United States Securities And Exchange Commission
Washington, DC 20549
Form 10-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarter Ended September 30, 1994
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-7083
Crestar Financial Corporation
(Exact name of registrant as specified in its charter)
Virginia 54-0722175
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
919 E. Main Street, P.O. Box 26665, Richmond, Virginia 23261-6665
(Address of principal executive offices) (Zip Code)
(804)782-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1994
Common Stock, $5 par value 37,441,995
1
<PAGE>
Crestar Financial Corporation And Subsidiaries
Form 10-Q
For The Quarter Ended September 30, 1994
Part I. Financial Information
Item 1. Financial Statements:
Page
Consolidated Balance Sheets 3
Consolidated Statements Of Income 4
Consolidated Statements Of Cash Flows 5
Consolidated Statements Of Changes In Shareholders' Equity 6
Notes To Consolidated Financial Statements 7-14
Item 2. Management's Discussion And Analysis Of Financial Condition
And Results Of Operations:
Financial Commentary 15-30
Part II. Other Information
Item 6. Exhibits And Reports On Form 8-K:
There was one report on Form 8-K filed during the three months ended
September 30, 1994. Financial information relating to Jefferson Savings and
Loan Association, F.A. (Jefferson) was included in a Form 8-K filed on
September 23, 1994. The Form 8-K was filed solely to permit incorporation by
reference of the financial information into a registration statement on Form
S-4, filed October 6, 1994, relating to the pending acquisition of Jefferson
by Crestar Financial Corporation.
2
<PAGE>
<TABLE>
Consolidated Balance Sheets
Crestar Financial Corporation And Subsidiaries
Dollars in thousands
September December 31,
<S> <C> <C> <C>
Assets 1994 1993 1993
Cash and due from banks $ 690,992 $ 596,907 $ 716,652
Securities held to maturity (note 2) 944,626 1,964,061 1,824,617
Securities available for sale (note 3) 1,866,204 1,671,773 1,697,000
Money market investments (note 4) 1,327,457 687,389 650,633
Mortgage loans held for sale 334,281 434,743 591,233
Loans - net of unearned income (note 5):
Commercial 2,708,714 2,426,268 2,608,069
Tax-exempt 207,799 251,312 230,852
Instalment 1,763,961 1,520,988 1,532,936
Bank card 1,224,093 777,480 976,200
Real estate 2,520,345 1,845,299 1,713,876
Construction 221,646 230,695 224,460
Foreign 1,313 232 729
Loans - net of unearned income of $1,465 and $3,610 at
September 30, 1994 and 1993, respectively, and $2,988
at December 31, 1993 8,647,871 7,052,274 7,287,122
Less: Allowance for loan losses (note 6) (225,890) (212,982) (210,958)
Loans - net 8,421,981 6,839,292 7,076,164
Premises and equipment - net 320,829 299,568 302,704
Customers' liability on acceptances 4,866 14,766 11,578
Intangible assets - net (note 7) 126,217 103,261 96,152
Foreclosed properties - net (notes 5 and 8) 23,644 34,699 16,951
Other assets 389,260 340,643 303,263
Total Assets $14,450,357 $12,987,102 $13,286,947
Liabilities
Demand deposits $ 2,116,154 $ 2,062,467 $ 2,234,536
Interest checking deposits 1,865,839 1,662,185 1,791,100
Money market deposit accounts 2,367,640 2,256,712 2,214,537
Regular savings deposits 1,460,391 1,201,739 1,241,592
Money market certificates 620,819 561,186 538,869
Other domestic time deposits 2,487,926 2,145,945 2,097,448
Certificates of deposit $100,000 and over 67,352 43,666 45,914
Deposits in foreign offices - 1,782 1,782
Total deposits 10,986,121 9,935,682 10,165,778
Short-term borrowings (note 9) 1,905,049 1,506,682 1,616,743
Liability on acceptances 4,866 14,766 11,578
Other liabilities 218,998 244,498 239,215
Long-term debt (note 10) 218,564 190,559 191,156
Total Liabilities 13,333,598 11,892,187 12,224,470
Shareholders' Equity
Preferred stock. Authorized 2,000,000 shares;
issued and outstanding:
Adjustable Rate Cumulative Series B, $50 stated value;
900,000 shares at September 30, 1993 - 45,000 -
Common stock, $5 par value. Authorized 100,000,000 shares;
outstanding 37,597,723 and 37,763,565 at September 30, 1994
and 1993, respectively, and 37,515,671 shares at
December 31, 1993 187,989 188,818 187,578
Capital surplus 276,424 244,978 248,896
Retained earnings 683,133 616,119 626,003
Net unrealized loss on securities available for sale (note 15) (30,787) - -
Total Shareholders' Equity 1,116,759 1,094,915 1,062,477
Total Liabilities And Shareholders' Equity $14,450,357 $12,987,102 $13,286,947
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Consolidated Statements Of Income
Crestar Financial Corporation And Subsidiaries
<TABLE>
In thousands, except per share data Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Income From Earning Assets
Interest and fees on loans $180,842 $146,760 $504,830 $426,925
Interest and dividends on taxable securities
held to maturity 11,937 31,426 35,924 88,433
Interest on tax-exempt securities held to maturity 1,105 1,643 3,730 5,363
Interest and dividends on securities available for sale 31,352 22,299 102,470 62,807
Income on money market investments 9,047 4,436 19,854 19,775
Interest on mortgage loans held for sale 5,197 6,555 18,074 16,869
Total income from earning assets 239,480 213,119 684,882 620,172
Interest Expense
Interest checking deposits 10,544 9,628 30,690 28,434
Money market deposit accounts 17,966 14,631 47,337 44,585
Regular savings deposits 10,177 8,299 27,891 22,950
Money market certificates 5,265 4,262 15,060 13,797
Other domestic time deposits 27,836 24,667 80,651 73,383
Certificates of deposit $100,000 and over 733 476 1,780 1,528
Deposits in foreign offices - 13 11 48
Total interest on deposits 72,521 61,976 203,420 184,725
Short-term borrowings 13,197 11,011 33,190 32,900
Long-term debt 4,484 4,486 13,399 13,494
Total interest expense 90,202 77,473 250,009 231,119
Net Interest Income 149,278 135,646 434,873 389,053
Provision for loan losses (note 6) 8,100 13,769 26,982 35,275
Net Credit Income 141,178 121,877 407,891 353,778
Noninterest Income
Trust and investment advisory income 13,244 14,172 42,688 43,439
Service charges on deposit accounts 20,640 20,062 62,535 59,802
Bank card-related income 10,321 7,140 27,296 19,329
Other income 21,172 20,365 66,223 59,792
Securities gains (losses) 12 (385) (1,755) 2,237
Total noninterest income 65,389 61,354 196,987 184,599
Net Credit And Noninterest Income 206,567 183,231 604,878 538,377
Noninterest Expense
Personnel costs 77,631 66,397 228,420 193,878
Occupancy expense - net 11,098 10,124 31,953 28,511
Equipment expense 6,370 6,232 18,367 18,428
Other expense 45,005 46,395 136,107 151,962
Total noninterest expense 140,104 129,148 414,847 392,779
Income Before Income Taxes 66,463 54,083 190,031 145,598
Income tax expense (note 11) 22,859 16,930 63,337 43,841
Net Income 43,604 37,153 126,694 101,757
Preferred dividend requirements - 618 - 1,856
Income Applicable To Common Shares $ 43,604 $ 36,535 $126,694 $ 99,901
Earnings Per Share (note 12):
Primary $ 1.15 $ .96 $ 3.34 $ 2.67
Fully diluted 1.15 .96 3.34 2.67
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Consolidated Statements Of Cash Flows
Crestar Financial Corporation And Subsidiaries
<TABLE>
In thousands Nine Months Ended Sept. 30,
1994 1993
<S> <C> <C> <C>
Operating Net Income $ 126,694 $ 101,757
Activities Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Provisions for loan losses, foreclosed properties and
other losses 27,185 43,541
Depreciation and amortization of premises and equipment 24,541 23,734
Securities losses (gains) 1,755 (2,237)
Amortization of intangible assets 11,320 14,716
Deferred income tax expense 664 2,712
Loss (gain) on foreclosed properties (856) 10,887
Gain on sale of mortgage servicing rights (14,132) (2,300)
Net decrease (increase) in trading account 7,538 (209,454)
Net decrease (increase) in loans held for sale 272,093 (67,508)
Net decrease (increase) in accrued interest receivable,
prepaid expenses and other assets 24,205 (36,227)
Net increase (decrease) in accrued interest payable, accrued
expenses and other liabilities (53,152) 28,909
Other, net 9,238 (2,414)
Net cash provided (used) by operating activities 437,093 (93,884)
Investing Proceeds from maturities and calls of securities held to maturity 204,142 516,205
Activities Proceeds from maturities and calls of securities available for sale 385,096 52,294
Proceeds from sales of securities available for sale 1,511,787 386,290
Purchases of securities held to maturity (562,311) (804,704)
Purchases of securities available for sale (496,360) (528,498)
Net decrease (increase) in money market investments (642,632) 710,347
Principal collected on non-bank subsidiary loans 8,942 17,885
Loans originated by non-bank subsidiaries (192,910) (71,436)
Net decrease in other loans 2,998 173,579
Purchases of premises and equipment (28,115) (25,518)
Proceeds from sales of foreclosed properties 30,623 53,029
Proceeds from sales of mortgage servicing rights 24,168 3,175
Aquisitions of net assets of financial institutions 23,703 26,419
Other, net (7,856) (6,844)
Net cash provided by investing activities 261,275 502,223
Financing Net increase (decrease) in demand, interest checking,
Activities money market and regular savings deposits (269,558) 80,232
Net increase (decrease) in short-term borrowings 82,098 (143,834)
Net decrease in certificates of deposit (477,635) (405,994)
Proceeds from issuance of long-term debt 158 -
Principal payments on long-term debt (5,606) (70,695)
Cash dividends paid (42,496) (31,643)
Common stock purchased and retired (29,571) (4,346)
Proceeds from the issuance of common stock 18,582 10,265
Net cash used by financing activities (724,028) (566,015)
Cash and Decrease in cash and cash equivalents (25,660) (157,676)
Cash Cash and cash equivalents at beginning of year 716,652 754,583
Equivalents Cash and cash equivalents at end of quarter $ 690,992 $ 596,907
Cash and cash equivalents consist of cash and due from banks. See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
Consolidated Statements Of Changes In Shareholders' Equity
Crestar Financial Corporation And Subsidiaries
<TABLE>
Dollars in thousands Shareholders' Equity Shares of Common Stock
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Balance, July 1 $1,104,684 $1,066,225 37,717,023 37,720,229
Net Income 43,604 37,153 - -
Cash dividends declared on:
Preferred stock, Series B - (618) - -
Common stock (15,092) (10,560) - -
Change in valuation allowance for marketable
equity securities - 639 - -
Change in net unrealized loss on securities
available for sale (note 15) (9,956) - - -
Value of stock options issued for acquisition of
financial institution - 694 - -
Common stock purchased and retired (10,213) (1,267) (214,700) (30,000)
Common stock issued:
For dividend reinvestment plan 2,862 2,159 62,561 51,967
Upon exercise of stock options (including tax
benefit of $154 in 1994 and $83 in 1993) 870 490 32,839 21,369
Balance, September 30 $1,116,759 $1,094,915 37,597,723 37,763,565
Balance, January 1 $1,062,477 $ 958,905 37,515,671 36,156,605
Net Income 126,694 101,757 - -
Cash dividends declared on:
Preferred stock, Series B - (1,856) - -
Common stock (42,496) (29,786) - -
Change in valuation allowance for marketable
equity securities - 4,767 - -
Cumulative effect of change in accounting
for securities available for sale (note 15) 32,209 - - -
Change in net unrealized gain on securities
available for sale (note 15) (62,996) - - -
Value of stock options issued for acquisition of
financial institution - 694 - -
Common stock purchased and retired (30,490) (4,346) (684,400) (115,000)
Common stock issued:
For acquisition of financial institutions 12,588 54,513 264,208 1,411,343
Upon conversion of debentures 113 2 12,210 216
For dividend reinvestment plan 8,279 6,384 185,928 165,786
For directors' stock compensation plan 78 - 1,859 -
For thrift and profit sharing plan 4,993 - 115,770 -
Upon exercise of stock options (including tax
benefit of $1,022 in 1994 and $825 in 1993) 5,310 3,881 186,477 144,615
Balance, September 30 $1,116,759 $1,094,915 37,597,723 37,763,565
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
Notes To Consolidated Financial Statements
Crestar Financial Corporation And Subsidiaries
(1) General
The consolidated financial statements conform to generally accepted accounting
principles and to general practices within the banking industry. The
accompanying interim statements are unaudited; however, in the opinion of
management, all adjustments necessary for a fair presentation of the
consolidated financial statements, including adjustments related to completed
acquisitions, have been included. All adjustments are of a normal nature.
