794,000 in 1993 and $5,781,000 in 1992. Interest collected and
included in the results of operations on such loans amounted to $596,000
in 1994, $706,000 in 1993 and $376,000 in 1992.
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 $8,154,000 and $7,776,000 at December 31, 1994 and 1993,
respectively. During 1994, $1,091,000 of new loans were made and repayments
totalled $713,000.
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" (SFAS 114) in May, 1993, and it was amended in
October, 1994 by the issuance of SFAS 118. Effective January 1, 1995,
SFAS 114, as amended by SFAS 118, requires that impaired loans within
the scope of the statements be presented in the financial statements at
the present value of expected future cash flows or at the fair value
of the loan's collateral. The impact of adopting SFAS 114, as amended
by SFAS 118, will not be material to the financial condition or results
of operations of the Company.
<PAGE>
<TABLE>
NOTE 6. Allowance for Loan Losses
Following is a summary of the activity in the allowance for loan losses:
(In Thousands)
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------------
Balance at January 1 $105,000 $101,800 $61,000
Provision for loan losses 24,359 79,509 99,757
------------------------------------------------------------- -------- -------- --------
129,359 181,309 160,757
Loans charged off 34,397 86,728 67,569
Recoveries of loans previously charged off 15,038 10,419 8,612
------------------------------------------------------------- -------- -------- --------
Net charge-offs 19,359 76,309 58,957
------------------------------------------------------------- -------- -------- --------
Balance at December 31 $110,000 $105,000 $101,800
------------------------------------------------------------- ======== ======== ========
---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
NOTE 7. Premises and Equipment
Premises and equipment included in the Consolidated Balance Sheet are:
(In Thousands)
December 31,
<CAPTION>
1994 1993
<S> <C> <C>
----------------------------------------------------------------------------------------------------------
Capital leases $11,879 $14,146
Land 23,410 22,986
Buildings 77,987 74,365
Furnishings and equipment 143,123 134,068
Leasehold improvements 26,902 25,874
Work-in-progress 7,781 7,144
---------------------------------------------------------------------------------- -------- --------
Total cost 291,082 278,583
Accumulated depreciation and amortization (143,905) (131,650)
---------------------------------------------------------------------------------- -------- --------
Premises and equipment, net $147,177 $146,933
---------------------------------------------------------------------------------- ======== ========
----------------------------------------------------------------------------------------------------------
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>
1994 1993
<S> <C> <C>
----------------------------------------------------------------------------------------------------------
Land $920 $920
Buildings 10,959 12,953
Equipment -- 273
---------------------------------------------------------------------------------- ------ ------
Total cost 11,879 14,146
Accumulated amortization (5,255) (7,240)
---------------------------------------------------------------------------------- ------ ------
Capitalized leases, net $6,624 $6,906
---------------------------------------------------------------------------------- ====== ======
----------------------------------------------------------------------------------------------------------
</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,
1994:
(In Thousands)
<CAPTION>
Capital Operating
<S> <C> <C>
----------------------------------------------------------------------------------------------------------
1995 $1,084 $9,905
1996 1,086 9,043
1997 1,096 8,721
1998 1,109 8,395
1999 1,111 7,402
Later years 10,853 23,882
---------------------------------------------------------------------------------- ------- -------
Total minimum lease payments 16,339 $67,348
---------------------------------------------------------------------------------- =======
Imputed interest (rates ranging from 8.0% to 14.3%) (8,172)
---------------------------------------------------------------------------------- -------
Present value of net minimum lease payments $8,167
---------------------------------------------------------------------------------- =======
----------------------------------------------------------------------------------------------------------
Minimum future rentals receivable from subleases under the Company's capital leases at December 31,
1994 amounted to $436,000. 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>
1994 1993 1992
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------------------
Minimum rentals $12,664 $12,540 $12,126
Sublease rental income (237) (298) (256)
------------------------------------------------------------------------ ------- ------- -------
Net rental expense for operating leases $12,427 $12,242 $11,870
------------------------------------------------------------------------ ======= ======= =======
----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
NOTE 8. Foreclosed Properties
Following is a summary of the activity in foreclosed properties and the allowance for
foreclosed properties:
(In Thousands)
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------------
Foreclosed properties, at January 1 $49,552 $34,416 $40,148
Additions 6,059 40,408 22,737
Sales (24,696) (24,909) (28,336)
Paydowns (70) (363) (133)
------------------------------------------------------------- -------- -------- --------
Foreclosed properties, at December 31 30,845 49,552 34,416
------------------------------------------------------------- -------- -------- --------
Allowance for foreclosed properties, at January 1 10,806 6,515 6,766
Provision 13,687 10,943 3,559
Writedowns (16,408) (6,652) (3,810)
------------------------------------------------------------- -------- -------- --------
Allowance for foreclosed properties, at December 31 8,085 10,806 6,515
------------------------------------------------------------- -------- -------- --------
Foreclosed properties, net (included in other assets) $22,760 $38,746 $27,901
------------------------------------------------------------- ======== ======== ========
---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
NOTE 9. Short-Term Borrowings
Short-term borrowings are comprised of:
(In Thousands)
December 31,
<CAPTION>
1994 1993
<S> <C> <C>
--------------------------------------------------------------------------------------------------------
Federal funds purchased $153,111 $323,649
Securities sold under agreements to repurchase 887,759 1,133,692
---------------------------------------------------------------------------- ---------- ----------
Total federal funds purchased and securities sold under
agreements to repurchase 1,040,870 1,457,341
---------------------------------------------------------------------------- ---------- ----------
Commercial paper 25,197 16,925
Other 36,801 9,988
---------------------------------------------------------------------------- ---------- ----------
Total other short-term borrowings 61,998 26,913
---------------------------------------------------------------------------- ---------- ----------
Total $1,102,868 $1,484,254
---------------------------------------------------------------------------- ========== ==========
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:
1994 5.56 % 3.94 % $227,194 $410,848
1993 3.08 3.12 378,158 622,474
1992 3.11 3.48 379,557 725,584
Securities sold under agreements to repurchase:
1994 5.47 4.06 868,338 1,118,881
1993 2.82 2.88 692,705 1,133,692
1992 2.99 3.10 527,446 745,201
Commercial paper:
1994 4.80 3.61 19,598 28,418
1993 2.32 2.36 17,428 19,840
1992 2.44 2.79 20,431 22,721
Other:
1994 5.35 4.13 23,150 50,001
1993 2.61 2.80 9,012 10,000
1992 2.89 3.63 8,894 10,090
Total:
1994 5.46 % 4.03 % $1,138,280 --
1993 2.88 2.95 1,097,303 --
1992 3.02 3.25 936,328 --
--------------------------------------------------------------------------------------------------------
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.
Other short-term borrowings consist principally of U.S. Treasury tax and loan deposit notes payable
on demand.
</TABLE>
<PAGE>
<TABLE>
NOTE 10. MEDIUM-TERM AND LONG-TERM DEBT
Medium-term and long-term debt consist of:
(In Thousands)
December 31,
<CAPTION>
1994 1993
<S> <C> <C>
-------------------------------------------------------------------------------------
Medium-term debt:
Subsidiary bank:
Bank notes:
4.70%, due February 15, 1995 $200,500 $200,500
4.53%, due February 26, 1995 8,750 8,750
4.50%, due June 15, 1995 100,000 100,000
4.785%, due February 15, 1996 150,000 --
5.00%, due June 17, 1996 102,250 102,250
--------------------------------------------------------------- -------- --------
Total bank notes 561,500 411,500
--------------------------------------------------------------- -------- --------
FHLB borrowings:
6.025%, due May 3, 1996 47,700 --
7.54%, due November 27, 1996 46,200 --
6.44%, due June 6, 1997 18,500 --
Floating rate, due June 6, 1997 25,000 --
6.39%, due June 10, 1997 25,000 --
Floating rate, due June 23, 1997 25,000 --
6.57%, due August 8, 1997 46,600 --
7.69%, due November 10, 1997 2,500 --
--------------------------------------------------------------- -------- --------
Total FHLB borrowings 236,500 --
--------------------------------------------------------------- -------- --------
Total medium-term debt 798,000 823,000
--------------------------------------------------------------- -------- --------
Long-term debt:
Central Fidelity Banks, Inc. (Parent Company):
Subordinated notes due November 15, 2002 150,000 150,000
Subsidiary bank:
Note payable due August 1, 1994 -- 1,000
Mortgage notes at various interest rates 440 389
--------------------------------------------------------------- -------- --------
Total long-term debt 150,440 151,389
--------------------------------------------------------------- -------- --------
Total $948,440 $974,389
--------------------------------------------------------------- ======== ========
-------------------------------------------------------------------------------------
The interest payments on medium-term Bank notes are payable semiannually on
February 15 and August 15.
The interest payments on fixed rate medium-term FHLB borrowings are payable
quarterly. The floating interest rate is determined quarterly based on 3-month LIBOR
minus 12 basis points and interest payments are due the first of each month.
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 notes are not redeemable
prior to maturity.
Scheduled principal payments of the medium-term and long-term debt at December 31,
1994 are:
(In Thousands)
<CAPTION>
<S> <C>
-------------------------------------------------------------------------------------
1995 $309,304
1996 346,212
1997 142,667
1998 74
1999 80
Later years 150,103
-------------------------------------------------------------------------- ---------
Total $948,440
-------------------------------------------------------------------------- ========
-------------------------------------------------------------------------------------
</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.
The components of income tax expense (benefit) from operations are:
(In Thousands)
Year Ended December 31,
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
------------------------------------------------------------------------------------------
Current taxes - federal $37,784 $49,502 $47,016
Deferred taxes - federal 1,272 (5,168) (16,234)
--------------------------------------------------------------- ------- ------- -------
Income tax expense $39,056 $44,334 $30,782
--------------------------------------------------------------- ======= ======= =======
------------------------------------------------------------------------------------------
The differences between income tax computed by applying the federal statutory rate to
income before income taxes and the actual tax provision are shown below:
Year Ended December 31,
<CAPTION>
1994 1993 1992
<C> <C> <C> <C>
------------------------------------------------------------------------------------------
Income tax at federal statutory rate 35.0% 35.0% 34.0%
Increase (decrease) in taxes resulting from:
Tax-exempt interest (3.7) (3.8) (6.0)
Other, net 0.2 (1.1) 0.2
--------------------------------------------------------------- ----- ----- -----
Net decrease in taxes (3.5) (4.9) (5.8)
--------------------------------------------------------------- ----- ----- -----
Income tax expense 31.5% 30.1% 28.2%
--------------------------------------------------------------- ===== ===== =====
------------------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 1994 and 1993 are
presented below:
(In Thousands)
December 31,
<CAPTION>
1994 1993
<S> <C> <C>
------------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $36,766 $35,968
Employee benefit liabilities 6,020 7,283
Unrealized losses on securities available for sale 55,045 --
Other 5,175 3,596
------------------------------------------------------------------------ ------- -------
Total deferred tax assets 103,006 46,847
------------------------------------------------------------------------ ------- -------
Deferred tax liabilities:
Accretion of discount on securities 1,159 898
Premises and equipment 1,344 1,575
Leases 477 498
Prepaid expenses 4,046 947
Unrealized gains on securities available for sale -- 24,690
Other 259 981
------------------------------------------------------------------------ ------- -------
Total deferred tax liabilities 7,285 29,589
------------------------------------------------------------------------ ------- -------
Net deferred tax asset (included in other assets) $95,721 $17,258
------------------------------------------------------------------------ ======= =======
------------------------------------------------------------------------------------------
Management has determined, based on the Company's history of earnings, its expectation
of earnings in future years, its 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 per share; and
4,000,000 shares of 1983 Preferred Stock, par value $25 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,
1994, no shares of either class were outstanding.
