<PAGE>
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 March 31, 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 April 30, 1994
- - -------------------------------------- --------------------------------------
Common Stock, $5 par value 37,517,231
1
<PAGE>
Crestar Financial Corporation And Subsidiaries
Form 10-Q
For The Quarter Ended March 31, 1994
Part I. Financial Information
<TABLE>
<CAPTION>
Item 1. Financial Statements:
Page
----
<S> <C>
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.................. 7-15
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations:
Financial Commentary....................................... 16-30
</TABLE>
Part II. Other Information
Item 6. Exhibits And Reports On Form 8-K:
There were no reports on Form 8-K filed during the three months ended
March 31, 1994.
2
<PAGE>
Consolidated Balance Sheets
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
Dollars in thousands March 31, December 31,
-------------------------------
Assets 1994 1993 1993
<S> <C> <C> <C>
Cash and due from banks $ 736,254 $ 614,568 $ 716,652
Securities held to maturity, market value $1,058,821 and
$1,794,909 at March 31, 1994 and 1993, respectively,
and $1,845,714 at December 31, 1993 (note 2) 1,065,347 1,762,079 1,824,617
Securities available for sale (note 3) 2,382,586 1,475,438 1,697,000
Money market investments (note 4) 846,486 1,143,844 650,633
Mortgage loans held for sale 417,360 222,051 591,233
Loans -- net of unearned income (note 5):
Commercial 2,646,475 2,448,228 2,608,069
Tax-exempt 220,656 275,291 230,852
Instalment 1,692,627 1,364,630 1,532,936
Bank card 991,811 564,126 976,200
Real estate 2,454,199 1,490,674 1,713,876
Construction 229,310 212,342 224,460
Foreign 164 20 729
- - ---------------------------------------------------------------------------------------------------------------------------
Loans -- net of unearned income of $2,324 and
$5,945 at March 31, 1994 and 1993, respectively,
and $2,988 at December 31, 1993 8,235,242 6,355,311 7,287,122
Less: Allowance for loan losses (note 6) (226,577) (202,979) (210,958)
- - ---------------------------------------------------------------------------------------------------------------------------
Loans -- net 8,008,665 6,152,332 7,076,164
- - ---------------------------------------------------------------------------------------------------------------------------
Premises and equipment -- net 315,364 279,799 302,704
Customers' liability on acceptances 13,740 18,274 11,578
Intangible assets -- net (note 7) 140,184 79,996 96,152
Foreclosed properties -- net (note 5 and 8) 24,471 75,033 16,951
Other assets 430,010 359,286 303,263
- - ---------------------------------------------------------------------------------------------------------------------------
Total Assets $14,380,467 $ 12,182,700 $ 13,286,947
===========================================================================================================================
Liabilities
Demand deposits $ 2,088,875 $ 1,822,719 $ 2,234,536
Interest checking deposits 1,882,099 1,520,543 1,791,100
Money market deposit accounts 2,392,430 2,230,593 2,214,537
Regular savings deposits 1,420,459 978,429 1,241,592
Money market certificates 661,837 560,396 538,869
Other domestic time deposits 2,602,249 2,056,868 2,097,448
Certificates of deposit $100,000 and over 45,027 42,159 45,914
Deposits in foreign offices -- 1,782 1,782
- - ---------------------------------------------------------------------------------------------------------------------------
Total deposits 11,092,976 9,213,489 10,165,778
Short-term borrowings (note 9) 1,372,014 1,502,797 1,616,743
Liability on acceptances 13,740 18,274 11,578
Other liabilities 602,164 250,489 239,215
Long-term debt (note 10) 217,134 210,134 191,156
- - ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities 13,298,028 11,195,183 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 at March 31, 1993 -- 45,000 --
Common stock, $5 par value. Authorized 100,000,000 shares
at March 31, 1994 and December 31, 1993 and 60,000,000
shares at March 31, 1993; outstanding 37,482,661 and
36,305,742 at March 31, 1994 and 1993, respectively,
and 37,515,671 shares at December 31, 1993 187,413 181,529 187,578
Capital surplus 257,009 192,123 248,896
Retained earnings 644,282 568,865 626,003
Net unrealized loss on securities available for sale (note 15) (6,265) -- --
- - ---------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 1,082,439 987,517 1,062,477
- - ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities And Shareholders' Equity $14,380,467 $ 12,182,700 $ 13,286,947
===========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Consolidated Statements Of Income
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
In thousands, except per share data Three Months Ended March 31,
----------------------------
Income From Earning Assets 1994 1993
<S> <C> <C>
Interest and fees on loans $154,964 $138,464
Interest and dividends on taxable securities held to maturity 8,900 27,607
Interest on tax-exempt securities held to maturity 1,384 1,985
Interest and dividends on securities available for sale 40,249 19,709
Income on money market investments 4,109 9,293
Interest on mortgage loans held for sale 7,424 5,067
- - --------------------------------------------------------------------------------------
Total income from earning assets 217,030 202,125
- - --------------------------------------------------------------------------------------
Interest Expense
Interest checking deposits 9,741 9,273
Money market deposit accounts 13,749 14,989
Regular savings deposits 8,321 6,857
Money market certificates 4,297 4,991
Other domestic time deposits 24,908 24,394
Certificates of deposit $100,000 and over 474 556
Deposits in foreign offices 11 17
- - --------------------------------------------------------------------------------------
Total interest on deposits 61,501 61,077
Short-term borrowings 10,613 12,056
Long-term debt 4,250 4,390
- - --------------------------------------------------------------------------------------
Total interest expense 76,364 77,523
- - --------------------------------------------------------------------------------------
Net Interest Income 140,666 124,602
Provision for loan losses (note 6) 10,032 18,500
- - --------------------------------------------------------------------------------------
Net Credit Income 130,634 106,102
- - --------------------------------------------------------------------------------------
Noninterest Income
Trust and investment advisory income 15,003 14,722
Service charges on deposit accounts 20,779 19,858
Bank card-related income 7,728 5,629
Other income 21,663 19,050
Securities gains (losses) (1,718) 1,111
- - --------------------------------------------------------------------------------------
Total noninterest income 63,455 60,370
- - --------------------------------------------------------------------------------------
Net Credit And Noninterest Income 194,089 166,472
- - --------------------------------------------------------------------------------------
Noninterest Expense
Personnel costs 74,797 63,258
Occupancy expense -- net 10,794 8,966
Equipment expense 5,928 6,064
Other expense 42,491 44,796
- - --------------------------------------------------------------------------------------
Total noninterest expense 134,010 123,084
- - --------------------------------------------------------------------------------------
Income Before Income Taxes 60,079 43,388
Income tax expense (note 11) 19,597 12,494
- - --------------------------------------------------------------------------------------
Net Income 40,482 30,894
Preferred dividend requirements -- 619
- - --------------------------------------------------------------------------------------
Income Applicable To Common Shares $ 40,482 $ 30,275
======================================================================================
Earnings Per Share (note 12):
Primary $ 1.07 $ 0.83
Fully diluted 1.07 0.83
======================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Consolidated Statements Of Cash Flows
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
In thousands Three Months Ended March 31,
----------------------------
1994 1993
<S> <C> <C>
Operating Net Income $ 40,482 $ 30,894
Activities Adjustments to reconcile net income to net cash provided by
operating activities:
Provisions for loan losses, foreclosed properties and other losses 9,076 18,500
Depreciation and amortization of premises and equipment 7,992 7,699
Securities losses (gains) 1,718 (1,111)
Amortization of intangible assets 4,829 3,224
Deferred income tax expense 2,214 936
Loss on foreclosed properties 260 3,192
Gain on sale of mortgage servicing rights (3,102) (2,300)
Net increase in trading account (3,891) (90,628)
Net decrease in loans held for sale 189,014 145,184
Net increase in accrued interest receivable, prepaid expenses
and other assets (55,700) (55,462)
Net increase in accrued interest payable, accrued
expenses and other liabilities 45,222 45,904
Other, net 4,090 (1,379)
------------------------------------------------------------------------------------------------
Net cash provided by operating activities 242,204 104,653
- - ----------------------------------------------------------------------------------------------------------------
Investing Proceeds from maturities and calls of securities held to maturity 76,436 150,942
Activities Proceeds from maturities and calls of securities available for sale 140,336 15,595
Proceeds from sales of securities available for sale 1,079,257 301,020
Purchases of securities held to maturity (262,038) (316,651)
Purchases of securities available for sale (387,328) (246,893)
Net decrease (increase) in money market investments (164,437) 127,816
Principal collected on non-bank subsidiary loans 7,311 4,629
Loans originated by non-bank subsidiaries (44,101) (27,386)
Net decrease in other loans 111,899 218,848
Purchases of premises and equipment (14,228) (6,950)
Proceeds from sales of foreclosed properties 12,976 11,413
Proceeds from sale of mortgage servicing rights 5,291 3,175
Acquisitions of net assets of financial institutions (119,480) --
Other, net (3,234) (1,777)
------------------------------------------------------------------------------------------------
Net cash provided by investing activities 438,660 233,781
- - ----------------------------------------------------------------------------------------------------------------
Financing Net decrease in demand, interest checking, money market
Activities and regular savings deposits (83,542) (207,776)
Net decrease in short-term borrowings (446,831) (105,219)
Net decrease in certificates of deposit (117,054) (160,238)
Proceeds from issuance of long-term debt 158 --
Principal payments on long-term debt (432) (298)
Cash dividends paid (12,383) (9,673)
Common stock purchased and retired (10,392) --
Proceeds from the issuance of common stock 9,214 4,755
------------------------------------------------------------------------------------------------
Net cash used by financing activities (661,262) (478,449)
- - ----------------------------------------------------------------------------------------------------------------
Cash and Increase (decrease) in cash and cash equivalents 19,602 (140,015)
Cash Cash and cash equivalents at beginning of year 716,652 754,583
Equivalents ------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of quarter $ 736,254 $ 614,568
================================================================================================================
</TABLE>
Cash and cash equivalents consist of cash and due from banks. See accompanying
notes to consolidated financial statements.
