TRANSMITTAL LETTER
Central Fidelity Banks, Inc.
1021 East Cary Street
Richmond, Virginia 23219
(804) 782-4000
March 25, 1996
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, 1995.
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
<PAGE>
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, 1995
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, with Preferred Purchase Rights attached
(Title of class)
Common shares outstanding as of March 1, 1996 - 40,207,198
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 8, 1996, 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 1, 1996 was $1,347,392,000.
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, except share date) December 31,
<CAPTION>
1995 1994
<S> <C> <C>
- -----------------------------------------------------------------------
Assets
- -----------------------------------------------------------------------
Cash and due from banks (note 4) $338,580 $274,813
Temporary investments:
Federal funds sold and securities purchased
under agreements to resell 157,734 196,859
Interest-bearing deposits in other banks 50,000 --
Trading account securities 422 1,417
- ------------------------------------------ ---------------------------
Total temporary investments 208,156 198,276
- ------------------------------------------ ---------------------------
Assets available for sale:
Securities (note 5):
U.S. Government and agencies 2,342,541 2,516,781
States and political subdivisions 124,380 142,530
Other 1,187,966 827,070
- ------------------------------------------ ---------------------------
Total securities available for sale 3,654,887 3,486,381
- ------------------------------------------ ---------------------------
Loans 15,653 2,186
- ------------------------------------------ ---------------------------
Total assets available for sale 3,670,540 3,488,567
- ------------------------------------------ ---------------------------
Loans (note 6):
Commercial and commercial real estate 1,984,393 1,879,499
Construction 290,184 305,457
Residential real estate 1,609,998 1,556,243
Consumer second mortgage 613,097 552,301
Installment 1,046,536 871,115
Bank card 756,952 605,292
- ------------------------------------------ ---------------------------
Total loans 6,301,160 5,769,907
Allowance for loan losses (note 7) (110,000) (110,000)
- ------------------------------------------ ---------------------------
Net loans 6,191,160 5,659,907
- ------------------------------------------ ---------------------------
Accrued interest receivable 67,436 59,933
Premises and equipment, net (note 8) 152,879 147,177
Due from customers on acceptances 18,741 13,663
Other assets (notes 6, 9 and 12) 163,482 211,836
- ------------------------------------------ ---------------------------
Total assets $10,810,974 $10,054,172
- ------------------------------------------ ============ ==========
Liabilities 1995 1994
- -----------------------------------------------------------------------
Deposits:
Demand $1,037,906 $953,655
Interest checking 687,505 649,310
Regular savings 727,951 770,663
Consumer certificates 4,134,031 3,630,232
Money market accounts 1,050,158 976,188
Certificates of deposit $100,000 and over 348,347 247,196
- ------------------------------------------ ---------------------------
Total deposits 7,985,898 7,227,244
- ------------------------------------------ ---------------------------
Borrowings:
Federal funds purchased and securities sold
under agreements to repurchase (note 10) 1,041,951 1,040,870
Other short-term borrowings (note 10) 88,045 61,998
Medium-term notes (note 11) 252,250 561,500
Federal Home Loan Bank borrowings (note 11) 350,700 236,500
Long-term debt (note 11) 150,386 150,440
Capitalized lease obligations (note 8) 7,746 8,167
- ------------------------------------------ ---------------------------
Total borrowings 1,891,078 2,059,475
- ------------------------------------------ ---------------------------
Dividends payable 12,052 11,001
Accrued interest payable 37,911 36,211
Bank acceptances outstanding 18,741 13,663
Accounts payable and accrued liabilities
(note 14) 38,747 83,506
- ------------------------------------------ ---------------------------
Total liabilities 9,984,427 9,431,100
- ------------------------------------------ ---------------------------
Shareholders' Equity
- -----------------------------------------------------------------------
Preferred stock, none issued (note 13) -- --
Common stock, par value $5 per share, authorized
100,000,000 shares, shares issued 1995 - 40,192,879;
1994 - 39,324,228 (notes 13 and 15) 200,964 196,621
Capital surplus 195,151 180,458
Retained earnings (note 2) 406,567 348,219
Unrealized gains (losses) on securities
available for sale, net of income taxes 23,865 (102,226)
- ------------------------------------------ ---------------------------
Total shareholders' equity 826,547 623,072
- ------------------------------------------ ---------------------------
Commitments and contingent liabilities (notes 8, 14 and 17)
Total liabilities and shareholders'
equity $10,810,974 $10,054,172
- ------------------------------------------ ============ ==========
- -----------------------------------------------------------------------
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>
1995 1994 1993
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
Income From Earning Assets
- -------------------------------------------------------------------------------------
Interest and fees on loans $527,965 $441,728 $359,504
Interest on securities available for sale:
U.S. Government and agencies 166,436 160,822 45,869
States and political subdivisions 7,430 8,205 2,059
Other 66,040 49,173 11,886
Interest on loans available for sale 403 432 690
Interest on investment securities:
U.S. Government and agencies -- -- 102,028
States and political subdivisions -- -- 6,943
Other -- -- 79,221
Interest on money market investments 4,652 5,433 5,752
Interest on trading account securities 63 41 34
- -------------------------------------------------------------------------------------
Total income from earning assets 772,989 665,834 613,986
- -------------------------------------------------------------------------------------
Interest Expense
- -------------------------------------------------------------------------------------
Interest on deposits (note 16) 319,725 243,632 239,178
Interest on federal funds purchased and securities
sold under agreements to repurchase 57,678 44,171 31,752
Interest on other short-term borrowings 3,359 1,663 663
Interest on medium-term notes 19,311 25,403 9,949
Interest on Federal Home Loan Bank borrowings 20,539 6,406 --
Interest on long-term debt 10,978 8,681 7,405
Interest on capitalized lease obligations 705 735 784
- -------------------------------------------------------------------------------------
Total interest expense 432,295 330,691 289,731
- -------------------------------------------------------------------------------------
Net interest income 340,694 335,143 324,255
Provision for loan losses (note 7) 26,713 24,359 79,509
- -------------------------------------------------------------------------------------
Net income from earning assets 313,981 310,784 244,746
- -------------------------------------------------------------------------------------
Noninterest Income
- -------------------------------------------------------------------------------------
Trust income 14,943 13,926 13,621
Deposit fees and charges 35,150 34,557 33,898
Profits (losses) on securities available for sale
and trading account securities (note 5) 3,253 (25,984) 3,695
Investment securities gains, net (note 5) -- -- 50,680
Other income (note 16) 25,424 35,860 23,909
- -------------------------------------------------------------------------------------
Total noninterest income 78,770 58,359 125,803
- -------------------------------------------------------------------------------------
Noninterest Expense
- ------------------------------------------------------------- -----------------------
Personnel expense (note 14) 133,186 127,683 115,917
Occupancy and equipment expense 42,979 41,653 38,752
FDIC insurance expense 11,164 14,910 14,612
Other real estate expense 1,500 11,786 15,108
Other expense (note 16) 49,500 49,191 38,909
- -------------------------------------------------------------------------------------
Total noninterest expense 238,329 245,223 223,298
- -------------------------------------------------------------------------------------
Earnings
- ------------------------------------------------------------- -----------------------
Income before income taxes 154,422 123,920 147,251
Income tax expense (note 12) 49,052 39,056 44,334
- -------------------------------------------------------------------------------------
Net Income $105,370 $84,864 $102,917
- -------------------------------------------------- ======== ======== ========
Earnings Per Share
- -------------------------------------------------------------------------------------
Net income $2.65 $2.17 $2.66
Average shares outstanding 39,784,750 39,163,599 38,737,447
- -------------------------------------------------------------------------------------
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>
1995 1994 1993
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------
Operating Activities
- --------------------------------------------------------------------------------------
Net income $105,370 $84,864 $102,917
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 26,713 24,359 79,509
Depreciation of premises and equipment 15,792 15,248 13,879
Net amortization of premium and accretion of discount on investment
securities and securities available for sale (5,860) 1,132 19,727
Gains on investment securities -- -- (50,680)
(Gains) losses on securities available for sale (3,822) 25,292 (4,182)
Deferred income taxes 2,024 1,272 (5,168)
(Increase) decrease in trading account securities 995 88 (761)
Originations of loans available for sale (71,511) (24,220) (127,263)
Purchases of loans available for sale (54,528) (24,510) (81,075)
Proceeds from sales of loans available for sale 112,646 84,164 170,490
(Increase) decrease in accrued interest receivable (7,503) 5,821 2,355
Increase in accrued interest payable 892 11,063 8,288
Other, net (38,234) (77,235) 136,411
- --------------------------------------------------------------------------------------
Net cash provided by operating activities 82,974 127,338 264,447
- --------------------------------------------------------------------------------------
Investing Activities
- --------------------------------------------------------------------------------------
Purchases of securities available for sale (1,033,292)(2,436,679)(1,745,356)
Proceeds from sales of securities available for sale 582,085 2,266,537 532,910
Proceeds from maturities and repayments of securities available
for sale 486,370 529,629 503,839
Purchases of investment securities -- -- (617,998)
Proceeds from sales of investment securities -- -- 626,426
Proceeds from maturities and repayments of investment
securities -- -- 608,655
Net increase in loans (561,865)(1,020,589) (938,099)
Purchases of premises and equipment (19,725) (16,548) (13,469)
Proceeds from the disposition of premises and equipment 539 960 657
Proceeds from the disposition of foreclosed properties 13,743 26,917 25,794
Net cash received in acquisitions 413,022 -- --
- --------------------------------------------------------------------------------------
Net cash used by investing activities (119,123) (649,773)(1,016,641)
- --------------------------------------------------------------------------------------
Financing Activities
- --------------------------------------------------------------------------------------
Net increase (decrease) in demand, interest checking and regular
savings deposits 79,733 (79,038) 256,887
Net increase (decrease) in consumer certificates 51,227 874,145 (2,752)
Net increase (decrease) in money market accounts 73,970 (33,389) (170,690)
Net increase (decrease) in certificates of deposit
$100,000 and over 101,151 (190,490) (99,882)
Net increase (decrease) in short-term borrowings 27,128 (381,386) 282,512
Proceeds from medium-term notes and FHLB borrowings 114,200 386,500 411,500
Payments on medium-term notes and FHLB borrowings (309,250) -- --
Proceeds from long-term debt -- 100 --
Payments on long-term debt and capitalized lease
obligations (433) (1,396) (7,871)
Proceeds from issuance of common stock 19,036 4,044 14,322
Cash dividends (45,971) (42,645) (37,110)
- --------------------------------------------------------------------------------------
Net cash provided by financing activities 110,791 536,445 646,916
- --------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 74,642 14,010 (105,278)
Cash and cash equivalents at beginning of year 471,672 457,662 562,940
- --------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $546,314 $471,672 $457,662
- ----------------------------------------------------- ======== ======== ========
- --------------------------------------------------------------------------------------
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 Securitie 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, 1993
- ----------------------------------------------------------------------------------------------
Balance at beginning of year 38,432 $192,159 $166,554 $243,274 $-- $601,987
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
- ----------------------------------------------------------------------------------------------
Year ended December 31, 1995
- ----------------------------------------------------------------------------------------------
Net income -- -- -- 105,370 -- 105,370
Common stock issued under Plans 869 4,343 14,693 -- -- 19,036
Cash dividends declared on
common stock ($1.18 per share) -- -- -- (47,022) -- (47,022)
Change in unrealized losses on securities
available for sale, net of income taxes
of $67,895 -- -- -- -- 126,091 126,091
- ----------------------------------------------------------------------------------------------
Balance at end of year 40,193 $200,964 $195,151 $406,567 $23,865 $826,547
- ---------------------------------- ====== ======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------
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>
1995 1994
<S> <C> <C>
- ---------------------------------------------------------------------
Assets
- ---------------------------------------------------------------------
Cash and due from banks (note 4) $338,497 $274,746
Temporary investments:
Federal funds sold and securities
purchased under agreements to resell 120,130 166,831
Interest-bearing deposits in other banks 50,000 --
Trading account securities 422 1,417
- ---------------------------------------------------------------------
Total temporary investments 170,552 168,248
- ---------------------------------------------------------------------
Assets available for sale:
Securities 3,644,102 3,480,617
Loans 15,653 2,186
- ---------------------------------------------------------------------
Total assets available for sale 3,659,755 3,482,803
- ---------------------------------------------------------------------
Loans (note 6) 6,301,160 5,769,907
Allowance for loan losses (note 7) (110,000) (110,000)
- ---------------------------------------------------------------------
Net loans 6,191,160 5,659,907
- ---------------------------------------------------------------------
Accrued interest receivable 67,399 59,915
Premises and equipment, net (note 8) 152,879 147,177
Due from customers on acceptances 18,741 13,663
Other assets (notes 6, 9 and 12) 144,603 184,946
- ---------------------------------------------------------------------
Total assets $10,743,586 $9,991,405
- ---------------------------------------------- ========== ==========
Liabilities
- ---------------------------------------------------------------------
Deposits:
Demand $1,037,911 $953,665
Interest checking 687,505 649,310
Regular savings 727,951 770,663
Consumer certificates 4,134,031 3,630,232
Money market accounts 1,050,158 976,188
Certificates of deposit $100,000 and over 348,347 247,196
- ---------------------------------------------------------------------
Total deposits 7,985,903 7,227,254
- ---------------------------------------------------------------------
Borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 1,058,465 1,060,229
Other short-term borrowings 54,963 36,801
Medium-term notes (note 11) 252,250 561,500
Federal Home Loan Bank borrowings (note 11) 350,700 236,500
Note payable to parent company 150,000 150,000
Long-term debt (note 11) 386 440
Capitalized lease obligations (note 8) 7,746 8,167
- ---------------------------------------------------------------------
Total borrowings 1,874,510 2,053,637
- ---------------------------------------------------------------------
Accrued interest payable 37,884 36,190
Bank acceptances outstanding 18,741 13,663
Accounts payable and accrued liabilities (note 14) 38,947 82,054
- ---------------------------------------------------------------------
Total liabilities 9,955,985 9,412,798
- ---------------------------------------------------------------------
Shareholder's Equity
- ---------------------------------------------------------------------
Common stock 167,275 167,275
Capital surplus 174,376 174,376
Retained earnings (note 2) 422,085 339,182
Unrealized gains (losses) on securities available for sale,
net of income taxes 23,865 (102,226)
- ---------------------------------------------------------------------
Total shareholder's equity 787,601 578,607
- ---------------------------------------------------------------------
Commitments and contingent liabilities (notes 8, 14 and 17)
Total liabilities and shareholder's equity$10,743,586 $9,991,405
- ---------------------------------------------- ========== ==========
- ---------------------------------------------------------------------
The notes are an integral part of the financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
NOTE 1. Nature of Operations and Significant Accounting
Policies
Central Fidelity Banks, Inc. ("Central Fidelity" or the "Company")
and its subsidiaries operate within the commercial banking industry.