The Company is authorized to issue 100,000,000 shares of Common
Stock, par value $5 per share, of which 39,324,228 shares were
outstanding as of December 31, 1994. Each share of Common Stock also
represents one preferred share purchase right ("Right") under the
terms of the Company's Rights Agreement dated May 3, 1989, as amended
and restated in its entirety on November 9, 1994 (the "Rights
Agreement"). Each Right entitles its registered holder to purchase
from the Company, after the Distribution Date (as defined in the
Rights Agreement), one one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $25 per share, for $110
(the "Purchase Price"). The Purchase Price and the number of Rights
outstanding, or in certain circumstances the securities purchasable
upon exercise of the Rights, are subject to adjustment from time to
time to prevent dilution in the event of a Common Stock dividend on
or a subdivision or a combination into a smaller number of shares
of Common Stock, or the issuance or distribution of any securities
or assets in respect of, in lieu of or in exchange for Common Stock.
<PAGE>
<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>
1994 1993
<S> <C> <C>
-----------------------------------------------------------------------------------------
Accumulated and vested benefit obligation ($31,769)($31,763)
--------------------------------------------------------------------- ======= =======
Projected benefit obligation ($47,447)($47,709)
Plan assets at fair value 44,470 41,529
--------------------------------------------------------------------- ------- -------
Plan assets under projected benefit obligation (2,977) (6,180)
Unrecognized net loss from past experience 7,129 7,418
Prior service cost not yet recognized (582) (500)
Unrecognized net asset being recognized
over 15 years (1,217) (1,419)
--------------------------------------------------------------------- ------- -------
Prepaid (accrued) pension cost $2,353 ($681)
--------------------------------------------------------------------- ======= =======
----------------------------------------------------------------------------------------
Net pension cost included the following components:
(In Thousands)
Year Ended December 31,
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------
Service cost $2,679 $2,198 $1,896
Interest cost 3,525 3,114 2,551
Actual return on plan assets 705 (2,561) (2,785)
Net amortization and deferral (4,635) (869) (274)
------------------------------------------------------------ ------ ------ ------
Total pension expense $2,274 $1,882 $1,388
------------------------------------------------------------ ====== ====== ======
----------------------------------------------------------------------------------------
In determining the actuarial present value of the projected benefit obligation,
the weighted-average discount rate used was 7.75% for 1994 and 1993,
and rate of increase in future compensation levels used was 4.75% for
1994 and 1993. The expected long-term rate of return on assets for 1994 and
1993 was 9.00%.
The plan assets at December 31, 1994 included common stock of the Company having
a market value of $5,020,000 or 11.3% of the total market value of the plan assets
at that date.
The Company's pension plan provides that the benefits payable to retirees are based
on years of service and levels of compensation. The Internal Revenue Code contains
limits on the annual benefits that a retiree may receive from a qualified defined
benefit plan. For 1995 the maximum amount that a qualified plan may pay out to a
retiree is $120,000.
The Company maintains an unfunded nonqualified plan that enables retirees to receive
pension benefits in accordance with the computational terms of the plan when those
terms provide benefits in excess of the amounts payable under the IRS' qualified
rules. In addition, there is an unfunded Executive Supplemental Retirement Plan
which provides a benefit equal to 25% of the participating executive's salary.
Benefits are payable for 20 years to the executive or to his estate upon his death.
The table below sets forth these plans funded status and amounts recognized
in the Company's Consolidated Balance Sheet.
(In Thousands)
December 31,
<CAPTION>
1994
<S> <C>
-------------------------------------------------------------------------------
Accumulated and vested benefit obligation ($8,479)
--------------------------------------------------------------------- =======
Projected benefit obligation ($11,422)
Plan assets at fair value --
--------------------------------------------------------------------- -------
Plan assets under projected benefit obligation (11,422)
Unrecognized net loss from past experience (2,442)
Prior service cost not yet recognized 1,491
Unrecognized net asset being recognized
over 15 years 5,668
--------------------------------------------------------------------- -------
Accrued pension cost ($6,705)
--------------------------------------------------------------------- =======
-------------------------------------------------------------------------------
Net pension cost for this supplemental plan included the following components:
(In Thousands)
Year Ended December 31,
<CAPTION>
1994
<S> <C>
----------------------------------------------------------------------
Service cost $282
Interest cost 957
Net amortization and deferral 659
------------------------------------------------------------ ------
Total pension expense $1,898
------------------------------------------------------------ ======
---------------------------------------------------------------------
In determining the actuarial present value of the projected benefit obligation, the
weighted-average discount rate used was 7.75% for 1994, and rate of
increase in future compensation levels used was 4.75% for 1994.
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 $2,429,000, $2,148,000 and $1,842,000 in 1994, 1993 and 1992,
respectively, as its matching share.
In 1992, the Company adopted a Stock Incentive Plan under which employees were
awarded shares of the Company's common stock upon the attainment of growth in
earnings per share objectives. Payouts occur only in stock upon termination of
employment, retirement, long-term disability or death. The plan was terminated in
early 1994. 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:
(In Thousands)
December 31,
<CAPTION>
1994 1993
<S> <C> <C>
-----------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees and spouses ($12,656)($11,936)
Eligible active participants (2,547) (2,610)
Other active participants (2,990) (4,505)
--------------------------------------------------------------------- ------- -------
Total accumulated postretirement benefit obligation (18,193) (19,051)
Plan assets at fair value -- --
Total unrecognized loss (1,096) 1,236
Unrecognized transition obligation 14,898 15,725
--------------------------------------------------------------------- ------- -------
Net postretirement benefit liability ($4,391) ($2,090)
--------------------------------------------------------------------- ======= =======
-----------------------------------------------------------------------------------------
The net postretirement benefit cost included the following components:
(In Thousands)
Year Ended December 31,
<CAPTION>
1994 1993
<S> <C> <C>
-----------------------------------------------------------------------------------------
Service cost $1,031 $753
Interest cost 1,434 1,471
Amortization of transition obligation over 20 years 828 828
--------------------------------------------------------------------- ------ ------
Total postretirement benefit expense $3,293 $3,052
--------------------------------------------------------------------- ====== ======
-----------------------------------------------------------------------------------------
The assumed health care cost trend used to measure the expected cost of benefits under
the Plan for 1994 and 1995 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 7.75% in 1994 and 8.5% in 1993. 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
$400,000 and $2,200,000, 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 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, 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
Granted (470,700) 470,700 24.50 - 28.00
Exercised -- (291,284) 8.52 - 29.50
Cancelled 9,350 (9,350) 21.17 - 29.50
--------------------------------------- ----------- -----------
Balance, December 31, 1994 41,656 2,294,810 $8.52 - $29.50
--------------------------------------- =========== ===========
----------------------------------------------------------------------------------------
On January 11, 1995, the Board approved, subject to shareholder approval at
the Annual Meeting of Shareholders, the 1995 Stock Incentive Plan (the
"1995 Plan"). Under the terms of the 1995 Plan, all present and future
employees are eligible to receive awards under the 1995 Plan in the form of
incentive stock options, nonqualified stock options, stock appreciation rights,
restricted stock, performance awards and other stock unit awards. A maximum of
1,750,000 shares of common stock is authorized for issuance pursuant to awards
made under the 1995 Plan, subject to adjustment in the event of a stock split,
stock dividend or other change in the common stock as set forth in the 1995
Plan. No awards have been made under the 1995 Plan.
</TABLE>
<PAGE>
<TABLE>
NOTE 15. 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>
1994 1993 1992
<S> <C> <C> <C>
--------------------------------------------------------------------------------------
Other income:
Gain on sale of out-of-state bank card portfolio $11,400 $ -- $ --
Other (includes no items in excess of 1%
of total revenue) 24,460 23,909 20,595
-------------------------------------------------- --------- --------- ---------
Total $35,860 $23,909 $20,595
-------------------------------------------------- ========= ========= =========
Other expense:
Telecommunications and postage expense $8,708 $8,402 $8,571
Other (includes no items in excess of 1%
of total revenue) 40,483 30,507 33,288
-------------------------------------------------- --------- --------- ---------
Total $49,191 $38,909 $41,859
-------------------------------------------------- ========= ========= =========
Interest on deposits:
Interest checking $15,802 $15,666 $16,616
Regular savings 23,723 25,028 20,637
Consumer certificates 156,610 143,565 155,337
Money market accounts 33,133 32,832 42,063
Certificates of deposit $100,000 and over 14,364 22,087 17,680
-------------------------------------------------- --------- --------- ---------
Total $243,632 $239,178 $252,333
-------------------------------------------------- ========= ========= =========
--------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTE 16. 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, 1994 and 1993, the Company had outstanding loan
commitments of $1,214,470,000 and $1,162,091,000, and standby letters
of credit approximating $214,178,000 and $201,125,000, respectively.
To meet the financing needs of its customers, the Company controls
and monitors the credit risk of these 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.
The notional value of total interest rate swaps at December 31,
1994 and 1993 approximated $994,500,000 and $998,000,000, respectively.
To hedge against interest rate risk, the Company's swap portfolio
consists of $850,000,000 of receive fixed-pay variable swaps which were
used primarily to convert fixed rate borrowings to a variable rate and
variable rate commercial loans to fixed rate, and $126,500,000 of pay
fixed-receive variable swaps used to lock in certain fixed rate funding
costs and convert certain fixed rate commercial loans to variable rate.
In addition, the Company has also entered into 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 notional amount
of customer-related swap transactions was $18,000,000 and $23,000,000
at December 31, 1994 and 1993, respectively. The fair value of total
interest rate swaps was an unrealized loss of $29,500,000 and an
unrealized gain of $17,600,000 at December 31, 1994 and 1993,
respectively.
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. At year-end 1994,
the Company had net credit risk of $1.8 million to three
counterparties. This exposure was below thresholds for receiving
collateral. On transactions which had negative fair values, the
Company delivered $15.2 million of securities to collateralize
credit exposure to two counterparties in excess of threshold levels.
The Company also periodically enters into options, forwards and
exchange rate contracts for trading purposes. Such amounts were not
material in 1994 or 1993.
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 17. 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.
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.
Medium-term notes, FHLB borrowings and long-term debt
The fair values for these borrowings are determined 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 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 fair value of commitments and standby letters of
credit were not material at December 31, 1994 and December 31, 1993.
The fair values of financial instruments as of December 31, 1994 and
December 31, 1993 are as follows:
<CAPTION> Carrying Fair
Amount Value
<S> <C> <C>
----------------------------------------------------------------------------------
December 31, 1994:
Financial assets:
Cash and due from banks $274,813 $274,813
Temporary investments 198,276 198,276
Securities available for sale 3,486,381 3,486,381
Loans, net 5,662,093 5,428,578
Financial liabilities:
Deposits 7,227,244 7,178,417
Short-term borrowings 1,102,868 1,102,868
Medium-term notes and FHLB borrowings 798,000 793,677
Long-term debt 150,440 159,210
Interest rate swaps -- (29,465)
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 1,484,254 1,484,254
Medium-term notes and FHLB borrowings 411,500 412,071
Long-term debt 151,389 164,351
Interest rate swaps -- 17,574
----------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTE 18. SUBSEQUENT EVENT
On February 7, 1995, the Company announced that it plans to
acquire the Virginia branches and assume the Virginia deposits
of Household Bank, f.s.b., a subsidiary of Household
International, Inc., a Chicago, Illinois based financial
services company. In addition, an immaterial amount of
Virginia loans will also be acquired. This transaction
includes approximately $465 million in deposits (as of January
31, 1995) and 14 offices located in Northern Virginia. The
offices are located in the City of Alexandria, and Arlington
and Fairfax counties. A premium of 8% will be paid on the
deposit balances at the closing date, which is expected to be
in June, 1995. The transaction is not expected to have a
material impact on the results of operations of the Company
for 1995.
<PAGE>
INDEPENDENT AUDITORS' REPORT
KPMG Peat Marwick LLP
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, 1994
and 1993, 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, 1994,
and the combined balance sheet of the subsidiary banks of Central
Fidelity Banks, Inc. as of December 31, 1994 and 1993. 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, 1994 and 1993, the results of their operations and their
cash flows for each of the years in the three-year period ended
December 31, 1994, 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,
1994 and 1993, 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."
