SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
September 8, 1997
Wachovia Corporation
(Exact name of registrant as specified in its charter)
NORTH CAROLINA No. 1-9021 No. 56-1473727
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) Number)
100 NORTH MAIN STREET, WINSTON-SALEM, NC 27101
191 PEACHTREE STREET NE, ATLANTA, GA 30303
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code:
WINSTON-SALEM 910-770-5000
ATLANTA 404-332-5000
Item 5. Other Events
On June 23, 1997, Wachovia Corporation, a North Carolina corporation
(the "Registrant"), entered into an Agreement and Plan of Merger by and
between the Registrant and Central Fidelity Banks, Inc., a Virginia corporation
("Central"), for a tax-free merger of the two companies pursuant to which each
outstanding share of common stock, par value $5.00 per share, of Central would
be converted into 0.63 shares of common stock, par value $5.00 per share, of
the Registrant (the "Proposed Merger"). In connection with this transaction
which is expected to be accounted for as a pooling of interests, the
Registrant is hereby placing on file the historical financial statements of
Central.
Item 7. Financial Statements and Exhibits
(c) Exhibits.
23.1 Consent of KPMG Peat Marwick LLP
99.1 Central Fidelity Banks, Inc. and Subsidiaries:
Consolidated Financial Statements at December 31, 1996
and 1995 and for the three years ended December 31, 1996.
99.2 Central Fidelity Banks, Inc. and Subsidiaries:
Consolidated Financial Statements (unaudited) at June 30, 1997 and
December 31, 1996 and for the three and six month periods ended
June 30, 1997 and 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WACHOVIA CORPORATION
(Registrant)
Date: September 8, 1997 /s/ Kenneth W. McAllister
Name :Kenneth W. McAllister
Title: Executive Vice President
EXHIBIT INDEX
23.1 Consent of KPMG Peat Marwick LLP
99.1 Central Fidelity Banks, Inc. and Subsidiaries:
Consolidated Financial Statements at December 31, 1996
and 1995 and for the three years ended December 31, 1996.
99.2 Central Fidelity Banks, Inc. and Subsidiaries:
Consolidated Financial Statements (unaudited) at June 30, 1997 and
December 31, 1996 and for the three and six month periods ended
June 30, 1997 and 1996.
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Central Fidelity Banks, Inc.:
We consent to the inclusion of our report dated January 15, 1997, with
respect to the consolidated balance sheet of Central Fidelity Banks, Inc.
and subsidiaries as of December 31, 1996 and 1995, 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, 1996, which report appears in the Form 8-K
of Wachovia Corporation dated September 5, 1997.
Richmond, Virginia
September 5, 1997
Exhibit 99.1
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET
- -----------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
(In Thousands, except share date) December 31,
<CAPTION>
1996 1995
<S> <C> <C>
- -----------------------------------------------------------------------
Assets
- -----------------------------------------------------------------------
Cash and due from banks (note 4) $304,661 $338,580
Temporary investments:
Federal funds sold and securities purchased
under agreements to resell 96,515 157,734
Other money market investments 50,000 75,000
Trading account securities 4,061 422
- ------------------------------------------ ---------------------------
Total temporary investments 150,576 233,156
- ------------------------------------------ ---------------------------
Assets available for sale:
Securities (note 5):
U.S. Government and agencies 1,957,748 2,342,541
States and political subdivisions 104,933 124,380
Other 1,006,943 1,162,966
- ------------------------------------------ ---------------------------
Total securities available for sale 3,069,624 3,629,887
- ------------------------------------------ ---------------------------
Loans 26,085 15,653
- ------------------------------------------ ---------------------------
Total assets available for sale 3,095,709 3,645,540
- ------------------------------------------ ---------------------------
Loans (note 6):
Commercial and commercial real estate 2,117,874 1,984,393
Construction 304,974 290,184
Residential real estate 1,614,561 1,609,998
Consumer second mortgage 761,212 613,097
Installment 1,047,508 1,046,536
Bank card 844,622 756,952
- ------------------------------------------ ---------------------------
Total loans 6,690,751 6,301,160
Allowance for loan losses (note 7) (110,000) (110,000)
- ------------------------------------------ ---------------------------
Net loans 6,580,751 6,191,160
- ------------------------------------------ ---------------------------
Accrued interest receivable 61,819 67,436
Premises and equipment, net (note 8) 157,119 152,879
Due from customers on acceptances 11,009 18,741
Other assets (notes 6, 9 and 12) 178,716 163,482
- ------------------------------------------ ---------------------------
Total assets $10,540,360 $10,810,974
- ------------------------------------------ ============ ============
Liabilities 1996 1995
- -----------------------------------------------------------------------
Deposits:
Demand $1,189,808 $1,037,906
Interest checking 729,233 687,505
Regular savings 724,264 727,951
Consumer certificates 3,944,228 4,134,031
Money market accounts 995,695 1,050,158
Certificates of deposit $100,000 and over 488,226 348,347
- ------------------------------------------ ---------------------------
Total deposits 8,071,454 7,985,898
- ------------------------------------------ ---------------------------
Borrowings:
Federal funds purchased and securities sold
under agreements to repurchase (note 10) 907,875 1,041,951
Other short-term borrowings (note 10) 72,274 88,045
Medium-term notes (note 11) -- 252,250
Federal Home Loan Bank borrowings (note 11) 400,080 350,700
Long-term debt (note 11) 150,324 150,386
Capitalized lease obligations (note 8) 7,334 7,746
- ------------------------------------------ ---------------------------
Total borrowings 1,537,887 1,891,078
- ------------------------------------------ ---------------------------
Dividends payable 13,059 12,052
Accrued interest payable 29,160 37,911
Bank acceptances outstanding 11,009 18,741
Accounts payable and accrued liabilities
(note 14) 31,292 38,747
- ------------------------------------------ ---------------------------
Total liabilities 9,693,861 9,984,427
- ------------------------------------------ ---------------------------
Shareholders' Equity
- -----------------------------------------------------------------------
Preferred stock, none issued (note 13) -- --
Common stock, par value $5 per share,
authorized 100,000,000 shares, shares
issued 1996 - 59,378,319: 1995 -
40,192,879 (notes 13 and 15) 296,892 200,964
Capital surplus 171,926 195,151
Retained earnings (note 2) 368,457 406,567
Unrealized gains on securities available for
sale, net of income taxes 9,224 23,865
- ------------------------------------------ ---------------------------
Total shareholders' equity (note 19) 846,499 826,547
- ------------------------------------------ ---------------------------
Commitments and contingent liabilities (notes 8, 14 and 17)
Total liabilities and shareholders'
equity $10,540,360 $10,810,974
- ------------------------------------------ ============ ============
- -----------------------------------------------------------------------
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>
1996 1995 1994
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
Income From Earning Assets
- -------------------------------------------------------------------------------------
Interest and fees on loans $570,615 $526,896 $440,691
Interest on securities available for sale:
U.S. Government and agencies 134,709 166,436 160,822
States and political subdivisions 5,678 7,430 8,205
Other 71,551 64,741 48,486
Interest on loans available for sale 937 403 432
Interest on money market investments 4,924 5,951 6,120
Interest on trading account securities 206 63 41
- -------------------------------------------------------------------------------------
Total income from earning assets 788,620 771,920 664,797
- -------------------------------------------------------------------------------------
Interest Expense
- -------------------------------------------------------------------------------------
Interest on deposits (note 16) 322,187 319,725 243,632
Interest on federal funds purchased and securities
sold under agreements to repurchase 47,801 57,678 44,171
Interest on other short-term borrowings 3,449 3,359 1,663
Interest on medium-term notes 3,841 19,311 25,403
Interest on Federal Home Loan Bank borrowings 25,268 20,539 6,406
Interest on long-term debt 10,139 10,978 8,681
Interest on capitalized lease obligations 668 705 735
- -------------------------------------------------------------------------------------
Total interest expense 413,353 432,295 330,691
- -------------------------------------------------------------------------------------
Net interest income 375,267 339,625 334,106
Provision for loan losses (note 7) 43,865 26,713 24,359
- -------------------------------------------------------------------------------------
Net income from earning assets 331,402 312,912 309,747
- -------------------------------------------------------------------------------------
Noninterest Income
- -------------------------------------------------------------------------------------
Trust income 16,780 14,943 13,926
Deposit fees and charges 37,832 35,150 34,557
Profits (losses) on securities available for sale
and trading account securities, net (note 5) 99 3,253 (25,984)
Other income (note 16) 31,204 26,329 36,739
- -------------------------------------------------------------------------------------
Total noninterest income 85,915 79,675 59,238
- -------------------------------------------------------------------------------------
Noninterest Expense
- ------------------------------------------------------------- -----------------------
Personnel expense (note 14) 142,347 133,186 127,683
Occupancy and equipment expense 46,147 42,979 41,653
FDIC insurance expense 2,287 11,164 14,910
Other real estate expense 2,006 1,500 11,786
Special SAIF assessment 4,028 -- --
Other expense (note 16) 55,126 49,336 49,033
- -------------------------------------------------------------------------------------
Total noninterest expense 251,941 238,165 245,065
- -------------------------------------------------------------------------------------
Earnings
- ------------------------------------------------------------- -----------------------
Income before income taxes 165,376 154,422 123,920
Income tax expense (note 12) 52,674 49,052 39,056
- -------------------------------------------------------------------------------------
Net income $112,702 $105,370 $84,864
