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 17, 1995
CRESTAR FINANCIAL CORPORATION
(Exact name of registrant as specified in charter)
Virginia 1-7083 54-0722175
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
991 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 to file as an exhibit
(i) consolidated financial statements (unaudited) of Loyola Capital Corporation
and Subsidiaries at September 30, 1995 and the three months and nine months
periods then ended and (ii) consolidated statements of financial condition of
Loyola Capital Corporation and Subsidiaries as of December 31, 1994 and 1993,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1994,
and the report of KPMG Peat Marwick LLP, independent auditors, dated February 3,
1995 thereon.
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<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 17, 1995 By: /s/ John C. Clark, III
----------------------------
John C. Clark, III
Senior Vice President, General
Counsel and Secretary
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<PAGE>
EXHIBIT INDEX
99.1 Consolidated financial statements of Loyola Capital
Corporation and Subsidiaries (unaudited) at September 30,
1995 and for the three months and nine months periods then
ended.
99.2 Consolidated statements of financial condition of Loyola
Capital Corporation and Subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the years in
the three-year period ended December 31, 1994, and the report
of KPMG Peat Marwick LLP, independent auditors, dated
February 3, 1995 thereon.
99.3 Consent dated November 17, 1995 of KPMG Peat Marwick LLP.
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EXHIBIT 99.1
Part I - Financial Information
Item 1. Financial Statements
LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
(In Thousands)
<S> <C> <C>
Assets
Cash and demand deposits $ 26,439 24,426
Money market investments 47,306 3,286
Investment securities, fair value $45,824
in 1995 and $114,709 in 1994 46,710 117,907
Mortgage-backed securities, fair value
$208,735 in 1995 and $207,521 in 1994 213,679 229,429
Loans held for sale 42,561 31,006
Loans receivable, net 2,063,844 1,952,272
Investments in real estate, net 16,754 26,374
Federal Home Loan Bank of Atlanta stock, at cost 36,053 37,418
Property and equipment 24,949 24,707
Prepaid expenses and other assets 18,626 19,933
Deferred income taxes 5,930 6,078
---------- ----------
$2,542,851 2,472,836
========= =========
Liabilities and Stockholders' Equity
Liabilities:
Deposits $1,532,640 1,469,925
Notes payable and other borrowings 781,712 777,577
Mortgage escrow accounts 23,088 27,918
Drafts payable 12,222 16,908
Federal and state income taxes 3,885 2,876
Accrued expenses and other liabilities 11,774 8,538
---------- ----------
Total liabilities 2,365,321 2,303,742
--------- ---------
Stockholders' Equity:
Preferred stock, $.10 par value, 15,000,000
shares authorized, none issued -- --
Common stock, $.10 par value, 35,000,000
shares authorized, 8,120,541 shares
issued and outstanding in 1995 and
8,091,699 shares in 1994 812 809
Additional paid-in capital 44,327 44,118
Retained income, substantially restricted 132,391 124,167
--------- ---------
Total stockholders' equity 177,530 169,094
--------- ---------
$2,542,851 2,472,836
========= =========
</TABLE>
See accompanying note to consolidated financial statements.
-5-
<PAGE>
LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
(In Thousands Except Per-Share Data)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable $ 42,649 34,961 124,176 100,053
Mortgage-backed securities 3,298 3,606 10,142 10,970
Investments 2,002 1,981 6,403 7,188
-------- -------- -------- --------
Total interest income 47,949 40,548 140,721 118,211
-------- -------- -------- --------
INTEREST EXPENSE
Deposits 18,889 14,833 53,283 42,605
Notes payable and other borrowings 11,500 8,986 34,407 25,749
-------- -------- -------- --------
Total interest expense 30,389 23,819 87,690 68,354
-------- -------- -------- --------
NET INTEREST INCOME 17,560 16,729 53,031 49,857
PROVISION FOR LOAN LOSSES 231 150 668 510
--------- --------- --------- ---------
Net interest income after provision for loan losses 17,329 16,579 52,363 49,347
-------- -------- -------- --------
NONINTEREST INCOME
Service fees on loans 1,494 1,667 4,576 4,893
Service fees on deposits 399 270 1,112 744
Insurance commissions 679 641 1,911 1,707
Gain on sales of loans, net 547 460 433 1,628
Other 349 265 994 715
--------- --------- --------- ---------
Total noninterest income 3,468 3,303 9,026 9,687
-------- -------- -------- --------
NONINTEREST EXPENSE
Salaries and employee benefits 6,583 6,644 19,818 19,923
Rent and other occupancy 1,313 1,269 3,726 3,602
Advertising 644 483 1,815 1,630
Data processing 1,591 1,572 4,821 4,847
Equipment 376 435 1,219 1,311
Federal deposit insurance and fees 969 926 2,838 2,765
(Income) loss on investments in real estate, net (68) 20 (1,326) (44)
Other 2,690 2,359 7,655 7,016
Total noninterest expense 14,118 13,708 40,566 41,050
INCOME BEFORE INCOME TAXES 6,679 6,174 20,823 17,984
-------- -------- -------- --------
INCOME TAXES 3,009 2,418 8,704 7,097
-------- -------- -------- --------
NET INCOME $ 3,670 3,756 12,119 10,887
======== ======== ======== ========
NET INCOME PER SHARE
Primary $ .41 .43 1.38 1.25
Average shares primary 8,802 8,692 8,743 8,648
Fully diluted $ .41 .43 1.38 1.25
Average shares fully diluted 8,811 8,692 8,767 8,667
</TABLE>
See accompanying note to consolidated financial statements.
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<PAGE>
LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 12,119 10,887
Adjustments to reconcile net income to net
cash provided by operating activities:
Loans originated for sale, net (246,861) (379,024)
Purchase of loans acquired for sale (126,016) (249,277)
Sales of loans originated for sale 361,756 708,970
Amortization of unearned loan fees (1,383) (1,287)
Depreciation and amortization 3,046 3,199
Deferred income taxes 148 489
Equity in net income of real estate joint ventures (1,461) (2,177)
Net increase (decrease) in accrued interest payable on deposits (194) 17
Provision for losses on loans and investments in real estate 1,564 2,605
Gain on sales of loans (433) (1,628)
Gain on sale of real estate owned (933) (514)
Net increase (decrease) in accrued expenses and other liabilities 3,236 (269)
Net increase in federal and state income taxes payable 1,009 400
Other, net 843 (3,277)
--------- --------
Net cash provided by operating activities 6,440 89,114
-------- --------
INVESTING ACTIVITIES:
Loan originations (333,921) (392,653)
Loan fees deferred 1,375 3,931
Purchases of loans and participations in loans (34,615) (82,987)
Principal repayments on loans 262,460 275,518
Purchases of investment securities and Federal Home Loan Bank stock (14,167) (6,161)
Redemptions of investment securities and Federal Home Loan Bank stock 86,061 67,196
Purchases of mortgage-backed securities -- (23)
Repayments of mortgage-backed securities 15,079 9,177
Net (increase) decrease in investments in and advances to
real estate joint ventures 459 (434)
Net decrease in other real estate 6,026 4,736
Purchase of equipment (3,288) (2,384)
Other, net -- (467)
---------- ---------
Net cash used by investing activities (14,531) (124,551)
---------- ---------
</TABLE>
(continued)
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<PAGE>
LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
(In Thousands)
<S> <C> <C>
FINANCING ACTIVITIES:
Net increase in deposits 62,909 8,436
Net increase (decrease) in short-term borrowings
(original maturities less than three months) 27,583 (166,085)
Proceeds from advances from Federal Home Loan Bank of Atlanta 1,980,945 961,718
Repayment of advances from Federal Home Loan Bank of Atlanta (2,008,800) (836,178)
Net increase in mortgage escrow accounts (4,830) (527)
Payment of dividends on common stock (3,894) (2,420)
Proceeds from exercise of stock options 211 262
--------- ---------
Net cash provided (used) by financing activities 54,124 (34,794)
--------- ---------
Increase (decrease) in cash and cash equivalents 46,033 (70,231)
Cash and cash equivalents at beginning of period 27,712 94,000
Cash and cash equivalents at end of period $ 73,745 23,769
========= =========
</TABLE>
See accompanying note to consolidated financial statements.
-8-
<PAGE>
LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995 and 1994
(Unaudited)
(1) BASIS OF PRESENTATION
In the opinion of management of Loyola Capital Corporation (the
"Corporation"), the unaudited Consolidated Financial Statements contain all
adjustments (comprising only normal recurring accruals) necessary for a fair
presentation of the statements of financial condition, income and cash flows for
the periods presented (the "Statements"). The Statements have been prepared
using the accounting policies described in the 1994 Annual Report to
Stockholders.
Cash equivalents for purposes of the Consolidated Statements of Cash
Flows includes money market investments. Cash payments for income taxes were
$7.5 million and $6.1 million for the nine months ended September 30, 1995 and
1994, respectively. Interest paid on deposits and borrowings was $87.7 million
and $68.6 million for the nine months ended September 30, 1995 and 1994,
respectively. Loans transferred to real estate acquired through foreclosures
were $1.9 million and $2.8 million for the nine months ended September 30, 1995
and 1994, respectively. Loans originated to finance the sale of investments in
real estate were $6.0 million and $4.0 million for the nine months ended
September 30, 1995 and 1994, respectively.
Primary net income per common share has been computed based on the
weighted average number of shares of common stock and common stock equivalents
outstanding during the nine months ended September 30, 1995 and 1994. Fully
diluted net income per common share is based on the average shares outstanding
during the nine months ended September 30, 1995 and 1994, adjusted for the
dilutive effect of stock options, which are considered common stock equivalents
in the calculation of net income per common share.
The consolidated results of operations for the nine months ended
September 30, 1995 are not necessarily indicative of the results that may be
expected for the entire year. Certain amounts in the 1994 financial statements
have been reclassified to conform with the 1995 presentation.
The market values of investment securities and mortgage-backed
securities are shown in the Consolidated Statements of Financial Condition.
Gross unrealized gains and losses on such securities were as follows:
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<PAGE>
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------------ --------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
Gains Gains Gains Gains
(In Thousands)
<S> <C> <C> <C> <C>
Investment securities $ 4 890 18 3,216
Mortgage-backed securities 2 4,946 -- 21,908
</TABLE>
The Corporation adopted Financial Accounting Standards Board Statement
of Financial Accounting Standards No. 114 "Accounting by Creditors for
Impairment of a Loan" ("Statement 114"), as amended by Statement 118 "Accounting
by Creditors for Impairment of a Loan Income Recognition and Disclosures"
(collectively referred to as "Statement 114") effective January 1, 1995. As of
January 1, 1995 and September 30, 1995 the Corporation did not have any loans
which are considered to be impaired as defined in Statement 114.