5
<PAGE>
Consolidated Statements Of Changes In Shareholders' Equity
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
Dollars in thousands Shareholders' Equity Shares of Common Stock
------------------------ ------------------------
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Balance, January 1 $1,062,477 $ 958,905 37,515,671 36,156,605
Net Income 40,482 30,894 -- --
Cash dividends declared on:
Preferred stock, Series B -- (619) -- --
Common stock (12,383) (9,054) -- --
Change in valuation allowance for marketable
equity securities -- 2,636 -- --
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) (38,474) -- -- --
Common stock purchased and retired (11,169) -- (269,700) --
Common stock issued:
Upon conversion of debentures 5 -- 540 --
For dividend reinvestment plan 2,515 2,055 60,144 54,337
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 $291 in 1994 and $552 in 1993) 1,706 2,700 58,377 94,800
- - --------------------------------------------------------------------------------------------------------
Balance, March 31 $1,082,439 $ 987,517 37,482,661 36,305,742
========================================================================================================
</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 recurring
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.
On January 11, 1994, Crestar Mortgage Corporation acquired the stock of
Mortgage Capital Corporation, a wholesale mortgage loan production company, with
an initial purchase payment of $5.2 million. Under terms of the purchase
agreement, an additional $2.4 million may be paid to the former owners,
depending on the future performance of Mortgage Capital's operations over the
next five years. On January 28, 1994, Crestar merged with Richmond,
Virginia-based Virginia Federal Savings Bank ("Virginia Federal"), for a
purchase price of $51.7 million. The excess of the purchase price over the
estimated fair value of the tangible net assets acquired of $9.3 million is
classified as an intangible asset in the consolidated balance sheet, and
consists of mortgage servicing rights of approximately $3.0 million and deposit
base intangibles of approximately $6.3 million. Virginia Federal had total
assets of approximately $700 million as of January 28, 1994.
On March 18, 1994, Crestar completed the acquisitions of McLean,
Virginia-based Providence Savings and Loan Association ("Providence") and NVR
Federal Savings Bank ("NVR"). Crestar acquired the stock of Providence for a
purchase price of $27.0 million. The excess of the purchase price over the
estimated fair value of the tangible net assets acquired of $24.0 million is
classified in the consolidated balance sheet as goodwill of approximately $15.0
million, deposit base intangibles of approximately $8.8 million and mortgage
servicing rights of approximately $0.2 million. Providence had total assets of
approximately $375 million as of March 18, 1994. Crestar acquired the assets
and assumed certain liabilities of NVR for a purchase price of $42.6 million.
The excess of the purchase price over the estimated fair value of the tangible
net assets acquired of $13.1 million is classified in the consolidated balance
sheet as deposit base intangibles of approximately $8.0 million, goodwill of
approximately $4.3 million, and mortgage servicing rights of approximately $0.8
million. NVR had total assets of approximately $425 million as of March 18,
1994.
In the above acquisitions, goodwill is being amortized over 15 years.
Mortgage servicing rights are amortized in proportion to, and over the period
of, estimated net servicing income to be derived from the servicing activity,
ranging from 7 to 20 years. Deposit base intangibles are being amortized over
the estimated lives of the related deposit relationships, ranging from 4 to 8
years.
The above acquisitions were accounted for as purchases and, accordingly, the
results of their operations are included in the accompanying consolidated
financial statements since their respective acquisition dates. The results of
operations of the above acquisitions for the periods prior to their respective
acquisition dates were not material to the results of operations of Crestar.
In November 1993, Crestar announced an agreement had been reached to acquire
the $329 million-asset Annapolis Bancorp, Inc. The purchase price of the
acquisition, which is subject to regulatory approval, is a combination of
Crestar stock and cash totaling $12.75 per Annapolis share in a transaction
valued at approximately $15 million. The acquisition is expected to be
completed in the second quarter of 1994, and will add approximately $283 million
in deposits, $245 million of loans and 9 branches to Crestar's banking
operations.
The Corporation maintains a grantor trust to pay certain employee benefits as
they become due. Assets of the trust are restricted to use for applicable
employee benefit plans, including deferred compensation and medical benefit
plans. These trust assets of approximately $62 million at March 31, 1994 are
included in the Corporation's total assets.
(2) Securities Held To Maturity
The carrying values and approximate market values of securities held to maturity
at March 31 follow:
<TABLE>
<CAPTION>
===================================================================================================
In thousands 1994 1993
----------------------- -----------------------
Carrying Market Carrying Market
Value Value Value Value
<S> <C> <C> <C> <C>
U.S. Treasury and Federal agencies $ 10,465 $ 10,415 $ 24,139 $ 24,495
Mortgage-backed obligations of Federal agencies 706,861 704,256 1,352,407 1,379,215
Other taxable securities 266,791 262,372 244,472 247,740
States and political subdivisions 81,230 81,778 105,310 107,689
Common and preferred stocks -- -- 35,751 35,770
- - ---------------------------------------------------------------------------------------------------
Total securities held to maturity $1,065,347 $1,058,821 $1,762,079 $1,794,909
===================================================================================================
</TABLE>
7
<PAGE>
(3) Securities Available For Sale
The amortized cost and approximate market values of securities available for
sale at March 31 follow:
<TABLE>
<CAPTION>
===================================================================================================
In thousands 1994 1993
----------------------- -----------------------
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
U.S. Treasury and Federal agencies $1,369,024 $1,365,499 $1,225,413 $1,266,990
Mortgage-backed obligations of Federal agencies 772,282 766,457 42,572 42,591
Other mortgage-backed obligations 223,576 223,200 207,453 208,099
Other taxable securities 10,514 10,581 -- --
Common stocks 16,891 16,849 -- --
- - ---------------------------------------------------------------------------------------------------
Total securities available for sale $2,392,287 $2,382,586 $1,475,438 $1,517,680
===================================================================================================
</TABLE>
At March 31, 1994, gross unrealized gains were $21.8 million and gross
unrealized losses were $31.5 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.
(4) Money Market Investments
Money market investments at March 31 included:
<TABLE>
<CAPTION>
=========================================================================
In thousands 1994 1993
<S> <C> <C>
Trading account securities $ 8,951 $ 110,522
Federal funds sold 79,935 52,537
Securities purchased under agreements to resell 727,250 480,000
Domestic time deposits 25,138 50,326
U.S. Treasury 5,212 442,807
Other -- 7,652
- - -------------------------------------------------------------------------
Total money market investments $ 846,486 $1,143,844
=========================================================================
</TABLE>
(5) Nonperforming Assets
Nonperforming assets at March 31 were:
<TABLE>
<CAPTION>
==================================================
In thousands 1994 1993
<S> <C> <C>
Nonaccrual loans $ 89,476 $118,687
Restructured loans 34 249
- - --------------------------------------------------
Total nonperforming loans 89,510 118,936
Foreclosed properties -- net 24,471 75,033
- - --------------------------------------------------
Total nonperforming assets $113,981 $193,969
==================================================
</TABLE>
Non-cash additions to foreclosed properties were $1.0 million and $8.1 million
in the first three months of 1994 and 1993, respectively.
8
<PAGE>
(6) Allowance For Loan Losses
Transactions in the allowance for loan losses for the three months ended
March 31 were:
===============================================================================
<TABLE>
<CAPTION>
In thousands First Quarter
-------------------
1994 1993
<S> <C> <C>
Beginning balance $210,958 $205,017
- - -------------------------------------------------------------------------------
Charge-offs (18,753) (24,721)
Recoveries 8,711 4,183
- - -------------------------------------------------------------------------------
Net charge-offs (10,042) (20,538)
Provision for loan losses 10,032 18,500
Allowance from acquisitions 15,629 --
- - -------------------------------------------------------------------------------
Net increase (decrease) 15,619 (2,038)
- - -------------------------------------------------------------------------------
Ending balance $226,577 $202,979
</TABLE>
===============================================================================
In 1994 Crestar recorded a $3.0 million provision to account for a shortfall
in collateral value of a Crestar Securities Corporation customer that was unable
to settle its obligation to purchase certain mortgage-backed securities. The
$8.2 million customer receivable has been classified as a non-accrual commercial
loan on Crestar's March 31, 1994 consolidated balance sheet.