The Company serves the marketplace primarily through its wholly-owned
banking subsidiary, Central Fidelity National Bank, a national banking
association (the "Bank"). The Company, through the Bank and its other
subsidiaries, provides a wide range of financial services, including a
variety of deposit accounts, as well as, commercial, consumer and mortgage
lending. 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, the
Company generates noninterest income by sales of trust and fiduciary
services, and other investment services.
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.
The accounting and reporting policies used in preparing these
financial statements conform to generally accepted accounting principles
and to general practices within the industry. Of necessity, certain
amounts in the financial statements are based upon management's estimates
and assumptions. Actual results could differ from those estimates.
ACCOUNTING CHANGES - During the fourth quarter of 1995, the Company
prospectively adopted Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights" (SFAS 122). SFAS 122 requires
that the cost of mortgage loans originated or purchased with a definitive
plan to sell the loans and retain the mortgage servicing rights be
allocated between the loans and the servicing rights based on their
estimated fair values at the date of origination, purchase, or sale. The
impact of adopting SFAS 122 was not material to the consolidated financial
statements as of and for the year ended December 31, 1995.
On January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan" (SFAS 114), as amended by SFAS 118, "Accounting by Creditors for
Impairment of a Loan--Income Recognition and Disclosures," collectively
SFAS 114. SFAS 114 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. A valuation allowance is required to the extent that such
measurement is less than the recorded investment. Under this standard a
loan is considered impaired based on current information and events, if it
is probable that the Company will be unable to collect the scheduled
payments of principal and interest when due under the contractual terms of
the loan agreement. Charge-offs for impaired loans occur when the loan, or
portion of the loan is determined to be uncollectible, as is the case for
all loans. The effect of the adoption of SFAS 114 was not material to the
Company's consolidated financial statements as of and for the year ended
December 31, 1995.
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.
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 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.
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, 1995, 1994 and 1993,
cash paid for interest was $430,595,000, $319,628,000 and $281,443,000,
and cash paid for income taxes was $36,569,000, $41,372,000 and
$53,485,000, respectively. During 1995, 1994 and 1993, other assets
increased as a result of loan foreclosures in the amount of $5,659,000,
$6,059,000 and $40,408,000, 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.
TRADING ACCOUNT SECURITIES - Trading account securities are intended to be
sold in the near term and are carried at fair value. Certain derivative
financial instruments, such as interest rate futures, options, and forward
contracts may be used in trading activities. 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."
SECURITIES AVAILABLE FOR SALE - The Company's securities 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. Securities are 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. Prior
to the adoption of SFAS 115, certain securities were classified as
investment securities and carried at cost adjusted for amortization of
premiums and accretion of discounts. Gains and losses arising from the
sale of securities available for sale and declines in values determined to
be other than temporary are included in "Profits (losses) on securities
available for sale and trading account securities."
LOANS AVAILABLE FOR SALE - Loans available for sale are carried at the
lower of aggregate cost or fair value. Realized gains and losses and
adjustments to market are classified as other income.
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: specific
knowledge and 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 Company's loan review staff,
the regulatory authorities, and external auditors.
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 Consolidated Balance Sheet, 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.
DEPOSIT INTANGIBLES AND GOODWILL - Deposit base intangibles and goodwill
are amortized over the expected periods of benefit on a straight-line
basis, and classified as "Other assets" in the accompanying Consolidated
Balance Sheet.
MORTGAGE SERVICING RIGHTS - Upon adoption of SFAS 122 in the fourth
quarter of 1995, the cost of mortgage loans originated or purchased with a
definitive plan to sell the loans and retain the mortgage servicing rights
are allocated between the loans and the servicing rights based on their
estimated fair values at the date of origination, purchase or sale.
Mortgage servicing rights are amortized in proportion to, and over the
period of, estimated net servicing income, and classified as "Other
assets" in the accompanying Consolidated Balance Sheet. Impairment is
evaluated and measured based on a stratification of the mortgage servicing
rights in accordance with the risk characteristics of the underlying
loans, including loan type, location, term, and date of origination.
DERIVATIVE FINANCIAL INSTRUMENTS - The Company mainly 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 1995, 1994
or 1993.
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. Central Fidelity and its subsidiaries file
consolidated federal income tax returns.
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 have been made with respect to the options since the option price
was the same as fair 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 year. 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 Consolidated Balance Sheet.
At December 31, 1995, such assets amounted to $7.8 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>
1995 1994
<S> <C> <C>
- ----------------------------------------------------------------------------------------
Assets:
Cash $21 $26
Securities purchased under agreements to resell
and other money market investments 51,514 46,359
Securities available for sale 10,785 5,764
Investments in subsidiaries, at equity:
Bank 787,600 578,607
Bank-related 3,978 3,762
Notes receivable from subsidiaries 150,000 150,500
Other assets 21,276 28,830
- ----------------------------------------------------------- ------------------------------
Total assets $1,025,174 $813,848
- ----------------------------------------------------------- ========= ========
Liabilities:
Commercial paper (note 10) $33,082 $25,197
Securities sold under agreements to repurchase 1,260 1,460
Long-term debt (note 11) 150,000 150,000
Other liabilities 14,285 14,119
- ----------------------------------------------------------- ------------------------------
Total liabilities 198,627 190,776
Shareholders' equity 826,547 623,072
- ----------------------------------------------------------- ------------------------------
Total liabilities and shareholders' equity $1,025,174 $813,848
- ----------------------------------------------------------- ========= ========
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
NOTE2
Statement of Income
(In Thousands)
Year Ended December 31,
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Income:
Dividends from subsidiary bank $24,000 $45,000 $45,084
Other 15,683 14,581 13,972
- --------------------------------------------------------------------------- --------------
Total income 39,683 59,581 59,056
- --------------------------------------------------------------------------- --------------
Expense:
Interest 13,910 13,085 13,133
Other 4,233 4,850 5,030
- --------------------------------------------------------------------------- --------------
Total expense 18,143 17,935 18,163
- ----------------------------------------------------------- ------------ --------------
Income before income taxes and equity in
undistributed net income of subsidiaries 21,540 41,646 40,893
Income tax benefit (712) (1,143) (2,035)
- --------------------------------------------------------------------------- --------------
Income before equity in undistributed
net income of subsidiaries 22,252 42,789 42,928
Equity in undistributed net income of subsidiaries 83,118 42,075 59,989
- --------------------------------------------------------------------------- --------------
Net income $105,370 $84,864 $102,917
- --------------------------------------------------======== ======= ========
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
NOTE2
Statement of Cash Flows
(In Thousands)
Year Ended December 31,
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Operating activities:
Net income $105,370 $84,864 $102,917
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed net income of subsidiaries (83,118) (42,075) (59,989)
(Increase) decrease in other assets 7,554 (6,340) 914
Other, net (885) (362) 1,767
- ----------------------------------------------------------------------------- ----------------------
Net cash provided by operating activities 28,921 36,087 45,609
- ----------------------------------------------------------------------------- ----------------------
Investing activities:
Purchase of securities available for sale (63,232) (11,479) (5,955)
Proceeds from sales of securities available for sale 9,145 10,965 11,962
Proceeds from maturities and repayments of securities
available for sale 49,066 425 1,500
Purchase of investment securities -- -- (7,565)
Proceeds from sales of investment securities -- -- 5,890
Repayment of note receivable from subsidiary 500 -- --
- ----------------------------------------------------------------------------- ----------------------
Net cash provided (used) by investing activities (4,521) (89) 5,832
- ----------------------------------------------------------------------------- ----------------------
Financing activities:
Net increase (decrease) in short-term borrowings 7,685 7,822 (2,460)
Payments on long-term debt -- -- (6,000)
Proceeds from issuance of common stock 19,036 4,044 14,322
Cash dividends (45,971) (42,645) (37,110)
- ----------------------------------------------------------------------------- ----------------------
Net cash used by financing activities (19,250) (30,779) (31,248)
- ----------------------------------------------------------------------------- ----------------------
Increase in cash and cash equivalents 5,150 5,219 20,193
Cash and cash equivalents at beginning of year 46,385 41,166 20,973
- ----------------------------------------------------------------------------- ----------------------
Cash and cash equivalents at end of year $51,535 $46,385 $41,166
- --------------------------------------------------------------- ======== ======== ========
- -----------------------------------------------------------------------------------------------------
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 subsidiary 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 1996, the
subsidiary bank can initiate dividend payments without said regulatory approvals of $123,317,000,
plus an additional amount equal to their net earnings for 1996 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. ACQUISITIONS
On June 9, 1995, the Bank acquired core deposits, other miscellaneous
assets and liabilities of Household Bank, f.s.b. ("Household"), a Virginia
subsidiary of Household International, Inc., a Chicago, Illinois based
financial services company. Total deposits of approximately $453 million
and a total of fourteen branch offices in Northern Virginia were acquired.
The offices are located in the city of Alexandria, and counties of
Arlington and Fairfax. The $36,272,000 excess of the fair value of
liabilities assumed over the fair value of assets acquired and cash
received from Household is classified as deposit intangibles in "Other
assets" in the Consolidated Balance Sheet and is being amortized over
fifteen years.
<PAGE>
NOTE 4. RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The Company is required to maintain average reserve balances with
the Federal Reserve Bank. The average amount of those reserve balances
for the years ended December 31, 1995 and 1994 was $58,129,000 and
$70,285,000, respectively.
<PAGE>
<TABLE>
NOTE 5. 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, 1995 and 1994:
(In Thousands)
<CAPTION>
- -------------------------------------------------------------------------
U.S. States &
Government Political
& Agencies Subdivision Other Total
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------
December 31, 1995:
Amortized cost $2,319,928 $120,886 $1,177,358 $3,618,172
Fair value 2,342,541 124,380 1,187,966 3,654,887
Gross unrealized gains 30,906 3,635 13,650 48,191
Gross unrealized losses (8,293) (141) (3,042) (11,476)
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)
- -------------------------------------------------------------------------
Securities available for sale having a fair value of $1,190,594,000 at December
31, 1995 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, 1995 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 $395,940 $397,191
Due after one year through five years 2,450,925 2,479,276
Due after five years through ten years 752,703 758,370
Due after ten years 18,604 20,050
- ---------------------------------------------------------------------
Total $3,618,172 $3,654,887
- ----------------------------------------========== ==========
- -------------------------------------------------------------------------
Proceeds from sales of securities available for sale were $582,085,000 for
1995, $2,266,537,000 for 1994 and $532,910,000 for 1993. Gross gains realized
on those sales were $6,039,000, $11,555,000 and $4,182,000 for 1995, 1994 and
1993, respectively. In 1995 and 1994, there were $2,217,000 and $36,847,000 of
gross losses realized on the sales of securities available for sale, respectively.
During 1993, proceeds from sales of investment securities, carried at amortized cost,
were $626,426,000, which resulted in $51,307,000 gross gains and $627,000 gross losses.
</TABLE>
<PAGE>
<TABLE>
NOTE 6. LOANS
Nonaccrual loans (principally commercial and construction loans) totalled
$48,763,000 at December 31, 1995 and $67,534,000 at December 31, 1994.
Interest on nonaccrual loans not recognized was $5,066,000 in 1995, $6,171,000
in 1994 and $5,794,000 in 1993. Interest collected and included in the results of
operations on such loans amounted to $1,582,000 in 1995, $596,000 in 1994, and
$706,000 in 1993.
At December 31, 1995 and January 1, 1995, the recorded investment in loans
which have been identified as impaired, in accordance with SFAS 114, totalled
$47,893,000 and $65,935,000, respectively. SFAS 114 does not apply to
larger groups of homogeneous loans such as mortgage, installment and
bank card loans, as such loans are collectively evaluated for impairment.
The Company, therefore, applies SFAS 114 to commercial and construction
loans on a loan-by-loan basis in accordance with its ongoing credit review
procedures.
Impaired loans are comprised of:
(In Thousands)
December 31, 1995
<CAPTION>
<S> <C>
- ---------------------------------------------------------------
Commercial and commercial real estate $27,064
Construction 20,829
- ---------------------------------------------------------------
Total impaired loans $47,893
- ------------------------------------------------------ =======
- ---------------------------------------------------------------
Of total impaired loans, $18,232,000 related to loans with no valuation
allowance and $29,661,000 related to loans with a corresponding valuation
allowance of $7,316,000. All impaired loans were measured based on
the fair value of the collateral.
For the year ended December 31, 1995, the average recorded investment
in impaired loans was approximately $53,999,000. Total interest income
recognized on impaired loans was $1,679,000, of which $1,582,000 was
recognized on a cash basis.
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 credit 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
$6,687,000 and $8,154,000 at December 31, 1995 and 1994, respectively. During
1995, $509,000 of new loans were made and repayments totalled $1,976,000.
As discussed in note 1, the Company adopted SFAS 122, "Accounting for
Mortgage Servicing Rights," during the fourth quarter of 1995. The
carrying amount and fair value of mortgage servicing rights at December
31, 1995 was $1,610,000 and $2,300,000, respectively. The fair value was
determined using a discounted cash flow method. Mortgage servicing rights are
carried at cost, and classified as "Other assets" in the accompanying
Consolidated Balance Sheet. Based on management's impairment analysis
as of December 31, 1995, no valuation allowance was deemed necessary.