-10-
<PAGE>
Loyola Capital Corporation and Subsidiaries
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31,
---------------------------------
1994 1993
--------------- ---------------
(In Thousands)
Assets
<S> <C> <C>
Cash and demand deposits $ 24,426 22,770
Money market investments 3,286 71,230
Investment securities, fair value $114,709
in 1994 and $190,637 in 1993 117,907 190,524
Mortgage-backed securities, fair value $207,521
in 1994 and $242,632 in 1993 229,429 242,922
Loans held for sale 31,006 134,400
Loans receivable, net 1,952,272 1,591,207
Investments in real estate, net 26,374 40,649
Federal Home Loan Bank of Atlanta stock, at cost 37,418 27,379
Property and equipment 24,707 25,445
Prepaid expenses and other assets 15,638 14,581
Deferred income taxes 6,078 5,409
--------------- ---------------
$ 2,468,541 2,366,516
=============== ===============
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 1,465,630 1,424,794
Notes payable and other borrowings 777,577 727,564
Mortgage escrow accounts 27,918 24,085
Drafts payable 16,908 22,010
Federal and state income taxes 2,876 562
Accrued expenses and other liabilities 8,538 10,545
--------------- ---------------
Total liabilities 2,299,447 2,209,560
--------------- ---------------
Stockholders' equity:
Preferred stock, $.10 par value, 15,000,000 shares authorized,
none issued --- ---
Common stock, $.10 par value, 35,000,000 shares authorized,
8,091,699 shares issued and outstanding in 1994 and
8,046,216 shares in 1993 809 805
Additional paid-in capital 44,118 43,795
Retained income, substantially restricted 124,167 112,356
--------------- ---------------
Total stockholders' equity 169,094 156,956
--------------- ---------------
$ 2,468,541 2,366,516
=============== ===============
</TABLE>
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<PAGE>
See accompanying notes to consolidated financial statements.
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Loyola Capital Corporation and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1994 1993 1992
--------------- ---------------- ---------------
(In Thousands Except Per-Share Data)
<S> <C> <C> <C>
Interest income:
Loans receivable $ 137,641 122,866 142,228
Mortgage-backed securities 14,501 5,975 268
Investments 9,269 11,749 10,747
--------------- ---------------- ---------------
Total interest income 161,411 140,590 153,243
--------------- ---------------- ---------------
Interest expense:
Deposits 58,354 58,612 77,270
Notes payable and other borrowings 36,152 20,364 10,187
--------------- ---------------- ---------------
Total interest expense 94,506 78,976 87,457
--------------- ---------------- ---------------
Net interest income 66,905 61,614 65,786
Provision for loan losses 660 3,085 7,065
--------------- ---------------- ---------------
Net interest income after provision for loan losses 66,245 58,529 58,721
--------------- ---------------- ---------------
Noninterest income:
Service fees on loans 6,551 6,346 6,486
Service fees on deposits 1,063 909 789
Insurance commissions 2,201 1,802 2,671
Gain on sales of loans, net 1,841 1,841 1,521
Gain on sales of mortgage-backed securities --- --- 2,900
Other 1,017 625 1,107
--------------- ---------------- ---------------
Total noninterest income 12,673 11,523 15,474
--------------- ---------------- ---------------
Noninterest expenses:
Salaries and employee benefits 26,364 23,260 22,891
Rent and other occupancy 4,901 4,467 4,275
Advertising 2,105 1,635 2,340
Data processing 6,495 6,261 6,217
Equipment 1,755 1,684 1,655
Federal deposit insurance and fees 3,692 2,997 3,812
(Income) loss on investments in real estate, net (448) 585 5,819
Other 8,989 8,738 8,321
--------------- ---------------- ---------------
Total noninterest expenses 53,853 49,627 55,330
--------------- ---------------- ---------------
Income before income taxes and cumulative
effect of accounting change 25,065 20,425 18,865
</TABLE>
Continued
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<PAGE>
Loyola Capital Corporation and Subsidiaries
Consolidated Statements of Income, continued
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1994 1993 1992
--------------- ---------------- ---------------
(In Thousands Except Per-Share Data)
<S> <C> <C> <C>
Income taxes $ 10,026 8,160 7,460
--------------- ---------------- ---------------
Income before cumulative effect of accounting change 15,039 12,265 11,405
Cumulative effect of change in accounting for income taxes --- --- 2,708
--------------- ---------------- ---------------
Net income $ 15,039 12,265 14,113
=============== ================ ===============
Net income per common share:
Primary:
Income before cumulative effect of accounting change $ 1.74 1.42 1.30
Cumulative effect of change in accounting for income --- --- .31
taxes
--------------- ---------------- ---------------
Net income $ 1.74 1.42 1.61
=============== ================ ===============
Fully diluted:
Income before cumulative effect of accounting change $ 1.73 1.42 1.29
Cumulative effect of change in accounting for income --- --- .31
taxes
--------------- ---------------- ---------------
Net income $ 1.73 1.42 1.60
=============== ================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
Loyola Capital Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Income Total
--------------- --------------- ---------------- ---------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991 $ 424 50,375 89,759 140,558
Two-for-one stock split 424 (424) --- ---
Purchase of 401,669 shares of common stock (40) (4,370) --- (4,410)
Exercise of 114,790 shares of common stock options 11 667 --- 678
Dividends on common stock --- --- (1,838) (1,838)
Net income --- --- 14,113 14,113
--------------- --------------- ---------------- ---------------
Balance at December 31, 1992 819 46,248 102,034 149,101
Purchase of 213,458 shares of common stock (21) (2,883) --- (2,904)
Exercise of 74,369 shares of common stock options 7 430 --- 437
Dividends on common stock --- --- (1,943) (1,943)
Net income --- --- 12,265 12,265
--------------- --------------- ---------------- ---------------
Balance at December 31, 1993 805 43,795 112,356 156,956
Exercise of 45,483 shares of common stock options 4 323 --- 327
Dividends on common stock --- --- (3,228) (3,228)
Net income --- --- 15,039 15,039
--------------- --------------- ---------------- ---------------
Balance at December 31, 1994 $ 809 44,118 124,167 169,094
=============== =============== ================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
Loyola Capital Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1994 1993 1992
--------------- ---------------- ---------------
(In Thousands)
<S> <C> <C> <C>
Operating activities:
Net income $ 15,039 12,265 14,113
Adjustments to reconcile net income to net
cash
provided (used) by operating activities:
Loans originated for sale, net (464,349) (708,033) (865,982)
Purchase of loans acquired for sale (264,627) (211,909) (30,943)
Sales of loans originated or purchased for 834,211 894,183 859,046
sale
Amortization of unearned loan fees (1,768) (1,320) (1,179)
Depreciation and amortization 4,276 4,059 3,962
Deferred income taxes (669) 1,919 (6,423)
Equity in net income of real estate joint (2,913) (2,732) (1,817)
ventures
Net increase (decrease) in accrued interest 117 (102) (425)
payable on deposits
Provision for losses on loans and
investments in
real estate 3,048 6,690 13,950
Gain on sales of loans (1,841) (1,841) (1,521)
Gain on sales of real estate owned (781) (1,010) (167)
Gain on sales of mortgage-backed securities --- --- (2,900)
Net increase (decrease) in accrued expenses
and other liabilities (2,007) 3,310 (9,658)
Net increase (decrease) in federal and state
income taxes payable 2,314 170 (704)
Other, net (1,721) (3,439) 4,126
--------------- ---------------- ---------------
Net cash provided (used) by operating 118,329 (7,790) (26,522)
activities
--------------- ---------------- ---------------
Investing activities:
Loan originations (536,723) (672,561) (139,583)
Loan fees deferred 5,188 4,451 2,486
Purchases of loans and participations in loans (181,183) (32,555) (20,355)
Principal repayments on loans 359,341 395,495 463,273
Purchases of investment securities and
Federal
Home Loan Bank stock (10,369) (223,346) (195,497)
Sales of investment securities --- 26,295 ---
Redemptions of investment securities and
Federal
Home Loan Bank stock 72,196 129,272 110,000
Purchases of mortgage-backed securities (23) (248,850) ---
</TABLE>
Continued
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<PAGE>
Loyola Capital Corporation and Subsidiaries
Consolidated Statements of Cash Flows, continued
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1994 1993 1992
--------------- ---------------- ---------------
(In Thousands)
<S> <C> <C> <C>
Repayments of mortgage-backed securities $ 13,679 6,413 558
Sales of mortgage-backed securities --- 490 133,058
Net decrease in investments in and advances to
real estate joint ventures 4,954 6,083 2,750
Net decrease in other real estate 5,868 5,123 5,989
Purchase of equipment (3,538) (3,398) (4,295)
--------------- ---------------- ---------------
Net cash provided (used) by investing activities (270,610) (607,088) 358,384
--------------- ---------------- ---------------
Financing activities:
Net increase (decrease) in deposits 7,920 (40,979) (148,722)
Proceeds from deposits purchased, net 32,360 --- ---
Net increase (decrease) in short-term borrowings
(original maturities less than three months) (164,919) 221,553 (47,965)
Proceeds from advances from Federal Home
Loan Bank of Atlanta 1,539,532 530,253 7,492
Repayment of advances from Federal Home
Loan Bank of Atlanta (1,329,832) (144,575) (25,827)
Net increase in mortgage escrow accounts 3,833 1,942 242
Payment of dividends on common stock (3,228) (1,943) (1,838)
Purchase of common stock --- (2,904) (4,410)
Proceeds from exercise of stock options 327 437 678
--------------- ---------------- ---------------
Net cash provided (used) by financing activities 85,993 563,784 (220,350)
--------------- ---------------- ---------------
Increase (decrease) in cash and cash equivalents (66,288) (51,094) 111,512
Cash and cash equivalents at beginning of year 94,000 145,094 33,582
--------------- ---------------- ---------------
Cash and cash equivalents at end of year $ 27,712 94,000 145,094
=============== ================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
-17-
<PAGE>
Loyola Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
(1) Summary of Significant Accounting Policies
Business -- Loyola Capital Corporation (the "Corporation") provides a
full range of retail banking services primarily in the mid-Atlantic region
through its wholly-owned subsidiary Loyola F.S.B. (the "Bank") and its
subsidiaries. The Corporation also engages in real estate development activity,
mortgage banking operations, insurance and appraisal services to supplement its
retail banking services. The Corporation is subject to competition from other
financial institutions. The Bank is subject to the regulations of certain
federal agencies and undergoes periodic examinations by those regulatory
authorities.
