United States Securities And Exchange Commission
Washington, DC 20549
Form 10-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended September 30, 1995
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 1-7083 .
Crestar Financial Corporation
(Exact name of registrant as specified in its charter)
Virginia 54-0722175
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
919 E. Main Street, P.O. Box 26665, Richmond, Virginia 23261-6665
(Address of principal executive offices) (Zip Code)
(804)782-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1995
Common Stock, $5 par value 37,666,280
<PAGE>
Crestar Financial Corporation And Subsidiaries
Form 10-Q
For The Quarter Ended September 30, 1995
Part I. Financial Information
Item 1. Financial Statements:
Page
Consolidated Balance Sheets..................................
Consolidated Statements Of Income............................
Consolidated Statements Of Cash Flows........................
Consolidated Statements Of Changes In Shareholders' Equity...
Notes To Consolidated Financial Statements...................
Item 2. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations:
Financial Commentary.........................................
Part II. Other Information
Item 6. Exhibits And Reports On Form 8-K:
There were no reports on Form 8-K filed during the three
months ended September 30, 1995.
<PAGE>
Consolidated Balance Sheets
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
Dollars in thousands
September 30, December 31,
Assets 1995 1994 1994
<S> <C> <C> <C>
Cash and due from banks $ 706,673 $ 690,992 $ 907,627
Securities held to maturity (note 2) 826,212 944,626 907,368
Securities available for sale (note 3) 1,807,656 1,866,204 1,621,973
Money market investments (note 4) 618,164 1,327,457 452,556
Mortgage loans held for sale 446,781 334,281 209,525
Loans - net of unearned income (note 5):
Business Loans:
Commercial 3,048,637 2,917,826 3,093,122
Real estate - income property 779,906 759,572 744,888
Real estate - construction 171,218 221,646 184,583
Consumer Loans:
Instalment 2,077,087 1,763,961 1,810,038
Bank card 1,576,302 1,224,093 1,477,285
Real estate - mortgage 2,016,357 1,760,773 1,975,721
--------- --------- ---------
Loans - net of unearned income of $775 and $1,465
at September 30, 1995 and 1994, respectively; $1,369
at December 31, 1994 9,669,507 8,647,871 9,285,637
Less: Allowance for loan losses (note 6) (223,430) (225,890) (219,189)
- -------- -------- --------
Loans - net 9,446,077 8,421,981 9,066,448
--------- --------- ---------
Premises and equipment - net 332,949 320,829 316,896
Customers' liability on acceptances 8,430 4,866 6,464
Intangible assets - net 156,226 108,061 107,211
Foreclosed properties - net (notes 5 and 7) 14,614 23,644 18,629
Other assets 398,411 407,416 395,333
------- ------- -------
Total Assets $14,762,193 $14,450,357 $14,010,030
=========== =========== ===========
Liabilities
Demand deposits $ 2,185,849 $ 2,116,154 $ 2,238,399
Interest checking deposits 1,800,297 1,865,839 1,916,411
Money market deposit accounts 2,486,407 2,367,640 2,342,222
Regular savings deposits 1,209,025 1,460,391 1,394,146
Domestic time deposits 3,126,897 3,108,745 2,955,756
Certificates of deposit $100,000 and over 62,991 67,352 66,218
------ ------ ------
Total deposits 10,871,466 10,986,121 10,913,152
Short-term borrowings (note 8) 1,873,127 1,905,049 1,380,806
Liability on acceptances 8,430 4,866 6,464
Other liabilities 370,260 218,998 216,581
Long-term debt (note 9) 380,237 218,564 366,962
- ------- ------- -------
Total Liabilities 13,503,520 13,333,598 12,883,965
========== ========== ==========
Shareholders' Equity
Preferred stock. Authorized 2,000,000 shares; none issued - - -
Common stock, $5 par value. Authorized 100,000,000 shares;
outstanding 37,709,106 and 37,597,723 at September 30, 1995
and 1994, respectively; 37,331,213 at December 31, 1994 188,546 187,989 186,656
Capital surplus 346,725 276,424 281,207
Retained earnings 726,036 683,133 694,757
Net unrealized loss on securities available for sale (2,634) (30,787) (36,555)
------ ------- -------
Total Shareholders' Equity 1,258,673 1,116,759 1,126,065
--------- --------- ---------
Total Liabilities And Shareholders' Equity $14,762,193 $14,450,357 $14,010,030
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements Of Income
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
In thousands, except per share data Three Months Ended Sept. 30, Nine Months Ended Sept.30,
Income From Earning Assets 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Interest and fees on loans $ 212,001 $ 180,842 $ 633,792 $ 504,830
Interest on taxable securities held to maturity 11,575 11,937 37,377 35,924
Interest on tax-exempt securities held to maturity 979 1,105 2,969 3,730
Interest and dividends on securities available for sale 26,043 31,352 72,592 102,470
Income on money market investments 3,498 9,047 14,397 19,854
Interest on mortgage loans held for sale 7,539 5,197 16,476 18,074
--------- --------- --------- ---------
Total income from earning assets 261,635 239,480 777,603 684,882
--------- --------- --------- ---------
Interest Expense
Interest checking deposits 9,968 10,544 30,910 30,690
Money market deposit accounts 24,549 17,966 71,342 47,337
Regular savings deposits 8,404 10,177 27,031 27,891
Domestic time deposits 40,925 33,101 113,322 95,711
Certificates of deposit $100,000 and over 925 733 2,736 1,791
--------- --------- --------- ---------
Total interest on deposits 84,771 72,521 245,341 203,420
Short-term borrowings 17,339 13,197 51,917 33,190
Long-term debt 8,041 4,484 24,075 13,399
--------- --------- --------- ---------
Total interest expense 110,151 90,202 321,333 250,009
Net Interest Income 151,484 149,278 456,270 434,873
Provision for loan losses (note 6) 14,000 8,100 37,600 26,982
--------- --------- --------- ---------
Net Credit Income 137,484 141,178 418,670 407,891
--------- --------- --------- ---------
Noninterest Income
Service charges on deposit accounts 22,833 20,640 66,189 62,535
Trust and investment advisory income 15,581 13,244 44,270 42,688
Bank card-related income 12,101 10,321 35,078 27,296
Other income 21,312 19,521 63,972 61,089
Securities gains (losses) (69) 12 (3,529) (1,755)
--------- --------- --------- ---------
Total noninterest income 71,758 63,738 205,980 191,853
--------- --------- --------- ---------
Net Credit And Noninterest Income 209,242 204,916 624,650 599,744
--------- --------- --------- ---------
Noninterest Expense
Personnel expense 75,816 77,631 228,440 228,420
Occupancy expense - net 10,586 11,098 32,162 31,953
Equipment expense 6,919 6,370 20,835 18,367
Other expense 41,149 43,354 128,506 130,973
--------- --------- --------- ---------
Total noninterest expense 134,470 138,453 409,943 409,713
--------- --------- --------- ---------
Income Before Income Taxes 74,772 66,463 214,707 190,031
Income tax expense (note 10) 26,366 22,859 73,326 63,337
--------- --------- --------- ---------
Net Income $ 48,406 $ 43,604 $ 141,381 $ 126,694
========= ========= ========= =========
Earnings Per Common Share $ 1.27 $ 1.15 $ 3.71 $ 3.34
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements Of Cash Flows
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
In thousands Nine Months Ended Sept. 30,
1995 1994
<S> <C> <C>
Operating Activities
Net Income $ 141,381 $ 126,694
Adjustments to reconcile net income to net cash provided
by operating activities:
Provisions for loan losses, foreclosed properties and
other losses 37,890 27,185
Depreciation and amortization of premises and equipment 26,381 24,541
Securities losses 3,529 1,755
Amortization of intangible assets 9,655 6,186
Deferred income tax expense 6,259 664
Gain on foreclosed properties (1,699) (856)
Gain on sales of mortgage servicing rights (5,900) (14,132)
Net decrease (increase) in trading account (3,565) 7,538
Origination of loans held for sale (1,464,256) (1,957,053)
Proceeds from sales of loans held for sale 1,227,000 2,229,146
Net decrease in accrued interest receivable,
prepaid expenses and other assets 3,351 24,205
Net increase (decrease) in accrued interest payable,
accrued expenses and other liabilities 30,049 (53,152)
Other, net 5,027 14,372
----------- -----------
Net cash provided by operating activities 15,102 437,093
----------- -----------
Investing Activities
Proceeds from maturities and calls of securities
held to maturity 128,204 204,142
Proceeds from maturities and calls of securities
available for sale 283,020 385,096
Proceeds from sales of securities available for sale 1,355,753 1,511,787
Purchases of securities held to maturity (48,083) (562,311)
Purchases of securities available for sale (1,415,896) (496,360)
Net increase in money market investments (162,043) (642,632)
Principal collected on non-bank subsidiary loans 16,227 8,942
Loans originated by non-bank subsidiaries (123,110) (192,910)
Net decrease in other loans 96,470 2,998
Purchases of premises and equipment (41,640) (28,115)
Proceeds from sales of foreclosed properties 22,668 30,623
Proceeds from sales of mortgage servicing rights 8,305 24,168
Aquisitions of net assets of financial institutions (12,245) 23,703
Other, net (8,123) (7,856)
----------- -----------
Net cash provided by investing activities 99,507 261,275
----------- -----------
Financing Activities
Net decrease in demand, interest checking, money market
and regular savings deposits (412,846) (269,558)
Net decrease in certificates of deposit (99,797) (477,635)
Net increase in short-term borrowings 390,293 82,098
Proceeds from sales of branch deposits (80,895) --
Proceeds from issuance of long-term debt 1,995 158
Principal payments on long-term debt (18,620) (5,606)
Cash dividends paid (49,356) (42,496)
Common stock purchased and retired (68,390) (29,571)
Proceeds from the issuance of common stock 22,053 18,582
----------- -----------
Net cash used by financing activities (315,563) (724,028)
Cash and Cash Equivalents
Decrease in cash and cash equivalents (200,954) (25,660)
Cash and cash equivalents at beginning of year 907,627 716,652
----------- -----------
Cash and cash equivalents at end of quarter $ 706,673 $ 690,992
=========== ===========
</TABLE>
Cash and cash equivalents consist of cash and due from banks. See accompanying
notes to consolidated financial statements.
<PAGE>
Consolidated Statements Of Changes In Shareholders' Equity
Crestar Financial Corporation And Subsidiaries
<TABLE>
<CAPTION>
Dollars in thousands Shareholders' Equity Shares of Common Stock
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Balance, July 1 $1,229,004 $1,104,684 37,733,761 37,717,023
Net Income 48,406 43,604 - -
Cash dividends declared on common stock (16,969) (15,092) - -
Change in net unrealized loss on securities
available for sale 657 (9,956) - -
Common stock purchased and retired (7,101) (10,213) (135,000) (214,700)
Common stock issued:
For acquisition of financial institution (72) - - -
For dividend reinvestment plan 3,639 2,862 72,184 62,561
For stock compensation plans 59 - 1,123 -
Upon exercise of stock options (including tax
benefit of $198 in 1995; $154 in 1994) 1,050 870 37,038 32,839
---------- ---------- ---------- ----------
Balance, September 30 $1,258,673 $1,116,759 37,709,106 37,597,723
========== ========== ========== ==========
Balance, January 1 $1,126,065 $1,062,477 37,331,213 37,515,671
Net Income 141,381 126,694 - -
Cash dividends declared on common stock (49,356) (42,496) - -
Cumulative effect of change in accounting
for securities available for sale - 32,209 - -
Change in net unrealized gain or loss on securities
available for sale 33,921 (62,996) - -
Common stock purchased and retired (68,390) (30,490) (1,529,200) (684,400)
Common stock issued:
For acquisition of financial institutions 52,562 12,588 1,317,789 264,208
For dividend reinvestment plan 10,030 8,279 227,885 185,928
For thrift and profit sharing plan 8,263 4,993 207,272 115,770
For other stock compensation plans 437 78 9,965 1,859
Upon exercise of stock options (including tax
benefit of $957 in 1995; $1,022 in 1994) 3,760 5,310 144,182 186,477
Upon conversion of debentures - 113 - 12,210
---------- ---------- ---------- ----------
Balance, September 30 $1,258,673 $1,116,759 37,709,106 37,597,723
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Notes To Consolidated Financial Statements
Crestar Financial Corporation And Subsidiaries
(1) General
The consolidated financial statements conform to generally accepted accounting
principles and to general practices within the banking industry. The
accompanying interim statements are unaudited; however, in the opinion of
management, all adjustments necessary for a fair presentation of the
consolidated financial statements, including adjustments related to completed
acquisitions, have been included. All adjustments are of a normal nature.
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the 1995 presentation. The notes included
herein should be read in conjunction with the notes to consolidated financial
statements included in the Corporation's 1994 Annual Report and Form 10-K and
the Corporation's First Quarter 1995 and Second Quarter 1995 Financial
Supplement and Form 10-Qs.
Effective January 1, 1995, Crestar adopted Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights" (SFAS 122). In
accordance with SFAS 122, the cost of mortgage loans purchased or originated
with a definitive plan to sell the loans and retain the mortgage servicing
rights is allocated between the loans and the servicing rights based on their
estimated fair values at the purchase or origination date. A definitive plan to
sell the loans exists if purchase commitments, which include estimates of
selling price, are obtained either prior to the purchase or origination date, or
within a reasonable period thereafter. The estimated fair value of mortgage
loans is determined by reference to quoted prices in active secondary markets.
The estimated fair value of mortgage servicing rights is determined by reference
to the bid and ask prices of recent trades of comparable servicing rights or is
determined based on the expected future cash flows, discounted at a rate
commensurate with the risks involved. These recognition provisions have been
applied prospectively to transactions occurring on or after January 1, 1995.