January 17, 1995, except as to Note 18,
which is as of February 7, 1995
<PAGE>
<TABLE>
1994 GRAPH MATERIAL
CENTRAL FIDELITY BANKS, INC.
<CAPTION>
<C> <C> <C> <C> <C>
<S> 1990 1991 1992 1993 1994
---------- ---------- ---------- ---------- ----------
AVERAGE EARNING ASSETS (In Millions of Dollars)
Average securities and other earning assets 1,440 2,058 3,206 4,139 3,699
Average loans 3,600 3,607 3,731 4,250 5,322
Total average earning assets 5,040 5,665 6,937 8,389 9,021
NET INTEREST MARGIN
Yield on Earning Assets 10.91% 10.12% 8.52% 7.43% 7.47%
Rate on Interest-bearing Liabilities
(Relative to Earning Assets) 6.47% 5.64% 4.12% 3.45% 3.67%
Net Interest Margin 4.44% 4.48% 4.40% 3.98% 3.80%
AVERAGE LOANS (In Millions of Dollars) 3,600 3,607 3,731 4,250 5,322
LOAN YIELDS 11.59% 11.00% 9.55% 8.56% 8.37%
LOAN LOSS COVERAGE (In Millions of Dollars)
Provision for Loan Losses 45.0 49.8 99.8 79.5 24.4
Net Loan Charge-offs 19.4 49.6 59.0 76.3 19.4
ALLOWANCE FOR LOAN LOSSES (In Millions of Dollars) 60.8 61.0 101.8 105.0 110.0
ALLOWANCE FOR LOAN LOSSES AS A PERCENTAGE OF
NET LOANS 1.70% 1.69% 2.58% 2.18% 1.91%
YEAR-END SECURITIES MIX
U.S. Treasury Securities -- -- -- 31.0% 12.0%
Mortgage-Backed Securities -- -- -- 24.0% 40.0%
CMOs -- -- -- 26.0% 27.0%
Asset-Backed Securities -- -- -- 11.0% 13.0%
Other Securities -- -- -- 8.0% 8.0%
YEAR-END FUNDING MIX
Deposits -- -- -- 76.0% 78.0%
Short-term Borrowings -- -- -- 17.0% 12.0%
Medium-term Borrowings -- -- -- 5.0% 9.0%
Long-term Debt -- -- -- 2.0% 1.0%
INTEREST-BEARING DEPOSIT RATES 7.24% 6.44% 4.87% 4.09% 4.11%
AVERAGE DEPOSITS (In Millions of Dollars)
Interest-bearing Deposits 3,753 4,279 5,181 5,846 5,921
Noninterest-bearing Deposits 576 592 734 840 903
Total 4,329 4,871 5,915 6,686 6,824
NET INCOME (In Millions of Dollars) 55.8 60.4 78.5 102.9 84.9
EARNINGS AND DIVIDENDS PER SHARE
Earnings Per Share $1.65 $1.87 $2.25 $2.66 $2.17
Dividends Per Share $0.63 $0.74 $0.82 $1.00 $1.12
BOOK VALUE PER SHARE
(Excluding SFAS 115 for 1993 and 1994) 11.77 13.07 15.66 17.43 18.44
AVERAGE SHAREHOLDERS' EQUITY (In Millions of Dollars)
(Excluding SFAS 115 for 1993 and 1994) 383.4 404.8 503.3 643.0 715.9
</TABLE>
<PAGE>
Summary
1994 witnessed higher levels of consumer confidence which
increased consumer spending and consequently produced strong credit
demand and enhanced lending activities. The very strength that
generated this loan demand fostered the fears of inflation and
produced six increases in the federal funds rate which adversely
impacted the Company's net interest income and net interest margin.
In 1994, net income was $84.9 million, a decline of 17.5% from $102.9
million in 1993. On a per share basis, net income was $2.17,
resulting in an 18.4% decline from the $2.66 for 1993.
Net interest income increased 3.4% to $335.1 million in 1994.
This growth was attributable to 7.5% higher average earning assets.
Noninterest income declined 53.6% to $58.4 million compared to
$125.8 million in 1993. Included in noninterest income for 1994 was
a $28.7 million loss resulting from the sale of approximately $470
million of fixed rate securities. The securities sale was driven by
the Company's balance sheet restructuring effort to lessen the future
exposure to rising interest rates. Excluding the effects of securities
transactions in 1994 and 1993 and an $11.4 million profit on the sale
of an affinity bank card portfolio in 1994, noninterest income for
1994 increased 2.1% to $72.9 million. Noninterest expense increased
9.8% to $245.2 million compared to $223.3 million in 1993, primarily
due to higher costs associated with personnel, and occupancy and
equipment expenses. Included in the 1994 noninterest expense were
$7.4 million nonrecurring charges in employee relocation costs, other
real estate costs, adjustments on bank franchise tax assessments and
various other expense items. The provision for loan losses was $24.4
million, a decline of 69.4% from $79.5 million in 1993.
Earning assets averaged $9.0 billion, up 7.5% compared to $8.4
billion in 1993. On average, securities available for sale totalled
$3.6 billion, for a decline of 9.6% when compared with total average
securities portfolio of $4.0 billion in 1993. Money market investments
declined 31.8% to an average of $125.4 million. Average loans grew
25.2% to $5.3 billion with first mortgage residential real estate loans
producing the strongest growth while the consumer categories and
commercial lending each registered solid growth.
Interest-bearing liabilities averaged $7.9 billion, representing
an increase of 6.3%. Interest-bearing deposits were $5.9 billion on
average, up 1.3% over 1993, with consumer certificates of deposit
accounting for virtually all of the growth. Other short-term
borrowings, medium-term notes and Federal Home Loan Bank borrowings
contributed substantial growth in funding sources. The sales of
medium-term notes and Federal Home Loan Bank borrowings, averaging
$245.3 million and $107.2 million, respectively, throughout 1994,
accounted for the growth.
Excluding the $102.2 million in unrealized losses on securities
available for sale subject to SFAS 115, average shareholders' equity
grew 11.3% to $715.9 million. The return on average shareholders'
equity of 11.85% declined from 16.01% in 1993. The book value of
common stock per share was $18.44 at December 31, 1994, compared to
$17.43 at year-end 1993, representing an increase of 5.8%. The
closing price of the Company's common stock as of December 31, 1994
was $24.25, which resulted in a market to book value ratio on that
date of 132%.
<PAGE>
<TABLE>
---------------------------------------------------------------------------------------
TABLE 1 Changes in Earnings Per Share
<CAPTION>
1994/1993 1993/1992 1992/1991
<S> <C> <C> <C>
---------------------------------------------------------------------------------------
Net income for 1993, 1992 and 1991, respectively $2.66 $2.25 $1.87
Increase (decrease) attributable to:
Net interest income 0.28 0.77 1.54
Provision for loan losses 1.41 0.52 (1.43)
Noninterest income (1.72) 0.27 1.04
Noninterest expense (0.56) (0.58) (0.30)
Income taxes 0.13 (0.35) (0.34)
Average shares outstanding (0.03) (0.22) (0.13)
--------------------------------------------------- ----- ----- -----
Net increase (decrease) (0.49) 0.41 0.38
--------------------------------------------------- ----- ----- -----
Net income for 1994, 1993 and 1992, respectively $2.17 $2.66 $2.25
--------------------------------------------------- ===== ===== =====
---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
---------------------------------------------------------------------------------------------
TABLE 2 Selected Ratios
Year Ended December 31,
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------
Percentage of net income to:
Average shareholders' equity* 11.85% 16.01% 15.60%
Average total assets* 0.89 1.16 1.06
Percentage of dividends per share
to net income per share 51.61 37.59 36.44
Percentage of average total shareholders' equity
to average total assets* 7.53 7.22 6.79
---------------------------------------------------------------------------------------------
* Excludes SFAS 115 adjustment for unrealized gains or losses on securities
available for sale.
</TABLE>
<PAGE>
<TABLE>
-------------------------------------------------------------------------------------------------------------------------
TABLE 3 Selected Financial Data
(In Thousands, except share and per share data) Percent
Change
<CAPTION> -------------------
1994 1993 1992 1991 1990 1994/1993 1993/1992
<S> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------------
Results of Operations (Taxable
Equivalent Basis)
Interest income $673,731 $623,645 $591,076 $573,187 $550,089 8.0 % 5.5 %
Interest expense 330,691 289,731 285,697 319,365 326,102 14.1 1.4
------------------------------------- --------- --------- --------- --------- ---------
Net interest margin 343,040 333,914 305,379 253,822 223,987 2.7 9.3
Provision for loan losses 24,359 79,509 99,757 49,810 45,016 (69.4) (20.3)
------------------------------------- --------- --------- --------- --------- ---------
Net income from earning assets 318,681 254,405 205,622 204,012 178,971 25.3 23.7
Noninterest income 58,359 125,803 115,422 78,942 70,918 (53.6) 9.0
Noninterest expense 245,223 223,298 200,833 190,406 164,706 9.8 11.2
------------------------------------- --------- --------- --------- --------- ---------
Income before income taxes 131,817 156,910 120,211 92,548 85,183 (16.0) 30.5
Income tax expense 46,953 53,993 41,695 32,113 29,430 (13.0) 29.5
------------------------------------- --------- --------- --------- --------- ---------
Net income $84,864 $102,917 $78,516 $60,435 $55,753 (17.5) 31.1
------------------------------------- ========= ========= ========= ========= =========
Per Share
Net income $2.17 $2.66 $2.25 $1.87 $1.65 (18.4)% 18.2 %
Cash dividends declared $1.12 $1.00 $0.82 $0.74 $0.63 12.0 22.0
Average common shares outstanding 39,163,599 38,737,447 34,962,561 32,396,301 33,842,775 1.1 10.8
Daily Averages for the Year
Total assets $9,512,447 $8,900,247 $7,416,919 $6,083,792 $5,454,753 6.9 % 20.0 %
Loans 5,321,848 4,250,089 3,730,625 3,606,906 3,599,978 25.2 13.9
Earning assets 9,021,290 8,389,175 6,937,150 5,665,342 5,040,287 7.5 20.9
Deposits 6,823,793 6,685,916 5,914,733 4,871,463 4,328,780 2.1 13.0
Shareholders' equity 715,945 643,005 503,313 404,817 383,361 11.3 27.8
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------------------------------
TABLE 4 Analysis of Changes in the Components of Net Interest Earnings (Taxable Equivalent Basis)
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) 1994 Compared to 1993 1993 Compared to 1992
<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 $19,601 $4,706 $24,307 $3,450 ($9,740) ($6,290)
Construction (2,769) 3,364 595 (6,498) (112) (6,610)
Residential real estate 40,415 (4,084) 36,331 34,518 (10,309) 24,209
Consumer second mortgage 7,037 (824) 6,213 3,863 (2,962) 901
Installment 11,547 (6,050) 5,497 5,564 (8,223) (2,659)
Bank card 11,685 (2,750) 8,935 3,926 (6,537) (2,611)
-------------------------------------------- ------- -------
Total loans 90,555 (8,677) 81,878 45,497 (38,557) 6,940
Assets available for sale:
Securities:
U.S. Government and agencies 63,629 (50,704) 12,925 (695) (10,358) (11,053)
States and political subdivisions 3,469 (5,636) (2,167) 3,449 34 3,483
Other (6,409) (35,575) (41,984) 11,861 (193) 11,668
-------------------------------------------- ------- -------
61,207 (92,433) (31,226) 17,122 (13,024) 4,098
Loans (456) 198 (258) 683 7 690
-------------------------------------------- ------- -------
Total assets available for sale 60,772 (92,256) (31,484) 17,955 (13,167) 4,788
Investment securities:
U.S. Government and agencies -- -- -- 11,881 (11,247) 634
States and political subdivisions -- -- -- (4,069) (1,239) (5,308)
Other -- -- -- 31,053 (6,643) 24,410
-------------------------------------------- ------- -------
Total investment securities -- -- -- 41,676 (21,940) 19,736
Money market investments (2,149) 1,830 (319) 2,090 (967) 1,123
Trading account securities (2) 13 11 (11) (7) (18)
-------------------------------------------- ------- -------
Total interest-earning assets 47,195 2,891 50,086 113,938 (81,369) 32,569
-------------------------------------------- ------- -------
Interest-bearing liabilities:
Interest checking 750 (614) 136 3,195 (4,145) (950)
Regular savings 810 (2,115) (1,305) 8,418 (4,028) 4,390
Consumer certificates 15,618 (2,573) 13,045 10,134 (21,906) (11,772)
Money market accounts (2,629) 2,930 301 (3,043) (6,188) (9,231)
Certificates of deposit $100,000 and over (9,261) 1,538 (7,723) 9,420 (5,013) 4,407
Federal funds purchased and repos 747 11,672 12,419 5,024 (2,849) 2,175
Other short-term borrowings 526 474 1,000 (82) (148) (230)
Medium-term notes 10,551 4,903 15,454 9,852 96 9,948
Federal Home Loan Bank borrowings 6,343 63 6,406 -- -- --
Long-term debt (192) 1,468 1,276 6,575 (1,215) 5,360
Capitalized lease obligations (50) 1 (49) (71) 8 (63)
-------------------------------------------- ------- -------
Total interest-bearing liabilities 18,761 22,199 40,960 52,844 (48,810) 4,034
-------------------------------------------- ------- -------
Net interest earnings $28,434 ($19,308) $9,126 $61,094 ($32,559) $28,535
-------------------------------------------- ======= =======
--------------------------------------------------------------------------------------------------------------
</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, 1994, 1993 and 1992.