Basis of financial statement presentation -- The consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles. All significant intercompany accounts and transactions have been
eliminated. In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the statements of financial condition
and revenues and expenses for the period. Actual results could differ
significantly from those estimates.
Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the allowance for loan
losses and the valuation of investments in real estate. In connection with these
determinations, management obtains independent appraisals for significant
properties and prepares fair value analyses as appropriate.
A major portion of the Corporation's loans and investments in real
estate is secured by single family homes. Substantially all of these loans and
investments are in the mid-Atlantic region. Accordingly, the ultimate
collectibility of the Corporation's loan portfolio and the recovery of the
carrying amount of its investments in real estate are susceptible to changes in
market conditions in the mid-Atlantic region.
Management believes that the allowances for losses on loans and
investments in real estate are adequate. While management uses available
information to recognize losses on loans and investments in real estate, future
additions to the allowances may be necessary based on changes in economic
conditions, particularly in the mid-Atlantic region. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Corporation's allowances for losses on loans and
investments in real estate. Such agencies may require the Corporation to
recognize additions to the allowances based on their judgments about information
available to them at the time of their examination.
Investment and mortgage-backed securities -- Prior to December 31, 1993
investment securities were carried at cost, adjusted for amortization of premium
or accretion of discount over the term of the security. The lower of cost or
market was not used since it was management's intention to hold these securities
to maturity. Gain or loss on sale was reflected in income at the time of sale
using the specific identification method.
-18-
<PAGE>
As of December 31, 1993, the Corporation adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," (Statement 115"), which addresses the accounting and
reporting for certain investments in debt and equity securities. Statement 115
requires classification of such securities into three categories. Debt
securities that the Corporation has the positive intent and ability to hold to
maturity are classified as held to maturity and recorded at amortized cost. Debt
and equity securities are classified as trading securities if bought and held
principally for the purpose of selling them in the near term. Trading securities
are reported at fair value, with unrealized gains and losses included in
earnings. Debt and equity securities not classified as held to maturity or
trading securities are considered available for sale and are reported at fair
value, with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity, net of tax effects.
Management reviewed the Corporation's securities portfolios as of
December 31, 1993 and designated the investment and mortgage-backed securities
portfolios as held to maturity. Accordingly, there was no financial effect to
the Corporation of the initial adoption of Statement 115. At December 31, 1994,
the investment and mortgage-backed securities portfolios are classified as held
to maturity.
If a decline in value of an individual security classified as held to
maturity or available for sale is judged to be other than temporary, the cost
basis of that security is reduced to its fair value and the amount of the
write-down is reflected in earnings. Fair value is determined based on bid
prices published in financial newspapers or bid quotations received from
securities dealers. For purposes of computing realized gains or losses on the
sales of investments, cost is determined using the specific identification
method. Premiums and discounts on investment and mortgage-backed securities are
amortized over the term of the security using methods that approximate the
interest method.
Acquisition, development and construction loans -- The Corporation
analyzes whether acquisition, development and construction loan transactions are
to be accounted for as real estate investments, joint ventures or loans. Even
though certain of these transactions are structured as loans in legal form, the
Corporation applies real estate investment or joint venture accounting, as
appropriate, whenever in management's opinion, transactions have essentially the
same risks and potential rewards as those of owners of real estate or as real
estate joint venture partners.
Loans held for sale -- These loans are carried at the lower of cost or
market on an aggregate basis.
Loan servicing rights -- The cost of loan servicing rights acquired is
amortized in proportion to, and over the period of, estimated net servicing
revenues using a method approximating the interest method. The cost of loan
servicing rights purchased and the amortization thereon is periodically
evaluated in relation to estimated future net servicing revenues. The
Corporation evaluates the carrying value of the servicing portfolio by
projecting the future net servicing income of the portfolio based on
management's best estimate of remaining loan lives. The amortized cost of loan
servicing rights totaled approximately $4.9 million, $3.0 million and $1.5
million at December 31, 1994, 1993 and 1992, respectively, and is included with
prepaid expenses and other assets in the Consolidated Statements of Financial
Condition.
Investments in real estate -- Real estate purchased for development and
sale includes real estate development projects, which are carried at the lower
of cost or estimated net realizable value. Costs relating to such projects,
including interest, are capitalized until a saleable condition is reached.
Real estate acquired through foreclosure is initially recorded at the
lower of cost or estimated fair value, and subsequently at the lower of book
value or estimated fair value less estimated costs to sell. Costs relating to
holding such real estate are charged against income in the current period, while
costs relating to improvements are capitalized until a saleable condition is
reached.
Investments in and advances to real estate joint ventures are accounted
for using the equity method. These investments are carried at the lower of cost
or net realizable value. Interest income and fees on loans to joint ventures are
deferred. Such interest and fees, in excess of related capitalized interest
costs, are recognized as the loans are repaid.
Property and equipment -- Property and equipment are carried at cost
less accumulated depreciation and amortization. Depreciation and amortization
are computed on a straight-line basis over the estimated useful lives of the
-19-
<PAGE>
assets or leases, as appropriate. Gains or losses on sales of property and
equipment are recognized upon sale.
Income taxes -- The Corporation and its subsidiaries file consolidated
federal income tax returns. Deferred income taxes are provided for income and
expense items which are reported for financial statement purposes in different
accounting periods than for income tax return purposes.
Effective January 1, 1992, the Corporation adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
("Statement 109") which requires, among other things, a change from the deferred
method to the asset and liability method of accounting for deferred income
taxes. The cumulative effect of this change was to increase net income for 1992
by $2.7 million ($.31 per share).
Under the asset and liability method required by Statement 109,
deferred income taxes are recognized, with certain exceptions, for temporary
differences between the financial reporting basis and income tax basis of assets
and liabilities based on enacted tax rates expected to be in effect when such
amounts are realized or settled. Deferred tax assets (including tax loss
carryforwards) are recognized only to the extent that it is more likely than not
that such amounts will be realized based on consideration of available evidence,
including tax planning strategies and other factors.
Statement 109 continues the exception for providing a deferred tax
liability on bad debt reserves for tax purposes of qualified thrift lenders such
as the Bank that arose in fiscal years beginning before December 31, 1987. Such
bad debt reserve for the Bank amounted to approximately $32.5 million with an
income tax effect of approximately $12.8 million at December 31, 1994. This bad
debt reserve would become taxable if the Bank does not maintain certain
qualified assets as defined, if the reserve is charged for other than bad debt
losses, or if the Bank does not maintain its thrift charter.
The effects of changes in tax laws or rates on deferred tax assets and
liabilities are recognized in the period that includes the enactment date.
Origination and commitment fees -- Origination and commitment fees and
direct origination costs for loans held for investment are deferred and
amortized to income over the contractual lives of the related loans using the
interest method. Under certain circumstances, commitment fees are recognized
over the commitment period or upon expiration of the commitment. Fees received
for issuing standby letters of credit are deferred and amortized into income
using the straight-line method over the life of the letters of credit.
Origination and commitment fees and direct origination costs on loans
originated for sale are deferred and recognized as a component of gain or loss
at the time of sale of the related loans.
Capitalization of interest -- Interest costs of approximately $850,000,
$1.2 million and $1.2 million were capitalized in 1994, 1993 and 1992,
respectively. Interest costs are capitalized based on the average cost of funds
to the Corporation and the average investment in real estate and real estate
joint ventures with development in process.
Provision for loan losses -- Provisions for losses on loans receivable
are charged to income, based on management's judgment with respect to the risks
inherent in the portfolio. Such judgment considers a number of factors including
historical loss experience, the present and prospective financial condition of
borrowers, estimated value of underlying collateral, geographical and industry
concentrations, current and prospective economic conditions, delinquency
experience and status of nonperforming assets. Loans or portions thereof are
charged off when considered uncollectible in the opinion of management.
Interest on loans is excluded from income when the full collection of
principal or interest is in doubt, or when the payment of principal or interest
has become contractually 90 days past due unless the obligation is both well
secured and in the process of collection. Such interest ultimately collected is
credited to income in the period of recovery.
In October 1994 the Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 114 "Accounting by Creditors for Impairment
of a Loan" was amended by Statement 118 "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures" (collectively referred to as
"Statement 114"). Statement 114
-20-
<PAGE>
is effective for fiscal years beginning after December 15, 1994. Statement 114
addresses the accounting by creditors for impairment of certain loans. It is
generally applicable for all loans except large groups of smaller-balance
homogenous loans, including residential mortgage loans and consumer installment
loans that are collectively evaluated for impairment. It also applies to all
loans that are restructured in a troubled debt restructuring involving a
modification of terms. However, if a loan that was restructured in a troubled
debt restructuring involving a modification of terms before the effective date
of Statement 114 is not impaired based on the terms specified by the
restructuring agreement, a creditor may continue to account for the loan in
accordance with the provisions of Statement 15, "Accounting for Troubled Debt
Restructurings" prior to its amendment by Statement 114.
Statement 114 requires that impaired loans be measured on the present
value of expected future cash flows discounted at the loan's effective interest
rate, or at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. A loan is considered impaired
when, based on current information and events, it is probable that a creditor
will be unable to collect all amounts due according to the contractual terms of
the loan agreement. The Corporation adopted the provisions of Statement 114 as
of January 1, 1995. Adoption of Statement 114 did not have a material impact on
the Corporation's financial statements.
Statements of cash flows -- Cash equivalents for purposes of the
consolidated statements of cash flows include money market investments. Cash
payments for income taxes were $8.3 million, $6.1 million and $11.8 million in
1994, 1993 and 1992, respectively. Interest paid on deposits and notes payable
and other borrowings net of interest capitalized was $94.3 million, $79.1
million $88.0 million in 1994, 1993 and 1992, respectively. Loans transferred to
real estate acquired through foreclosures were $3.7 million, $2.2 million and
$4.4 million in 1994, 1993 and 1992, respectively. Loans to facilitate the sale
of investments in real estate were $8.4 million, $7.0 million and $2.3 million
in 1994, 1993 and 1992, respectively.
Reclassifications -- Certain amounts in the 1993 and 1992 financial
statements have been reclassified to conform to the 1994 presentation.