</TABLE>
<PAGE>
<TABLE>
NOTE 7. Allowance for Loan Losses
Following is a summary of the activity in the allowance for loan losses:
(In Thousands)
Year Ended December 31,
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
- --------------------------------------------------------------------
Balance at January 1 $110,000 $105,000 $101,800
Provision for loan losses 26,713 24,359 79,509
- --------------------------------------------------------------------
136,713 129,359 181,309
Loans charged off 46,281 34,397 86,728
Recoveries of loans previously
charged off 19,568 15,038 10,419
- --------------------------------------------------------------------
Net charge-offs 26,713 19,359 76,309
- --------------------------------------------------------------------
Balance at December 31 $110,000 $110,000 $105,000
- ---------------------------------- ======== ======== ========
- --------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
NOTE 8. Premises and Equipment
Premises and equipment included in the Consolidated Balance Sheet are:
(In Thousands)
December 31,
<CAPTION>
1995 1994
<S> <C> <C>
- -------------------------------------------------------------------------
Capital leases $11,827 $11,879
Land 23,938 23,410
Buildings 83,008 77,987
Furnishings and equipment 153,269 143,123
Leasehold improvements 32,679 26,902
Work-in-progress 7,492 7,781
- -------------------------------------------------------------------------
Total cost 312,213 291,082
Accumulated depreciation and amortization (159,334) (143,905)
- -------------------------------------------------------------------------
Premises and equipment, net $152,879 $147,177
- ----------------------------------------------------- ======== ========
- -------------------------------------------------------------------------
The Company has entered into long-term leases for certain 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 cluases
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
capitalized:
(In Thousands)
December 31,
<CAPTION>
1995 1994
<S> <C> <C>
- -------------------------------------------------------------------------
Land $868 $920
Buildings 10,959 10,959
- -------------------------------------------------------------------------
Total cost 11,827 11,879
Accumulated amortization (5,538) (5,255)
- -------------------------------------------------------------------------
Capitalized leases, net $6,289 $6,624
- ----------------------------------------------------- ====== ======
- -------------------------------------------------------------------------
</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, 1995:
(In Thousands)
<CAPTION>
Capital Operating
<S> <C> <C>
- -------------------------------------------------------------------------
1996 $1,080 $11,456
1997 1,090 11,075
1998 1,102 10,693
1999 1,104 9,575
2000 1,106 8,113
Later years 9,694 23,270
- -------------------------------------------------------------------------
Total minimum lease payments 15,176 $74,182
- ----------------------------------------------------- =======
Imputed interest (rates ranging from 8.0% to 14.3%) (7,430)
- -----------------------------------------------------------------
Present value of net minimum lease payments $7,746
- ----------------------------------------------------- =======
- -------------------------------------------------------------------------
Minimum future rentals receivable from subleases under the Company's capital leases
December 31, 1995 amounted to $608,000. 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>
1995 1994 1993
<S> <C> <C> <C>
- -------------------------------------------------------------------------
Minimum rentals $13,647 $12,664 $12,540
Sublease rental income (250) (237) (298)
- -------------------------------------------------------------------------
Net rental expense for operating leases $13,397 $12,427 $12,242
- --------------------------------------------======= ======= =======
- -------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
NOTE 9. Foreclosed Properties
Following is a summary of the activity in foreclosed properties and the allowance for
foreclosed properties:
(In Thousands)
Year Ended December 31,
<CAPTION> 1995 1994 1993
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
Foreclosed properties, at January 1 $30,845 $49,552 $34,416
Additions 5,659 6,059 40,408
Sales (11,029) (24,696) (24,909)
Paydowns (66) (70) (363)
- -----------------------------------------------------------------------------
Foreclosed properties, at December 31 25,409 30,845 49,552
- -----------------------------------------------------------------------------
Allowance for foreclosed properties, at
January 1 8,085 10,806 6,515
Provision 2,149 13,687 10,943
Writedowns (1,961) (16,408) (6,652)
- -----------------------------------------------------------------------------
Allowance for foreclosed properties, at
December 31 8,273 8,085 10,806
- -----------------------------------------------------------------------------
Foreclosed properties, net (included in
other assets) $17,136 $22,760 $38,746
- ----------------------------------------- ======= ======= =======
- ---------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
NOTE 10. Short-Term Borrowings
Short-term borrowings are comprised of:
(In Thousands)
December 31,
<CAPTION>
1995 1994
<S> <C> <C>
- -----------------------------------------------------------------------------------
Federal funds purchased $408,670 $153,111
Securities sold under agreements to repurchase 633,281 887,759
- -----------------------------------------------------------------------------------
Total federal funds purchased and securities
sold under agreements to repurchase 1,041,951 1,040,870
- -----------------------------------------------------------------------------------
Commercial paper 33,082 25,197
Other 54,963 36,801
- -----------------------------------------------------------------------------------
Total other short-term borrowings 88,045 61,998
- -----------------------------------------------------------------------------------
Total $1,129,996 $1,102,868
- -----------------------------------------------------------========== ==========
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:
1995 5.73 % 5.94 % $249,149 $408,670
1994 5.56 3.94 227,194 410,848
1993 3.08 3.12 378,158 622,474
Securities sold under agreements to repurchase:
1995 5.40 5.72 750,098 1,000,269
1994 5.47 4.06 868,338 1,118,881
1993 2.82 2.88 692,705 1,133,692
Commercial paper:
1995 4.74 4.97 30,542 35,367
1994 4.80 3.61 19,598 28,418
1993 2.32 2.36 17,428 19,840
Other:
1995 5.77 5.70 32,323 61,639
1994 5.35 4.13 23,150 50,001
1993 2.61 2.80 9,012 10,000
Total:
1995 5.50 % 5.75 % $1,062,111 --
1994 5.46 4.03 1,138,280 --
1993 2.88 2.95 1,097,303 --
- -----------------------------------------------------------------------------------
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, and Federal Home Loan Bank borrowings callable 90 days from date
of issuance.
</TABLE>
<PAGE>
<TABLE>
NOTE 11. MEDIUM-TERM AND LONG-TERM DEBT
Medium-term and long-term debt consist of:
(In Thousands)
December 31,
<CAPTION>
1995 1994
<S> <C> <C>
- ------------------------------------------------------------------------------------
Medium-term debt:
Subsidiary bank:
Bank notes:
4.70%, due February 15, 1995 $-- $200,500
4.53%, due February 26, 1995 -- 8,750
4.50%, due June 15, 1995 -- 100,000
4.785%, due February 15, 1996 150,000 150,000
5.00%, due June 17, 1996 102,250 102,250
- -------------------------------------------------------------- --------------------
Total bank notes 252,250 561,500
- -------------------------------------------------------------- --------------------
Federal Home Loan Bank borrowings:
6.025%, due May 3, 1996 47,700 47,700
7.54%, due November 27, 1996 46,200 46,200
7.686%, due February 3, 1997 26,800 --
6.51%, due May 12, 1997 4,000 --
6.44%, due June 6, 1997 18,500 18,500
Floating rate, due June 6, 1997 25,000 25,000
6.39%, due June 10, 1997 25,000 25,000
Floating rate, due June 23, 1997 25,000 25,000
6.57%, due August 8, 1997 46,600 46,600
7.69%, due November 10, 1997 2,500 2,500
8.31%, due January 2, 1998 1,500 --
8.05%, due January 5, 1998 4,800 --
6.63%, due May 12, 1998 19,600 --
5.924%, due June 5, 2000 50,000 --
5.95%, due December 11, 2003 7,500 --
- -------------------------------------------------------------- --------------------
Total Federal Home Loan Bank borrowings 350,700 236,500
- -------------------------------------------------------------- --------------------
Total medium-term debt 602,950 798,000
- -------------------------------------------------------------- --------------------
Long-term debt:
Central Fidelity Banks, Inc. (Parent Company):
Subordinated notes due November 15, 2002 150,000 150,000
Subsidiary bank:
Mortgage notes at various interest rates 386 440
- -------------------------------------------------------------- --------------------
Total long-term debt 150,386 150,440
- -------------------------------------------------------------- --------------------
Total $753,336 $948,440
- -------------------------------------------------------------- ======== ========
- ------------------------------------------------------------------------------------
The interest payments on medium-term Bank notes are payable semi-annually on
February 15 and August 15.
The interest payments on fixed rate medium-term Federal Home Loan Bank borrowings
are payable quarterly. The floating interest rate is determined quarterly, based on
3-month LIBO 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,
1995 are:
(In Thousands)
<CAPTION>
<S> <C>
- ------------------------------------------------------------------------------------
1996 $346,212
1997 173,467
1998 25,974
1999 80
2000 50,081
Later years 157,522
- ------------------------------------------------------------------------- ---------
Total $753,336
- ------------------------------------------------------------------------- ========
- ------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
NOTE 12. Income Taxes
The components of income tax expense (benefit) from operations are:
(In Thousands)
Year Ended December 31,
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
Current taxes - federal $47,028 $37,784 $49,502
Deferred taxes - federal 2,024 1,272 (5,168)
- ---------------------------------------------------------------------------------
Income tax expense $49,052 $39,056 $44,334
- ------------------------------------------------------ ======= ======= =======
- ---------------------------------------------------------------------------------
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:
(In Thousands)
Year Ended December 31,
<CAPTION>
1995 1994 1993
<C> <C> <C> <C>
- ---------------------------------------------------------------------------------
Income tax at federal statutory rate 35.0% 35.0% 35.0%
Increase (decrease) in taxes resulting from:
Tax-exempt interest (2.6) (3.7) (3.8)
Other, net (0.6) 0.2 (1.1)
- ---------------------------------------------------------------------------------
Net decrease in taxes (3.2) (3.5) (4.9)
- ---------------------------------------------------------------------------------
Income tax expense 31.8% 31.5% 30.1%
- ------------------------------------------------------ ====== ====== ======
- ---------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1995 and 1994
are presented below:
(In Thousands)
December 31,
<CAPTION>
1995 1994
<S> <C> <C>
- ---------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan and other real estate losses $36,831 $36,766
Employee benefit liabilities 8,822 6,020
Unrealized losses on securities available for sale -- 55,045
Other 3,127 5,175
- ---------------------------------------------------------------------------------
Total deferred tax assets 48,780 103,006
- ---------------------------------------------------------------------------------
Deferred tax liabilities:
Securities transactions 6,485 1,159
Premises and equipment 1,106 1,344
Leases 641 477
Prepaid expenses 1,284 4,046
Unrealized gains on securities available for sale 12,850 --
Other 612 259
- ---------------------------------------------------------------------------------
Total deferred tax liabilities 22,978 7,285
- ---------------------------------------------------------------------------------
Net deferred tax asset (included in other assets) $25,802 $95,721
- --------------------------------------------------------------- ======= =======
- ---------------------------------------------------------------------------------
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 reversing taxable temporary differences, that it is
more likely than not that all be realized. Accordingly, no valuation allowance has
been established.
</TABLE>
<PAGE>
NOTE 13. 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, 1995, 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 40,192,879 shares were outstanding
as of December 31, 1995. 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 14. 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>
1995 1994
<S> <C> <C>
- -----------------------------------------------------------------------
Accumulated and vested benefit obligation ($45,968) ($31,769)
- ------------------------------------------------- ======= =======
Projected benefit obligation ($63,820) ($47,447)
Plan assets at fair value 59,829 44,470
- ----------------------------------------------------------- ----------
Plan assets under projected benefit obligation (3,991) (2,977)
Unrecognized net loss from past experience 12,059 7,129
Prior service cost not yet recognized (497) (582)
Unrecognized net asset being recognized
over 15 years (1,014) (1,217)
- ----------------------------------------------------------- ----------
Prepaid pension cost $6,557 $2,353
- ------------------------------------------------- ====== ======
- -----------------------------------------------------------------------
Net pension cost included the following components:
(In Thousands)
Year Ended December 31,
<C>
1995 1994 1993
<S> <C> <C> <C>
- -----------------------------------------------------------------------
Service cost $2,582 $2,679 $2,198
Interest cost 4,189 3,525 3,114
Actual (return) loss on plan assets (10,044) 705 (2,561)
Net amortization and deferral 6,045 (4,635) (869)
- ----------------------------------------------------------- ----------
Total pension expense $2,772 $2,274 $1,882
- --------------------------------------- ====== ====== ======
- -----------------------------------------------------------------------
In determining the actuarial present value of the projected benefit obligation,
the weighted-average discount rate used was 7.75% for 1995 and 9.00% for 1994,
and rate of increase in future compensation levels used was 5.50% for 1995
and 4.75% for 1994. The expected long-term rate of return on assets was 9.00% for
1995 and 1994.
The plan assets at December 31, 1995 included 207,013 shares of the common
stock of the Company having a market value of approximately $6,624,000 or 10.90%
of the total market value of the plan assets at that date. The plan received $240,000
in dividends on these shares during 1995.
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 1996 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>
1995 1994
<S> <C> <C>
- -----------------------------------------------------------------------
Accumulated and vested benefit obligation ($11,755) ($8,479)
- ------------------------------------------------- ======= =======
Projected benefit obligation ($14,241) ($11,422)
Plan assets at fair value -- --
- -----------------------------------------------------------------------
Plan assets under projected benefit obligation (14,241) (11,422)
Unrecognized net loss from past experience (264) (2,442)
Prior service cost not yet recognized 1,299 1,491
Unrecognized net asset being recognized
over 15 years 5,219 5,668
- -----------------------------------------------------------------------
Accrued pension cost ($7,987) ($6,705)
- ------------------------------------------------- ====== ======
- -----------------------------------------------------------------------
Net pension cost for this supplemental plan included the following components:
(In Thousands)
Year Ended December 31,
<CAPTION>
1995 1994
<S> <C> <C>
- -----------------------------------------------------------------------
Service cost $353 $282
Interest cost 1,000 957
Net amortization and deferral 488 659
- -----------------------------------------------------------------------
Total pension expense $1,841 $1,898
- ------------------------------------------------- ====== ======
- -----------------------------------------------------------------------
In determining the actuarial present value of the projected benefit obligation, the
weighted-average discount rate used was 7.75% for 1995 and 9.00% for 1994, and the
rate of increase in future compensation levels used was 5.50% for 1995 and 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. There were
no additional matching contributions made in 1995, 1994 or 1993. The Company
contributed $2,581,000, $2,429,000 and $2,148,000 in 1995, 1994 and 1993,
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.
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>
1995 1994
<S> <C> <C>
- -----------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees and spouses ($12,670) ($12,656)
Eligible active participants (2,741) (2,547)
Other active participants (3,349) (2,990)
- ------------------------------------------------------------------------
Total accumulated postretirement benefit
obligation (18,760) (18,193)
Plan assets at fair value -- --
Total unrecognized loss (1,905) (1,096)
Unrecognized transition obligation 14,070 14,898
- ------------------------------------------------------------------------
Net postretirement benefit liability ($6,595) ($4,391)
- ------------------------------------------------- ======= =======
- -----------------------------------------------------------------------
The net postretirement benefit cost included the following components:
(In Thousands)
Year Ended December 31,
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
- -----------------------------------------------------------------------
Service cost $667 $1,031 $753
Interest cost 1,649 1,434 1,471
Amortization of transition obligation
over 20 years 828 828 828
- -----------------------------------------------------------------------
Total postretirement benefit expens $3,144 $3,293 $3,052
- --------------------------------------- ====== ====== ======
- -----------------------------------------------------------------------
The assumed health care cost trend used to measure the expected cost of benefits
under the Plan for 1995 and 1996 is 8.60%. This rate gradually declines to 6.50% 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 1995 and 9.00% in 1994. 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
$151,000 and $2,279,000, respectively.
</TABLE>
<PAGE>
<TABLE>
NOTE 15. Stock Option and Stock Incentive 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, 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
Granted (40,250) 40,250 21.17 - 31.88
Exercised -- (374,564) 8.52 - 28.00
Cancelled 18,050 (18,050) 23.92 - 29.50
- --------------------------------------------------------
Balance, December 31, 1995 19,456 1,942,446 $10.50 - $31.88
- ----------------------------- ======= =========
- -------------------------------------------------------------------
The 1995 Stock Incentive Plan (the "1995 Plan") was approved by the Board on
January 11, 1995 and by the shareholders at the May 10, 1995 Annual Meeting of
Shareholders. 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
adjustments in the event of a stock split, stock dividend, or other changes in the common
stock as set forth in the 1995 Plan. At year-end 1995, no awards have been made under
the 1995 Plan.
