UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission file number 0-8829
CENTRAL FIDELITY BANKS, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1091649
(State of incorporation) (I.R.S. Employer
Identification NO.)
1021 East Cary Street 23219
Richmond, Virginia (Zip Code)
(Address of principal executive offices)
(804) 782-4000
(Registrant's telephone number, including area code)
Central Fidelity Banks, Inc. (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
As of May 8, 1996, the latest practicable date, Central Fidelity
Banks, Inc. had 39,776,992 shares of its Common Stock outstanding.
This is the only class of outstanding shares.
1
<PAGE>
<TABLE>
CENTRAL FIDELITY BANKS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Balance Sheet 4-5
Statement of Consolidated Income 6
Statement of Consolidated Cash Flows 7
Statement of Changes in Consolidated Shareholders'
Equity 8
Supplemental Data to Financial Statements:
Consolidated Financial Highlights 9
Average Balances and Interest Rates
(Taxable Equivalent Basis) 10-11
Selected Loan Loss Data 12
Nonperforming Assets and Past-due Loans 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-21
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
EXHIBIT INDEX 25
</TABLE>
2
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PART I
-----------
FINANCIAL INFORMATION
-----------------------------------------
CENTRAL FIDELITY BANKS, INC.
ITEM 1. FINANCIAL STATEMENTS
The consolidated balance sheet as of March 31, 1996, the statement of
consolidated income for the three-month period ended March 31, 1996
and 1995, the statement of consolidated cash flows and the statement of
changes in consolidated shareholders' equity for the three-month period
ended March 31, 1996 and 1995 are unaudited and do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended March 31,
1996 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes included in the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 which is the source of the Company's balance sheet as of that
date.
ACCOUNTING CHANGE
- ------------------------------------
Change in Accounting Principles
- ----------------------------------------------
On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), which requires a fair-value-based method of
accounting and reporting standards for all stock-based compensation
plans. The adoption of SFAS 123 has no impact on the financial condition
or results of operations of the Company since the Company will follow the
disclosure provisions of SFAS 123 and will not record compensation
expense for options granted.
3
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<TABLE>
CONSOLIDATED BALANCE SHEET
- ------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
(In thousands, except share data)
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
- ------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------
Cash and due from banks $252,869 $338,580
Temporary investments:
Federal funds sold and securities purchased
under agreements to resell 143,151 157,734
Other money market investments 25,000 50,000
Trading account securities 2,486 422
- ------------------------------------------------------------------
Total temporary investments 170,637 208,156
- ------------------------------------------------------------------
Assets available for sale:
Securities 3,426,718 3,654,887
Loans 25,811 15,653
- ------------------------------------------------------------------
Total assets available for sale 3,452,529 3,670,540
- ------------------------------------------------------------------
Total loans 6,350,554 6,301,160
Allowance for loan losses (110,000) (110,000)
- ------------------------------------------------------------------
Net loans 6,240,554 6,191,160
- ------------------------------------------------------------------
Accrued interest receivable 66,490 67,436
Premises and equipment, net 154,421 152,879
Due from customers on acceptances 15,257 18,741
Other assets 181,695 163,482
- ------------------------------------------------------------------
Total assets $10,534,452 $10,810,974
- ------------------------------------------ ========== ==========
</TABLE>
4
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<TABLE>
CONSOLIDATED BALANCE SHEET (Continued)
<CAPTION>
LIABILITIES
<S> <C> <C>
- ------------------------------------------------------------------
Deposits:
Demand $1,010,480 $1,037,906
Savings and other time 6,582,879 6,599,645
Certificates of deposit $100,000 and over 205,283 348,347
- ------------------------------------------------------------------
Total deposits 7,798,642 7,985,898
- ------------------------------------------------------------------
Borrowings:
Federal funds purchased and securities sold
under agreements to repurchase 1,057,008 1,041,951
Other short-term borrowings 84,652 88,045
Medium-term notes 102,250 252,250
Federal Home Loan Bank borrowings 407,900 350,700
Long-term debt 150,362 150,386
Capitalized lease obligations 7,646 7,746
- ------------------------------------------------------------------
Total borrowings 1,809,818 1,891,078
- ------------------------------------------------------------------
Dividends payable 12,030 12,052
Accrued interest payable 35,508 37,911
Bank acceptances outstanding 15,257 18,741
Accounts payable and accrued liabilities 54,878 38,747
- ------------------------------------------------------------------
Total liabilities 9,726,133 9,984,427
- ------------------------------------------------------------------
SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------
Preferred stock, none issued -- --
Common stock, par value $5 per share, authorized
100,000,000 shares, shares issued: 39,950,109
and 40,192,879, respectively 199,751 200,964
Capital surplus 186,432 195,151
Retained earnings 422,518 406,567
Unrealized gains (losses) on securities available
for sale, net of income taxes (382) 23,865
- ------------------------------------------------------------------
Total shareholders' equity 808,319 826,547
- ------------------------------------------------------------------
Total liabilities and shareholders'
equity $10,534,452 $10,810,974
- ------------------------------------------ ========== ==========
- ------------------------------------------------------------------
</TABLE>
5
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<TABLE>
STATEMENT OF CONSOLIDATED INCOME
- ---------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
(In thousands, except share and per share data)