-21-
<PAGE>
(2) Money Market Investments
A summary of money market investments as of December 31 follows:
1994 1993
--------------- ---------------
(In Thousands)
Overnight deposits $ 3,285 1,148
Repurchase agreements --- 70,000
Accrued interest receivable 1 82
--------------- ---------------
$ 3,286 71,230
=============== ===============
The Corporation purchases mortgage-backed securities and mortgage loans
under agreements to resell ("repurchase agreements"). The advances under these
agreements represent short-term loans by the Corporation to primary securities
dealers. The Corporation has granted the sellers the right of securities
substitution. The sellers have guaranteed that actual securities identified with
the transactions will have a market value that is equal to or exceeds the
repurchase agreement amounts. All outstanding repurchase agreements at December
31, 1993 matured within 30 days.
At December 31, 1993, the counterparties for the outstanding repurchase
agreements were Salomon Brothers Holding Company, Inc. ($20 million),
PaineWebber Real Estate Securities, Inc. ($20 million), Kidder Peabody & Co.,
Inc. ($10 million), and Bear, Stearns Government Securities, Inc. ($20 million).
Securities purchased under repurchase agreements averaged $29.0 million and
$77.6 million in 1994 and 1993, respectively. The maximum amount outstanding at
any month-end was $80.0 million and $117.8 million in 1994 and 1993,
respectively.
-22-
<PAGE>
(3) Investment Securities
A summary of investment securities classified as held to maturity as of
December 31 follows:
<TABLE>
<CAPTION>
1994
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- --------------- --------------- ---------------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Government and
Agency obligations $ 116,680 18 (3,216) 113,482
Accrued interest receivable 1,227 --- --- 1,227
--------------- --------------- --------------- ---------------
$ 117,907 18 (3,216) 114,709
=============== =============== =============== ===============
<CAPTION>
1993
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- --------------- --------------- ---------------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Government and
Agency obligations $ 188,087 245 (132) 188,200
Accrued interest receivable 2,437 --- --- 2,437
--------------- --------------- --------------- ---------------
$ 190,524 245 (132) 190,637
=============== =============== =============== ===============
</TABLE>
An investment security maturity distribution summary based on maturity
dates as of December 31 follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------------- ----------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------------- --------------- --------------- ----------------
(In Thousands)
<S> <C> <C> <C> <C>
Due within one year $ 61,502 61,367 69,179 69,090
Due one through five years 50,178 47,550 111,808 111,994
Due after five years 5,000 4,565 7,100 7,116
--------------- --------------- --------------- ----------------
Accrued interest receivable 1,227 1,227 2,437 2,437
--------------- --------------- --------------- ----------------
$ 117,907 114,709 190,524 190,637
=============== =============== =============== ================
</TABLE>
Investment securities with book values of $55.0 million and $95.2
million and fair values of $54.9 million and $95.3 million were sold under
repurchase agreements at December 31, 1994 and 1993, respectively.
-23-
<PAGE>
(4) Mortgage-Backed Securities
A summary of mortgage-backed securities as of December 31 follows:
<TABLE>
<CAPTION>
1994 1993
------------------------------------------- ------------------------------------------------------------
Gross Gross Gross
Amortized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Losses Value Cost Gains Losses Value
-------------- --------------- ----------- -------------- -------------- --------------- ------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Federal Home Loan
Mortgage $ 134,945 (12,718) 122,227 143,360 131 (104) 143,387
Corporation
Federal National
Mortgage Association 93,284 (9,190) 84,094 98,905 --- (317) 98,588
Accrued interest
receivable 1,200 --- 1,200 657 --- --- 657
-------------- --------------- ----------- -------------- -------------- --------------- ------------
$ 229,429 (21,908) 207,521 242,922 131 (421) 242,632
============== =============== =========== ============== ============== =============== ============
</TABLE>
At December 31, 1994, the Corporation did not have any mortgage-backed
securities sold under repurchase agreements. At December 31, 1993,
mortgage-backed securities with book values of $119.4 million and fair values of
$119.2 million were sold under repurchase agreements. The Corporation has
pledged mortgage-backed securities with book values of $205.0 million and fair
values of $185.3 million to the Federal Home Loan Bank of Atlanta ("FHLB of
Atlanta") as collateral for short-term credit advances at December 31, 1994. The
Corporation has also pledged mortgage-backed securities with book values of
$18.7 million and fair values of $16.9 million as collateral for standby letters
of credit at December 31, 1994. At December 31, 1993, the Corporation had
pledged mortgage-backed securities with book values of $27.7 million and fair
values of $28.1 million as collateral for standby letters of credit. See note
15.
-24-
<PAGE>
(5) Loans Receivable
A summary of loans receivable as of December 31 follows:
1994 1993
--------------- ---------------
(In Thousands)
Real estate:
Mortgage loans:
Residential - single family $ 1,382,627 1,110,912
Residential - multi-family 31,739 39,864
Commercial 88,859 70,784
Construction 153,223 104,881
Consumer 366,337 313,892
Commercial 10,051 10,961
Accrued interest receivable 10,292 8,501
--------------- ---------------
2,043,128 1,659,795
1994 1993
--------------- ---------------
(In Thousands)
Less:
Undisbursed loan funds 70,484 48,526
Unearned loan fees 6,639 5,437
Allowance for loan losses 13,733 14,625
--------------- ---------------
Loans receivable, net $ 1,952,272 1,591,207
=============== ===============
The Corporation's lending operations are concentrated in the
mid-Atlantic region. Substantially all of the Corporation's loans receivable are
mortgage loans secured by residential and commercial property and consumer loans
secured by automobiles and boats. Loans are extended only after evaluation by
management of borrowers' creditworthiness, value of collateral and other
relevant factors on a case-by-case basis.
The Corporation generally does not lend over 95% of the appraised value
of a residential property and requires private mortgage insurance on first
mortgages with loan-to-value ratios in excess of 80%. With respect to
construction, commercial and multi-family residential loans the Corporation
generally does not lend over 80% of the appraised value of the property. In
addition, the Corporation generally obtains personal guarantees of partial to
full repayment from the borrower and/or others for such loans and disburses the
proceeds of construction and similar loans only as work progresses on the
related projects.
Residential lending is generally considered to involve less risk than
other forms of lending although repayment of these loans is dependent to some
extent on economic and market conditions in the Corporation's primary lending
area. Multi-family residential, commercial and construction loan repayments are
generally dependent on the operations of the related properties and/or the
financial condition of the borrower and/or guarantor. Accordingly, repayment of
such loans can be more susceptible to adverse conditions in the real estate
market and the national and local economy. Repayment of consumer loans is
largely dependent on the condition of the regional economy and the used
automobile and boat market.
-25-
<PAGE>
A summary of activity in the allowance for loan losses for the years
ended December 31 follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------------- --------------- ---------------
(Dollars in Thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 14,625 15,151 14,338
--------------- --------------- ---------------
Charge-offs:
Real estate - mortgage loans 438 225 354
Real estate - construction loans --- --- 306
Consumer loans 3,525 5,886 7,938
Commercial loans --- --- ---
Recoveries - consumer loans (2,411) (2,500) (2,346)
--------------- --------------- ---------------
Net charge-offs 1,552 3,611 6,252
--------------- --------------- ---------------
Provision for loan losses:
Real estate - mortgage loans 300 600 675
Real estate - construction loans 300 --- (1,150)
Consumer loans 5 2,419 4,062
Commercial loans 55 66 3,478
--------------- --------------- ---------------
660 3,085 7,065
--------------- --------------- ---------------
<CAPTION>
1994 1993 1992
--------------- --------------- ---------------
(Dollars in Thousands)
Balance at end of year $ 13,733 14,625 15,151
=============== =============== ===============
<S> <C> <C> <C>
Ratio of net charge-offs to average
loans outstanding .09% .25% .41%
Balance at end of year applicable to:
Real estate - mortgage loans $ 2,333 2,471 2,096
Real estate - construction loans 840 540 540
Consumer loans 6,533 7,642 8,609
Commercial loans 4,027 3,972 3,906
</TABLE>
Nonperforming loans as of December 31 were as follows:
1994 1993
--------------- ----------------
(In Thousands)
Repossessed autos and boats $ 581 1,650
Nonaccrual loans 7,682 10,149
--------------- ----------------
$ 8,263 11,799
=============== ================
In addition to nonperforming loans, the Corporation also has an
investment in a loan modified under a troubled debt restructuring. The recorded
investment in this loan was approximately $1.5 million at December 31, 1994 and
1993.
The contractual amount of interest that would have been recorded on the
above nonaccrual loans and loan modified
-26-
<PAGE>
under a troubled debt restructuring during 1994 and 1993 was approximately
$824,000 and $1.0 million, respectively. Actual interest income recorded on such
loans totaled $201,000 in 1994 and $257,000 in 1993.
The Corporation, through its normal asset review process, has
classified certain loans which management believes involve a degree of risk
warranting additional attention. These classifications are special mention,
substandard, doubtful and loss. In addition to those included above in
nonperforming and restructured loans a total of $7.4 million and $9.9 million in
loans were classified as substandard or doubtful at December 31, 1994 and 1993,
respectively. These are loans that are current but have been classified by
management due to a specific identified weakness, such as cash flow or
collateral. Loans classified as special mention totaled $3.8 million and $3.6
million at December 31, 1994 and 1993, respectively. These are loans which,
while current in required payments, have exhibited some potential weaknesses
that, if not corrected, could weaken the asset and increase the level of risk in
the future.
At December 31, 1994, 1993 and 1992, the Corporation was servicing
approximately $1.65 billion, $1.41 billion and $1.34 billion, respectively, of
whole and participating interests in loans for third-party investors, which are
not reflected in the Consolidated Statements of Financial Condition. Such
servicing operations result in the generation of an average annual fee income of
between .25% and .50% of the principal balances of such loans serviced.