For the purpose of evaluating and measuring impairment, SFAS 122 requires
that capitalized mortgage servicing rights be stratified according to the risk
characteristics of the underlying loans. For Crestar, such characteristics
include loan type. Impairment is recognized through a valuation allowance for
each stratum. The amount of impairment recognized is the amount by which the
capitalized mortgage servicing rights for a stratum exceeds their fair value.
Fair value in excess of the amount capitalized, net of amortization, is not
recognized subsequent to the initial measurement of impairment. These impairment
provisions apply to all capitalized mortgage servicing rights. The initial
adoption of these impairment provisions did not require an increase to Crestar's
valuation allowance.
The effect of Crestar's adoption of SFAS 122 on the consolidated financial
statements for the three month and nine month periods ended September 30, 1995
was an increase in mortgage origination income of $985,000 and $2,660,000,
respectively, with a corresponding increase in capitalized, originated mortgage
servicing rights. Such additional income resulted from a lower adjusted cost
basis, and corresponding greater gains, on originated mortgage loans sold with
servicing rights retained during the first nine months of 1995. In accordance
with SFAS 122, no retroactive application of its provisions has been made to the
consolidated financial statements for periods prior to January 1, 1995.
Mortgage servicing rights of $21,902,000 and $18,156,000 at September 30,
1995 and 1994, respectively, were included in Other assets in the consolidated
balance sheet. The amount capitalized during the three months and nine months
ended September 30, 1995 in connection with purchasing or originating mortgage
servicing rights was $4.8 million and $12.5 million, respectively. At September
30, 1995, mortgage servicing rights were net of a related valuation allowance of
$269,000. The activity in such valuation allowance, which had a balance of
$213,000 at June 30, 1995 and a balance of $174,000 at December 31, 1994, was
not material to the consolidated financial statements for the three months and
nine months ended September 30, 1995. The fair value of capitalized mortgage
servicing rights was approximately $37 million at September 30, 1995. Such fair
value was estimated using a discounted cash flow method, with discount rates
based on secondary market sources, adjusted for prepayment estimates and
differences in servicing and credit costs.
For the nine months ended September 30, 1995 and 1994, mortgage servicing
income was net of amortization of mortgage servicing rights of $4.1 million and
$5.1 million, respectively. For the three months ended September 30, 1995 and
1994, mortgage servicing income was net of amortization of mortgage servicing
rights of $1.4 million and $1.7 million, respectively.
Intangible assets consisted of goodwill and deposit based intangibles, having
a combined balance of $155,721,000 and $107,466,000 at September 30, 1995 and
1994, respectively, and favorable lease rights of $505,000 and $595,000,
respectively. Accumulated amortization of goodwill was $30,380,000 and
$21,662,000 at September 30, 1995 and 1994, respectively.
(2) Securities Held To Maturity
The amortized cost (carrying values) and estimated market values of securities
held to maturity at September 30 follow:
<TABLE>
<CAPTION>
In thousands 1995 1994
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
U.S. Treasury and Federal agencies $ 58,210 $ 58,052 $ 10,360 $ 10,146
Mortgage-backed obligations of Federal agencies 527,414 525,973 645,333 624,798
Other taxable securities 178,369 176,148 219,877 211,581
States and political subdivisions 62,219 63,161 69,056 69,276
------ ------ ------ ------
Total securities held to maturity $826,212 $823,334 $944,626 $915,801
======== ======== ======== ========
</TABLE>
(3) Securities Available For Sale
The amortized cost and estimated market values (carrying values) of securities
available for sale at September 30 follow:
<TABLE>
<CAPTION>
In thousands 1995 1994
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
U.S. Treasury and Federal agencies $ 350,082 $ 348,324 $ 999,647 $ 978,776
Mortgage-backed obligations of Federal agencies 947,288 945,895 704,834 680,160
Other mortgage-backed obligations 413,809 412,663 152,666 149,834
Other taxable securities 5,140 5,092 5,622 5,598
Common and preferred stocks 95,465 95,682 51,677 51,836
------ ------ ------ ------
Total securities available for sale $1,811,784 $1,807,656 $1,914,446 $1,866,204
========== ========== ========== ==========
</TABLE>
(4) Money Market Investments
Money market investments at September 30 included:
<TABLE>
<CAPTION>
In thousands 1995 1994
<S> <C> <C>
Federal funds sold $475,800 $ 738,580
Securities purchased under agreements to resell 127,000 586,000
Trading account securities 7,139 257
U.S. Treasury 5,587 2,336
Domestic time deposits and other 2,638 284
----- ---
Total money market investments $618,164 $1,327,457
======== ==========
</TABLE>
(5) Nonperforming Assets And Impaired Loans
Nonperforming assets at September 30 are shown below. Loans that are both (a)
past due 90 days or more and (b) not deemed nonaccrual due to an assessment of
collectibility are specifically excluded from the definition of nonperforming
assets.
<TABLE>
<CAPTION>
In thousands 1995 1994
<S> <C> <C>
Nonaccrual loans $60,935 $62,934
Foreclosed properties - net 14,614 23,644
------ ------
Total nonperforming assets $75,549 $86,578
======= =======
</TABLE>
Non-cash additions to foreclosed properties were $6.0 million and $9.7 million
in the first nine months of 1995 and 1994, respectively.
Effective January 1, 1995, Crestar adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (SFAS
114), and No. 118, "Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosures" (SFAS 118). In accordance with SFAS 114, impaired
loans are measured and reported based on the present value of expected cash
flows discounted at the loan's effective interest rate, or at the fair value of
the loan's collateral if the loan is deemed "collateral dependent." A valuation
allowance is required to the extent that the measure of the impaired loans is
less than the recorded investment.
Impaired loans are specifically reviewed loans for which it is probable that
the creditor will be unable to collect all amounts due according to the terms of
the loan agreement. The specific factors that influence management's judgment in
determining when a loan is impaired include evaluation of the financial strength
of the borrower and the net realizable value of the collateral. A specifically
reviewed loan is not impaired during a period of "minimum delay" in payment,
regardless of the amount of shortfall, if the ultimate collectibility of all
amounts due is expected. Crestar defines "minimum delay" as past due less than
90 days.
SFAS 114 does not apply to larger groups of homogeneous loans such as
consumer instalment, bank card and real estate mortgage loans, which are
collectively evaluated for impairment. Impaired loans are therefore primarily
business loans, which include commercial loans and income property and
construction real estate loans. Crestar applies the measurement methods
described above to these loans on a loan-by-loan basis. Smaller balance
populations of business loans, which are not specifically reviewed in accordance
with Crestar's normal credit review procedures, are also excluded from the
application of SFAS 114. Crestar's impaired loans are non-accrual loans, as
generally loans are placed in nonaccrual status on the earlier of the date that
principal or interest amounts are 90 days or more past due or the date that
collection of such amounts is judged uncertain based on an assessment of
collectibility.
Impaired loans and the allocated valuation allowance at September 30, 1995
were:
<TABLE>
<CAPTION>
In thousands Related
Loan Valuation
Balance Allowance
<S> <C> <C>
Impaired with valuation allowance $27,950 $3,640
Impaired without valuation allowance - -
------- ------
Total impaired loans $27,950 $3,640
======= ======
</TABLE>
Collateral dependent loans, which were measured at the fair value of the
collateral, constituted $23,770,000 or 85% of impaired loans at September 30,
1995. Remaining impaired loans of $4,180,000 were measured based on the present
value of expected cash flows. The valuation allowance for impaired loans at
September 30, 1995, and activity related thereto for the three months and nine
months ended September 30, 1995, is included in the allowance for loan losses
discussed in note (6). Crestar's charge-off policy for impaired loans is
consistent with its policy for loan charge-offs to the allowance: impaired loans
are charged-off when an impaired loan, or a portion thereof, is considered
uncollectible or is transferred to foreclosed properties.
SFAS 118 allows a creditor to use existing methods for recognizing interest
income on an impaired loan. Consistent with Crestar's method for non-accrual
loans, interest receipts on impaired loans are recognized as interest income or
are applied to principal when the ultimate collectibility of principal is in
doubt. The average recorded investment in impaired loans, the amount of interest
income recognized, and the amount of interest income recognized on a cash basis
during 1995 were:
<TABLE>
<CAPTION>
In thousands Nine Months Ended Sept. 30, 1995
<S> <C>
Average recorded investment in impaired loans $37,350
Interest income recognized during impairment -
Interest income recognized on a cash basis during impairment -
</TABLE>
The balance of impaired loans at January 1, 1995 totaled approximately $40
million. The initial adoption of SFAS 114 and SFAS 118 did not require an
increase to Crestar's allowance for loan losses. The impact of SFAS 114 and SFAS
118 was immaterial to Crestar's consolidated financial statements as of and for
the three months and nine months ended September 30, 1995. In accordance with
SFAS 114, no retroactive application of its provisions has been made to the
consolidated financial statements for periods prior to January 1, 1995.
(6) Allowance For Loan Losses
Transactions in the consolidated allowance for loan losses for the three months
and nine months ended September 30 were:
<TABLE>
<CAPTION>
In thousands Three Months Nine Months
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Beginning balance $222,882 $226,666 $219,189 $210,958
-------- -------- -------- --------
Charge-offs (22,168) (14,438) (59,595) (49,127)
Recoveries 8,816 5,583 20,880 21,390
----- ----- ------ ------
Net charge-offs (13,352) (8,855) (38,715) (27,737)
Provision for loan losses 14,000 8,100 37,600 26,982
Allowance from acquisitions - net (100) (21) 5,356 15,687
---- --- ----- ------
Net increase (decrease) 548 (776) 4,241 14,932
--- ---- ----- ------
Ending balance $223,430 $225,890 $223,430 $225,890
======== ======== ======== ========
</TABLE>
(7) Allowance For Foreclosed Properties
Transactions in the allowance for losses on foreclosed properties for the three
months and nine months ended September 30 were:
<TABLE>
<CAPTION>
In thousands Three Months Nine Months
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Beginning balance $5,374 $9,166 $7,180 $5,574
------ ------ ------ ------
Provision for foreclosed properties - (156) (500) (801)
Write-downs (150) 979 (4,150) (323)
Allowance from acquisitions - net - - 2,694 5,539
----- -----
Net increase (decrease) (150) 823 (1,956) 4,415
---- --- ------ -----
Ending balance $5,224 $9,989 $5,224 $9,989
====== ====== ====== ======
</TABLE>
(8) Short-Term Borrowings
Short-term borrowings, exclusive of deposits, with maturities of less than one
year at September 30 were:
<TABLE>
<CAPTION>
In thousands 1995 1994
<S> <C> <C>
Federal funds purchased $1,318,928 $1,522,138
Securities sold under repurchase agreements 388,254 231,368
Notes payable 164,003 149,347
Other 1,942 2,196
----- -----
Total short-term borrowings $1,873,127 $1,905,049
========== ==========
</TABLE>
The Corporation paid $293,231,000 and $235,134,000 in interest on deposits and
short-term borrowings in the first nine months of 1995 and 1994, respectively.
(9) Long-Term Debt
Long-term debt at September 30 included:
<TABLE>
<CAPTION>
In thousands 1995 1994
<S> <C> <C>
8 3/4% Subordinated notes due 2004 $149,644 $ -
8 1/4% Subordinated notes due 2002 125,000 125,000
8 5/8% Subordinated notes due 1998 49,974 49,963
7-8 1/4% Mortgage indebtedness maturing through 2009 9,557 12,378
8 5/8-14 3/8% Capital lease obligations maturing through 2006 1,150 1,502
4 3/8-8% Federal Home Loan Bank obligations payable through 2015 15,976 11,109
6 1/4-11 1/4% Collateralized mortgage obligation bonds maturing through 2019 28,936 18,612
------- -------
Total long-term debt $380,237 $218,564
======== ========
</TABLE>
The Corporation paid $22,164,000 and $15,126,000 in interest on long-term debt
in the first nine months of 1995 and 1994, respectively. There were no new
capital lease agreements in the third quarter of 1995.
(10) Income Taxes
The current and deferred components of income tax expense allocated to
continuing operations in the accompanying consolidated statements of income for
the three months and nine months ended September 30 were:
<TABLE>
<CAPTION>
In thousands Three Months Nine Months
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Current:
Federal $26,915 $23,986 $64,698 $61,171
State and local 752 620 2,369 1,502
--- --- ----- -----
Total current tax expense 27,667 24,606 67,067 62,673
------ ------ ------ ------
Deferred:
Federal (1,514) (1,609) 5,716 489
State and local 213 (138) 543 175
--- ---- --- ---
Total deferred tax expense (benefit) (1,301) (1,747) 6,259 664
------ ------ ----- ---
Total income tax expense $26,366 $22,859 $73,326 $63,337
======= ======= ======= =======
</TABLE>
The differences between the amounts computed by applying the statutory federal
income tax rate to income before income taxes and the actual income tax expense
allocated to operations for the three months and nine months ended September 30
were:
<TABLE>
<CAPTION>
In thousands Three Months Nine Months
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Income before income taxes $74,772 $66,463 $214,707 $190,031
------- ------- -------- --------
Tax expense at statutory rate 26,170 23,262 75,147 66,511
------ ------ ------ ------
Increase (decrease) in taxes resulting from:
Tax-exempt interest and dividends (1,752) (1,861) (5,617) (5,419)
Nondeductible interest expense 166 119 480 331
Amortization of goodwill 929 827 2,569 1,333
State income taxes 627 314 1,893 1,090
Other - net 226 198 (1,146) (509)
--- --- ------ ----
Total increase (decrease) in taxes 196 (403) (1,821) (3,174)
--- ---- ------ ------
Total income tax expense $26,366 $22,859 $ 73,326 $ 63,337
------- ------- -------- --------
Effective tax rate 35.3% 34.4% 34.2% 33.3%
==== ==== ==== ====
</TABLE>
The Corporation made income tax payments of $45,924,000 and $56,405,000 during
the first nine months of 1995 and 1994, respectively. At September 30, 1995, the
Corporation had a net deferred income tax asset of $87,182,000. There was no
valuation allowance relating to the net deferred income tax asset. Crestar has
sufficient taxable income in the available carryback periods and future taxable
income from reversing taxable differences to realize substantially all of its
deferred income tax assets. Management believes, based on the Corporation's
history of generating significant earnings and expectations of future earnings,
that it is more likely than not that all recorded deferred income tax assets
will be realized.