</TABLE>
<PAGE>
<TABLE>
NOTE 16. Other Information
The principal components of "Interest on deposits," "Other income" and "Other expense"
in the Statement of Consolidated Income are:
(In Thousands)
Year Ended December 31,
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
- -------------------------------------------------------------------------
Interest on deposits:
Interest checking $15,163 $15,802 $15,666
Regular savings 20,666 23,723 25,028
Consumer certificates 225,832 156,610 143,565
Money market accounts 43,300 33,133 32,832
Certificates of deposit $100,000 and
over 14,764 14,364 22,087
- ------------------------------------- --------- --------- ---------
Total $319,725 $243,632 $239,178
- ------------------------------------- ========= ========= =========
Other income:
Gain on sale of out-of-state bank card $-- $11,400 $--
Other (includes no items in excess of 1%
of total revenue) 25,424 24,460 23,909
- ------------------------------------- --------- --------- ---------
Total $25,424 $35,860 $23,909
- ------------------------------------- ========= ========= =========
Other expense:
Telecommunications and postage expense $9,623 $8,708 $8,402
Other (includes no items in excess of 1%
of total revenue) 39,877 40,483 30,507
- ------------------------------------- --------- --------- ---------
Total $49,500 $49,191 $38,909
- ------------------------------------- ========= ========= =========
- -------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTE 17. Off-Balance-Sheet Items, Commitments and Contingent
Liabilities
In the normal course of business, there are outstanding various
financial instruments which involve elements of credit and interest rate
risk, to varying degrees, that are not recognized in the Consolidated
Balance Sheet. 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, 1995 and 1994, the Company had outstanding loan
commitments of $1,271,035,000 and $1,214,470,000, and standby letters of
credit approximating $218,208,000 and $214,178,000, 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, 1995 and
1994 approximated $554,800,000 and $994,500,000, respectively. To hedge
against interest rate risk, the Company's swap portfolio consists of
$450,000,000 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 $96,800,000 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 $8,000,000 and $18,000,000 at
December 31, 1995 and 1994, respectively. The fair value of total interest
rate swaps was an unrealized gain of $6,600,000 and an unrealized loss of
$29,500,000 at December 31, 1995 and 1994, 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
1995, the Company had net credit risk of $11.0 million to one
counterparty. This exposure was below the threshold for receiving
collateral. Of the transactions that had negative fair values at year-end
1995, none were above threshold levels requiring the Company to deliver
collateral.
The Company also periodically enters into options, forwards and exchange
rate contracts. Such amounts were not material in 1995 or 1994.
There are also legal proceedings pending against the Company and its
subsidiaries arising during the normal course of business. In the opinion
of management, after consultation with legal counsel, liabilities arising
from these proceedings, if any, would not have a material adverse effect
on the consolidated financial position or results of operations.
<PAGE>
<TABLE>
NOTE 18. Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and due from banks and temporary investments
The carrying amount of cash and due from bank balances and temporary
investments is a reasonable estimate of fair value.
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, long-term debt and capitalized
lease obligations
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, 1995 and December 31, 1994.
The carrying amount and fair value of financial instruments as of December 31,
1995 and December 31, 1994 are as follows:
(In Thousands) Carrying Fair
<CAPTION> Amount Value
<S> <C> <C>
- ---------------------------------------------------------------
December 31, 1995:
Financial assets:
Cash and due from banks $338,580 $338,580
Temporary investments 208,156 208,156
Securities available for sale 3,654,887 3,654,887
Loans, net 6,206,813 6,198,405
Financial liabilities:
Deposits 7,985,898 8,044,645
Short-term borrowings 1,129,996 1,129,996
Medium-term notes and FHLB borrowings 602,950 610,356
Long-term debt and capitalized lease
obligations 158,132 172,216
Interest rate swaps -- 6,564
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 and capitalized lease
obligations 158,607 167,864
Interest rate swaps -- (29,465)
- ---------------------------------------------------------------
</TABLE>
<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, 1995 and 1994,
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, 1995, and the combined balance
sheet of the subsidiary banks of Central Fidelity Banks, Inc. as of
December 31, 1995 and 1994. 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, 1995 and
1994, the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1995, 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, 1995 and 1994, all in conformity with
generally accepted accounting principles.
As discussed in note 1 to the consolidated financial statements,
Central Fidelity Banks, Inc. and subsidiaries adopted the provisions of
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" in 1993.
January 12, 1996
<PAGE>
<TABLE>
1995 GRAPH MATERIAL
CENTRAL FIDELITY BANKS, INC.
<CAPTION>
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
---------- ---------- ---------- ---------- ----------
Average Earning Assets (In Millions of Dollars)
Average Securities and Other Earning Asset 2,058 3,206 4,139 3,699 3,715
Average Loans 3,607 3,731 4,250 5,322 5,999
Total Average Earning Assets 5,665 6,937 8,389 9,021 9,714
Net Interest Margin
Yield on Earning Assets 10.12% 8.52% 7.43% 7.47% 8.04%
Rate on Interest-bearing Liabilities
(Relative to Earning Assets) 5.64% 4.12% 3.45% 3.67% 4.45%
Net Interest Margin 4.48% 4.40% 3.98% 3.80% 3.59%
Average Loans (In Millions of Dollars) 3,607 3,731 4,250 5,322 5,999
Loan Yields 11.00% 9.55% 8.56% 8.37% 8.87%
Loan Loss Coverage (In Millions of Dollars)
Provision for Loan Losses 49.8 99.8 79.5 24.4 26.7
Net Loan Charge-offs 49.6 59.0 76.3 19.4 26.7
Allowance for Loan Losses (In Millions of Dollars) 61.0 101.8 105.0 110.0 110.0
Allowance for Loan Losses as a Percentage
of Net Loans 1.69% 2.58% 2.18% 1.91% 1.74%
Year-End Securities Mix
U.S. Treasury and Agency Securities -- -- -- 14.0% 11.0%
Mortgage-Backed Securities -- -- -- 40.0% 36.0%
CMOs -- -- -- 27.0% 27.0%
Asset-Backed Securities -- -- -- 13.0% 21.0%
Other Securities -- -- -- 6.0% 5.0%
Year-End Funding Mix
Deposits -- -- -- 78.0% 81.0%
Short-term Borrowings -- -- -- 12.0% 11.0%
Medium-term Borrowings -- -- -- 9.0% 6.0%
Long-term Debt -- -- -- 1.0% 2.0%
Interest-Bearing Deposit Rates 6.44% 4.87% 4.09% 4.11% 4.81%
Average Deposits (In Millions of Dollars)
Interest-bearing Deposits 4,279 5,181 5,846 5,921 6,644
Noninterest-bearing Deposits 592 734 840 903 929
Total 4,871 5,915 6,686 6,824 7,573
Net Income (In Millions of Dollars) 60.4 78.5 102.9 84.9 105.4
Earnings and Dividends Per Share
Earnings Per Share $1.87 $2.25 $2.66 $2.17 $2.65
Dividends Per Share $0.74 $0.82 $1.00 $1.12 $1.18
Book Value Per Share 13.07 15.66 18.61 15.84 20.56
Average Shareholders' Equity (In Millions of
Dollars) 404.8 503.3 646.8 667.2 753.4
</TABLE>
<PAGE>
Summary
Net income for 1995 was $105.4 million, an increase of 24.2% from the
$84.9 million reported for 1994. On a per share basis, net income
increased 22.1% to $2.65 from $2.17 for 1994, on 1.6% higher average
number of shares outstanding.
Net interest income, on a tax-equivalent basis, was $348.4 million,
an increase of 1.6% from $343.0 million in 1994. Noninterest income was
$78.8 million compared to $58.4 million in 1994, an increase of 35.0%.
Included in 1994 noninterest income was a $28.7 million loss which
resulted from the sale of approximately $470 million of fixed rate
securities as the Company restructured its balance sheet to lessen its
exposure to rapidly changing interest rates, and an $11.4 million profit
on the sale of a segment of the bank card portfolio. Excluding the effects
of securities transactions for both 1995 and 1994 as well as the profit on
the bank card sale in 1994, noninterest income for 1995 increased 3.5%.
Noninterest expense declined 2.8% to $238.3 million compared to $245.2
million in 1994. The primary reasons for this decline resulted from lower
FDIC insurance premiums and other real estate expense. The provision for
loan losses was $26.7 million, an increase of 9.7% from $24.4 million in
1994, reflecting higher consumer charge-offs during 1995.
Earning assets averaged $9.7 billion, compared to $9.0 billion in
1994, an increase of 7.7%. Total loans, up $677.5 million or 12.7% from
1994, averaged $6.0 billion for 1995. Residential real estate and all
categories of consumer loans accounted for the majority of the growth.
Securities available for sale grew 1.7% to an average of $3.6 billion in
1995, following a decline of 9.6%, on average, in 1994. Trading account
securities averaged $1.1 million, reflecting an increase of 37.5%, which
was offset by a 37.2% decline in money market investments.
Interest-bearing liabilities averaged $8.5 billion, up 8.1% from
$7.9 billion in 1994. Interest-bearing deposits increased 12.2% to an
average of $6.6 billion. Consumer certificates of deposit accounted for
virtually all the growth. An increase in Federal Home Loan Bank and other
short-term borrowings also contributed to the growth in funding sources,
up 190.3% and 47.3%, to $311.2 million and $62.9 million, on average,
respectively.
Average shareholders' equity grew 12.9% to $753.4 million from
$667.2 million in 1994. The return on average shareholders' equity of
13.99% increased from 12.72% in 1994. The book value of common stock per
share was $20.56 at December 31, 1995, compared to $15.84 at year-end
1994, representing an increase of 29.8%. The closing price of the
Company's common stock as of December 31, 1995 was $32.00, which
represents a market to book value ratio of 156%.
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------
TABLE 1 Changes in Earnings Per Share
<CAPTION>
1995/1994 1994/199 1993/199
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------
Net income for 1994, 1993 and 1992, respectively $2.17 $2.66 $2.25
Increase (decrease) attributable to:
Net interest income 0.14 0.28 0.77
Provision for loan losses (0.06) 1.41 0.52
Noninterest income 0.51 (1.72) 0.27
Noninterest expense 0.17 (0.56) (0.58)
Income taxes (0.25) 0.13 (0.35)
Average shares outstanding (0.03) (0.03) (0.22)
- ----------------------------------------------------------------------------------
Net increase (decrease) 0.48 (0.49) 0.41
- ----------------------------------------------------------------------------------
Net income for 1995, 1994 and 1993, respectively $2.65 $2.17 $2.66
- ------------------------------------------------- ======= ======= =======
- ----------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- -------------------------------------------------------------------------
TABLE 2 Selected Ratios
Year Ended December 31,
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
- -------------------------------------------------------------------------
Percentage of net income to:
Average shareholders' equity 13.99 % 12.72 % 15.91 %
Average total assets 1.03 0.89 1.16
Percentage of dividends per share
to net income per share 44.53 51.61 37.59
Percentage of average total shareholders' equity
to average total assets 7.36 7.01 7.27
- -------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------
TABLE 3 Selected Financial Data
(In Thousands, except share and per share data) Percent
Change
<CAPTION> --------------------
1995 1994 1993 1992 1991 1995/1994 1994/1993
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Results of Operations (Taxable
Equivalent Basis)
Interest income $780,695 $673,731 $623,645 $591,076 $573,187 15.9 % 8.0 %
Interest expense 432,295 330,691 289,731 285,697 319,365 30.7 14.1
- ------------------------------------------------------------------ ----------- ------------
Net interest margin 348,400 343,040 333,914 305,379 253,822 1.6 2.7
Provision for loan losses 26,713 24,359 79,509 99,757 49,810 9.7 (69.4)
- ------------------------------------------------------------------ ----------- ------------
Net income from earning assets321,687 318,681 254,405 205,622 204,012 0.9 25.3
Noninterest income 78,770 58,359 125,803 115,422 78,942 35.0 (53.6)
Noninterest expense 238,329 245,223 223,298 200,833 190,406 (2.8) 9.8
- ------------------------------------------------------------------ ----------- ----------------
Income before income taxes 162,128 131,817 156,910 120,211 92,548 23.0 (16.0)
Income tax expense 56,758 46,953 53,993 41,695 32,113 20.9 (13.0)
- ------------------------------------------------------------------ ----------- ----------------
Net income $105,370 $84,864 $102,917 $78,516 $60,435 24.2 (17.5)
- ------------------------------ ========= ========= ========= ========= =========
Per Share
Net income $2.65 $2.17 $2.66 $2.25 $1.87 22.1 % (18.4)%
Cash dividends declared $1.18 $1.12 $1.00 $0.82 $0.74 5.4 12.0
Average common shares
outstanding 39,784,750 39,163,599 38,737,447 34,962,561 32,396,301 1.6 1.1
Daily Averages for the Year
Total assets $10,230,710 $9,512,447 $8,900,247 $7,416,919 $6,083,792 7.6 % 6.9 %
Loans 5,999,371 5,321,848 4,250,089 3,730,625 3,606,906 12.7 25.2
Earning assets 9,713,659 9,021,290 8,389,175 6,937,150 5,665,342 7.7 7.5
Deposits 7,572,851 6,823,793 6,685,916 5,914,733 4,871,463 11.0 2.1
Shareholders' equity 753,411 667,150 646,826 503,313 404,817 12.9 3.1
- -----------------------------------------------------------------------------------------------------------------
</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) 1995 Compared to 1994 1994 Compared to 1993
<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 $5,778 $12,874 $18,652 $19,601 $4,706 $24,307
Construction 1,152 4,904 6,056 (2,769) 3,364 595
Residential real estate 14,462 356 14,818 40,415 (4,084) 36,331
Consumer second mortgage 6,653 2,436 9,089 7,037 (824) 6,213
Installment 16,879 5,533 22,412 11,547 (6,050) 5,497
Bank card 15,483 (10) 15,473 11,685 (2,750) 8,935
- ------------------------------------ ------------- -----------
Total loans 59,120 27,380 86,500 90,555 (8,677) 81,878
Assets available for sale:
Securities:
U.S. Government and agencies (7,273) 12,887 5,614 63,629 (50,704) 12,925
States and political subdivisions(2,233) 830 (1,403) 3,469 (5,636) (2,167)
Other 13,835 3,198 17,033 (6,409) (35,575) (41,984)
- ------------------------------------ ------------- -----------
3,868 17,376 21,244 61,207 (92,433) (31,226)
Loans (81) 52 (29) (456) 198 (258)
- ------------------------------------ ------------- -----------
Total assets available for sale 3,799 17,416 21,215 60,772 (92,256) (31,484)
Money market investments (2,394) 1,613 (781) (2,149) 1,830 (319)
Trading account securities 27 3 30 (2) 13 11
- ------------------------------------ ------------- -----------
Total interest-earning assets 53,684 53,280 106,964 47,195 2,891 50,086
- ------------------------------------ ------------- -----------
Interest-bearing liabilities:
Interest checking (79) (560) (639) 750 (614) 136
Regular savings (2,823) (234) (3,057) 810 (2,115) (1,305)
Consumer certificates 47,314 21,907 69,221 15,618 (2,573) 13,045
Money market accounts 947 9,220 10,167 (2,629) 2,930 301
Certificates of deposit $100,000
and over (2,929) 3,329 400 (9,261) 1,538 (7,723)
Federal funds purchased and repos (4,166) 17,673 13,507 747 11,672 12,419
Other short-term borrowings 946 751 1,697 526 474 1,000
Medium-term notes (11,720) 5,628 (6,092) 10,551 4,903 15,454
Federal Home Loan Bank borrowings 13,400 734 14,134 6,343 63 6,406
Long-term debt (34) 2,331 2,297 (192) 1,468 1,276
Capitalized lease obligations (33) 2 (31) (50) 1 (49)
- ------------------------------------ ------------- -----------
Total interest-bearing
liabilities 28,289 73,315 101,604 18,761 22,199 40,960
- ------------------------------------ ------------- -----------
Net interest earnings $25,469 ($20,109) $5,360 $28,434 ($19,308) $9,126
- ------------------------------------ ======= ======
- ----------------------------------------------------------------------------------------------
</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,
1995, 1994 and 1993. 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 all three years.