-27-
<PAGE>
A summary of activity in loans to directors and executive officers of
the Corporation including advances to real estate joint ventures in which such
individuals hold an interest, excluding aggregate amounts under $60,000 per
individual for the year ended December 31, 1994 is presented in the following
table:
<TABLE>
<CAPTION>
Commercial Investments
Real Estate in and
Residential Loans and Advances
and Consumer Lines of to Real Estate
Loans Credit Joint Ventures Total
-------------------- ----------------- ------------------- ---------------
(In Thousands)
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $ 1,331 9,322 5,036 15,689
New loans and advances 205 900 2,372 3,477
Principal payments (250) (1,365) (3,297) (4,912)
-------------------- ----------------- ------------------- ---------------
Balance at December 31, 1994 $ 1,286 8,857 4,111 14,254
==================== ================= =================== ===============
</TABLE>
(6) Investments in Real Estate
The following is a summary of investments in real estate at December
31:
<TABLE>
<CAPTION>
1994 1993
--------------- ---------------
(In Thousands)
<S> <C> <C>
Purchased for development and sale $ 7,347 10,238
Acquired through foreclosure 20,601 27,370
Investments in and advances to joint ventures 9,731 14,810
--------------- ---------------
37,679 52,418
Allowance for losses (11,305) (11,769)
--------------- ---------------
$ 26,374 40,649
=============== ===============
</TABLE>
A summary of income (loss) on investments in real estate for the years
ended December 31 follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------------- ---------------- ---------------
(In Thousands)
<S> <C> <C> <C>
Equity in net income of real estate joint $ 2,913 2,732 1,817
ventures
(Loss) gain from sales of real estate acquired
for development and sale, net (32) 124 43
Income from sales of real estate acquired
through
foreclosure, net 781 1,010 167
Provision for losses on real estate (2,388) (3,605) (6,885)
Expenses of holding real estate acquired
through
foreclosure, net (826) (846) (961)
--------------- ---------------- ---------------
$ 448 (585) (5,819)
================ ================ ===============
-28-
<PAGE>
A summary of activity in the allowance for losses on investments in
real estate for the years ended December 31 follows:
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
--------------- --------------- ---------------
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 11,769 10,606 4,539
Charge-offs, net of recoveries:
Real estate acquired through foreclosure 1,151 45 (366)
Real estate purchased for development and 1,194 2,207 1,184
sale
Investments in and advances to real estate
joint ventures 507 190 ---
--------------- --------------- ---------------
Total charge-offs, net 2,852 2,442 818
--------------- --------------- ---------------
Provision for losses:
Real estate acquired through foreclosure 1,456 1,670 4,395
Real estate purchased for development and 380 1,453 3,309
sale
Investments in and advances to real estate
joint ventures 552 482 (819)
--------------- --------------- ---------------
Total provisions for losses 2,388 3,605 6,885
--------------- --------------- ---------------
Balance at end of year $ 11,305 11,769 10,606
=============== =============== ===============
Balance at end of year applicable to:
Real estate acquired through foreclosure $ 9,008 8,703 7,078
Real estate purchased for development and 1,473 2,287 3,041
sale
Investments in and advances to real estate
joint ventures 824 779 487
--------------- --------------- ---------------
$ 11,305 11,769 10,606
=============== =============== ===============
</TABLE>
Real estate purchased for development and sale includes several
residential real estate projects.
The Corporation, through its subsidiaries, is a partner in several real
estate joint ventures in which its partnership interests range from 16% to 50%.
The joint ventures were formed for the purpose of acquiring and developing
residential real estate for sale.
-29-
<PAGE>
Combined condensed financial information for these joint ventures,
which are accounted for using the equity method, is presented below:
Balance Sheets
<TABLE>
<CAPTION>
December 31,
---------------------------------
1994 1993
--------------- ---------------
(In Thousands)
<S> <C> <C>
Assets
(primarily land and construction in progress) $ 21,601 31,894
=============== ===============
Liabilities
Due to Loyola Capital Corporation and
subsidiaries $ 7,171 9,875
Due to others 6,532 9,400
Partners' equity
Loyola Capital Corporation and
subsidiaries 4,139 5,333
Others 3,759 7,286
--------------- ---------------
$ 21,601 31,894
=============== ===============
</TABLE>
Operations
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1994 1993 1992
---------------- --------------- ---------------
(In Thousands)
<S> <C> <C> <C>
Sales $ 41,029 40,338 26,364
Cost of sales 35,471 34,741 22,568
---------------- --------------- ---------------
Gain on sales of real estate $ 5,558 5,597 3,796
================ =============== ===============
</TABLE>
(7) Insurance of Deposit Accounts and Related Matters
The Federal Deposit Insurance Corporation ("FDIC"), through the Savings
Association Insurance Fund, insures deposits of accountholders up to $100,000.
The Bank pays an annual premium to provide for this insurance. The Bank is a
member of the Federal Home Loan Bank System and is required to maintain an
investment in the stock of the FHLB of Atlanta equal to at least 1% of the
unpaid principal balances of its residential mortgage loans, .3% of its total
assets or 5% of its outstanding credit from the bank, whichever is greater.
Purchases and sales of stock are made directly with the bank at par value.
In connection with the insurance of their deposits, thrift institutions
are required to maintain certain minimum levels of regulatory capital. The
minimum levels are tangible and core capital of 1.5% and 3%, respectively, of
adjusted total assets and risk-based capital of 8.0% of risk-weighted assets.
For risk-based capital purposes, the Bank is permitted to include its general
valuation loss allowance subject to a limitation of 1.25% of risk-weighted
assets. In addition, investments (debt or equity) in subsidiaries and joint
ventures engaged in real estate development and certain other activities not
permissible for national banks, as defined, must be excluded from capital to the
extent that they exceed the total balance of such investments as of April 12,
1989. The total of such investments below the balance as of April 12, 1989 are
subject to a phase-in exclusion at specified rates of 25% on July 1, 1991; 40%
on July 1, 1994; 60% on July 1, 1995 and 100%
-30-
<PAGE>
on July 1, 1996.
In August 1993, the OTS adopted a final rule for calculating an
interest rate risk ("IRR") component of risk-based capital. The new rule became
effective January 1, 1994; with institutions first required to meet the new
standard at March 31, 1995. The OTS began calculating the IRR component
quarterly for each institution starting in 1994.
To estimate IRR, the OTS computes each institution's net portfolio
value ("NPV") in the present interest rate environment versus NPVs derived after
applying parallel rate shifts of plus and minus 200 basis points. If there is a
measured decline in NPV greater than 2% of the estimated market value of the
institution's assets at each of the three most recent quarter ends, then an
institution will be required to deduct an IRR component in calculating its
risk-based capital. This component is equal to one-half of the difference
between its measured IRR and 2%, multiplied by the market value of its assets.
Based upon the latest available quarterly proforma computations of NPV
by the OTS in 1994, the Bank's measured IRR exceeded 2% of the estimated market
value of its assets at September 30. If the measured IRR exceeds 2% for the next
two quarters the Bank's risk-based capital ratio would be reduced. Such
reduction is not expected to affect the Bank's ability to meet its minimum
capital requirements. However, it could affect the Bank's capital category
discussed below.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") included prompt corrective action provisions for which implementing
regulations became effective on December 19, 1992. FDICIA also includes
significant changes to the legal and regulatory environment for insured
depository institutions, including reduction in insurance coverage for certain
kinds of deposits, increased supervision by the federal regulatory agencies,
increased reporting requirements for insured institutions, and new regulations
concerning internal controls, accounting, and operations.
The prompt corrective action regulations of FDICIA define specific
capital categories based on an institution's capital ratios. The capital
categories, in declining order, are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." Institutions categorized as "undercapitalized" or
worse are subject to certain restrictions, including the requirement to file a
capital plan with its primary federal regulator, prohibitions on the payment of
dividends and management fees, restrictions on executive compensation, and
increased supervisory monitoring, among other things.
To be considered "well capitalized," an institution must generally have
a leverage capital ratio of at least 5%, a tier one risk-based capital ratio of
at least 6% and a total risk-based capital ratio of at least 10%. At December
31, 1994, the Bank met the criteria required to be considered "well-capitalized"
under this regulation.
At December 31, 1994, the Bank was in compliance with the current and
fully phased-in regulatory capital requirements.
Dividends may not be paid if doing so would cause the Bank to fail to
meet the minimum levels of regulatory capital. See also note 12 for additional
restrictions on the payment of dividends.
-31-
<PAGE>
(8) Property and Equipment
The following is a summary of property and equipment as of December 31:
<TABLE>
<CAPTION>
Estimated
1994 1993 Useful Lives
------- ------ ------------
(In Thousands)
<S> <C> <C> <C>
Land ......................................... $ 3,082 3,291 --
Office buildings and improvements ............ 23,509 22,629 15-40 years
Furniture, fixtures and equipment ............ 19,917 18,535 3-10 years
Computer software ............................ 5,461 5,221 3-7 years
------- ------- ===========
Total cost ............................... 51,969 49,676
Less accumulated depreciation and amortization 27,262 24,231
------- ---------
$24,707 25,445
======= =========
</TABLE>
-32-
<PAGE>
(9) Deposits
The following is a summary of deposits as of December 31:
<TABLE>
<CAPTION>
Weighted
Average Rates
----------------------------------
1994 1993
---------------- ---------------
<S> <C> <C>
Negotiable order of withdrawal (NOW) 2.44% 2.32%
Passbook and statement savings 2.85 3.00
Money market 4.03 3.04
Noninterest-bearing --- ---
</TABLE>
<TABLE>
<CAPTION>
Maturities
------------------
<S> <C> <C> <C>
Certificates:
Short-term fixed rate 3-12 months 4.02 3.04
Negotiable rate 1-12 months --- 3.14
Long-term variable rate 18-23 months 5.10 4.36
Long-term fixed rate 12-60 months 5.40 5.40
Other 3-96 months --- 8.66
</TABLE>
<TABLE>
<CAPTION>
1994 1993
--------------------------------- ---------------------------------
Amount % Amount %
----------------- ------------ ----------------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Negotiable order of withdrawal (NOW) $ 86,577 6 $ 79,540 6
Passbook and statement savings 153,060 10 161,910 11
Money market 411,925 28 340,129 24
Noninterest-bearing 27,151 2 56,983 4
----------------- ------------ ----------------- ------------
678,713 46 638,562 45
----------------- ------------ ----------------- ------------
Certificates:
Short-term fixed rate 94,074 7 120,748 8
Negotiable rate --- --- 1,688 ---
Long-term variable rate 90,204 6 101,148 7
Long-term fixed rate 606,659 41 555,451 39
Other --- --- 7,700 1
----------------- ------------ ----------------- ------------
790,937 54 786,735 55
----------------- ------------ ----------------- ------------
Accrued interest 275 --- 158 ---
Premium on purchased deposits (4,295) --- (661) ---
----------------- ------------ ----------------- ------------
$ 1,465,630 100 1,424,794 100
================= ============ ================= ============
Scheduled certificate maturities:
0-6 months $ 263,938 33 289,335 37
7-12 months 158,710 20 158,608 20
13-24 months 117,075 15 166,057 21
25-36 months 119,698 15 44,904 6
37-48 months 46,134 6 66,255 8
49-60 months 85,362 11 61,340 8
Over 60 months
$ 790,937 100 786,735 100
================= ============ ================= ============
</TABLE>
Certificates of $100,000 or more totaled $58.0 million and $52.1
million at December 31, 1994 and 1993, respectively.