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the 1994 presentation. The notes included
herein should be read in conjunction with the notes to consolidated financial
statements included in the Corporation's 1993 Annual Report and Form 10-K and in
the Corporation's 1994 First Quarter and Second Quarter Form 10-Qs.
On September 16, 1994, Crestar acquired from the Resolution Trust Corporation
(RTC) approximately $17 million in deposits related to two branches of Second
National Federal Savings Association, Salisbury, Maryland, located in Fairfax
and Woodbridge, Virginia. In connection with this acquisition, Crestar paid a
$112 thousand premium to the RTC.
(2) Securities Held To Maturity
The amortized cost (carrying values) and approximate market values of securities
held to maturity at September 30 follow:
<TABLE>
In thousands
1994 1993
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
U.S. Treasury and Federal agencies $ 10,360 $ 10,146 $ 79,309 $ 79,577
Mortgage-backed obligations of Federal agencies 645,333 624,798 1,611,234 1,639,586
Other taxable securities 219,877 211,581 159,359 160,728
States and political subdivisions 69,056 69,276 90,465 93,749
Common and preferred stocks - - 23,694 23,694
Total securities held to maturity $944,626 $915,801 $1,964,061 $1,997,334
</TABLE>
(3) Securities Available For Sale
The amortized cost and approximate market values of securities available for
sale at September 30 follow:
<TABLE>
In thousands 1994 1993
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
U.S. Treasury and Federal agencies $ 999,647 $ 978,776 $1,455,276 $1,497,804
Mortgage-backed obligations of Federal agencies 704,834 680,160 36,453 36,486
Other mortgage-backed obligations 152,666 149,834 180,044 181,248
Other taxable securities 5,622 5,598 - -
Common and preferred stocks 51,677 51,836 - -
Total securities available for sale $1,914,446 $1,866,204 $1,671,773 $1,715,538
</TABLE>
At September 30, 1994, gross unrealized gains were $3.9 million and gross
unrealized losses were $52.1 million for securities available for sale. The
majority of U.S. Treasury and Federal agency securities mature within one to
five years. The majority of mortgage-backed obligations have a stated maturity
of over ten years. See note 15 for a discussion of accounting changes applicable
to these securities.
7
<PAGE>
(4) Money Market Investments
Money market investments at September 30 included:
<TABLE>
In thousands 1994 1993
<S> <C> <C>
Trading account securities $ 257 $229,348
Federal funds sold 738,580 148,900
Securities purchased under agreements to resell 586,000 50,000
Domestic time deposits 138 50,228
U.S. Treasury and other 2,482 208,913
Total money market investments $1,327,457 $687,389
</TABLE>
(5) Nonperforming Assets
Nonperforming assets at September 30 were:
<TABLE>
In thousands 1994 1993
<S> <C> <C>
Nonaccrual loans $62,934 $100,035
Restructured loans - 34
Total nonperforming loans 62,934 100,069
Foreclosed properties - net 23,644 34,699
Total nonperforming assets $86,578 $134,768
</TABLE>
Non-cash additions to foreclosed properties were $9.7 million and $12.9 million
in the first nine months of 1994 and 1993, respectively.
(6) Allowance For Loan Losses
Transactions in the allowance for loan losses for the three months and nine
months ended September 30 were:
<TABLE>
In thousands Three Months Nine Months
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Beginning balance $226,666 $212,981 $210,958 $205,017
Charge-offs (14,438) (20,357) (49,127) (64,244)
Recoveries 5,583 6,589 21,390 14,934
Net charge-offs (8,855) (13,768) (27,737) (49,310)
Provision for loan losses 8,100 13,769 26,982 35,275
Allowance from acquisitions - net (21) - 15,687 22,000
Net increase (decrease) (776) 1 14,932 7,965
Ending balance $225,890 $212,982 $225,890 $212,982
</TABLE>
(7) Intangible Assets
Intangible assets at September 30 included:
In thousands 1994 1993
Goodwill and deposit base intangibles $107,466 $ 75,498
Mortgage servicing rights 18,156 24,803
Favorable lease rights 595 2,960
Total intangible assets $126,217 $103,261
8
<PAGE>
(8) Allowance For Foreclosed Properties
Transactions in the allowance for losses on foreclosed properties for the three
months and nine months ended September 30 were:
<TABLE>
In thousands Three Months Nine Months
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Beginning balance $9,166 $12,546 $ 5,574 $10,264
Write-downs (156) (1,402) (801) (8,666)
Provision for foreclosed properties 979 - (323) 7,500
Allowance from acquisitions - - 5,539 2,046
Net increase (decrease) 823 (1,402) 4,415 880
Ending balance $9,989 $11,144 $ 9,989 $11,144
</TABLE>
(9) Short-Term Borrowings
Borrowings, exclusive of deposits, with maturities of less than one year at
September 30 were:
In thousands 1994 1993
Federal funds purchased $1,522,138 $ 438,665
Securities sold under repurchase agreements 231,368 813,631
Commercial paper 132 222
Notes payable 149,347 104,202
U.S. Treasury demand notes - 3,278
Other 2,064 146,684
Total short-term borrowings $1,905,049 $1,506,682
The Corporation paid $235,134,000 and $226,120,000 in interest on deposits and
short-term borrowings in the first nine months of 1994 and 1993, respectively.
(10) Long-Term Debt
Long-term debt at September 30 included:
<TABLE>
In thousands 1994 1993
<S> <C> <C>
8 1/4% Subordinated notes due 2002 $125,000 $125,000
8 5/8% Subordinated notes due 1998 49,963 49,953
7 - 10 1/2% Mortgage indebtedness maturing through 2009 12,378 13,387
6 - 14% Capital lease obligations maturing through 2006 1,502 2,085
4 1/8 - 6 1/4% Federal Home Loan Bank obligations payable through 2008 11,109 -
4 3/4 - 9 1/2% Collateralized mortgage obligation bonds maturing through 2019 18,612 -
5% Convertible subordinated debentures due 1994 - 134
Total long-term debt $218,564 $190,559
</TABLE>
The Corporation made payments of $15,126,000 and $15,431,000 in interest on
long-term debt in the first nine months of 1994 and 1993, respectively. There
were no new capital lease agreements in the third quarter of 1994.
9
<PAGE>
(11) Income Taxes
The current and deferred components of income tax expense allocated to
continuing operations in the accompanying consolidated statements of income for
the three months and nine months ended September 30 were:
<TABLE>
In thousands Three Months Nine Months
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Current:
Federal $23,986 $15,529 $61,171 $42,083
State and local 620 (81) 1,502 (954)
Total current tax expense 24,606 15,448 62,673 41,129
Deferred:
Federal (1,609) 1,125 489 3,269
State and local (138) 357 175 (557)
Total deferred tax expense (benefit) (1,747) 1,482 664 2,712
Total income tax expense $22,859 $16,930 $63,337 $43,841
</TABLE>
The differences between the amounts computed by applying the statutory federal
income tax rate to income before income taxes and the actual income tax expense
allocated to operations for the three months and nine months ended September 30
were:
<TABLE>
Dollars in thousands Three Months Nine Months
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Income before income taxes $66,463 $54,083 $190,031 $145,598
Tax expense at statutory rate 23,262 18,929 66,511 50,959
Increase (decrease) in taxes resulting from:
Tax-exempt interest and dividends (1,861) (2,053) (5,419) (6,511)
Nondeductible interest expense 119 126 331 417
Amortization of goodwill 827 297 1,333 796
State income taxes 314 (180) 1,090 (10)
Adoption of new accounting standard - - - (540)
Deferred tax effect of tax rate change - (1,557) - (1,557)
Other - net 198 1,368 (509) 287
Total decrease in taxes (403) (1,999) (3,174) (7,118)
Total income tax expense $22,859 $16,930 $ 63,337 $ 43,841
Effective tax rate 34.4% 31.3% 33.3% 30.1%
</TABLE>
The Corporation made income tax payments of $56,405,000 and $43,286,000 during
the first nine months of 1994 and 1993, respectively. At September 30, 1994, the
Corporation had a net deferred tax asset of $99,430,000. There was no valuation
allowance relating to the tax asset. Crestar has sufficient taxable income in
the available carryback periods and future taxable income from reversing taxable
differences to realize its deferred tax assets. Management believes, based on
the Corporation's history of generating significant earnings and expectations of
future earnings, that it is more likely than not that all recorded deferred tax
assets will be realized.