- -------------------------------------------------- ======== ======== ========
Earnings Per Share
- -------------------------------------------------------------------------------------
Net income $1.89 $1.77 $1.45
Average shares outstanding 59,736,817 59,673,709 58,741,982
- -------------------------------------------------------------------------------------
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>
1996 1995 1994
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------
Operating Activities
- --------------------------------------------------------------------------------------
Net income $112,702 $105,370 $84,864
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 43,865 26,713 24,359
Depreciation of premises and equipment 16,304 15,792 15,248
Net amortization of premium and accretion of discount on
securities available for sale (847) (5,860) 1,132
(Gains) losses on securities available for sale (852) (3,822) 25,292
Deferred income taxes (911) 2,024 1,272
(Increase) decrease in trading account securities (3,639) 995 88
Originations of loans available for sale (122,916) (71,511) (24,220)
Purchases of loans available for sale (85,953) (54,528) (24,510)
Proceeds from sales of loans available for sale 198,244 112,646 84,164
(Increase) decrease in accrued interest
receivable 5,617 (7,503) 5,821
Increase (decrease) in accrued interest payable (8,751) 892 11,063
Other, net (15,649) (38,234) (77,235)
- --------------------------------------------------------------------------------------
Net cash provided by operating activities 137,214 82,974 127,338
- --------------------------------------------------------------------------------------
Investing Activities
- --------------------------------------------------------------------------------------
Purchases of securities available for sale (366,109)(1,033,292)(2,426,679)
Proceeds from sales of securities available for sale 218,876 582,085 2,266,537
Proceeds from maturities and repayments of securities available
for sale 686,670 486,370 529,629
Net increase in loans (442,105) (561,865)(1,020,589)
Purchases of premises and equipment (21,431) (19,725) (16,548)
Proceeds from the disposition of premises and
equipment 1,256 539 960
Proceeds from the disposition of foreclosed
properties 10,228 13,743 26,917
Net cash received in acquisitions -- 413,022 --
- --------------------------------------------------------------------------------------
Net cash provided (used) by investing
activities 87,385 (119,123) (639,773)
- --------------------------------------------------------------------------------------
Financing Activities
- --------------------------------------------------------------------------------------
Net increase (decrease) in demand, interest checking and regular
savings deposits 189,943 79,733 (79,038)
Net increase (decrease) in consumer certificates (189,803) 51,227 874,145
Net increase (decrease) in money market accounts (54,463) 73,970 (33,389)
Net increase (decrease) in certificates of deposit
$100,000 and over 139,879 101,151 (190,490)
Net increase (decrease) in short-term borrowings (149,847) 27,128 (381,386)
Proceeds from medium-term notes and FHLB borrowings 143,280 114,200 386,500
Payments on medium-term notes and FHLB borrowings (346,150) (309,250) --
Proceeds from long-term debt -- -- 100
Payments on long-term debt and capitalized lease
obligations (474) (433) (1,396)
Proceeds from issuance of common stock 11,619 19,036 4,044
Common stock purchased (38,368) -- --
Cash in lieu of fractional shares for stock split (78) -- --
Cash dividends (50,275) (45,971) (42,645)
- --------------------------------------------------------------------------------------
Net cash provided (used) by financing
activities (344,737) 110,791 536,445
- --------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalent (120,138) 74,642 24,010
Cash and cash equivalents at beginning of year 571,314 496,672 472,662
- --------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $451,176 $571,314 $496,672
- ----------------------------------------------------- ======== ======== ========
- --------------------------------------------------------------------------------------
The notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------
Central Fidelity Banks, Inc. and Subsidiaries
(In Thousands)
<CAPTION>
Unrealized
Gains (Losses)
on Securities Total
Common Stock Capital Retained Available Shareholders'
Shares Amount Surplus Earnings for Sale Equity
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
Year Ended December 31, 1994
- -------------------------------------------------------------------------------------------
Balance at beginning of year 39,023 $195,114 $177,921 $307,249 $45,853 $726,137
Net income -- -- -- 84,864 -- 84,864
Common stock issued under Plans 301 1,507 2,537 -- -- 4,044
Cash dividends declared on
common stock ($.76 per share) -- -- -- (43,894) -- (43,894)
Change in unrealized gains on securities
available for sale, net of income taxes of
$79,735 -- -- -- -- (148,079) (148,079)
- -------------------------------------------------------------------------------------------
Balance at end of year 39,324 196,621 180,458 348,219 (102,226) 623,072
- -------------------------------------------------------------------------------------------
Year ended December 31, 1995
- -------------------------------------------------------------------------------------------
Net income -- -- -- 105,370 -- 105,370
Common stock issued under Plans 869 4,343 14,693 -- -- 19,036
Cash dividends declared on
common stock ($.79 per share) -- -- -- (47,022) -- (47,022)
Change in unrealized losses on securities
available for sale, net of income taxes
of $67,895 -- -- -- -- 126,091 126,091
- -------------------------------------------------------------------------------------------
Balance at end of year 40,193 200,964 195,151 406,567 23,865 826,547
- -------------------------------------------------------------------------------------------
Year ended December 31, 1996
- -------------------------------------------------------------------------------------------
Net income -- -- -- 112,702 -- 112,702
Common stock issued under Plans 594 2,977 8,642 -- -- 11,619
Common stock purchased (1,299) (6,501) (31,867) -- -- (38,368)
Cash dividends declared on
common stock ($.86 per share) -- -- -- (51,282) -- (51,282)
Common stock issued for 3-for-2
stock split 19,890 99,452 -- (99,530) -- (78)
Change in unrealized gains on securities
available for sale, net of income taxes
of $7,883 -- -- -- -- (14,641) (14,641)
- -------------------------------------------------------------------------------------------
Balance at end of year 59,378 $296,892 $171,926 $368,457 $9,224 $846,499
- ---------------------------------====== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------
The notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BANK BALANCE SHEET
- -----------------------------------------------------------------------
Central Fidelity National Bank and Subsidiaries
(In Thousands) December 31,
<CAPTION>
1996 1995
<S> <C> <C>
- -----------------------------------------------------------------------
Assets
- -----------------------------------------------------------------------
Cash and due from banks (note 4) $304,620 $338,497
Temporary investments:
Federal funds sold and securities
purchased under agreements to resell 62,619 120,130
Other money market investments 50,000 75,000
Trading account securities 4,061 422
- -----------------------------------------------------------------------
Total temporary investments 116,680 195,552
- -----------------------------------------------------------------------
Assets available for sale:
Securities 3,062,919 3,619,102
Loans 26,085 15,653
- -----------------------------------------------------------------------
Total assets available for sale 3,089,004 3,634,755
- -----------------------------------------------------------------------
Loans (note 6) 6,690,751 6,301,160
Allowance for loan losses (note 7) (110,000) (110,000)
- -----------------------------------------------------------------------
Net loans 6,580,751 6,191,160
- -----------------------------------------------------------------------
Accrued interest receivable 61,745 67,399
Premises and equipment, net (note 8) 157,119 152,879
Due from customers on acceptances 11,009 18,741
Other assets (notes 6, 9 and 12) 157,253 144,603
- -----------------------------------------------------------------------
Total assets $10,478,181 $10,743,586
- ----------------------------------------------============ ==========
Liabilities
- -----------------------------------------------------------------------
Deposits:
Demand $1,189,819 $1,037,911
Interest checking 729,233 687,505
Regular savings 724,264 727,951
Consumer certificates 3,944,228 4,134,031
Money market accounts 995,695 1,050,158
Certificates of deposit $100,000 and over 488,226 348,347
- -----------------------------------------------------------------------
Total deposits 8,071,465 7,985,903
- -----------------------------------------------------------------------
Borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 938,589 1,058,465
Other short-term borrowings 39,401 54,963
Medium-term notes (note 11) -- 252,250
Federal Home Loan Bank borrowings (note 11) 400,080 350,700
Note payable to parent company 150,000 150,000
Long-term debt (note 11) 324 386
Capitalized lease obligations (note 8) 7,334 7,746
- -----------------------------------------------------------------------
Total borrowings 1,535,728 1,874,510
- -----------------------------------------------------------------------
Accrued interest payable 29,131 37,884
Bank acceptances outstanding 11,009 18,741
Accounts payable and accrued liabilities (note 27,313 38,947
- -----------------------------------------------------------------------
Total liabilities 9,674,646 9,955,985
- -----------------------------------------------------------------------
Shareholder's Equity
- -----------------------------------------------------------------------
Common stock 167,275 167,275
Capital surplus 174,376 174,376
Retained earnings (note 2) 452,660 422,085
Unrealized gains on securities available for sale,
net of income taxes 9,224 23,865
- -----------------------------------------------------------------------
Total shareholder's equity (note 19) 803,535 787,601
- -----------------------------------------------------------------------
Commitments and contingent liabilities (notes 8, 14 and 17)
Total liabilities and shareholder's equity$10,478,181 $10,743,586
- ----------------------------------------------============ ==========
- -----------------------------------------------------------------------
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 Consolidated Bank Balance Sheet includes
the accounts of the bank subsidiary 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.