(11) Commitments And Contingencies
In the normal course of business, there are outstanding commitments, contingent
liabilities and other financial instruments that are not reflected in the
accompanying consolidated financial statements. These include commitments to
extend credit, standby letters of credit, interest rate caps, floors and
collars, swaps, and forward contracts. These items involve varying degrees of
credit and interest rate risk in excess of amounts recorded in the consolidated
balance sheets.
Commitments to extend credit are legally binding agreements to lend to a
customer which typically contain clauses that permit cancellation of the
commitment in the event of credit deterioration of the borrower. Similar to
direct lending, these commitments are subject to the Corporation's loan approval
and review procedures and policies. Based upon management's review, Crestar may
require the customer to provide various types of collateral as security for the
agreement, including balances on deposit, investment securities, real estate and
inventory. Crestar receives a commitment fee for entering into such agreements.
Legally binding, unfunded commitments to extend credit were $6.2 billion and
$5.3 billion at September 30, 1995 and 1994, respectively.
Standby letters of credit, which are conditional commitments to extend
credit, guarantee the performance of customers to a third party. Crestar's
outstanding standby letters of credit were $351 million and $380 million at
September 30, 1995 and 1994, respectively.
The Corporation services mortgage loans other than those included in the
accompanying consolidated financial statements and, in some cases, accepts a
recourse liability on the serviced loans. Recourse obligations of $1.0 billion
at September 30, 1995 include $135 million of contractual recourse liability
accepted by Crestar on mortgage loan sales to the Federal National Mortgage
Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC). For the
period extending over the life of the loans, FNMA and FHLMC have the right to
sell any loans which become delinquent back to Crestar. Crestar maintains an
allowance (included in Other liabilities in the consolidated balance sheet),
which had a balance of $2.3 million at September 30, 1995, based on estimates of
future losses on this contractual recourse liability. The remaining notional
balance of recourse obligations of $888 million at September 30, 1995, results
from the origination and acquisition by Crestar of mortgage servicing rights on
Federal Housing Association and Veterans' Association loans, which are serviced
under programs of the Government National Mortgage Association (GNMA).
Approximately $627 million of this notional balance was insured by agencies of
the Federal government or private insurance companies at September 30, 1995.
As a financial institution, Crestar entails a degree of interest rate risk as
a provider of banking services to its customers. This risk can be managed
through derivative interest rate contracts, such as interest rate swaps, caps
and floors. Changes in the fair value of such derivatives are generally offset
by changes in the implied fair value of the underlying hedged asset or
liability. As hedges against interest rate risk at September 30, 1995, Crestar
was participating in interest rate swaps of $1.14 billion, of which $943.7
million and $200 million were used to convert floating rate commercial and real
estate income property loans, respectively, to fixed rates. Unrealized gross
gains and gross losses on such swaps were $323,000 and $8.3 million,
respectively, at September 30, 1995. Notional balances of $593.7 million of such
swaps were indexed amortizing swaps, whose notional values may amortize more
slowly as rates rise.
Crestar also had $245 million of purchased interest rate cap and $250 million
of purchased interest rate floor agreements outstanding at September 30, 1995,
which were used to minimize interest rate risk associated with floating rate
money market deposits and commercial loans, respectively. Unrealized gross gains
and gross losses on such caps and floors were $4.3 million and $1.3 million,
respectively, at September 30, 1995. In addition, Crestar serves as a financial
intermediary in interest rate swap, cap, floor and collar agreements, providing
interest rate risk management services to customers. At September 30, 1995,
Crestar had $81.1 million in offsetting swap, $74.3 million in offsetting cap,
and $37.5 million in offsetting collar agreements.
The notional amount of these over-the-counter traded interest rate swaps,
caps, floors and collars does not fully represent Crestar's credit and market
exposure, which the Corporation believes is a combination of current replacement
cost (any unrealized gain plus accrued receivable) of approximately $10.2
million, less collateral held of approximately $4.3 million, plus an amount for
additional market movement. Four counterparties constituted 18%, 17%, 13% and
11% of the estimated credit and market exposure of $83.0 million at September
30, 1995.
During the third quarter of 1995, Crestar terminated an interest rate swap,
having a notional balance of $100 million, which hedged floating rate commercial
loans. The realized loss on termination of $1.6 million has been deferred as an
other asset in the consolidated balance sheet; such realized loss will be
amortized as a yield adjustment to floating rate commercial loans over 13
months, the remaining expected life of the swap. At September 30, 1995, Crestar
had unamortized, realized losses of $3.7 million on terminated interest rate
swaps deferred and classified as an other asset in the consolidated balance
sheet.
Crestar had $564.0 million of forward agreements outstanding at September 30,
1995, which are primarily used to reduce the interest rate risk arising from
changes in market rates from the time residential mortgage lending commitments
are made until those commitments are funded.
Certain litigation is pending against Crestar. Management, after reviewing
this litigation with legal counsel, is of the opinion that these matters, when
resolved, will not have a material effect on the accompanying consolidated
financial statements.
<PAGE>
Financial Commentary
Crestar Financial Corporation And Subsidiaries
Overview
(Tables 1, 2 and 14)
Crestar Financial Corporation (Crestar) reported net income of $48.4 million for
the quarter ended September 30, 1995, an increase of $4.8 million or 11% over
net income reported in the third quarter of 1994. For the first nine months,
earnings were $141.4 million in 1995, an increase of 12% from the $126.7 million
reported in 1994. These increases reflected the continued positive effects of
growth in noninterest income and stringent control of operating expenses.
Earnings per common share were $1.27 for the third quarter of 1995, compared to
$1.15 in 1994. For the first nine months of 1995, earnings per common share were
$3.71, an increase of 11% from the $3.34 per share recorded in the first nine
months of 1994. The predominant items affecting the change in earnings per share
are given in Table 2. Each item is net of applicable federal income taxes.
Crestar's subsidiaries provide banking and non-banking services throughout
Virginia, Maryland and Washington, D.C., which compose Crestar's primary market
area. This market area is characterized as economically diverse and stable.
Business growth has continued to be strong in Crestar's market area during the
current year, as evidenced by strong job creation and low unemployment rates.
Crestar's market area is characterized by active competition in all principal
areas where the Corporation provides services. In addition to banks, other firms
competing in the market area include savings associations, consumer finance
companies, national credit card companies, insurance companies, trust companies,
securities brokerage firms, credit unions and mortgage banking companies.
Mergers And Acquisitions
On November 10, Crestar completed its previously announced purchase of the
deposits and customer accounts, plus selected loans, of six branches of the
Chase Manhattan Bank of Maryland. The transaction brings to Crestar
approximately $450 million in deposits and $245 million in primarily consumer
loans. The transaction was recorded as a purchase. The results of operations,
subsequent to November 10, of the assets and liabilities purchased will be
reflected in Crestar's fourth quarter 1995 and subsequent results.
In April, Crestar announced an agreement to acquire Loyola Capital
Corporation (Loyola), a $2.5 billion-asset thrift institution headquartered in
Baltimore, Maryland. Loyola is the holding company for Loyola F.S.B., which
operates 35 branches, primarily in central Maryland and Maryland's Eastern
Shore, including 15 branches in the Baltimore metropolitan area. Loyola has
total deposits of approximately $1.5 billion and total loans of approximately
$2.1 billion. Under terms of the merger agreement, Loyola shareholders will
receive Crestar common stock in exchange for their Loyola holdings. The
transaction, which was approved by Loyola shareholders on October 17, is
expected to be completed in late December 1995. Under the terms of the merger
agreement, each common share of Loyola will be exchanged for a maximum of 0.75
common shares of Crestar common stock. At September 30, 1995, Loyola had
8,122,861 common shares outstanding. The Loyola acquisition will be accounted
for as a pooling-of-interests transaction. After completion of the merger, the
previous historical consolidated financial statements of Crestar, including
results for 1994 and the first nine months of 1995, will be retroactively
restated to include the prior results of Loyola. Unlike purchase-method
accounting, these restated financial statements will therefore reflect results
of operations as if Crestar and Loyola had always been combined.
In connection with the merger with Loyola, Crestar anticipates recording in
the fourth quarter various non-recurring charges of up to approximately $16
million, on an after-tax basis, for settlement of obligations under existing
employment contracts, severance pay, early retirement and related employee
benefits, branch closing costs and other expenses related to the merger. In
addition, pending the outcome of proposed legislation in Congress, the fourth
quarter may include an after-tax charge of approximately $11 million for the tax
liability arising from the recapture of the tax bad debt reserves of Loyola.
Under interstate banking and branching legislation enacted by Congress,
previously existing restrictions on interstate bank acquisitions were abolished,
effective September 29, 1995. Bank holding companies from any state are now able
to acquire banks and bank holding companies located in any other state.
Effective June 1, 1997, the law will allow interstate bank mergers, subject to
earlier "opt-in" or "opt-out" action by individual states. The law also allows
interstate branch acquisitions and new branch activity if permitted by the host
state. Virginia and Maryland have adopted early "opt-in" legislation that allows
interstate bank mergers, effective July 1, 1995 and September 29, 1995,
respectively. These laws also permit interstate branch acquisitions and new
branching in Virginia and Maryland by out-of-state banks if reciprocal treatment
is accorded in the state of the acquiring bank or bank holding compay. Similar
legislation is being considered in the District of Columbia. The new legislation
has not yet had any significant effect on acquisition or branching activity in
the region in which Crestar operates.
Profitability Measures And Capital Resources
(Table 1)
Increased earnings in both the third quarter and the first nine months of 1995
resulted in improvements in most key profitability measures over 1994. Return on
average assets was 1.38% in the third quarter and 1.35% for the first nine
months of 1995, compared to 1.26% and 1.24%, respectively, for 1994. Return on
average equity was 15.66% for the third quarter of 1995, compared to 15.70% for
the third quarter of 1994. For the first nine months of 1995, return on average
equity was 15.65%, compared to 15.44% for the first nine months of the previous
year.
Average equity to assets of 8.80% for the third quarter of 1995 increased 78
basis points from 8.02% in the third quarter of 1994, reflecting higher retained
earnings and the impact of common stock issued for first quarter 1995
acquisitions. Average equity to assets for the first nine months of 1995 was
8.62%, compared to 8.04% for the same period of 1994. Period-end equity to
assets of 8.53% at September 30, 1995 was 80 basis points above the September
30, 1994 ratio of 7.73%, also reflecting higher earnings and stock issued for
acquisitions.
Risk-based capital ratios are another measure of capital adequacy. At
September 30, 1995, Crestar's consolidated risk-adjusted capital ratios were
9.2% for Tier 1 and 12.9% for total capital, well above the required minimums of
4.0% and 8.0%, respectively. The Tier 1 leverage ratio of 8.0% at September 30,
1995 also was significantly above the regulatory minimum of 3.0%. Crestar's
tangible leverage ratio, defined as total equity less intangible assets divided
by total assets less intangible assets, was 7.5% at September 30, 1995. Under
Federal Deposit Insurance Corporation (FDIC) rules, each of Crestar's three
subsidiary banks was considered "well-capitalized" as of September 30, 1995, the
highest category of capitalization defined by regulatory authorities, allowing
for the lowest level of FDIC insurance premium payments.
Fourth quarter earnings may be impacted by a legislatively proposed one-time
assessment of approximately 75 basis points (0.75%) on deposits insured by the
Savings Association Insurance Fund (SAIF) of the FDIC. Any one-time assessment
on SAIF-insured deposits will impact Crestar's three bank subsidiaries and
Loyola F.S.B. Approximately 40% of Crestar's current deposit base, and virtually
all of Loyola's current deposit base, are SAIF-insured. A 75 basis point
assessment, on an after-tax basis, would result in a one-time charge to Crestar
of approximately $15 million, and to Loyola of approximately $7 million. As a
consequence of the one-time SAIF assessment, future earnings are expected
to be augmented by a reduction in ongoing SAIF assessment rates. The
estimated $15 million charge for Crestar reflects a proposed 20% reduction in
the assessments on SAIF-insured deposits acquired by banks in thrift
purchase transactions (Oakar deposits).
Net Interest Margin And Net Interest Income
(Tables 3 and 15)
Crestar's net interest margin for the third quarter of 1995 was 4.89%, an
improvement of 7 basis points from the margin recorded in the third quarter of
1994. The improvement was due to favorable changes in the composition and yield
of balance sheet earning assets, which offset higher rates paid on deposits and
declines in interest income arising from off-balance sheet hedge transactions.