10
<PAGE>
(12) Earnings Per Share
Average common and common equivalent shares used in the determination of
earnings per share for the three months and nine months ended September 30 were:
<TABLE>
In thousands Three Months Nine Months
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Primary 38,063 38,154 37,933 37,429
Plus assumed conversion of debentures - 14 - 15
Other - 6 20 36
Fully diluted 38,063 38,174 37,953 37,480
</TABLE>
Primary earnings per share are computed by dividing net income applicable to
common shares by the weighted average number of common shares outstanding during
the period, including average common equivalent shares attributable to dilutive
stock options. Fully diluted earnings per common share are computed using
average common shares, including the maximum dilutive effect of average common
equivalent shares, increased by the number of shares that would result from
assuming that the 5% convertible subordinated debentures were converted into
common stock at the beginning of the applicable period and using net income
increased by interest and amortization of debt issuance expense, net of tax
effect, relating to those debentures. Net income for 1993 is further reduced by
the dividends applicable to the Series B preferred stock. The following table
provides the net adjustment to net income:
<TABLE>
In thousands Three Months Nine Months
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Interest and amortization of debt issuance expense $ - $ 2 $ 2 $ 5
Tax effect - (1) (1) (2)
Preferred dividends, Series B - (618) - (1,856)
Net adjustment to net income $ - $(617) $ 1 $(1,853)
</TABLE>
In the first nine months of 1994 and 1993, $113,000 and $2,000 of subordinated
debentures were converted into 12,210 and 216 shares of common stock,
respectively.
11
<PAGE>
(13) Condensed Crestar Financial Corporation (Parent) Information
The following shows the Parent's Condensed Balance Sheets at September 30:
<TABLE>
In thousands 1994 1993
<S> <C> <C>
Cash in banks $ 40,765 $ 32,975
Securities held to maturity 11,569 12,240
Securities available for sale 34,164 -
Money market investments 4,973 94,835
Securities purchased under agreements to resell 97,521 50,000
Notes receivable from subsidiaries 175,000 176,000
Investments in subsidiaries:
Bank subsidiaries 1,121,887 1,042,732
Non-bank subsidiaries 7,822 7,798
Other assets 12,406 12,597
Total Assets $1,506,107 $1,429,177
Commercial paper $ 132 $ 222
Master notes 149,347 104,203
Securities sold to subsidiary under repurchase agreements 2,653 3,574
Other liabilities 62,253 51,176
Long-term debt 174,963 175,087
Total shareholders' equity 1,116,759 1,094,915
Total Liabilities and Shareholders' Equity $1,506,107 $1,429,177
</TABLE>
The Parent's Condensed Statements of Income for the three months and nine months
ended September 30 were:
<TABLE>
In thousands Three Months Nine Months
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Cash dividends from bank subsidiaries $16,595 $12,462 $ 53,705 $ 33,676
Interest from subsidiaries 3,668 3,687 10,947 10,965
Interest on securities held to maturity and available
for sale 417 236 859 1,339
Income on money market investments 61 715 332 1,338
Interest on securities purchased under agreements
to resell 1,196 527 3,107 2,254
Other income 1 - 134 41
Securities losses (145) (365) (145) (1,859)
Total income 21,793 17,262 68,939 47,754
Interest on short-term borrowings 1,353 749 3,010 2,080
Interest on long-term debt 3,659 4,030 10,976 12,100
Other expense 389 350 1,931 952
Total expense 5,401 5,129 15,917 15,132
Income before income taxes and equity in
undistributed net income of subsidiaries 16,392 12,133 53,022 32,622
Income tax benefit (235) (130) (601) (1,568)
Income before equity in undistributed net income of
subsidiaries 16,627 12,263 53,623 34,190
Equity in undistributed net income of subsidiaries 26,977 24,890 73,071 67,567
Net Income $43,604 $37,153 $126,694 $101,757
</TABLE>
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(14) Commitments and Contingencies
In the normal course of business, there are outstanding commitments and
contingent liabilities and other financial instruments that are not reflected in
the accompanying consolidated financial statements. These include commitments to
extend credit, standby letters of credit, interest rate caps, floors and
collars, interest rate swaps, and forward contracts. No material losses are
expected to result from these transactions.
Commercial lines of credit are established for a potential borrower as an
indication of the aggregate amount of outstanding loans that the banks are
willing to extend. Sometimes these lines of credit are supported by balances
left on deposit, investment securities, real estate or inventory. Loan advances
made under such lines usually do not extend beyond the borrower's fiscal year.
Such advances are normally given for working capital purposes and require
repayment within twelve months.
Formal long-term commitments are made under legal and binding agreements for
which the borrower pays a commitment fee. These agreements typically contain
clauses that permit cancellation of the commitment in the event of credit
deterioration of the borrower. Crestar's outstanding standby letters of credit
amounted to approximately $380.0 million at September 30, 1994 and $402.6
million at September 30, 1993. At September 30, 1994, approximately $23.9
million of these standby letters of credit were participated to other financial
institutions.
The Corporation services mortgage loans other than those included in the
accompanying consolidated financial statements and, in some cases, accepts a
recourse liability on the serviced loans. At September 30, 1994, Crestar
serviced a total of $849.4 million of loans for which it had accepted a recourse
liability. Of this amount, approximately $496.1 million was insured by agencies
of the Federal government or private insurance companies. In addition, at
September 30, 1994, Crestar had forward contracts totaling $331.9 million
outstanding as hedges of lending commitments.
As a financial institution, Crestar entails a degree of interest rate risk as a
provider of banking services to its customers. This risk can be managed through
derivative interest rate contracts, such as interest rate swaps, caps and
floors. Changes in the fair value of such derivatives are generally offset by
changes in the implied fair value of the underlying hedged asset or liability.
As hedges against interest rate risk at September 30, 1994, Crestar was
participating in interest rate (fixed receive) swaps having a notional value of
$1.64 billion. Of these interest rate swaps, $1.48 billion were used to convert
certain variable rate commercial and real estate loans to fixed rates, and $150
million were used to convert variable rate securities to fixed rates. An
additional $10 million in interest rate swaps were used to convert specifically
identified time deposits to variable rates in order to lock in a spread on the
variable rate assets which they fund. Notional balances of $876.2 million of the
above swaps were indexed amortizing swaps, whose notional value amortizes more
slowly as rates rise. Unrealized gains and unrealized losses on interest rate
swap contracts utilized as hedges were $2.2 million and $63.8 million,
respectively, as of September 30, 1994.
Crestar also had a notional amount outstanding of $200 million of interest rate
floor agreements on September 30, 1994 to minimize interest rate risk associated
with variable rate assets. Unrealized gains on these floor agreements
approximated $58,000 as of September 30, 1994.
The notional amount of these over-the-counter traded interest rate swaps and
floors does not represent Crestar's credit exposure, which the Corporation
believes is a combination of current replacement cost plus an amount for
additional market movement. At September 30, 1994, such estimated credit
exposure was $33.5 million. Four counterparties constituted 30%, 18%, 13% and
10% of the estimated credit exposure at September 30, 1994; no other
counterparties represented 10% or more of the estimated credit exposure at
September 30, 1994.
The average expected maturity at September 30, 1994 was 1.6 years for interest
rate swaps and 0.3 years for interest rate floors used by Crestar as hedge
instruments. The average fixed rate for these swaps was 5.88%. The interest rate
floors used by Crestar as hedges against interest rate risk are tied to the
London Inter-Bank Offered Rate (LIBOR). The average strike rate at September 30,
1994 for these interest rate floors was 5.50%.
Crestar serves as a financial intermediary in interest rate swap, cap, floor and
collar agreements, and at September 30, 1994 had aggregate notional amounts
outstanding of $148.9 million in offsetting swap, $73.1 million in offsetting
cap, $57.6 million in offsetting floor, and $52.5 million in offsetting collar
agreements.
Certain litigation is pending against Crestar. Management, after reviewing this
litigation with legal counsel, is of the opinion that these matters, when
resolved, will not have a material effect on the accompanying consolidated
financial statements.
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(15) New Accounting Standards
Effective January 1, 1994, Crestar adopted Statement of Financial Accounting
Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and
Equity Securities." In accordance with SFAS 115, securities are classified as
either securities held to maturity, securities available for sale or trading
account securities. Securities held to maturity are carried at amortized cost,
as the Corporation has the ability and positive intent to hold these securities
to maturity. Trading account securities are carried at fair value as they are
intended to be sold in the near term: trading securities are classified as money
market investments on the Corporation's Consolidated Balance Sheets. Securities
available for sale are carried at fair value and represent securities not
classified as held to maturity or as trading account securities.
With the adoption of SFAS 115, unrealized holding gains and losses on securities
available for sale are excluded from the Consolidated Statements of Income and
reported, net of tax, as a separate component of shareholders' equity. On
January 1, 1994, securities having an amortized cost of $2.932 billion, and a
fair value of $2.983 billion, were classified as securities available for sale.
The initial effect of adoption of SFAS 115 was an increase in shareholders'
equity of $32.2 million, which was the amount, net of tax, by which the fair
value of securities available for sale exceeded the amortized cost of such
securities on January 1, 1994.
At September 30, 1994, on an after-tax basis, the amortized cost of securities
available for sale exceeded the fair value of such securities by $30.8 million.
The net unrealized gain or loss of securities available for sale, which is
recorded as a component of shareholders' equity, will continue to be subject to
change in future periods due to fluctuations in market value, acquisition
activities, and sales, purchases, maturities and calls of securities classified
as available for sale.
In accordance with SFAS 115, the Corporation's consolidated financial statements
for periods prior to January 1, 1994 have not been retroactively changed to
conform to current securities classifications. Prior to January 1, 1994,
investment securities which management intended to sell as a part of its
asset/liability management strategy, or that may have been sold in response to
changes in interest rates, prepayment risk or other similar factors, were
classified as securities held for sale, and were stated at the lower of
aggregate amortized cost or market value. All other investment securities were
accounted for in a manner similar to securities held to maturity or trading
account securities.
Statement of Financial Accounting Standards No. 112 (SFAS 112), "Employers'
Accounting for Postemployment Benefits," was adopted by Crestar on January 1,
1994. Under SFAS 112, benefits provided to inactive or former employees before
retirement are accrued during the period of active employment, rather than being
expensed as paid. For Crestar, such benefits consist principally of short-term
disability benefits. Adoption of SFAS 112 resulted in a pre-tax charge to
employee benefit expense of $1.8 million in the first quarter of 1994.
Postemployment benefits expense for periods prior to January 1, 1994 has not
been restated.
(16) Subsequent Event
On November 9, 1994, Crestar announced the sale of $150 million of 8 3/4%
subordinated notes due November 15, 2004. Net of underwriting discounts,
the notes will result in net proceeds to the Corporation of $148.6 million.
Proceeds from the sale of the notes will be used for general corporate
purposes, including cash requirements for pending acquisitions.
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Financial Commentary
Crestar Financial Corporation And Subsidiaries
Overview
(Tables 1, 2 and 14)
Crestar Financial Corporation (Crestar) reported record earnings of $43.6
million for the quarter ended September 30, 1994, an increase of 17% from the
$37.2 million earned in third quarter 1993. For the first nine months,
earnings were $126.7 million in 1994, an increase of 25% from the $101.8
million in 1993. These increases reflected the continued positive effects of
growth in net interest income and noninterest income and continuing
improvement in credit quality. Earnings per share were $1.15 for the third
quarter of 1994 compared with $.96 in 1993. For the first nine months of the
year, earnings per share were $3.34 for 1994, an increase of 25% from the
$2.67 per share recorded in the first nine months of 1993. The predominant
items affecting the change in earnings per share are given in Table 2. Each
applicable item is net of applicable federal income taxes.