In addition, the amounts of interest earned on earning assets, with related yields, and the interest paid on
interest-bearing liabilities, together with the rates, are shown. Loans placed on a nonaccrual status are included
in the balances and were included in the computation of yields, upon which they had an immaterial effect. Interest
on earning assets is on a taxable equivalent basis, which was computed using the federal corporate income tax rate
of 35% for 1994 and 1993, and 34% for 1992.
(In Millions)
<CAPTION>
1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------------------------------------------------------------
Assets
---------------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
Loans:
Commercial and commercial real estate $1,833.1 $146.0 7.96 % $1,585.1 $121.7 7.67 % $1,542.7 $127.9 8.29 %
Construction 294.7 24.3 8.24 331.2 23.7 7.15 422.0 30.3 7.18
Residential real estate 1,383.9 99.6 7.20 825.9 63.3 7.67 397.5 39.1 9.84
Consumer second mortgage 509.2 47.3 9.28 433.5 41.1 9.47 394.0 40.2 10.19
Installment 764.8 58.4 7.64 619.2 52.9 8.55 559.6 55.6 9.93
Bank card 529.9 69.5 13.12 441.6 60.5 13.72 414.8 63.2 15.24
-------------------------------------------- -------- ------ -------- ------ -------- ------
5,315.6 445.1 8.37 4,236.5 363.2 8.57 3,730.6 356.3 9.55
Assets available for sale:
Securities:
U.S. Government and agencies 2,645.6 160.8 6.08 747.4 45.9 6.14 756.7 56.9 7.52
States and political subdivisions 160.4 12.5 7.80 43.4 3.5 8.03 -- -- --
Other 767.3 49.4 6.43 230.4 12.0 5.22 4.5 0.3 8.08
-------------------------------------------- -------- ------ -------- ------ -------- ------
3,573.3 222.7 6.23 1,021.2 61.4 6.01 761.2 57.2 7.53
Loans 6.2 0.4 6.95 13.6 0.7 5.08 -- -- --
-------------------------------------------- -------- ------ -------- ------ -------- ------
3,579.5 223.1 6.23 1,034.8 62.1 6.00 761.2 57.2 7.53
Investment securities:
U.S. Government and agencies -- -- -- 1,516.7 102.0 6.73 1,349.1 101.4 7.52
States and political subdivisions -- -- -- 137.4 11.2 8.15 186.3 16.5 8.86
Other -- -- -- 1,279.0 79.3 6.20 788.0 55.0 6.97
-------------------------------------------- -------- ------ -------- ------ -------- ------
-- -- -- 2,933.1 192.5 6.56 2,323.4 172.9 7.44
Money market investments 125.4 5.4 4.33 184.0 5.8 3.13 121.0 4.6 3.83
Trading account securities 0.8 0.1 7.98 0.8 -- 6.18 1.0 0.1 6.98
-------------------------------------------- -------- ------ -------- ------ -------- ------
Total interest-earning assets 9,021.3 $673.7 7.47 % 8,389.2 $623.6 7.43 % 6,937.2 $591.1 8.52 %
-------------------------------------------- -------- ====== -------- ====== -------- ======
Noninterest-earning assets:
Cash and due from banks 270.7 248.3 234.2
Premises and equipment, net 145.7 145.6 140.4
Other assets 184.7 222.1 206.9
Allowance for loan losses (110.0) (105.0) (101.8)
-------------------------------------------- -------- -------- --------
Total assets $9,512.4 $8,900.2 $7,416.9
-------------------------------------------- ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
Liabilities and Shareholders' Equity
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Interest checking $663.4 $15.8 2.38 % $632.4 $15.7 2.48 % $520.1 $16.6 3.19 %
Regular savings 843.9 23.7 2.81 816.8 25.0 3.06 557.2 20.6 3.70
Consumer certificates 3,088.7 156.6 5.07 2,781.4 143.6 5.16 2,603.7 155.3 5.97
Money market accounts 1,007.8 33.1 3.29 1,091.8 32.8 3.01 1,181.7 42.1 3.56
Certificates of deposit $100,000 and over 316.9 14.4 4.53 523.5 22.1 4.22 318.4 17.7 5.55
Federal funds purchased and repos 1,095.5 44.2 4.03 1,070.9 31.7 2.97 907.0 29.6 3.26
Other short-term borrowings 42.7 1.7 3.89 26.4 0.7 2.51 29.3 0.9 3.05
Medium-term notes 537.7 25.4 4.72 292.4 9.9 3.40 -- -- --
Federal Home Loan Bank borrowings 107.2 6.4 5.98 -- -- -- -- -- --
Long-term debt 151.0 8.7 5.75 154.9 7.4 4.78 24.9 2.0 8.22
Capitalized lease obligations 8.3 0.7 8.82 8.9 0.8 8.81 9.7 0.9 8.73
-------------------------------------------- -------- ------ -------- ------ -------- ------
Total interest-bearing liabilities 7,863.1 $330.7 4.21 % 7,399.4 $289.7 3.92 % 6,152.0 $285.7 4.64 %
-------------------------------------------- -------- ====== -------- ====== -------- ======
Noninterest-bearing liabilities:
Demand deposits 903.2 840.1 733.7
Other 30.2 13.9 27.9
-------------------------------------------- -------- -------- --------
933.4 854.0 761.6
Shareholders' equity before unrealized
gains (losses) 715.9 643.0 503.3
Unrealized gains (losses) on securities
available for sale (102.2) 45.9 --
-------------------------------------------- -------- -------- --------
Total liabilities and
shareholders' equity $9,512.4 $8,900.2 $7,416.9
-------------------------------------------- ======== ======== ========
Net interest earnings $343.0 $333.9 $305.4
-------------------------------------------- ====== ====== ======
Net interest spread 3.26 % 3.51 % 3.88 %
-------------------------------------------- ==== ==== ====
Net interest margin 3.80 % 3.98 % 4.40 %
-------------------------------------------- ==== ==== ====
Fees included in loan income $14.1 $8.4 $12.0
-------------------------------------------- ====== ====== ======
Taxable equivalent adjustment $7.9 $9.7 $10.9
-------------------------------------------- ====== ====== ======
---------------------------------------------------------------------------------------------------------------------------
</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 1994 was $343.0
million, a 2.7% increase over 1993. The growth in net interest income
resulted primarily from higher levels of average earning assets. Average
earning assets increased $632.1 million, or 7.5% over 1993, totalling
$9.0 billion. The net interest margin for 1994 was 3.80%, reflecting a
decline of 18 basis points when compared with 3.98% for 1993. The decline
in net interest margin during 1994 was impacted by the higher than
anticipated interest rates which lowered interest margins due to higher
funding costs.
Total loans rose 25.2%, or $1.1 billion to an average of $5.3
billion over 1993. The growth in loans resulted from gains in all loan
categories except construction lending. Continued demand for first
mortgage residential real estate loans as well as increased consumer
activities were contributing factors to the loan growth. Residential
real estate loans averaged $1.4 billion, showing an increase of $550.6
million, or 65.6% compared to $839.5 million in 1993, following a
substantial gain of 111.2% in 1993. Installment loans averaged $764.8
million, representing a 23.5% increase over the prior year. When
compared with the 1993 levels on average, bank card, consumer second
mortgage, and commercial and commercial real estate loans registered
increases of 20.0%, 17.5% and 15.6%, respectively. Construction loans
declined 11.0%, averaging $294.7 million during the year. Securities
available for sale averaged $3.6 billion, reflecting a decline of 9.6%
when compared with the total securities portfolio for 1993. The decline
in the securities portfolio resulted from strong loan growth and the
sale of fixed rate securities, in an effort to reduce the Company's
exposure to continued increases in interest rates. Money market
investments, consisting of federal funds sold and securities purchased
under agreements to resell, averaged $125.4 million, a decline of 31.8%
compared to 1993. Trading account securities were flat compared to
1993's level. The yield on average earning assets gained 4 basis points
to 7.47%, due to the higher interest rate environment for 1994 and a
shift to a greater percentage of loans to total earning assets.
In 1994, average interest-bearing liabilities totalled $7.9 billion,
having grown 6.3% from $7.4 billion in 1993. Core deposits averaged $6.5
billion, representing a 5.6% increase from the prior year. Consumer
certificates of deposit rose 11.0% to an average of $3.1 billion.
Interest checking averaged $663.4 million, registering a 4.9% increase
from the previous year. Regular savings, averaging $843.9 million,
showed an increase of 3.3%. Money market accounts declined 7.7%, on
average, compared to 1993. Certificates of deposit $100,000 and over
declined 39.5%, to an average of $316.9 million. In 1994, Federal Home
Loan Bank borrowings averaged $107.2 million. Medium-term notes averaged
$537.7 million, an 83.9% increase, or $245.3 million over 1993. Federal
funds purchased and securities sold under agreements to repurchase
averaged $1.1 billion, a 2.3% increase over 1993. Long-term debt and
capitalized lease obligations declined to $151.0 million and $8.3 million
on average, respectively. The decline in long-term debt resulted from a
$1.0 million note maturing in August. In 1994, the cost of interest-bearing
liabilities increased 29 basis points to 4.21%, following a decline of 72
basis points to 3.92% in 1993, and was consistent with a rising interest
rate environment.
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 1994, total loans grew $1.1 billion, or 25.2% to
an average of $5.3 billion, with all loan categories except construction
lending recording strong gains. The loan growth reflected an increased
demand in lending activities. The average yield on the loan portfolio
declined 20 basis points to 8.37%, compared to 8.57% in 1993. This
decline resulted from a change in loan mix and heightened price
competition. The average prime rate was 7.083% in 1994 compared to
5.926% in 1993.
Commercial and commercial real estate loans averaged $1.8 billion,
representing a 15.6% or $248.0 million increase over 1993. The average
yield was up 29 basis points to 7.96% compared to 1993, reflecting a
higher average prime rate during 1994. Construction loans averaged
$294.7 million, which represented a decline of 11.0% in volume, after
a 21.5% decline in 1993.
Residential first mortgage loans totalled $1.4 billion, on average,
an increase of 65.6% compared to 1993, following a substantial increase
of 111.2% in 1993. Rising mortgage rates slowed growth in refinancing
and new first mortgage residential loans culminating in December with
the lowest home sales in 18 months. The loan growth was primarily in
the adjustable rate mortgages and shorter term fixed rate products.
The average yields on the residential first mortgage loan portfolio
declined 43 basis points to 7.19% from 7.62% in 1993.