(7) Intangible Assets
Intangible assets at March 31 included:
===============================================================================
<TABLE>
<CAPTION>
In thousands 1994 1993
<S> <C> <C>
Deposit base intangibles $ 63,579 $ 30,518
Goodwill 51,808 24,463
Mortgage servicing rights 24,150 24,252
Other 647 763
- - -------------------------------------------------------------------------------
Total intangible assets $140,184 $ 79,996
</TABLE>
===============================================================================
Goodwill is shown net of accumulated amortization of $17,921,000 and $15,507,000
for 1994 and 1993, respectively.
(8) Allowance For Foreclosed Properties
Transactions in the allowance for losses on foreclosed properties for the three
months ended March 31 were:
===============================================================================
<TABLE>
<CAPTION>
In thousands Three Months
-------------------
In thousands 1994 1993
<S> <C> <C>
Beginning balance $ 5,574 $10,264
- - -------------------------------------------------------------------------------
Write-downs (255) (700)
Provision for foreclosed properties (1,302) --
Allowance from acquisition 1,416 --
- - -------------------------------------------------------------------------------
Net (decrease) (141) (700)
- - -------------------------------------------------------------------------------
Ending balance $ 5,433 $ 9,564
</TABLE>
===============================================================================
9
<PAGE>
(9) Short-Term Borrowings
Borrowings, exclusive of deposits, with maturities of less than one year at
March 31 were:
<TABLE>
<CAPTION>
=====================================================================
In thousands 1994 1993
<S> <C> <C>
Federal funds purchased $ 726,491 $ 493,650
Securities sold under repurchase agreements 527,734 900,783
Commercial paper 293 285
Notes payable 114,578 103,673
U.S. Treasury demand notes 503 1,294
Other 2,415 3,112
- - ---------------------------------------------------------------------
Total short-term borrowings $1,372,014 $1,502,797
=====================================================================
</TABLE>
The Corporation paid $71,227,000 and $76,258,000 in interest on deposits and
short-term borrowings in the first three months of 1994 and 1993, respectively.
(10) Long-Term Debt
Long-term debt at March 31 included:
<TABLE>
<CAPTION>
================================================================================================
In thousands 1994 1993
<S> <C> <C>
5% Convertible subordinated debentures due 1994 $ 129 $ 136
7 3/4% Debentures due 1997 -- 19,349
8 1/4% Subordinated notes due 2002 125,000 125,000
8 5/8% Subordinated notes due 1998 49,958 49,948
7-10 1/2% Mortgage indebtedness maturing through 2011 12,872 13,883
6-14% Capital lease obligations maturing through 2004 3,293 1,818
4 1/8-7 1/2% Federal Home Loan Bank obligations payable through 2008 11,122 --
3 9/10-9 1/5% Collateralized mortgage obligation bonds maturing through 2018 14,760 --
- - ------------------------------------------------------------------------------------------------
Total long-term debt $217,134 $210,134
================================================================================================
</TABLE>
The Corporation made payments of $5,749,000 and $6,263,000 in interest on
long-term debt in the first three months of 1994 and 1993, respectively. New
capital lease obligations of $1,492,000, Federal Home Loan Bank obligations of
$10,000,000, and the addition of collateralized mortgage obligation bonds in the
first three months of 1994 were a result of purchase acquisitions.
10
<PAGE>
(11) INCOME TAXES
The current and deferred components of income tax expense allocated to
operations in the accompanying consolidated statements of income for the
three months ended March 31 were:
=============================================================================
<TABLE>
<CAPTION>
In thousands Three Months
-----------------
1994 1993
<S> <C> <C>
Current:
Federal $16,245 $12,911
State and local 1,138 (1,353)
- - -----------------------------------------------------------------------------
Total current tax expense 17,383 11,558
- - -----------------------------------------------------------------------------
Deferred:
Federal 2,640 981
State and local (426) (45)
- - -----------------------------------------------------------------------------
Total deferred tax expense 2,214 936
- - -----------------------------------------------------------------------------
Total income tax expense $19,597 $12,494
=============================================================================
</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 ended March 31 were:
=============================================================================
<TABLE>
<CAPTION>
In thousands Three Months
------------------
1994 1993
<S> <C> <C>
Income before income taxes $60,079 $43,388
- - -----------------------------------------------------------------------------
Tax expense at statutory rate 21,028 14,752
- - -----------------------------------------------------------------------------
Increase (decrease) in taxes resulting from:
Tax-exempt interest and dividends (1,715) (2,232)
Nondeductible interest expense 105 149
Amortization of goodwill 287 227
State income taxes 462 64
Adoption of new accounting standard -- (540)
Other -- net (570) 74
- - -----------------------------------------------------------------------------
Total decrease in taxes (1,431) (2,258)
- - -----------------------------------------------------------------------------
Total income tax expense $19,597 $12,494
- - -----------------------------------------------------------------------------
Effective tax rate 32.6% 28.8%
=============================================================================
</TABLE>
The Corporation made income tax payments of $4,207,000 and $2,828,000 during
the first three months of 1994 and 1993, respectively. At March 31, 1994, the
Corporation had a net deferred tax asset of $55,554,000. 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 substantially all of 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.
11
<PAGE>
(12) Earnings Per Share
Average common and common equivalent shares used in the determination of
earnings per share for the three months ended March 31 were:
<TABLE>
<CAPTION>
=======================================================
In thousands Three Months
---------------
1994 1993
<S> <C> <C>
Primary 37,835 36,678
Plus assumed conversion of debentures 14 15
Other 1 17
- - -------------------------------------------------------
Fully diluted 37,850 36,710
=======================================================
</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 on the later of the beginning of the applicable period or the date
of issuance and using net income increased by interest and amortization of debt
issuance expense, net of tax effect, relating to those debentures. Net income
for the first three months of 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>
<CAPTION>
=======================================================================
In thousands Three Months
----------------
1994 1993
<S> <C> <C>
Interest and amortization of debt issuance expense $ 2 $ 2
Tax effect (1) (1)
Preferred dividends, Series B -- (619)
- - -----------------------------------------------------------------------
Net adjustment to net income $ 1 $ (618)
=======================================================================
</TABLE>
In the first three months of 1994, $5,000 of subordinated debentures were
converted into 540 shares of common stock. In the first three months of 1993,
there were no conversions of subordinated debentures into common stock.
12
<PAGE>
(13) Condensed Crestar Financial Corporation (Parent) Information
The following shows the Parent's Condensed Balance Sheets at March 31:
<TABLE>
<CAPTION>
===================================================================================
In thousands 1994 1993
<S> <C> <C>
Cash in banks $ 35,515 $ 31,943
Securities held to maturity 11,619 33,427
Securities available for sale 727 --
Money market investments 4,981 49,428
Securities purchased under agreements to resell 106,366 100,000
Notes receivable from subsidiaries 176,000 173,000
Investments in subsidiaries:
Bank subsidiaries 1,070,099 935,346
Non-bank subsidiaries 6,019 3,526
Other assets 12,965 12,688
- - -----------------------------------------------------------------------------------
Total Assets $1,424,291 $1,339,358
- - -----------------------------------------------------------------------------------
Commercial paper $ 293 $ 285
Master notes 109,578 103,673
Securities sold to subsidiary under repurchase agreements 1,699 4,264
Other liabilities 55,195 49,187
Long-term debt 175,087 194,432
Total shareholders' equity 1,082,439 987,517
- - -----------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,424,291 $1,339,358
===================================================================================
</TABLE>
The Parent's Condensed Statements of Income for the three months ended March 31
were:
<TABLE>
<CAPTION>
==========================================================================
In thousands Three Months
------------------
1994 1993
<S> <C> <C>
Cash dividends from bank subsidiaries $13,618 $10,063
Interest from subsidiaries 3,651 3,626
Interest on investment securities 197 544
Income on money market investments 219 211
Interest on securities purchased under
agreements to resell 803 1,026
Other income 9 --
- - --------------------------------------------------------------------------
Total income 18,497 15,470
- - --------------------------------------------------------------------------
Interest on short-term borrowings 684 687
Interest on long-term debt 3,660 4,036
Other expense 121 169
- - --------------------------------------------------------------------------
Total expense 4,465 4,892
- - --------------------------------------------------------------------------
Income before income taxes and equity
in undistributed net income of subsidiaries 14,032 10,578
Income tax expense (benefit) 85 (747)
- - --------------------------------------------------------------------------
Income before equity in undistributed net income of
subsidiaries 13,947 11,325
Equity in undistributed net income of subsidiaries 26,535 19,569
- - --------------------------------------------------------------------------
Net Income $40,482 $30,894
==========================================================================
</TABLE>
13
<PAGE>
(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, put options, 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.
At March 31, 1994, Crestar was committed to purchase up to $12.9 million of
housing development bonds at par value under the terms of various tender option
agreements. Approximately $5.2 million of these commitments were participated
to another financial institution. Crestar's outstanding standby letters of
credit amounted to approximately $374.0 million at March 31, 1994 and $411.5
million at March 31, 1993. At March 31, 1994, approximately $8.8 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 March 31, 1994, Crestar serviced a
total of $782.0 million of loans for which it had accepted a recourse liability.
Of this amount, approximately $434.6 million was insured by agencies of the
Federal government or private insurance companies. In addition, at March 31,
1994, Crestar had forward contracts totaling $676.5 million outstanding as
hedges of lending commitments.
