SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 9, 1994
CRESTAR FINANCIAL CORPORATION
(Exact name of as specified in charter)
Virginia 1-7083 54-0722175
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
919 East Main Street, P. O. Box 26665, Richmond, Virginia 23261-6665
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 804-782-5000
<PAGE>
Item 5. Other Events
This Current Report on Form 8-K is being filed in order to file as an
exhibit hereto Crestar Financial Corporation's consolidated financial statements
for the nine months ended September 30, 1994.
<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
Date: November 9, 1994 By: /s/ John C. Clark, III
John C. Clark, III
Senior Vice President, General
Counsel and Secretary
<PAGE>
EXHIBIT INDEX
99.1 Consolidated financial statements for the nine months
ended September 30, 1994
<TABLE>
Consolidated Balance Sheets
Crestar Financial Corporation And Subsidiaries
Dollars in thousands
September December 31,
<S> <C> <C> <C>
Assets 1994 1993 1993
Cash and due from banks $ 690,992 $ 596,907 $ 716,652
Securities held to maturity (note 2) 944,626 1,964,061 1,824,617
Securities available for sale (note 3) 1,866,204 1,671,773 1,697,000
Money market investments (note 4) 1,327,457 687,389 650,633
Mortgage loans held for sale 334,281 434,743 591,233
Loans - net of unearned income (note 5):
Commercial 2,708,714 2,426,268 2,608,069
Tax-exempt 207,799 251,312 230,852
Instalment 1,763,961 1,520,988 1,532,936
Bank card 1,224,093 777,480 976,200
Real estate 2,520,345 1,845,299 1,713,876
Construction 221,646 230,695 224,460
Foreign 1,313 232 729
Loans - net of unearned income of $1,465 and $3,610 at
September 30, 1994 and 1993, respectively, and $2,988
at December 31, 1993 8,647,871 7,052,274 7,287,122
Less: Allowance for loan losses (note 6) (225,890) (212,982) (210,958)
Loans - net 8,421,981 6,839,292 7,076,164
Premises and equipment - net 320,829 299,568 302,704
Customers' liability on acceptances 4,866 14,766 11,578
Intangible assets - net (note 7) 126,217 103,261 96,152
Foreclosed properties - net (notes 5 and 8) 23,644 34,699 16,951
Other assets 389,260 340,643 303,263
Total Assets $14,450,357 $12,987,102 $13,286,947
Liabilities
Demand deposits $ 2,116,154 $ 2,062,467 $ 2,234,536
Interest checking deposits 1,865,839 1,662,185 1,791,100
Money market deposit accounts 2,367,640 2,256,712 2,214,537
Regular savings deposits 1,460,391 1,201,739 1,241,592
Money market certificates 620,819 561,186 538,869
Other domestic time deposits 2,487,926 2,145,945 2,097,448
Certificates of deposit $100,000 and over 67,352 43,666 45,914
Deposits in foreign offices - 1,782 1,782
Total deposits 10,986,121 9,935,682 10,165,778
Short-term borrowings (note 9) 1,905,049 1,506,682 1,616,743
Liability on acceptances 4,866 14,766 11,578
Other liabilities 218,998 244,498 239,215
Long-term debt (note 10) 218,564 190,559 191,156
Total Liabilities 13,333,598 11,892,187 12,224,470
Shareholders' Equity
Preferred stock. Authorized 2,000,000 shares;
issued and outstanding:
Adjustable Rate Cumulative Series B, $50 stated value;
900,000 shares at September 30, 1993 - 45,000 -
Common stock, $5 par value. Authorized 100,000,000 shares;
outstanding 37,597,723 and 37,763,565 at September 30, 1994
and 1993, respectively, and 37,515,671 shares at
December 31, 1993 187,989 188,818 187,578
Capital surplus 276,424 244,978 248,896
Retained earnings 683,133 616,119 626,003
Net unrealized loss on securities available for sale (note 15) (30,787) - -
Total Shareholders' Equity 1,116,759 1,094,915 1,062,477
Total Liabilities And Shareholders' Equity $14,450,357 $12,987,102 $13,286,947
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements Of Income
Crestar Financial Corporation And Subsidiaries
<TABLE>
In thousands, except per share data Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Income From Earning Assets
Interest and fees on loans $180,842 $146,760 $504,830 $426,925