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, 1996, 1995 and 1994,
cash paid for interest was $422,104,000, $430,595,000 and $319,628,000,
and cash paid for income taxes was $50,672,000, $36,569,000 and $41,372,000,
respectively. During 1996, 1995 and 1994, other assets increased as a
result of loan foreclosures in the amount of $8,649,000, $5,659,000 and
$6,059,000, 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 bank's 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. 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, net."
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. 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, net."
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 on commercial,
construction and real estate loans specifies that interest will stop
being accrued on any loan that is 90 days past due if such loans are
not well secured and in the process of collection or if 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. Notwithstanding, any loans that
reach 180 days past due are immediately placed in nonaccrual status. 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. The policy with respect to
installment loans requires that a loan be charged off when it is over
120 days past due unless the collateral securing the loan has been
repossessed and is in the process of liquidation. The policy with
respect to bank card loans requires that a loan be charged off when
it reaches 180 days past due. Generally, accrual of interest on
these consumer loans is not discontinued prior to charge-off unless
the collateral has been repossessed or notice of bankruptcy, death
or fraud has been received on an unsecured debt.
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.
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; evaluation of concentrations by credit, industry or
geography; nature and volume of the loan portfolio 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 - During the fourth quarter of 1995,
the Company prospectively adopted Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights"
(SFAS 122).Upon adoption of SFAS 122, the cost of mortgage loans
originated or purchased with a definitive plan to sell the loans
and retain the mortgage servicing rights is 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. In 1996, a swap was terminated resulting in a loss of
$380,000. The loss will be amortized over the remaining life of
the underlying hedged asset. The Company did not terminate any
interest rate swap agreements prior to contractual maturity in
1995 and 1994.
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 AND POSTRETIREMENT PLANS - The pension 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.
The Company provides Medicare carve-out health insurance
coverage to its qualifying retirees. Participants in this plan
are retired employees and active employees who are age 45 and
have completed 10 full years of service. Benefits provided to
retired employees before retirement are accrued during the period
of employment.
STOCK OPTIONS - The Company applies APB Opinion 25 and related
interpretations in accounting for its 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 May 8, 1996, the Board of Directors of the Company declared
a 3-for-2 stock split in the form of a dividend payable on June 14,
1996 to shareholders of record May 20, 1996.
DIVIDENDS - Dividends are paid to the Company by its bank subsidiary
in amounts sufficient to cover corporate expenses and dividends paid
to shareholders. Dividends are subject to the financial condition of
the subsidiary, regulatory limitations and management's judgment as
to the desirability of utilizing alternative sources of funds.
TRUST ASSETS AND INCOME - Assets held by the bank subsidiary in a
fiduciary, agency or safekeeping capacity for customers are not
included as assets in the accompanying Consolidated Balance Sheet.
At December 31, 1996, such assets amounted to $8.5 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>
1996 1995
<S> <C> <C>
- ------------------------------------------------------------------------------
Assets:
Cash $27 $21
Securities purchased under agreements to resell
and other money market investments 64,608 51,514
Securities available for sale 6,705 10,785
Investments in subsidiaries, at equity:
Bank 803,535 787,600
Bank-related 4,065 3,978
Note receivable from subsidiary 150,000 150,000
Other assets 23,631 21,276
- -----------------------------------------------------------------------------------
Total assets $1,052,571 $1,025,174
- ------------------------------------------------------- ========= =========
Liabilities:
Commercial paper (note 10) $32,873 $33,082
Securities sold under agreements to repurchase 4,104 1,260
Long-term debt (note 11) 150,000 150,000
Other liabilities 19,095 14,285
- -----------------------------------------------------------------------------------
Total liabilities 206,072 198,627
Shareholders' equity (note 19) 846,499 826,547
- -----------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,052,571 $1,025,174
- ------------------------------------------------------- ========= =========
- ------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
Statement of Income
(In Thousands)
Year Ended December 31,
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
Income:
Dividends from subsidiary bank $83,200 $24,000 $45,000
Other 15,321 15,683 14,581
- -------------------------------------------------------------------------------
Total income 98,521 39,683 59,581
- -------------------------------------------------------------------------------
Expense:
Interest 13,763 13,910 13,085
Other 3,112 4,233 4,850
- -------------------------------------------------------------------------------
Total expense 16,875 18,143 17,935
- -------------------------------------------------------------------------------
Income before income taxes and equity in
undistributed net income of subsidiaries 81,646 21,540 41,646
Income tax benefit (357) (712) (1,143)
- -------------------------------------------------------------------------------
Income before equity in undistributed
net income of subsidiaries 82,003 22,252 42,789
Equity in undistributed net income of
subsidiaries 30,699 83,118 42,075
- -------------------------------------------------------------------------------
Net income $112,702 $105,370 $84,864
- ----------------------------------------------======== ======== =======
- ------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
Statement of Cash Flows
(In Thousands)
Year Ended December 31,
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
Operating activities:
Net income $112,702 $105,370 $84,864
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed net income of
subsidiaries (30,699) (83,118) (42,075)
(Increase) decrease in other assets (2,355) 7,554 (6,340)
Other, net 3,839 (885) (362)
- ---------------------------------------------------------------------------------------
Net cash provided by operating activities 83,487 28,921 36,087
- ---------------------------------------------------------------------------------------
Investing activities:
Purchase of securities available for sale (21,976) (63,232) (11,479)
Proceeds from sales of securities available for sale 16,075 9,145 10,965
Proceeds from maturities and repayments of securities
available for sale 9,981 49,066 425
Repayment of note receivable from subsidiary -- 500 --
- ---------------------------------------------------------------------------------------
Net cash provided (used) by investing
activities 4,080 (4,521) (89)
- ---------------------------------------------------------------------------------------
Financing activities:
Net increase in short-term borrowings 2,635 7,685 7,822
Proceeds from issuance of common stock 11,619 19,036 4,044
Common stock purchased (38,368) -- --
Cash in lieu of fractional shares for stock split (78) -- --
Cash dividends (50,275) (45,971) (42,645)
- ---------------------------------------------------------------------------------------
Net cash used by financing activities (74,467) (19,250) (30,779)
- ---------------------------------------------------------------------------------------
Increase in cash and cash equivalents 13,100 5,150 5,219
Cash and cash equivalents at beginning of year 51,535 46,385 41,166
- ---------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $64,635 $51,535 $46,385
- ------------------------------------------------------- ======== ======== ========
- ---------------------------------------------------------------------------------------
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 said regulatory approval. In
1997, the subsidiary bank can initiate dividend payments without said regulatory approvals
of $113,479,000, plus an additional amount equal to their net earnings for 1997 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, 1996 and 1995 was $30,708,000 and
$58,129,000, 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, 1996 and 1995:
(In Thousands)
<CAPTION>
- -------------------------------------------------------------------------
U.S. States &
Government Political
& Agencies Subdivision Other Total
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------
December 31, 1996:
Amortized cost $1,948,130 $102,610 $1,004,693 $3,055,433
Fair value 1,957,748 104,933 1,006,943 3,069,624
Gross unrealized gains 20,431 2,432 5,482 28,345
Gross unrealized losses (10,813) (109) (3,232) (14,154)
December 31, 1995:
Amortized cost $2,319,928 $120,886 $1,152,358 $3,593,172
Fair value 2,342,541 124,380 1,162,966 3,629,887
Gross unrealized gains 30,906 3,635 13,650 48,191
Gross unrealized losses (8,293) (141) (3,042) (11,476)
- -------------------------------------------------------------------------
Securities available for sale having a fair value of $1,295,224,000
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
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 $384,852 $385,287
Due after one year through five years 1,915,443 1,927,148
Due after five years through ten years 645,418 646,649
Due after ten years 17,445 18,307
Common and preferred stocks
with no contractual maturity 92,275 92,233
- -------------------------------------------------------------------------
Total $3,055,433 $3,069,624
- ---------------------------------------------------========== ==========
- -------------------------------------------------------------------------
Proceeds from sales of securities available for sale were $218,876,000 for
1996, $582,085,000 for 1995 and $2,266,537,000 for 1994. Gross gains realized
on those sales were $874,000, $6,039,000 and $11,555,000 for 1996, 1995 and
1994, respectively. In 1996, 1995 and 1994, there were $22,000, $2,217,000
and $36,847,000 of gross losses realized on the sales of securities available
for sale, respectively.