The notional amount of interest rate swap agreements to which Crestar was
committed was $1.8 billion and $1.1 billion at March 31, 1994 and 1993,
respectively. The March 31, 1994 total consisted of $35.0 million to convert
certain specifically identified time deposits and short-term borrowings to
variable interest rates in order to lock in a spread on the variable rate assets
which they fund; $1.6 billion to convert certain variable rate assets to fixed
rates in order to establish a neutral interest sensitivity position; $9.1
million to convert specific fixed rate loans, funded by variable rate deposits,
to variable rates so as to lock in an interest spread; $4.0 million to hedge the
interest rate risk associated with the aforementioned tender option agreements;
and $174.5 million aggregate for which Crestar is serving as financial
intermediary.
Crestar also had a notional amount outstanding of $200.0 million of interest
rate floor agreements as of March 31, 1994 to minimize interest rate risk
associated with variable rate assets.
Crestar serves as a financial intermediary in interest rate cap, interest
rate floor and interest rate collar agreements, and at March 31, 1994 had
aggregate notional amounts outstanding of $65.3 million in offsetting interest
rate cap agreements, $50.0 million in offsetting interest rate floor agreements,
and $81.4 million in offsetting interest rate 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.
14
<PAGE>
(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 by which the fair
value of securities available for sale, net of tax, exceeded the amortized cost
of such securities on January 1, 1994.
On March 31, 1994 the amortized cost of securities available for sale, net of
tax, exceeded the fair value of such securities by $6.3 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.
15
<PAGE>
Financial Commentary
Crestar Financial Corporation And Subsidiaries
Overview
(Tables 1, 2 and 14)
Crestar Financial Corporation reported earnings of $40.5 million for the
quarter ended March 31, 1994, an increase of 31% from the $30.9 million earned
in the first quarter of 1993. These results represented the tenth consecutive
increase in quarterly earnings, reflecting solid growth in net interest income
and noninterest income and continuing improvement in credit quality. Earnings
per share were $1.07 for the first quarter of 1994 compared with $.83 in 1993.
The significant items affecting the change in earnings per share are given in
Table 2. Each item in the table is net of applicable federal income taxes.
Mergers and Acquisitions
Four acquisitions were completed in the first quarter of 1994. On January
11, Crestar Mortgage Corporation acquired the stock of Mortgage Capital
Corporation, a privately held wholesale mortgage production company based in St.
Paul, Minnesota, for an initial purchase price of $5.2 million. Under terms of
the purchase agreement, an additional $2.4 million may be paid to the former
owners, depending on the future performance of Mortgage Capital Corporation's
operations over the next five years. On January 28, Crestar Financial
Corporation merged with Virginia Federal Savings Bank, a $700 million-asset
thrift headquartered in Richmond, Virginia. Initially, approximately $500
million in deposits, approximately $550 million in loans and 10 branches were
added for a purchase price of $51.7 million.
On March 18, Crestar Financial Corporation acquired the stock of Providence
Savings and Loan Association of Vienna, Virginia (Providence), a $375
million-asset subsidiary of Miller and Smith Holding, Inc., a McLean,
Virginia-based real estate investment firm. Providence initially added
approximately $297 million in deposits, $250 million in loans and 6 branches to
the greater Washington region for a purchase price of $27.0 million. Also on
March 18, Crestar Financial Corporation acquired the assets and assumed certain
liabilities of NVR Federal Savings Bank (NVR), a $425 million-asset subsidiary
of NVR, Inc. based in McLean, Virginia. NVR initially added approximately $340
million in deposits, $212 million in loans and two branches to the greater
Washington region for a purchase price of $42.6 million.
All of the above acquisitions have been accounted for under the purchase
method of accounting, whereby the purchase price has been allocated to the
underlying assets acquired and liabilities assumed based on their respective
fair values at the date of acquisition.
In the fourth quarter of 1993, Crestar announced its plans to acquire
Annapolis Bancorp, Inc., the holding company for Annapolis Federal Savings Bank
(Annapolis), a $329 million-asset thrift institution with 10 branches in and
around Annapolis, Maryland. Crestar will pay Annapolis shareholders, in a
combination of Crestar stock and cash, a total of $12.75 per Annapolis share in
a transaction valued at approximately $15 million. The transaction, expected to
be completed in second quarter 1994, will be recorded under the purchase method
of accounting.
In the aggregate, all of the above acquisitions are expected to contribute
positively to earnings per share for 1994. Financial statement note 1 contains
additional information concerning these acquisitions.
Profitability Measures and Capital Resources
(Table 1)
Increased earnings in the first quarter of 1994 resulted in improvements in
key profitability measures over 1993. Return on average assets was 1.22% in the
first three months of 1994 compared to 1.02% reported for the first three months
of 1993. Return on average equity and return on average common equity were both
14.83% for the first three months of 1994, up from 12.75% and 13.11%,
respectively, for the first three months of 1993.
Average equity to assets of 8.20% for the first quarter of 1994 increased 21
basis points from 7.99% in the first quarter of 1993, reflecting higher retained
earnings. Period-end equity to assets of 7.53% at March 31, 1994 was 58 basis
points below the 8.11% in the prior year, due primarily to an increase in
period-end assets as a result of the acquisitions completed in first quarter
1994.
Crestar's consolidated Tier 1 risk-adjusted capital ratio was 9.5% and total
risk-based capital was 12.3% at March 31, 1994, well above the required minimums
of 4.0% and 8.0%, respectively. The Tier 1 leverage ratio of 7.6% at March 31,
1994 was also well above the regulatory minimum of 3%, with most institutions
required to maintain a ratio of at least 4.0% to 5.0% depending primarily upon
risks profiles. Crestar's tangible leverage ratio, defined as total equity less
all intangibles divided by total assets less all intangibles and utilized by the
Federal Reserve Board in evaluating proposals for expansion or acquisitions, was
6.6% at March 31, 1994. Each of Crestar's three subsidiary banks continued to
be considered "well capitalized" as of March 31, 1994, the highest level of
capitalization defined by the FDIC.
Net Interest Margin and Net Interest Income
(Tables 3 and 15)
Crestar's net interest margin improved 9 basis points from first quarter 1993
to 4.78% due to a favorable change in balance sheet mix which more than offset
adverse rate movement.
Changes in the balance sheet mix increased the first quarter 1994 net
interest margin by approximately 40 basis points, primarily due to improved
earning asset mix. Lower-yielding money market
16
<PAGE>
investments declined 58%, averaging $469 million in first quarter 1994
compared to $1.1 billion in first quarter 1993. On the funding side, the
proportion of lower-cost sources increased due to an increase in average net
free sources, primarily net demand deposits.
The decline in yields on average earning assets had a negative impact on the
net interest margin of approximately 50 basis points. Asset yields declined as
certain fixed-rate securities had matured and were replaced with lower yielding
portfolios. Refinancings of residential mortgages also had a negative impact on
asset yields. Reduced rates paid on interest-bearing core deposits partially
offset asset yield declines with a 20 basis point favorable impact on the
margin.
Decreased levels of nonperforming assets in 1994 had a favorable impact on
the net interest margin of approximately 6 basis points which was offset by a
decline in the margin benefit from off-balance sheet hedges.
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.
As a result of the increase in the net interest margin and a 10% increase in
average earning assets, reported net interest income for the first quarter of
1994 increased 13% over the first quarter of 1993, and tax-equivalent net
interest income increased 12% over 1993.
Risk Exposures and Credit Quality
(Tables 4 - 10)
Crestar continues to closely manage its portfolio of loans to real estate
developers and investors (REDI). The REDI portfolio was the primary source of
weaker credit quality for the period from 1990 into 1993. As detailed in Table
4, REDI outstandings were $1.2 billion or 14% of total loans at March 31, 1993
compared with $1.1 billion or 17% of total loans at March 31, 1993. Growth in
outstandings is attributable to acquisitions during the period, while the
relative concentration level continues to improve as loan growth occurs. Table
5 shows the property type and geographic diversification of the REDI portfolio.
Continued improvement in credit quality was evident in the first quarter 1994
levels of provision for loan losses, charge-offs, and nonperforming assets. The
provision for loan losses of $10.0 million for first quarter 1994 improved 46%
from the $18.5 million provision taken a year ago. Net charge-offs of $10.0
million matched the provision and were 51% better than in 1993. Current
expectations are that net charge-offs for the full year 1994 will be less than
1993. This expectation is based upon current trends and assumptions, changes to
which could cause different results.
The allowance for loan losses was $227 million at March 31, 1994,
representing 2.75% of period-end loans, 199% of nonperforming assets and 253% of
nonperforming loans. Based on portfolio characteristics and market
expectations, management considers the level of the allowance adequate.
Total nonperforming assets of $114 million at March 31, 1994 declined 41%
from the $194 million reported in first quarter 1993. Quarter-end nonperforming
assets included $15 million which resulted from acquisitions completed during
the first quarter. Tables 9 and 10 provide details of how nonperforming loans
and foreclosed properties have changed on a quarterly basis since the first
quarter of 1993. Barring an unexpected deterioration in the economy and in the
Corporation's real estate markets, total nonperforming assets are expected to
decrease in 1994, exclusive of anticipated net additions from the second quarter
1994 acquisition of Annapolis Federal.
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 March 31,
1994, potential problem loans, not included in Table 8, amounted to
approximately $197 million compared with $255 million at March 31, 1993 and $205
million at December 31, 1993.