-33-
<PAGE>
(9) Deposits, continued
The following is a summary of interest expense on deposits for the
years ended December 31:
1994 1993 1992
------- ------- -------
(In Thousands)
NOW and money market $17,581 12,096 13,853
Passbook and statement savings 4,518 4,813 4,956
Certificates 36,255 41,703 58,461
------- ------- -------
$58,354 58,612 77,270
======= ======= =======
(10) Notes Payable and Other Borrowings
The following is a summary of notes payable and other borrowings as of
December 31:
<TABLE>
<CAPTION>
1994 1993
---------------------------------- ----------------------------------
Weighted Weighted
Average Average
Amount Rates Amount Rates
--------------- --------------- --------------- ---------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Notes payable:
Advances from FHLB
of Atlanta due in:
1994 $ -- --- % 96,800 6.81%
1995 371,200 6.27 93,600 6.93
1996 61,200 5.73 54,600 5.54
1997 61,200 5.73 54,600 5.54
1998 61,200 5.73 54,600 5.54
1999 61,200 5.73 54,600 5.54
2000 to 2004 93,700 5.69 93,700 5.69
2005 and beyond 9,670 5.63 7,170 5.79
-------- ----------
719,370 6.00 509,670 6.07
-------- ----------
Securities sold with agreements
to repurchase - due within one
month 55,231 6.05 215,048 2.93
Accrued interest payable 2,976 2,846
-------- ----------
$777,577 727,564
======== ==========
</TABLE>
Under a blanket floating lien security agreement with the FHLB of
Atlanta, the Corporation is required to maintain as collateral for its advances
qualifying first mortgage loans in an amount equal to 133% of the advances. In
addition, all of its stock in the FHLB of Atlanta is pledged as collateral for
such advances.
At December 31, 1994, the Corporation has pledged mortgage-backed
securities to the FHLB of Atlanta as additional collateral for certain
short-term credit advances under the above mentioned line of credit. See note 4.
-34-
<PAGE>
The Corporation enters into sales of U.S. Treasury and mortgage-backed
securities with agreements to repurchase ("reverse repurchase agreements").
Fixed-coupon reverse repurchase agreements are treated as financings, and the
obligations to repurchase securities sold are reflected as a liability in the
consolidated statements of financial condition. The securities underlying the
agreements are book-entry securities. The securities are delivered by
appropriate entry into the counterparties' accounts maintained at the Federal
Reserve Bank of New York. For mortgage-backed securities, the dealers may have
sold, loaned or otherwise disposed of such securities to other parties in the
normal course of their operations, and have agreed to resell to the Corporation
substantially identical securities at the maturities of the agreements.
Identical U.S. Treasury securities are required to be resold to the Corporation.
The dollar amount of U.S. Treasury and mortgage-backed securities remains in the
asset accounts. All agreements mature within 30 days. At December 31, 1994 and
1993, details of securities sold with agreements to repurchase are as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------------- ---------------------------------
Book Value Fair Value Book Value Fair Value
--------------- ---------------- --------------- ---------------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 54,998 54,863 95,156 95,258
Mortgage-Backed Securities --- --- 119,375 119,247
--------------- ---------------- --------------- ---------------
$ 54,998 54,863 214,531 214,505
=============== ================ =============== ===============
</TABLE>
Certain additional information regarding short-term borrowings for the
years ended December 31 is presented below:
<TABLE>
<CAPTION>
1994 1993 1992
--------------- --------------- ----------------
(Dollars in Thousands)
<S> <C> <C> <C>
Maximum amount of short-term borrowings outstanding
at any month-end:
Securities sold with agreements to repurchase $ 241,050 215,048 40,576
Advances from FHLB of Atlanta 371,200 96,800 20,827
Approximate average month-end short-term borrowings
outstanding with respect to:
Securities sold with agreements to repurchase 99,614 44,317 1,413
Advances from FHLB of Atlanta 208,561 45,105 901
Approximate weighted average rate paid on
(computed using average month-end short-term
borrowings outstanding):
Securities sold with agreements to repurchase 3.63 % 2.84 % 4.33%
Advances from FHLB of Atlanta 6.26 7.41 6.61
</TABLE>
The following is a summary of interest expense on notes payable and
other borrowings for the years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
--------------- --------------- ----------------
(In Thousands)
<S> <C> <C> <C>
Short-term $ 16,667 4,600 121
Long-term 19,485 15,764 10,066
--------------- --------------- ----------------
$ 36,152 20,364 10,187
=============== =============== ================
</TABLE>
-35-
<PAGE>
(11) Income Taxes
The components of the provision for income taxes for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------------- --------------- ---------------
(In Thousands)
<S> <C> <C> <C>
Current:
Federal $ 8,822 5,232 9,197
State 1,873 1,009 1,978
--------------- --------------- ---------------
10,695 6,241 11,175
--------------- --------------- ---------------
Deferred:
Federal (551) 1,579 (3,040)
State (118) 340 (675)
--------------- --------------- ---------------
(669) 1,919 (3,715)
--------------- --------------- ---------------
Provision for income taxes $ 10,026 8,160 7,460
=============== =============== ===============
</TABLE>
The net deferred tax asset consists of total deferred tax assets and
total deferred tax liabilities of approximately $10.3 million and $4.2 million
at December 31, 1994 and $11.0 million and $5.6 million at December 31, 1993,
respectively. The tax effects of temporary differences between the financial
reporting basis and income tax basis of assets and liabilities that are included
in the net deferred tax asset at December 31, 1994 and 1993 relate to the
following:
<TABLE>
<CAPTION>
1994 1993
--------------- ---------------
(In Thousands)
<S> <C> <C>
Interest and fees on loans $ 3,423 3,671
Equity in net income of joint ventures (491) (1,985)
FHLB of Atlanta stock dividends (2,342) (2,345)
Allowances for losses on loans and investments in
real estate 5,766 6,994
Depreciation and amortization (192) (843)
Other, net (86) (83)
--------------- ---------------
Total $ 6,078 5,409
=============== ===============
</TABLE>
A reconciliation between the provision for income taxes and the amount
computed by multiplying income before income taxes by the statutory federal
income tax rate of 35% in 1994 and 1993 and 34% in 1992 is as follows for the
years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
--------------- --------------- ---------------
(In Thousands)
<S> <C> <C> <C>
Income tax provision at federal statutory rate $ 8,773 7,149 6,414
State income tax net of federal tax benefit 1,141 877 860
Other, net 112 134 186
--------------- --------------- ---------------
Provision for income taxes $ 10,026 8,160 7,460
=============== =============== ===============
</TABLE>
The Internal Revenue Service has examined the Corporation's
consolidated federal income tax returns through December, 1990.
-36-
<PAGE>
(12) Stockholders' Equity
In 1986, the Bank completed its conversion from mutual to stock
ownership and became a wholly-owned subsidiary of Loyola Capital Corporation, a
unitary savings and loan holding company.
Federal regulations require that, upon conversion from mutual to stock
form of ownership, a "liquidation account" be established by restricting a
portion of net worth for the benefit of eligible savings account holders who
maintain their savings accounts with the Bank after conversion. In the event of
complete liquidation (and only in such event), each savings account holder who
continues to maintain his savings account shall be entitled to receive a
distribution from the liquidation account after payment to all creditors, but
before any liquidation distribution with respect to capital stock. This account
will be proportionately reduced for any subsequent reduction in the eligible
holders' savings accounts.
Under federal regulations, the Bank may not declare or pay a cash
dividend on any of its stock if the effect thereof would cause the Bank's
capital to be reduced below the amount required for the liquidation account or
the capital requirements imposed by FIRREA and the OTS. Since the Bank currently
meets the fully phased-in capital requirements under FIRREA, it may pay a cash
dividend on its capital stock up to the higher of (i) 100% of its net income to
date during the calendar year plus an amount not to exceed 50% of its surplus
capital ratio at the beginning of the calendar year or (ii) 75% of its net
income over the most recent four quarter period. Based upon this calculation,
the amount available for payment of a dividend was $21.1 million at December 31,
1994. See also note 7.
During 1994, stock options for 45,483 shares were exercised at an
average price of $6.09, resulting in an increase of $4,548 and $322,850 to
common stock and additional paid-in capital, respectively. The Corporation paid
cash dividends of $3.2 million during the year. On January 18, 1995, the
Corporation's Board of Directors declared a $.12 per share dividend payable
March 31, 1995 to holders of record on March 15, 1995.
(13) Net Income Per Common Share
Primary net income per common share has been computed based on the
weighted average number of shares of common stock and common stock equivalents
outstanding during the year of 8,645,777 in 1994, 8,619,753 in 1993 and
8,776,389 in 1992. Weighted average shares used in computing fully diluted net
income per common share were 8,659,574 in 1994, 8,630,055 in 1993 and 8,811,470
in 1992. It is assumed that all dilutive stock options are exercised at the
later of the beginning of the year or the date of the grant, and the proceeds
used to purchase shares of common stock. The fully diluted weighted average
shares reflect the maximum dilutive effect of stock issuable upon the exercise
of stock options. Shares outstanding have been retroactively adjusted for the
two-for-one stock split issued on September 30, 1992.
(14) Stock Option Plan
Pursuant to the Corporation's Stock Option Plan ("Option Plan"), 1.4
million shares of common stock are reserved for issuance upon exercise of stock
options granted to officers, full-time employees and directors of the
Corporation and its subsidiaries. Options granted under the Option Plan may be
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, or nonqualifying stock options. Options are
exercisable at the market price of the common stock on the date of grant. The
options must be exercised within 10 years from the date of grant.
The Option Plan contains provisions authorizing the granting of stock
appreciation rights in connection with options granted under the Stock Option
Plan. These stock appreciation rights permit an optionee to surrender an option
for cancellation and receive cash or common stock equal to the difference
between the exercise price and the then fair market value of the shares of
common stock subject to the option. There were no stock appreciation rights
outstanding as of December 31, 1994.
-37-
<PAGE>
A summary of changes in shares under option and options exercisable for
the years ended December 31 is presented below. The number of shares and option
price per share have been restated to give effect to the two-for-one stock split
issued on September 30, 1992.