(In Millions)
<CAPTION>
1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interes Rate Balance Interes Rate Balance Interes Rate
- ---------------------------------------------------------------------------------------------------------
Assets
- ---------------------------------------------------------------------------------------------------------
Interest-earning assets:
Loans:
Commercial and commercial
real estate $1,903.8 $164.6 8.65 %$1,833.1 $146.0 7.96 % $1,585.1 $121.7 7.67 %
Construction 308.2 30.3 9.84 294.7 24.3 8.24 331.2 23.7 7.15
Residential real estate 1,584.1 114.5 7.23 1,383.9 99.6 7.20 825.9 63.3 7.67
Consumer second mortgage 578.3 56.4 9.75 509.2 47.3 9.28 433.5 41.1 9.47
Installment 971.9 80.8 8.32 764.8 58.4 7.64 619.2 52.9 8.55
Bank card 647.9 85.0 13.12 529.9 69.5 13.12 441.6 60.5 13.72
- ----------------------------------------------------- ------------------- -------------------
5,994.2 531.6 8.87 5,315.6 445.1 8.37 4,236.5 363.2 8.57
Assets available for sale:
Securities:
U.S. Government and agencies 2,529.2 166.4 6.58 2,645.6 160.8 6.08 747.4 45.9 6.14
States and political
subdivisions 133.2 11.1 8.35 160.4 12.5 7.80 43.4 3.5 8.03
Other 972.1 66.4 6.83 767.3 49.4 6.43 230.4 12.0 5.22
- ----------------------------------------------------- ------------------- -------------------
3,634.5 243.9 6.71 3,573.3 222.7 6.23 1,021.2 61.4 6.01
Loans 5.1 0.4 7.87 6.2 0.4 6.95 13.6 0.7 5.08
- ----------------------------------------------------- ------------------- -------------------
3,639.6 244.3 6.71 3,579.5 223.1 6.23 1,034.8 62.1 6.00
Investment securities:
U.S. Government and agencies -- -- -- -- -- -- 1,516.7 102.0 6.73
States and political subdivisions -- -- -- -- -- -- 137.4 11.2 8.15
Other -- -- -- -- -- -- 1,279.0 79.3 6.20
- ----------------------------------------------------- ------------------- -------------------
-- -- -- -- -- -- 2,933.1 192.5 6.56
Money market investments 78.8 4.7 5.91 125.4 5.4 4.33 184.0 5.8 3.13
Trading account securities 1.1 0.1 8.37 0.8 0.1 7.98 0.8 -- 6.18
- ----------------------------------------------------- ------------------- -------------------
Total interest-earning assets9,713.7 $780.7 8.04 % 9,021.3 $673.7 7.47 % 8,389.2 $623.6 7.43 %
- -------------------------------------------====== ---------====== ---------======
Noninterest-earning assets:
Cash and due from banks 278.4 270.7 248.3
Premises and equipment, net 149.0 145.7 145.6
Other assets 199.6 184.7 222.1
Allowance for loan losses (110.0) (110.0) (105.0)
- ------------------------------------------- --------- ---------
Total assets $10,230.7 $9,512.4 $8,900.2
- ---------------------------------========= ======= =======
</TABLE>
<PAGE>
<TABLE>
Liabilities and Shareholders' Equity
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Interest checking $660.1 $15.2 2.30 % $663.4 $15.8 2.38 % $632.4 $15.7 2.48 %
Regular savings 742.5 20.7 2.78 843.9 23.7 2.81 816.8 25.0 3.06
Consumer certificates 3,946.4 225.8 5.72 3,088.7 156.6 5.07 2,781.4 143.6 5.16
Money market accounts 1,035.9 43.3 4.18 1,007.8 33.1 3.29 1,091.8 32.8 3.01
Certificates of deposit
$100,000 and over 258.5 14.8 5.71 316.9 14.4 4.53 523.5 22.1 4.22
Federal funds purchased and repos 999.3 57.7 5.77 1,095.5 44.2 4.03 1,070.9 31.7 2.97
Other short-term borrowings 62.9 3.3 5.34 42.7 1.7 3.89 26.4 0.7 2.51
Medium-term notes 323.5 19.3 5.97 537.7 25.4 4.72 292.4 9.9 3.40
Federal Home Loan Bank borrowings 311.2 20.5 6.60 107.2 6.4 5.98 -- -- --
Long-term debt 150.4 11.0 7.30 151.0 8.7 5.75 154.9 7.4 4.78
Capitalized lease obligations 8.0 0.7 8.85 8.3 0.7 8.82 8.9 0.8 8.81
- ----------------------------------------------------- ------------------- -------------------
Total interest-bearing
liabilities 8,498.7 $432.3 5.09 % 7,863.1 $330.7 4.21 % 7,399.4 $289.7 3.92 %
- -------------------------------------------====== ---------====== ---------======
Noninterest-bearing liabilities:
Demand deposits 929.4 903.2 840.1
Other 49.2 78.9 13.9
- ------------------------------------------------ ------------- -------------
978.6 982.1 854.0
Shareholders' equity 753.4 667.2 646.8
- ------------------------------------------------ ------------- -------------
Total liabilities and
shareholders' equity $10,230.7 $9,512.4 $8,900.2
- ---------------------------------========= ======= =======
Net interest earnings $348.4 $343.0 $333.9
- --------------------------------- ====== ====== ======
Net interest spread 2.95 % 3.26 % 3.51 %
- --------------------------------- ==== ==== ====
Net interest margin 3.59 % 3.80 % 3.98 %
- --------------------------------- ==== ==== ====
Fees included in loan income $11.5 $14.1 $8.4
- --------------------------------- ====== ====== ======
Taxable equivalent adjustment $7.7 $7.9 $9.7
- --------------------------------- ====== ====== ======
- ---------------------------------------------------------------------------------------------------------
</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, money market
investments and trading account securities. 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 1995 was $348.4
million, an increase of 1.6% from 1994. This moderate growth resulted
primarily from higher levels of average earning assets. Higher funding
costs during 1995 resulted in the Company's net interest margin declining
21 basis points from 3.80% to 3.59%. Average earning assets for 1995 grew
$692.4 million, or 7.7%. This growth produced $107.0 million additional
income, an increase of 15.9% from 1994. Average interest-bearing
liabilities increased $635.6 million, or 8.1% from 1994, and interest
expense increased $101.6 million or 30.7% over 1994. The yield on average
earning assets increased 57 basis points during 1995 but was offset by an
increase of 88 basis points on the cost of interest-bearing liabilities.
During 1995, the Company's interest rate swap activities resulted in
a decline in interest income of $2.2 million and an increase in interest
expense of $1.7 million compared to a $1.6 million increase in interest
income and a decrease of $3.5 million in interest expense for 1994. The
Company's interest rate swap activities resulted in a reduction of net
interest income of $3.9 million during 1995 and an increase of net
interest income of $5.1 million for 1994.
In 1995, total loans grew $677.5 million, or 12.7% to an average of
$6.0 billion. Residential real estate and all categories of consumer loans
accounted for the majority of the increase. Residential real estate loans
rose 14.3% to an average of $1.6 billion, following a 65.6% growth in
1994. Consumer second mortgage loans increased 13.6%, averaging $578.3
million. Installment loans averaged $971.9 million, reflecting growth of
27.1% compared to 1994. Bank card loans rose $118.0 million, an increase
of 22.3% and averaged $647.9 million. When compared with the 1994 levels,
commercial and commercial real estate and construction loans registered
increases of 3.9% and 4.6%, respectively. Securities available for sale
averaged $3.6 billion, reflecting an increase of 1.7%. This follows a
decline of 9.6% in 1994 due to the sale of fixed rate securities in an
effort by the Company to reduce its exposure to changes in interest rates.
Money market investments, consisting primarily of federal funds sold and
securities purchased under agreements to resell, declined 37.2% to an
average of $78.8 million. In 1995, the yield on average earning assets
gained 57 basis points to 8.04%, due primarily to higher yields on most
categories of earning assets.
In 1995, core deposits increased $807.3 million to an average of $7.3
billion, an increase of 12.4%, following a 5.6% increase in 1994. Deposit
growth was impacted by the acquisition, on June 9, 1995, of fourteen
branches and approximately $453 million of core deposits from Household
Bank, f.s.b. Other deposit categories contributing to 1995 growth were
consumer certificates, which increased $857.7 million to $3.9 billion, or
27.8% from 1994, and money market accounts which grew 2.8% to an average
of $1.0 billion. Regular savings and interest checking showed declines of
12.0% and .5%, averaging $742.5 million and $660.1 million, respectively.
Certificates of deposit $100,000 and over declined 18.4%, on average,
compared to 1994. Federal Home Loan Bank borrowings and other short-term
borrowings increased 190.3% and 47.3% to averages of $311.2 million and
$62.9 million, respectively. The decline in medium-term notes of 39.8%,
averaging $323.5 million, resulted from notes maturing during 1995 and the
use of other lower cost funding sources. Federal funds purchased and repos
showed an 8.8% decline over 1994. Long-term debt and capitalized lease
obligations declined slightly to an average of $158.4 million. In 1995,
the cost of interest-bearing liabilities increased 88 basis points to
5.09%, due primarily to the higher 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 1995, total loans grew 12.7% to an average of $6.0
billion compared to $5.3 billion from the prior year. This growth
reflected an increased demand in consumer lending activities. The
average yield on the loan portfolio increased 50 basis points to 8.87%
from 8.37% in 1994. The average prime rate was 8.69% in 1995
compared to 7.08% in 1994.
Commercial and commercial real estate loans averaged $1.9 billion, a
3.9% increase from $1.8 billion in 1994. The average yield was up 69 basis
points to 8.65% compared to 1994, reflective of the higher average prime
rate during 1995. Construction loans grew 4.6%, or $13.5 million to an
average of $308.2 million, following an 11.0% decline in 1994. The average
yield of 9.84%, was up 160 basis points over 1994.
Residential first mortgage loans averaged $1.6 billion, an increase
of 14.3% compared to 1994, following an increase of 65.6% in 1994. During
1995, higher mortgage interest rates negatively impacted new first
mortgage loan originations as well as refinancing activity. The average
yield on the residential first mortgage loan portfolio increased slightly
to 7.23% from 7.20% in 1994.
Consumer second mortgage loans, which consist of second mortgage
loans and home equity lines of credit, averaged $578.3 million, a 13.6%
increase over 1994. The average yield was up 47 basis points to 9.75%.
Installment loans averaged $971.9 million, representing growth of 27.1%.
The average yield on installment loans was 8.32%, up 68 basis points from
7.64% in 1994. Bank card loans grew 22.3% to an average of $647.9 million.
The average yield remained flat at 13.12%, and is indicative of the
competitiveness in the bank card industry.
There are no foreign loans within the portfolio or credits to
finance leveraged buyouts or other highly leveraged transactions.
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------
TABLE 6 Average Loans
(In Thousands) Year Ended December 31,
<CAPTION> Percent
Change
1995 1994 1993 1992 1991 1995/1994
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Commercial and commercial
real estate $1,903,759 $1,833,077 $1,585,135 $1,542,712 $1,560,323 3.9 %
Construction 308,239 294,753 331,162 422,029 518,131 4.6
Residential real estate 1,589,223 1,390,149 839,496 397,512 216,117 14.3
Consumer second mortgage 578,316 509,173 433,552 394,024 346,074 13.6
Installment 971,878 764,778 619,172 559,588 551,820 27.1
Bank card 647,956 529,918 441,572 414,760 414,441 22.3
- -------------------------------------------------------------------- ----------- ------------------
Total loans $5,999,371 $5,321,848 $4,250,089 $3,730,625 $3,606,906 12.7 %
- -------------------------------========== ========== ========== ========== ==========
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------
TABLE 7 Sensitivity of Loan Portfolio to Changes in Interes Rates
At December 31, 1995, 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 932,890
- --------------------------------------------------------------------
Total $932,890
- --------------------------------------------------------- ========
- --------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------
TABLE 8 Loan Maturities
Scheduled principal repayments of loans outstanding for commercial and construction loans at
December 31, 1995 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 $1,082,976 $497,296 $404,121 $1,984,393
Construction 258,711 6,894 24,579 290,184
- -----------------------------------------------------------------------------------------------
Total $1,341,687 $504,190 $428,700 $2,274,577
- ----------------------------------------========== ========== ========== ==========
- ----------------------------------------------------------------------------------------
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.
The allowance for loan losses at December 31, 1995 was $110.0
million, the same as year-end 1994. At December 31, 1995, the
allowance for loan losses was 1.74% of loans, compared to 1.91% at
December 31, 1994. The provision for loan losses totalled $26.7 million
for 1995, an increase of $2.3 million compared to $24.4 million in 1994.
The increase in the provision is consistent with comparable increases in
charge-offs from year to year. Net charge-offs amounted to $26.7
million for 1995, compared with $19.4 million for 1994. The ratio of
provision for loan losses declined slightly from .46% to .45% for 1995,
and the ratio of net charge-offs to average loans increased from .36% to
.45%. Table 9 provides an analysis of the allowance for loan losses for
the years 1991 through 1995, including gross charge-offs and recoveries
for the five year period.
Nonperforming assets as of December 31, 1995 were $65.9 million or
.61% of total assets compared to $90.3 million or .90% of total assets a
year ago. At December 31, 1995, nonperforming assets were 1.04% of loans
and foreclosed properties, compared to 1.56% at December 31, 1994. The
lower level of nonperforming assets was the result of improved real estate
markets across the Commonwealth of Virginia and continued success in
problem loan resolution. At December 31, 1995, the allowance for loan
losses to nonperforming assets was 166.9% compared to 121.8% at December
31, 1994. Asset quality continued to improve in the commercial,
commercial real estate and construction loan portfolios during 1995.