Noninterest Income and Expense
(Table 11)
Noninterest income totaled $63.5 million in the first quarter of 1994, a $3.1
million or 5% increase over 1993. Excluding securities gains and losses,
noninterest income increased 10% over 1993. This increase reflects growth in
bank card-related fee income, mortgage servicing and origination income, and
service charges on deposit accounts, partially offset by a decline in trading
account income.
Noninterest expense increased 9% in the first quarter of 1994 compared with
1993. Excluding foreclosed properties expense, noninterest expense increased
17% for the quarter, 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. Additional
expenses arising from acquisitions were approximately $7.1 million or
approximately 37% of the first quarter 1994 increase of $19.1 million. Expense
increases in the mortgage, bank card, and trust and investment advisory groups
amounted to approximately $7.2 million for the quarter. Employee benefits
expense increased $3.3 million, primarily due to the adoption of Statement on
Financial Accounting Standards No. 112, as discussed below in "Other New
Accounting Standards", and increases in profit sharing as a result of record
earnings.
17
<PAGE>
Foreclosed properties expense declined $8.1 million or 100% from first
quarter 1993. The overall level of foreclosed properties has declined 67% over
this same period.
The effective tax rate for first quarter 1994 was 32.6% compared to 28.8% in
the first quarter of 1993. The increase in the effective rate is attributed to
the change in the federal corporate income tax rate from 34% to 35% enacted in
third quarter 1993, the adoption of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes", which resulted in a reduction of income
tax expense of $540 thousand in first quarter 1993, and reduced proportions of
tax-exempt interest and dividends. Financial statement note 11 contains
additional information concerning income taxes.
Financial Condition
(Table 12)
Crestar's assets totaled $14.4 billion at March 31, 1994, up 18% from $12.2
billion at December 31, 1993 primarily due to the acquisitions completed in the
first quarter. Loans net of unearned income increased $1.9 billion or 30%
reflecting acquired loans of approximately $1.5 billion at March 31, 1994.
Total deposits increased $1.9 billion or 20% reflecting acquired deposits of
approximately $1.6 billion.
With respect to the securities held to maturity portfolio, carrying value
exceeded the market value at March 31, 1994 by $6.5 million, consisting of $5.2
million in unrealized gains and $11.7 million in unrealized losses. At March
31, 1994, the amortized cost of securities available for sale exceeded the fair
value of such securities by $9.7 million, consisting of $21.8 million in
unrealized gains and $31.5 million in unrealized losses. On January 1, 1994,
Crestar adopted Statement of Financial Accounting Standards 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 securities held to maturity to securities available for
sale.
Shareholders' equity at March 31, 1994 was reduced by $6.3 million
representing the excess of amortized cost of securities available for sale, net
of tax, 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. In the first quarter of 1994 the Board of Directors approved a stock
purchase program authorizing the purchase of up to 750,000 shares of the
corporation's common stock. During the first three months of 1994 under the
1993 and 1994 authorizations, Crestar purchased and retired 269,700 shares of
common stock at an average price of $41.41 per share, to meet the needs of
employee benefit plans, dividend reinvestment plans, and for the pending
acquisition of Annapolis Bancorp, Inc. Crestar announced a common stock
dividend increase on April 22, 1994, effective with the dividend payable on May
20, 1994, to $.40 per share. This represented a 21% increase over the previous
quarterly rate of $.33.
In December 1993, all 900,000 shares of the Adjustable Rate Cumulative
Preferred Stock Series B were redeemed at $51.50 per share, plus accrued and
unpaid dividends.
Debt ratings are presented in Table 12. On April 26, 1994, Moody's raised
its ratings on Crestar's subordinated notes from Baa2 to Baa1. In its
announcement, Moody's cited Crestar's rising core profitability trend and
decreased credit expenses as reasons for the ratings upgrades.
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.
Interest sensitivity refers to the volatility of net interest income as a
result of changes in interest rates and is measured in several ways. Crestar's
goal is to limit interest rate exposure to prudent levels as determined by the
Asset/Liability Management Committee (ALCO). The primary tool used by ALCO is
net interest income simulations. A two-year net interest income forecast based
on a "most likely" interest rate forecast is prepared regularly, as are net
interest income forecasts based on alternative high and low interest rate
scenarios. The expected dynamics of the balance sheet, including shifts in
loans and deposits, are included in simulations. The high- and low-rate
forecasts are compared to the "most likely" scenario. ALCO evaluates and limits
the amount of net interest income at risk in the high and low scenarios.
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 to interest rate risk provides a longer term view of the
risk, capturing all expected future cash flows. Assets and liabilities with
option characteristics are valued based on numerous interest rate path
valuations. The banking industry, including regulators, is moving toward a
market value type of interest sensitivity assessment. Crestar has been
developing this tool and will incorporate it as another component of interest
rate risk management to supplement the results achieved through simulation.
18
<PAGE>
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 March 31, 1994,
and 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 March 31, 1994 with $3.6 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 March 31, 1994, with $983 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 offset the
effect that falling interest rates would have on $200 million of variable rate
loans.
To manage interest rate risk, the Corporation enters into a variety of
interest rate caps, floors and swaps. Notional principal amounts are a simple
measure used to express the volume of such transactions, but taking into account
collateral and maturity, the amounts potentially subject to credit risk are much
smaller. Financial statement note 14 contains additional information regarding
these types of transactions.
Other New Accounting Standards
On January 1, 1994, Crestar adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployent Benefits" (SFAS
112). 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.
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan," (SFAS 114) will become effective on January
1, 1995. This accounting standard requires that impaired loans within the scope
of the statement be measured and recorded on the basis of the present value of
expected cash flows discounted at the loan's effective interest rate. Crestar
currently believes that the impact on results of operations 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>
<CAPTION>
Dollars in millions, except per share data Three Months
---------------------------
%
For the Period Ended March 31 1994 1993 Change
<S> <C> <C> <C>
Net Income $ 40.5 $ 30.9 31
Income Applicable to Common Shares 40.5 30.3 34
Dividends Declared on Common Stock 12.4 9.1 36
Primary Earnings Per Share:
Net Income $ 1.07 $ 0.83 29
Average Shares Outstanding (000s) 37,835 36,678 3
Dividends Declared Per Share:
Common Stock $ 0.33 $ 0.25 32
Preferred Stock, Series B -- 0.69 (100)
===============================================================================
Key Ratios
Return on Average Assets 1.22% 1.02%
Return on Average Total Equity 14.83 12.75
Return on Average Common Equity 14.83 13.11
Return on Average Realized Equity 15.10 12.75
Net Interest Margin 4.78 4.69
At March 31:
Equity to Assets 7.53% 8.11%
Risk Adjusted Capital Ratios:
Tier I 9.5 10.9
Total 12.3 14.3
Book Value Per Share $ 28.88 $ 25.92
==============================================================================
</TABLE>
Table 2 Analysis Of Primary Earnings Per Share
<TABLE>
<CAPTION>
1st Qtr. 1994 1st Qtr. 1994
vs. vs.
1st Qtr. 1993 4th Qtr. 1993
<S> <C> <C>
Earnings Per Share -- prior period $0.83 $1.01
- - -------------------------------------------------------------------------------
Interest income 0.24 0.07
Interest expense 0.02 (0.03)
Provision for loan losses 0.15 0.06
Securities gains or losses (0.05) (0.03)
Other noninterest income 0.10 0.03
Foreclosed properties expense 0.14 0.02
Other noninterest expense (0.33) (0.08)
Income taxes (0.02) 0.01
Preferred dividends 0.02 0.01
Increased shares outstanding (0.03) --
- - -------------------------------------------------------------------------------
Net increase 0.24 0.06
- - -------------------------------------------------------------------------------
Earnings Per Share -- current period $1.07 $1.07
===============================================================================
</TABLE>
20
<PAGE>
Table 3 Average Balances, Net Interest Income And Rate/Volume Analysis/1/
Dollars in thousands
<TABLE>
<CAPTION>
1st Qtr.
------------------------------------- 4th Qtr.
Average Balance Average
----------------------- Increase Balance
1994 1993 (Decrease) 1993
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
$ $ % $
Commercial loans 2,476,846 2,496,029 (1) 2,447,927
Tax-exempt loans 224,653 281,688 (20) 244,925
Instalment loans 1,625,825 1,368,431 19 1,528,666
Bank card loans 966,242 545,957 77 861,928
Real estate loans 2,050,782 1,518,092 35 1,792,169
Construction loans 220,881 209,932 5 229,263
Foreign loans 387 27 200+ 377
- - ------------------------------------------------------------------------------------------------
Total loans -- net of unearned income/2/ 7,565,616 6,420,156 18 7,105,255
- - ------------------------------------------------------------------------------------------------
Securities held to maturity 528,507 1,636,575 (68) 1,833,984
- - ------------------------------------------------------------------------------------------------
Securities available for sale 2,948,914 1,446,019 104 1,703,712
- - ------------------------------------------------------------------------------------------------
Money market investments 468,907 1,129,152 (58) 426,089
- - ------------------------------------------------------------------------------------------------
Mortgage loans held for sale 467,598 270,467 73 505,370
- - ------------------------------------------------------------------------------------------------
Total earning assets 11,979,542 10,902,369 10 11,574,410
================================================================================================
Interest checking deposits 1,817,810 1,526,451 19 1,738,056
Money market deposit accounts 2,301,992 2,253,293 2 2,262,530
Regular savings deposits 1,316,111 941,816 40 1,220,983
Money market certificates 582,295 581,546 -- 548,985
Other domestic time deposits 2,303,715 2,092,987 10 2,112,002
- - ------------------------------------------------------------------------------------------------
Total interest-bearing core deposits 8,321,923 7,396,093 13 7,882,556
- - ------------------------------------------------------------------------------------------------
Purchased liabilities 1,474,084 1,628,682 (9) 1,473,231
Long-term debt 203,376 210,285 (3) 190,481
- - ------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 9,999,383 9,235,060 8 9,546,268
Other sources -- net 1,980,159 1,667,309 19 2,028,142
- - ------------------------------------------------------------------------------------------------
Total sources of funds 11,979,542 10,902,369 10 11,574,410
- - ------------------------------------------------------------------------------------------------
Net Interest Income
================================================================================================
</TABLE>
/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
21
<PAGE>
<TABLE>
<CAPTION>
1st Qtr.