Positive influences on the third quarter 1995 margin include favorable
changes in the composition of balance sheet earning assets and their respective
interest rate yields. Changes in the earning asset mix increased the third
quarter 1995 net interest margin by approximately 29 basis points when compared
to the third quarter of 1994. Reflecting the impact of strong marketing efforts,
increased demand and completed bank and thrift acquisitions, loans as a
percentage of total earning assets increased from an average of 68% during the
third quarter of 1994 to 76% for the same period of 1995. Average total loans
were $9.5 billion during the third quarter of 1995, compared to $8.5 billion
during the third quarter of 1994. Average bank card loans experienced
significant growth, with third quarter 1995 average balances up $411 million, or
35%, versus the same period of 1994. The growth in bank card balances reflects
Crestar's strong marketing emphasis, including promotional efforts outside of
Virginia, Maryland and Washington, D.C. Average instalment loan balances were up
$306 million or 18% from third quarter 1994, with average consumer real estate
loans increasing 17% during this period. Average business loans for the third
quarter were flat compared with the third quarter of 1994, as reductions in real
estate- construction loans were offset by modest increases in commercial and
real estate-income property loans. Funding for loan growth came in part from
reductions in money market investments, which averaged $235 million in the third
quarter of 1995 versus $781 million in the third quarter of 1994. Securities
available for sale were also utilized to fund loan growth, with the average
balance declining $387 million when compared to the 1994 third quarter average
balance. With regards to funding sources, interest-bearing deposits represented
62% of total funding sources in the third quarter of 1995, versus 65% of funding
sources in the same period of 1994. A higher rate environment, with increased
competitive pricing for deposits among financial institutions, resulted in
decreases in average balances for regular savings, interest checking and
domestic time deposits, with average total deposits experiencing a decrease of
$174 million, or 2%, from the third quarter of 1994. Average balances of
short-term borrowings and long-term debt increased by $64 million and $159
million, respectively, during this same time period. These changes in funding
sources had a negative impact of 9 basis points on the third quarter 1995 net
interest margin, when compared to the same quarter of 1994. When coupled with
the impact of changes to Crestar's earning asset mix, this resulted in a net 20
basis point improvement in the third quarter 1995 net interest margin arising
from changes in Crestar's total balance sheet mix.
The yield on average loans increased 41 basis points from the third quarter
of 1994, to 8.92%. Higher yields were experienced on all categories of loans,
with the exception of a decline on the average yield earned on Crestar's
expanding credit card loan portfolio, which reflects the effects of promotional
credit card rates. Yields on securities available for sale were 6.56% in third
quarter 1995 versus 6.38% in the same period of 1994. Yields on securities held
to maturity were 6.75% during the third quarter of 1995 versus 5.66% in the same
period of 1994. Yields on money market investments were 5.93% for the third
quarter of 1995 versus 4.60% for the third quarter of 1994. Reflecting a higher
interest rate environment, the yield on total average earning assets was 8.38%
for the third quarter of 1995, versus 7.69% for the same period of 1994. Also
reflecting the higher rate environment, the average rate paid on deposits
increased in many categories of interest-bearing core deposits. The average rate
paid on total interest bearing deposits increased 64 basis points, from 3.19% in
the third quarter of 1994 to 3.83% in 1995. Increases in rates paid on deposits,
however, have lagged the increases in yields on variable rate assets, such as
prime-rate based loans and money market investments. This has presented a
favorable interest rate environment for many financial institutions. In total,
interest rate spreads had a positive impact of 9 basis points on Crestar's third
quarter 1995 net interest margin, when compared to the third quarter of 1994.
Off-balance sheet hedge transactions, which had a favorable impact on the net
interest margin in 1994, experienced net negative interest rate spreads between
rates paid and rates received during the third quarter of 1995. In comparison to
third quarter 1994, such off-balance sheet transactions had a negative impact of
19 basis points on third quarter 1995's net interest margin, partially
offsetting the combined favorable impact on Crestar's net interest margin of 20
basis points from changes in balance sheet mix and 9 basis points from favorable
changes in interest rates. The impact of nonperforming assets on third quarter
1995's net interest margin, in comparison to the same period of 1994, was not
significant.
As a result of the 7 basis point increase in the net interest margin and a 1%
increase in average earning assets, tax-equivalent net interest income for the
third quarter of 1995 increased 2% over the third quarter of 1994. For the first
nine months, tax equivalent net interest income increased 5% over 1994 as a
result of a 13 basis point increase in the net interest margin and a 2% increase
in average earning assets. Factors contributing to the increased year-to-date
margin mirror those previously discussed. Positive changes to the earning assets
mix for the year-to-date period had a favorable impact of 31 basis points, while
changes to the funding mix resulted in an 8 basis point negative impact to the
year-to-date margin. Favorable interest rate spreads for the comparable nine
month period increased the net interest margin by 17 basis points. Off-balance
sheet hedge transactions had a negative impact on the margin, in comparison to
year-to-date 1994 results, of approximately 28 basis points. For the first nine
months of 1995, off-balance sheet hedge transactions resulted in a 0.7% decrease
in the Corporation's total income from earning assets, and a 0.1% increase in
total interest expense. Acquisitions completed during the first quarter of 1995
(Jefferson Savings and Loan Association, Independent Bank, and TideMark Bancorp,
Inc.) contributed approximately 2% of Crestar's net interest income for the
quarter ended September 30, 1995. The impact on Crestar's net interest margin
for the third quarter and the first nine months of 1995 from the three
acquisitions was not significant.
The extent to which Crestar will be able to maintain its current net interest
margin is significantly influenced by the economic environment in our markets
and the economic policy of the Federal Reserve Board, in addition to competitive
market conditions for both loans and deposits. Crestar's net interest margin of
4.89% for the third quarter of 1995, while up 7 basis points from the third
quarter of 1994, was down slightly from the 4.93% recorded in the second quarter
of 1995. A reduction in the prime commercial loan rate and fed funds interest
rates contributed to this decline. Competitive pressures, in addition to
acquisition strategies, may lead to further pressures on the Corporation's net
interest margin in future periods.
Risk Exposures And Credit Quality
(Tables 4-7)
Crestar's financial condition as of the end of the third quarter of 1995
exhibited strong overall credit quality. The allowance for loan losses was $223
million at September 30, 1995, representing 2.31% of period-end loans, 296% of
period-end nonperforming assets, and a 367% coverage of nonperforming loans.
Based on current expectations relative to portfolio characteristics and
performance measures, including loss projections, management considers the level
of the allowance adequate. Under the Corporation's criteria for classification
of nonperforming loans, loans that are both (a) past due 90 days or more and (b)
not deemed nonaccrual due to an assessment of collectibility are specifically
excluded from the definition of nonperforming assets. Accruing loans past due 90
days or more, and excluded from classification as nonperforming assets, totaled
$41.7 million at September 30, 1995, with consumer loans representing 93% of
this balance.
At September 30, 1995, nonperforming assets of $75.5 million were down $11.0
million or 13% from September 30, 1994, and down $19.4 million from December 31,
1994. These reductions were recorded despite $15.4 million in
acquisition-related balances acquired during the first quarter of 1995. The
ratio of nonperforming assets to loans and foreclosed properties at September
30, 1995 was 0.78%, down from 1.02% at December 31, 1994 and 1.00% at September
30, 1994. Based on current portfolio trends, and barring an unexpected
deterioration in the economy, management does not expect the ratio of
nonperforming assets to loans and foreclosed properties to change significantly
during the remainder of 1995.
Crestar's provision for loan losses was $14.0 million for the third quarter
of 1995, compared to $8.1 million in provision expense recorded in the third
quarter of 1994. Net charge-offs totaled $13.4 million in the third quarter of
1995, compared to $8.9 million in the comparable period of 1994. Net charge-offs
as a percentage of average loans were 0.56% for the third quarter of 1995,
compared to 0.54% for the second quarter of 1995 and 0.42% for the third quarter
of 1994. The largest proportion of net loan charge-offs during the third quarter
of 1995 occurred in the bank card loan portfolio. Net charge-offs for bank card
loans were $14.1 million for the three months ended September 30, 1995, compared
to $6.0 million in 1994's third quarter. This increase in bank card net
charge-offs, while partially attributable to the significant growth of Crestar's
bank card loan portfolio, also reflects current industry-wide trends of higher
delinquency rates for consumer debt. Net bankcard loan charge-offs as a
percentage of bankcard loans were 3.53% for the third quarter of 1995, compared
to 3.11% for the second quarter of 1995 and 2.03% in the third quarter of 1994.
Crestar's expectations are that the ratio of total net charge-offs to average
total loans for the full year 1995 will increase from the level experienced in
1994, but remain below 1993's results. This expectation is based upon
assumptions regarding the general economic climate in Crestar's principal
markets and the performance characteristics of the loan portfolio, including
Crestar's continued success in resolving remaining nonperforming loans. Changes
in these conditions may produce different results. Net charge-offs to average
total loans were 0.45% in 1994 and 0.95% in 1993.
In addition to other loan categories, Crestar closely manages its portfolio
of loans to real estate developers and investors (REDI). As shown in Table 4,
REDI outstanding balances remained fairly constant and totaled $1.0 billion at
September 30, 1995. This balance represented 11% of the total loan portfolio at
that date. At September 30, 1994, REDI loans represented 13% of the total loan
portfolio. Table 5 provides the property type and geographic diversification of
the current REDI portfolio. REDI nonperforming assets were $48.9 million at
September 30, 1995, compared to $56.4 at September 30, 1994.
Potential problem loans consist of loans that are currently performing in
accordance with contractual terms but for which potential operating or financial
concerns of the obligors have caused management to have serious doubts regarding
the ability of such obligors to continue to comply with present repayment terms.
At September 30, 1995, potential problem loans, not included in Table 7,
amounted to approximately $184 million. Potential problem loans were $210
million at December 31, 1994 and $144 million at September 30, 1994.
In many lending transactions, collateral is taken to reduce the credit risk
exposure and provide an additional measure of security. Generally, the cash flow
or earning power of the borrower represents the primary source of repayment and
collateral liquidation a secondary source of repayment. Crestar determines the
need for collateral on a case-by-case or product-by-product basis. Factors
considered include the current and prospective creditworthiness of the customer,
terms of the instrument and economic conditions. It is the policy of the
Corporation to review each prospective credit in order to determine an adequate
level of security or collateral to obtain prior to making the loan. The type of
collateral will vary and ranges from liquid assets to real estate. The
Corporation's access to collateral, in the event of borrower default, is assured
through adherence to state and local lending laws and the Corporation's lending
standards and credit monitoring procedures. The amount of collateral, if any, is
based on industry practice as well as an assessment of the creditworthiness of
the customer. The primary risk associated with bankcard loans is that they are
unsecured and are solely dependent upon the creditworthiness of the borrower.
The Corporation monitors this risk using both internal and external statistical
models, as well as monitoring economic trends, such as employment and wage
levels, within targeted lending areas. Underwriting standards are continually
evaluated and modified based upon these factors.
Noninterest Income And Expense
(Table 8)
Noninterest income totaled $71.8 million in the third quarter of 1995, a $8.0
million or 13% increase over the third quarter of 1994. Excluding securities
losses, noninterest income increased $8.1 million over third quarter 1994
results. This increase reflects growth in most noninterest income categories,
partially offset by a decline in mortgage income. Reflecting promotional
activities and increased merchant fee volume, bank card-related fee income
increased by $1.8 million, or 17%, in comparison to the third quarter of 1994.
Trust and investment advisory income increased 18% from third quarter 1994
levels, while service charges on deposit accounts increased 11% in comparison to
the third quarter of 1994. Mortgage income for the third quarter of 1995 totaled
$5.6 million, or $3.5 million less than the results reported in the third
quarter of 1994. Gains on sales of mortgage servicing rights totaled $4.8
million in the third quarter of 1994, while there were no such sales in
the third quarter of 1995. Other noninterest income for the third quarter of
1995 includes a net gain of $4.7 million arising from the sale or closure of 15
branches. In an effort to rationalize operating and marketing efficiencies
within its branch operations, Crestar from time-to-time will sell or close
selected branches. For the nine months ended September 30, 1995, net gains from
such activities totaled $3.2 million. At September 30, 1995, Crestar operated
332 banking offices.
Noninterest expense was down 3% in the third quarter of 1995 when compared to
the same period of 1994, totaling $134.5 million for the three month period
ended September 30, 1995 versus $138.5 million for the same period of 1994.
Management continues to emphasize prudent control of noninterest expenses and
assimilation of recent acquisitions in a cost-effective manner. Personnel
expense decreased 2%, and occupancy expense was down 5%, compared to the third
quarter of 1994. Other noninterest expense, reflecting the rebate of FDIC
deposit insurance fees during the quarter, fell $2.2 million or 5% compared to
the third quarter of 1994. During the third quarter, Crestar's deposit insurance
assessments on deposits insured by the FDIC's Bank Insurance Fund (BIF)
decreased from 0.31% to 0.04%, on an annualized basis. Because the decrease was
retroactive to June 1995, a rebate of $4.2 million was recorded in the third
quarter of 1995 as a reduction of FDIC premium expense. The assessments for
deposits insured under the Savings Association Insurance Fund (SAIF) of the FDIC
remained unchanged.
The third quarter 1995 foreclosed properties expense of $0.8 million was flat
compared to third quarter 1994. For the nine month period ended September 30,
1995, foreclosed properties expense resulted in a small net credit balance
arising from net gains recorded on the sale of foreclosed properties during
1995. Foreclosed properties expense for the nine months ended September 30, 1994
was $1.8 million.
The effective tax rate for third quarter 1995 and the first nine months of
1995 was 35.3% and 34.2%, respectively, compared to 34.4% and 33.3% for the same
periods in 1994. Increased provisions for state income taxes and higher
amortization of goodwill, which is non-deductible for tax purposes, contributed
to the higher effective tax rates for 1995. Financial statement note 10 contains
additional information concerning income taxes.
Financial Condition
(Table 9)
Crestar's assets totaled $14.8 billion at September 30, 1995, compared to $14.0
billion at December 31, 1994, and $14.5 billion at September 30, 1994. The
increase from year-end 1994 is primarily due to acquisitions completed during
the first quarter of 1995. Loans net of unearned income increased $384 million,
or 4%, from year-end 1994 levels, reflecting growth from a combination of
acquisitions and internally generated lending, offset by declines in real estate
- - construction loan balances. Total deposits of $10.9 billion at September 30,
1995 were minimally changed from December 31, 1994 balances. Despite the impact
of acquisitions completed during the first quarter, a higher interest rate
environment and increased competition for deposits resulted in declines in
demand, interest checking and regular saving deposits.