Higher consumer loan delinquencies, however, resulted in increased charge-
offs, a trend expected to continue into 1996. This is, in part, a
reflection of conditions in consumer banking throughout our industry, as
well as increased volume. In response, our underwriting criteria have been
strengthened and collection efforts enhanced. 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>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Balance at beginning of year $110,000 $105,000 $101,800 $61,000 $60,806
Provision charged to expense 26,713 24,359 79,509 99,757 49,810
- -----------------------------------------------------------------------------------------------------------
136,713 129,359 181,309 160,757 110,616
Loans charged off:
Commercial and commercial real estate 5,101 8,288 27,995 17,091 20,092
Construction 735 4,744 39,031 27,793 14,393
Residential real estate 344 173 64 4 32
Installment 14,983 5,989 5,841 6,273 5,949
Bank card 25,118 15,203 13,797 16,408 15,587
- -----------------------------------------------------------------------------------------------------------
Total charge-offs 46,281 34,397 86,728 67,569 56,053
- -----------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial and commercial real estate 8,962 4,281 3,162 1,967 2,083
Construction 3,171 4,425 392 1,557 69
Residential real estate 18 20 23 3 2
Installment 4,429 3,456 3,508 2,656 2,099
Bank card 2,988 2,856 3,334 2,429 2,184
- -----------------------------------------------------------------------------------------------------------
Total recoveries 19,568 15,038 10,419 8,612 6,437
- -----------------------------------------------------------------------------------------------------------
Net charge-offs 26,713 19,359 76,309 58,957 49,616
- -----------------------------------------------------------------------------------------------------------
Balance at end of year $110,000 $110,000 $105,000 $101,800 $61,000
- ------------------------------------------ ======== ======= ======= ======= =======
Average loans $5,999,371 $5,321,848 $4,250,089 $3,730,625 $3,606,906
Loans at year-end $6,316,813 $5,772,093 $4,812,509 $3,953,354 $3,619,218
Ratio of provision for loan losses to
average loans 0.45% 0.46% 1.87% 2.67% 1.38%
Ratio of net charge-offs to average loans 0.45% 0.36% 1.80% 1.58% 1.38%
Ratio of allowance for loan losses to
loans at year-end 1.74% 1.91% 2.18% 2.58% 1.69%
- ---------------------------------------------------------------------------------------------------------
</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 1996 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>
<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
AllowanceOutstanding AllowanceOutstanding AllowanceOutstanding AllowanceOutstanding AllowanceOutstanding
- ------------------------------------------------------------------------------------------------------------------------
Commercial and
commercial
real estate $47,194 31.4 % $62,724 32.5 % $61,956 35.5 % $40,166 39.9 % $24,377 42.5 %
Construction 11,896 4.6 17,835 5.3 18,803 6.0 36,184 8.8 21,351 13.3
Residential
real estate 2,733 25.7 1,789 27.0 1,318 24.4 1,018 14.9 300 7.1
Installment 14,917 22.3 5,917 20.6 5,497 19.0 6,108 20.3 3,672 20.3
Bank card 33,260 16.0 21,735 14.6 17,426 15.1 18,324 16.1 11,300 16.8
- ------------------------------------------------------------------------------------------------------------------------
Total $110,000 100.0 % $110,000 100.0 % $105,000 100.0 % $101,800 100.0 % $61,000 100.0 %
- --------------======== ======== ======== ======== ======== ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
</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>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------
Nonaccrual loans $48,763 $67,534 $93,349 $84,401 $35,853
Past-due loans (not including
nonaccrual loans):
Commercial and construction 1,159 1,195 1,887 9,369 8,542
Residential real estate 7,941 2,255 670 134 306
Installment 4,028 2,028 681 2,271 3,300
Bank card 7,855 5,562 3,104 3,413 4,363
- -----------------------------------------------------------------------------
20,983 11,040 6,342 15,187 16,511
Restructured loans (in
accrual status) -- -- 606 260 1,635
- -----------------------------------------------------------------------------
Total $69,746 $78,574 $100,297 $99,848 $53,999
- ----------------------------- ======= ======= ======== ======= =======
- --------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------
TABLE 12 Loan Distribution
(In Thousands) December 31,
<CAPTION> Percent
Change
1995 1994 1993 1992 1991 1995/1994
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Commercial and commercial real
estate $1,984,393 $1,879,499 $1,711,092 $1,576,744 $1,537,611 5.6 %
Construction 290,184 305,457 289,199 347,685 483,026 (5.0)
Residential real estate 1,625,651 1,558,429 1,174,051 589,133 256,863 4.3
Consumer second mortgage 613,097 552,301 458,294 411,708 377,009 11.0
Installment 1,046,536 871,115 670,487 593,065 537,258 20.1
Bank card 756,952 605,292 509,386 435,019 427,451 25.1
- ---------------------------------------------------------------------------------------------
Total loans $6,316,813 $5,772,093 $4,812,509 $3,953,354 $3,619,218 9.4 %
- -------------------------------- ========== ========= ========= ========= =========
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------
TABLE 13 Distribution of Loan Portfolio and Nonperforming Assets by Region
(In Thousands) December 31, 1995
<CAPTION> Capital Eastern Northern Western Southwestern
Region Region Region Region Region Consolidated
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Commercial and commercial real
estate $333,512 $748,297 $321,729 $332,033 $248,822 $1,984,393
Construction 68,492 70,402 89,153 36,559 25,578 290,184
Residential real estate 365,341 295,567 296,650 494,975 173,118 1,625,651
Consumer second mortgage 111,292 118,421 69,397 242,064 71,923 613,097
Installment 329,133 136,535 78,888 358,353 143,627 1,046,536
Bank card 241,049 149,245 209,813 119,507 37,338 756,952
- ------------------------------------------------------------------------------------------------------
Loans* $1,448,819 $1,518,467 $1,065,630 $1,583,491 $700,406 $6,316,813
- ------------------------------- ========= ========= ========= ========= ========= =========
Nonaccrual loans $3,139 $10,530 $25,349 $5,065 $4,680 $48,763
Foreclosed properties 991 4,718 8,956 305 2,166 17,136
- ------------------------------------------------------------------------------------------------------
Nonperforming assets $4,130 $15,248 $34,305 $5,370 $6,846 $65,899
- ------------------------------- ========= ========= ========= ========= ========= =========
Ratio of nonperforming assets to
loans and foreclosed properties 0.28% 1.00% 3.19% 0.34% 0.97% 1.04%
- -------------------------------------------------------------------------------------------------
* Includes nonaccrual loans.
</TABLE>
<PAGE>
Securities Available for Sale
The Company classifies substantially all of its securities as
available for sale and reports them at fair value. Unrealized gains or
losses are reported on the balance sheet as a separate component of
shareholders' equity, net of any deferred tax provision.
At December 31, 1995, the Company had $3.7 billion in securities
available for sale, compared with $3.5 billion at year-end 1994.
The fair value of securities available for sale, at year-end 1995,
exceeded amortized cost by $36.7 million, resulting in a $23.9 million
after-tax addition to shareholders' equity. This represents a significant
reversal from year-end 1994, when the portfolio had an unrealized loss of
$157.3 million, resulting in a $102.2 million after-tax reduction of
shareholders' equity.
The change in the composition of the portfolio in 1995 reflects the
emphasis on asset-backed securities, which grew to 21% of the portfolio,
compared to 13% at the end of 1994. Mortgage-backed securities decreased
slightly to 36% of the portfolio following the sale of certain adjustable
rate securities during the fourth quarter. Collateralized mortgage
obligations remained at 27% of securities.
The average yield on securities available for sale in 1995 was 6.71%,
compared with 6.23% in 1994. The expected weighted average life of the
portfolio shortened to 3.7 years, compared with 4.4 years at year-end
1994. This shortening is attributed to the aging of the securities held in
the portfolio as well as faster prepayment assumptions.
Going forward, the Company expects that maturities and cash flows
from the investment portfolio will be used primarily to fund loan growth.
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------
TABLE 14 Securities Available for Sale
The carrying value of securities available for sale at the dates indicated was:
(In Thousands) December 31,
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
U.S. Government and agencies $2,342,541 $2,516,781 $3,193,391
States and political subdivisions 124,380 142,530 170,981
Other 1,187,966 827,070 735,734
- -------------------------------------------------------------------------------------------
Total securities available for sale $3,654,887 $3,486,381 $4,100,106
- --------------------------------------------------- ========= ========= =========
- ---------------------------------------------------------------------------------------
</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
repayment at carrying value, of securities available for sale at December 31, 1995:
(In Thousands)
<CAPTION>
Maturity or Expected Principal Repayment
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
After One Bu After Five But
Within One Year Within Five Year Within Ten Year After Ten Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- --------------------------------------------------------------------------------------------------------
U.S. Government and
agencies:
U.S. Treasury $-- -- % $275,605 6.18 % $-- -- % $-- -- % $275,605 6.18 %
Federal agenc -- -- 107,606 4.96 -- -- -- -- 107,606 4.96
Mortgage-backed
obligations 182,899 6.63 1,067,472 6.69 708,959 6.72 -- -- 1,959,330 6.70
---------------- ---------------- ---------------- ----------------------------------
182,899 6.63 1,450,683 6.47 708,959 6.72 -- -- 2,342,541 6.56
---------------- ---------------- ---------------- ----------------------------------
States and political
subdivisions 23,961 8.08 30,958 8.47 49,411 7.82 20,050 9.46 124,380 8.29
---------------- ---------------- ---------------- ----------------------------------
Other:
Whole loan
mortgage-back 12,501 7.15 346,030 6.85 -- -- -- -- 358,531 6.86
Asset-backed 152,579 7.38 603,208 6.62 -- -- -- -- 755,787 6.77
Other 25,251 6.42 48,397 6.99 -- -- -- -- 73,648 6.79
---------------- ---------------- ---------------- ----------------------------------
190,331 7.24 997,635 6.72 -- -- -- -- 1,187,966 6.80
- --------------------------------- ---------------- ---------------- ----------------------------------
Total $397,191 7.01 % $2,479,276 6.59 % $758,370 6.79 % $20,050 9.46 % $3,654,887 6.69 %
- -----------------========= ========= ========= ========= ==========
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Asset/Liability Management
The purpose of the Asset/Liability process is the effective
management of interest rate risk (IRR) through the proper supervision of
lending, investment, funding, and off-balance-sheet activities. The
Asset/Liability Committee meets regularly to review the following topics:
current and predicted economic conditions, interest rate trends, loan
strategies, investment strategies, funding strategies, interest rate risk,
liquidity, off-balance-sheet positions and earnings forecasts.
The primary tool for IRR measurement is an earnings simulation
model which has been used and refined over many 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 up rate
scenario that measures the Company's exposure to increasing rates up to
200 basis points in increments of 50 basis points occurring over the first
three months of the forecast period, 3) a down rate scenario of 200 basis
points as described in 2 above, and 4) no change in rates. Policy of the
Company requires that projected earnings not vary more than 10% from the
flat rate scenario over the first twelve-month horizon. At year-end 1995,
the Company's exposure to either up or down rates was well within the
Company's prescribed policy guidelines.
In addition to earnings simulation, the Company also uses a static
gap report to measure it's general exposure to repricing risk at a point
in time. As a result of the Company's acquisition of the Virginia
deposits of Household Bank, f.s.b. and other steps to reduce its exposure
to rising rates, the one year cumulative gap was reduced from a negative
11.96% of earning assets at year-end 1994 to negative 2.00% at year-end
1995 as shown in Table 20 on page 47. The Company anticipates maintaining
a neutral exposure to interest rate changes.
<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, at December 31, 1995, was $546.8 million, down from $976.5
million at year-end 1994. The related fair value, or unrecognized gains
(losses), of these derivative financial instruments was $6.6 million and
($29.5) million at December 31, 1995 and 1994, 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 utilized financial derivatives in
its strategy of increasing liability sensitivity, which produced 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.
Conversely, 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 1995 and 1994, the Company did not terminate any
derivatives transactions prior to contractual maturity. Unrecognized gains
and losses as of December 31, 1995 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 1995, the Company had net credit risk of $11.0 million to one
counterparty. This exposure was below the threshold for receiving
collateral. Of the transactions that had negative fair values at year-end
1995, none were above threshold levels requiring the Company to deliver
collateral.
The Company has also entered into a limited 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 $8.0 million and $18.0 million
at December 31, 1995 and 1994, respectively. In 1995, at the request of
the customer, the Company terminated a $5.0 million notional swap. As a
result, the offsetting swap with a third party was also terminated for a
total notional amount terminated during the year of $10.0 million. No
customer swaps were terminated in 1994.
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 OneAfter Two After ThreAfter Four
Within Through Through Through Through After
(In Thousands) December 31, 1995 One Year Two YearsThree YearFour YearsFive YearsFive Years Total
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Company Hedging Swaps
- -----------------------------------------------------------------------------------------------------
Pay fixed/receive variable:
Notional amount $9,192 $62,347 $6,603 $17,344 $1,328 -- $96,814
Weighted average pay rate 8.18% 6.72% 8.69% 7.26% 7.03% -- 7.10%
Weighted average receive rate:
Contractual rate* 6.20% 5.82% 6.29% 6.00% 5.88% -- 5.92%
Forward yield curve** 5.20% 5.18% 5.31% 5.46% 5.62% -- 5.25%
Receive fixed/pay variable:
Notional amount $200,000 $100,000 -- -- -- $150,000 $450,000
Weighted average pay rate:
Contractual rate* 5.88% 5.63% -- -- -- 5.88% 5.82%
Forward yield curve** 5.43% 5.18% -- -- -- 5.84% 5.51%
Weighted average receive rate 5.14% 4.77% -- -- -- 7.10% 5.71%
- -----------------------------------------------------------------------------------------------------
Customer Hedging Swaps
- -----------------------------------------------------------------------------------------------------
Pay fixed/receive variable:
Notional amount -- -- $4,000 -- -- -- $4,000
Weighted average pay rate -- -- 9.57% -- -- -- 9.57%
Weighted average receive rate:
Contractual rate* -- -- 5.85% -- -- -- 5.85%
Forward yield curve** -- -- 5.62% -- -- -- 5.62%
Receive fixed/pay variable:
Notional amount -- -- $4,000 -- -- -- $4,000
Weighted average pay rate:
Contractual rate* -- -- 5.85% -- -- -- 5.85%
Forward yield curve** -- -- 5.62% -- -- -- 5.62%
Weighted average receive rate -- -- 9.62% -- -- -- 9.62%
- -----------------------------------------------------------------------------------------------------
* The weighted average variable rates are based upon the contractual rates in effect at
December 31, 1995.
** The weighted average variable rates are projected based upon the implied forward yield
curve from date of analysis through maturity.