For the three months ended March 31,
<CAPTION>
1996 1995
<S> <C> <C>
- ---------------------------------------------------------------
Income From Earning Assets
- ---------------------------------------------------------------
Interest and fees on loans $139,469 $125,417
Interest on securities available for sale:
U.S. Government and agencies 36,211 42,248
States and political subdivisions 1,501 1,888
Other 18,802 14,225
Interest on loans available for sale 242 33
Interest on money market investments 1,568 1,633
Interest on trading account securities 13 18
- ----------------------------------------------------------------
Total income from earning assets 197,806 185,462
- ----------------------------------------------------------------
Interest Expense
- ---------------------------------------------------------------
Interest on deposits 81,336 72,671
Interest on federal funds purchased and securities
sold under agreements to repurchase 12,701 14,962
Interest on other short-term borrowings 977 727
Interest on medium-term notes 2,500 6,703
Interest on Federal Home Loan Bank
borrowings 6,137 4,276
Interest on long-term debt 2,502 2,822
Interest on capitalized lease obligations 170 179
- ----------------------------------------------------------------
Total interest expense 106,323 102,340
- ----------------------------------------------------------------
Net interest income 91,483 83,122
Provision for loan losses 10,307 5,304
- ----------------------------------------------------------------
Net income from earning assets 81,176 77,818
- ----------------------------------------------------------------
Noninterest Income
- ---------------------------------------------------------------
Trust income 4,295 3,423
Deposit fees and charges 9,363 8,526
Profits on securities available for sale and
trading account securities 156 516
Other income 6,635 5,668
- ----------------------------------------------------------------
Total noninterest income 20,449 18,133
- ----------------------------------------------------------------
Noninterest Expense
- ---------------------------------------------------------------
Personnel expense 34,316 32,931
Occupancy and equipment expense 11,546 10,401
FDIC insurance expense 654 3,903
Other real estate expense 887 521
Other expense 13,183 10,671
- ----------------------------------------------------------------
Total noninterest expense 60,586 58,427
- ----------------------------------------------------------------
Earnings
- ---------------------------------------------------------------
Income before income taxes 41,039 37,524
Income tax expense 13,058 11,804
- ----------------------------------------------------------------
Net income $27,981 $25,720
- --------------------------------------- ======== ========
Earnings Per Share
- ---------------------------------------------------------------
Net income $0.70 $0.65
Average shares outstanding 40,196,957 39,457,407
- ---------------------------------------------------------------
</TABLE>
6
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<TABLE>
STATEMENT OF CONSOLIDATED CASH FLOWS
- ----------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
(In thousands) For the three months ended March 31,
<CAPTION>
1996 1995
<S> <C> <C>
- ----------------------------------------------------------------------
OPERATING ACTIVITIES
- ----------------------------------------------------------------------
Net income $27,981 $25,720
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Provision for loan losses 10,307 5,304
Depreciation of premises and equipment 3,950 3,949
Net amortization of premium and accretion of discount
on securities available for sale (210) (2,012)
Gains on securities available for sale (320) (633)
Deferred income taxes (764) 2,466
(Increase) decrease in trading account
securities (2,064) 865
Originations of loans available for sale (34,543) (6,010)
Purchases of loans available for sale (31,383) (3,257)
Proceeds from sales of loans available for
sale 55,387 8,860
Decrease in accrued interest receivable 946 1,225
Decrease in accrued interest payable (2,403) (749)
Other, net 12,892 (36,033)
- ----------------------------------------------------------------------
Net cash provided (used) by operating
activities 39,776 (305)
- ----------------------------------------------------------------------
INVESTING ACTIVITIES
- ----------------------------------------------------------------------
Purchases of securities available for sale (148,040) (149,788)
Proceeds from sales of securities available for
sale 146,616 173,356
Proceeds from maturities and repayments of securities
available for sale 167,819 62,601
Net increase in loans (62,677) (112,959)
Purchases of premises and equipment (5,879) (3,769)
Proceeds from the disposition of premises and
equipment 1,215 20
Proceeds from the disposition of foreclosed
properties 1,376 682
- ----------------------------------------------------------------------
Net cash provided (used) by investing
activities 100,430 (29,857)
- ----------------------------------------------------------------------
FINANCING ACTIVITIES
- ----------------------------------------------------------------------
Net decrease in demand, interest checking and
regular savings deposits (15,316) (72,831)
Net increase (decrease) in consumer certificates (22,800) 132,807
Net increase (decrease) in money market accounts (6,076) 11,679
Net decrease in certificates of deposit $100,000
and over (143,064) (8,698)
Net increase in short-term borrowings 11,664 103,743
Payments on medium-term notes (150,000) (209,250)
Proceeds from FHLB borrowings 57,200 33,100
Payments on long-term debt and capitalized lease
obligations (124) (114)
Proceeds from issuance of common stock 5,294 4,790
Common stock purchased (15,226) --
Cash dividends (12,052) (11,000)
- ----------------------------------------------------------------------
Net cash used by financing activities (290,500) (15,774)
- ----------------------------------------------------------------------
Decrease in cash and cash equivalents (150,294) (45,936)
Cash and cash equivalents at beginning
of year 571,314 496,672
- ----------------------------------------------------------------------
Cash and cash equivalents at end of
period 421,020 450,736
- ------------------------------------------------ ======== ========
- ----------------------------------------------------------------------
</TABLE>
7
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<TABLE>
STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
<CAPTION>
Unrealized
Gains (Losses)
on Securities Total
(In thousands) Common Common Capital Retained Available Shareholders'
For the three months ended March 31, Shares Stock Surplus Earnings for Sale Equity
1995
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Balance at beginning of period 39,324 $196,621 $180,458 $348,219 ($102,226) $623,072
Net income -- -- -- 25,720 -- 25,720
Common stock issued under Plans 219 1,095 3,695 -- -- 4,790
Cash dividends declared on common stock -- -- -- (11,071) -- (11,071)
Change in unrealized losses on securities available
for sale, net of income taxes of
$32,910 -- -- -- -- 61,119 61,119
- ----------------------------------------------------------------------------------------------------------------
Balance at end of period 39,543 $197,716 $184,153 $362,868 ($41,107) $703,630
- --------------------------------------- ======= ========= ========= ========= ========= =========
For the three months ended March 31, 1996
- ----------------------------------------------------------------------------------------------------------------
Balance at beginning of period 40,193 $200,964 $195,151 $406,567 $23,865 $826,547
Net income -- -- -- 27,981 -- 27,981
Common stock issued under Plans 206 1,034 4,260 -- -- 5,294
Common stock purchased (449) (2,247) (12,979) -- -- (15,226)
Cash dividends declared on common stock -- -- -- (12,030) -- (12,030)
Change in unrealized gains on securities available
for sale, net of income taxes of
$13,056 -- -- -- -- (24,247) (24,247)
- ----------------------------------------------------------------------------------------------------------------
Balance at end of period 39,950 $199,751 $186,432 $422,518 ($382) $808,319
- --------------------------------------- ======= ========= ========= ========= ========= =========
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
8
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<TABLE>
CONSOLIDATED FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
(In thousands, except share and per share data)
For the three months ended March 31,
<CAPTION>
1996 1995 Change
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Results Of Operations
- ------------------------------------------------------------------------------------------------------------------------
Net interest income (tax-equivalent basis) $93,244 $85,090 9.6 %
Provision for loan losses 10,307 5,304 94.3
Noninterest income 20,449 18,133 12.8
Noninterest expense 60,586 58,427 3.7
Net income 27,981 25,720 8.8
Per Share Data
- ------------------------------------------------------------------------------------------------------------------------
Net income $0.70 $0.65 7.7 %
Book value 20.23 17.79 13.7
Average Daily Balance
- ------------------------------------------------------------------------------------------------------------------------
Assets $10,468,948 $9,943,075 5.3 %
Loans 6,335,868 5,811,787 9.0
Earning assets 9,936,202 9,472,512 4.9
Deposits 7,819,641 7,196,780 8.7
Shareholders' equity 822,450 679,321 21.1
Shares outstanding 40,196,957 39,457,407 1.9
Balance At Quarter-End
- ------------------------------------------------------------------------------------------------------------------------
Assets $10,534,452 $10,076,829 4.5 %
Loans 6,376,365 5,878,231 8.5
Earning assets 9,973,720 9,538,663 4.6
Deposits 7,798,642 7,290,201 7.0
Shareholders' equity 808,319 703,630 14.9
Shares outstanding 39,950,109 39,543,285 1.0
Key Performance Ratios (Basis point change)
- ------------------------------------------------------------------------------------------------------------------------
Return on average assets 1.07 % 1.03 % 0.04
Return on average shareholders' equity 13.61 15.14 (1.53)
Net interest margin (tax-equivalent basis) 3.77 3.64 0.13
Efficiency 52.58 56.38 (3.80)
Allowance for loan losses as a percentage of loans 1.73 1.87 (0.14)
Equity to total assets 7.67 6.98 0.69
Risk-based capital 13.17 14.00 (0.83)
- ------------------------------------------------------------------------------------------------------------------------
COMMON STOCK PERFORMANCE AND DIVIDENDS
- ------------------------------------------------------------------------------------------------------------------------
Common Stock Prices
---------------------------------------------------- Dividends
1996 1995 Per Share
---------------------------------------------------- ------------------------
High Low High Low 1996 1995
----------- ----------- ------------ ------------ ----------- -----------
First Quarter $34.50 $31.63 $27.25 $24.25 $.30 $.28
Second Quarter 30.50 25.25 .30
Third Quarter 33.50 29.25 .30
Fourth Quarter 34.25 30.50 .30
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
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<TABLE>
AVERAGE BALANCES AND INTEREST RATES (Taxable Equivalent Basis)
- ---------------------------------------------------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
(In thousands) For the three months ended March 31,
<CAPTION> 1996 1995
- ---------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Assets
- ---------------------------------------------------------------------------------------------------------------
Interest-earning assets:
Loans:
Commercial and commercial real
estate $1,994,064 $42,090 8.49 % $1,866,179 $39,715 8.63 %
Construction 285,169 6,495 9.16 312,578 7,535 9.78
Residential real estate 1,607,454 29,671 7.42 1,566,556 28,058 7.26
Consumer second mortgage 622,031 15,122 9.78 557,120 13,176 9.59
Installment 1,044,530 22,260 8.57 899,416 17,592 7.93
Bank card 769,608 24,659 12.89 608,367 20,264 13.51
- ------------------------------------------------------------------- --------------------------
6,322,856 140,297 8.92 5,810,216 126,340 8.82
Assets available for sale:
Securities:
U.S. Government and agencies 2,233,721 36,211 6.52 2,574,475 42,248 6.66
States and political subdivisions 112,704 2,309 8.20 137,334 2,835 8.26
Other 1,134,828 18,842 6.68 832,276 14,227 6.93
- ------------------------------------------------------------------- --------------------------
3,481,253 57,362 6.63 3,544,085 59,310 6.79
Loans 13,012 242 7.49 1,571 33 8.54
- ------------------------------------------------------------------- --------------------------
3,494,265 57,604 6.63 3,545,656 59,343 6.79
Money market investments 118,134 1,649 5.61 115,407 1,720 6.04
Trading account securities 947 17 7.09 1,233 27 8.81