Mergers And Acquisitions
During the third quarter, Crestar announced its intention to acquire three
Virginia-based financial institutions, in separate transactions which are
expected to be completed by the end of the first quarter of 1995. Each of the
three pending acquisitions is subject to receipt of regulatory approvals, in
addition to shareholder approvals from the institutions being purchased.
In August, Crestar announced its intention to acquire Independent Bank
(Independent), headquartered in Manassas, Virginia. Independent has four
branches in Prince William County, with total assets of approximately $93
million and total deposits of approximately $85 million. The purchase of
Independent will be for a combination of cash and Crestar stock with a value
of approximately $12 million, and will strengthen Crestar's current market
presence in Prince William County.
In September, Crestar announced a definitive agreement to acquire Jefferson
Savings and Loan Association, F.A. (Jefferson), a Warrenton based thrift
institution. Jefferson has eight branches, approximately $265 million in
deposits and approximately $300 million in total assets. The acquisition is
for a combination of cash and Crestar stock valued at approximately $22
million. The acquisition will represent Crestar's first operations in
Warrenton, Culpeper, Front Royal and Luray, and further strengthen Crestar's
market position in Charlottesville and Loudon County.
Also in September, Crestar entered into a binding letter agreement with
TideMark Bancorp Inc. (TideMark) of Newport News, Virginia, providing for the
purchase of TideMark and its subsidiary, TideMark Bank, F.S.B. TideMark has
nine branches in the Hampton Roads metropolitan area, and a branch in
Kilmarnock which is expected to be sold by TideMark before the Crestar
acquisition. TideMark had previously entered into an agreement to acquire
eight branches from Bay Savings Bank, a division of FirstFed Michigan Corp.,
which is expected to be completed by year-end. Crestar's acquisition of
TideMark will initially bring to Crestar approximately $300 million in
deposits and $450 million in assets. The acquisition is for a combination of
cash and Crestar stock with a combined value of approximately $38 million.
Crestar completed one acquisition during the third quarter of this year. On
September 16, 1994, Crestar Bank acquired from the Resolution Trust
Corporation (RTC) approximately $17 million in deposits related to two
branches, located in Fairfax and Woodbridge, Virginia, of Second National
Federal Savings Association of Salisbury, Maryland. The acquisition had no
material impact on third quarter operations.
Financial statement note 1 contains additional information concerning
acquisitions.
Profitability Measures And Capital Resources
(Table 1)
Increased earnings in both the third quarter and the first nine months of
1994 resulted in improvements in key profitability measures over 1993. Return
on average assets was 1.26% for the third quarter and 1.24% for the first
nine months of 1994, compared to 1.15% and 1.09%, respectively, for 1993.
Return on average equity and return on average common equity were both 15.70%
for the third quarter, up from 13.84% and 14.20%, respectively, for the third
quarter of 1993. Return on average equity and return on average common equity
for the first nine months of 1994 were both 15.44%, up from 13.29% and
13.65%, respectively, for the first nine months of 1993.
Average equity to assets of 8.02% for third quarter 1994 decreased 32 basis
points from 8.34% in third quarter 1993, and average equity to assets of
8.04% for the first nine months was down 15 basis points from 8.19% in 1993,
reflecting in part the net impact of acquisitions and Crestar's common stock
repurchase program. Period-end equity to assets of 7.73% at September 30,
1994 was 70 basis points below the 8.43% in 1993, also reflecting an increase
in period-end assets as a result of completed acquisitions and the impact of
a net unrealized loss on securities available for sale included in Crestar's
shareholders' equity. At June 30, 1994, Crestar's equity to assets ratio was
7.71%.
Crestar's consolidated Tier 1 risk-adjusted capital ratio was 9.6% and total
risk-based capital was 12.2% at September 30, 1994, well above the required
minimums of 4.0% and 8.0%, respectively. The Tier 1 leverage ratio of 7.7% at
September 30, 1994 also was well above the regulatory minimum of 3%.
Crestar's tangible leverage ratio, defined as total
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equity less all intangibles divided by total assets less all intangibles,
was 6.9% at September 30, 1994. Each of Crestar's three subsidiary banks
continued to be "well capitalized" as of September 30, 1994, the highest
level of capitalization defined by the Federal Deposit Insurance Corporation
for purposes of determining deposit insurance rates.
Net Interest Margin And Net Interest Income
(Tables 3 and 15)
Crestar's third quarter 1994 net interest margin of 4.82% improved five basis
points from 4.77% in the third quarter of 1993. This increase reflects
favorable changes in the composition and yield of balance sheet earning
assets, which offset both higher rates paid on deposits and declines in
interest income arising from off-balance sheet hedge transactions. Changes in
the earning asset mix increased the third quarter 1994 net interest margin by
approximately 15 basis points, fueled by growth in loans. Average bank card
loans increased $437 million, or 59%, to $1.2 billion in third quarter 1994.
Average real estate loans were up 35%, or $656 million, from third quarter
1993. Also, average instalment loans and commercial loans grew 16% and 9%,
respectively, during this period. As a percentage of average total earning
assets, average loans increased from 61% in third quarter 1993 to 68% for
third quarter 1994. On the funding side, the proportion of lower-cost sources
increased due to growth in deposits. Average total deposits for third quarter
1994 increased $1.2 billion to $11.1 billion, a 12% increase over third
quarter 1993 balances. Average short-term borrowings were down 20% from third
quarter 1993 balances, reflecting Crestar's growth in deposits. These changes
to Crestar's funding mix had a positive impact of two basis points on third
quarter 1994 net interest margin when compared to third quarter 1993.
The yield on average loans increased nine basis points from third quarter
1993, as higher yields on commercial, tax-exempt and construction loans
offset declines in average rates on credit card, instalment and real estate
loans. Higher rates on securities available for sale, which earned 6.38% in
third quarter 1994 versus 5.25% in the same period of 1993, were partially
offset by lower yields on securities classified as held to maturity, which
were 6.84% during third quarter 1993 and 5.66% in third quarter 1994. Yields
on money market investments were 80 basis points higher, as the average yield
increased from 3.80% in third quarter 1993 to 4.60% in third quarter 1994.
Reflecting the higher rate environment, the average rate paid on savings and
time deposits increased 12 basis points, rising from 3.11% in third quarter
1993 to 3.23% in third quarter 1994. In total, interest rate spreads had a
marginally positive impact (one basis point) on third quarter 1994 net
interest margin, versus third quarter 1993.
Decreased levels of nonperforming assets in the third quarter of 1994 had a
favorable impact on the net interest margin of approximately four basis
points when compared to third quarter results for 1993. This was offset by a
17 basis point decline in the favorable impact on the net interest margin,
for the same time period, arising from off-balance sheet hedge transactions.
The extent to which Crestar will be able to maintain the net interest margin
is significantly influenced by the economic environment in our markets and
the economic policy of the Federal Reserve Board, in addition to competitive
market conditions for both loans and deposits.
As a result of the increase in the net interest margin and an eight percent
increase in average earning assets, reported net interest income for third
quarter 1994 increased 10% over 1993, with tax-equivalent net interest income
also registering a 10% increase. For the first nine months, tax equivalent
net interest income increased 11% over 1993 as a result of a 10% increase in
average earning assets and a six basis point increase in net interest margin.
Factors contributing to the increased year-to-date margin include many of the
factors previously mentioned. Positive changes to the earning assets mix for
the year-to-date period had a favorable impact of 21 basis points, primarily
attributable to loan growth. Improvements in funding mix, led by higher
levels of core deposits, aided the year-to-date net interest margin by four
basis points. These positive factors helped to offset a 12 basis point
negative impact arising from changes in yields on earning assets and their
funding sources. For the first nine months of 1994, the yield on the
Crestar's loan portfolio was 8.39%, compared to 8.58% for the same period in
1993. During this same time period, average rates paid on total interest
bearing liabilities fell only three basis points. Maturities of high yielding
fixed rate securities contributed to the decline in earning asset yields in
the first nine months of 1994. Reduced nonperforming assets had a favorable
impact of five basis points on Crestar's year-to-date net interest margin,
while declining levels of favorable off-balance sheet hedge transactions had
a negative impact of 12 basis points.
Risk Exposures And Credit Quality
(Tables 4-10)
In addition to other loan categories, Crestar closely manages its portfolio
of loans to real estate developers and investors (REDI). Table 5 shows the
property type and geographic diversification of the current REDI loan
portfolio. The REDI portfolio was the primary source of weaker credit quality
for the recessionary period from 1990 into 1993. As detailed in Table 4,
despite additions to REDI loans caused by acquisitions of financial
institutions, REDI outstandings declined to $1.1 billion or 13% of total
loans at September 30, 1994 compared with $1.2
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billion or 17% of total loans at September 30, 1993. REDI nonperforming
assets were $56.4 million at September 30, 1994, compared to $79.8 million
at September 30, 1993.
Continued improvement in credit quality throughout the entire portfolio was
evident in third quarter 1994 levels of provision for loan losses,
charge-offs and nonperforming assets. The provision for loan losses of $8.1
million for third quarter 1994 declined 41% from the $13.8 million provision
for third quarter 1993. Nine month year-to-date provision expense was down
24%, from $35.3 million in 1993 to $27.0 million in 1994. Net charge-offs of
$8.9 million for third quarter 1994 declined 36% from 1993. For the first
nine months of 1994, net charge-offs were down 44% to $27.7 million. With
improvements in commercial and REDI loan net charge-off levels, the largest
proportion of net charge-offs during 1994 has occurred in the bank card loan
portfolio. For the three and nine month periods ended September 30, 1994, net
charge-offs for bank card loans were $6.0 million and $16.3 million,
respectively. Net charge-offs for bank card loans for the three and nine
month periods ended September 30, 1993 were $4.0 million and $12.3 million,
respectively. This increase in bank card net charge-offs is attributable to
growth in the bank card loan portfolio, as bank card net charge-offs as a
percentage of bank card average balances have improved during 1994. For the
nine months ended September 30, 1994, the annualized ratio of bank card net
charge-offs to bank card loan average balances was 2.02%; the ratio for the
comparable period of 1993 was 2.53%. Current expectations are that net
charge-offs for the full year of 1994 will be less than in 1993.
The allowance for loan losses was $226 million at September 30, 1994,
representing 2.61% of period-end loans. Based on portfolio characteristics
and market conditions, management considers the level of the allowance
adequate.
Total nonperforming assets of $87 million at September 30, 1994 declined 36%
from the $135 million reported at September 30, 1993, and were down $16
million or 15% from June 30, 1994. During the first nine months of 1994,
nonperforming assets of $34 million were acquired through merger activity.
Tables 9 and 10 provide details of how nonperforming loans and foreclosed
properties have changed on a quarterly basis since third quarter 1993.
Barring merger activity or an unexpected deterioration in the economy and in
the Corporation's real estate markets, total nonperforming assets are
expected to decrease during the remainder of 1994.