With respect to the securities held to maturity portfolio, carrying value
exceeded the market value at September 30, 1995 by $2.9 million, consisting of
$4.2 million in unrealized gains and $7.1 million in unrealized losses. At
September 30, 1995, the amortized cost of securities available for sale exceeded
the fair value of such securities by $4.1 million, consisting of $6.5 million in
unrealized gains and $10.6 million in unrealized losses. Shareholders' equity at
September 30, 1995 reflects a $2.6 million reduction for the excess, net of tax,
of the amortized cost of securities available for sale over the fair value at
quarter-end, compared to reductions of $36.6 million and $30.8 million at
December 31, 1994 and September 30, 1994, respectively. The net unrealized gain
or loss on securities available for sale, which is recorded as a component of
shareholders' equity, will continue to be subject to change in future periods
due to fluctuations in market value, acquisition activities, and purchases,
sales, maturities and calls of securities classified as available for sale.
Unrealized losses at September 30 are not expected to have a material impact on
the future operating results or liquidity of the Corporation.
All mortgage-backed securities in the securities available for sale and the
securities held to maturity portfolios are subject to prepayment risk, since the
mortgage loans underlying these securities can prepay at any time without
penalty. This risk becomes apparent during periods of declining interest rates,
when refinancing of existing mortgage loans can accelerate. During these
periods, the expected maturity of mortgage-backed securities shortens due to
prepayments, reducing the expected stream of future interest payments to be
received. The interest rate and prepayment risk associated with mortgage-backed
securities is considered by management in assessing the overall asset/liability
structure of the Corporation.
During the third quarter of 1995, Crestar sold approximately $378 million of
securities classified as available for sale, generating securities losses of $69
thousand. Such sales were consummated in conjunction with the overall management
of interest rate risk for the Corporation.
Crestar purchased and retired 135,000 shares of common stock during the third
quarter of 1995, and has purchased and retired 1.5 million shares of common
stock during the first nine months of 1995. Such purchases were primarily made
to offset the issuances of common stock relating to the three acquisitions
completed during the first quarter of 1995. Purchases during the third quarter
of 1995 were made at an average price of $52.61 per common share. As of
September 30, 1995, Crestar had a remaining authorization to purchase and retire
up to 1.2 million shares of common stock in order to meet the needs of the
dividend reinvestment plan, thrift and profit sharing plan and the first quarter
1995 issuances related to acquisitions.
Liquidity and Interest Sensitivity
(Tables 10-13)
Bank liquidity is a measure of the ability to generate and maintain sufficient
cash flows to fund operations and to meet financial obligations to depositors
and borrowers promptly and in a cost-effective manner. Liquidity is provided
through securities available for sale, money market investments, maturing loans
and securities, and the ability to generate new deposits or borrowings as
needed. Crestar's liquidity position is actively managed on a daily basis, and
monitored regularly by the Asset/Liability Management Committee (ALCO). ALCO's
overall objective is to optimize net interest income within the constraints of
prudent capital adequacy, liquidity needs, the interest rate and economic
outlook, market opportunities and customer requirements. General strategies to
accomplish this objective include maintaining a strong balance sheet,
maintaining strong core deposit levels, accepting manageable interest rate risk,
adhering to conservative financial management principles and practicing prudent
dividend policies.
Core deposits provide a typically stable source of liquidity. Crestar's
interest-bearing core deposits represented 65% of total funding sources at
September 30, 1995, compared to 67% of total funding sources at September 30,
1994. As an additional indication of adequate liquidity, securities available
for sale represented 14%, and money market investments represented 5%, of
Crestar's total earning assets at September 30, 1995.
Interest sensitivity refers to the volatility of net interest income as a
result of changes in interest rates. Crestar's goal is to limit interest rate
exposure to prudent levels as determined by the Corporation's ALCO committee.
ALCO establishes limits on the earnings at risk for a twenty-four month period.
The level of exposure taken is based on an assessment of the market environment,
and will vary from period to period.
The primary tool used by ALCO in assessing interest rate exposure is net
interest income simulations. The committee establishes limits on net interest
income at risk for a twenty-four month period. A two year net interest income
forecast is prepared regularly based on a consensus interest rate forecast, in
addition to high and low interest rate scenarios. The high and low interest rate
scenarios are based upon an assessment of the historic volatility of interest
rates. The expected dynamics of the balance sheet under each scenario, including
shifts in loans and deposits, are included in the simulations. By its nature,
this simulation process includes numerous assumptions, for both long-term and
short-term timeframes, including assumptions on average balances and yields, and
forecasts of interest rate movements. Other assumptions made in the
Corporation's simulation process relate to early loan repayments and investment
security repayments. Prepayment assumptions are based on the expertise of
management along with input from external financial market sources. Many of the
assumptions used in the simulation process are both highly qualitative and
subjective, and subject to the risk that past historical activity may not
generate accurate predictions of future results.
The high rate and low rate estimates generated by this simulation process are
compared to the estimate generated under the consensus interest rate scenario.
Crestar's most recent projection of pre-tax earnings at risk, as a percentage of
the next twenty-four month's projected net interest income under a consensus
interest rate scenario, is approximately 3% for a high interest rate scenario,
and 4% for a falling interest rate scenario. The net interest income at risk
percentage does not consider all possible future discretionary actions,
including possible hedging activity, that may be entered into to manage future
earnings volatility. The most recent projections indicate a sufficient liquidity
position, and acceptable operating environment, under the high, low and
consensus interest rate scenarios.
A second interest sensitivity tool is the quantification of market value
changes for all assets and liabilities given an increase or decrease in interest
rates. This approach provides a longer term view of interest rate risk,
capturing predominantly all expected future cash flows. Assets and liabilities
with option characteristics are valued based on numerous interest rate path
valuations using Monte Carlo rate simulation techniques. The banking industry
and its regulatory authorities are moving toward a market value method of
interest sensitivity assessment. Crestar has been developing this tool and is
incorporating it as another component of interest rate risk management to
supplement the results achieved through net interest income simulations.
Another interest rate risk tool used by Crestar is the interest rate "gap",
or mismatch in repricing between interest-sensitive assets and liabilities,
which provides a general indication of interest sensitivity at a specific point
in time. A gap schedule is shown in Table 10, and reflects the earlier of the
maturity or repricing dates for various assets and liabilities at September 30,
1995. At that point in time, Crestar had a cumulative negative twelve-month gap
with $1.5 billion excess of interest-sensitive sources of funds over uses of
funds. This generally indicates that earnings should improve in a declining
interest rate environment as liabilities reprice more quickly than assets. The
opposite would be true of a positive, or asset-sensitive, gap.
While most assets and liabilities reprice either at maturity or in accordance
with their contractual terms, some demonstrate characteristics that require
adjustments to more accurately reflect their repricing behavior. Table 10
presents interest sensitivity on an adjusted basis to reflect these
characteristics. The first of these adjustments is made through the use of beta
factors, which are based on a ratio of actual changes in interest rates on
consumer deposits with no stated maturity (interest checking, money market and
regular savings deposits) to changes in the prime rate during interest rate
cycles for the last several years. Essentially, the beta factors recognize that
certain consumer deposits are less interest-sensitive than other funding
sources, such as short-term borrowings, to movements in market interest rates.
For example, the beta adjustment for interest checking in Table 10 demonstrates
that for any given increase or decrease in the prime commercial loan rate,
Crestar expects the interest rates paid on interest checking deposits will
reprice much slower, in both a rising and falling rate environment, than the
commercial prime rate. This is an industry-wide characteristic of interest
checking deposits that Crestar must address for a more accurate gap analysis.
The beta adjustments, therefore, are used to quantify these deposits as sources
of funds that are less sensitive to prime interest rate changes than indicated
by their variable rate characteristics. In addition to beta adjustments, the
table also incorporates an adjustment to reflect the sensitivity of much of the
Corporation's demand deposit balances to the level of interest rates. In periods
of rising interest rates, average balances of non-interest bearing demand
deposits will decrease (all other factors being constant) as customers become
more sensitive to reducing debt or converting demand deposit funds to interest
bearing accounts. On a cumulative twelve-month basis, Crestar had an asset
sensitive "adjusted gap" at September 30, 1995, with $1.3 billion excess of
interest-sensitive uses of funds over sources of funds. This generally indicates
that earnings should improve in a rising interest rate environment as assets
reprice more quickly than liabilities. While Crestar does not have a targeted
gap range, management considers the adjusted gap at September 30, 1995 to be at
a prudent level in the current interest rate and economic environment. This is
supported by Corporation's net interest income simulations (see above), which
remain the primary asset/liability management tool. The static gap and adjusted
gap do not include $230 million (notional amount) of interest rate caps which
Crestar has added to potentially offset the effect of rising interest rates on
variable rate deposits. These interest rate caps did not have an impact on
Crestar's static gap and adjusted gap at September 30, 1995, as the fixed strike
rates on the caps were above their specified market index rates.
Each of the above three tools used to assess interest rate risk have
strengths and weaknesses. While Crestar believes that the above methodologies
provide a meaningful representation of the Corporation's interest rate
sensitivity, the methodologies do not necessarily take into account all business
developments which can have an impact on net interest income, such as changes in
credit quality or changes in the amount and composition of earning assets and
sources of funds.
As noted, Crestar incurs a degree of interest rate risk as a provider of
banking services to its customers. This risk can be reduced through derivative
interest rate contracts, such as interest rate swaps, caps and floors. The
majority of Crestar's outstanding derivative instruments at September 30, 1995
are utilized to convert certain variable rate assets to fixed rates in order to
lock in a profitable interest spread based on the underlying fixed rate funding
sources. Because financial derivatives typically do not have actual principal
dollars transferred between parties, notional principal amounts are used to
express the volume of such transactions. However, the notional amount of
derivative contracts does not represent direct credit exposure, which the
Corporation believes is a combination of current replacement cost of those
instruments with a positive market value plus an amount for additional market
movement. Crestar has established policies governing derivative activities, and
the counterparties used by Crestar are considered high quality credits. In
addition, Crestar may demand collateral from a counterparty to further minimize
credit risk. There were no past due amounts or reserves for possible derivative
credit losses at September 30, 1995, nor has Crestar ever experienced any
charge-offs related to the credit risk of derivative transactions.
The notional amount of Crestar's interest rate swaps, caps and floors
(excluding customer positions where Crestar acts as an intermediary) was $1.6
billion at September 30, 1995. Forward contracts with a notional amount of $564
million, utilized to hedge lending commitments of Crestar's mortgage banking
subsidiary, were also outstanding at September 30, 1995, bringing the total
notional value of derivative financial instruments related to interest rate risk
management activities to $2.2 billion at September 30, 1995. Tables 11, 12, and
13 present information regarding fair values, maturity, average rates, and
activity as of and for the nine month period ending September 30, 1995 for these
off-balance sheet derivative instruments. Net unrealized losses on these
instruments totaled $5.3 million as of September 30, 1995. Financial statement
note 11 contains additional information pertaining to these types of agreements.
Index amortizing interest rate swaps represent $594 million of the $2.2
billion in notional value of derivative instruments, as of September 30, 1995,
utilized in Crestar's risk management activities. A key characteristic of index
amortizing swaps is that their notional value may amortize more slowly in a
rising interest rate environment than in a stable or falling interest rate
environment. This characteristic can lead to increased volatility of fair values
during periods of changing interest rates. The economic purpose of using these
swaps is to convert floating rate loans to fixed rates, as an interest rate risk
management strategy, where fixed rate deposits have provided the source of funds
for underwriting the applicable loans. Crestar utilizes its interest rate
simulation and market valuation methods, in addition to its monitoring of
financial market activity, to control risks related to index amortizing swaps
and other derivative instruments. The weighted average expected maturity of
Crestar's index amortizing swaps at September 30, 1995 was less than eight
months.
During the second and third quarters of 1995, the Corporation terminated
prior to maturity certain interest rate swaps being utilized as hedges against
interest rate risk. The losses upon termination have been deferred and are being
amortized as a yield adjustment over the remaining term of each terminated swap
contract. At September 30, 1995, the unamortized balance of the deferred losses
was $3.7 million. The terminations reflect decisions by ALCO to refine balance
sheet management strategies; additional terminations of interest rate swaps
prior to maturity may occur in the future in response to modifications of
interest rate risk management strategies.
New Accounting Standards
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights" (SFAS
122) in May 1995. SFAS 122 requires that the cost of mortgage loans originated
or purchased with a definitive plan to sell the loans and retain the servicing
rights be allocated between the loans and servicing rights based on their
estimated fair values at the purchase or originating date. In compliance with
the guidelines of SFAS 122, Crestar elected to adopt the new accounting standard
effective January 1, 1995. The provisions of SFAS 122 have been applied
prospectively to transactions occurring after January 1, 1995.
The effects of adopting SFAS 122 on Crestar's consolidated financial
statements for the three and nine month periods ended September 30, 1995 were
increases in mortgage origination income of $985,000 and $2,660,000,
respectively, with corresponding increases in mortgage servicing rights
(classified as Other assets in the Consolidated Balance Sheets). Such additional
income resulted from a lower adjusted cost basis on mortgage loans sold by the
Company's mortgage banking subsidiary during the first nine months of 1995. See
Financial Statement note 1 for further information on SFAS 122.
The FASB issued Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" (SFAS 114) in 1993. SFAS 114
was further amended by the FASB in 1994 through the issuance of Statement of
Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures" (SFAS 118). Effective January 1,
1995, SFAS 114, as amended by SFAS 118, requires that an impaired loan be
measured and reported on the basis of the present value of expected cash flows
discounted at the loan's effective interest rate, or at the fair value of the
loan's collateral if the loan is deemed collateral dependent. Impaired loans are
specifically reviewed loans for which it is probable that the creditor will be
unable to collect all amounts due according to the terms of the loan agreement.
SFAS 118 allows a creditor to use existing methods for recognizing interest
income on an impaired loan. For Crestar's nonaccrual loans, including impaired
loans, interest receipts are recognized as interest revenue or are applied to
principal when management believes the ultimate collectibility of principal is
in doubt.