</TABLE>
<PAGE>
<TABLE>
NOTE 6. LOANS
Nonaccrual loans (principally commercial and construction loans) totalled
$38,572,000 at December 31, 1996 and $48,763,000 at December 31, 1995.
Interest on nonaccrual loans not recognized was $3,837,000 in 1996,
$5,066,000 in 1995 and $6,171,000 in 1994. Interest collected and included in
the results of operations on such loans amounted to $2,293,000 in 1996,
$1,582,000 in 1995, and $596,000 in 1994.
At December 31, 1996 and 1995, the recorded investment in loans
which have been identified as impaired, in accordance with SFAS 114, totalled
$44,542,000 and $47,893,000, 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, 1996 1995
<CAPTION>
<S> <C> <C>
- ---------------------------------------------------------------
Commercial and commercial real estate $28,783 $27,064
Construction 15,759 20,829
- ---------------------------------------------------------------
Total impaired loans $44,542 $47,893
- --------------------------------------------- ======= =======
- ---------------------------------------------------------------
At December 31, 1996, impaired loans totalling $29,298,000 had no valuation
allowance and $15,244,000 had a corresponding valuation allowance
of $2,973,000. At December 31, 1995, $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, 1996 and 1995, the average recorded
investment in impaired loans was approximately $50,949,000 and $53,999,000,
respectively. Total interest income recognized on impaired loan was $3,308,000
for 1996 and $1,679,000 for 1995, of which $1,014,000 was recognized on a cash
basis for 1996 and $1,582,000 was recognized on a cash basis for 1995.
In the ordinary course of business, the Company and its subsidiaries grant
loans to directors and executive officers of the Company and to their
affiliates. 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
$7,152,000 and $6,687,000 at December 31, 1996 and 1995, respectively. During
1996, $2,061,000 of new loans were made and repayments totalled $1,596,000.
As discussed in note 1, the Company adopted SFAS 122, "Accounting for
Mortgage Servicing Rights," during 1995. The carrying amount and fair value of
mortgage servicing rights at December 31, 1996 was $10,972,000 and
$13,991,000, respectively, and $1,610,000 and $2,300,000 at December 31, 1995,
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, 1996 and 1995, no
valuation allowance was deemed necessary.
Mortgage servicing rights of $10,499,000 and $821,000 were capitalized during
1996 and 1995, respectively. Amortization of mortgage servicing rights in 1996 and
1995 was $1,137,000 and $165,000, respectively.
</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>
1996 1995 1994
<S> <C> <C> <C>
- --------------------------------------------------------------------
Balance at January 1 $110,000 $110,000 $105,000
Provision for loan losses 43,865 26,713 24,359
- --------------------------------------------------------------------
153,865 136,713 129,359
Loans charged off 61,316 46,281 34,397
Recoveries of loans previously
charged off 17,451 19,568 15,038
- --------------------------------------------------------------------
Net charge-offs 43,865 26,713 19,359
- --------------------------------------------------------------------
Balance at December 31 $110,000 $110,000 $110,000
- ---------------------------------- ======== ======== ========
- --------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
NOTE 8. Premises and Equipment
Premises and equipment included in the Consolidated Balance Sheet are:
(In Thousands)
December 31,
<CAPTION>
1996 1995
<S> <C> <C>
- ------------------------------------------------------------------------
Capital leases $11,827 $11,827
Land 24,084 23,938
Buildings 88,467 83,008
Furnishings and equipment 164,858 153,269
Leasehold improvements 33,913 32,679
Work-in-progress 7,998 7,492
- ------------------------------------------------------------------------
Total cost 331,147 312,213
Accumulated depreciation and amortization (174,028)(159,334)
- ------------------------------------------------------------------------
Premises and equipment, net $157,119 $152,879
- ----------------------------------------------------- ======== ========
- ------------------------------------------------------------------------
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 date to 2025,
and most of the leases contain renewal options for periods ranging from 5 to 30 years. In
addition, certain leases provide that the Company may elect to purchase the leased property
at the expiration of the initial lease term. Some leases also contain escalation clauses
whereby the Company's rental payments are adjusted proportionately with increases in the
consumer price index.