Potential problem loans consist of loans that are currently performing in
accordance with contractual terms but for which potential operating or
financial concerns have caused management to have serious doubts regarding
the ability of such obligors to continue to comply with present repayment
terms. At September 30, 1994, potential problem loans, not included in Table
8, amounted to approximately $144 million compared with $224 million at
September 30, 1993 and $205 million at December 31, 1993.
Noninterest Income And Expense
(Table 11)
Noninterest income totaled $65.4 million in third quarter 1994, a $4.0
million or 7% increase over third quarter 1993. For the first nine months of
1994, noninterest income of $197.0 million increased 7% over 1993 results.
Excluding securities gains (losses), noninterest income increased 6% in the
third quarter of 1994, and 9% in the first nine months of 1994, when compared
to prior year results. Both the quarter and year-to-date increases reflect
growth in bank card-related fee income, mortgage servicing income and
servicing sales, and service charges on deposit accounts, partially offset by
a decline in trading account activities and price competition in trust and
investment advisory services.
Noninterest expense for the third quarter increased 8%, or $11.0 million,
when compared to third quarter 1993 results. For the nine months ended
September 30, noninterest expense for 1994 was up 6% in comparison to 1993.
These results include a dramatic decline in Crestar's foreclosed properties
expense in the current year, reflecting an improved credit environment in
Crestar's market area. Excluding foreclosed properties expense, noninterest
expense increased 12% in third quarter 1994 and 14% in the first nine months
of 1994, largely due to acquisition expenses and costs incurred in servicing
and fee-based businesses such as mortgage, bank card, investment banking and
sales, and trust and investment advisory services. For the year-to-date
period ended September 30, 1994, noninterest expense excluding foreclosed
property expenses increased $52.3 million over the same period of 1993.
Expenses attributable to acquisitions completed during the first nine months
of 1994 were approximately $16.9 million, representing 32% of this increase.
Expense increases in the mortgage, bank card, trust and investment advisory,
and investment banking and sales groups amounted to approximately $19.1
million year-to-date, as Crestar continues its emphasis on expanding its
sources of noninterest income. Employee benefits expense increased $3.6
million for the quarter and $11.3 million year-to-date, primarily due to the
aforementioned acquisition activity, adoption of Statement on Financial
Accounting Standards No. 112 (postemployment benefits), and to employee
benefits that are tied to earnings.
Foreclosed properties expense for third quarter 1994 and the first nine
months declined $3.8 million or 82% and $30.2 million or 95%, respectively,
from 1993. Foreclosed properties, net of reserves, were $23.6 million at
September 30, 1994, versus $34.7 million at September 30, 1993.
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The effective tax rate for third quarter 1994 and the first nine months was
34.4% and 33.3%, respectively, compared to 31.3% and 30.1% for the same
periods of 1993. Both the quarterly and year-to-date increase in the
effective tax rate are primarily attributable to reduced proportions of
tax-exempt interest and dividends, higher provisions for state income taxes,
and a favorable deferred tax adjustment, recorded in the third quarter of
1993, reflecting an increase in net deferred tax assets due to provisions of
the Omnibus Budget Reconciliation Act of 1993. Financial statement note 11
contains additional information concerning income taxes.
Financial Condition
(Table 12)
Crestar's assets totaled $14.5 billion at September 30, 1994, up 9% from
$13.3 billion at December 31, 1993 primarily due to acquisitions completed
during 1994. Loans net of unearned income increased $1.4 billion or 19%
during this period, reflecting growth from a combination of acquisitions and
internally generated lending. Total deposits increased $0.8 billion or 8%
over December 31, 1993 balances, reflecting the impact of Crestar's
acquisitions during the first nine months of 1994. Average loan balances for
third quarter 1994 increased $1.5 billion, or 21%, over third quarter 1993
balances. Of this increase, approximately $0.8 billion was attributable to
acquisitions completed during 1994. Similarly, average deposits for third
quarter 1994 increased $1.2 billion, or 12%, over the same period of 1993.
Acquisitions during 1994 contributed approximately $0.9 billion to this
average total deposit growth.
With respect to the securities held to maturity portfolio, carrying value
exceeded the market value at September 30, 1994 by $28.8 million, consisting
of $2.9 million in unrealized gains and $31.7 million in unrealized losses.
At September 30, 1994, the amortized cost of securities available for sale
exceeded the fair value of such securities by $48.2 million, consisting of
$3.9 million in unrealized gains and $52.1 million in unrealized losses. On
January 1, 1994, Crestar adopted Statement of Financial Accounting Standards
Board No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115). Upon adoption of SFAS 115, certain investment
securities totaling $1.2 billion were reclassified from investment securities
to securities available for sale.
Shareholders' equity at September 30, 1994 reflects a $30.8 million reduction
for the excess, net of tax, of amortized cost of securities available for
sale over the fair value at quarter-end, as prescribed by SFAS 115. The net
unrealized gain or loss of securities available for sale, which is recorded
as a component of shareholders' equity, will continue to be subject to change
in future periods due to fluctuations in market value, acquisition
activities, and sales, purchases, maturities and calls of securities
classified as available for sale.
Crestar purchased and retired 214,700 shares of common stock during third
quarter 1994, to meet the needs of employee benefit plans, dividend
reinvestment plans, and for shares expected to be issued for pending
acquisitions. For the nine month period ended September 30, 1994, 684,400
shares of common stock have been purchased and retired, at an average price
of $44.55.
Debt ratings are presented in Table 12. In October 1994, Standard & Poor's
raised its rating on Crestar's subordinated notes from BBB to BBB+. In its
announcement, Standard & Poor's cited Crestar's strong financial condition,
a continuing trend of profitability, strong market position and a logical and
prudent acquisition strategy as reasons for the rating upgrade.
Liquidity And Interest Sensitivity
(Table 13)
Bank liquidity is a measure of the ability to generate and maintain
sufficient cash flows to fund operations and to meet financial obligations to
depositors and borrowers promptly and in a cost-effective manner. Liquidity
is provided through securities available for sale, money market investments,
maturing loans and investments, and the ability to generate new deposits or
borrowings as needed.
Core deposits provide a typically stable source of liquidity.
Interest-bearing core deposits represented 83% of total funding sources at
September 30, 1994. As an additional indication of strong liquidity, money
market investments represented 10%, and securities available for sale
represented 14%, of Crestar's total earning assets at September 30, 1994.
Interest sensitivity refers to the volatility of net interest income as a
result of changes in interest rates. Crestar's goal is to limit interest rate
exposure to prudent levels as determined by the Corporation's Asset/Liability
Management Committee (ALCO). ALCO establishes limits on the earnings at risk
for a twenty-four month period. The level of exposure taken is based on an
assessment of the market environment, and will vary from period to period.
The primary tool used by ALCO in assessing interest rate exposure is net
interest income simulations. A two year net interest income estimate is
prepared regularly using a "most likely," high and low interest rate
scenario. The high and low rate scenarios are based upon an assessment of the
historic volatility of interest rates. The expected dynamics of the balance
sheet, including shifts in loans and deposits, are included in the
simulations. By its nature, this simulation process includes numerous
assumptions, for both long-term and short-term timeframes, including
assumptions on average balances and yields. Many of these assumptions are
both qualitative and subjective. The high rate and low rate estimates
generated by this process are then compared to the
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"most likely" scenario. Crestar's current projection of pre-tax earnings at
risk, as a percentage of the next twenty-four month's net interest income
under a "most likely" scenario, is 0.9% for a high interest rate scenario and
3.6% for a falling interest rate scenario. This earnings at risk percentage
does not consider discretionary actions, including hedging activity, that may
be entered into to manage future earnings volatility.
A second interest sensitivity tool is the quantification of market value
changes for all assets and liabilities given an increase or decrease in
interest rates. This approach provides a longer term view of interest rate
risk, capturing predominantly all expected future cash flows. Assets and
liabilities with option characteristics are valued based on numerous interest
rate path valuations using Monte Carlo rate simulation techniques. The
banking industry and its regulators are moving toward a market value method
of interest sensitivity assessment. Crestar has been developing this tool and
is incorporating it as another component of interest rate risk management to
supplement the results achieved through net interest income simulation.
Another interest rate risk tool used by Crestar is the interest rate "gap,"
or mismatch in repricing between interest-sensitive assets and liabilities,
which provides a general indication of interest sensitivity at a specific
point in time. A gap schedule is shown in Table 13, and reflects the earlier
of the maturity or repricing date for various assets and liabilities at
September 30, 1994. Financial statement note 14 contains additional
information about certain off-balance sheet arrangements that may affect
future net interest income and interest rate sensitivity. On a cumulative
six-month basis, Crestar had a liability sensitive "static gap" at September
30, 1994 with $3.3 billion excess of interest-sensitive sources of funds over
uses of funds. In addition to the traditional "static gap" presentation, the
table also presents interest sensitivity on an adjusted basis. The first of
these adjustments is made through the use of beta factors, which are based on
a ratio of actual changes in consumer deposit rates to changes in the prime
rate during interest rate cycles for the last several years. Essentially, the
beta factors recognize that certain consumer deposit rates are less
interest-sensitive than market-based rates such as commercial paper. In
addition to a beta adjustment, the table also incorporates an adjustment to
reflect the sensitivity of much of the Corporation's commercial demand
deposit balances to the level of interest rates. On a cumulative six-month
basis, Crestar had a liability sensitive "adjusted gap" at September 30,
1994, with $645 million excess of interest-sensitive sources of funds over
uses of funds. The static gap and adjusted gap do not include $200 million in
interest rate floors which Crestar has added to potentially offset the effect
that falling interest rates would have on $200 million of variable rate
loans.
Each of the above three tools used to assess risk have strengths and
weaknesses. While Crestar believes that the above methodologies provide a
meaningful representation of the Corporation's interest rate sensitivity, the
methodologies do not necessarily take into account all business developments
which can have an impact on net interest income, such as changes in credit
quality or changes in the amount and composition of earning assets and
sources of funds.
As noted, Crestar entails a degree of interest rate risk as a provider of
banking services to its customers. This risk can be reduced through
derivative interest rate contracts, such as interest rate swaps, caps and
floors. The majority of Crestar's notional value of outstanding derivative
instruments at September 30, 1994 are utilized to convert certain variable
rate assets to fixed rates in order to lock in a profitable interest spread
based on the underlying fixed rate funding sources. Footnote 14 of the
financial statements provides additional information regarding Crestar's
outstanding derivative contracts as of September 30, 1994, including notional
balances and fair value information.
The notional amount of derivative contracts does not represent direct credit
exposure. Crestar's direct credit exposure is generally limited to the
estimated replacement cost of those instruments in a gain position. Crestar
has established policies governing derivative activities, and may demand
collateral from a counterparty to further minimize credit risk.
Counterparties used by Crestar are considered high quality credits. There
were no past due amounts or reserves for possible derivative credit losses at
September 30, 1994, nor has Crestar ever experienced any charge-offs related
to derivative transactions. No interest rate swaps, floors or caps used as
hedges against interest rate risk were sold or terminated prior to maturity
during the past 12 months, and at September 30, 1994 there were no deferred
gains or losses arising from termination of hedged transactions prior to
maturity.