Consumer second mortgage loans which consist of second mortgage
loans and home equity lines of credit, averaged $509.2 million, a 17.5%
increase over 1993. The average yield was down 19 basis points to 9.28%.
Installment loans grew $145.6 million to an average of $764.8 million,
representing a 23.5% increase over 1993. Installment loan yields declined
91 basis points to 7.64% in 1994. Bank card loans averaged $529.9 million,
resulting in a 20.0% increase compared to 1993. The average yield on bank
card loans represented a decline of 60 basis points to 13.12%. The declines
in yields reflected aggressive promotional rates.
There are no foreign loans within the portfolio or credits to finance
leveraged buyouts or other highly leveraged transactions.
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" (SFAS 114) in May, 1993, and it was amended in
October, 1994 by the issuance of SFAS 118. Effective January 1, 1995,
SFAS 114, as amended by SFAS 118, requires that impaired loans within
the scope of the statements be presented in the financial statements at
the present value of expected future cash flows or at the fair value of
the loan's collateral. The impact of adopting SFAS 114, as amended by
SFAS 118, will not be material to the financial condition or results
of operations of the Company.
<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------------------------------
TABLE 6 Average Loans
(In Thousands) Year Ended December 31,
<CAPTION> Percent
Change
1994 1993 1992 1991 1990 1994/1993
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------
Commercial and commercial real estate $1,833,077 $1,585,135 $1,542,712 $1,560,323 $1,643,943 15.6 %
Construction 294,753 331,162 422,029 518,131 485,048 (11.0)
Residential real estate 1,390,149 839,496 397,512 216,117 237,308 65.6
Consumer second mortgage 509,173 433,552 394,024 346,074 218,388 17.4
Installment 764,778 619,172 559,588 551,820 572,742 23.5
Bank card 529,918 441,572 414,760 414,441 442,549 20.0
------------------------------------------ ---------- ---------- ---------- ---------- ----------
Total loans $5,321,848 $4,250,089 $3,730,625 $3,606,906 $3,599,978 25.2 %
------------------------------------------ ========== ========== ========== ========== ==========
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------------
TABLE 7 Sensitivity of Loan Portfolio to Changes in Interest Rates
At December 31, 1994, 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 --
Loans with fixed or predetermined interest rates 893,489
------------------------------------------------------------------------------ ----------
Total $893,489
------------------------------------------------------------------------------ ==========
--------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
----------------------------------------------------------------------------------------------
TABLE 8 Loan Maturities
Scheduled principal repayments of loans outstanding for commercial and construction loans
at December 31, 1994 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 $1,021,032 $489,265 $369,202 $1,879,499
Construction 270,435 9,061 25,961 305,457
-------------------------------------------- ---------- -------- -------- ----------
Total $1,291,467 $498,326 $395,163 $2,184,956
-------------------------------------------- ========== ======== ======== ==========
----------------------------------------------------------------------------------------------
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 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.
At December 31, 1994, the allowance for loan losses was $110.0
million, or 1.91% of loans, reflecting a 4.8% increase, or $5.0 million,
compared to $105.0 million or 2.18% of loans at December 31, 1993. The
level of allowance for loan losses was impacted by the increase in loan
volume and continued improvement in credit quality. The provision for
loan losses totalled $24.4 million for 1994, a decline of $55.2 million
compared to $79.5 million in 1993. The decline in the provision is
consistent with comparable declines in the charge-offs from
year to year. Net charge-offs amounted to $19.4 million for 1994,
compared with $76.3 million for 1993. The ratios of provision for loan
losses and net charge-offs to average loans declined from 1.87% and
1.80% for 1993 to .46% and .36% for 1994, respectively. Table 9 provides
an analysis of the allowance for loan losses for the years 1990 through
1994, including gross charge-offs and recoveries for the five year period.
Nonperforming assets as of December 31, 1994 were $90.3 million or
.90% of total assets compared to $132.1 million or 1.37% of total assets
a year ago. At December 31, 1994, nonperforming assets were 1.56% of
loans and foreclosed properties, compared to 2.72% at December 31, 1993.
The lower level of nonperforming assets was a result of improved real
estate markets across the Commonwealth of Virginia and persistent success
in problem loan resolution. At December 31, 1994, the allowance for loan
losses to nonperforming assets was 121.8% compared to 79.5% at December
31, 1993. 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>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year $105,000 $101,800 $61,000 $60,806 $35,156
Provision charged to expense 24,359 79,509 99,757 49,810 45,016
------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
129,359 181,309 160,757 110,616 80,172
Loans charged off:
Commercial and commercial real estate 8,288 27,995 17,091 20,092 5,921
Construction 4,744 39,031 27,793 14,393 2,909
Residential real estate 173 64 4 32 21
Installment 5,989 5,841 6,273 5,949 4,241
Bank card 15,203 13,797 16,408 15,587 11,992
------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Total charge-offs 34,397 86,728 67,569 56,053 25,084
------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Recoveries of loans previously charged off:
Commercial and commercial real estate 4,281 3,162 1,967 2,083 1,737
Construction 4,425 392 1,557 69 11
Residential real estate 20 23 3 2 33
Installment 3,456 3,508 2,656 2,099 1,694
Bank card 2,856 3,334 2,429 2,184 2,243
------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Total recoveries 15,038 10,419 8,612 6,437 5,718
------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Net charge-offs 19,359 76,309 58,957 49,616 19,366
------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Balance at end of year $110,000 $105,000 $101,800 $61,000 $60,806
------------------------------------------------------- =========== =========== =========== =========== ===========
Average loans $5,321,848 $4,250,089 $3,730,625 $3,606,906 $3,599,978
Loans at year-end $5,772,093 $4,812,509 $3,953,354 $3,619,218 $3,577,298
Ratio of provision for loan losses to average loans 0.46% 1.87% 2.67% 1.38% 1.25%
Ratio of net charge-offs to average loans 0.36% 1.80% 1.58% 1.38% 0.54%
Ratio of allowance for loan losses to loans at year-end 1.91% 2.18% 2.58% 1.69% 1.70%
---------------------------------------------------------------------------------------------------------------------------
</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 allowance to provide an indication of the relative risk characteristics of the loan portfolio. The
allocation is based on the same judgmental criteria discussed earlier in determining the level of the allowance and
should not be interpreted as an indication that charge-offs in 1995 will occur in these amounts, or proportions, or
that the allocation indicates future trends. The allocation of the allowance at 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>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------
Ratio of Ratio of Ratio of Ratio of Ratio of
Loans to Loans to Loans to Loans to Loans to
Total Loans Total Loans Total Loans Total Loans Total Loans
Allowance Outstanding Allowance Outstanding Allowance Outstanding Allowance Outstanding Allowance Outstanding
---------------------------------------------------------------------------------------------------------------------------
Commercial and
commercial
real estate $62,724 32.5% $61,956 35.5% $40,166 39.9% $24,377 42.5% $20,860 44.3%
Construction 17,835 5.3 18,803 6.0 36,184 8.8 21,351 13.3 23,906 14.5
Residential
real estate 1,789 27.0 1,318 24.4 1,018 14.9 300 7.1 258 4.8
Installment 5,917 20.6 5,497 19.0 6,108 20.3 3,672 20.3 3,443 20.7
Bank card 21,735 14.6 17,426 15.1 18,324 16.1 11,300 16.8 12,339 15.7
------------- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total $110,000 100.0% $105,000 100.0% $101,800 100.0% $61,000 100.0% $60,806 100.0%
------------- ======== ===== ======== ===== ======== ===== ======== ===== ======== =====
---------------------------------------------------------------------------------------------------------------------------
</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>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------
Nonaccrual loans $67,534 $93,349 $84,401 $35,853 $69,653
Past-due loans (not including
nonaccrual loans):
Commercial and construction 1,195 1,887 9,369 8,542 10,663
Residential real estate 2,255 670 134 306 260
Installment 2,028 681 2,271 3,300 2,431
Bank card 5,562 3,104 3,413 4,363 2,921
----------------------------------------- ------- ------- ------- ------- -------
11,040 6,342 15,187 16,511 16,275
Restructured loans (in accrual status) -- 606 260 1,635 191
----------------------------------------- ------- ------- ------- ------- -------
Total $78,574 $100,297 $99,848 $53,999 $86,119
----------------------------------------- ======= ======= ======= ======= =======
------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
---------------------------------------------------------------------------------------------------------------------
TABLE 12 Loan Distribution
(In Thousands) December 31,
<CAPTION> Percent
Change
1994 1993 1992 1991 1990 1994/1993
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------- -----------
Commercial and commercial real estate $1,879,499 $1,711,092 $1,576,744 $1,537,611 $1,583,451 9.8 %
Construction 305,457 289,199 347,685 483,026 520,810 5.6
Residential real estate 1,558,429 1,174,051 589,133 256,863 172,282 32.7
Consumer second mortgage 552,301 458,294 411,708 377,009 314,488 20.5
Installment 871,115 670,487 593,065 537,258 570,047 29.9
Bank card 605,292 509,386 435,019 427,451 416,220 18.8
--------------------------------------- ---------- ---------- ---------- ---------- ----------
Total loans $5,772,093 $4,812,509 $3,953,354 $3,619,218 $3,577,298 19.9 %
--------------------------------------- ========== ========== ========== ========== ==========
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
----------------------------------------------------------------------------------------------------------------
TABLE 13 Distribution of Loan Portfolio and Nonperforming Assets by Region
(In Thousands) December 31, 1994
<CAPTION> Capital Eastern Northern Western Southwestern
Region Region Region Region Region Consolidated
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------
Commercial and commercial real estate $310,788 $721,012 $292,490 $320,085 $235,124 $1,879,499
Construction 61,690 66,274 112,753 41,659 23,081 305,457
Residential real estate 350,526 288,164 264,339 479,780 175,620 1,558,429
Consumer second mortgage 98,360 104,423 63,312 225,122 61,084 552,301
Installment 288,910 114,346 60,187 303,175 104,497 871,115
Bank card 195,748 116,290 165,020 98,689 29,545 605,292
-------------------------------------- ---------- ---------- -------- ---------- -------- ----------
Loans* $1,306,022 $1,410,509 $958,101 $1,468,510 $628,951 $5,772,093
-------------------------------------- ========== ========== ======== ========== ======== ==========
Nonaccrual loans $3,241 $19,566 $31,651 $8,650 $4,426 $67,534
Foreclosed properties 4,630 1,081 14,067 215 2,767 22,760
-------------------------------------- ---------- ---------- ------- ---------- ------- ----------
Nonperforming assets $7,871 $20,647 $45,718 $8,865 $7,193 $90,294
-------------------------------------- ========== ========== ======= ========== ======= ==========
Ratio of nonperforming assets to
loans and foreclosed properties 0.60% 1.46% 4.70% 0.60% 1.14% 1.56%
----------------------------------------------------------------------------------------------------------------
* Includes nonaccrual loans.
</TABLE>
<PAGE>
Securities Available for Sale
At December 31, 1994, the Company had $3.5 billion in securities
available for sale, compared with $4.1 billion at year-end 1993. The
decrease was attributable to the Company's decision to allocate a greater
portion of earning assets to loans.
With the adoption of SFAS No. 115 as of December 31, 1993, the
Company has classified substantially all of its securities as available
for sale and reported them at fair value. At year-end 1994, the fair
value of securities available for sale was $157.3 million lower than the
amortized cost. This represents a decline from year-end 1993, when the
fair value of securities available for sale exceeded amortized cost by
$70.5 million. These unrealized gains and losses are reported on the
balance sheet as a separate component of shareholders' equity, net of
deferred tax provision. However, such unrealized gains and losses are
excluded from the calculation of regulatory capital.