---------------------------------------------
1994 vs. 1993 1st Qtr. 1994 vs. 4th Qtr. 1993
--------------------------- 4th Qtr. -------------------------------
Income/Expense/3/ Change due to/4/ Income/ Change due to/4/
----------------- Increase ---------------- Expense/5/ Increase ------------------
1994 1993 (Decrease) Rate/5/ Volume 1993 (Decrease) Rate/5/ Volume
------- ------ ---------- ------- ------ --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $ $ $ $
Commercial loans 46,222 48,013 (1,791) (1,423) (368) 46,753 (531) (1,062) 531
Tax-exempt loans 4,771 5,966 (1,195) 12 (1,207) 5,172 (401) 27 (428)
Instalment loans 33,892 31,640 2,252 (3,683) 5,935 31,999 1,893 (160) 2,053
Bank card loans 30,569 20,322 10,247 (5,422) 15,669 28,466 2,103 (1,157) 3,260
Real estate loans 37,529 31,213 6,316 (4,574) 10,890 34,299 3,230 (1,611) 4,841
Construction loans 3,956 3,624 332 143 189 3,578 378 531 (153)
Foreign loans 1 14 (13) (196) 183 -- 1 1 --
- - ---------------------------------------------------------------------------------------------------------------------------------
Total loans -- net of unearned income/2/ 156,940 140,792 16,148 (8,902) 25,050 150,267 6,673 (2,857) 9,530
- - ---------------------------------------------------------------------------------------------------------------------------------
Securities held to maturity 10,992 30,674 (19,682) 1,087 (20,769) 30,461 (19,469) 2,214 (21,683)
- - ---------------------------------------------------------------------------------------------------------------------------------
Securities available for sale 40,249 19,709 20,540 55 20,485 22,524 17,725 1,263 16,462
- - ---------------------------------------------------------------------------------------------------------------------------------
Money market investments 4,126 9,302 (5,176) 263 (5,439) 3,769 357 (22) 379
- - ---------------------------------------------------------------------------------------------------------------------------------
Mortgage loans held for sale 7,424 5,067 2,357 (1,336) 3,693 8,322 (898) (276) (622)
- - ---------------------------------------------------------------------------------------------------------------------------------
Total earning assets 219,731 205,544 14,187 (11,060) 25,247 215,343 4,388 (3,038) 7,426
=================================================================================================================================
Interest checking deposits 9,741 9,273 468 (1,302) 1,770 9,567 174 (265) 439
Money market deposit accounts 13,749 14,989 (1,240) (1,564) 324 13,911 (162) (405) 243
Regular savings deposits 8,321 6,857 1,464 (1,261) 2,725 8,141 180 (454) 634
Money market certificates 4,297 4,991 (694) (700) 6 4,064 233 (14) 247
Other domestic time deposits 24,908 24,394 514 (1,942) 2,456 23,466 1,442 (688) 2,130
- - ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing core deposits 61,016 60,504 512 (7,096) 7,608 59,149 1,867 (1,447) 3,314
- - ---------------------------------------------------------------------------------------------------------------------------------
Purchased liabilities 11,098 12,629 (1,531) (337) (1,194) 11,354 (256) (263) 7
Long-term debt 4,250 4,390 (140) 4 (144) 3,995 255 (15) 270
- - ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 76,364 77,523 (1,159) (7,594) 6,435 74,498 1,866 (1,685) 3,551
Other sources -- net
- - ---------------------------------------------------------------------------------------------------------------------------------
Total sources of funds 76,364 77,523 (1,159) (8,841) 7,682 74,498 1,866 (753) 2,619
- - ---------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 143,367 128,021 15,346 (2,219) 17,565 140,845 2,522 (2,285) 4,807
=================================================================================================================================
</TABLE>
/3/Includes tax-equivalent loan fees of $2.2 million and $2.1 million for
the first quarter of 1994 and 1993, respectively, and $2.3 million for the
fourth quarter of 1993
/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 balance are
allocated to rate
22
<PAGE>
Table 4 Loans To Real Estate Developers And Investors (REDI)
<TABLE>
<CAPTION>
In millions March 31,
----------------------- December 31,
1994 1993 1993
<S> <C> <C> <C>
Commercial -- developer lines $ 81.5 $ 90.9 $ 101.1
Tax-exempt:
Construction 0.2 0.5 0.2
Income property mortgage 77.9 91.2 82.0
Real estate mortgage -- income property 811.2 713.1 769.0
Construction 194.7 192.0 191.0
- - ------------------------------------------------------------------------------------
Total REDI loans $1,165.5 $1,087.7 $1,143.3
====================================================================================
</TABLE>
Table 5 Loans To Real Estate Developers And Investors--
Geographic Distribution And Property Type
March 31, 1994
<TABLE>
<CAPTION>
Region
----------------------------------------------------
Total Greater
In millions Corporation Washington Eastern Western Capital
----------- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Land acquisition and development $ 119.0 $ 68.8 $ 38.3 $ 4.8 $ 7.1
Residential developments 256.6 121.2 84.7 40.9 9.8
Commercial projects:
Office buildings 187.9 124.6 31.0 16.0 16.3
Retail stores and malls 204.1 146.7 40.8 9.0 7.6
Hotels and motels 92.8 42.5 33.4 16.9 --
Industrial buildings 150.0 102.7 18.5 4.8 24.0
- - ------------------------------------------------------------------------------------------------------
Total commercial projects 634.8 416.5 123.7 46.7 47.9
- - ------------------------------------------------------------------------------------------------------
Special use 66.8 29.4 13.2 21.9 2.3
Other 88.3 45.5 17.6 1.8 23.4
- - ------------------------------------------------------------------------------------------------------
Total REDI loans $1,165.5 $681.4 $277.5 $116.1 $90.5
======================================================================================================
</TABLE>
Table 6 Real Estate Loans
<TABLE>
<CAPTION>
In millions March 31,
----------------------- December 31,
1994 1993 1993
<S> <C> <C> <C>
Residential $1,643.0 $ 777.6 $ 944.9
Income property 811.2 713.1 769.0
- - ----------------------------------------------------------------------
Total real estate loans $2,454.2 $1,490.7 $1,713.9
======================================================================
</TABLE>
23
<PAGE>
Table 7 Allowance For Loan Losses
<TABLE>
<CAPTION>
Dollars in thousands First Quarter
---------------------
1994 1993
<S> <C> <C>
Beginning balance $210,958 $205,017
- - -----------------------------------------------------------------------
Allowance from acquisitions 15,629 --
- - -----------------------------------------------------------------------
Provision for loan losses 10,032 18,500
- - -----------------------------------------------------------------------
Net charge-offs (recoveries):
Commercial 877 6,466
Instalment 620 1,412
Bank card 4,573 4,122
Real estate 4,818 6,664
Construction (844) 1,898
Foreign (2) (24)
- - -----------------------------------------------------------------------
Total net charge-offs 10,042 20,538
- - -----------------------------------------------------------------------
Balance, March 31 $226,577 $202,979
=======================================================================
Allowance for loan losses to period-end loans 2.75% 3.19%
Annualized net charge-offs to average loans 0.53 1.28
=======================================================================
</TABLE>
Table 8 Nonperforming Assets And Past Due Loans
<TABLE>
<CAPTION>
Dollars in thousands March 31,
------------------------ December 31,
Nonaccrual loans: 1994 1993 1993
<S> <C> <C> <C>
Commercial $ 38,669 $ 75,707 $37,788
Instalment 1,069 423 902
Real estate 42,638 32,048 33,548
Construction 7,100 10,509 5,843
- - --------------------------------------------------------------------------------------------------------
Total nonaccrual loans 89,476 118,687 78,081
Restructured loans 34 249 1,733
- - --------------------------------------------------------------------------------------------------------
Total nonperforming loans 89,510 118,936 79,814
Foreclosed properties -- net 24,471 75,033 16,951
- - --------------------------------------------------------------------------------------------------------
Total nonperforming assets $113,981 $193,969 $96,765
========================================================================================================
Past due loans:
Commercial $ 533 $ 2,404 $ 2,089
Instalment:
Student 5,607 8,200 7,879
Other 1,994 1,618 1,049
Bank card 6,583 6,687 6,216
Real estate 6,245 3,649 7,758
Construction -- -- 197
- - --------------------------------------------------------------------------------------------------------
Total past due loans $ 20,962 $ 22,558 $25,188
========================================================================================================
Nonperforming assets to:
Loans and foreclosed properties -- net 1.38% 3.02% 1.32%
Total assets 0.79 1.59 0.73
Allowance for loan losses to:
Nonperforming assets 199 105 218
Nonperforming loans 253 171 264
Allowance for loan losses plus shareholders' equity to
nonperforming assets 11.48x 6.14x 13.16x