Premises and equipment include the following amounts for leases that have been
capitalized:
(In Thousands)
December 31,
<CAPTION>
1996 1995
<S> <C> <C>
- ------------------------------------------------------------------------
Land $868 $868
Buildings 10,959 10,959
- ------------------------------------------------------------------------
Total cost 11,827 11,827
Accumulated amortization (5,822) (5,538)
- ------------------------------------------------------------------------
Capitalized leases, net $6,005 $6,289
- ----------------------------------------------------- ====== ======
- ------------------------------------------------------------------------
</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, 1996:
(In Thousands)
<CAPTION>
Capital Operating
<S> <C> <C>
- ------------------------------------------------------------------------
1997 $1,090 $13,379
1998 1,102 13,006
1999 1,104 11,783
2000 1,106 10,252
2001 1,109 9,579
Later years 8,584 21,380
- ------------------------------------------------------------------------
Total minimum lease payments 14,095 $79,379
- ----------------------------------------------------- =======
Imputed interest (rates ranging from 8.0% to 14.3%) (6,761)
- -----------------------------------------------------------------
Present value of net minimum lease payments $7,334
- ----------------------------------------------------- =======
- ------------------------------------------------------------------------
Minimum future rentals receivable from subleases under the Company' capital leases
at December 31, 1996 amounted to $621,000. 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>
1996 1995 1994
<S> <C> <C> <C>
- ------------------------------------------------------------------------
Minimum rentals $14,788 $13,647 $12,664
Sublease rental income (243) (250) (237)
- ------------------------------------------------------------------------
Net rental expense for operating leases $14,545 $13,397 $12,427
- ------------------------------------------- ======= ======= =======
- ------------------------------------------------------------------------
</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> 1996 1995 1994
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
Foreclosed properties, at January 1 $25,409 $30,845 $49,552
Additions 8,649 5,659 6,059
Sales (9,821) (11,029) (24,696)
Paydowns (91) (66) (70)
- ---------------------------------------------------------------------------
Foreclosed properties, at December 31 24,146 25,409 30,845
- ---------------------------------------------------------------------------
Allowance for foreclosed properties, at
January 1 8,273 8,085 10,806
Provision 1,070 2,149 13,687
Writedowns (653) (1,961) (16,408)
- ---------------------------------------------------------------------------
Allowance for foreclosed properties, at
December 31 8,690 8,273 8,085
- ---------------------------------------------------------------------------
Foreclosed properties, net (included in
other assets) $15,456 $17,136 $22,760
- ----------------------------------------- ======= ======= =======
- ---------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
NOTE 10. Short-Term Borrowings
Short-term borrowings are comprised of:
(In Thousands)
December 31,
<CAPTION>
1996 1995
<S> <C> <C>
- -----------------------------------------------------------------------------------
Federal funds purchased $405,820 $408,670
Securities sold under agreements to repurchase 502,055 633,281
- -----------------------------------------------------------------------------------
Total federal funds purchased and securities
sold under agreements to repurchase 907,875 1,041,951
- -----------------------------------------------------------------------------------
Commercial paper 32,873 33,082
Other 39,401 54,963
- -----------------------------------------------------------------------------------
Total other short-term borrowings 72,274 88,045
- -----------------------------------------------------------------------------------
Total $980,149 $1,129,996
- -----------------------------------------------------------========== ==========
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:
1996 5.40 % 5.35 % $246,605 $405,820
1995 5.73 5.94 249,149 408,670
1994 5.56 3.94 227,194 410,848
Securities sold under agreements to repurchase:
1996 4.95 5.01 691,024 836,004
1995 5.40 5.72 750,098 1,000,269
1994 5.47 4.06 868,338 1,118,881
Commercial paper:
1996 4.46 4.36 31,085 34,783
1995 4.74 4.97 30,542 35,367
1994 4.80 3.61 19,598 28,418
Other:
1996 9.06 5.23 40,013 74,955
1995 5.77 5.70 32,323 61,639
1994 5.35 4.13 23,150 50,001
Total:
1996 5.16 % 5.08 % $1,008,727
1995 5.50 5.75 1,062,111
1994 5.46 4.03 1,138,280
- -----------------------------------------------------------------------------------
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>
1996 1995
<S> <C> <C>
- ------------------------------------------------------------------------------------
Medium-term debt:
Subsidiary bank:
Bank notes:
4.785%, due February 15, 1996 $-- $150,000
5.00%, due June 17, 1996 -- 102,250
- -------------------------------------------------------------- --------------------
Total bank notes $-- 252,250
- -------------------------------------------------------------- --------------------
Federal Home Loan Bank borrowings:
6.025%, due May 3, 1996 -- 47,700
7.54%, due November 27, 1996 -- 46,200
7.686%, due February 3, 1997 26,800 26,800
6.51%, due May 12, 1997 4,000 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 1,500
8.05%, due January 5, 1998 4,800 4,800
Floating rate, due February 6, 1998 50,000 --
Floating rate, due May 7, 1998 43,800 --
6.63%, due May 12, 1998 19,600 19,600
Floating rate, due November 29, 1999 42,280 --
5.924%, due June 5, 2000 50,000 50,000
5.63%, due January 22, 2001 7,200 --
5.95%, due December 11, 2003 7,500 7,500
- -------------------------------------------------------------- --------------------
Total Federal Home Loan Bank borrowings 400,080 350,700
- -------------------------------------------------------------- --------------------
Total medium-term debt 400,080 602,950
- -------------------------------------------------------------- --------------------
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 324 386
- -------------------------------------------------------------- --------------------
Total long-term debt 150,324 150,386
- -------------------------------------------------------------- --------------------
Total $550,404 $753,336
- -------------------------------------------------------------- ======== ========
- ------------------------------------------------------------------------------------
The interest payments on fixed rate Federal Home Loan Bank borrowings are
payable monthly. The floating interest rate is determined quarterly, based on 3-month
LIBOR minus a spread, and interest payments are due quarterly.
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, 1996 are:
(In Thousands)
<CAPTION>
<S> <C>
- ------------------------------------------------------------------------------------
1997 $173,467
1998 119,774
1999 42,360
2000 50,081
2001 7,211
Later years 157,511
- ------------------------------------------------------------------------- ---------
Total $550,404
- ------------------------------------------------------------------------- ========
- ------------------------------------------------------------------------------------
</Table
<PAGE>
</TABLE>
<TABLE>
NOTE 12. Income Taxes
The components of income tax expense (benefit) are:
(In Thousands)
Year Ended December 31,
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
Current taxes - federal $53,585 $47,028 $37,784
Deferred taxes - federal (911) 2,024 1,272
- ---------------------------------------------------------------------------------
Income tax expense $52,674 $49,052 $39,056
- ------------------------------------------------------ ======= ======= =======
- ---------------------------------------------------------------------------------
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>
1996 1995 1994
<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 (2.1) (2.6) (3.7)
Other, net (1.0) (0.6) 0.2
- ---------------------------------------------------------------------------------
Net decrease in taxes (3.1) (3.2) (3.5)
- ---------------------------------------------------------------------------------
Income tax expense 31.9% 31.8% 31.5%
- ------------------------------------------------------ ====== ====== ======
- ---------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 1996 and 1995 are
presented below:
(In Thousands)
December 31,
<CAPTION>
1996 1995
<S> <C> <C>
- ---------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan and other real estate losses $36,977 $36,831
Employee benefit liabilities 8,823 8,822
Other 5,208 3,127
- ---------------------------------------------------------------------------------
Total deferred tax assets 51,008 48,780
- ---------------------------------------------------------------------------------
Deferred tax liabilities:
Securities transactions 6,957 6,485
Deferred loan fees and costs 1,295 494
Leases 840 641
Prepaid expenses 1,367 1,284
Unrealized gains on securities available for sale, net 4,967 12,850
Other 986 1,224
- ---------------------------------------------------------------------------------
Total deferred tax liabilities 16,412 22,978
- ---------------------------------------------------------------------------------
Net deferred tax asset (included in other assets) $34,596 $25,802
- --------------------------------------------------------------- ======= =======
- ---------------------------------------------------------------------------------
Management has determined, based on the Company's history of earnings, its
expectation of earnings in future years, its taxable income in the available carryback
period and future taxable income from reversing taxable temporary differences, that it
is more likely than not that all of the deferred tax asset will be realized. 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,
1996, 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 59,378,319 shares were
outstanding as of December 31, 1996. 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.
On January 10, 1996, the Company's Board of Directors authorized
the purchase of up to 2,000,000 shares of its common stock,
approximately 5% of its outstanding shares, over an 18 to 24 month
period. On May 8, 1996, the remaining shares available for purchase
under the repurchase program were adjusted to reflect the 3-for-2
stock split-up in the form of a stock dividend declared by the Board.
The repurchased shares may be used for general corporate purposes.
Purchases under the repurchase program may be discontinued or
interrupted at any time. During 1996, a total of 1,299,000 pre-split
and post-split shares were repurchased by the Company under the program.
On May 8, 1996, the Board of Directors of the Company declared a
3-for-2 stock split in the form of a dividend payable on June 14, 1996 to
shareholders of record May 20, 1996.
<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 amount recognized
in the Company's Consolidated Balance Sheet:
(In Thousands)
December 31,
<CAPTION>
1996 1995
<S> <C> <C>
- -----------------------------------------------------------------------
Accumulated and vested benefit obligation ($53,758) ($45,968)
- ------------------------------------------------- ======= =======
Projected benefit obligation ($72,961) ($63,820)
Plan assets at fair value 75,824 59,829
- ----------------------------------------------------------- ----------
Plan assets over (under) projected benefit
obligation 2,863 (3,991)
Unrecognized net loss from past experience 8,679 12,059
Prior service cost not yet recognized (411) (497)
Unrecognized net asset being recognized
over 15 years (811) (1,014)
- ----------------------------------------------------------- ----------
Prepaid pension cost $10,320 $6,557
- ------------------------------------------------- ====== ======
- -----------------------------------------------------------------------
Net pension cost included the following components:
(In Thousands)
Year Ended December 31,
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
- -----------------------------------------------------------------------
Service cost $3,317 $2,582 $2,679
Interest cost 4,874 4,189 3,525
Actual (return) loss on plan assets (11,151) (10,044) 705
Net amortization and deferral 5,755 6,045 (4,635)
- ----------------------------------------------------------- ----------
Total pension expense $2,795 $2,772 $2,274
- --------------------------------------- ====== ====== ======
- -----------------------------------------------------------------------
In determining the actuarial present value of the projected benefit obligation,
the weighted-average discount rate used was 7.75% for 1996 and 1995,
and rate of increase in future compensation levels used was 4.00% for 1996
and 5.50% for 1995. The expected long-term rate of return on assets was 9.25% for
1996 and 9.00% for1995.