At September 30, 1995, impaired loans of $28 million were included in the
nonaccrual loan balances of Crestar. The balance of impaired loans at January 1,
1995 totaled $40 million. Because the majority of loans deemed impaired during
the first nine months of 1995 were collateral dependent, valuations of impaired
loans did not vary materially from the values previously assigned to this
population of loans. The initial adoption of the new accounting standard did not
require an increase to Crestar's allowance for loan losses. The impact of
adopting SFAS 114, as amended by SFAS 118, was therefore immaterial to the
financial condition and operations of Crestar as of and for the nine month
period ended September 30, 1995, and had no material impact on the comparability
of the credit risk information included in Tables 4 through 7.
Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," was issued in March 1995. The Statement requires that long-lived assets and
certain identifiable intangibles to be held and used by a company be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the company should estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. An impairment
loss would be recognized if the sum of the expected future cash flows,
undiscounted, is less than the carrying amount of the asset. The Statement also
establishes standards for recording an impairment loss for certain assets that
are subject to disposal. The Statement excludes financial instruments, long-term
customer relationships of financial institutions, mortgage servicing rights, and
deferred income tax assets. Adoption of the new accounting standard is expected
to occur on January 1, 1996. At this time, Crestar does not expect any impact to
the Corporation's net income upon implementation of SFAS 121.
Table 1 Financial Highlights
<TABLE>
<CAPTION>
Dollars in millions, except per share data Three Months Nine Months
% %
For the Period Ended September 30 1995 1994 Change 1995 1994 Change
<S> <C> <C> <C> <C> <C> <C>
Net Income $48.4 $43.6 11 $141.4 $126.7 12
Dividends Declared on Common Stock 17.0 15.1 12 49.4 42.5 16
Per Common Share:
Net Income $1.27 $1.15 10 $ 3.71 $ 3.34 11
Dividends Declared .45 .40 13 1.30 1.13 15
Average Shares Outstanding (000s) 38,053 38,063 - 38,107 37,933 -
====== ====== == ====== ====== ==
Key Ratios
Return on Average Assets 1.38% 1.26% 1.35% 1.24%
Return on Average Equity 15.66 15.70 15.65 15.44
Average Equity to Average Assets 8.80 8.02 8.62 8.04
Net Interest Margin 4.89 4.82 4.94 4.81
At September 30
Book Value Per Share $33.38 $29.70 12
Equity to Assets 8.53% 7.73%
Risk Adjusted Capital Ratios:
Tier 1 9.2 9.6
Total 12.9 12.2
Common Shares Outstanding (000s) 37,709 37,598
====== ======
</TABLE>
Table 2 Analysis Of Earnings Per Common Share
<TABLE>
<CAPTION>
3rd Qtr. 1995 3rd Qtr. 1995
vs. vs.
3rd Qtr. 1994 2nd Qtr. 1995
<S> <C> <C>
Earnings Per Common Share - prior period $1.15 $1.24
----- -----
Interest income .37 -
Interest expense (.34) (.03)
Provision for loan losses (.10) (.01)
Securities gains or losses - .03
Other noninterest income .14 .01
Noninterest expense .07 .08
Income taxes (.02) (.05)
---- ----
Net increase .12 .03
--- ---
Earnings Per Common Share - current period $1.27 $1.27
===== =====
</TABLE>
Table 3 Average Balances, Net Interest Income And Rate/Volume Analysis(1)
Dollars in thousands
<TABLE>
<CAPTION>
3rd Qtr.
----------------------------------------
2nd Qtr.
Average Balance Average
------------------------- Increase Balance
1995 1994 (Decrease) 1995
--------- ---------- ---------- ---------
$ $ % $
<S> <C> <C> <C> <C>
2,888,705 2,840,046 2 3,017,662 Commercial
786,408 776,197 1 802,250 Real estate - income property
173,824 225,788 (23) 182,905 Real estate - construction
2,036,619 1,730,946 18 1,967,956 Instalment
1,590,871 1,179,880 35 1,573,073 Bank card
2,070,274 1,769,755 17 2,174,101 Real estate - mortgage
--------- --------- -- ---------
9,546,701 8,522,612 12 9,717,947 Total loans - net of unearned income(2)
819,922 961,378 (15) 852,398 Securities held to maturity
1,562,548 1,949,879 (20) 1,411,687 Securities available for sale
234,606 780,606 (70) 289,402 Money market investments
411,719 268,309 53 254,491 Mortgage loans held for sale
------- ------- --- -------
12,575,496 12,482,784 1 12,525,925 Total earning assets
========== ========== == ==========
1,817,501 1,876,726 (3) 1,868,312 Interest checking deposits
2,513,028 2,410,600 4 2,482,634 Money market deposit accounts
1,242,381 1,486,232 (16) 1,310,929 Regular savings deposits
3,160,571 3,204,215 (1) 3,187,239 Domestic time deposits
--------- --------- -- ---------
8,733,481 8,977,773 (3) 8,849,114 Total interest-bearing core deposits
1,317,800 1,252,181 5 1,227,230 Purchased liabilities
379,155 220,584 72 384,971 Long-term debt
10,430,436 10,450,538 - 10,461,315 Total interest-bearing liabilities
---------- ---------- ----------
2,145,060 2,032,246 6 2,064,610 Other sources - net
--------- --------- - ---------
12,575,496 12,482,784 1 12,525,925 Total sources of funds
========== ========== = ========== Net Interest Income
</TABLE>
<TABLE>
<CAPTION>
3rd Qtr.
--------------------------------------------
1995 vs. 1994 3rd Qtr. 1995 vs. 2nd Qtr. 1995
----------------------------- -------------------------------
Income/Expense(3) Change due to(4) 2nd Qtr. Change due to(4)
--------------- ------------------ Income/ -----------------
Increase Expense(3) Increase
1995 1994 (Decrease) Rate(5) Volume 1995 (Decrease) Rate(5) Volume
------ ------ -------- ------ ------ ---------- --------- ------- ------
$ $ $ $ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial 59,693 57,493 2,200 1,230 970 63,828 (4,135) (1,411) (2,724)
Real estate - income property 17,084 16,353 731 517 214 17,132 (48) 289 (337)
Real estate - construction 4,290 4,907 (617) 510 (1,127) 4,420 (130) 89 (219)
Instalment 48,179 37,145 11,034 4,493 6,541 46,104 2,075 490 1,585
Bank card 44,811 35,034 9,777 (2,338) 12,115 45,169 (358) (862) 504
Real estate - mortgage 39,845 32,074 7,771 2,360 5,411 41,303 (1,458) 513 (1,971)
------- ------- ------- ------- ------- ------- ------ ------ ------
Total loans - net of unearned
income(2) 213,902 183,006 30,896 9,083 21,813 217,956 (4,054) (240) (3,814)
Securities held to maturity 13,842 13,609 233 2,707 (2,474) 14,036 (194) 341 (535)
Securities available for sale 26,043 31,352 (5,309) 282 (5,591) 22,942 3,101 649 2,452
Money market investments 3,507 9,058 (5,551) 785 (6,336) 4,363 (856) (30) (826)
Mortgage loans held for sale 7,539 5,197 2,342 (436) 2,778 5,127 2,412 (756) 3,168
------- ------- ------- ------- ------- ------- ------ ------ ------
Total earning assets 264,833 242,222 22,611 20,823 1,788 264,424 409 (632) 1,041
======= ======= ======= ======= ======= ======= ====== ====== ======
Interest checking deposits 9,968 10,544 (576) (243) (333) 10,489 (521) (236) (285)
Money market deposit accounts 24,549 17,966 6,583 5,820 763 24,183 366 70 296
Regular savings deposits 8,404 10,177 (1,773) (103) (1,670) 9,165 (761) (282) (479)
Domestic time deposits 40,925 33,101 7,824 8,335 (511) 39,019 1,906 2,241 (335)
------- ------- ------- ------- ------- ------- ------ ------ ------
Total interest-bearing core
deposits 83,846 71,788 12,058 14,019 (1,961) 82,856 990 2,078 (1,088)
Purchased liabilities 18,264 13,930 4,334 3,608 726 17,574 690 (603) 1,293
Long-term debt 8,041 4,484 3,557 333 3,224 8,173 (132) (9) (123)
Total interest-bearing
liabilities 110,151 90,202 19,949 20,123 (174) 108,603 1,548 1,870 (322)
------- ------- ------- ------- ------- ------- ------ ------ ------
Other sources - net
Total sources of funds 110,151 90,202 19,949 19,277 672 108,603 1,548 1,117 431
Net Interest Income 154,682 152,020 2,662 1,546 1,116 155,821 (1,139) (1,749) 610
======= ======= ======= ======= ======= ======= ====== ====== ======
</TABLE>
(1) Tax-equivalent basis.
(2) Nonaccrual loans are included in the average loan balances and income on
such loans is recognized on a cash basis.
(3) Includes tax-equivalent net loan fees of $72,000 and $814,000 for the third
quarter of 1995 and 1994, respectively, and $382,000 for the second quarter
of 1995.
(4) Variances are computed on a line-by-line basis and are non-additive.
(5) Variances caused by the change in rate times the change in balances are
allocated to rate.
Table 4 Loans To Real Estate Developers And Investors (REDI)
<TABLE>
<CAPTION>
In millions
September 30, June 30, December 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Commercial - developer lines $ 70.6 $ 98.5 $ 78.6 $ 98.7
Commercial - other 55.4 77.3 63.2 67.7
Real estate - income property 780.7 761.4 794.3 744.9
Real estate - construction 122.5 190.6 134.4 152.0
----- ----- ----- -----
Total REDI loans $1,029.2 $1,127.8 $1,070.5 $1,063.3
======== ======== ======== ========
</TABLE>
Table 5 Loans To Real Estate Developers And Investors--
Geographic Distribution And Property Type
September 30, 1995
In millions
<TABLE>
<CAPTION>
Region
Total Greater
Corporation Washington Eastern Western Capital
<S> <C> <C> <C> <C> <C>
Land acquisition and development $ 78.1 $ 44.4 $ 25.9 $ 3.5 $ 4.3
Residential developments 238.4 126.2 66.8 38.0 7.4
Commercial projects:
Office buildings 141.8 91.5 29.6 9.4 11.3
Retail stores and malls 207.2 147.7 42.0 8.1 9.4
Hotels and motels 110.2 38.5 41.7 22.4 7.6
Industrial buildings 124.6 90.8 13.5 4.8 15.5
----- ---- ---- --- ----
Total commercial projects 583.8 368.5 126.8 44.7 43.8
----- ----- ----- ---- ----
Special use 56.9 26.2 15.9 12.9 1.9
Other 72.0 52.7 13.1 2.3 3.9
---- ---- ---- --- ---
Total REDI loans $1,029.2 $618.0 $248.5 $101.4 $61.3
======== ====== ====== ====== =====
</TABLE>
Table 6 Allowance For Loan Losses
Dollars in thousands
<TABLE>
<CAPTION>
Third Quarter Nine Months Ended Sept. 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Beginning balance $ 222,882 $ 226,666 $ 219,189 $ 210,958
--------- --------- --------- ---------
Allowance from acquisitions - net (100) (21) 5,356 15,687
--------- --------- --------- ---------
Provision for loan losses 14,000 8,100 37,600 26,982
--------- --------- --------- ---------
Net charge-offs (recoveries):
Commercial (180) 767 239 3,963
Real estate - income property (1,511) 2,211 (1,225) 6,125
Real estate - construction (990) (1,529) (1,956) (2,297)
Instalment 1,978 1,138 5,007 2,774
Bank card 14,052 5,990 36,212 16,272
Real estate - mortgage 3 278 438 900
--------- --------- --------- ---------
Total net charge-offs 13,352 8,855 38,715 27,737
--------- --------- --------- ---------
Balance, September 30 $ 223,430 $ 225,890 $ 223,430 $ 225,890
========= ========= ========= =========
Allowance for loan losses to period-end loans 2.31% 2.61% 2.31% 2.61%
Annualized net charge-offs to average loans .56 .42 .54 .46
========= ========= ========= =========
</TABLE>
<PAGE>
Table 7 Nonperforming Assets And Past Due Loans
<TABLE>
<CAPTION>
Dollars in thousands September 30, December 31,
Nonaccrual loans: 1995 1994 1994
<S> <C> <C> <C>
Commercial $22,540 $26,224 $28,708
Real estate - income property 21,034 23,468 21,872
Real estate - construction 5,963 3,668 7,279
Instalment 4,308 2,787 3,408
Real estate - mortgage 7,090 6,787 8,139
----- ----- -----
Total nonaccrual loans 60,935 62,934 69,406
Restructured loans - - 6,878
----- ------ ------
Total nonperforming loans(1) 60,935 62,934 76,284
Foreclosed properties - net 14,614 23,644 18,629
------ ------ ------
Total nonperforming assets(1) $75,549 $86,578 $94,913
======= ======= =======
Nonperforming assets(1) to:
Loans and foreclosed properties - net .78% 1.00% 1.02%
Total assets .51 .60 .68
Allowance for loan losses to:
Nonperforming assets(1) 296 261 231
Nonperforming loans(1) 367 359 287
Allowance for loan losses plus shareholders'
equity to nonperforming assets(1) 19.62x 15.51x 14.17x
===== ===== =====
Accruing loans past due 90 days:
Commercial $ 1,460 $ 2,204 $ 1,608
Real estate - income property 991 424 1,071
Real estate - construction 306 133 198
Instalment:
Student 8,812 11,092 14,705
Other 2,962 1,160 1,368
Bank card 16,654 8,486 10,831
Real estate - mortgage 10,530 9,014 5,920
------ ----- -----
Total accruing loans past due 90 days: $41,715 $32,513 $35,701
======= ======= =======
</TABLE>
(1) Loans which are both past due 90 days or more and not deemed nonaccrual due
to an assessment of collectibility are specifically excluded from the
definition of nonperforming.