Interest and dividends on taxable securities
held to maturity 11,937 31,426 35,924 88,433
Interest on tax-exempt securities held to maturity 1,105 1,643 3,730 5,363
Interest and dividends on securities available for sale 31,352 22,299 102,470 62,807
Income on money market investments 9,047 4,436 19,854 19,775
Interest on mortgage loans held for sale 5,197 6,555 18,074 16,869
Total income from earning assets 239,480 213,119 684,882 620,172
Interest Expense
Interest checking deposits 10,544 9,628 30,690 28,434
Money market deposit accounts 17,966 14,631 47,337 44,585
Regular savings deposits 10,177 8,299 27,891 22,950
Money market certificates 5,265 4,262 15,060 13,797
Other domestic time deposits 27,836 24,667 80,651 73,383
Certificates of deposit $100,000 and over 733 476 1,780 1,528
Deposits in foreign offices - 13 11 48
Total interest on deposits 72,521 61,976 203,420 184,725
Short-term borrowings 13,197 11,011 33,190 32,900
Long-term debt 4,484 4,486 13,399 13,494
Total interest expense 90,202 77,473 250,009 231,119
Net Interest Income 149,278 135,646 434,873 389,053
Provision for loan losses (note 6) 8,100 13,769 26,982 35,275
Net Credit Income 141,178 121,877 407,891 353,778
Noninterest Income
Trust and investment advisory income 13,244 14,172 42,688 43,439
Service charges on deposit accounts 20,640 20,062 62,535 59,802
Bank card-related income 10,321 7,140 27,296 19,329
Other income 21,172 20,365 66,223 59,792
Securities gains (losses) 12 (385) (1,755) 2,237
Total noninterest income 65,389 61,354 196,987 184,599
Net Credit And Noninterest Income 206,567 183,231 604,878 538,377
Noninterest Expense
Personnel costs 77,631 66,397 228,420 193,878
Occupancy expense - net 11,098 10,124 31,953 28,511
Equipment expense 6,370 6,232 18,367 18,428
Other expense 45,005 46,395 136,107 151,962
Total noninterest expense 140,104 129,148 414,847 392,779
Income Before Income Taxes 66,463 54,083 190,031 145,598
Income tax expense (note 11) 22,859 16,930 63,337 43,841
Net Income 43,604 37,153 126,694 101,757
Preferred dividend requirements - 618 - 1,856
Income Applicable To Common Shares $ 43,604 $ 36,535 $126,694 $ 99,901
Earnings Per Share (note 12):
Primary $ 1.15 $ .96 $ 3.34 $ 2.67
Fully diluted 1.15 .96 3.34 2.67
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements Of Cash Flows
Crestar Financial Corporation And Subsidiaries
<TABLE>
In thousands Nine Months Ended Sept. 30,
1994 1993
<S> <C> <C> <C>
Operating Net Income $ 126,694 $ 101,757
Activities Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Provisions for loan losses, foreclosed properties and
other losses 27,185 43,541
Depreciation and amortization of premises and equipment 24,541 23,734
Securities losses (gains) 1,755 (2,237)
Amortization of intangible assets 11,320 14,716
Deferred income tax expense 664 2,712
Loss (gain) on foreclosed properties (856) 10,887
Gain on sale of mortgage servicing rights (14,132) (2,300)
Net decrease (increase) in trading account 7,538 (209,454)
Net decrease (increase) in loans held for sale 272,093 (67,508)
Net decrease (increase) in accrued interest receivable,
prepaid expenses and other assets 24,205 (36,227)
Net increase (decrease) in accrued interest payable, accrued
expenses and other liabilities (53,152) 28,909
Other, net 9,238 (2,414)
Net cash provided (used) by operating activities 437,093 (93,884)
Investing Proceeds from maturities and calls of securities held to maturity 204,142 516,205
Activities Proceeds from maturities and calls of securities available for sale 385,096 52,294
Proceeds from sales of securities available for sale 1,511,787 386,290
Purchases of securities held to maturity (562,311) (804,704)
Purchases of securities available for sale (496,360) (528,498)
Net decrease (increase) in money market investments (642,632) 710,347
Principal collected on non-bank subsidiary loans 8,942 17,885
Loans originated by non-bank subsidiaries (192,910) (71,436)