While the Federal Reserve raised the federal funds rate six times
for a total of 250 basis points in 1994, the rise in market rates was
even greater in the short and intermediate part of the yield curve where
most of the securities available for sale were concentrated. During the
fourth quarter, the Company restructured a portion of its securities
portfolio in order to reduce exposure to further increases in interest
rates. A total of approximately $470 million of U.S. Treasury and
mortgage-backed securities were sold, resulting in pre-tax losses of
$28.7 million. The majority of the proceeds were invested in higher
yielding adjustable rate mortgage securities, and the remainder of the
proceeds were used primarily to reduce short-term borrowings. Other
portfolio activity in 1994 contributed $7.4 million in net realized
gains in the first quarter and $4.4 million in realized losses in the
third quarter.
The composition of the securities portfolio changed in 1994 to
increase the weighting of mortgage-backed securities. Holdings in the
mortgage sector, including collateralized mortgage obligations,
increased to 67% of the portfolio at December 31, 1994, compared to
50% at December 31, 1993. Holdings of U.S. Treasury securities
declined to 12% of the portfolio from 31%. The biggest change within
the mortgage sector was the emphasis on adjustable rate mortgage
securities, which grew from 2.7% of total securities to 22.8%.
The average yield earned on securities portfolio in 1994 was
6.23%, compared with 6.42% in 1993. The expected weighted average life
of the portfolio at the end of 1994 was 4.4 years, compared to 3.3 years
at the end of 1993. This lengthening is largely a result of the shift to
adjustable rate mortgage securities, which have longer weighted average
lives than the securities replaced. Expectations of slower prepayment
activity on mortgage-backed securities also extended the weighted
average life of the portfolio during 1994.
<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------
TABLE 14 Securities Available for Sale and Investment Securities
The carrying value of securities available for sale at the dates indicated was:
(In Thousands) December 31,
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
------------------------------------------------------------------------------------------------
U.S. Government and agencies $2,516,781 $3,193,391 $14,316
States and political subdivisions 142,530 170,981 --
Other 827,070 735,734 28,645
--------------------------------------------------- ---------- ---------- --------
Total securities available for sale $3,486,381 $4,100,106 $42,961
--------------------------------------------------- ========== ========== ========
The carrying value of investment securities at the dates indicated was:
(In Thousands) December 31,
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
------------------------------------------------------------------------------------------------
U.S. Government and agencies -- -- $1,853,835
States and political subdivisions -- -- 179,819
Other -- -- 1,826,287
--------------------------------------------------- ---------- ---------- ----------
Total investment securities -- -- $3,859,941
--------------------------------------------------- ========== ========== ==========
------------------------------------------------------------------------------------------------
</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 securities available for sale at December 31, 1994:
(In Thousands)
<CAPTION>
Maturity or Expected Principal Repayment
<S> <C> <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 Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
-------------------------------------------------------------------------------------------------------------------------
U.S. Government and
agencies:
U.S. Treasury $60,019 5.93 % $343,000 5.86 % $ -- -- % $ -- -- % $403,019 5.87 %
Federal agencies -- -- 89,375 4.80 -- -- -- -- 89,375 4.80
Mortgage-backed
obligations 56,788 6.24 713,171 6.50 1,254,428 6.39 -- -- 2,024,387 6.42
-------- --------- --------- -------- ---------
116,807 6.08 1,145,546 6.18 1,254,428 6.39 -- -- 2,516,781 6.28
-------- --------- --------- -------- ---------
States and political
subdivisions 32,523 7.30 38,221 8.32 50,040 7.80 21,746 9.50 142,530 8.09
-------- --------- --------- -------- ---------
Other:
Whole loan
mortgage-backed 22,728 6.70 191,575 6.64 86,336 6.37 -- -- 300,639 6.57
Asset-backed 44,259 7.39 425,083 6.78 -- -- -- -- 469,342 6.84
Other 25,000 6.59 32,089 6.09 -- -- -- -- 57,089 6.31
-------- --------- --------- -------- ---------
91,987 7.00 648,747 6.71 86,336 6.37 -- -- 827,070 6.70
------------------------ -------- ---------- ---------- -------- ----------
Total $241,317 6.60 % $1,832,514 6.41 % $1,390,804 6.44 % $21,746 9.50 % $3,486,381 6.45 %
------------------------ ======== ========== ========== ======== ==========
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Asset/Liability Management
The purpose of Asset/Liability analysis at Central Fidelity is
the effective management of interest rate risk (IRR) through the proper
control over lending, investment, funding and off-balance-sheet
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, 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 a period of years. The model
projects changes to the balance sheet and earnings over two twelve-month
periods using four standard interest rate scenarios: 1) a base case
scenario which is management's expected path of interest rates, 2) an
immediate shock of 100 basis points over the base case, 3) an immediate
decline of 100 basis points from the expected case, and 4) no change in
rates. Policy requires that projected earnings not vary more than 10%
from the base rate scenario over the first twelve-month horizon.
In addition to model simulation, the Company also uses a static
gap report to measure the Company's general exposure to repricing risk
at a point in time. As 1994 unfolded, the Company recognized that the
pace of interest rate increases was faster than expected, and it took
steps to reduce its exposure to rising rates. These actions included
increasing the volume of longer term retail CD's and restructuring the
securities portfolio as discussed above under the caption "Securities
Available for Sale." As a result, the one year cumulative gap was
reduced from a negative 26.15% of earning assets at year-end 1993 to
negative 11.96% at year-end 1994 as shown in Table 20 on page 47. The
Company anticipates that actions will be taken during 1995 to further
reduce the Company's potential exposure to rising interest rates.
<PAGE>
Off-Balance-Sheet Derivatives
In the context of its asset/liability management, the Company is
a limited end-user of off-balance-sheet financial derivatives as a
cost-efficient vehicle for managing interest rate sensitivity. 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 notional amount of the Company's off-balance-sheet swap
portfolio was $976.5 million and $975.0 million at December 31, 1994 and
1993, respectively. The related fair value or unrecognized gains (losses)
of these derivative financial instruments was ($29.5) million and $17.6
million at December 31, 1994 and 1993, respectively. As shown on Table 17,
the swap portfolio consists principally of contracts wherein the Company
receives a fixed rate of interest and pays a variable rate, typically
three-month LIBOR.
During 1992 and 1993, 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. When
interest rates began rising in 1994, the Company sought to reduce its
liability sensitivity and entered into interest rate swaps to pay a fixed
rate and receive a variable rate.
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.
In 1994 and 1993, the Company did not terminate any derivatives
transactions prior to contractual maturity. Unrecognized gains and losses
as of December 31, 1994 are noted in Table 17.
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. At
year-end 1994, the Company had net credit risk of $1.8 million to three
counterparties. This exposure was below thresholds for receiving
collateral. On transactions which had negative fair values, the Company
delivered $15.2 million of securities to collateralize credit exposure
to two counterparties in excess of threshold levels.
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 notional
amount of customer-related swap transactions was $18.0 million and
$23.0 million at December 31, 1994 and 1993, respectively.
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>
--------------------------------------------------------------------------------------------------------------------------
TABLE 16 Expected Maturities of Interest Rate Swaps
<CAPTION>
Due After One After Two After Three After Four
Within Through Through Through Through After
(In thousands) December 31, 1994 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 $50,962 $3,436 $55,990 $939 $13,893 $1,328 $126,548
Weighted average pay rate 5.01% 6.75% 6.46% 6.83% 6.83% 7.03% 5.94%
Weighted average receive rate:
Contractual rate * 5.72% 5.81% 6.28% 5.71% 5.71% 5.81% 5.97%
Forward yield curve ** 6.23% 8.01% 8.04% 8.00% 8.01% 8.02% 7.31%
Receive fixed/pay variable:
Notional amount $300,000 $200,000 $100,000 $100,000 -- $150,000 $850,000
Weighted average pay rate:
Contractual rate * 6.19% 5.81% 6.50% 5.81% -- 5.81% 6.03%
Forward yield curve ** 6.68% 7.86% 8.01% 7.99% -- 8.07% 7.51%
Weighted average receive rate 5.00% 4.83% 4.77% 5.59% -- 7.10% 5.37%
--------------------------------------------------------------------------------------------------------------------------
Customer Hedging Swaps
--------------------------------------------------------------------------------------------------------------------------
Pay fixed/receive variable:
Notional amount -- $5,000 -- $4,000 -- -- $9,000
Weighted average pay rate -- 4.71% -- 9.57% -- -- 6.87%
Weighted average receive rate:
Contractual rate * -- 4.94% -- 6.14% -- -- 5.47%
Forward yield curve ** -- 7.86% -- 7.99% -- -- 7.92%
Receive fixed/pay variable:
Notional amount -- $5,000 -- $4,000 -- -- $9,000
Weighted average pay rate:
Contractual rate * -- 4.94% -- 6.14% -- -- 5.47%
Forward yield curve ** -- 7.86% -- 7.99% -- -- 7.92%
Weighted average receive rate -- 4.76% -- 9.62% -- -- 6.92%
--------------------------------------------------------------------------------------------------------------------------
* The weighted average variable rates are based upon the contractual rates in effect at December 31, 1994.
** The weighted average variable rates are projected based upon the implied forward yield curve for 3-month Eurodollar
contracts as of December 31, 1994.
</TABLE>
<PAGE>
<TABLE>
---------------------------------------------------------------------------------------------------------------------------
TABLE 17 Summary of Interest Rate Swaps
The weighted average variable rates are based upon the contractual rates in effect at December 31, 1994:
(In thousands) December 31, 1994
<CAPTION>
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 5.72%(1) 4.98% 0.53 ($1,037) $416
Variable rate medium-term borrowings 50,000 6.34 (2) 6.42 2.46 (453) 1,894
Fixed rate commercial loans 26,548 5.71 (2) 6.83 4.67 (185) 884
------------------------------------------ -------- ------ -------
Total pay fixed/receive variable 126,548 5.97 5.94 2.16 (1,675) 3,194
------------------------------------------ -------- ------ -------
Receive fixed/pay variable:
Fixed rate subordinated debt 150,000 7.10 5.81 (2) 7.88 3,760 (9,170)
Fixed rate medium-term borrowings 400,000 4.87 5.81 (2) 1.67 1,264 (16,013)
Variable rate commercial loans 300,000 5.18 6.42 (2) 0.83 1,772 (7,509)
------------------------------------------ -------- ------ -------
Total receive fixed/pay variable 850,000 5.37 6.03 2.47 6,796 (32,692)
------------------------------------------ -------- ------ -------
Total company hedging swaps $976,548 5.45% 6.01% 2.43 $5,121 ($29,498)
------------------------------------------ ======== ====== =======
---------------------------------------------------------------------------------------------------------------------------
Customer Hedging Swaps
---------------------------------------------------------------------------------------------------------------------------
Pay fixed/receive variable $9,000 5.47%(2) 6.87% 2.27 ($1,110) $6
Receive fixed/pay variable 9,000 6.92 5.47 (2) 2.27 1,114 27
------------------------------------------ -------- ------ -------
Total customer hedging swaps $18,000 6.20% 6.17% 2.27 $4 $33
------------------------------------------ ======== ====== =======
---------------------------------------------------------------------------------------------------------------------------
(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>
Deposits
Total deposits averaged $6.8 billion, representing a 2.1% increase
in 1994. When compared with 1993, core deposits rose $344.5 million, or
5.6% to an average of $6.5 billion in 1994 with consumer certificates of
deposit accounting for virtually all of the growth. The slower growth in
core deposits was due primarily to lower rates paid on bank deposits in
a generally lower interest rate environment particularly during the first
half of 1994.
In 1994, consumer certificates of deposit represented the largest
growth in core deposits, increasing $307.3 million, or 11.0%, averaging
$3.1 billion. The biggest increases in consumer certificates of deposit
were in maturities ranging from one to two years. Interest checking and
regular savings averaged $663.4 million and $843.9 million, increasing
4.9% and 3.3%, respectively. Money market accounts showed a decline of
7.7%, averaging $1.0 billion. Table 18 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 in the
Commonwealth of Virginia was 12.19% as of September 30, 1994, ranking
the Company third in market share. During 1994, certificates of deposit
$100,000 and over decreased 39.5% to an average of $316.9 million. Table
19 shows a maturity schedule for certificates of deposit $100,000 and
over at year-end 1994.