Other New Accounting Standards
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan," (SFAS 114), as amended, will become effective for
fiscal years beginning after December 15, 1994. This accounting standard
requires that impaired loans within the scope of the statement be measured
and reported on the basis of the present value of expected cash flows
discounted at the loan's effective interest rate. Crestar currently believes
that the future impact on results of operations and financial position of
adopting SFAS 114 will be immaterial.
Financial statement note 15 contains additional information concerning
adoption of new accounting standards.
19
<PAGE>
Table 1 Financial Highlights
<TABLE>
Dollars in millions, except per share data Three Months Nine Months
% %
For the Period Ended September 30 1994 1993 Change 1994 1993 Change
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 43.6 $ 37.2 17 $ 126.7 $ 101.8 25
Income Applicable to Common Shares 43.6 36.5 19 126.7 99.9 27
Dividends Declared on Common Stock 15.1 10.6 42 42.5 29.8 43
Primary Earnings Per Share:
Net Income $ 1.15 $ 0.96 20 $ 3.34 $ 2.67 25
Average Shares Outstanding (000s) 38,063 38,154 - 37,933 37,429 1
Dividends Declared Per Share:
Common Stock $ 0.40 $ 0.28 43 $ 1.13 $ 0.81 40
Preferred Stock, Series B - .69 (100) - 2.06 (100)
Key Ratios
Return on Average Assets 1.26% 1.15% 1.24% 1.09%
Return on Average Total Equity 15.70 13.84 15.44 13.29
Return on Average Common Equity 15.70 14.20 15.44 13.65
Average Equity to Average Assets 8.02 8.34 8.04 8.19
Net Interest Margin 4.82 4.77 4.81 4.75
At September 30
Equity to Assets 7.73% 8.43%
Risk Adjusted Capital Ratios:
Tier I 9.6 10.5
Total 12.2 13.5
Book Value Per Share $ 29.70 $ 27.77
</TABLE>
Table 2 Analysis Of Primary Earnings Per Share
<TABLE>
3rd Qtr. 1994 3rd Qtr. 1994
vs. vs.
3rd Qtr. 1993 2nd Qtr. 1994
<S> <C> <C>
Earnings Per Share - prior period $ 0.96 $ 1.12
Interest income 0.45 0.19
Interest expense (0.22) (0.11)
Provision for loan losses 0.10 0.01
Securities gains or losses 0.01 -
Other noninterest income 0.06 (0.05)
Foreclosed properties expense 0.06 -
Other noninterest expense (0.25) 0.01
Income taxes (0.04) (0.02)
Preferred dividends 0.02 -
Increased shares outstanding - -
Net increase 0.19 0.03
Earnings Per Share - current period $ 1.15 $ 1.15
</TABLE>
20
<PAGE>
Table 3 Average Balances, Net Interest Income And Rate/Volume Analysis/1/
<TABLE>
Dollars in thousands
3rd Qtr. 2nd Qtr.
Average
Average Balance Increase Balance
1994 1993 (Decrease) 1994
$ $ % $
<S> <C> <C> <C> <C>
2,626,261 2,411,370 9 2,564,103 Commercial loans
212,873 256,362 (17) 217,577 Tax-exempt loans
1,730,946 1,487,257 16 1,700,077 Instalment loans
1,179,880 742,455 59 1,075,560 Bank card loans
2,545,952 1,889,454 35 2,464,921 Real estate loans
225,788 246,867 (9) 225,441 Construction loans
912 60 200+ 379 Foreign loans
8,522,612 7,033,825 21 8,248,058 Total loans - net of unearned income /2/
961,378 1,984,911 (52) 953,249 Securities held to maturity
1,949,879 1,684,128 16 2,129,177 Securities available for sale
780,606 464,317 68 680,182 Money market investments
268,309 394,267 (32) 308,872 Mortgage loans held for sale
12,482,784 11,561,448 8 12,319,538 Total earning assets
1,876,726 1,660,781 13 1,893,459 Interest checking deposits
2,410,600 2,315,236 4 2,409,660 Money market deposit accounts
1,486,232 1,178,703 26 1,446,340 Regular savings deposits
654,110 575,500 14 690,701 Money market certificates
2,550,105 2,173,735 17 2,572,655 Other domestic time deposits
8,977,773 7,903,955 14 9,012,815 Total interest-bearing core deposits
1,252,181 1,523,665 (18) 1,061,155 Purchased liabilities
220,584 223,981 (2) 220,094 Long-term debt
10,450,538 9,651,601 8 10,294,064 Total interest-bearing liabilities
2,032,246 1,909,847 6 2,025,474 Other sources - net
12,482,784 11,561,448 8 12,319,538 Total sources of funds
Net Interest Income
</TABLE>
21
<PAGE>
<TABLE>
3rd Quarter
1994 vs. 1993 2nd Qtr.
Income/
Income/Expense/3/ Increase Change due to/4/ Expense/3/
1994 1993 (Decrease) Rate/5/ Volume 1994
<S> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $
Commercial loans 52,156 45,950 6,206 2,129 4,077 48,983
Tax-exempt loans 5,339 5,550 (211) 727 (938) 5,084
Instalment loans 37,135 32,284 4,851 (427) 5,278 34,235
Bank card loans 35,034 24,467 10,567 (3,895) 14,462 32,547
Real estate loans 48,427 36,369 12,058 (495) 12,553 45,805
Construction loans 4,907 4,347 560 925 (365) 4,448
Foreign loans 8 - 8 8 - 3
Total loans - net of unearned income/2/ 183,006 148,967 34,039 2,615 31,424 171,105
Securities held to maturity 13,609 33,922 (20,313) (2,821) (17,492) 16,977
Securities available for sale 31,352 22,299 9,053 5,534 3,519 30,869
Money market investments 9,058 4,449 4,609 1,579 3,030 6,706
Mortgage loans held for sale 5,197 6,555 (1,358) 736 (2,094) 5,453
Total earning assets 242,222 216,192 26,030 8,842 17,188 231,110
Interest checking deposits 10,544 9,628 916 (336) 1,252 10,405
Money market deposit accounts 17,966 14,631 3,335 2,732 603 15,622
Regular savings deposits 10,177 8,299 1,878 (287) 2,165 9,393
Money market certificates 5,265 4,262 1,003 421 582 5,499
Other domestic time deposits 27,836 24,667 3,169 (926) 4,095 27,907
Total interest-bearing core deposits 71,788 61,487 10,301 1,908 8,393 68,826
Purchased liabilities 13,930 11,500 2,430 4,474 (2,044) 9,952
Long-term debt 4,484 4,486 (2) 66 (68) 4,665
Total interest-bearing liabilities 90,202 77,473 12,729 6,294 6,435 83,443
Other sources - net
Total sources of funds 90,202 77,473 12,729 6,534 6,195 83,443
Net Interest Income 152,020 138,719 13,301 2,308 10,993 147,667
</TABLE>
<TABLE>
3rd Qtr. 1994 vs. 2nd Qtr. 1994
Increase Change due to/4/
(Decrease) Rate/5/ Volume
<S> <C> <C> <C>
$ $ $
Commercial loans 3,171 2,001 1,170
Tax-exempt loans 255 365 (110)
Instalment loans 2,900 2,268 632
Bank card loans 2,487 (601) 3,088
Real estate loans 2,623 1,127 1,496
Construction loans 459 452 7
Foreign loans 6 2 4
Total loans - net of unearned income/2/ 11,901 6,244 5,657
Securities held to maturity (3,368) (3,501) 133
Securities available for sale 483 3,168 (2,685)
Money market investments 2,352 1,362 990
Mortgage loans held for sale (256) 460 (716)
Total earning assets 11,112 8,070 3,042
Interest checking deposits 139 231 (92)
Money market deposit accounts 2,344 2,338 6
Regular savings deposits 784 525 259
Money market certificates (236) 55 (291)
Other domestic time deposits (69) 189 (258)
Total interest-bearing core deposits 2,962 3,231 (269)
Purchased liabilities 3,978 2,179 1,799
Long-term debt (181) (191) 10
Total interest-bearing liabilities 6,759 5,485 1,274
Other sources - net
Total sources of funds 6,759 5,649 1,110
Net Interest Income 4,353 2,421 1,932
/1/ Tax-equivalent basis
/2/ Nonaccrual loans are included in the average loan balances and income on such
loans is recognized on a cash basis
/3/ Includes tax-equivalent loan fees of $2.2 million and $1.9 million for the
third quarter of 1994 and 1993, respectively, and $2.1 million for the second
quarter of 1994.