Net decrease in other loans 2,998 173,579
Purchases of premises and equipment (28,115) (25,518)
Proceeds from sales of foreclosed properties 30,623 53,029
Proceeds from sales of mortgage servicing rights 24,168 3,175
Aquisitions of net assets of financial institutions 23,703 26,419
Other, net (7,856) (6,844)
Net cash provided by investing activities 261,275 502,223
Financing Net increase (decrease) in demand, interest checking,
Activities money market and regular savings deposits (269,558) 80,232
Net increase (decrease) in short-term borrowings 82,098 (143,834)
Net decrease in certificates of deposit (477,635) (405,994)
Proceeds from issuance of long-term debt 158 -
Principal payments on long-term debt (5,606) (70,695)
Cash dividends paid (42,496) (31,643)
Common stock purchased and retired (29,571) (4,346)
Proceeds from the issuance of common stock 18,582 10,265
Net cash used by financing activities (724,028) (566,015)
Cash and Decrease in cash and cash equivalents (25,660) (157,676)
Cash Cash and cash equivalents at beginning of year 716,652 754,583
Equivalents Cash and cash equivalents at end of quarter $ 690,992 $ 596,907
Cash and cash equivalents consist of cash and due from banks. See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Consolidated Statements Of Changes In Shareholders' Equity
Crestar Financial Corporation And Subsidiaries
<TABLE>
Dollars in thousands Shareholders' Equity Shares of Common Stock
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Balance, July 1 $1,104,684 $1,066,225 37,717,023 37,720,229
Net Income 43,604 37,153 - -
Cash dividends declared on:
Preferred stock, Series B - (618) - -
Common stock (15,092) (10,560) - -
Change in valuation allowance for marketable
equity securities - 639 - -
Change in net unrealized loss on securities
available for sale (note 15) (9,956) - - -
Value of stock options issued for acquisition of
financial institution - 694 - -
Common stock purchased and retired (10,213) (1,267) (214,700) (30,000)
Common stock issued:
For dividend reinvestment plan 2,862 2,159 62,561 51,967
Upon exercise of stock options (including tax
benefit of $154 in 1994 and $83 in 1993) 870 490 32,839 21,369
Balance, September 30 $1,116,759 $1,094,915 37,597,723 37,763,565
Balance, January 1 $1,062,477 $ 958,905 37,515,671 36,156,605
Net Income 126,694 101,757 - -
Cash dividends declared on:
Preferred stock, Series B - (1,856) - -
Common stock (42,496) (29,786) - -
Change in valuation allowance for marketable
equity securities - 4,767 - -
Cumulative effect of change in accounting
for securities available for sale (note 15) 32,209 - - -
Change in net unrealized gain on securities
available for sale (note 15) (62,996) - - -
Value of stock options issued for acquisition of
financial institution - 694 - -
Common stock purchased and retired (30,490) (4,346) (684,400) (115,000)
Common stock issued:
For acquisition of financial institutions 12,588 54,513 264,208 1,411,343
Upon conversion of debentures 113 2 12,210 216
For dividend reinvestment plan 8,279 6,384 185,928 165,786
For directors' stock compensation plan 78 - 1,859 -
For thrift and profit sharing plan 4,993 - 115,770 -
Upon exercise of stock options (including tax
benefit of $1,022 in 1994 and $825 in 1993) 5,310 3,881 186,477 144,615
Balance, September 30 $1,116,759 $1,094,915 37,597,723 37,763,565
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Notes To Consolidated Financial Statements
Crestar Financial Corporation And Subsidiaries
(1) General
The consolidated financial statements conform to generally accepted accounting
principles and to general practices within the banking industry. The
accompanying interim statements are unaudited; however, in the opinion of
management, all adjustments necessary for a fair presentation of the
consolidated financial statements, including adjustments related to completed
acquisitions, have been included. All adjustments are of a normal nature.