- ------------------------------------------------------------------- --------------------------
Total interest-earning assets 9,936,202 $199,567 8.08 % 9,472,512 $187,430 8.02 %
- ---------------------------------------------------- ======== ------------ ========
Noninterest-earning assets:
Cash and due from banks 267,549 259,120
Premises and equipment, net 152,978 146,446
Other assets 222,219 174,997
Allowance for loan losses (110,000) (110,000)
- ---------------------------------------------------- ------------
Total assets $10,468,948 $9,943,075
- ---------------------------------------- ========== ==========
</TABLE>
10
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<TABLE>
Liabilities and Shareholders' Equity 1996 1995
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Interest checking $684,446 $3,433 2.02 % $643,036 $3,741 2.36 %
Regular savings 733,436 4,982 2.73 754,045 5,216 2.81
Consumer certificates 4,121,389 58,936 5.75 3,680,367 50,277 5.54
Money market accounts 1,056,627 10,499 4.00 1,002,032 10,175 4.12
Certificates of deposit $100,000 and
over 253,209 3,486 5.54 237,466 3,262 5.57
Federal funds purchased and repos 987,229 12,701 5.17 1,043,307 14,962 5.82
Other short-term borrowings 79,795 977 4.93 55,034 727 5.36
Medium-term notes 176,426 2,500 5.70 458,042 6,703 5.94
Federal Home Loan Bank borrowings 386,458 6,137 6.39 258,384 4,276 6.71
Long-term debt 150,376 2,502 6.69 150,430 2,822 7.61
Capitalized lease obligations 7,686 170 8.90 8,106 179 8.97
- ------------------------------------------------------------------- --------------------------
Total interest-bearing
liabilities 8,637,077 $106,323 4.95 % 8,290,249 $102,340 5.01 %
- ---------------------------------------------------- ======== ------------ ========
Noninterest-bearing liabilities:
Demand deposits 970,534 879,834
Other 38,887 93,671
- ---------------------------------------------------- -----------------
Total noninterest-bearing
liabilities 1,009,421 973,505
Shareholders' equity 822,450 679,321
- ---------------------------------------------------- -----------------
Total liabilities and
shareholders' equity $10,468,948 $9,943,075
- ---------------------------------------- ========== ==========
Net interest earnings $93,244 $85,090
- ---------------------------------------- ======== ========
Net interest spread 3.13 % 3.01 %
- ---------------------------------------- ====== ======
Net interest margin 3.77 % 3.64 %
- ---------------------------------------- ====== ======
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
11
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<TABLE>
SELECTED LOAN LOSS DATA
- --------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
(In thousands) For the three months ended March 31,
<CAPTION>
1996 1995
<S> <C> <C>
- --------------------------------------------------------------------
Balance at beginning of period $110,000 $110,000
Provision charged to expense 10,307 5,304
- --------------------------------------------------------------------
120,307 115,304
Loans charged off:
Commercial and commercial real estate 1,539 1,451
Construction 500 --
Residential real estate 138 50
Installment 4,646 3,252
Bank card 7,580 5,148
- --------------------------------------------------------------------
Total charge-offs 14,403 9,901
- --------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial and commercial real estate 670 1,978
Construction 702 857
Residential real estate 2 6
Installment 1,900 1,062
Bank card 822 694
- --------------------------------------------------------------------
Total recoveries 4,096 4,597
- --------------------------------------------------------------------
Net charge-offs 10,307 5,304
- --------------------------------------------------------------------
Balance at end of period $110,000 $110,000
- -------------------------------------------- ========= =========
Average loans $6,335,868 $5,811,787
Loans at period-end $6,376,365 $5,878,231
Ratio of provision for loan losses to
average loans 0.65% 0.37%
Ratio of net charge-offs to average loans 0.65% 0.37%
Ratio of allowance for loan losses to loans
at period-end 1.73% 1.87%
- --------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
NONPERFORMING ASSETS AND PAST-DUE LOANS
- ---------------------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
(In thousands)
<CAPTION> March December 31,
1996 1995 1995
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
Nonperforming Assets
- ---------------------------------------------------------------------------------
Nonaccrual loans:
Land acquisition, land development
or construction:
Commercial $6,131 $7,683 $6,236
Residential 11,603 14,710 16,784
Residential real estate 4,957 3,839 4,655
Commercial real estate 9,988 20,734 11,825
Commercial and industrial 8,772 12,089 9,263
- ---------------------------------------------------------------------------------
Total nonaccrual loans 41,451 59,055 48,763
- ---------------------------------------------------------------------------------
Restructured loans -- -- --
- ---------------------------------------------------------------------------------
Total nonperforming loans 41,451 59,055 48,763
- ---------------------------------------------------------------------------------
Foreclosed properties:
Land and developed lots:
Commercial 2,640 4,964 2,742
Residential 9,742 13,762 10,370
Residential real estate 3,982 3,631 3,318
Commercial real estate 1,880 1,514 706
- ---------------------------------------------------------------------------------
Total foreclosed properties 18,244 23,871 17,136
- ---------------------------------------------------------------------------------
Total nonperforming assets $59,695 $82,926 $65,899
- --------------------------------------------- ======= ======= =======
Ratio of nonperforming assets to
loans and foreclosed properties 0.93% 1.41% 1.04%
- ---------------------------------------------------------------------------------
Past-due Loans (90 days or more and still accruing)
- ---------------------------------------------------------------------------------
Commercial and construction $1,147 $1,199 $1,159
Residential real estate 6,623 3,826 7,941
Installment 3,832 1,734 4,028
Bank card 8,262 6,432 7,855
- ---------------------------------------------------------------------------------
Total past-due loans $19,864 $13,191 $20,983
- --------------------------------------------- ======= ======= =======
- ---------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
CENTRAL FIDELITY BANKS, INC.