The plan assets at December 31, 1996 included 310,519 shares of the common
stock of the Company having a market value of approximately $7,996,000 or 11%
of the total market value of the plan assets at that date. The plan received $261,000
in dividends on these shares during 1996.
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 1997 the maximum amount that a qualified plan may pay out to a retiree
is $125,000.
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>
1996 1995
<S> <C> <C>
- -----------------------------------------------------------------------
Accumulated and vested benefit obligation ($14,559) ($11,755)
- ------------------------------------------------- ======= =======
Projected benefit obligation ($17,933) ($14,241)
Plan assets at fair value -- --
- -----------------------------------------------------------------------
Plan assets under projected benefit obligation (17,933) (14,241)
Unrecognized net (gain) loss from past experience 2,702 (264)
Prior service cost not yet recognized 1,107 1,299
Unrecognized net asset being recognized
over 15 years 4,770 5,219
- -----------------------------------------------------------------------
Accrued pension cost ($9,354) ($7,987)
- ------------------------------------------------- ====== ======
- -----------------------------------------------------------------------
Net pension cost for this supplemental plan included the following components:
(In Thousands)
Year Ended December 31,
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
- -----------------------------------------------------------------------
Service cost $436 $353 $282
Interest cost 1,070 1,000 957
Net amortization and deferral 664 488 659
- -----------------------------------------------------------------------
Total pension expense $2,170 $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 1996 and 1995, and the
rate of increase in future compensation levels used was 4.00% for 1996 and 5.50% for
1995.
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 1996, 1995 or 1994. The Company
contributed $2,657,000, $2,581,000 and $2,429,000 in 1996, 1995 and 1994,
respectively, as its matching share.
The Company provides the Medicare carve-out health insurance coverage 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 amount recognized
in the Company's Consolidated Balance Sheet:
(In Thousands)
December 31,
<CAPTION>
1996 1995
<S> <C> <C>
- -----------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees and spouses ($13,287) ($12,670)
Eligible active participants (3,144) (2,741)
Other active participants (4,437) (3,349)
- -----------------------------------------------------------------------
Total accumulated postretirement benefit
obligation (20,868) (18,760)
Plan assets at fair value -- --
Total unrecognized loss (1,135) (1,905)
Unrecognized transition obligation 13,242 14,070
- -----------------------------------------------------------------------
Net postretirement benefit liability ($8,761) ($6,595)
- ------------------------------------------------- ======= =======
- -----------------------------------------------------------------------
The net postretirement benefit cost included the following components:
(In Thousands)
Year Ended December 31,
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
- -----------------------------------------------------------------------
Service cost $1,054 $667 $1,031
Interest cost 1,408 1,649 1,434
Net amortization and deferral 825 828 828
- -----------------------------------------------------------------------
Total postretirement benefit
expense $3,287 $3,144 $3,293
- --------------------------------------- ====== ====== ======
- -----------------------------------------------------------------------
The assumed health care cost trend rates used to measure the expected cost of
benefits under the Plan for 1996 and 1997 are 8.40% and 8.20%, respectively. This
rate gradually declines to 6.03% for the year 2005 and remains at that level thereafter.
The discount rate used in determining the accumulated postretirement benefit obligation
was 7.75% In 1996 and 1995. 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 $482,000 and $2,775,000, respectively.
</TABLE>
<PAGE>
<TABLE>
NOTE 15. Stock Option and Stock Incentive Plans
The Company has five 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"), 1993
Incentive Stock Option Plan ("1993 Plan"), and the 1995 Stock Incentive Plan
("1995 Plan")," provide for the granting of stock options for 675,000 shares each
for the 1986 Plan, 1988 Plan and 1991 Plan, 750,000 shares for the 1993 Plan,
and 2,625,000 shares for the 1995 Plan, of the Company's common stock.
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.
Each option granted is exercisable within ten years from date of grant. The
1986 Plan, 1988 Plan, 1991 Plan, 1993 Plan and 1995 Plan will terminate
February 4, 1996, February 2, 1998, March 12, 2001, March 12, 2003, and
May 9, 2005, respectively.
A summary of activity in the stock option plans follows:
<CAPTION>
Options Weighted-
Available Options Average
for Grant Outstanding Exercise Price
<S> <C> <C> <C>
- --------------------------------------------------------
Balance, December 31, 754,508 3,187,070 $12.08
Granted (706,050) 706,050 17.50
Exercised -- (436,926) 8.60
Cancelled 14,025 (14,025) 16.89
- -----------------------------------------------
Balance, December 31,
1994 62,483 3,442,169 $13.80
Adoption of 1995
Plan 2,625,000 -- --
Granted (60,375) 60,375 17.68
Exercised -- (561,846) 9.38
Cancelled 27,075 (27,075) 17.81
- -----------------------------------------------
Balance, December 31,
1995 2,654,183 2,913,623 $14.76
Granted (709,475) 709,475 21.55
Exercised -- (520,594) 12.71
Cancelled 14,850 (14,850) 17.72
- -----------------------------------------------
Balance, December 31,
1996 1,959,558 3,087,654 $16.67
- ----------------------========= =========
- --------------------------------------------------------
The following table summarizes information about fixed stock options outstanding at
December 31, 1996:
<CAPTION>
Options Outstanding and Exercisable
----------------------------------
Number Weighted- Weighted-
Of Average Average
Range of Exercise Shares Contractual Exercise Price
Prices
<S> <C> <C> <C>
- --------------------------------------------------------
$7 to $10 614,974 3 $8.56
$14 to $20 1,734,105 6 17.39
$21 to $26 738,575 9 21.53
----------
$7 to $26 3,087,654 6 $16.67
==========
- --------------------------------------------------------
The Company applies APB Opinion 25 and related interpretations in accounting
for its plans. Accordingly, no compensation cost has been recognized. Had
compensation cost for the Company's stock option plans been determined based
on the fair value at the grant dates consistent with the methods of SFAS 123, the
Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below. In accordance with the transition provisions of
SFAS 123, the pro forma amounts reflect options with grant dates subsequent to
January 1, 1995. The pro forma disclosures shown may not be representative
of the effects on reported net income in future years.
(In Thousands, except per share)
Year Ended December 31,
<CAPTION>
1996 1995
<S> <C> <C>
- --------------------------------------------------------
Net income:
As reported $112,702 $105,370
Pro forma 110,218 105,160
Earnings per share:
As reported $1.89 $1.77
Pro forma 1.85 1.76
- --------------------------------------------------------
The purposes of computing the pro forma amounts indicated above, the fair value
of each option on the date of grant is estimated using the Black-Scholes option-pricing
model with the following weighted-average assumptions for the 1996 and 1995 grants,
respectively: dividend yields of 3.5% for 1996 and 1995, expected volatility of 38% and
42%, risk free interest rates of 5.7% and 5.4%, and expected lives of 5.1 years and 5.2
years. The weighted average fair value at the date of grant of each option granted in
1996 and 1995 was $7.15 and $7.04, respectively.
</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>
1996 1995 1994
<S> <C> <C> <C>
- -------------------------------------------------------------------------
Interest on deposits:
Interest checking $14,066 $15,163 $15,802
Regular savings 19,637 20,666 23,723
Consumer certificates 229,535 225,832 156,610
Money market accounts 41,105 43,300 33,133
Certificates of deposit $100,000 and
over 17,844 14,764 14,364
- ------------------------------------- --------- --------- ---------
Total $322,187 $319,725 $243,632
- ------------------------------------- ========= ========= =========
Other income:
Gain on sale of out-of-state bank card
portfolio $-- $-- $11,400
Other (includes no items in excess of 1%
of total revenue) 31,204 26,329 25,339
- ------------------------------------- --------- --------- ---------
Total $31,204 $26,329 $36,739
- ------------------------------------- ========= ========= =========
Other expense:
Telecommunications and postage expense $10,422 $9,623 $8,708
Other (includes no items in excess of 1%
of total revenue) 44,704 39,713 40,325
- ------------------------------------- --------- --------- ---------
Total $55,126 $49,336 $49,033
- ------------------------------------- ========= ========= =========
- -------------------------------------------------------------------------
</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, 1996 and 1995, the Company had outstanding loan
commitments of $2,964,951,000 and $1,271,035,000, and standby
letters of credit approximating $223,415,000 and $218,208,000,
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, 1996
and 1995 approximated $331,150,000 and $554,800,000, respectively. To
hedge against interest rate risk, the Company's swap portfolio consists
of $250,000,000 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 $72,150,000 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 $9,000,000 and $8,000,000 at December 31, 1996 and 1995, respectively.