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the 1994 presentation. The notes included
herein should be read in conjunction with the notes to consolidated financial
statements included in the Corporation's 1993 Annual Report and Form 10-K and in
the Corporation's 1994 First Quarter and Second Quarter Form 10-Qs.
On September 16, 1994, Crestar acquired from the Resolution Trust Corporation
(RTC) approximately $17 million in deposits related to two branches of Second
National Federal Savings Association, Salisbury, Maryland, located in Fairfax
and Woodbridge, Virginia. In connection with this acquisition, Crestar paid a
$112 thousand premium to the RTC.
(2) Securities Held To Maturity
The amortized cost (carrying values) and approximate market values of securities
held to maturity at September 30 follow:
<TABLE>
In thousands
1994 1993
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
U.S. Treasury and Federal agencies $ 10,360 $ 10,146 $ 79,309 $ 79,577
Mortgage-backed obligations of Federal agencies 645,333 624,798 1,611,234 1,639,586
Other taxable securities 219,877 211,581 159,359 160,728
States and political subdivisions 69,056 69,276 90,465 93,749
Common and preferred stocks - - 23,694 23,694
Total securities held to maturity $944,626 $915,801 $1,964,061 $1,997,334
</TABLE>
(3) Securities Available For Sale
The amortized cost and approximate market values of securities available for
sale at September 30 follow:
<TABLE>
In thousands 1994 1993
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
U.S. Treasury and Federal agencies $ 999,647 $ 978,776 $1,455,276 $1,497,804
Mortgage-backed obligations of Federal agencies 704,834 680,160 36,453 36,486
Other mortgage-backed obligations 152,666 149,834 180,044 181,248
Other taxable securities 5,622 5,598 - -
Common and preferred stocks 51,677 51,836 - -
Total securities available for sale $1,914,446 $1,866,204 $1,671,773 $1,715,538
</TABLE>
At September 30, 1994, gross unrealized gains were $3.9 million and gross
unrealized losses were $52.1 million for securities available for sale. The
majority of U.S. Treasury and Federal agency securities mature within one to
five years. The majority of mortgage-backed obligations have a stated maturity
of over ten years. See note 15 for a discussion of accounting changes applicable
to these securities.
(4) Money Market Investments
Money market investments at September 30 included:
<TABLE>
In thousands 1994 1993
<S> <C> <C>
Trading account securities $ 257 $229,348
Federal funds sold 738,580 148,900
Securities purchased under agreements to resell 586,000 50,000
Domestic time deposits 138 50,228
U.S. Treasury and other 2,482 208,913
Total money market investments $1,327,457 $687,389
</TABLE>
(5) Nonperforming Assets
Nonperforming assets at September 30 were:
<TABLE>
In thousands 1994 1993
<S> <C> <C>
Nonaccrual loans $62,934 $100,035
Restructured loans - 34
Total nonperforming loans 62,934 100,069
Foreclosed properties - net 23,644 34,699
Total nonperforming assets $86,578 $134,768
</TABLE>
Non-cash additions to foreclosed properties were $9.7 million and $12.9 million
in the first nine months of 1994 and 1993, respectively.