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
This discussion is intended to provide information about the
Company's financial condition and results of operations which may not be
readily apparent from the consolidated financial statements and tables
included in this report. Reference should be made to those statements
and tables and other selected financial data presented elsewhere in this
report for an understanding of the following discussion and analysis.
Results of Operations
- -------------------------------
Net income for the first three months of 1996 was $28.0 million, 8.8%
higher than the $25.7 million earned in the first three months of 1995. On a
per share basis, net income grew 7.7% to $.70 from $.65 on a higher
number of average shares outstanding. The increases in net income and
net income per share were due primarily to higher net interest margin,
growth in noninterest income and effective control over operating
expenses.
On a tax-equivalent basis, net interest income for the three months
ended March 31, 1996 was $93.2 million, a 9.6% increase from the $85.1
million earned in the corresponding 1995 period. The net interest margin
was 3.77% for the three months ended March 31, 1996, up thirteen basis
points from 3.64% during the same period in 1995. The growth in net
interest income and net interest margin during the three-month period was
impacted by the higher yield on earning assets and a reduced cost of
interest-bearing liabilities. For the first three months of 1996, average
earning assets grew $463.7 million from the level recorded in the first
three months of 1995, or 4.9%. This growth produced $12.1 million
additional income, an increase of 6.5% from the first three months of 1995.
The yield on average earning assets increased 6 basis points. Average
interest-bearing liabilities increased $346.8 million, or 4.2% from the three
months ended March 31, 1995, and interest expense increased $4.0
million or 3.9% over the corresponding 1995 period, but the cost of
interest-bearing liabilities declined 6 basis points.
14
For the three-month period ended March 31, 1996, the Company's
interest rate swap activities resulted in declines in interest income of
$619,000 and interest expense of $296,000 compared to $913,000
decrease in interest income and $750,000 increase in interest expense
for the corresponding period in 1995. The Company's interest rate swap
activities resulted in reductions of net interest income of $323,000 for the
three months ended March 31, 1996 and $1,663,000 for the same period in
1995.
The provision for loan losses was $10.3 million for the three months
ended March 31, 1996 compared with $5.3 million recorded for the
corresponding period in 1995. The increase in the provision was
impacted by the higher level of net charge-offs. This higher net charge-off
level resulted from a combination of lower commercial and commercial
real estate loan recoveries and higher levels of losses in both consumer
installment and bankcard loans when compared to the first quarter of
1995.
Noninterest income totalled $20.4 million for the first three months of
1996 compared with $18.1 million for the same period in 1995,
representing an increase of 12.8%. The increase in noninterest income
was primarily driven by higher trust income, growth in deposit fees and
charges and generally stronger miscellaneous fee revenue.
Noninterest expense for the first three months of 1996 increased 3.7%
to $60.6 million compared to the same period in 1995. This modest
increase resulted in part from higher personnel, occupancy and
equipment costs and greater amortization of deposit intangibles relating
to the acquisition of 14 branches from Household Bank, f.s.b. in June,
1995. Lower FDIC premiums partially offset noninterest expense growth.
Balance Sheet
- ---------------------
Total assets as of March 31, 1996 were $10.5 billion, a decrease from
year-end 1995's $10.8 billion level. Total loans at March 31, 1996 were
$6.4 billion, slightly higher than at December 31, 1995, representing
growth primarily in both the commercial and consumer loan categories.
Total deposits were $7.8 billion at March 31, 1996, a decline of 2.3% from
December 31, 1995. Shareholders' equity at March 31, 1996 was $808.3
million, or 7.7% of total assets. At December 31, 1995, shareholders'
equity was $826.5 million, or 7.6% of total assets. The book value per
share declined from $20.56 at December 31, 1995 to $20.23 at March 31,
1996. Excluding the impact of unrealized gains and losses on securities
available for sale, shareholders' equity was $808.7 million, or 7.7% of total
assets at March 31, 1996, and $802.7 million, or 7.4% of total assets at
December 31, 1995. Book value per share was $20.24 at March 31, 1996,
a 1.4% growth from $19.97 at December 31, 1995.