/4/ Variances are computed on a line-by-line basis and are non-additive
/5/ Variances caused by the change in rate times the change in balances are
allocated to rate
</TABLE>
22
<PAGE>
Table 4 Loans To Real Estate Developers And Investors (REDI)
<TABLE>
In millions
September 30, June 30, December 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Commercial - developer lines $ 98.5 $ 95.9 $ 87.5 $ 101.1
Tax-exempt:
Construction 0.1 0.2 0.2 0.2
Income property mortgage 77.2 86.8 75.7 82.0
Real estate mortgage - income property 761.4 799.6 784.8 769.0
Construction 190.6 201.2 200.6 191.0
Total REDI loans $1,127.8 $1,183.7 $1,148.8 $1,143.3
</TABLE>
Table 5 Loans To Real Estate Developers And Investors-
Geographic Distribution And Property Type
<TABLE>
September 30, 1994
In millions
Region
Total Greater
Corporation Washington Eastern Western Capital
<S> <C> <C> <C> <C> <C>
Land acquisition and development $ 109.6 $ 66.9 $ 31.7 $ 4.4 $ 6.6
Residential developments 260.5 133.9 77.2 40.7 8.7
Commercial projects:
Office buildings 155.1 95.0 31.6 10.6 17.9
Retail stores and malls 206.2 147.9 42.6 8.2 7.5
Hotels and motels 94.6 46.3 34.0 14.3 -
Industrial buildings 151.8 105.1 18.5 4.6 23.6
Total commercial projects 607.7 394.3 126.7 37.7 49.0
Special use 57.5 24.4 12.4 18.7 2.0
Other 92.5 63.4 15.8 1.7 11.6
Total REDI loans $1,127.8 $682.9 $263.8 $103.2 $77.9
</TABLE>
Table 6 Real Estate Loans
<TABLE>
In millions
September 30, June 30, December 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Residential $1,758.9 $1,045.7 $1,743.0 $ 944.9
Income property 761.4 799.6 784.8 769.0
Total real estate loans $2,520.3 $1,845.3 $2,527.8 $1,713.9
</TABLE>
23
<PAGE>
Table 7 Allowance For Loan Losses
<TABLE>
Dollars in thousands
Third Quarter Nine Months Ended June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Beginning balance $226,666 $212,981 $210,958 $205,017
Allowance from acquisitions - net (21) - 15,687 22,000
Provision for loan losses 8,100 13,769 26,982 35,275
Net charge-offs (recoveries):
Commercial 769 4,796 3,991 17,375
Instalment 1,138 878 2,774 3,225
Bank card 5,990 3,965 16,272 12,289
Real estate 2,489 4,917 7,025 13,370
Construction (1,529) (765) (2,297) 3,101
Foreign (2) (23) (28) (50)
Total net charge-offs 8,855 13,768 27,737 49,310
Balance, September 30 $225,890 $212,982 $225,890 $212,982
Allowance for loan losses to period-end loans 2.61% 3.02% 2.61% 3.02%
Annualized net charge-offs to average loans .42 .78 .46 .97
</TABLE>
Table 8 Nonperforming Assets And Past Due Loans
<TABLE>
Dollars in thousands
September 30, December 31,
1994 1993 1993
<S> <C> <C> <C>
Nonaccrual loans:
Commercial $26,224 $ 60,639 $37,788
Instalment 2,787 1,201 902
Real estate 30,255 27,282 33,548
Construction 3,668 10,913 5,843
Total nonaccrual loans 62,934 100,035 78,081
Restructured loans - 34 1,733
Total nonperforming loans 62,934 100,069 79,814
Foreclosed properties - net 23,644 34,699 16,951
Total nonperforming assets $86,578 $134,768 $96,765
Past due loans:
Commercial $ 2,204 $ 4,467 $ 2,089
Instalment:
Student 11,092 7,457 7,879
Other 1,160 985 1,049
Bank card 8,486 5,607 6,216
Real estate 9,438 8,186 7,758
Construction 133 197 197
Total past due loans $32,513 $ 26,899 $25,188
Nonperforming assets to:
Loans and foreclosed properties - net 1.00% 1.90% 1.32%
Total assets 0.60 1.04 0.73
Allowance for loan losses to:
Nonperforming assets 261 158 218
Nonperforming loans 359 213 264
Allowance for loan losses plus shareholders'
equity to nonperforming assets 15.51x 9.70x 13.16x
</TABLE>
24
<PAGE>
Table 9 Nonperforming Loans - Quarterly Activity
<TABLE>
In millions
Three Months Ended
1994 1993
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
<S> <C> <C> <C> <C> <C>
Beginning balance $ 77.4 $ 89.5 $ 79.8 $100.1 $117.8
Acquisition additions - 4.0 8.1 - -
Other additions 20.9 19.2 27.4 24.7 11.7
Payments, sales and reductions (18.9) (22.1) (15.0) (22.8) (15.8)
Charge-offs (4.8) (6.6) (7.1) (7.6) (9.5)
Reinstatements to accrual status (5.5) (4.1) (2.7) (10.3) (2.8)
Transfers to foreclosed properties (6.2) (2.5) (1.0) (4.3) (1.3)
Net increase (decrease) (14.5) (12.1) 9.7 (20.3) (17.7)
Ending balance $ 62.9 $ 77.4 $ 89.5 $ 79.8 $100.1
</TABLE>
Table 10 Foreclosed Properties - Quarterly Activity
<TABLE>
In millions
Three Months Ended
1994 1993
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
<S> <C> <C> <C> <C> <C>
Beginning balance $ 25.0 $ 24.5 $ 17.0 $ 34.7 $ 45.0
Acquisition additions - net - 6.1 15.8 - -
Additions 7.4 2.7 3.8 4.3 3.4
Market write-downs (0.1) (0.2) - (4.9) (1.5)
Reductions (7.7) (8.1) (13.4) (18.2) (12.2)
Provision for losses (1.0) - 1.3 1.1 -
Net increase (decrease) (1.4) 0.5 7.5 (17.7) (10.3)
Ending balance $ 23.6 $ 25.0 $ 24.5 $ 17.0 $ 34.7
</TABLE>
25
<PAGE>
Table 11 Summary Of Noninterest Income And Expense
<TABLE>
In thousands
Second Nine Months Ended
Third Quarter Quarter September 30,
1994 1993 1994 1994 1993
<S> <C> <C> <C> <C> <C>
Noninterest Income
Trust and investment advisory $ 13,244 $ 14,172 $ 14,441 $ 42,688 $ 43,439
Service charges on deposit accounts 20,640 20,062 21,116 62,535 59,802
Bank card-related 10,321 7,140 9,247 27,296 19,329
Trading account activities 49 952 302 444 3,705
Mortgage servicing 4,846 3,736 5,102 14,748 11,352
Mortgage origination - net 1,140 5,574 1,921 7,108 13,862
Gain on sale of mortgage servicing rights 4,800 - 6,230 14,132 2,300
Commissions on letters of credit 874 3,170 1,352 3,624 5,622
Miscellaneous 9,463 6,933 8,481 26,167 22,951
Securities gains (losses) 12 (385) (49) (1,755) 2,237
Total noninterest income $ 65,389 $ 61,354 $ 68,143 $196,987 $184,599
Noninterest Expense
Salaries $ 62,655 $ 55,039 $ 60,735 $182,580 $159,328
Benefits 14,976 11,358 15,257 45,840 34,550
Total personnel costs 77,631 66,397 75,992 228,420 193,878
Occupancy - net 11,098 10,124 10,061 31,953 28,511
Equipment 6,370 6,232 6,069 18,367 18,428
Communications 6,670 5,347 6,086 18,767 15,397
Stationery, printing and supplies 2,023 1,722 2,251 6,118 5,151
Professional fees and services 2,743 2,840 3,318 8,550 9,774
Loan expense 1,943 1,920 2,876 7,567 6,424
FDIC premiums 6,429 5,344 6,402 18,716 17,482
Advertising and marketing 6,199 3,721 4,623 14,680 10,453
Transportation 1,489 1,376 1,451 4,368 4,009
Outside data services 4,670 3,926 4,729 13,859 10,535
Amortization of purchased intangibles 1,399 5,682 5,092 11,320 14,716
Miscellaneous 10,582 9,873 10,899 30,411 26,027
Subtotal 139,246 124,504 139,849 413,096 360,785
Foreclosed properties 858 4,644 884 1,751 31,994
Total noninterest expense $140,104 $129,148 $140,733 $414,847 $392,779
</TABLE>
Table 12 Debt Ratings
(as of October 25, 1994)
<TABLE>
Standard Thomson
Security Moody's & Poor's Bankwatch
<S> <C> <C> <C>
8 1/4% Subordinated Notes due 2002 Baa1 BBB+ BBB+
8 5/8% Subordinated Notes due 1998 Baa1 BBB+ BBB+
Commercial Paper P-2 Not rated TBW-1
Crestar Bank Deposit Notes:
Long-Term A2 A Not rated
Short-Term P-1 A-1 TBW-1
</TABLE>
26
<PAGE>
Table 13 Interest Sensitivity Analysis
<TABLE>
September 30, 1994
In millions
Maturity/Rate Sensitivity
within 2-3 4-6 7-12 over
one month months months months one year Total
<S> <C> <C> <C> <C> <C> <C>
Uses of Funds
Loans:
Commercial $ 2,045.2 $ 35.2 $ 56.9 $ 60.1 $ 511.3 $ 2,708.7
Tax-exempt 156.5 3.5 1.5 2.7 43.6 207.8
Instalment 509.5 67.8 94.9 471.8 620.0 1,764.0
Bank card 221.7 79.0 103.9 189.6 629.9 1,224.1
Real estate 544.6 277.2 277.3 563.9 857.3 2,520.3
Foreign 1.3 - - - - 1.3
Construction 179.8 12.5 0.9 4.2 24.2 221.6
Securities held to maturity 25.4 24.4 26.1 94.0 774.7 944.6
Securities available for sale 256.0 56.2 98.3 195.8 1,259.9 1,866.2
Money market investments 1,322.4 5.0 0.1 - - 1,327.5
Mortgage loans held for sale 334.3 - - - - 334.3
Total earning assets 5,596.7 560.8 659.9 1,582.1 4,720.9 13,120.4
Interest sensitivity hedges on assets (861.9) (346.9) 50.7 35.4 1,122.7 -
Total uses $ 4,734.8 $ 213.9 $ 710.6 $ 1,617.5 $5,843.6 $13,120.4
Sources of funds
Interest checking deposits $ 1,865.8 $ - $ - $ - $ - $ 1,865.8
Money market deposit accounts 2,367.6 - - - - 2,367.6
Regular savings deposits 1,460.4 - - - - 1,460.4
Money market certificates and
other domestic time deposits 355.9 338.7 638.2 832.1 943.8 3,108.7
Certificates of deposit $100,000
and over 28.0 15.1 8.5 8.6 7.2 67.4
Short-term borrowings 1,904.9 0.1 - - - 1,905.0
Long-term debt - 0.3 0.3 10.7 207.3 218.6
Total interest-bearing liabilities 7,982.6 354.2 647.0 851.4 1,158.3 10,993.5
Other sources - net - - - - 2,126.9 2,126.9
Total sources $ 7,982.6 $ 354.2 $ 647.0 $ 851.4 $3,285.2 $13,120.4
Cumulative maturity/rate
sensitivity gap $(3,247.8) $(3,388.1) $(3,324.5) $(2,558.4) $ - $ -
Adjustments
Beta adjustments:
Interest checking (beta factor .21) $ 1,474.0
Money market accounts
(beta factor .57) 1,018.1
Regular savings (beta factor .13) 1,270.5
Demand deposit sensitivity (1,083.2)
Cumulative adjusted maturity/rate
sensitivity gap $ (568.4) $ (708.7) $ (645.1) $ 121.0 $ - $ -
</TABLE>
27
<PAGE>
Table 14 Selected Quarterly Financial Information
<TABLE>
Dollars in thousands, except per share data
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1994 1994 1994 1993 1993
<S> <C> <C> <C> <C> <C>
Results of operations:
Net interest income/1/ $152,020 $147,667 $143,367 $140,845 $138,719
Provision for loan losses 8,100 8,850 10,032 13,500 13,769
Net credit income 143,920 138,817 133,335 127,345 124,950
Securities gains (losses) 12 (49) (1,718) - (385)
Other noninterest income 65,377 68,192 65,173 63,666 61,739
Net credit and noninterest income 209,309 206,960 196,790 191,011 186,304
Noninterest expense 140,104 140,733 134,010 130,243 129,148