</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,
1995:
(In Thousands) December 31, 1995
<CAPTION>
Notional Weighted Average Rate Matur Interest Unrecognized
Amount Receive Pay In YeIncome/(Expense)Gains (Losses)
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Company Hedging Swaps
- --------------------------------------------------------------------------------------------------------
Pay fixed/receive variable:
Variable rate medium-term
borrowings $50,000 5.75 % (1) 6.42 % 1.46 ($148) ($794)
Variable rate deposits -- -- -- -- 232 --
Securities available for sale 21,228 6.35 (2) 9.00 3.74 (170) (1,099)
Fixed rate commercial loans 25,586 5.91 (1) 6.83 3.68 (211) (944)
- ------------------------------------------------ -------------- --------------
Total pay fixed/receive variable96,814 5.92 7.10 2.54 (297) (2,837)
- ------------------------------------------------ -------------- --------------
Receive fixed/pay variable:
Fixed rate subordinated debt 150,000 7.10 5.88 (1) 6.88 1,391 11,155
Fixed rate medium-term borrowings200,000 5.14 5.88 (1) 1.3 (3,204) (1,079)
Variable rate commercial loans 100,000 4.77 5.63 (1) 1.06 (1,804) (679)
- ------------------------------------------------ -------------- --------------
Total receive fixed/pay
variable 450,000 5.71 5.82 3.11 (3,617) 9,397
- ------------------------------------------------ -------------- --------------
Total company hedging swaps $546,814 5.75 % 6.05 % 3.01 ($3,914) $6,560
- ----------------------------------======== ======== ========
- --------------------------------------------------------------------------------------------------------
Customer Hedging Swaps
- --------------------------------------------------------------------------------------------------------
Pay fixed/receive variable $4,000 5.85 % (1) 9.57 % 2.34 $916 ($384)
Receive fixed/pay variable 4,000 9.62 5.85 (1) 2.34 (910) 388
- ------------------------------------------------ -------------- --------------
Total customer hedging swaps $8,000 7.74 % 7.71 % 2.34 $6 $4
- ----------------------------------======== ======== ========
The weighted average variable rates are based upon the contractual rates in effect at December 31,
1994:
(In Thousands) December 31, 1994
- --------------------------------------------------------------------------------------------------------
Company Hedging Swaps
- --------------------------------------------------------------------------------------------------------
Pay fixed/receive variable:
Variable rate medium-term
borrowings $50,000 6.34 % (1) 6.42 % 2.46 ($453) $1,894
Variable rate deposits 50,000 5.72 (3) 4.98 0.53 (1,037) 416
Fixed rate commercial loans 26,548 5.71 (1) 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 (1) 7.88 3,760 (9,170)
Fixed rate medium-term borrowings400,000 4.87 5.81 (1) 1.67 1,264 (16,013)
Variable rate commercial loans 300,000 5.18 6.42 (1) 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 % (1) 6.87 % 2.27 $1,114 $6
Receive fixed/pay variable 9,000 6.92 5.47 (1) 2.27 (1,110) 27
- ------------------------------------------------ -------------- --------------
Total customer hedging swaps $18,000 6.20 % 6.17 % 2.27 $4 $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>
<PAGE>
Deposits
Total deposits increased 11.0%, averaging $7.6 billion in 1995, as
compared to $6.8 billion in 1994. Total core deposits of approximately
$453 million and a total of fourteen branch offices in Northern Virginia
were acquired on June 9, 1995 from Household Bank, f.s.b., a Virginia
subsidiary of Household International, Inc., a Chicago, Illinois based
financial services company. The offices are located in the city of
Alexandria, and counties of Arlington and Fairfax.
In 1995, consumer certificates accounted for the largest increase
in core deposits, averaging $3.9 billion compared to $3.1 billion in
1994, representing a 27.8%, or $857.7 million increase. Money market
accounts averaged $1.0 billion, showing a 2.8% increase from the prior
year. Regular savings and interest checking declined 12.0% and .5% in
1995, averaging $742.5 million and $660.1 million, respectively. 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 12.56% as of September 30, 1995, ranking it
third in market share. During 1995, certificates of deposit $100,000 and
over decreased 18.4% to an average of $258.5 million. Table 19 shows a
maturity schedule for certificates of deposit $100,000 and over at year-
end 1995.
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------
TABLE 18 Average Deposits
(In Thousands) Year Ended December 31,
<CAPTION> Percent
Change
1995 1994 1993 1992 1991 1995/1994
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Noninterest-bearing $929,378 $903,164 $840,070 $733,716 $591,724 2.9 %
Interest-bearing:
Interest checking 660,090 663,405 632,429 520,062 392,912 (0.5)
Regular savings 742,518 843,867 816,783 557,220 367,837 (12.0)
Consumer certificates 3,946,396 3,088,651 2,781,417 2,603,656 2,274,954 27.8
Money market accounts 1,035,942 1,007,847 1,091,764 1,181,713 922,429 2.8
Certificates of deposit
$100,000 and over 258,527 316,859 523,453 318,366 321,607 (18.4)
- ---------------------------------------------------------------------------------------------
Total interest-bearing 6,643,473 5,920,629 5,845,846 5,181,017 4,279,739 12.2
- ---------------------------------------------------------------------------------------------
Total $7,572,851 $6,823,793 $6,685,916 $5,914,733 $4,871,463 11.0 %
- ---------------------------------========== ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------
TABLE 19 Certificates of Deposit $100,000 and Over
(In Thousands) December 31,
<CAPTION>
1995
<S> <C>
- ----------------------------------------------------------------------------
Time remaining to maturity:
Less than three months $301,220
Three through six months 15,214
Six through twelve months 21,263
More than twelve months 10,650
- ----------------------------------------------------------------------------
Total $348,347
- ---------------------------------------------------------------- =========
- ----------------------------------------------------------------------------
</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, 1995.
(In Thousands)
<CAPTION>
1-30 Day 1-90 Day 1-180 Day 1-365 Day Beyond One Year
Sensitivity Sensitivity Sensitivity Sensitivity Or Insensitiv Total
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Uses of Funds
- ------------------------------------------------------------------------------------------------------------
Earning assets:
Securities available for sale and
trading account securities $545,877 $870,758 $1,136,295 $1,634,117 $2,021,192 $3,655,309
Federal funds sold, repos and
deposits in other banks 207,734 207,734 207,734 207,734 -- 207,734
Loans and loans available for
sale 1,707,682 1,958,777 2,373,407 3,215,633 3,101,180 6,316,813
Interest rate swaps (65,009) (55,057) (57,909) (63,782) 63,782 --
- ------------------------------------------------------------------------------------------------------------
Total earning assets 2,396,284 2,982,212 3,659,527 4,993,702 5,186,154 10,179,856
Nonearning assets 598 1,183 2,060 3,813 627,305 631,118
- ------------------------------------------------------------------------------------------------------------
Total uses of funds $2,396,882 $2,983,395 $3,661,587 $4,997,515 $5,813,459 $10,810,974
- -------------------------------========== ========== ========== ========== ========== ===========
Sources of Funds
- ------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Savings and interest-bearing
demand accounts $-- $-- $-- $-- $1,415,456 $1,415,456
Certificates and other time
deposits 1,033,954 1,300,042 1,636,102 2,721,226 2,462,963 5,184,189
Certificates of deposit $100,000
and over 224,945 301,220 316,434 337,697 10,650 348,347
Federal funds purchased and securities
sold under agreements to
repurchase 1,038,900 1,041,880 1,041,880 1,041,880 71 1,041,951
Other borrowings 88,045 288,045 437,995 484,195 206,800 690,995
Long-term debt and capitalized
lease obligations -- -- -- -- 158,132 158,132
Interest rate swaps -- 200,000 100,000 100,000 (100,000) --
- ------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 2,385,844 3,131,187 3,532,411 4,684,998 4,154,072 8,839,070
Noninterest-bearing sources 132,212 516,300 516,300 516,300 1,455,604 1,971,904
- ------------------------------------------------------------------------------------------------------------
Total sources of funds 2,518,056 3,647,487 4,048,711 5,201,298 5,609,676 10,810,974
- ------------------------------------------------------------------------------------------------------------
Interest sensitivity gap ($121,174) ($664,092) ($387,124) ($203,783) $203,783 $--
- -------------------------------========== ========== ========== ========== ========== ===========
Interest sensitivity gap as a percentage
of earning assets (1.19)% (6.52)% (3.80)% (2.00)% 2.00 %
Uses of funds as a percentage
of sources of funds 95.19 % 81.79 % 90.44 % 96.08 % 103.63 %
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Noninterest Income
Noninterest income was $78.8 million for 1995, representing an
increase of $20.4 million, or 35.0% compared to $58.4 million in 1994.
Trust income grew 7.3% to $14.9 million, while deposit fees and
charges increased 1.7% over 1994. Profits on securities available for
sale and trading account securities amounted to $3.3 million in 1995, as
compared to $26.0 million in securities losses in 1994. These securities
losses were largely due to a major restructuring of the securities
portfolio in 1994 to lessen the future exposure to interest rate changes.
Other income was $25.4 million, a 29.1% decrease when compared to $35.9
million in 1994. The decline in other income was due primarily to an
$11.4 million profit recognized from the sale of an affinity bank card
portfolio in 1994.
Excluding the effects of securities transactions in 1995 and 1994 and
the $11.4 million gain on the sale of bank card assets in 1994,
noninterest income was $75.5 million for 1995, representing an increase of
$2.6 million, or 3.5% over $72.9 million for 1994.
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
1995 1994 1993 1992 1991 1995/1994
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Trust income $14,943 $13,926 $13,621 $12,208 $10,849 7.3 %
Deposit fees and charges 35,150 34,557 33,898 29,792 27,341 1.7
Profits (losses) on securities
available for sale and
trading account securities 3,253 (25,984) 3,695 52,827 6,172 --
Investment securities gains, net -- -- 50,680 -- 17,725 --
Other income 25,424 35,860 23,909 20,595 16,855 (29.1)
- ---------------------------------------------------------------------------------
Total $78,770 $58,359 $125,803 $115,422 $78,942 35.0 %
- -------------------------------- ======= ======= ======= ======= =======
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Noninterest Expense
Noninterest expense totalled $238.3 million for 1995, a decline of
2.8%, or $6.9 million from $245.2 million in 1994. Lower FDIC deposit
insurance premiums and other real estate expense were the primary factors
contributing to this reduction. FDIC insurance expense declined 25.1% to
$11.2 million for 1995, and other real estate expense was down 87.3% from
$11.8 million in 1994. This decline in other real estate expense was due
primarily to charges in 1994 to appropriately reflect appraised current
values of other real estate owned.
Personnel expense was up 4.3%, due largely to expenses associated
with the acquisition of the Household branches and recognition of one time
charges relating to the announced closing of 10 branches. Occupancy and
equipment expense for 1995 increased 3.2% to $43.0 million. Other expense
of $49.5 million in 1995 remained flat compared to 1994. For the year, the
efficiency ratio was 55.87%, up 125 basis points compared to 54.62% for
1994.
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
1995 1994 1993 1992 1991 1995/1994
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Personnel expense $133,186 $127,683 $115,917 $104,060 $97,342 4.3 %
Occupancy and equipment expense 42,979 41,653 38,752 38,313 35,826 3.2
FDIC insurance expense 11,164 14,910 14,612 11,886 9,244 (25.1)
Other real estate expense 1,500 11,786 15,108 4,715 8,376 (87.3)
Other expense 49,500 49,191 38,909 41,859 39,618 0.6
- ----------------------------------------------------------------------------------
Total $238,329 $245,223 $223,298 $200,833 $190,406 (2.8)%
- --------------------------------================= ======== ======== ========
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Liquidity
Central Fidelity's liquidity sources include core deposits, money
market assets, wholesale funding, and investment securities. Cash flows
are managed to ensure availability of funds to support loan growth or
unanticipated declines in deposits or borrowings. Liquidity is measured by
comparing expected cash flows to available sources under anticipated and
stress-imposed scenarios to confirm that adequate reserves are available
to meet unforeseen events. Concentrations are also monitored for
significant dependence on single sources of funds.
The two primary sources of asset liquidity are money market assets
and expected paydowns and maturities from securities available for sale.
These portfolios are expected to generate $988 million in cash flows for
1996. Maturing loans are a secondary founding source to meet the Company's
liquidity requirements.
Funds management policy guidelines require a diversified approach
to the participation in various markets based on relative costs and term
structures. Federal funds purchased, repurchase agreements, and large
denomination certificates of deposit provide the primary sources of short-
term wholesale funding. Medium-term funding is provided by the bank note
program and Federal Home Loan Bank borrowings. As of December 31, 1995,
$252.3 million in bank notes and $350.7 million Federal Home Loan Bank
borrowings were outstanding with over $700 million remaining available
under these programs.
<PAGE>
Capital Resources
Total shareholders' equity was $826.5 million at December 31, 1995,
a 32.7% increase compared with $623.1 million for the same period in
1994. Factors contributing to the equity increase were $58.3 million in
earnings, after dividends, and the issuance of common stock through
various Plans totalling $19.0 million, and $23.9 million was attributable
to unrealized gains on securities available for sale in 1995 compared to
$102.2 million in unrealized losses on securities available for sale in
1994 . During 1995, cash dividends declared on common stock at an annual
rate of $1.18 per share represented a payout ratio of 44.5%.
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, 1995 and 1994.
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, 1995, 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 $738.8
million and $982.7 million at December 31, 1995, as compared to $694.3
million and $928.4 million at year-end 1994. At December 31, 1995, the
ratios of Tier 1 and total risk-based capital to risk-weighted assets were
9.87% and 13.12%, compared to 10.36% and 13.85%, at December 31, 1994. The
leverage ratio was 7.06% at December 31, 1995, compared to 7.04% at
December 31, 1994.
Based upon the risk-based capital and leverage requirements,
Central Fidelity's capital structure places it well above the Federal
Reserve Board's minimum 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.
In January 1996, the Company announced authorization by its Board of
Directors to repurchase up to 2,000,000 shares, approximately 5% of its
common stock outstanding, over an 18 to 24 month period. Repurchases under
the program may be discontinued or interrupted at any time.