<PAGE>
Table 8 Summary Of Noninterest Income And Expense
<TABLE>
<CAPTION>
In thousands Second Nine Months Ended
Third Quarter Quarter September 30,
Noninterest Income 1995 1994 1995 1995 1994
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 22,833 $ 20,640 $ 21,765 $ 66,189 $ 62,535
Trust and investment advisory 15,581 13,244 15,151 44,270 42,688
Bank card-related 12,101 10,321 11,919 35,078 27,296
Mortgage servicing - net 2,663 3,195 2,722 8,465 9,614
Mortgage origination - net 2,924 1,140 2,151 5,858 7,108
Trading account activities 416 49 657 1,697 444
Commissions on letters of credit 1,167 874 1,059 3,500 3,624
Gain on sale of mortgage servicing rights - 4,800 - 5,900 14,132
Gain on sale and disposal of branches - net 4,655 - - 3,169 -
Gain on pension settlement - - 4,340 4,340 -
Miscellaneous 9,487 9,463 11,378 31,043 26,167
Securities gains (losses) (69) 12 (1,050) (3,529) (1,755)
--- -- ------ ------ ------
Total noninterest income $ 71,758 $ 63,738 $ 70,092 $205,980 $191,853
======== ======== ======== ======== ========
Noninterest Expense
Salaries $ 60,962 $ 62,655 $ 60,876 $183,034 $182,580
Benefits 14,854 14,976 15,432 45,406 45,840
------ ------ ------ ------ ------
Total personnel 75,816 77,631 76,308 228,440 228,420
Occupancy - net 10,586 11,098 10,616 32,162 31,953
Equipment 6,919 6,370 6,904 20,835 18,367
Communications 7,012 6,670 7,074 21,300 18,767
Stationery, printing and supplies 1,691 2,023 1,956 5,753 6,118
Professional fees and services 3,219 2,743 2,522 9,116 8,550
Loan expense 2,087 1,943 1,933 5,863 7,567
FDIC premiums - net 2,024 6,429 6,644 15,037 18,716
Advertising and marketing 3,309 6,199 3,811 11,480 14,680
Transportation 1,455 1,489 1,505 4,451 4,368
Outside data services 4,852 4,670 4,879 14,739 13,859
Amortization of purchased intangibles 3,426 (252) 3,429 9,655 6,186
Miscellaneous 11,228 10,582 10,728 31,121 30,411
------ ------ ------ ------ ------
Subtotal 133,624 137,595 138,309 409,952 407,962
Foreclosed properties 846 858 694 (9) 1,751
--- --- --- -- -----
Total noninterest expense $134,470 $138,453 $139,003 $409,943 $409,713
======== ======== ======== ======== ========
</TABLE>
Table 9 Debt Ratings
(as of October 30, 1995)
<TABLE>
<CAPTION>
Standard Thomson
Security Moody's & Poor's BankWatch
<S> <C> <C> <C>
8 3/4% Subordinated Notes due 2004 Baa1 BBB+ A-
8 1/4% Subordinated Notes due 2002 Baa1 BBB+ A-
8 5/8% Subordinated Notes due 1998 Baa1 BBB+ A-
Commercial Paper P-2 Not rated TBW-1
Crestar Bank Deposit Notes:
Long-Term A2 A Not rated
Short-Term P-1 A-1 TBW-1
</TABLE>
<PAGE>
Table 10 Interest Sensitivity Analysis
September 30, 1995
<TABLE>
<CAPTION>
In millions Maturity/Rate Sensitivity
0-3 3-6 6-12 One to Over
Uses Of Funds months months months five years five years Total
<S> <C> <C> <C> <C> <C> <C>
Loans:
Commercial $ 2,347.8 $ 51.8 $ 69.4 $ 76.7 $ 502.9 $ 3,048.6
Real estate - income property 389.5 6.8 10.3 21.3 352.0 779.9
Real estate - construction 149.5 1.6 .9 1.2 18.0 171.2
Instalment 916.7 102.4 148.4 226.3 683.3 2,077.1
Bank card 231.2 135.0 748.5 364.1 97.5 1,576.3
Real estate - mortgage 16.1 319.7 294.1 579.3 807.2 2,016.4
Securities held to maturity 32.6 57.3 74.8 115.9 545.6 826.2
Securities available for sale 330.3 125.6 146.2 147.0 1,058.6 1,807.7
Money market investments 613.1 5.0 .1 - - 618.2
Mortgage loans held for sale 446.8 - - - - 446.8
------- ----- ------- ------- ------- --------
Total earning assets 5,473.6 805.2 1,492.7 1,531.8 4,065.1 13,368.4
Interest sensitivity hedges on assets (350.0) (449.6) 195.4 160.6 443.6 -
Total uses $ 5,123.6 $ 355.6 $ 1,688.1 $1,692.4 $4,508.7 $13,368.4
========= ======= ======= ======= ======== =========
Sources of Funds
Interest checking deposits $ 1,800.3 $ - $ - $ - $ - $ 1,800.3
Money market deposit accounts 2,486.4 - - - - 2,486.4
Regular savings deposits 1,209.0 - - - - 1,209.0
Domestic time deposits 297.9 318.3 682.1 868.3 960.3 3,126.9
Certificates of deposit $100,000
and over 26.1 14.5 12.3 4.7 5.4 63.0
Short-term borrowings 1,873.1 - - - - 1,873.1
Long-term debt - .2 3.7 17.2 359.1 380.2
------- ----- ------- ------- ------- --------
Total interest-bearing liabilities 7,692.8 333.0 698.1 890.2 1,324.8 10,938.9
Other sources - net - - - - 2,429.5 2,429.5
Interest sensitivity hedges on liabilities - (15.0) - - 15.0 -
------- ----- ------- ------- ------- --------
Total sources $ 7,692.8 $ 318.0 $ 698.1 $ 890.2 $3,769.3 $13,368.4
========= ======= ======= ======= ======== =========
Cumulative maturity/rate
sensitivity gap $(2,569.2) $(2,531.6) $(1,541.6) $ (739.4) $ - $ -
========= ======= ======= ======= ======== =========
Adjustments
Beta adjustments:
Interest checking (beta factor .18) $ 1,476.2
Money market accounts
(beta factor .55) 1,118.9
Regular savings (beta factor .12) 1,063.9
Demand deposit sensitivity (822.2)
------- ----- ------- ------- ------- --------
Cumulative adjusted maturity/rate
sensitivity gap $ 267.6 $ 305.2 $ 1,295.2 $2,097.4 $ - $ -
========= ======= ======= ======= ======== =========
</TABLE>
<PAGE>
Table 11 Off-Balance Sheet Derivative Financial Instruments(1)
<TABLE>
<CAPTION>
September 30, 1995 Weighted Average
Average Fixed Estimated
Dollars in thousands Notional Expected Receive Fair
Balance Maturity Rate Value Comments
<S> <C> <C> <C> <C> <C>
Interest Rate Conversions
Generic interest rate swaps $ 550,000 3.0 yrs. 5.98% Notional amounts of
Carrying amount(2) $ (91) $350 million and $200
Unrealized gross gains 275 million, respectively, con-
Unrealized gross losses (3,118) vert floating rate com-
----- mercial and real estate
Estimated fair value (2,934) income property loans
to fixed rate. Floating
rate paid tied to LIBOR.
Amortizing interest rate swaps 593,666 .6 yrs. 5.12% Convert floating rate
Carrying amount(2) (1,084) commercial loans to
Unrealized gross gains 48 fixed rate. Floating rate
Unrealized gross losses (5,194) paid tied to LIBOR.
------ Notional amounts may
Estimated fair value (6,230) amortize more slowly
------ as rates rise.
Interest rate caps 245,000 1.6 yrs. 7.49%(3) Minimize interest rate
Carrying amount(2) 1,951 risk associated with
Unrealized gross gains 298 rising rates on floating
Unrealized gross losses (1,262) rate money market
Estimated fair value ----- deposits. Tied to LIBOR.
987
Interest rate floors 250,000 2.5 yrs. 6.80%(4) Minimize interest rate
Carrying amount(2) 2,871 risk associated with
Unrealized gross gains 4,024 falling rates on floating
Unrealized gross losses - rate commercial loans.
----- Tied to LIBOR.
Estimated fair value 6,895
-----
Hedges of Lending Commitments
Forward contracts 564,014 .1 yrs. n/a Hedges of residential
Unrealized gross gains 1,030 mortgage lending
Unrealized gross losses (1,361) commitments.
------
Estimated fair value (331)
------
Total hedges against
interest rate risk $2,202,680 $(1,613)
</TABLE>
(1) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
(2) Includes any accrued interest receivable or payable balances, and
unamortized premiums paid for interest rate caps and floors.
(3) Represents average strike rate. For interest rate caps purchased, Crestar
will receive interest if a specified market index rate rises above a fixed
strike rate during the term of the contract. Any interest received is based
on the difference between a higher index interest rate and the contractual
cap rate, applied to the underlying notional balance. No interest payments
are received if the index rate remains below the cap rate.
(4) Represents average strike rate. For interest rate floors purchased, Crestar
will receive interest if a specified market index rate falls below a fixed
strike rate during the term of the contract. Any interest received is based
on the difference between a lower index interest rate and the contractual
floor rate, applied to the underlying notional balance. No interest
payments are received if the index rate remains above the floor rate.
n/a - Not applicable
LIBOR - London Interbank Offered Rates
<PAGE>
Table 12 Off-Balance Sheet Derivatives--Expected Maturities(1)
<TABLE>
<CAPTION>
September 30, 1995
Dollars in thousands Within One to Three to
One Year Three Years Five Years Total
<S> <C> <C> <C> <C>
Interest Rate Conversions
Generic interest rate swaps:
Notional amount $ 100,000 $100,000 $350,000 $ 550,000
Average fixed receive rate 6.32% 5.67% 5.97% 5.98%
Estimated fair value $ 171 $ (1,174) $ (1,931) $ (2,934)
Amortizing interest rate swaps:(3)
Notional amount $ 591,156 $ 2,510 $ - $ 593,666
Average fixed receive rate 5.10% 8.40% - 5.12%
Estimated fair value $ (6,287) $ 57 $ - $ (6,230)
Interest rate caps
Notional amount $ 5,000 $235,000 $ 5,000 $ 245,000
Average strike rate 5.00% 7.57% 6.00% 7.49%
Estimated fair value $ 13 $ 587 $ 387 $ 987
Interest rate floors
Notional amount $ - $250,000 $ - $ 250,000
Average strike rate - 6.80% - 6.80%
Estimated fair value $ - $ 6,895 $ - $ 6,895
Hedges of Lending Commitments
Forward contracts:(2)
Notional amount $ 564,014 $ - $ - $ 564,014
Estimated fair value (331) - - (331)
Total hedges against
interest rate risk:
Notional amount $1,260,170 $587,510 $355,000 $2,202,680
Estimated fair value (6,434) 6,365 (1,544) (1,613)
</TABLE>
(1) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
(2) Hedges of residential mortgage lending commitments.
(3) Based on expected weighted average life.
Table 13 Off-Balance Sheet Derivatives Activity(1)
<TABLE>
<CAPTION>
In thousands Asset Rate Conversions Liability Rate
Interest Rate Swaps Conversions Hedges of
Generic Amortizing Interest Interest Lending
Receive Receive Rate Rate Commit-
Fixed Fixed Floors Caps ments(2) Total
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1995 $ 300,000 $ 753,270 $ 250,000 $ 245,000 $ 520,418 $ 2,068,688
Additions 250,000 -- -- -- 588,730 838,730
Termination -- (100,000) -- -- -- (100,000)
Maturities/Amortizations -- (59,604) -- -- (545,134) (604,738)
------- -------- --------
Balance, September 30, 1995 $ 550,000 $ 593,666 $ 250,000 $ 245,000 $ 564,014 $ 2,202,680
=========== =========== =========== =========== =========== ===========
Balance, January 1, 1995 $ 600,000 $ 860,166 $ 200,000 $ -- $ 266,439 $ 1,926,605
Additions from acquisitions -- -- -- 45,000 -- 45,000
Other additions 250,000 -- 250,000 200,000 1,509,003 2,209,003
Terminations -- (196,400) -- -- -- (196,400)
Maturities/Amortizations (300,000) (70,100) (200,000) -- (1,211,428) (1,781,528)
-----------
Balance, September 30, 1995 $ 550,000 $ 593,666 $ 250,000 $ 245,000 $ 564,014 $ 2,202,680
</TABLE>
(1) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
(2) Forward contracts hedging residential mortgage lending commitments;
maturities represent contracts delivered.