15
The return on average total assets during the first three months of 1996
was 1.07% compared to 1.03% for the comparable 1995 period. The
return on average shareholders' equity was 13.61% versus 15.14% in
1995.
Asset Quality
- ------------------
Nonperforming assets as of March 31, 1996 were $59.7 million, or .57%
of total assets, compared to $65.9 million or .61% of total assets at
December 31, 1995 and $82.9 million or .82% of total assets at March 31,
1995. At March 31, 1996, nonperforming assets were .93% of loans and
foreclosed properties, compared to 1.04% at December 31, 1995 and
1.41% at March 31, 1995. The lower level of nonperforming assets was a
result of overall improved credit quality in the loan portfolio.
The allowance for loan losses at March 31, 1996, December 31, 1995
and March 31, 1995 was $110.0 million. At March 31, 1996, the allowance
for loan losses was 1.73% of loans, compared to 1.74% at December 31,
1995 and 1.87% at March 31, 1995. At March 31, 1996, the allowance for
loan losses to nonperforming assets was 184%, compared to 167% at
December 31, 1995 and 133% at March 31, 1995. Net loan charge-offs for
the three months ended March 31, 1996 were $10.3 million, representing
.65% of average loans on an annualized basis compared to $9.4 million
or .60% for the three months ended December 31, 1995 and $5.3 million or
.37% for the three months ended March 31, 1995.
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.
16
Capital Resources
- --------------------------
The Company's risk-based capital and leverage ratios exceeded the
Federal Reserve's minimum guidelines at March 31, 1996. At March 31,
1996, the Company's total risk-based capital was $990.2 million, as
compared to $982.7 million at year-end 1995 and $949.4 million at March
31, 1995. The ratio of total risk-based capital to risk-weighted assets was
13.17% at March 31, 1996 compared to 13.12% and 14.00% at December
31, 1995 and March 31, 1995, respectively. At March 31, 1996, the
Company's leverage ratio was 7.17%, compared to 7.06% at December
31, 1995 and 7.21% at March 31, 1995. At March 31, 1996, the Bank's total
risk-based capital and leverage ratios were 12.84% and 6.94%,
respectively.
Off-Balance-Sheet Derivatives
- ---------------------------------------------
Interest rate swaps have been the main derivative instrument used to
modify the repricing characteristics of various balance sheet assets and
liabilities. The typical interest rate swaps entered into by the Company
are commitments to participate in cash settlements with a counterparty at
various future dates as agreed to in the swap contract. These cash
settlements result from movements in interest rates and are based on
differences in specific rate indexes as applied to the notional principal
amount of the contract.
The Company utilizes financial derivatives in its strategy of managing
liability sensitivity. In the implementation of this strategy, the use of
off-balance-sheet derivatives is limited compared to the size of various
on-balance-sheet instruments.
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 likelihood of
any material gain or loss recognition on the Company's interest rate
swaps. In the event that a derivative product is 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.
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 credit risk thresholds.
The Company has also entered into a small number of interest rate
swap agreements to accommodate the needs of commercial customers.
In order to offset the interest rate risk of customer swaps, the Company
has executed offsetting transactions with third parties.
The Company intends to continue using off-balance-sheet financial
derivatives as a limited end-user in the prudent management of interest
rate sensitivity.
Change in Accounting Principles
- ----------------------------------------------
See Item 1. Financial Statements herein.
18
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------
Summary of Interest Rate Swaps
The weighted average variable rates are based upon the contractual rates in effect at March 31, 1996:
(In Thousands) March 31, 1996
<CAPTION>
Notional Weighted Average Rate Maturity Interest Unrecognized
Amount Receive Pay In Years Income/(Expense) Gains(Losses)
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Company Hedging Swaps
- --------------------------------------------------------------------------------------------------------
Pay fixed/receive variable:
Variable rate medium-term
borrowings $100,000 5.34 % (1) 5.47 % 1.53 ($26) ($336)
Securities available for sale 15,943 5.70 (2) 9.00 3.49 (422) (588)
Fixed rate commercial loans 22,904 5.42 (1) 6.83 3.45 (79) (523)
- ------------------------------------------------ -------------- -------------
Total pay fixed/receive
variable 138,847 5.39 6.11 2.08 (527) (1,447)
- ------------------------------------------------ -------------- -------------
Receive fixed/pay variable:
Fixed rate subordinated debt 150,000 7.10 5.25 (1) 6.63 588 4,996
Fixed rate medium-term
borrowings 100,000 4.69 5.25 (1) 0.21 (266) (226)
Variable rate commercial loans 100,000 4.77 5.47 (1) 0.81 (118) (886)
- ------------------------------------------------ -------------- -------------
Total receive fixed/pay
variable 350,000 5.74 5.31 3.13 204 3,884
- ------------------------------------------------ -------------- -------------
Total company hedging swaps $488,847 5.64 % 5.54 % 2.83 ($323) $2,437
- ----------------------------------======== ======== ========
- --------------------------------------------------------------------------------------------------------
Customer Hedging Swaps
- --------------------------------------------------------------------------------------------------------