The fair value of total interest rate swaps was an unrealized gain of
approximately $3,000,000 and $6,600,000 at December 31, 1996 and 1995,
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 1996, the Company had net credit risk of $3.9 million to
one counterparty. This exposure was below the threshold for receiving
collateral. Of the transactions that had negative fair values at
year-end 1996, 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 1996 or 1995.
There are also legal proceedings from time to time 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, 1996 and December 31, 1995.
The carrying amount and fair value of financial instruments as of December 31,
1996 and December 31, 1995 are as follows:
(In Thousands) Carrying Fair
<CAPTION> Amount Value
<S> <C> <C>
- ---------------------------------------------------------------
December 31, 1996:
Financial assets:
Cash and due from banks $304,661 $304,661
Temporary investments 150,576 150,576
Securities available for sale 3,069,624 3,069,624
Loans, net 6,606,836 6,565,771
Financial liabilities:
Deposits 8,071,454 8,115,019
Short-term borrowings 980,149 980,149
Medium-term notes and FHLB borrowings 400,080 399,911
Long-term debt and capitalized lease
obligations 157,658 170,628
Interest rate swaps -- 3,045
December 31, 1995:
Financial assets:
Cash and due from banks $338,580 $338,580
Temporary investments 233,156 233,156
Securities available for sale 3,629,887 3,629,887
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
- ---------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
Note 19. Capital Requirements
Central Fidelity National Bank (the "Bank"), the principal subsidiary
of Central Fidelity Banks, Inc., is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional discretionary
actions by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the regulatory
framework for Prompt Corrective Action ("PCA"), the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting practices.
The Bank's capital amounts and classification are also subject to qualitative judgments
by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum ratios (set forth in the table below) of total
and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier 1 capital (as defined) to average assets (as defined). Management
believes, as of December 31, 1996, that the Bank meets all capital adequacy
requirements to which it is subject.
The most recent notification from the Office of the Comptroller of the Currency,
the Bank's primary regulator, categorized the Bank as well capitalized under the
regulatory framework for PCA. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as
set forth in the table. The Bank's category is determined solely for the purposes of
applying PCA and that category may not constitute an accurate representation of
the Bank's overall financial condition or prospects. There are no conditions or events
since that notification that management believes have changed the Bank's capital
adequacy category.
The regulatory framework for PCA is applicable only to banks and not to bank
holding companies and their non-bank subsidiaries.
<CAPTION> Minimum Ratio
To Be Considered
For Capital Well Capitalized
(In Thousands) Actual Adequacy Under
December 31, 1996 Amount Ratio Purposes PCA Provisions
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------
Total risk-weighted assets:
Consolidated $7,708,300 -- -- --
Subsidiary bank $7,708,408 -- -- --
Total average assets:
Consolidated $10,278,396 -- -- --
Subsidiary bank $10,244,113 -- -- --
Total capital (to risk-weighted assets):
Consolidated $1,024,735 13.29% 8.0% N/A
Subsidiary bank $995,337 12.91% 8.0% 10.0%
Tier 1 capital (to risk-weighted assets):
Consolidated $778,213 10.09% 4.0% N/A
Subsidiary bank $748,814 9.71% 4.0% 6.0%
Tier 1 capital (to average assets):
Consolidated $778,213 7.57% 4.0% N/A
Subsidiary bank $748,814 7.31% 4.0% 5.0%
- ---------------------------------------------------------------------------
December 31, 1995
- ---------------------------------------------------------------------------
Total risk-weighted assets:
Consolidated $7,488,748 -- -- --
Subsidiary bank $7,477,783 -- -- --
Total average assets:
Consolidated $10,458,004 -- -- --
Subsidiary bank $10,413,711 -- -- --
Total capital (to risk-weighted assets):
Consolidated $982,658 13.12% 8.0% N/A
Subsidiary bank $955,613 12.78% 8.0% 10.0%
Tier 1 capital (to risk-weighted assets):
Consolidated $738,846 9.87% 4.0% N/A
Subsidiary bank $711,936 9.52% 4.0% 6.0%
Tier 1 capital (to average assets):
Consolidated $738,846 7.06% 4.0% N/A
Subsidiary bank $711,936 6.84% 4.0% 5.0%
- ---------------------------------------------------------------------------
</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, 1996
and 1995, 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, 1996, and the consolidated bank balance sheet of the subsidiary
bank of Central Fidelity Banks, Inc. as of December 31, 1996 and 1995.
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 audit 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 as of
December 31, 1996 and 1995, the results of their operations and
their cash flows for each of the years in the three-year period
ended December 31, 1996, and the consolidated bank balance sheet
referred to above presents fairly, in all material respects, the
financial position of the subsidiary bank of Central Fidelity
Banks, Inc. as of December 31, 1996 and 1995, all in conformity
with generally accepted accounting principles.
January 15, 1997
Exhibit 99.2
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET
Central Fidelity Banks, Inc. and Subsidiaries
- ------------------------------------------------------------------
(In thousands, except share data)
<CAPTION>
June 30, December 31,
1997 1996
<S> <C> <C>
- ------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------
Cash and due from banks $312,192 $304,661
Temporary investments:
Federal funds sold and securities purchased
under agreements to resell 96,369 96,515
Other money market investments 50,000 50,000
Trading account securities 3,491 4,061
- ------------------------------------------------------------------
Total temporary investments 149,860 150,576
- ------------------------------------------------------------------
Assets available for sale:
Securities 2,954,154 3,069,624
Loans 13,072 26,085
- ------------------------------------------------------------------
Total assets available for sale 2,967,226 3,095,709
- ------------------------------------------------------------------
Loans 6,926,376 6,690,751
Allowance for loan losses (110,000) (110,000)
- ------------------------------------------------------------------
Net loans 6,816,376 6,580,751
- ------------------------------------------------------------------
Accrued interest receivable 62,658 61,819
Premises and equipment, net 164,496 157,119
Due from customers on acceptances 10,664 11,009
Other assets 185,226 178,716
- ------------------------------------------------------------------
Total assets $10,668,698 $10,540,360
- ------------------------------------------ ========== ==========
</TABLE>
<TABLE>
<CAPTION> June 30, December 31,
LIABILITIES 1997 1996
<S> <C> <C>
- ------------------------------------------------------------------
Deposits:
Demand $1,288,662 $1,189,808
Savings and other time 6,285,178 6,393,420
Certificates of deposit $100,000 and over 502,780 488,226
- ------------------------------------------------------------------
Total deposits 8,076,620 8,071,454
- ------------------------------------------------------------------
Borrowings:
Federal funds purchased and securities sold
under agreements to repurchase 1,065,467 907,875
Other short-term borrowings 68,232 72,274
Federal Home Loan Bank borrowings 316,986 400,080
Long-term debt 249,425 150,324
Capitalized lease obligations 7,111 7,334
- ------------------------------------------------------------------
Total borrowings 1,707,221 1,537,887
- ------------------------------------------------------------------
Dividends payable 13,608 13,059
Accrued interest payable 31,399 29,160
Bank acceptances outstanding 10,664 11,009
Accounts payable and accrued liabilities 25,621 31,292
- ------------------------------------------------------------------
Total liabilities 9,865,133 9,693,861
- ------------------------------------------------------------------
SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------
Preferred stock, none issued -- --
Common stock, par value $5 per share, authorized
100,000,000 shares, shares issued: 56,724,684
and 59,378,319, respectively 283,623 296,892
Capital surplus 108,484 171,926
Unamortized deferred compensation (682) --
Retained earnings 403,526 368,457
Unrealized gains on securities available
for sale, net of income taxes 8,614 9,224
- ------------------------------------------------------------------
Total shareholders' equity 803,565 846,499
- ------------------------------------------------------------------
Total liabilities and shareholders' equity $10,668,698 $10,540,360
- ------------------------------------------ ========== ==========
- ------------------------------------------------------------------
</TABLE>
<PAGE
<TABLE>
STATEMENT OF CONSOLIDATED INCOME
Central Fidelity Banks, Inc. and Subsidiaries
- ------------------------------------------------------------------------------------------
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
(In thousands, except share and per share data) 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------
Income From Earning Assets
- ------------------------------------------------------------------------------------------