<PAGE>
<TABLE>
- -------------------------------------------------------------
TABLE 23 Risk-Based Capital
(In Thousands) December 31,
<CAPTION>
1995 1994
<S> <C> <C>
- --------------------------------------------------------------------
Tier 1 capital:
Common shareholders' equity $826,547 $623,072
Less unrealized (gains)losses on
securities available for sale (23,865) 102,226
- ----------------------------------------------------------------------
802,682 725,298
Less goodwill (9,356) (10,039)
Less deposit intangibles (54,480) (20,995)
- ----------------------------------------------------------------------
Tier 1 capital 738,846 694,264
- ----------------------------------------------------------------------
Tier 2 capital:
Allowable allowance for loan losses 93,812 84,086
Allowable long-term debt 150,000 150,000
- ----------------------------------------------------------------------
Tier 2 capital 243,812 234,086
- ----------------------------------------------------------------------
Total capital $982,658 $928,350
- --------------------------------------------- ======== =======
Risk-weighted assets $7,488,748 $6,700,948
Quarterly average assets $10,521,840 $9,886,464
Risk-based capital ratios:
Tier 1 capital 9.87% 10.36%
Total capital 13.12% 13.85%
Leverage ratio 7.06% 7.04%
- --------------------------------------------------------------------
</TABLE>
<PAGE>
Recent Accounting Pronouncement
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-
Based Compensation," in October 1995. SFAS 123 prescribes accounting and
reporting standards for all stock-based compensation plans. The new
standard allows companies the option to continue to follow present
accounting rules, which often result in no compensation expense being
recorded, or to adopt the SFAS 123 fair-value-based method. The fair-
value-based method will generally result in higher compensation expense
based on the estimated fair value of stock-based awards on the grant date.
Companies electing to continue following present accounting rules will be
required to provide pro forma disclosures of net income and earnings per
share, as if the fair-value-based method had been adopted. The Company
intends to continue following present accounting rules and to implement
the new disclosures in 1996 as required. The adoption of SFAS 123,
therefore, will not impact the financial condition or results of
operations of the Company.
<PAGE>
Earnings and Balance Sheet Analysis
1994 Compared to 1993
Net Interest Income
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.
Loans
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 7.08% in 1994 compared to 5.93% 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.
Allowance/Provision for Loan Losses
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.
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.
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 as well as the year-long decline in
bond prices which occurred in 1994.
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 value
by $70.5 million.
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.
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 available for sale 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.
Asset/Liability Management
As 1994 unfolded, the Company recognized that the pace of interest
rate increases was faster than expected and 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 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.
Off-Balance Sheet Derivatives
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. The swaps 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. 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.
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.
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 limited 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.
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.
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.
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.
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 expense,
bank card promotions and the write-off of certain software systems.
Liquidity
In 1994, Central Fidelity's bank note program was increased from $600
million to $1 billion.
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 Federal Home Loan Bank
borrowings. As of December 31, 1994, $561.5 million of the bank note
program was outstanding and Federal Home Loan Bank borrowings were $236.5
million. The total amount scheduled to mature in 1995 for both sectors is
$309.3 million.
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 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.
<PAGE>
<TABLE>
Quarterly Results of Operations
The following is a tabulation of the quarterly results of operations for
each of the four quarters in 1995 and 1994:
(In Thousands, except per share data)
<CAPTION>
March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------
1995
Total income from earning
assets $185,462 $191,152 $196,833 $199,542
Net interest income 83,122 83,817 85,764 87,991
Provision for loan losses 5,304 3,344 8,704 9,361
Gains recognized on sales
of securities available
for sale 633 -- 2,326 863
Income before income taxes 37,524 38,015 40,554 38,329
Net income 25,720 26,024 27,552 26,074
Net income per share 0.65 0.66 0.69 0.65
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
Gains (losses) recognized on
sales of securities
available for sale 7,377 -- (4,180) (28,489)
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)
- -----------------------------------------------------------------
</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
1995 and 1994 is as follows:
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------
Common Stock Prices
-------------------------------------- Dividends
1995 1994 Per Share
------------------ ------------------ --------------
High Low High Low 1995 1994
- --------------------------------------------------------------------------
First Quarter $27.25 $24.25 $30.25 $27.00 $0.28 $0.28
Second Quarter 30.50 25.25 34.00 28.25 0.30 0.28
Third Quarter 33.50 29.25 34.50 30.25 0.30 0.28
Fourth Quarter 34.25 30.50 31.00 23.75 0.30 0.28
- --------------------------------------------------------------------------
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, 1995, there wer 14,841
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
Item 2 Properties
Item 3 Legal Proceedings
Item 4 Submission of Matters to a Vote of Security Holders None
Part Two
Item 5 Market for the Registrant's Common Stock and Related Shareholder Matters
Item 6 Selected Financial Data
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 8 Financial Statements and Supplementary Data
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure None
Part Three
Item 10 Directors and Executive Officers of the Registrant*
Item 11 Executive Compensation*
Item 12 Security Ownership of Certain Beneficial Owners and Management*
Item 13 Certain Relationships and Related Transactions*
Part Four
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
* Included in 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 8, 1996.
</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 bank. At
December 31, 1995, Central Fidelity and its subsidiaries had approximately
3,600 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 the marketplace 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 1995, the Bank operated 244 branch offices,
including 28 full-service supermarket locations and 211 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,
and other investment services.
On September 18, 1995, the Company's other national bank subsidiary,
Central Fidelity Bank, N.A., organized in 1986, was merged with the
Company's principal banking subsidiary, Central Fidelity National Bank.
Bank-related subsidiaries, all of which are wholly owned, are engaged in
insurance and other bank-related services. Such subsidiaries, of which
there are eleven, 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 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, 1995 published core deposit market share data,
the Company ranks as the third largest among all Virginia based 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 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. During 1995 the Virginia legislature adopted such
legislation which became effective on July 1, 1995. 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, 1995, the Company and its subsidiaries had
consolidated net premises and equipment, including land, buildings,
furnishings and equipment, leasehold improvements and capitalized leases
of $152.9 million. For additional information, refer to notes 8 and 11 of
the notes to financial statements.
<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 8, 1996.
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., 52, Chairman of
the Board of Directors and President
Jay O. Livingston, 49, Corporate Executive
Vice President and Chief Administrative
Officer
Deborah J. Brooks, 44, Corporate Executive
Vice President, Retail Banking
Philip G. Hug, 53, Corporate
Executive Vice President, Commercial
James W. Koeniger, 49, Corporate Executive
Vice President, Financial Services
Maryann Master, 47, Corporate Executive
Vice President, Human Resources
John T. Percy, Jr., 50, Corporate
Executive Vice President, Investments
William H. Pruitt, 48, Corporate Executive
Vice President, Loan Administration
Jane D. Sorah, 48, Corporate Executive
Vice President, Retail Lending
Nancy K. Eberhardt, 42, Corporate
Executive Officer and President,
Northern Region
Rodger W. Fauber, 54, Corporate
Executive Officer and President,
Western Region
William I. Foster, III, 40, Corporate
Executive Officer and President,
Eastern Region
Stephen W. Mapp, 44, Corporate Executive
Officer and President, Capital Region
Monty W. Plymale, 49, Corporate
Executive Officer and President,
Southwestern Region
William N. Stoyko, 49, Corporate Executive
Officer, Secretary and Senior Corporate
Counsel, Legal Administration
Charles W. Tysinger, 47, Corporate
Executive Officer and Treasurer, Finance
Bryant W. Baird, Jr., 59, President,
Central Fidelity Mortgage Division
of Central Fidelity National Bank
James F. Campbell, 57, Senior Vice
President and Controller
John S. Moore, 44, Senior Vice
President and Auditor
<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)1. Financial Statements:
Consolidated Balance Sheet -
December 31, 1995 and 1994
Statement of Consolidated Income -
Years ended December 31, 1995, 1994 and 1993
Statement of Consolidated Cash Flows -
Years ended December 31, 1995, 1994 and 1993
Statement of Changes in Consolidated Shareholders' Equity -
Years ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
Independent Auditors' Report
2. 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.
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K during the fourth quarter
ended December 31, 1995.
(c) 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 6, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March 6, 1996 by a majority of the Registrant's
Board of Directors as follows:
Lewis N. Miller, Jr., George R. Lewis, Robert L. Freeman,
Kenneth S. White, Thomas R. Glass, Phyllis L. Cothran,
William G. Reynolds, Jr., James F. Betts, Lloyd U. Noland, III,
Alvin R. Clements, G. Bruce Miller and Jack H. Ferguson.
<PAGE>
<TABLE>
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
Affiliate
Central Fidelity National Bank
Corporate Headquarters
1021 East Cary Street
Post Office Box 27602
Richmond, Virginia 23261-7602
Telephone: (804) 782-4000
Common Stock
The common stock of Central Fidelity Banks, Inc. is traded on the national
over-the-counter (OTC) market and is quoted through the National Market System
of NASDAQ under the symbol CFBS. The listing found in most newspapers and USA
Today is "CFIDBK." The listing found in The Wall Street Journal is "CentlFidlBk."
Shareholder Assistance
Shareholders requiring a change of address, records or information about lost
certificates, dividend checks or dividend reinvestment should contact:
Central Fidelity National Bank
Transfer and Dividend Disbursing Agent
Post Office Box 27602
Richmond, Virginia 23261-7602
Telephone: (804) 697-6836, or 1-800-293-CFBS, extension 6836
Information
Analysts, investors, and others interested in obtaining information about
Central Fidelity Banks, Inc. are asked to contact Charles W. Tysinger, Corporate
Executive Officer and Treasurer (direct telephone: (804) 697-7038).
News media representatives and others seeking general information should
contact Susan Lawrence Mistr, Public Relations Manager (direct telephone:
(804) 697-7261).
* Requests for printed material, including annual and quarterly reports,
proxy statements, 10-K and 10-Q reports should be directed to Susan
Lawrence Mistr, Public Relations Manager (direct telephone: (804)
697-7261).
Stock Purchase Program
Central Fidelity's Stock Purchase Program is a convenient and cost effective way
to acquire Central Fidelity common stock without brokerage fees or commissions.
* Under this Program, your dividends on shares of Central Fidelity common
stock may be automatically reinvested in additional shares of common stock.
You may elect to reinvest all, a portion, or none of the cash dividends.
* You may also elect to receive direct deposit of cash dividends.
* This Program allows you to purchase stock through automatic monthly
deductions from a deposit account at Central Fidelity National Bank or
any other financial institution, or through cash payments by check or
money order. Optional cash purchases may range from a minimum of $25
to a maximum of $10,000 per month.
* Participation is voluntary, and you may withdraw at any time.
The foregoing information concerning Central Fidelity's Stock Purchase
Program is not an offer to sell or the solicitation of an offer to buy any
securities. The offering is made only by means of a Prospectus, which will be
mailed upon request.
Annual Meeting
The Annual Shareholders' Meeting of Central Fidelity Banks, Inc. will be held
Wednesday, May 8, 1996, at 4:30 p.m. in the grand banking hall of Central Fidelity
National Bank, Broad at Third Street, Richmond, Virginia.
<CAPTION>
Stock Price Information
<S>
- -------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------
4th 3rd 2nd 1st
Quarter Quarter Quarter Quarter
<C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
High $34.25 $33.50 $30.50 $27.25 $34.50 $35.25 $28.33 $26.17
Low 30.50 29.25 25.25 24.25 23.75 25.75 22.33 8.89
Close 32.00 32.50 30.50 26.13 24.25 27.75 28.00 25.83
Dividends 0.30 0.30 0.30 0.28 1.12 1.00 0.82 0.74
- -------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit Index
Exhibit No. Document
- ----------- --------
3(i) Articles of Incorporation
Restated Articles of Incorporation, adopted and effective
March 14, 1990, incorporated by reference to Exhibit 3.1
to Form 8, dated May 22, 1992, File No. 0-8829. Articles
of Amendment to Restated Articles of Incorporation, dated
May 18, 1993, incorporated by reference to Exhibit 4.4 to
Form S-3 Registration Statement, dated August 31, 1994,
File No. 33-55311.
3(ii) By-Laws
Restated By-Laws, effective March 14, 1990, as amended
September 13, 1995, incorporated by reference to Exhibit
3.2 to Form 8-K, dated September 21, 1995, File No.
0-8829.
4 Instruments defining the rights of security holders,
including indentures
Amended and Restated Rights Agreement, dated as of
November 9, 1994, between Central Fidelity Banks, Inc. and
Central Fidelity National Bank, as Rights Agent,
incorporated by reference to Exhibit 1 to Amendment No. 1
to Registration Statement on Form 8-A, dated November 18,
1994, File No. 0-8829.
11 Statement re: computation of per share earnings - filed
herewith.
21 Subsidiaries of the Registrant - filed herewith.
23 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,
---------------------------
1995 1994 1993
<S> <C> <C> <C>
---------------------------
Net income $105,370 $84,864 $102,917
========= ======= =======
Shares:
Weighted average number of common shares
outstanding used in computing primary
earnings per share 39,785 39,163 38,738
Dilutive stock options - based on
treasury stock method 599 746 854
-------------------------------
Weighted average number of common shares
used in computing fully diluted
earnings per share 40,384 39,909 39,592
========= ======= =======
Earnings per share:
Primary earnings per share $2.65 $2.17 $2.66
Fully diluted earnings per share $2.61 $2.13 $2.60
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 21
Exhibit No. 21 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 Dececember 31, 1995,
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 Ban 100 National Banking
Richmond, Virginia
Central Fidelity Insurance Ag 100 Virginia
Richmond, Virginia
Central Fidelity Services, In 100 Virginia
Lynchburg, Virginia
Central Fidelity Properties, 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 Ve *** 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>
<PAGE>
Exhibit 23
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 12, 1996, relating to the consolidated balance
sheet of Central Fidelity Banks, Inc. and subsidiaries as of December
31, 1995 and 1994, 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, 1995,
which report appears on page 31 of this 1995 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 No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" in 1993.
KPMG Peat Marwick
Richmond, Virginia
March 25, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000276235
<NAME> CENTRAL FIDELITY BANKS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 338,580
<INT-BEARING-DEPOSITS> 50,000
<FED-FUNDS-SOLD> 157,734
<TRADING-ASSETS> 422
<INVESTMENTS-HELD-FOR-SALE> 3,654,887
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 6,316,813
<ALLOWANCE> 110,000
<TOTAL-ASSETS> 10,810,974
<DEPOSITS> 7,985,898
<SHORT-TERM> 1,129,996
<LIABILITIES-OTHER> 107,451
<LONG-TERM> 761,082
<COMMON> 200,964
0
0
<OTHER-SE> 625,583
<TOTAL-LIABILITIES-AND-EQUITY> 10,810,974
<INTEREST-LOAN> 528,368
<INTEREST-INVEST> 239,906
<INTEREST-OTHER> 4,715
<INTEREST-TOTAL> 772,989
<INTEREST-DEPOSIT> 319,725
<INTEREST-EXPENSE> 432,295
<INTEREST-INCOME-NET> 340,694
<LOAN-LOSSES> 26,713
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 238,329
<INCOME-PRETAX> 154,422
<INCOME-PRE-EXTRAORDINARY> 154,422
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 105,370
<EPS-PRIMARY> 2.65
<EPS-DILUTED> 2.61
<YIELD-ACTUAL> 3.35
<LOANS-NON> 48,763
<LOANS-PAST> 20,983
<LOANS-TROUBLED> 518
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 110,000
<CHARGE-OFFS> 46,281
<RECOVERIES> 19,568
<ALLOWANCE-CLOSE> 110,000
<ALLOWANCE-DOMESTIC> 110,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