Income before taxes 69,205 66,227 62,780 60,768 57,156
Tax-equivalent adjustment 2,742 2,738 2,701 2,886 3,073
Book tax expense 22,859 20,881 19,597 19,148 16,930
Income tax expense 25,601 23,619 22,298 22,034 20,003
Net Income 43,604 42,608 40,482 38,734 37,153
Preferred dividend requirements - - - 365 618
Income applicable to common shares $ 43,604 $ 42,608 $ 40,482 $ 38,369 $ 36,535
Earnings per share:
Primary:
Net income $ 1.15 $ 1.12 $ 1.07 $ 1.01 $ 0.96
Average shares outstanding (000s) 38,063 37,930 37,835 38,063 38,154
Fully diluted:
Net income $ 1.15 $ 1.12 $ 1.07 $ 1.00 $ 0.96
Average shares outstanding (000s) 38,063 37,931 37,849 38,088 38,174
Dividends declared per common share $ 0.40 $ 0.40 $ 0.33 $ 0.33 $ 0.28
Selected ratios and other data:
Return on average assets 1.26% 1.25% 1.22% 1.20% 1.15%
Return on average total equity 15.70 15.79 14.83 14.19 13.84
Return on average common equity 15.70 15.79 14.83 14.60 14.20
Net interest margin/1/ 4.82 4.76 4.78 4.77 4.77
Net charge-offs as % of average loans 0.42 0.43 0.53 0.87 0.78
Allowance as % of period-end loans 2.61 2.64 2.75 2.89 3.02
Overhead ratio 64.44 65.21 64.79 63.69 64.55
Average total equity to average assets 8.02 7.90 8.20 8.45 8.34
Equity leverage 12.47x 12.66x 12.19x 11.84x 11.99x
Full-time equivalent employees (period end) 6,817 6,868 6,733 6,279 6,179
</TABLE>
/1/ Tax-equivalent basis
28
<PAGE>
Table 15 Consolidated Average Balances/Net Interest Income/Rates/1/
<TABLE>
Three Months Ended September 30,
1994 1993
Dollars in thousands Income/ Yield/ Income/ Yield/
Balance Expense Rate Balance Expense Rate
$ $ % $ $ %
<S> <C> <C> <C> <C> <C> <C>
Assets
Securities held to maturity/2/ 961,378 13,609 5.66 1,984,911 33,922 6.84
Securities available for sale/2/ 1,949,879 31,352 6.38 1,684,128 22,299 5.25
Money market investments/2/ 780,606 9,058 4.60 464,317 4,449 3.80
Mortgage loans held for sale/2/ 268,309 5,197 7.75 394,267 6,555 6.65
Commercial loans 2,626,261 52,156 7.79 2,411,370 45,950 7.54
Tax-exempt loans 212,873 5,339 9.95 256,362 5,550 8.56
Instalment loans 1,730,946 37,135 8.55 1,487,257 32,284 8.66
Bank card loans 1,179,880 35,034 11.81 742,455 24,467 13.21
Real estate loans 2,545,952 48,427 7.55 1,889,454 36,369 7.63
Construction loans 225,788 4,907 8.61 246,867 4,347 6.91
Foreign loans 912 8 3.74 60 - -
Total loans - net of unearned/2,3/ 8,522,612 183,006 8.51 7,033,825 148,967 8.42
Allowance for loan losses (228,985) (218,198)
Loans - net 8,293,627 6,815,627
Cash and due from banks 708,356 698,852
Premises and equipment - net 323,292 300,728
Customers' liability on acceptances 5,132 14,282
Intangible assets - net 135,756 106,185
Foreclosed properties - net 22,311 42,958
Other assets 406,034 372,539
Total Assets 13,854,680 12,878,794
Total Earning Assets 12,482,784 242,222 7.69 11,561,448 216,192 7.44
Liabilities and Shareholders' Equity
Interest checking deposits 1,876,726 10,544 2.23 1,660,781 9,628 2.30
Money market deposit accounts 2,410,600 17,966 2.96 2,315,236 14,631 2.51
Regular savings deposits 1,486,232 10,177 2.72 1,178,703 8,299 2.79
Money market certificates 654,110 5,265 3.29 575,500 4,262 2.97
Other domestic time deposits 2,550,105 27,836 4.46 2,173,735 24,667 4.54
Certificates of deposit $100,000 and over 64,637 733 4.55 43,953 476 4.29
Deposits in foreign offices - - - 1,789 13 2.90
Total savings and time deposits/2/ 9,042,410 72,521 3.23 7,949,697 61,976 3.11
Demand deposits 2,082,957 1,954,477
Total deposits 11,125,367 9,904,174
Short-term borrowings/2/ 1,187,544 13,197 4.39 1,477,923 11,011 2.95
Long-term debt/2/ 220,584 4,484 8.13 223,981 4,486 8.01
Liability on acceptances 5,132 14,282
Other liabilities 204,941 184,300
Total liabilities 12,743,568 11,804,660
Preferred stock - 45,000
Common shareholders' equity 1,111,112 1,029,134
Total shareholders' equity 1,111,112 1,074,134
Total Liabilities and Shareholders' Equity 13,854,680 12,878,794
Total interest-bearing liabilities 10,450,538 90,202 3.43 9,651,601 77,473 3.19
Other sources - net 2,032,246 1,909,847
Total Sources of Funds 12,482,784 90,202 2.87 11,561,448 77,473 2.67
Net Interest Spread 4.26 4.25
Net Interest Income/Margin 152,020 4.82 138,719 4.77
</TABLE>
<TABLE>
29
<PAGE>
Three Months Ended June 30, Nine Months Ended September 30,
1994 1994
Dollars in thousands Income/ Yield/ Income/ Yield/
Balance Expense Rate Balance Expense Rate
$ $ % $ $ %
<S> <C> <C> <C> <C> <C> <C>
Assets
Securities held to maturity/2/ 953,249 16,977 7.02 815,964 41,578 6.78
Securities available for sale/2/ 2,129,177 30,869 5.82 2,338,997 102,470 5.86
Money market investments/2/ 680,182 6,706 3.95 644,374 19,890 4.13
Mortgage loans held for sale/2/ 308,872 5,453 7.06 347,530 18,074 6.93
Commercial loans 2,564,103 48,983 7.58 2,556,284 147,361 7.68
Tax-exempt loans 217,577 5,084 9.37 218,324 15,193 9.30
Instalment loans 1,700,077 34,235 8.16 1,686,001 105,262 8.34
Bank card loans 1,075,560 32,547 11.91 1,074,677 98,150 12.14
Real estate loans 2,464,921 45,805 7.43 2,355,699 131,762 7.45
Construction loans 225,441 4,448 7.90 224,055 13,311 7.94
Foreign loans 379 3 2.96 561 12 2.90
Total loans - net of unearned/2,3/ 8,248,058 171,105 8.27 8,115,601 511,051 8.39
Allowance for loan losses (230,687) (226,123)
Loans - net 8,017,371 7,889,478
Cash and due from banks 713,487 713,490
Premises and equipment - net 319,630 317,034
Customers' liability on acceptances 9,651 9,509
Intangible assets - net 147,382 129,876
Foreclosed properties - net 23,480 23,189
Other assets 362,053 382,044
Total Assets 13,664,534 13,611,485
Total Earning Assets 12,319,538 231,110 7.48 12,262,466 693,063 7.54
Liabilities and Shareholders' Equity
Interest checking deposits 1,893,459 10,405 2.20 1,862,880 30,690 2.20
Money market deposit accounts 2,409,660 15,622 2.60 2,374,481 47,337 2.67
Regular savings deposits 1,446,340 9,393 2.60 1,416,851 27,891 2.63
Money market certificates 690,701 5,499 3.25 642,632 15,060 3.18
Other domestic time deposits 2,572,655 27,907 4.40 2,476,394 80,651 4.41
Certificates of deposit $100,000 and over 52,594 572 4.37 54,791 1,780 4.35
Deposits in foreign offices - - - 471 11 3.08
Total savings and time deposits/2/ 9,065,409 69,398 3.10 8,828,500 203,420 3.10
Demand deposits 2,075,899 2,058,101
Total deposits 11,141,308 10,886,601
Short-term borrowings/2/ 1,008,561 9,380 3.74 1,206,399 33,190 3.68
Long-term debt/2/ 220,094 4,665 8.48 214,751 13,399 8.32
Liability on acceptances 9,423 9,509
Other liabilities 205,990 200,160
Total liabilities 12,585,376 12,517,420
Preferred stock - -
Common shareholders' equity 1,079,158 1,094,065
Total shareholders' equity 1,079,158 1,094,065
Total Liabilities and Shareholders' Equity 13,664,534 13,611,485
Total interest-bearing liabilities 10,294,064 83,443 3.26 10,249,650 250,009 3.26
Other sources - net 2,025,474 2,012,816
Total Sources of Funds 12,319,538 83,443 2.72 12,262,466 250,009 2.73
Net Interest Spread 4.22 4.28
Net Interest Income/Margin 147,667 4.76 443,054 4.81
</TABLE>
<TABLE>
Nine Months Ended September 30,
1993
Dollars in thousands Income/ Yield/
Balance Expense Rate
$ $ %
<S> <C> <C> <C>
Assets
Securities held to maturity/2/ 1,806,214 96,693 7.14
Securities available for sale/2/ 1,553,506 62,807 5.41
Money market investments/2/ 759,954 19,811 3.49
Mortgage loans held for sale/2/ 321,123 16,869 7.00
Commercial loans 2,462,420 140,696 7.63
Tax-exempt loans 268,875 17,246 8.57
Instalment loans 1,424,016 95,333 8.92
Bank card loans 647,662 67,457 13.86
Real estate loans 1,714,067 100,976 7.85
Construction loans 228,819 11,984 6.99
Foreign loans 43 14 42.04
Total loans - net of unearned/2,3/ 6,745,902 433,706 8.58
Allowance for loan losses (215,529)
Loans - net 6,530,373
Cash and due from banks 678,216
Premises and equipment - net 291,051
Customers' liability on acceptances 17,000
Intangible assets - net 93,612
Foreclosed properties - net 61,486
Other assets 359,605
Total Assets 12,472,140
Total Earning Assets 11,186,699 629,886 7.51
Liabilities and Shareholders' Equity
Interest checking deposits 1,593,173 28,434 2.39
Money market deposit accounts 2,286,016 44,585 2.61
Regular savings deposits 1,062,585 22,950 2.89
Money market certificates 578,707 13,797 3.18
Other domestic time deposits 2,132,682 73,383 4.59
Certificates of deposit $100,000 and over 44,695 1,528 4.57
Deposits in foreign offices 2,280 48 2.84
Total savings and time deposits/2/ 7,700,138 184,725 3.21
Demand deposits 1,872,790
Total deposits 9,572,928
Short-term borrowings/2/ 1,465,129 32,900 3.00
Long-term debt/2/ 223,764 13,494 8.04
Liability on acceptances 17,000
Other liabilities 172,453
Total liabilities 11,451,274
Preferred stock 45,000
Common shareholders' equity 975,866
Total shareholders' equity 1,020,866
Total Liabilities and Shareholders' Equity 12,472,140
Total interest-bearing liabilities 9,389,031 231,119 3.29
Other sources - net 1,797,668
Total Sources of Funds 11,186,699 231,119 2.76
Net Interest Spread 4.22
Net Interest Income/Margin 398,767 4.75
</TABLE>
/1/ Income and yields on a tax-equivalent basis computed using the statutory
federal income tax rate exclusive of the alternative minimum tax and
nondeductible interest expense
/2/ Indicates earning asset or interest-bearing liability
/3/ Nonaccrual loans are included in the average loan balances and income on
such loans is recognized on the cash basis
30
<PAGE>
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 thereunto duly authorized.
Crestar Financial Corporation
Registrant
Date November 14, 1994
\s\ James D. Barr
James D. Barr
Executive Vice President,
Controller and Treasurer
31
<PAGE>
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