Interest and fees on loans $152,318 $139,374 $300,376 $278,535
Interest on securities available for sale:
U.S. Government and agencies 29,280 33,806 59,880 70,017
States and political subdivisions 1,266 1,397 2,600 2,898
Other 16,853 18,675 32,823 37,477
Interest on loans available for sale 240 300 548 542
Interest on money market investments 1,290 1,312 2,281 2,880
Interest on trading account securities 67 21 134 34
- ------------------------------------------------------------------------------------------
Total income from earning assets 201,314 194,885 398,642 392,383
- ------------------------------------------------------------------------------------------
Interest Expense
- ------------------------------------------------------------------------------------------
Interest on deposits 78,358 79,398 155,868 160,734
Interest on federal funds purchased and securities
sold under agreements to repurchase 12,099 12,170 23,323 24,871
Interest on other short-term borrowings 772 955 1,531 1,932
Interest on medium-term notes -- 1,341 -- 3,841
Interest on Federal Home Loan Bank borrowings 5,764 6,292 11,740 12,429
Interest on long-term debt 3,895 2,533 6,405 5,035
Interest on capitalized lease obligations 171 168 318 338
- ------------------------------------------------------------------------------------------
Total interest expense 101,059 102,857 199,185 209,180
- ------------------------------------------------------------------------------------------
Net interest income 100,255 92,028 199,457 183,203
Provision for loan losses 13,332 10,644 27,565 20,951
- ------------------------------------------------------------------------------------------
Net income from earning assets 86,923 81,384 171,892 162,252
- ------------------------------------------------------------------------------------------
Noninterest Income
- ------------------------------------------------------------------------------------------
Trust income 4,797 4,473 9,292 8,768
Deposit fees and charges 10,754 9,458 20,691 18,821
Profits (losses) on securities available for sale and
trading account securities 416 (157) 1,881 (1)
Other income 9,271 7,166 17,904 13,991
- ------------------------------------------------------------------------------------------
Total noninterest income 25,238 20,940 49,768 41,579
- ------------------------------------------------------------------------------------------
Noninterest Expense
- ------------------------------------------------------------------------------------------
Personnel expense 37,384 34,523 74,924 68,839
Occupancy and equipment expense 12,684 11,320 24,672 22,866
FDIC insurance expense 400 680 794 1,334
Other real estate expense 449 421 630 1,308
Other expense 14,966 13,122 29,350 26,187
- ------------------------------------------------------------------------------------------
Total noninterest expense 65,883 60,066 130,370 120,534
- ------------------------------------------------------------------------------------------
Earnings
- ------------------------------------------------------------------------------------------
Income before income taxes 46,278 42,258 91,290 83,297
Income tax expense 15,096 13,449 29,715 26,507
- ------------------------------------------------------------------------------------------
Net income $31,182 $28,809 $61,575 $56,790
- ------------------------------------------ ======= ======= ======= =======
Earnings Per Share
- ------------------------------------------------------------------------------------------
Net income $0.54 $0.48 $1.06 $0.95
Average shares outstanding 57,281,069 59,791,822 58,068,245 60,041,921
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CONSOLIDATED CASH FLOWS
Central Fidelity Banks, Inc. and Subsidiaries
- ----------------------------------------------------------------------
(In thousands) For the six months ended June 30,
<CAPTION>
1997 1996
<S> <C> <C>
- ----------------------------------------------------------------------
OPERATING ACTIVITIES
- ----------------------------------------------------------------------
Net income $61,575 $56,790
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 27,565 20,951
Depreciation of premises and equipment 8,760 7,974
Net amortization of premium and accretion of discount
on securities available for sale (622) (357)
Gains on securities available for sale (1,396) (367)
Deferred income taxes (1,387) (932)
(Increase) decrease in trading account securities 570 (782)
Originations of loans available for sale (59,661) (69,658)
Purchases of loans available for sale (37,765) (54,864)
Proceeds from sales of loans available for sale 110,605 125,735
(Increase) decrease in accrued interest receivable (839) 1,901
Increase (decrease) in accrued interest payable 2,239 (6,411)
Other, net (12,013) (13,632)
- ----------------------------------------------------------------------
Net cash provided by operating activities 97,631 66,348
- ----------------------------------------------------------------------
INVESTING ACTIVITIES
- ----------------------------------------------------------------------
Purchases of securities available for sale (439,867) (212,296)
Proceeds from sales of securities available for sale 221,773 190,744
Proceeds from maturities and repayments of securities
available for sale 334,644 346,492
Net increase in loans (268,741) (183,715)
Purchases of premises and equipment (16,204) (11,478)
Proceeds from the disposition of premises and equipment 207 1,595
Proceeds from the disposition of foreclosed properties 7,010 6,494
- ----------------------------------------------------------------------
Net cash provided (used) by investing activities (161,178) 137,836
- ----------------------------------------------------------------------
FINANCING ACTIVITIES
- ----------------------------------------------------------------------
Net increase (decrease) in demand, interest checking and
regular savings deposits 70,078 (565,122)
Net increase in money market accounts 40,580 587,699
Net decrease in consumer certificates (120,046) (72,347)
Net increase in certificates of deposit $100,000 and over 14,554 27,932
Net increase (decrease) in short-term borrowings 153,550 (74,274)
Proceeds from FHLB borrowings 41,206 101,000
Payments on FHLB borrowings (124,300) (299,950)
Proceeds from long-term debt 99,134 --
Payments on long-term debt and capitalized lease obligations (338) (239)
Proceeds from issuance of common stock 6,025 8,162
Common stock purchased (83,554) (24,287)
Cash in lieu of fractional shares for stock split -- (78)
Cash dividends (25,957) (24,080)
- ----------------------------------------------------------------------
Net cash provided (used) by financing activities 70,932 (335,584)
- ----------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 7,385 (131,400)
Cash and cash equivalents at beginning of year 451,176 571,314
- ----------------------------------------------------------------------
Cash and cash equivalents at end of period $458,561 $439,914
- -------------------------------------------------- ======== ========
- ----------------------------------------------------------------------
</TABLE>
<PAGE
<TABLE>
STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY
Central Fidelity Banks, Inc. and Subsidiaries
- -----------------------------------------------------------------------------------------------------------------
<CAPTION> Unrealzied
Gains (Losses)
Unamortized on Securities Total
(In thousands) Common Stock Capital Deferred Retained Available Shareholders'
For the six months ended June 30, 1996 Shares Amount Surplus Compensation Earnings for Sale Equity
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Balance at beginning of period 40,193 $200,964 $195,151 $-- $406,567 $23,865
$826,547
Net income -- -- -- -- 56,790 -- 56,790
Common stock issued under Plans 339 1,696 6,466 -- -- -- 8,162
Common stock purchased (713) (3,569) (20,718) -- -- -- (24,287)
Cash dividends declared on common stock -- -- -- -- (25,163) -- (25,163)
Common stock issued for 3-for-2 stock split 19,890 99,452 -- -- (99,530) --
(78)
Change in unrealized gains on securities available
for sale, net of income taxes of $18,010 -- -- -- -- -- (33,447) (33,447)
- -----------------------------------------------------------------------------------------------------------------
Balance at end of period 59,709 $298,543 $180,899 $-- $338,664 ($9,582)
$808,524
- --------------------------------------- ======= ================== ========= =========
========= =====
For the six months ended June 30, 1997
- -----------------------------------------------------------------------------------------------------------------
Balance at beginning of period 59,378 $296,892 $171,926 $-- $368,457 $9,224
$846,499
Net income -- -- -- -- 61,575 -- 61,575
Common stock issued under Plans 304 1,519 4,506 -- -- -- 6,025
Grant of shares of restricted stock awards 32 158 660 (818) -- -- --
Amortization of deferred compensation -- -- -- 136 -- -- 136
Common stock purchased (2,989) (14,946) (68,608) -- -- -- (83,554)
Cash dividends declared on common stock -- -- -- -- (26,506) -- (26,506)
Change in unrealized gains on securities available
for sale, net of income taxes of $328 -- -- -- -- -- (610) (610)
- -----------------------------------------------------------------------------------------------------------------
Balance at end of period 56,725 $283,623 $108,484 ($682)$403,526 $8,614
$803,565
- --------------------------------------- ======= ================== ========= =========
========= =====
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