<PAGE>
Table 14 Selected Quarterly Financial Information
<TABLE>
<CAPTION>
Dollars in thousands, except per share data 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
Results of operations: 1995 1995 1995 1994 1994
<S> <C> <C> <C> <C> <C>
Net interest income(1) $154,682 $155,821 $154,460 $149,689 $152,020
Provision for loan losses 14,000 13,500 10,100 2,700 8,100
------ ------ ------ ----- -----
Net credit income 140,682 142,321 144,360 146,989 143,920
Securities gains (losses) (69) (1,050) (2,410) (9,021) 12
Other noninterest income 71,827 71,142 66,540 65,037 63,726
------ ------ ------ ------ ------
Net credit and noninterest income 212,440 212,413 208,490 203,005 207,658
Noninterest expense 134,470 139,003 136,470 135,594 138,453
------- ------- ------- ------- -------
Income before taxes 77,970 73,410 72,020 67,411 69,205
------ ------ ------ ------ ------
Tax-equivalent adjustment 3,198 2,719 2,776 2,746 2,742
Book tax expense 26,366 23,307 23,653 22,280 22,859
------ ------ ------ ------ ------
Income tax expense 29,564 26,026 26,429 25,026 25,601
------ ------ ------ ------ ------
Net Income $ 48,406 $ 47,384 $ 45,591 $ 42,385 $ 43,604
======== ======== ======== ======== ========
Per common share:
Net income $ 1.27 $ 1.24 $ 1.20 $ 1.13 $ 1.15
Dividends declared .45 .45 .40 .40 .40
Average shares outstanding (000s) 38,053 38,173 38,097 37,637 38,063
====== ====== ====== ====== ======
Selected ratios and other data:
Return on average assets 1.38% 1.35% 1.32% 1.24% 1.26%
Return on average equity 15.66 15.69 15.60 15.22 15.70
Net interest margin(1) 4.89 4.93 4.92 4.81 4.82
Net charge-offs as % of average loans .56 .54 .52 .42 .42
Allowance as % of period-end loans 2.31 2.28 2.28 2.36 2.61
Overhead ratio 59.38 61.53 62.43 65.92 64.17
Average equity to average assets 8.80 8.61 8.44 8.14 8.02
Equity leverage 11.37x 11.61x 11.84x 12.29x 12.47x
Full-time equivalent employees (period end) 6,325 6,434 6,623 6,747 6,817
</TABLE>
(1) Tax-equivalent basis.
<PAGE>
Table 15 Consolidated Average Balances/Net Interest Income/Rates1
<TABLE>
<CAPTION>
Three Months Ended September 30,
1995 1994
Dollars in thousands Income/ Yield/ Income/ Yield/
Balance Expense Rate Balance Expense Rate
Assets $ $ % $ $ %
<S> <C> <C> <C> <C> <C> <C>
Securities held to maturity(2) 819,922 13,842 6.75 961,378 13,609 5.66
Securities available for sale(2) 1,562,548 26,043 6.56 1,949,879 31,352 6.38
Money market investments(2) 234,606 3,507 5.93 780,606 9,058 4.60
Mortgage loans held for sale(2) 411,719 7,539 7.39 268,309 5,197 7.75
------- ----- ---- ------- ----- ----
Commercial 2,888,705 59,693 8.24 2,840,046 57,493 7.95
Real estate - income property 786,408 17,084 8.60 776,197 16,353 8.33
Real estate - construction 173,824 4,290 9.77 225,788 4,907 8.61
Instalment 2,036,619 48,179 9.35 1,730,946 37,145 8.55
Bank card 1,590,871 44,811 11.29 1,179,880 35,034 11.81
Real estate - mortgage 2,070,274 39,845 7.68 1,769,755 32,074 7.21
--------- ------ ---- --------- ------ ----
Total loans - net of unearned(2,3) 9,546,701 213,902 8.92 8,522,612 183,006 8.51
Allowance for loan losses (224,666) (228,985)
--------- ------ ---- --------- ------ ----
Loans - net 9,322,035 8,293,627
Cash and due from banks 766,013 708,356
Premises and equipment - net 333,641 323,292
Customers' liability on acceptances 8,566 5,132
Intangible assets - net 158,293 114,203
Foreclosed properties - net 14,499 22,311
Other assets 417,186 427,587
--------- ------ ---- --------- ------ ----
Total Assets 14,049,028 13,854,680
--------- ------ ---- --------- ------ ----
Total Earning Assets 12,575,496 264,833 8.38 12,482,784 242,222 7.69
Liabilities And Shareholders' Equity
Interest checking deposits 1,817,501 9,968 2.18 1,876,726 10,544 2.23
Money market deposit accounts 2,513,028 24,549 3.88 2,410,600 17,966 2.96
Regular savings deposits 1,242,381 8,404 2.68 1,486,232 10,177 2.72
Domestic time deposits 3,160,571 40,925 5.17 3,204,215 33,101 4.13
Certificates of deposit $100,000 and over 66,433 925 5.52 64,637 733 4.55
--------- ------ ---- --------- ------ ----
Total savings and time deposits(2) 8,799,914 84,771 3.83 9,042,410 72,521 3.19
Demand deposits 2,150,972 2,082,957
--------- ------ ---- --------- ------ ----
Total deposits 10,950,886 11,125,367
Short-term borrowings(2) 1,251,367 17,339 5.49 1,187,544 13,197 4.39
Long-term debt(2) 379,155 8,041 8.48 220,584 4,484 8.13
Liability on acceptances 8,566 5,132
Other liabilities 223,010 204,941
--------- ------ ---- --------- ------ ----
Total liabilities 12,812,984 12,743,568
--------- ------ ---- --------- ------ ----
Total shareholders' equity 1,236,044 1,111,112
Total Liabilities And Shareholders' Equity 14,049,028 13,854,680
Total interest-bearing liabilities 10,430,436 110,151 4.20 10,450,538 90,202 3.43
Other sources - net 2,145,060 2,032,246
--------- ------ ---- --------- ------ ----
Total Sources of Funds 12,575,496 110,151 3.49 12,482,784 90,202 2.87
Net Interest Spread 4.18 4.26
Net Interest Income/Margin 154,682 4.89 152,020 4.82
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended September 30,
1995 1995
Dollars in thousands Income/ Yield/ Income/ Yield/
Balance Expense Rate Balance Expense Rate
Assets $ $ % $ $ %
<S> <C> <C> <C> <C> <C> <C>
Securities held to maturity(2) 852,398 14,036 6.59 852,998 42,683 6.67
Securities available for sale(2) 1,411,687 22,942 6.52 1,475,033 72,592 6.57
Money market investments(2) 289,402 4,363 6.05 326,379 14,414 5.90
Mortgage loans held for sale(2) 254,491 5,127 8.06 286,659 16,476 7.67
--------- ------ ---- --------- ------- ----
Commercial 3,017,662 63,828 8.47 2,968,104 185,349 8.34
Real estate - income property 802,250 17,132 8.55 784,330 50,510 8.60
Real estate - construction 182,905 4,420 9.67 181,273 13,207 9.73
Instalment 1,967,956 46,104 9.27 1,965,772 137,034 9.27
Bank card 1,573,073 45,169 11.36 1,552,637 133,057 11.40
Real estate - mortgage 2,174,101 41,303 7.60 2,119,047 120,974 7.61
--------- ------ ---- --------- ------- ----
Total loans - net of unearned(2,3) 9,717,947 217,956 8.94 9,571,163 640,131 8.91
Allowance for loan losses (223,544) (223,694)
--------- ------ ---- --------- ------- ----
Loans - net 9,494,403 9,347,469
Cash and due from banks 764,796 756,692
Premises and equipment - net 333,987 331,066
Customers' liability on acceptances 12,555 10,093
Intangible assets - net 162,874 150,541
Foreclosed properties - net 17,274 17,820
Other assets 430,914 419,052
--------- ------ ---- --------- ------- ----
Total Assets 14,024,781 13,973,802
=========== ====== ===== ========== ======= ====
Total Earning Assets 12,525,925 264,424 8.42 12,512,232 786,296 8.38
=========== ====== ===== ========== ======= ====
Liabilities And Shareholders' Equity
Interest checking deposits 1,868,312 10,489 2.25 1,853,365 30,910 2.23
Money market deposit accounts 2,482,634 24,183 3.91 2,476,373 71,342 3.85
Regular savings deposits 1,310,929 9,165 2.80 1,307,059 27,031 2.76
Domestic time deposits 3,187,239 39,019 4.95 3,130,625 113,322 4.85
Certificates of deposit $100,000 and over 71,068 954 5.38 68,676 2,736 5.33
--------- ------ ---- --------- ------- ----
Total savings and time deposits(2) 8,920,182 83,810 3.78 8,836,098 245,341 3.72
Demand deposits 2,127,089 2,111,761
--------- ------ ---- --------- ------- ----
Total deposits 11,047,271 10,947,859
Short-term borrowings(2) 1,156,162 16,620 5.75 1,222,911 51,917 5.67
Long-term debt(2) 384,971 8,173 8.49 377,460 24,075 8.50
Liability on acceptances 12,555 10,093
Other liabilities 215,704 210,874
--------- ------ ---- --------- ------- ----
Total liabilities 12,816,663 12,769,197
--------- ------ ---- --------- ------- ----
Total shareholders' equity 1,208,118 1,204,605
--------- ------ ---- --------- ------- ----
Total Liabilities And Shareholders' Equity 14,024,781 13,973,802
=========== ====== ===== ========== ======= ====
Total interest-bearing liabilities 10,461,315 108,603 4.17 10,436,469 321,333 4.12
Other sources - net 2,064,610 2,075,763
--------- ------ ---- --------- ------- ----
Total Sources of Funds 12,525,925 108,603 3.49 12,512,232 321,333 3.44
=========== ====== ===== ========== ======= ====
Net Interest Spread 4.25 4.26
Net Interest Income/Margin 155,821 4.93 464,963 4.94
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1994
Dollars in thousands Income/ Yield/
Balance Expense Rate
Assets $ $ %
<S> <C> <C> <C>
Securities held to maturity(2) 815,964 41,578 6.78
Securities available for sale(2) 2,338,997 102,470 5.86
Money market investments(2) 644,374 19,890 4.13
Mortgage loans held for sale(2) 347,530 18,074 6.93
--------- ------- ----
Commercial 2,775,169 162,556 7.81
Real estate - income property 787,761 47,841 8.10
Real estate - construction 224,055 13,311 7.94
Instalment 1,686,001 105,272 8.34
Bank card 1,074,677 98,150 12.14
Real estate - mortgage 1,567,938 83,921 7.13
--------- ------- ----
Total loans - net of unearned(2,3) 8,115,601 511,051 8.39
Allowance for loan losses (226,123)
--------- ------- ----
Loans - net 7,889,478
Cash and due from banks 713,490
Premises and equipment - net 317,034
Customers' liability on acceptances 9,509
Intangible assets - net 106,474
Foreclosed properties - net 23,189
Other assets 405,446
--------- ------- ----
Total Assets 13,611,485
Total Earning Assets 12,262,466 693,063 7.54
Liabilities And Shareholders' Equity
Interest checking deposits 1,862,880 30,690 2.20
Money market deposit accounts 2,374,481 47,337 2.67
Regular savings deposits 1,416,851 27,891 2.63
Domestic time deposits 3,119,026 95,711 4.11
Certificates of deposit $100,000 and over 55,262 1,791 4.34
--------- ------- ----
Total savings and time deposits(2) 8,828,500 203,420 3.08
Demand deposits 2,058,101
--------- ------- ----
Total deposits 10,886,601
Short-term borrowings(2) 1,206,399 33,190 3.68
Long-term debt(2) 214,751 13,399 8.32
Liability on acceptances 9,509
Other liabilities 200,160
--------- ------- ----
Total liabilities 12,517,420
--------- ------- ----
Total shareholders' equity 1,094,065
--------- ------- ----
Total Liabilities And Shareholders' Equity 13,611,485
Total interest-bearing liabilities 10,249,650 250,009 3.26
Other sources - net 2,012,816
--------- ------- ----
Total Sources of Funds 12,262,466 250,009 2.73
Net Interest Spread 4.28
Net Interest Income/Margin 443,054 4.81
</TABLE>
(1) Income and yields are computed on a tax-equivalent basis using the
statutory federal income tax rate exclusive of the alternative minimum tax
and nondeductible interest expense.
(2) Indicates earning asset or interest-bearing liability.
(3) Nonaccrual loans are included in the average loan balances and income on
such loans is recognized on a cash basis.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Crestar Financial Corporation
-----------------------------
Registrant
Date November 14, 1995
/s/ JAMES D. BARR
-----------------------------
James D. Barr
Executive Vice President,
Controller and Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-END> SEP-30-1995 SEP-30-1994
<CASH> 706,673 690,992
<INT-BEARING-DEPOSITS> 8,685,617 8,869,967
<FED-FUNDS-SOLD> 602,800 1,324,580
<TRADING-ASSETS> 7,139 257
<INVESTMENTS-HELD-FOR-SALE> 1,807,656 1,866,204
<INVESTMENTS-CARRYING> 826,212 944,626
<INVESTMENTS-MARKET> 823,334 915,801
<LOANS> 9,669,507 8,647,871
<ALLOWANCE> 223,430 225,890
<TOTAL-ASSETS> 14,762,143 14,450,357
<DEPOSITS> 10,871,466 10,986,121
<SHORT-TERM> 1,873,127 1,905,049
<LIABILITIES-OTHER> 378,690 223,864
<LONG-TERM> 380,237 218,564
<COMMON> 188,546 187,989
0 0
0 0
<OTHER-SE> 1,070,127 928,770
<TOTAL-LIABILITIES-AND-EQUITY> 14,762,193 14,450,357
<INTEREST-LOAN> 633,792 504,830
<INTEREST-INVEST> 112,938 142,124
<INTEREST-OTHER> 30,873 37,928
<INTEREST-TOTAL> 777,603 684,882
<INTEREST-DEPOSIT> 245,341 203,420
<INTEREST-EXPENSE> 321,333 250,009
<INTEREST-INCOME-NET> 456,270 434,873
<LOAN-LOSSES> 37,600 26,982
<SECURITIES-GAINS> (3,529) (1,755)
<EXPENSE-OTHER> 409,943 409,713
<INCOME-PRETAX> 214,707 190,031
<INCOME-PRE-EXTRAORDINARY> 141,381 126,694
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 141,381 126,694
<EPS-PRIMARY> 3.71 3.34
<EPS-DILUTED> 3.70 3.34
<YIELD-ACTUAL> 4.94 4.81
<LOANS-NON> 60,935 62,934
<LOANS-PAST> 41,715 32,513
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 184,000 144,000
<ALLOWANCE-OPEN> 219,189 210,958
<CHARGE-OFFS> 59,595 49,127
<RECOVERIES> 20,880 21,390
<ALLOWANCE-CLOSE> 223,430 225,890
<ALLOWANCE-DOMESTIC> 0 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