<TABLE>
<CAPTION>
1994 1993 1992
--------------- --------------- ----------------
<S> <C> <C> <C>
Outstanding at beginning of year 1,071,101 1,024,250 1,143,700
Granted 51,000 131,000 6,000
Cancelled --- (9,780) (10,660)
Exercised (45,483) (74,369) (114,790)
--------------- --------------- ----------------
Outstanding at end of year 1,076,618 1,071,101 1,024,250
--------------- --------------- ----------------
Exercisable at end of year 1,076,618 762,133 735,734
=============== =============== ================
</TABLE>
The options outstanding are exercisable as follows at December 31,
1994:
Stock Option Expiration
Options Per Share Year
--------------- --------------- ---------------
388,992 $ 6.25 1996
50,619 4.50 1997
64,640 5.88 1998
106,340 7.63 1999
15,000 6.25 2000
97,527 4.25 2000
168,000 6.31 2001
6,000 8.13 2002
30,000 13.38 2003
98,500 15.50 2003
51,000 21.63 2004
-38-
<PAGE>
(15) Commitments and Contingencies
In the normal course of business, the Corporation is a party to various
commitments to meet the financing needs of its customers. Commitments to extend
credit are agreements to lend to customers provided that terms and conditions
established in the related contracts are met. At December 31, 1994, the
Corporation had the following contractual commitment to extend credit, exclusive
of undisbursed loan funds.
<TABLE>
<CAPTION>
Fixed Floating
Rate Rate Total
--------------- --------------- ---------------
(In Thousands)
<S> <C> <C> <C>
Mortgage loans $ 64,123 4,819 68,942
Lines of credit:
Home equity --- 61,286 61,286
Unsecured --- 35,600 35,600
Commercial --- 7,960 7,960
Standby letters of credit 27,927 --- 27,927
Other letters of credit 18,232 --- 18,232
</TABLE>
Commitments to extend credit for mortgage loans includes approximately
$32.3 million of commitments to purchase mortgage loans. Commitments to
originate mortgage loans generally expire within 60 days. Commitments under
lines of credit are generally longer than one year but are subject to periodic
re-evaluation and cancellation.
The Corporation has three standby letters of credit supporting
financing on various real estate properties. Two of the standby letters of
credit, which expire in ten years, are secured by confirming letters of credit
issued by the FHLB of Atlanta. The third standby letter of credit, which expires
in three years, has mortgage-backed securities with book values of approximately
$18.7 million pledged as collateral at December 31, 1994. See note 4.
Other letters of credit are generally issued to various governmental
units to guarantee builder performance concerning the installation of roads and
utilities in residential real estate development projects for which the
Corporation has made the construction loan. Substantially all such letters of
credit expire within two years.
Commitments may be funded from loan principal repayments, excess
liquidity, savings deposits and, if necessary, borrowings. Since certain of the
commitments may expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements.
Substantially all of the Corporation's outstanding commitments at
December 31, 1994 are for loans which will be secured by real estate with
appraised values in excess of the commitment amounts. The Corporation's exposure
to credit loss under these contracts in the event of nonperformance by the other
parties, assuming that the collateral proves to be of no value, is represented
by the commitment amounts.
The Corporation has assumed the recourse risk related to foreclosure
and losses, after private mortgage insurance coverage, for $120.7 million of
loans sold by the Corporation to third party investors at December 31, 1994.
Management does not believe these recourse provisions subject the Corporation to
any material risk of loss. The credit risk associated with such loans is
considered by management not materially different than the credit risk
associated with similar loans in the Corporation's loan portfolio.
Management considers the above commitments and loans sold with recourse
in evaluating the adequacy of the allowance for losses. The allowance
established for these items is included with the allowance for losses on loans
receivable since such amounts are not material.
The Corporation enters into commitments to sell loans and mortgage-backed
securities. These agreements are
-39-
<PAGE>
fulfilled through loan originations. At December 31, 1994, such commitments
totaled $74.7 million and the Corporation held $31.0 million in loans to fulfill
these commitments. In the event that the outstanding commitments cannot be
satisfied through loan production, the Corporation would settle the obligation
for the difference between the commitment price and the current market price in
a transaction referred to as a pair-off.
The Corporation, as lessee, has entered into operating leases for
certain retail banking branch offices expiring at various dates through 2007
most of which are subject to options for renewal. The average remaining term of
such leases is approximately three years at December 31, 1994. Rent expense
under such leases aggregated approximately $2.0 million, $1.8 million and $1.7
million for the years ended December 31, 1994, 1993 and 1992, respectively. The
minimum rental payments due under operating leases in effect at December 31,
1994 are $2.1 million in 1995; $1.9 million in 1996; $1.6 million in 1997; $1.1
million in 1998, $663,000 in 1999 and $996,000 subsequent to 1999.
In December 1991, the Corporation entered into a five-year data
processing outsourcing agreement with a third party vendor. Pursuant to this
agreement, the vendor will provide the Corporation facilities management and
data processing services, including the use of various software products.
Outside data processing expenses incurred under this agreement were $3.4
million, $3.1 million and $3.3 million for the years ended December 31, 1994,
1993 and 1992, respectively. The minimum payments due under this agreement are
$3.6 million in 1995 and $3.4 million in 1996.
The Corporation is involved in pending litigation of the usual
character incidental to its business. In the opinion of management, such
litigation will not have a material effect on the Corporation's financial
statements.
-40-
<PAGE>
(16) Pension and Profit Sharing Plans
Substantially all employees are participants in the Corporation's
noncontributory defined benefit pension plan. The benefits are based on a career
compensation formula. The Corporation's policy is to fund the maximum amount
that can be deducted for federal income tax purposes. The Corporation also has
an unfunded and nonqualified supplemental plan to provide retirement benefits to
certain senior officers. Benefits under this plan are also based on a career
compensation formula.
A summary of the plans' funded status and amounts recognized in the
consolidated statements of financial condition as of December 31 follows:
<TABLE>
<CAPTION>
1994 1993
----------------------------------- ----------------------------------
Unfunded Unfunded
Funded Supplemental Funded Supplemental
Plan Plan Plan Plan
--------------- ------------------ --------------- -----------------
(In Thousands)
<S> <C> <C> <C> <C>
Actuarial present value of accumulated
benefit obligations:
Vested $ 5,423 2,676 6,119 1,722
Nonvested 170 --- 250 1,001
--------------- ------------------ --------------- -----------------
Total accumulated benefits $ 5,593 2,676 6,369 2,723
obligations
=============== ================== =============== =================
Projected benefit obligation for service
rendered to date $ 6,285 3,070 7,452 3,277
Plan assets at fair value - primarily
U.S. Government and Agency
securities and pooled funds 5,799 --- 6,120 ---
--------------- ------------------ --------------- -----------------
Plan assets less than projected
benefit obligation (486) (3,070) (1,332) (3,277)
Unrecognized prior service costs (99) 1,337 26 1,357
</TABLE>
-41-
<PAGE>
<TABLE>
<CAPTION>
1994 1993
----------------------------------- ----------------------------------
Unfunded Unfunded
Funded Supplemental Funded Supplemental
Plan Plan Plan Plan
--------------- ------------------ --------------- -----------------
(In Thousands)
<S> <C> <C> <C> <C>
Unrecognized net assets at January
1, 1987 being amortized over 13.22
years (595) --- (709) ---
Unrecognized net loss from past
experience different from that
assumed 892 269 1,974 1,032
Adjustment required to recognize
minimum liability --- (1,212) (207) (1,835)
--------------- ------------------ --------------- -----------------
Pension liability recognized in the
statements of financial condition $ (288) (2,676) (248) (2,723)
=============== ================== =============== =================
</TABLE>
Net pension cost included the following components for the years ended
December 31:
<TABLE>
<CAPTION>
1994 1993 1992
--------------- --------------- ---------------
(In Thousands)
<S> <C> <C> <C>
Service cost - benefits earned $ 442 352 325
Interest cost on projected benefit
obligations 718 653 598
Actual return on plan assets (33) (504) (367)
Net amortization and deferral (304) 54 (82)
--------------- --------------- ---------------
Net pension cost $ 823 555 474
=============== =============== ===============
Funded plan $ 247 131 72
Unfunded supplemental plan 576 424 402
--------------- --------------- ---------------
Net pension cost $ 823 555 474
=============== =============== ===============
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 8.0% in 1994, 7.0% in 1993
and 8.5% in 1992. The rate of increase of future compensation levels was 5.0%
for 1994 and 1993 and 6.0% for 1992. The expected long-term rate of return on
assets was 8.5% for all years shown.
Substantially all employees are also participants in a defined
contribution profit sharing retirement plan. The contribution for each year is
based on a percentage of employees' contributions. The Corporation's
contributions were $457,000 in 1994, $463,000 in 1993 and $381,000 in 1992.
(17) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (Statement 107"), requires all entities to
disclose the estimated fair value of certain on- and off-balance sheet financial
instruments.
-42-
<PAGE>
In many instances, the assumptions used in estimating fair values were
based upon subjective assessments of market conditions and perceived risks of
the financial instruments at a certain point in time. The fair value estimates
can be subject to significant variability with changes in assumptions.
Furthermore, these fair value estimates do not reflect any premium or discount
that could result from offering for sale at one time the Corporation's entire
holdings of a particular financial instrument. The tax ramifications related to
the realization of unrealized gains and losses permitted are not to be
considered in the estimation of fair value. In addition, fair value estimates
are based solely on existing on- and offbalance sheet financial instruments
without attempting to estimate the value of anticipated future business and the
value of assets and liabilities that are not considered financial instruments.
Examples would include portfolios of loans serviced for others, net fee income
from the Corporation's subsidiaries, mortgage banking operations, investments in
real estate, property and equipment, and deferred tax assets. Fair value
estimates, methods and assumptions are set forth below for the Corporation's
financial instruments.
Investments and Mortgage-Backed Securities
The carrying amounts for money market investments approximate fair
value because they mature in 90 days or less and do not present unanticipated
credit concerns. The fair value of longer-term investments such as U.S. Treasury
securities, U.S. Agency securities and mortgage-backed securities is estimated
based on bid prices published in financial newspapers or bid quotations received
from securities dealers. The fair value of FHLB of Atlanta stock is estimated to
be equal to its carrying amount given it is not a publicly traded equity
security, it has an adjustable dividend rate and all transactions in the stock
are executed at the stated par value. The following table represents the
carrying amount and estimated fair value of money market investments, investment
securities and mortgage-backed securities at December 31:
<TABLE>
<CAPTION>
1994 1993
---------------------------------- ----------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------------- --------------- --------------- ---------------
(In Thousands)
<S> <C> <C> <C> <C>
Money market investments $ 3,286 3,286 71,230 71,230
Investment securities 117,907 114,709 190,524 190,637
Mortgage-backed securities 229,429 207,521 242,922 242,632
</TABLE>
Loans
Fair values are estimated for portfolios of loans with similar
financial characteristics. Mortgage loans are segregated by Type, including but
not limited to residential, commercial, and construction. Consumer loans are
segregated by type, including but not limited to automobile loans, boat loans,
home equity lines of credit and unsecured, personal lines of credit. Each loan
category may be segmented, as appropriate, into fixed and adjustable interest
rate terms, ranges of interest rates, performing and nonperforming, and
repricing frequency.