========================================================================================================
</TABLE>
24
<PAGE>
Table 9 Nonperforming Loans -- Quarterly Activity
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------
In millions 1994 1993
-------- --------------------------------------------
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
<S> <C> <C> <C> <C> <C>
Beginning balance $ 79.8 $ 100.1 $ 117.8 $ 118.9 $ 142.2
- - -----------------------------------------------------------------------------------------------
Acquisition additions 8.1 -- -- 9.5 --
Other additions 27.4 24.7 11.7 23.4 20.8
Payments, sales and reductions (15.0) (22.8) (15.8) (10.8) (10.1)
Charge-offs (7.1) (7.6) (9.5) (10.3) (15.4)
Reinstatements to accrual status (2.7) (10.3) (2.8) (9.4) (10.5)
Transfers to foreclosed properties (1.0) (4.3) (1.3) (3.5) (8.1)
- - -----------------------------------------------------------------------------------------------
Net decrease 9.7 (20.3) (17.7) (1.1) (23.3)
- - -----------------------------------------------------------------------------------------------
Ending balance $ 89.5 $ 79.8 $ 100.1 $ 117.8 $ 118.9
===============================================================================================
</TABLE>
Table 10 Foreclosed Properties -- Quarterly Activity
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------
In millions 1994 1993
-------- --------------------------------------------
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
<S> <C> <C> <C> <C> <C>
Beginning balance $ 17.0 $ 34.7 $ 45.0 $ 75.0 $ 78.6
- - -----------------------------------------------------------------------------------------
Acquisition additions -- net 17.1 -- -- 8.9 --
Additions 3.8 4.3 3.4 7.7 11.0
Market write-downs -- (4.9) (1.5) (2.8) (2.9)
Reductions (13.4) (18.2) (12.2) (36.3) (11.7)
Provision for losses -- 1.1 -- (7.5) --
- - -----------------------------------------------------------------------------------------
Net increase (decrease) 7.5 (17.7) (10.3) (30.0) (3.6)
- - -----------------------------------------------------------------------------------------
Ending balance $ 24.5 $ 17.0 $ 34.7 $ 45.0 $ 75.0
=========================================================================================
</TABLE>
25
<PAGE>
Table 11 Summary Of Noninterest Income And Expense
<TABLE>
<CAPTION>
In thousands First Quarter Fourth
-------------------- Quarter
Noninterest Income 1994 1993 1993
<S> <C> <C> <C>
Trust and investment advisory $ 15,003 $ 14,722 $ 14,001
Service charges on deposit accounts 20,779 19,858 19,617
Bank card-related 7,728 5,629 8,171
Trading account activities 94 1,267 710
Mortgage servicing 4,800 3,778 4,019
Mortgage origination -- net 4,046 2,985 6,828
Gain on sale of mortgage servicing rights 3,102 2,300 1,300
Commissions on letters of credit 1,398 1,313 1,650
Miscellaneous 8,223 7,407 7,370
Securities gains (losses) (1,718) 1,111 --
- - ------------------------------------------------------------------------------
Total noninterest income $ 63,455 $ 60,370 $ 63,666
==============================================================================
Noninterest Expense
Salaries $ 59,190 $ 50,926 $ 56,920
Benefits 15,607 12,332 11,828
- - ------------------------------------------------------------------------------
Total personnel costs 74,797 63,258 68,748
Occupancy -- net 10,794 8,966 9,848
Equipment 5,928 6,064 5,694
Communications 6,011 4,990 5,739
Stationery, printing and supplies 1,844 1,600 1,982
Professional fees and services 2,489 3,962 3,713
Loan expense 2,748 2,200 2,103
FDIC premiums 5,885 5,984 5,365
Advertising and marketing 3,858 3,198 3,256
Transportation 1,428 1,323 1,379
Outside data services 4,460 3,236 4,344
Amortization of purchased intangibles 4,829 3,224 7,210
Miscellaneous 8,930 6,942 9,801
- - ------------------------------------------------------------------------------
Subtotal 134,001 114,947 129,182
Foreclosed properties 9 8,137 1,061
- - ------------------------------------------------------------------------------
Total noninterest expense $134,010 $123,084 $130,243
==============================================================================
</TABLE>
Table 12 Debt Ratings
(as of April 26, 1994)
<TABLE>
<CAPTION>
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-2 TBW-1
==========================================================================
</TABLE>
26
<PAGE>
Table 13 Interest Sensitivity Analysis
March 31, 1994
<TABLE>
<CAPTION>
In millions Maturity/Rate Sensitivity
------------------------------------------------------------------
within 2-3 4-6 7-12 over
Uses of Funds one month months months months one year Total
<S> <C> <C> <C> <C> <C> <C>
Loans:
Commercial $ 2,035.3 $ 35.2 $ 54.2 $ 61.4 $ 460.4 $ 2,646.5
Tax-exempt 167.0 1.5 1.3 4.6 46.3 220.7
Instalment 724.6 68.8 173.7 162.2 563.3 1,692.6
Bank card 37.9 39.8 66.4 105.6 742.1 991.8
Real estate 562.7 207.6 297.2 411.6 975.1 2,454.2
Construction 191.8 1.6 4.5 14.6 16.8 229.3
Securities held to maturity 73.3 45.5 54.2 98.3 794.0 1,065.3
Securities available for sale 163.9 101.7 121.3 219.7 1,776.0 2,382.6
Money market investments 320.3 526.2 -- -- -- 846.5
Mortgage loans held for sale 417.4 -- -- -- -- 417.4
- - -------------------------------------------------------------------------------------------------------------------------------
Total earning assets 4,694.2 1,027.9 772.8 1,078.0 5,374.0 12,946.9
Interest sensitivity hedges on assets (81.8) (1,477.2) 32.0 24.0 1,503.0 --
- - -------------------------------------------------------------------------------------------------------------------------------
Total uses $ 4,612.4 $ (449.3) $ 804.8 $ 1,102.0 $ 6,877.0 $ 12,946.9
===============================================================================================================================
Sources of funds
Interest checking deposits $ 1,882.1 $ -- $ -- $ -- $ -- $ 1,882.1
Money market deposit accounts 2,392.4 -- -- -- -- 2,392.4
Regular savings deposits 1,420.5 -- -- -- -- 1,420.5
Money market certificates and
other domestic time deposits 404.2 409.3 664.2 830.8 955.5 3,264.0
Certificates of deposit $100,000
and over 25.3 4.6 7.9 3.0 4.2 45.0
Deposits in foreign offices -- -- -- -- -- --
Short-term borrowings 1,362.0 -- -- -- 10.0 1,372.0
Long-term debt 0.1 0.3 0.3 0.6 215.8 217.1
- - -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 7,486.6 414.2 672.4 834.4 1,185.5 10,593.1
Other sources -- net -- -- -- -- 2,353.8 2,353.8
Interest sensitivity hedges on liabilities 25.0 10.0 (25.0) (10.0) -- --
- - -------------------------------------------------------------------------------------------------------------------------------
Total sources $ 7,511.6 $ 424.2 $ 647.4 $ 824.4 $ 3,539.3 $ 12,946.9
===============================================================================================================================
Cumulative maturity/rate
sensitivity gap $ (2,899.2) $ (3,772.7) $ (3,615.3) $ (3,337.7) $ -- $ --
===============================================================================================================================
Adjustments
Beta adjustments:
Interest checking (beta factor .21) $ 1,486.9
Money market accounts
(beta factor .57) 1,028.7
Regular savings (beta factor .13) 1,235.8
Demand deposit sensitivity (1,119.1)
- - -------------------------------------------------------------------------------------------------------------------------------
Cumulative adjusted maturity/rate
sensitivty gap $ (266.9) $ (1,140.4) $ (983.0) $ (705.4) $ -- $ --
===============================================================================================================================
</TABLE>
27
<PAGE>
Table 14 Selected Quarterly Financial Information
Dollars in thousands, except per share data
<TABLE>
<CAPTION>
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
Results of operations: 1994 1993 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Net interest income/1/ $143,367 $140,845 $138,719 $132,027 $128,021
Provision for loan losses 10,032 13,500 13,769 3,006 18,500
- - ---------------------------------------------------------------------------------------------------------
Net credit income 133,335 127,345 124,950 129,021 109,521
Securities gains (losses) (1,718) -- (385) 1,511 1,111
Other noninterest income 65,173 63,666 61,739 61,364 59,259
- - ---------------------------------------------------------------------------------------------------------
Net credit and noninterest income 196,790 191,011 186,304 191,896 169,891
Noninterest expense 134,010 130,243 129,148 140,547 123,084
- - ---------------------------------------------------------------------------------------------------------
Income before taxes 62,780 60,768 57,156 51,349 46,807
- - ---------------------------------------------------------------------------------------------------------
Tax-equivalent adjustment 2,701 2,886 3,073 3,222 3,419
Book tax expense 19,597 19,148 16,930 14,417 12,494
- - ---------------------------------------------------------------------------------------------------------
Income tax expense 22,298 22,034 20,003 17,639 15,913
- - ---------------------------------------------------------------------------------------------------------