<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------------------------
TABLE 18 Average Deposits
(In Thousands) Year Ended December 31,
<CAPTION> Percent
Change
1994 1993 1992 1991 1990 1994/1993
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------
Noninterest-bearing $903,164 $840,070 $733,716 $591,724 $576,264 7.5 %
Interest-bearing:
Interest checking 663,405 632,429 520,062 392,912 344,803 4.9
Regular savings 843,867 816,783 557,220 367,837 349,344 3.3
Consumer certificates 3,088,651 2,781,417 2,603,656 2,274,954 1,913,856 11.0
Money market accounts 1,007,847 1,091,764 1,181,713 922,429 816,859 (7.7)
Certificates of deposit $100,000 and over 316,859 523,453 318,366 321,607 327,654 (39.5)
--------------------------------------------- ---------- ---------- ---------- ---------- ----------
Total interest-bearing 5,920,629 5,845,846 5,181,017 4,279,739 3,752,516 1.3
--------------------------------------------- ---------- ---------- ---------- ---------- ----------
Total $6,823,793 $6,685,916 $5,914,733 $4,871,463 $4,328,780 2.1 %
--------------------------------------------- ========== ========== ========== ========== ==========
------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
---------------------------------------------------------------------------------
TABLE 19 Certificates of Deposit $100,000 and Over
(In Thousands) December 31,
<CAPTION>
1994
<S> <C>
---------------------------------------------------------------------------------
Time remaining to maturity:
Less than three months $131,421
Three through six months 48,213
Six through twelve months 29,491
More than twelve months 38,071
--------------------------------------------------------------------- ---------
Total $247,196
--------------------------------------------------------------------- =========
---------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
---------------------------------------------------------------------------------------------------------------------------
Table 20 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 mature 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 within 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 objective 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
December 31, 1994.
(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 $293,170 $531,653 $781,144 $1,136,738 $2,351,060 $3,487,798
Federal funds sold and securities
purchased under agreements to resell 196,859 196,859 196,859 196,859 -- 196,859
Loans and loans available for sale 1,596,430 1,771,731 2,065,024 2,705,884 3,066,209 5,772,093
Interest rate swaps (85,642) (73,452) (73,452) (73,452) 73,452 --
------------------------------------------ ------------ ------------ ------------ ------------ --------------- -----------
Total earning assets 2,000,817 2,426,791 2,969,575 3,966,029 5,490,721 9,456,750
Nonearning assets 3,042 3,042 3,042 3,042 594,380 597,422
------------------------------------------ ------------ ------------ ------------ ------------ --------------- -----------
Total uses of funds 2,003,859 2,429,833 2,972,617 3,969,071 6,085,101 10,054,172
------------------------------------------ ------------ ------------ ------------ ------------ --------------- -----------
Sources of Funds
Interest-bearing liabilities:
Savings and interest-bearing
demand accounts -- -- -- -- 1,419,973 1,419,973
Certificates and other time deposits 1,301,016 1,501,939 1,761,417 2,756,311 1,850,109 4,606,420
Certificates of deposit $100,000
and over 66,217 131,421 179,634 209,125 38,071 247,196
Federal funds purchased and securities
sold under agreements to repurchase 1,029,587 1,038,544 1,040,644 1,040,870 -- 1,040,870
Other borrowings 61,998 312,498 421,248 421,248 438,750 859,998
Long-term debt and capitalized
lease obligations -- -- - -- -- 158,607 158,607
Interest rate swaps (50,000) 250,000 150,000 200,000 (200,000) --
------------------------------------------ ------------ ------------ ------------ ------------ --------------- -----------
Total interest-bearing liabilities 2,408,818 3,234,402 3,552,943 4,627,554 3,705,510 8,333,064
Noninterest-bearing sources 118,056 236,112 472,224 472,224 1,248,884 1,721,108
------------------------------------------ ------------ ------------ ------------ ------------ --------------- -----------
Total sources of funds 2,526,874 3,470,514 4,025,167 5,099,778 4,954,394 10,054,172
------------------------------------------ ------------ ------------ ------------ ------------ --------------- -----------
Interest sensitivity gap ($523,015) ($1,040,681) ($1,052,550) ($1,130,707) $1,130,707 $ --
------------------------------------------ ============ ============ ============ ============ =============== ===========
Interest sensitivity gap as a percentage
of earning assets (5.53)% (11.00)% (11.13)% (11.96)% 11.96 %
Interest sensitive assets as a percentage
of interest sensitive liabilities 79.30 % 70.01 % 73.85 % 77.83 % 122.82 %
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Noninterest Income
Noninterest income was $58.4 million for 1994, a 53.6% decrease
when compared with $125.8 million for 1993. The decline in noninterest
income was due primarily to a major restructuring of the securities
portfolio that resulted in securities losses of $28.7 million in 1994,
as compared to $54.4 million profits on securities trading transactions
in 1993. The sale of approximately $470 million of fixed rate securities
in 1994 was designed to lessen the future exposure to rising interest
rates. The net proceeds were reinvested in higher yielding adjustable
rate securities and also used to reduce short-term borrowings. A
significant item contributing to total noninterest income during the
first quarter of 1994 was an $11.4 million gain recognized from the sale
of an $80.3 million affinity bank card portfolio. Excluding the impact
of securities transactions in 1994 and 1993 and nonrecurring income in
1994, noninterest income grew 2.1% for the year.
Trust income and deposit fees and charges for 1994 grew 2.2% and
1.9%, respectively. Other income, excluding the sale of bank card
receivables, was up 2.3% with a modest increase in commissions on
annuity and mutual fund products.
Table 21 shows the major categories of noninterest income for the
past five years.
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------------------------------------------
TABLE 21 Noninterest Income
(In Thousands) Year Ended December 31, Percent
<CAPTION> Change
1994 1993 1992 1991 1990 1994/1993
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
Trust income $13,926 $13,621 $12,208 $10,849 $10,223 2.2 %
Deposit fees and charges 34,557 33,898 29,792 27,341 24,271 1.9
Profits on securities available for sale
and trading account securities (25,984) 3,695 52,827 6,172 6,323 --
Investment securities gains, net -- 50,680 -- 17,725 6,194 --
Other income 35,860 23,909 20,595 16,855 23,907 50.0
------------------------------------------------------ -------- -------- -------- ------- -------
Total $58,359 $125,803 $115,422 $78,942 $70,918 (53.6)%
------------------------------------------------------ ======== ======== ======== ======= =======
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Noninterest Expense
Noninterest expense for 1994 was $245.2 million, a 9.8% increase
over $223.3 million for 1993. Noninterest expense increased 6.5% after
eliminating the $7.4 million nonrecurring charges in several categories.
These charges included $.5 million in employee relocation costs, $3.3
million in other real estate costs, a $3.1 million adjustment to prior
years' bank franchise tax assessments, and $.5 million in various other
expense items.
Absent the nonrecurring expense items, personnel expense increased
9.7%, resulting primarily from higher expense relating to personnel and
employee benefits. Occupancy and equipment expense increased 7.5%. FDIC
insurance premiums were up modestly, representing a 2.0% increase to
$14.9 million. Other expense increased 17.2%, paced by higher marketing,
bank card promotions and the write-off of certain software systems.
Table 22 shows the major categories of noninterest expense for the
past five years.
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------------------------------------------
TABLE 22 Noninterest Expense
(In Thousands) Year Ended December 31, Percent
<CAPTION> Change
1994 1993 1992 1991 1990 1994/1993
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
Personnel expense $127,683 $115,917 $104,060 $97,342 $87,401 10.2 %
Occupancy and equipment expense 41,653 38,752 38,313 35,826 34,159 7.5
FDIC insurance expense 14,910 14,612 11,886 9,244 4,734 2.0
Other real estate expense 11,786 15,108 4,715 8,376 (62) (22.0)
Other expense 49,191 38,909 41,859 39,618 38,474 26.4
------------------------------------------------------ -------- -------- -------- -------- --------
Total $245,223 $223,298 $200,833 $190,406 $164,706 9.8 %
------------------------------------------------------ ======== ======== ======== ======== ========
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Liquidity
The Company's liquidity is derived from both assets and liabilities.
Cash flows are managed to determine the availability of funds to support
loan growth or declines in deposits and to ensure adequate reserves to
meet any unanticipated need for funds. Prudent funds management values
the participation in various markets based on relative costs and term
structures. In 1994, Central Fidelity's bank note program was increased
from $600 million to $1 billion and the Bank joined the Federal Home Loan
Bank of Atlanta to further enhance these objectives.
The two primary sources of asset liquidity are money market investments
and securities available for sale with a maturity or expected weighted
average life of less than one year. As of December 31, 1994, the fair
value of these assets were $198.3 million and $241.3 million,
respectively, as compared to balances of $194.6 million and $563.0
million, respectively, at December 31, 1993.
Federal funds purchased, repurchase agreements, and large
denomination certificates of deposit provide the primary sources of
shorter-term wholesale funding. Medium-term funding is primarily
generated from the bank note program and FHLB borrowings. As of
December 31, 1994, $561.5 million of the bank note program was
outstanding and FHLB borrowings were $236.5 million. The total
amount scheduled to mature in 1995 for both sectors is $309.3 million.
<PAGE>
Capital Resources
At December 31, 1994, total shareholders' equity was $725.3
million, compared with $680.3 million for the same period in 1993,
representing a 6.6% increase after excluding the unrealized gains or
losses on securities available for sale subject to SFAS 115. The
contributing factors to the equity increase were primarily due to the
$41.0 million in earnings after dividends and also from the issuance of
common stock through stock option exercises of $4.0 million. During 1994,
cash dividends declared on common stock at an annual rate of $1.12 per
share represented a payout ratio of 51.6%.
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 revised the definition of capital and established minimum
capital standards in relation to assets and off-balance-sheet exposures,
as adjusted for credit risks. The final minimum guideline 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 23 shows the
components of risk-based capital at December 31, 1994 and 1993.
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, 1994, 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 were $694.3 million and
$928.4 million at December 31, 1994, as compared to $646.9 million and
$870.4 million at year-end 1993, respectively. At December 31, 1994, the
ratios of Tier 1 and total risk-based capital to risk-weighted assets
were 10.36% and 13.85%, compared to 11.06% and 14.88%, respectively, at
December 31, 1993. The leverage ratio was 7.04% at December 31, 1994,
compared to 7.10% at December 31, 1993.
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 23 Risk-Based Capital
(In Thousands) December 31,
<CAPTION>
1994 1993
<S> <C> <C>
-------------------------------------------------------------------
Tier 1 capital:
Common shareholders' equity $623,072 $726,137
Less unrealized gains (losses) on
securities available for sale 102,226 (45,853)
--------------------------------------------- -------- --------
725,298 680,284
Less goodwill (10,039) (10,722)
Less deposit intangibles (20,995) (22,662)
--------------------------------------------- -------- --------
Tier 1 capital 694,264 646,900
--------------------------------------------- -------- --------
Tier 2 capital:
Allowable allowance for loan losses 84,086 73,539
Allowable long-term debt 150,000 150,000
--------------------------------------------- -------- --------
Tier 2 capital 234,086 223,539
--------------------------------------------- -------- --------
Total capital $928,350 $870,439
--------------------------------------------- ======== ========
Risk-weighted assets $6,700,948 $5,851,654
Quarterly average assets $9,886,464 $9,185,380
Risk-based capital ratios:
Tier 1 capital 10.36% 11.06%
Total capital 13.85% 14.88%
Leverage ratio 7.04% 7.10%
-------------------------------------------------------------------
</TABLE>
<PAGE>
Earnings and Balance Sheet Analysis
1993 Compared to 1992
Net Interest Income
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 the prior year.
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. 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.
Loans
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 the previous year. 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.
Allowance/Provision for Loan Losses
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.
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
at year-end 1992. The increase of 17.6% in nonperforming assets in 1993
reflected the continued weakness in real estate development, primarily
in the Northern Virginia markets.
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 September, 1993, 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 $50.7 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 reclassified substantially
all of its investment securities as available for sale. Such securities
are 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 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.