(6) Allowance For Loan Losses
Transactions in the allowance for loan losses for the three months and nine
months ended September 30 were:
<TABLE>
In thousands Three Months Nine Months
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Beginning balance $226,666 $212,981 $210,958 $205,017
Charge-offs (14,438) (20,357) (49,127) (64,244)
Recoveries 5,583 6,589 21,390 14,934
Net charge-offs (8,855) (13,768) (27,737) (49,310)
Provision for loan losses 8,100 13,769 26,982 35,275
Allowance from acquisitions - net (21) - 15,687 22,000
Net increase (decrease) (776) 1 14,932 7,965
Ending balance $225,890 $212,982 $225,890 $212,982
</TABLE>
(7) Intangible Assets
Intangible assets at September 30 included:
In thousands 1994 1993
Goodwill and deposit base intangibles $107,466 $ 75,498
Mortgage servicing rights 18,156 24,803
Favorable lease rights 595 2,960
Total intangible assets $126,217 $103,261
(8) Allowance For Foreclosed Properties
Transactions in the allowance for losses on foreclosed properties for the three
months and nine months ended September 30 were:
<TABLE>
In thousands Three Months Nine Months
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Beginning balance $9,166 $12,546 $ 5,574 $10,264
Write-downs (156) (1,402) (801) (8,666)
Provision for foreclosed properties 979 - (323) 7,500
Allowance from acquisitions - - 5,539 2,046
Net increase (decrease) 823 (1,402) 4,415 880
Ending balance $9,989 $11,144 $ 9,989 $11,144
</TABLE>
(9) Short-Term Borrowings
Borrowings, exclusive of deposits, with maturities of less than one year at
September 30 were:
In thousands 1994 1993
Federal funds purchased $1,522,138 $ 438,665
Securities sold under repurchase agreements 231,368 813,631
Commercial paper 132 222
Notes payable 149,347 104,202
U.S. Treasury demand notes - 3,278
Other 2,064 146,684
Total short-term borrowings $1,905,049 $1,506,682
The Corporation paid $235,134,000 and $226,120,000 in interest on deposits and
short-term borrowings in the first nine months of 1994 and 1993, respectively.
(10) Long-Term Debt
Long-term debt at September 30 included:
<TABLE>
In thousands 1994 1993
<S> <C> <C>
8 1/4% Subordinated notes due 2002 $125,000 $125,000
8 5/8% Subordinated notes due 1998 49,963 49,953
7 - 10 1/2% Mortgage indebtedness maturing through 2009 12,378 13,387
6 - 14% Capital lease obligations maturing through 2006 1,502 2,085
4 1/8 - 6 1/4% Federal Home Loan Bank obligations payable through 2008 11,109 -
4 3/4 - 9 1/2% Collateralized mortgage obligation bonds maturing through 2019 18,612 -
5% Convertible subordinated debentures due 1994 - 134
Total long-term debt $218,564 $190,559
</TABLE>
The Corporation made payments of $15,126,000 and $15,431,000 in interest on
long-term debt in the first nine months of 1994 and 1993, respectively. There
were no new capital lease agreements in the third quarter of 1994.