Pay fixed/receive variable $4,500 5.36 % (1) 9.11 % 2.06 $163 ($413)
Receive fixed/pay variable 4,500 9.20 5.36 (1) 2.06 (162) 421
- ------------------------------------------------ -------------- -------------
Total customer hedging swaps $9,000 7.74 % 7.71 % 2.06 $1 $8
- ----------------------------------======== ======== ========
The weighted average variable rates are based upon the contractual rates in effect at March 31, 1995:
(In Thousands) March 31, 1995
- --------------------------------------------------------------------------------------------------------
Company Hedging Swaps
- --------------------------------------------------------------------------------------------------------
Pay fixed/receive variable:
Variable rate medium-term
borrowings $50,000 6.25 % (1) 6.42 % 2.21 ($13) $644
Variable rate deposits 50,000 5.82 (3) 4.98 0.29 120 136
Fixed rate commercial loans 26,321 6.28 (1) 6.83 4.43 (48) 173
- ------------------------------------------------ -------------- -------------
Total pay fixed/receive
variable 126,321 6.09 5.94 1.91 59 953
- ------------------------------------------------ -------------- -------------
Receive fixed/pay variable:
Fixed rate subordinated debt 150,000 7.10 6.31 (1) 7.63 275 (2,874)
Fixed rate medium-term
borrowings 340,000 4.85 6.31 (1) 1.43 (1,132) (7,167)
Variable rate commercial loans 100,000 4.77 6.31 (1) 1.81 (865) (4,277)
- ------------------------------------------------ -------------- -------------
Total receive fixed/pay
variable 590,000 5.41 6.31 3.07 (1,722) (14,318)
- ------------------------------------------------ -------------- -------------
Total company hedging swaps $716,321 5.53 % 6.24 % 2.87 ($1,663) ($13,365)
- ----------------------------------======== ======== ========
- --------------------------------------------------------------------------------------------------------
Customer Hedging Swaps
- --------------------------------------------------------------------------------------------------------
Pay fixed/receive variable $9,000 6.15 % (1) 6.87 % 2.02 $291 ($284)
Receive fixed/pay variable 9,000 6.92 6.15 (1) 2.02 (290) 317
- ------------------------------------------------ -------------- -------------
Total customer hedging swaps $18,000 6.54 % 6.51 % 2.02 $1 $33
- ----------------------------------======== ======== ========
- --------------------------------------------------------------------------------------------------------
(1) Variable rate is tied to London Inter-Bank Offered Rate (LIBOR) with designated 3-month maturity.
(2) Variable rate is tied to London Inter-Bank Offered Rate (LIBOR) with designated 1-month maturity
plus 60 basis points.
(3) Variable rate is tied to U.S. Treasury bill rate.
</TABLE>
19
<PAGE>
<TABLE>
- -------------------------------------------------------------------
Interest Rate Swaps - Notional Amount Rollforward
Pay fixed/ Pay variable Total
(In thousands) receive receive All
<CAPTION> variable fixed Swaps
<S> <C> <C> <C>
- -------------------------------------------------------------------
Notional Amount
- -------------------------------------------------------------------
Company Swaps:
Beginning balance, January 1,
1996 $96,814 $450,000 $546,814
New swaps 50,000 -- 50,000
Terminated swaps -- -- --
Matured swaps -- (100,000) (100,000)
Amortization of swaps (7,967) -- (7,967)
- -------------------------------------------------------------------
Ending balance, March 31,
1996 $138,847 $350,000 $488,847
- ------------------------------- ======== ======== ========
Customer Swaps:
Beginning balance, January 1,
1996 $4,000 $4,000 $8,000
New swaps 500 500 1,000
Terminated swaps -- -- --
Matured swaps -- -- --
Amortization of swaps -- -- --
- -------------------------------------------------------------------
Ending balance, March 31,
1996 $4,500 $4,500 $9,000
- ------------------------------- ======== ======== ========
- -------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------
Expected Maturities of Interest Rate Swaps
<CAPTION>
Due After One After Two After Three After Four
Within Through Through Through Through After
(In Thousands) March 31, 1996 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 $6,693 $111,727 $6,950 $12,188 $1,289 -- $138,847
Weighted average pay rate 8.67% 5.72% 8.24% 6.82% 7.03% -- 6.11%
Weighted average receive rate:
Contractual rate* 5.67% 5.36% 5.63% 5.43% 5.25% -- 5.39%
Forward yield curve** 5.48% 5.74% 5.96% 6.12% 6.28% -- 5.78%
Receive fixed/pay variable:
Notional amount $200,000 -- -- -- -- $150,000 $350,000
Weighted average pay rate:
Contractual rate* 5.36% -- -- -- -- 5.25% 5.31%
Forward yield curve** 5.48% -- -- -- -- 6.53% 5.93%
Weighted average receive rate 4.73% -- -- -- -- 7.10% 5.74%
- ----------------------------------------------------------------------------------------------------
Customer Hedging Swaps
- ----------------------------------------------------------------------------------------------------
Pay fixed/receive variable:
Notional amount -- $500 $4,000 -- -- -- $4,500
Weighted average pay rate -- 5.40% 9.57% -- -- -- 9.11%
Weighted average receive rate:
Contractual rate* -- 5.59% 5.33% -- -- -- 5.36%
Forward yield curve** -- 5.81% 5.88% -- -- -- 5.87%
Receive fixed/pay variable:
Notional amount -- $500 $4,000 -- -- -- $4,500
Weighted average pay rate:
Contractual rate* -- 5.59% 5.33% -- -- -- 5.36%
Forward yield curve** -- 5.81% 5.88% -- -- -- 5.87%
Weighted average receive rate -- 5.80% 9.62% -- -- -- 9.20%
- ----------------------------------------------------------------------------------------------------
* The weighted average variable rates are based upon the contractual rates in effect at
March 31, 1996.