Net Income 40,482 38,734 37,153 33,710 30,894
Preferred dividend requirements -- 365 618 619 619
- - ---------------------------------------------------------------------------------------------------------
Income applicable to common shares $ 40,482 $ 38,369 $ 36,535 $ 33,091 $ 30,275
=========================================================================================================
Earnings per share:
Primary:
Net income $ 1.07 $ 1.01 $ 0.96 $ 0.88 $ 0.83
Average shares outstanding (000s) 37,835 38,063 38,154 37,440 36,678
Fully diluted:
Net income $ 1.07 $ 1.00 $ 0.96 $ 0.88 $ 0.83
Average shares outstanding (000s) 37,849 38,088 38,174 37,479 36,710
Dividends declared per common share 0.33 0.33 0.28 0.28 0.25
=========================================================================================================
Selected ratios and other data:
Return on average assets 1.22% 1.20% 1.15% 1.09% 1.02%
Return on average total equity 14.83 14.19 13.84 13.24 12.75
Return on average common equity 14.83 14.60 14.20 13.60 13.11
Return on average realized equity 15.10 14.19 13.84 13.24 12.75
Net interest margin/1/ 4.78 4.77 4.77 4.73 4.69
Net charge-offs as % of average loans 0.53 0.87 0.78 0.89 1.28
Allowance as % of period-end loans 2.75 2.89 3.02 2.95 3.19
Overhead ratio 64.79 63.69 64.55 72.11 65.33
Average total equity to assets 8.20 8.45 8.34 8.22 7.99
Equity leverage 12.19x 11.84x 11.99x 12.17x 12.52x
Full-time equivalent employees (period end) 6,733 6,279 6,179 6,180 5,940
=========================================================================================================
</TABLE>
/1/Tax-equivalent basis
28
<PAGE>
Table 15 Consolidated Average Balances/Net Interest Income/Rates/1/
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------------------------------------------------
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/ 528,507 10,992 8.32 1,636,575 30,674 7.50
Securities available for sale/2/ 2,948,914 40,249 5.54 1,446,019 19,709 5.45
Money market investments/2/ 468,907 4,126 3.57 1,129,152 9,302 3.34
Mortgage loans held for sale/2/ 467,598 7,424 6.35 270,467 5,067 7.49
- - ------------------------------------------------------------------------------------------------------------------------------
Commercial loans 2,476,846 46,222 7.55 2,496,029 48,013 7.79
Tax-exempt loans 224,653 4,771 8.61 281,688 5,966 8.58
Instalment loans 1,625,825 33,892 8.34 1,368,431 31,640 9.25
Bank card loans 966,242 30,569 12.58 545,957 20,322 14.91
Real estate loans 2,050,782 37,529 7.33 1,518,092 31,213 8.24
Construction loans 220,881 3,956 7.26 209,932 3,624 7.00
Foreign loans 387 1 0.82 27 14 --
- - ------------------------------------------------------------------------------------------------------------------------------
Total loans -- net of unearned/2,3/ 7,565,616 156,940 8.32 6,420,156 140,792 8.82
Allowance for loan losses (218,583) (209,713)
- - ------------------------------------------------------------------------------------------------------------------------------
Loans -- net 7,347,033 6,210,443
Cash and due from banks 718,741 642,906
Premises and equipment -- net 308,012 281,324
Customers' liability on acceptances 13,839 19,246
Intangible assets -- net 106,165 81,713
Foreclosed properties -- net 23,792 77,805
Other assets 377,732 338,153
- - ------------------------------------------------------------------------------------------------------------------------------
Total Assets 13,309,240 12,133,803
========== ==========
Total Earning Assets 11,979,542 219,731 7.37 10,902,369 205,544 7.58
========== ======= ==== ========== ======= ====
Liabilities And Shareholders' Equity
Interest checking deposits 1,817,810 9,741 2.17 1,526,451 9,273 2.46
Money market deposit accounts 2,301,992 13,749 2.42 2,253,293 14,989 2.70
Regular savings deposits 1,316,111 8,321 2.56 941,816 6,857 2.95
Money market certificates 582,295 4,297 3.02 581,546 4,991 3.49
Other domestic time deposits 2,303,715 24,908 4.42 2,092,987 24,394 4.76
Certificates of deposit $100,000 and over 46,949 474 4.10 46,526 556 4.85
Deposits in foreign offices 1,427 11 3.08 2,359 17 2.84
- - ------------------------------------------------------------------------------------------------------------------------------
Total savings and time deposits/2/ 8,370,299 61,501 2.99 7,444,978 61,077 3.34
Demand deposits 2,014,697 1,761,627
- - ------------------------------------------------------------------------------------------------------------------------------
Total deposits 10,384,996 9,206,605
Short-term borrowings/2/ 1,425,708 10,613 3.02 1,579,797 12,056 3.09
Long-term debt/2/ 203,376 4,250 8.36 210,285 4,390 8.35
Liability on acceptances 13,839 19,246
Other liabilities 189,609 148,916
- - ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 12,217,528 11,164,849
- - ------------------------------------------------------------------------------------------------------------------------------
Preferred stock -- 45,000
Common shareholders' equity 1,091,712 923,954
- - ------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,091,712 968,954
- - ------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity 13,309,240 12,133,803
========== ==========
Total interest-bearing liabilities 9,999,383 76,364 3.10 9,235,060 77,523 3.41
Other sources-net 1,980,159 1,667,309
- - ------------------------------------------------------------------------------------------------------------------------------
Total Sources of Funds 11,979,542 76,364 2.59 10,902,369 77,523 2.89
========== ======= ==== ========== ======= ====
Net Interest Spread 4.27 4.17
Net Interest Income/Margin 143,367 4.78 128,021 4.69
==============================================================================================================================
</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
29
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended December 31,
--------------------------------------
1993
--------------------------------------
Income/ Yield/
Balance Expense Rate
---------- ---------- ----------
<S> <C> <C> <C>
Assets $ $ %
Securities held to maturity/2/ 1,833,984 30,461 6.64
Securities available for sale/2/ 1,703,712 22,524 5.25
Money market investments/2/ 426,089 3,769 3.51
Mortgage loans held for sale/2/ 505,370 8,322 6.59
- - ------------------------------------------------------------------------------------
Commercial loans 2,447,927 46,753 7.36
Tax-exempt loans 244,925 5,172 8.38
Instalment loans 1,528,666 31,999 8.42
Bank card loans 861,928 28,466 12.68
Real estate loans 1,792,169 34,299 7.47
Construction loans 229,263 3,578 7.24
Foreign loans 377 -- --
- - ------------------------------------------------------------------------------------
Total loans -- net of unearned/2,3/ 7,105,255 150,267 8.29
Allowance for loan losses (217,293)
- - ------------------------------------------------------------------------------------
Loans -- net 6,887,962
Cash and due from banks 724,842
Premises and equipment -- net 301,940
Customers' liability on acceptances 14,063
Intangible assets -- net 98,563
Foreclosed properties -- net 32,376
Other assets 392,648
- - ------------------------------------------------------------------------------------
Total Assets 12,921,549
==========
Total Earning Assets 11,574,410 215,343 7.33
========== ======= ====
Liabilities And Shareholders' Equity
Interest checking deposits 1,738,056 9,567 2.18
Money market deposit accounts 2,262,530 13,911 2.44
Regular savings deposits 1,220,983 8,141 2.65
Money market certificates 548,985 4,064 2.96
Other domestic time deposits 2,112,002 23,466 4.44
Certificates of deposit $100,000 and over 43,137 447 4.12
Deposits in foreign offices 2,552 20 2.98
- - ------------------------------------------------------------------------------------
Total savings and time deposits/2/ 7,928,245 59,616 3.01
Demand deposits 2,080,767
- - ------------------------------------------------------------------------------------
Total deposits 10,009,012
Short-term borrowings/2/ 1,427,542 10,887 3.03
Long-term debt/2/ 190,481 3,995 8.39
Liability on acceptances 14,063
Other liabilities 188,840
- - ------------------------------------------------------------------------------------
Total liabilities 11,829,938
- - ------------------------------------------------------------------------------------
Preferred stock 40,598
Common shareholders' equity 1,051,013
- - ------------------------------------------------------------------------------------
Total shareholders' equity 1,091,611
- - ------------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity 12,921,549
==========
Total interest-bearing liabilities 9,546,268 74,498 3.11
Other sources-net 2,028,142
- - ------------------------------------------------------------------------------------
Total Sources of Funds 11,574,410 74,498 2.56
========== ======= ====
Net Interest Spread 4.22
Net Interest Income/Margin 140,845 4.77
====================================================================================
</TABLE>
/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 May 13, 1994 /s/ James D. Barr
------------------ -----------------------------------
James D. Barr
Executive Vice President,
Controller and Treasurer
31