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%.
The Company's asset funding strategy focuses primarily on core
deposit growth. Central Fidelity's share of total core deposits in the
Commonwealth 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.
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.
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 costs 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%.
Liquidity
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, 1993, 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.
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. During 1993 cash dividends declared on
common stock at an annual rate of $1.00 per share represented a payout ratio
of 37.6%.
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.
<PAGE>
<TABLE>
Quarterly Results of Operations
The following is a tabulation of the quarterly results of operations for each of
the four quarters in 1994 and 1993:
(In Thousands, except per share data)
<CAPTION>
March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------
1994
Total income from earning assets $154,535 $161,346 $171,106 $178,847
Net interest income 84,006 83,602 84,578 82,957
Provision for loan losses 10,117 2,304 3,900 8,038
Income (loss) before income taxes 43,521 43,884 40,308 (3,793)
Net income (loss) 29,291 29,583 27,399 (1,409)
Net income (loss) per share 0.75 0.76 0.70 (0.04)
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
-------------------------------------------------------------------------------------
</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 1994 and 1993 is as follows:
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------
Common Stock Prices
------------------------------------------ Dividends
1994 1993 Per Share
-------------------- -------------------- ----------------
High Low High Low 1994 1993
-------------------------------------------------------------------------------------
First Quarter $30.25 $27.00 $34.00 $26.00 $0.28 $0.25
Second Quarter 34.00 28.25 35.25 26.50 0.28 0.25
Third Quarter 34.50 30.25 32.25 28.25 0.28 0.25
Fourth Quarter 31.00 23.75 30.75 25.75 0.28 0.25
-------------------------------------------------------------------------------------
On January 13, 1993, the Board of Directors of the Company declared a
3-for-2 stock split in the form of a dividend payable on February 22, 1993,
to shareholders of record January 29, 1993.
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, 1994, there were 14,724 holders of record of the Company's
outstanding common stock.
</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 57
Item 2 Properties 58
Item 3 Legal Proceedings 58
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 53, 64
Item 6 Selected Financial Data 33
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 32-52
Item 8 Financial Statements and Supplementary Data 14-31, 53
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 59
* Included on page 58 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 10, 1995.
</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, 1994, 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
national banking association (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 1994, the Bank operated
230 branch offices, including 29 full-service supermarket locations and
194 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 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 twelve, 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
revised the bank regulatory and funding provisions of the Federal Deposit
Insurance Act and made revisions to several other federal banking statutes.
FDICIA requires that insured depository institutions maintain certain
minimum capital standards and that federal bank regulatory authorities
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 reporting requirements and regulatory
standards for real estate lending.
The earnings and business of Central Fidelity are affected by
general economic conditions, both domestic and foreign, and by the
monetary and fiscal policies of the United States Government and its
various agencies, particularly 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. The
Company cannot accurately predict the impact of changes in monetary
policy.
Based on September 30, 1994 published core deposit market share
data, the Company ranks as the third 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.
On September 29, 1994, the Riegel-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Interstate Banking Act"), which
eliminated the federal restrictions on interstate banking, was enacted.
This legislation generally authorizes interstate acquisitions of banks by
bank holding companies without geographic limitations commencing September
29, 1995 and authorizes interstate mergers of banks after May 31, 1997
subject to the ability of states to opt-out. In addition, the Interstate
Banking Act recognizes state legislation which accelerates the
implementation of interstate branching and mergers under certain
circumstances. The Virginia legislature has passed such legislation. As
of March 8, 1995, the Virginia legislation was awaiting the Governor's
signature and will become effective on July 1, 1995, if it is signed by
the Governor. The elimination of interstate banking restrictions will
have no immediate effect on the Company's long-standing strategy to
serve only Virginia markets. It is uncertain at this time what effect
the elimination of interstate banking restrictions will have on the
competitive environment in Virginia in the future.
The Company is not dependent upon any single customer, or group of
customers, nor is the Company significantly affected by seasonal changes.
<PAGE>
FORM 10-K
------------------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
Properties
The executive offices of Central Fidelity are located in the
headquarters 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, approximately half 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, 1994, the Company and its subsidiaries had
consolidated bank premises and equipment, including land, buildings,
furnishings and equipment, leasehold improvements and capitalized leases
of $147.2 million. For additional information, refer to notes 7 and 10 of
the notes to financial statements on pages 24 and 25, respectively.
<PAGE>
FORM 10-K
------------------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
Legal Proceedings
There are 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>
FORM 10-K
---------------------------------------------------------------------------
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 10, 1995.
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 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. Eberhardt,
Master and Sorah and Messrs. Baird, Foster, Plymale, 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 in its
mortgage banking division. 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. After having served in various senior officer
positions with the Bank for more than five years, Messrs. Foster and Mapp
were elected executive officers in 1993, and Ms. Eberhardt and Mr. Plymale
were elected in 1994 as executive officers .
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.
Lewis N. Miller, Jr., 51, Chairman of
the Board of Directors and President
Deborah J. Brooks, 43, Corporate Executive
Vice President, Marketing
Philip G. Hug, 52, Corporate
Executive Vice President, Commercial
James W. Koeniger, 48, Corporate Executive
Vice President, Financial Services
Jay O. Livingston, 48, Corporate Executive
Vice President, Administration
Maryann Master, 46, Corporate Executive
Vice President, Human Resources
John T. Percy, Jr., 48, Corporate
Executive Vice President, Investments
William H. Pruitt, 47, Corporate Executive
Vice President, Loan Administration
Jane D. Sorah, 47, Corporate Executive
Vice President, Bank Card Administration
Nancy K. Eberhardt, 41, Corporate
Executive Officer and President,
Northern Region
Rodger W. Fauber, 53, Corporate
Executive Officer and President,
Western Region
William I. Foster, III, 39, Corporate
Executive Officer and President,
Eastern Region
Stephen W. Mapp, 43, Executive Vice
President, Capital Region
Monty W. Plymale, 48, Corporate
Executive Officer and President,
Southwestern Region
J. Carson Quarles, 58, Corporate
Executive Officer and President,
Southwestern Region *
William N. Stoyko, 48, Corporate Executive
Officer, Secretary and Senior Corporate
Counsel, Legal Administration
Charles W. Tysinger, 46, Corporate
Executive Officer and Treasurer, Finance
John L. Van Horn, II, 58, Corporate
Executive Officer and President,
Northern Region
Bryant W. Baird, Jr., 58, President,
Central Fidelity Mortgage Division
of Central Fidelity National Bank
James F. Campbell, 56, Senior Vice
President and Controller
John S. Moore, 43, Senior Vice
President and Auditor
* Retired effective December 31, 1994.
<PAGE>
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
-----------------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
The following documents are filed as part of this report:
(a) Financial Statements:
Consolidated Balance Sheet -
December 31, 1994 and 1993
Statement of Consolidated Income -
Years ended December 31, 1994, 1993 and 1992
Statement of Consolidated Cash Flows -
Years ended December 31, 1994, 1993 and 1992
Statement of Changes in Consolidated Shareholders' Equity -
Years ended December 31, 1994, 1993 and 1992
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:
Reports on Form 8-K were filed on November 9 and November 30, 1994
reporting that the Company amended and restated its 1989 Rights
Agreement in its entirety, and that its banking subsidiary, Central
Fidelity National Bank, recognized security losses of approximately
$30 million pretax in the fourth quarter of 1994 in an effort to
restructure its securities portfolio to further reduce the Bank's
exposure to continued increases in interest rates, respectively.
(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 23261-7602.
<PAGE>
SIGNATURES
-------------------------------------------------------------------------------
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.
Lewis N. Miller, Jr.
Chairman of the Board
and Chief Executive Officer
(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 8, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on March 8, 1995 by a majority of the
Registrant's Board of Directors as follows:
Lewis N. Miller, Jr., Robert L. Freeman, Alvin R. Clements,
T. Justin Moore, Jr., Pauline Allen Ellison, Thomas R. Glass,
Kenneth S. White, Jack H. Ferguson, Richard L. Morrill,
G. Bruce Miller, William G. Reynolds, Jr., Phyllis L. Cothran,
James F. Betts and Lloyd U. Noland, III.
<PAGE>
Exhibit Index
-------------
Exhibit 3 - Articles of Incorporation and By-laws - Restated Articles of
Incorporation and By-laws of the Registrant adopted and effective March
14, 1990, incorporated by reference to Exhibits 3.1 and 3.2, respectively,
to Form 8 dated May 22, 1992, File No. 0-8829. Articles of Amendment to
Articles of Incorporation of the Registrant dated May 18, 1993,
incorporated by reference to Form S-3 Registration Statement filed
August 31, 1994, File No. 33-55311.
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.
<PAGE>
<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,
---------------------------
1994 1993 1992
<S> <C> <C> <C>
---------------------------
Net income $84,864 $102,917 $78,516
======== ======== =======
Shares:
Weighted average number of common shares
outstanding used in computing primary
earnings per share 39,163 38,738 34,963
Dilutive stock options - based on
treasury stock method 746 854 740
-------- -------- -------
Weighted average number of common shares
used in computing fully diluted
earnings per share 39,909 39,592 35,703
======== ======== =======
Earnings per share:
Primary earnings per share $2.17 $2.66 $2.25
Fully diluted earnings per share $2.13 $2.60 $2.20
</TABLE>
<PAGE>
<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, 1994,
which are incorporated in this report.
<CAPTION>
Percentage
Owned by State of
Registrant Incorporation
<S> <C> <C>
Registrant
------------ ---------- ---------------
Central Fidelity Banks, Inc. --- Virginia
Subsidiaries
--------------
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
North Hart Run, Inc. ** Virginia
Richmond, Virginia
North Hart Run Joint Venture *** Virginia
Richmond, Virginia
Oakton Hills Estates Joint Venture *** Virginia
Richmond, Virginia
Cedar Run Joint Venture *** 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.
*** 100% owned by North Hart Run, Inc., a subsidiary of 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 17, 1995, except as to note 18, which is as
of February 7, 1995, relating to the consolidated balance
sheet of Central Fidelity Banks, Inc. and subsidiaries as of December
31, 1994 and 1993, 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, 1994,
which report appears on page 31 of this 1994 annual report on Form 10-K
of Central Fidelity Banks, Inc. Our report refers to the adoption of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," SFAS No. 109, "Accounting for Income Taxes"
and SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" in 1993.
KPMG Peat Marwick LLP
Richmond, Virginia
March 24, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000276235
<NAME> CENTRAL FIDELITY BANKS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 274,813
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 196,859
<TRADING-ASSETS> 1,417
<INVESTMENTS-HELD-FOR-SALE> 3,486,381
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 5,772,093
<ALLOWANCE> 110,000
<TOTAL-ASSETS> 10,054,172
<DEPOSITS> 7,227,244
<SHORT-TERM> 1,102,868
<LIABILITIES-OTHER> 144,381
<LONG-TERM> 956,607
<COMMON> 196,621
0
0
<OTHER-SE> 426,451
<TOTAL-LIABILITIES-AND-EQUITY> 10,054,172
<INTEREST-LOAN> 442,160
<INTEREST-INVEST> 218,200
<INTEREST-OTHER> 5,474
<INTEREST-TOTAL> 665,834
<INTEREST-DEPOSIT> 243,632
<INTEREST-EXPENSE> 330,691
<INTEREST-INCOME-NET> 335,143
<LOAN-LOSSES> 24,359
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 245,223
<INCOME-PRETAX> 123,920
<INCOME-PRE-EXTRAORDINARY> 123,920
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,864
<EPS-PRIMARY> 2.17
<EPS-DILUTED> 2.13
<YIELD-ACTUAL> 3.54
<LOANS-NON> 67,534
<LOANS-PAST> 11,040
<LOANS-TROUBLED> 7,249
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 105,000
<CHARGE-OFFS> 34,397
<RECOVERIES> 15,038
<ALLOWANCE-CLOSE> 110,000
<ALLOWANCE-DOMESTIC> 110,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