(11) Income Taxes
The current and deferred components of income tax expense allocated to
continuing operations in the accompanying consolidated statements of income for
the three months and nine months ended September 30 were:
<TABLE>
In thousands Three Months Nine Months
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Current:
Federal $23,986 $15,529 $61,171 $42,083
State and local 620 (81) 1,502 (954)
Total current tax expense 24,606 15,448 62,673 41,129
Deferred:
Federal (1,609) 1,125 489 3,269
State and local (138) 357 175 (557)
Total deferred tax expense (benefit) (1,747) 1,482 664 2,712
Total income tax expense $22,859 $16,930 $63,337 $43,841
</TABLE>
The differences between the amounts computed by applying the statutory federal
income tax rate to income before income taxes and the actual income tax expense
allocated to operations for the three months and nine months ended September 30
were:
<TABLE>
Dollars in thousands Three Months Nine Months
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Income before income taxes $66,463 $54,083 $190,031 $145,598
Tax expense at statutory rate 23,262 18,929 66,511 50,959
Increase (decrease) in taxes resulting from:
Tax-exempt interest and dividends (1,861) (2,053) (5,419) (6,511)
Nondeductible interest expense 119 126 331 417
Amortization of goodwill 827 297 1,333 796
State income taxes 314 (180) 1,090 (10)
Adoption of new accounting standard - - - (540)
Deferred tax effect of tax rate change - (1,557) - (1,557)
Other - net 198 1,368 (509) 287
Total decrease in taxes (403) (1,999) (3,174) (7,118)
Total income tax expense $22,859 $16,930 $ 63,337 $ 43,841
Effective tax rate 34.4% 31.3% 33.3% 30.1%
</TABLE>
The Corporation made income tax payments of $56,405,000 and $43,286,000 during
the first nine months of 1994 and 1993, respectively. At September 30, 1994, the
Corporation had a net deferred tax asset of $99,430,000. There was no valuation
allowance relating to the tax asset. Crestar has sufficient taxable income in
the available carryback periods and future taxable income from reversing taxable
differences to realize its deferred tax assets. Management believes, based on
the Corporation's history of generating significant earnings and expectations of
future earnings, that it is more likely than not that all recorded deferred tax
assets will be realized.
(12) Earnings Per Share
Average common and common equivalent shares used in the determination of
earnings per share for the three months and nine months ended September 30 were:
<TABLE>
In thousands Three Months Nine Months
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Primary 38,063 38,154 37,933 37,429
Plus assumed conversion of debentures - 14 - 15
Other - 6 20 36
Fully diluted 38,063 38,174 37,953 37,480
</TABLE>
Primary earnings per share are computed by dividing net income applicable to
common shares by the weighted average number of common shares outstanding during
the period, including average common equivalent shares attributable to dilutive
stock options. Fully diluted earnings per common share are computed using
average common shares, including the maximum dilutive effect of average common
equivalent shares, increased by the number of shares that would result from
assuming that the 5% convertible subordinated debentures were converted into
common stock at the beginning of the applicable period and using net income
increased by interest and amortization of debt issuance expense, net of tax
effect, relating to those debentures. Net income for 1993 is further reduced by
the dividends applicable to the Series B preferred stock. The following table
provides the net adjustment to net income:
<TABLE>
In thousands Three Months Nine Months
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Interest and amortization of debt issuance expense $ - $ 2 $ 2 $ 5
Tax effect - (1) (1) (2)
Preferred dividends, Series B - (618) - (1,856)
Net adjustment to net income $ - $(617) $ 1 $(1,853)
</TABLE>
In the first nine months of 1994 and 1993, $113,000 and $2,000 of subordinated
debentures were converted into 12,210 and 216 shares of common stock,
respectively.
(13) Condensed Crestar Financial Corporation (Parent) Information
The following shows the Parent's Condensed Balance Sheets at September 30:
<TABLE>
In thousands 1994 1993
<S> <C> <C>
Cash in banks $ 40,765 $ 32,975
Securities held to maturity 11,569 12,240
Securities available for sale 34,164 -
Money market investments 4,973 94,835
Securities purchased under agreements to resell 97,521 50,000
Notes receivable from subsidiaries 175,000 176,000
Investments in subsidiaries:
Bank subsidiaries 1,121,887 1,042,732
Non-bank subsidiaries 7,822 7,798
Other assets 12,406 12,597
Total Assets $1,506,107 $1,429,177
Commercial paper $ 132 $ 222
Master notes 149,347 104,203
Securities sold to subsidiary under repurchase agreements 2,653 3,574
Other liabilities 62,253 51,176
Long-term debt 174,963 175,087