The fair value of each loan portfolio is calculated by discounting both
scheduled and unscheduled cash flows through the remaining contractual maturity
using the origination rate that the Corporation would charge under current
conditions to originate similar financial instruments. Unscheduled cash flows
take the form of estimated prepayments and may be based upon the Corporation's
historical experience as well as anticipated experience derived from current and
prospective economic and interest rate environments. For certain types of loans,
anticipated prepayment experience exists in published tables from securities
dealers.
The fair value of significant nonperforming mortgage loans is based on
recent external appraisals. Where appraisals are not available, estimated cash
flows are discounted using a rate commensurate with the credit risk associated
with those cash flows. Assumptions regarding credit risk, cash flows and
discount rates are judgmentally determined using available market information
and specific borrower information. The fair value of nonperforming consumer
loans is based on the Corporation's historical experience with such loans.
-43-
<PAGE>
The following table represents the carrying amount and estimated fair
value of loans receivable at December 31:
<TABLE>
<CAPTION>
1994 1993
---------------------------------- ----------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------------- --------------- --------------- ---------------
(In Thousands)
<S> <C> <C> <C> <C>
Mortgage loans $ 1,535,431 1,481,260 1,357,169 1,372,485
Construction loans 82,505 82,600 55,759 56,440
Consumer and other loans 379,075 363,396 327,304 324,019
--------------- --------------- --------------- ---------------
1,997,011 1,927,256 1,740,232 1,752,944
Allowance for loan losses (13,733) --- (14,625) ---
--------------- --------------- --------------- ---------------
Total loans $ 1,983,278 1,927,256 1,725,607 1,752,944
=============== =============== =============== ===============
</TABLE>
Deposits and Borrowings
The fair value of deposits with no stated maturity, such as
interest-bearing or noninterest-bearing checking accounts, passbook and
statement savings accounts, money market accounts and mortgage escrow accounts,
is equal to the amount payable upon demand as of December 31. The fair value of
certificates of deposit is based on the lower of redemption (net of penalty) or
discounted value of contractual cash flows. Discount rates for certificates of
deposit are estimated using the rates currently offered by the Corporation for
deposits of similar remaining maturities.
Borrowings are segregated by type into reverse and dollar reverse
repurchase agreements, and FHLB of Atlanta advances. The carrying amount for
reverse and dollar reverse repurchase agreements approximates the fair value
because the borrowings mature in 90 days or less and are subject to daily margin
maintenance. The fair value of FHLB of Atlanta advances is based on the
discounted value of contractual cash flows. Discount rates are estimated using
the rates currently offered for advances with both similar contractual terms and
remaining maturities.
The following table represents the carrying amount and estimated fair
value of mortgage escrow accounts, deposit liabilities and borrowings at
December 31:
<TABLE>
<CAPTION>
1994 1993
---------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------------- ---------------- --------------- ---------------
(In Thousands)
<S> <C> <C> <C> <C>
Mortgage escrow accounts and
deposits with no stated maturity $ 706,631 706,631 662,647 662,647
Certificates of deposit 786,917 783,869 786,232 804,093
Reverse and dollar reverse repurchase
agreements 55,231 55,231 215,048 215,048
FHLB of Atlanta advances 722,346 690,036 512,516 523,258
</TABLE>
Unrecognized Financial Instruments
The fair value of commitments to extend credit is estimated using the
fees currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates. The
fair value of guarantees and letters of credit is based on fees currently
charged for
-44-
<PAGE>
similar agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counterparties at the reporting date.
The fair value of unrecognized financial instruments is estimated to
equal the carrying value. See note 15 to the consolidated financial statements
for the carrying amounts of unrecognized financial instruments.
Nonfinancial Instruments
Statement 107 does not permit the Corporation to take into account the
value of its long-term relationships with depositors, commonly known as core
deposit intangibles, when estimating the fair value of deposit liabilities.
These intangibles are considered to be separate intangible assets that are not
financial instruments. Nonetheless financial institutions' core deposits have
typically traded at premiums to their book values under both historical and
current market conditions.
Likewise, Statement 107 does not permit the Corporation to take into
account the value of the cash flows and income stream derived from its portfolio
of loans serviced for others. At December 31, 1994 and 1993 the outstanding
principal balances of the Corporation's portfolio of residential mortgage loans
serviced for others were approximately $1.7 billion and $1.4 billion,
respectively.
-45-
<PAGE>
(18) Condensed Financial Information (parent company only)
Statements of Condition
<TABLE>
<CAPTION>
December 31,
----------------------------------
1994 1993
--------------- ---------------
(In Thousands)
<S> <C> <C>
Assets:
Cash $ 890 1,067
Loans receivable, net 4,281 1,280
Receivable from Loyola F.S.B. 10,726 14,042
Equity in net assets of Loyola F.S.B. 152,209 137,577
Investments in and advances to nonbanking
subsidiaries 1,012 1,639
Investments in real estate 589 1,767
Other assets 14 1,269
--------------- ---------------
$ 169,721 158,641
=============== ===============
Liabilities and Stockholders' Equity:
Liabilities - Accrued expenses and other
liabilities $ 627 1,685
--------------- ---------------
Stockholders' equity:
Common stock 809 805
Additional paid-in capital 44,118 43,795
Retained income 124,167 112,356
--------------- ---------------
Total stockholders' equity 169,094 156,956
--------------- ---------------
$ 169,721 158,641
=============== ===============
</TABLE>
Statements of Operations
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1994 1993 1992
--------------- --------------- ---------------
(In Thousands)
<S> <C> <C> <C>
Income:
Interest income from subsidiary $ 915 830 460
Other income 509 481 287
--------------- --------------- ---------------
1,424 1,311 747
--------------- --------------- ---------------
Expenses - management fees and other 409 483 347
--------------- --------------- ---------------
Income before equity in net income of
subsidiaries 1,015 828 400
Equity in net income of subsidiaries 14,427 11,757 13,867
--------------- --------------- ---------------
Income before income taxes 15,442 12,585 14,267
Income taxes 403 320 154
--------------- --------------- ---------------
Net income $ 15,039 12,265 14,113
=============== =============== ===============
</TABLE>
-46-
<PAGE>
(18) Condensed Financial Information (parent company only), continued
Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1994 1993 1992
--------------- --------------- ---------------
(In Thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 15,039 12,265 14,113
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in net income of subsidiaries (14,427) (11,757) (13,867)
Other, net 102 103 19
--------------- --------------- ---------------
Net cash provided by operating activities 714 611 265
--------------- --------------- ---------------
Investing activities:
Purchase of loans (2,049) (1,025) (215)
Net increase in construction loans (1,000) --- ---
Net decrease in investments in and advances to
subsidiaries 3,736 4,061 7,255
Net (increase) decrease in investments in real
estate 1,178 900 (1,334)
Other, net 145 300 71
--------------- --------------- ---------------
Net cash provided by investing activities 2,010 4,236 5,777
--------------- --------------- ---------------
Financing activities:
Repurchase of common stock (213,458
and 401,669 shares in 1993 and 1992,
respectively) --- (2,904) (4,410)
Proceeds from exercise of stock options 327 437 678
Payment of dividends on common stock (3,228) (1,943) (1,838)
--------------- --------------- ---------------
Net cash used by financing activities (2,901) (4,410) (5,570)
--------------- --------------- ---------------
Increase (decrease) in cash (177) 437 472
Cash at beginning of year 1,067 630 158
--------------- --------------- ---------------
Cash at end of year $ 890 1,067 630
=============== =============== ===============
</TABLE>
The parent company's current primary activity is that of a unitary
savings bank holding company. A nonbanking subsidiary invests in real estate and
real estate joint ventures. During 1994 the Corporation did not repurchase
shares of its common stock and did not receive cash dividends from the Bank. The
Corporation received cash dividends of $10 million and $11.2 million from the
Bank in 1993 and 1992, respectively.
-47-
<PAGE>
Independent Auditors' Report
The Board of Directors
Loyola Capital Corporation
Baltimore, Maryland:
We have audited the accompanying consolidated statements of financial
condition of Loyola Capital Corporation and subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1994. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Loyola
Capital Corporation and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in note 1 to the consolidated financial statements, the
Corporation adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," in 1992.
Baltimore, Maryland
February 3, 1995
-48-
<PAGE>
Selected Quarterly Financial Data
A summary of selected quarterly financial data for the years ended
December 31, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------- --------------- --------------- ---------------
(In Thousands Except Per-Share Data)
<S> <C> <C> <C> <C>
1994:
Interest income $ 39,136 38,527 40,548 43,200
Net interest income 16,606 16,323 16,645 17,331
Provision for loan losses 180 180 150 150
Net income 3,490 3,641 3,756 4,152
=============== =============== =============== ===============
Primary net income per common share $ .41 .42 .43 .48
=============== =============== =============== ===============
Fully diluted net income per common $ .40 .42 .43 .48
share
=============== =============== =============== ===============
1993:
Interest income $ 32,701 32,641 36,056 39,192
Net interest income 15,238 15,121 15,054 16,201
Provision for loan losses 935 800 695 655
Net income 3,012 3,160 3,009 3,084
=============== =============== =============== ===============
Primary and fully diluted net income per
common share $ .35 .36 .35 .36
=============== =============== =============== ===============
</TABLE>
-49-
EXHIBIT 99.3
The Board of Directors
Loyola Capital Corporation:
We consent to incorporation by reference in Registration Statement No.
33-50387 on Form S- 3 of Crestar Financial Corporation of our report dated
February 3, 1995, relating to the consolidated financial statements of financial
condition of Loyola Capital Corporation and Subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1994, which report appears in the current report on Form 8-K dated
November 17, 1995 of Crestar Financial Corporation. Our report refers to a
change in accounting for income taxes.
KPMG Peat Marwick LLP
Baltimore, Maryland
November 17, 1995