** The weighted average variable rates are projected based upon the implied forward yield curve
from date of analysis through maturity.
</TABLE>
21
<PAGE>
PART II
----------
OTHER INFORMATION
------------------------------
CENTRAL FIDELITY BANKS, INC.
ITEM 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders was held on May 8, 1996. At said
meeting, as set forth in the Registrant's definitive proxy material for the
meeting, four directors in Class 2 were elected to serve until the 1999
Annual Meeting of Shareholders, and until their successors are elected and
qualified.
The results of the voting were as follows:
Nominees for election # of shares voting
as Class 1 directors: For Withheld
- ----------------------------------------------------
Alvin R. Clements 35,280,884 198,481
Thomas R. Glass 35,119,149 360,216
George R. Lewis 35,266,045 213,320
T. Justin Moore, III 35,216,383 262,982
The results of the voting by brokers were as follows:
# of brokers'
Nominees for election shares voting Proxies
as Class 1 directors: For Withheld not received
- ----------------------------------------------------------------
Alvin R. Clements 23,416,041 137,669 1,991,096
Thomas R. Glass 23,263,154 290,556 1,991,096
George R. Lewis 23,407,630 146,080 1,991,096
T. Justin Moore, III 23,397,949 155,761 1,991,096
The continuing Class 3 Directors serving until the 1997 Annual Meeting
are James F. Betts, Phyllis L. Cothran, Robert L. Freeman, G. Bruce Miller
and Kenneth S. White.
The continuing Class 1 Directors serving until the 1998 Annual Meeting
are Jack H. Ferguson, Lewis N. Miller, Jr., Richard L. Morrill, Lloyd U.
Noland, III and William G. Reynolds, Jr.
22
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K.
A. Exhibits:
Exhibit 11 - Statement re computation of per share earnings
27 - Financial data schedule
B. Reports on Form 8-K:
Report on Form 8-K was filed on January 24, 1996 announcing
the authorization by the Company's Board of Directors to repurchase up
to 2,000,000 shares, approximately 5% of its outstanding common stock,
over an 18 to 24 month period. The repurchased shares may be used for
general corporate purposes. Repurchases under the program may be
discontinued or interrupted at any time.
23
<PAGE>
SIGNATURES
--------------------
Pursuant to the requirements of the Securities Exchange Act
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CENTRAL FIDELITY BANKS, INC.
- -------------------------------------------------
(Registrant)
/s/ Charles W. Tysinger
Charles W. Tysinger
Corporate Executive Officer and Treasurer
(Principal Financial Officer)
/s/ James F. Campbell
James F. Campbell
Senior Vice President & Controller
(Principal Accounting Officer)
Date: May 13, 1996
24
<PAGE>
EXHIBIT INDEX
------------------------
Exhibit No. Description
- ----------- ------------------
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
25
<PAGE>
<TABLE>
EXHIBIT 11
CENTRAL FIDELITY BANKS, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(In Thousands)
<CAPTION>
For the Three Months
Ended March 31,
--------------------
1996 1995
------ ------
<S> <C> <C>
Earnings:
Net income $27,981 $25,720
======= =======
Shares:
Weighted average number of common shares used
in computing primary earnings per share 40,197 39,457
Dilutive stock options - based on treasury stock
method 663 506
--------------------
Weighted average number of common shares used
in computing fully diluted earnings
per share 40,860 39,963
======= =======
Earnings per share:
Primary earnings per share $0.70 $0.65
Fully diluted earnings per share $0.68 $0.64
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000276235
<NAME> CENTRAL FIDELITY BANKS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 252,869
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 168,151
<TRADING-ASSETS> 2,486
<INVESTMENTS-HELD-FOR-SALE> 3,426,718
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 6,376,365
<ALLOWANCE> 110,000
<TOTAL-ASSETS> 10,534,452
<DEPOSITS> 7,798,642
<SHORT-TERM> 1,141,660
<LIABILITIES-OTHER> 117,673
<LONG-TERM> 668,158
<COMMON> 199,751
0
0
<OTHER-SE> 608,568
<TOTAL-LIABILITIES-AND-EQUITY> 10,534,452
<INTEREST-LOAN> 139,711
<INTEREST-INVEST> 56,514
<INTEREST-OTHER> 1,581
<INTEREST-TOTAL> 197,806
<INTEREST-DEPOSIT> 81,336
<INTEREST-EXPENSE> 106,323
<INTEREST-INCOME-NET> 91,483
<LOAN-LOSSES> 10,307
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 60,586
<INCOME-PRETAX> 41,039
<INCOME-PRE-EXTRAORDINARY> 41,039
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,981
<EPS-PRIMARY> .70
<EPS-DILUTED> .68
<YIELD-ACTUAL> 3.69
<LOANS-NON> 41,451
<LOANS-PAST> 19,864
<LOANS-TROUBLED> 468
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 110,000
<CHARGE-OFFS> 14,403
<RECOVERIES> 4,096
<ALLOWANCE-CLOSE> 110,000
<ALLOWANCE-DOMESTIC> 110,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