Total shareholders' equity 1,116,759 1,094,915
Total Liabilities and Shareholders' Equity $1,506,107 $1,429,177
</TABLE>
The Parent's Condensed Statements of Income for the three months and nine months
ended September 30 were:
<TABLE>
In thousands Three Months Nine Months
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Cash dividends from bank subsidiaries $16,595 $12,462 $ 53,705 $ 33,676
Interest from subsidiaries 3,668 3,687 10,947 10,965
Interest on securities held to maturity and available
for sale 417 236 859 1,339
Income on money market investments 61 715 332 1,338
Interest on securities purchased under agreements
to resell 1,196 527 3,107 2,254
Other income 1 - 134 41
Securities losses (145) (365) (145) (1,859)
Total income 21,793 17,262 68,939 47,754
Interest on short-term borrowings 1,353 749 3,010 2,080
Interest on long-term debt 3,659 4,030 10,976 12,100
Other expense 389 350 1,931 952
Total expense 5,401 5,129 15,917 15,132
Income before income taxes and equity in
undistributed net income of subsidiaries 16,392 12,133 53,022 32,622
Income tax benefit (235) (130) (601) (1,568)
Income before equity in undistributed net income of
subsidiaries 16,627 12,263 53,623 34,190
Equity in undistributed net income of subsidiaries 26,977 24,890 73,071 67,567
Net Income $43,604 $37,153 $126,694 $101,757
</TABLE>
(14) Commitments and Contingencies
In the normal course of business, there are outstanding commitments and
contingent liabilities and other financial instruments that are not reflected in
the accompanying consolidated financial statements. These include commitments to
extend credit, standby letters of credit, interest rate caps, floors and
collars, interest rate swaps, and forward contracts. No material losses are
expected to result from these transactions.
Commercial lines of credit are established for a potential borrower as an
indication of the aggregate amount of outstanding loans that the banks are
willing to extend. Sometimes these lines of credit are supported by balances
left on deposit, investment securities, real estate or inventory. Loan advances
made under such lines usually do not extend beyond the borrower's fiscal year.
Such advances are normally given for working capital purposes and require
repayment within twelve months.
Formal long-term commitments are made under legal and binding agreements for
which the borrower pays a commitment fee. These agreements typically contain
clauses that permit cancellation of the commitment in the event of credit
deterioration of the borrower. Crestar's outstanding standby letters of credit
amounted to approximately $380.0 million at September 30, 1994 and $402.6
million at September 30, 1993. At September 30, 1994, approximately $23.9
million of these standby letters of credit were participated to other financial
institutions.
The Corporation services mortgage loans other than those included in the
accompanying consolidated financial statements and, in some cases, accepts a
recourse liability on the serviced loans. At September 30, 1994, Crestar
serviced a total of $849.4 million of loans for which it had accepted a recourse
liability. Of this amount, approximately $496.1 million was insured by agencies
of the Federal government or private insurance companies. In addition, at
September 30, 1994, Crestar had forward contracts totaling $331.9 million
outstanding as hedges of lending commitments.
As a financial institution, Crestar entails a degree of interest rate risk as a
provider of banking services to its customers. This risk can be managed through
derivative interest rate contracts, such as interest rate swaps, caps and
floors. Changes in the fair value of such derivatives are generally offset by
changes in the implied fair value of the underlying hedged asset or liability.
As hedges against interest rate risk at September 30, 1994, Crestar was
participating in interest rate (fixed receive) swaps having a notional value of
$1.64 billion. Of these interest rate swaps, $1.48 billion were used to convert
certain variable rate commercial and real estate loans to fixed rates, and $150
million were used to convert variable rate securities to fixed rates. An
additional $10 million in interest rate swaps were used to convert specifically
identified time deposits to variable rates in order to lock in a spread on the
variable rate assets which they fund. Notional balances of $876.2 million of the
above swaps were indexed amortizing swaps, whose notional value amortizes more
slowly as rates rise. Unrealized gains and unrealized losses on interest rate
swap contracts utilized as hedges were $2.2 million and $63.8 million,
respectively, as of September 30, 1994.
Crestar also had a notional amount outstanding of $200 million of interest rate
floor agreements on September 30, 1994 to minimize interest rate risk associated
with variable rate assets. Unrealized gains on these floor agreements
approximated $58,000 as of September 30, 1994.
The notional amount of these over-the-counter traded interest rate swaps and
floors does not represent Crestar's credit exposure, which the Corporation
believes is a combination of current replacement cost plus an amount for
additional market movement. At September 30, 1994, such estimated credit
exposure was $33.5 million. Four counterparties constituted 30%, 18%, 13% and
10% of the estimated credit exposure at September 30, 1994; no other
counterparties represented 10% or more of the estimated credit exposure at
September 30, 1994.
The average expected maturity at September 30, 1994 was 1.6 years for interest
rate swaps and 0.3 years for interest rate floors used by Crestar as hedge
instruments. The average fixed rate for these swaps was 5.88%. The interest rate
floors used by Crestar as hedges against interest rate risk are tied to the
London Inter-Bank Offered Rate (LIBOR). The average strike rate at September 30,
1994 for these interest rate floors was 5.50%.
Crestar serves as a financial intermediary in interest rate swap, cap, floor and
collar agreements, and at September 30, 1994 had aggregate notional amounts
outstanding of $148.9 million in offsetting swap, $73.1 million in offsetting
cap, $57.6 million in offsetting floor, and $52.5 million in offsetting collar
agreements.
Certain litigation is pending against Crestar. Management, after reviewing this
litigation with legal counsel, is of the opinion that these matters, when
resolved, will not have a material effect on the accompanying consolidated
financial statements.
(15) New Accounting Standards
Effective January 1, 1994, Crestar adopted Statement of Financial Accounting
Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and
Equity Securities." In accordance with SFAS 115, securities are classified as
either securities held to maturity, securities available for sale or trading
account securities. Securities held to maturity are carried at amortized cost,
as the Corporation has the ability and positive intent to hold these securities
to maturity. Trading account securities are carried at fair value as they are
intended to be sold in the near term: trading securities are classified as money
market investments on the Corporation's Consolidated Balance Sheets. Securities
available for sale are carried at fair value and represent securities not
classified as held to maturity or as trading account securities.
With the adoption of SFAS 115, unrealized holding gains and losses on securities
available for sale are excluded from the Consolidated Statements of Income and
reported, net of tax, as a separate component of shareholders' equity. On
January 1, 1994, securities having an amortized cost of $2.932 billion, and a
fair value of $2.983 billion, were classified as securities available for sale.
The initial effect of adoption of SFAS 115 was an increase in shareholders'
equity of $32.2 million, which was the amount, net of tax, by which the fair
value of securities available for sale exceeded the amortized cost of such
securities on January 1, 1994.
At September 30, 1994, on an after-tax basis, the amortized cost of securities
available for sale exceeded the fair value of such securities by $30.8 million.
The net unrealized gain or loss of securities available for sale, which is
recorded as a component of shareholders' equity, will continue to be subject to
change in future periods due to fluctuations in market value, acquisition
activities, and sales, purchases, maturities and calls of securities classified
as available for sale.
In accordance with SFAS 115, the Corporation's consolidated financial statements
for periods prior to January 1, 1994 have not been retroactively changed to
conform to current securities classifications. Prior to January 1, 1994,
investment securities which management intended to sell as a part of its
asset/liability management strategy, or that may have been sold in response to
changes in interest rates, prepayment risk or other similar factors, were
classified as securities held for sale, and were stated at the lower of
aggregate amortized cost or market value. All other investment securities were
accounted for in a manner similar to securities held to maturity or trading
account securities.
Statement of Financial Accounting Standards No. 112 (SFAS 112), "Employers'
Accounting for Postemployment Benefits," was adopted by Crestar on January 1,
1994. Under SFAS 112, benefits provided to inactive or former employees before
retirement are accrued during the period of active employment, rather than being
expensed as paid. For Crestar, such benefits consist principally of short-term
disability benefits. Adoption of SFAS 112 resulted in a pre-tax charge to
employee benefit expense of $1.8 million in the first quarter of 1994.
Postemployment benefits expense for periods prior to January 1, 1994 has not
been restated.
